The Interaction of Economists and Money Cranks in the Depression Years

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Yesterday I ran a post that briefly delved into the connection between Keynes and the money cranks of the 1920s and 1930s. There I showed that Keynes’ ideas cannot be said to have been influenced in any substantial way by the money cranks. Rather they were an outgrowth of a modifying of his earlier views, put forward in his Treatise on Money and taken from the Swedish economist Knut Wicksell.

In what follows I will draw upon an article by Robert Dimand entitled Cranks, Heretics and Macroeconomics in the 1930s. Dimand’s narrative is centered on a periodical that was started in the US in 1932 entitled Economic Forum. The goal of Economic Forum was to bring together open-minded economists and people who would otherwise be considered money cranks. Keynes was, of course, a contributor, as were the money cranks C.H. Douglas and Frederick Soddy.

It should be noted that back in England the money cranks were already getting a hearing. R.G. Hawtrey, who was then at the British Treasury, publicly debated Douglas and Lionel Robbins — hardly a progressive economic thinker — saw Douglas’ ideas as having enough validity that he devoted a major portion of his British Association address to analyse them.

Clearly the ideas of the money cranks were in the ether at the time, in both the US and in England. This is not surprising because the unemployment situation had become so bad and economists were having a desperately hard time explaining it. So, those who were attempting to explain it were met with attention by the economists — even if the latter often approached the ideas of the former with the intent of discrediting them.

All of this is important to understand because it allows us to see that Keynes was not the only one engaging with the money cranks in this era. Many economists were — including many economists who would be very unsympathetic to easy money policies and fiscal expansion. During the Depression, the money cranks became regulars on the economic circuit.

Those involved with the Economic Forum also launched clever schemes to bring mainstream economists into the fold and engage with money crank theories directly. William Trufant Foster, for example, offered a $5,000 prize to the economist who could best refute his crank book on money and profits which advocated massive public spending. Fifty professional economists responded with entries and Foster’s ideas would go on to have a major influence on the Roosevelt-appointed Federal Reserve president Marinner Eccles.

Many of the theories of the money cranks were flimsy at best, however, and some had markedly negative tendencies. C.H. Douglas’ theories of social credit were influenced by Medieval Scholastic ideas about a ‘Just Price’ and manifested a tendency to blame most of the world’s economic ills on ‘usury’. In the hands of their most famous proponent — the American fascist poet Ezra Pound — they were easily combined with virulent antisemitism and Nazi idealism.

Those like Pound — who was later diagnosed as having a narcissistic, megalomaniacal personality by psychiatrists after his mental breakdown which was precipitated by his incarceration for treason after the war — who supported the theories did not respond well to rational criticism. F.S. Flint, for example, pointed out that there were many technical flaws in the argument — most notably the theory’s inability to recognise that interest paid is also interest income received — and Pound flew into an irrational rage saying that Flint had no right to comment on matters of algebra which were far above him (i.e. Flint). Flint was, of course, a mathematician employed as a statistician by the Ministry of Labour, while Pound was a mentally unstable poet who lived a life of wandering in search of fascist ideals.

Pound became something of a propagandist for the money cranks in this era. He gave lectures in Italian under invitation by Angelo Sraffa — Pierro Sraffa’s father! Pound’s writings contain bitter vitriol against Keynes; vitriol that comes across as highly personalised and reflective of Pound’s mental instability. But one gets the distinct impression that Pound was threatened by Keynes’ embrace of reasonably similar policies at the time — the narcissism of small differences and all that.

Pound’s presence in the debates shows up two strong traits of money cranks: namely, that when errors in their theories are pointed out they ignore them and get angry with the person making them and also that they have a strong emotional attachment to the theories that borders on zealousness. This is markedly different from the discourse of real economics wherein when people disagree with each other it is generally not over the acceptance or dismissal of logical errors but over the interpretation of various aspects of theory.

For example, New Classical macroeconomists will not argue that fiscal stimulus does not lead to increased GDP by accounting identity but instead will furnish a behavioral theory that negates any impact this might have (i.e. Ricardian equivalence). This gives economic discussion a level of academic rigour that the discussions of the money cranks lack entirely. In the land of the money crank once the theory is accepted as True it cannot be revised in light of evidence, whether logical or empirical, to the contrary.

Other cranks tended to get angry because they saw professional economists as poaching their ideas. Soddy was enraged that Irving Fisher’s proposal for 100% reserve banking was identical in many respects to the one he had put forward ten years earlier. Of course, Fisher never made claims to originality and listed Soddy’s work in the bibliography along with other similar historical work — such as a proposal from 1823! Many of the money crank ideas that were embraced by economists during the Depression had been around since the time when economics as a discipline started.

The Economic Forum also carried a wide range of other authors. Many of these were prominent people working within Treasury departments in major Western powers who had schemes of their own to get the economy moving again. It also carried some work by market socialists who claimed that marginalist equilibrium economics was to be the true functional economics of advanced socialism (an historical point of interest often forgotten in contemporary left-wing critiques of marginalist economics!). By the mid-1930s, however, the periodical had been hijacked by mainstream thinkers from banks who advocated austerity together with newly emerging public relations men like Sigmund Freud’s nephew Edward Bernays.

Funnily enough, the question as to what constituted an economist at this moment in history was slippery at best. Dimand notes that Keynes had a degree in mathematics, Kahn in mathematics and physics and Harrod in the classics. It was not until after WWII, with the emergence of the neoclassical-synthesis, that economics began to become a truly formalised discipline.

But it is also clear that the likes of Keynes and Kahn were seen in the eyes of their peers as actual economists while people like Soddy (a Nobel Prize winner in chemistry) and Douglas (an army engineer) were seen as cranks. Again, I think that this has to do with the manner in which the two groups debated and discussed issues — as well as how they responded to actual logical errors in their doctrines.

 

 

About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
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90 Responses to The Interaction of Economists and Money Cranks in the Depression Years

  1. In the hands of their most famous proponent — the American fascist poet Ezra Pound — they were easily combined with virulent antisemitism and Nazi idealism

    I think describing it as virulent is a stretch. It was rather mild.

    Those like Pound — who was later diagnosed as having a narcissistic, megalomaniacal personality by psychiatrists after his mental breakdown which was precipitated by his incarceration for treason after the war — who supported the theories did not respond well to rational criticism. F.S. Flint, for example, pointed out that there were many technical flaws in the argument — most notably the theory’s inability to recognise that interest paid is also interest income received — and Pound flew into an irrational rage saying that Flint had no right to comment on matters of algebra which were far above him (i.e. Flint). Flint was, of course, a mathematician employed as a statistician by the Ministry of Labour, while Pound was a mentally unstable poet who lived a life of wandering in search of fascist ideals.

    I’ve never heard this anecdote. It’s funny. I think Pound probably couldn’t respond because he wasn’t an economist. One can have very clear ideas about usury and not understand how it fits into economics proper. Especially in the time period. I’m no economist (I have started reading. Steve Keen is getting me into the subject. I might even try to major in it but I’m a working adult with kids so we’ll see) but wasn’t this a time when the discipline was sort of taking off? Now there are easily accessible textbooks and a settled field.

    I don’t think the question of interest is that simple. If someone is controlling the money supply and makes a loan (in a two person economy) to me from money he creates, and supplies the loan at interest isn’t it impossible to pay him bakc without borrowing more? At interest? That seems pretty simple. Am I missing something?

    Also, the issue is really just justice for those of us concerned with the issue of lending at interest (usury). We just don’t think it is right. It’s a moral issue.

    • Mild? I quote:

      – You let in the Jew and the Jew rotted your empire, and you yourselves out-jewed the Jew … And the big Jew has rotted EVERY nation he has wormed into.

      Pound couldn’t respond because he was a crank and a moron.

      In your example, the lender gets interest income. He can then spend this to buy services from you and you use it to pay him back ad infinitum.

    • JakeS says:

      If someone is controlling the money supply and makes a loan (in a two person economy) to me from money he creates, and supplies the loan at interest isn’t it impossible to pay him bakc without borrowing more?

      Only if he refrains from using seigniorage to lay claim to resources. But using seigniorage to lay claim to resources (instead of taxing in kind) is the whole point of running a monetary system.

      I think your confusion is caused by starting in medias res, as it were. The economy does not start with a monetary system. The economy starts with a web of power relationships, which give rise to tribute relationships, on which trade and organized manufacture piggybacks.

      If you want to understand an economic system, always look for the man with the gun. Once you have identified the man with the gun, figure out how the man with the gun gets other people to give him free stuff. Under feudalism the man with the gun gets free stuff because his serfs have to provide corvee labor. Under classical Imperialism the man with the gun gets free stuff because the colonies have a raw materials quota to fill. Under capitalism the man with the gun gets free stuff because he pays for it with his own IOUs, which he then takes back by virtue of being the man with the gun.

      Whether the man with the gun is a banker lending at interest or a state collecting taxes does not really matter to the operation of the monetary system, except insofar as bankers and government bureaucrats have different stakeholders to satisfy.

      – Jake

  2. Ummm…. A moron? That is ridiculous and somebody as smart as you knows that.

    Yes mild. It isn’t worth arguing over though.

    Where does the borrower get the interest to give to the lender?

    • Borrower borrows $100 at 5% interest a day. Spends it in a shop. Shopkeeper buys borrowers services (labour) for $10 a day. Borrower pays lender $6 a day, spends $4 a day on food with shopkeeper. Lender spends $6 a day in the shop on food.

      Simple model. But illustrative. You can make it more complex if you like.

  3. He was certainly a crank by your definition from the previous post.

  4. Well we’ve already exceeded the two-person economy restraint but I’ll have to think about it. The shopkeeper borrowed money to open the shop. Do the two borrowers have to borrow again? Is the debt ever repaid?

    And the bigger question for me is if the interest charge is even moral which I also think was the big question for the Scholastics and Pound.

    • You could do it with two people. Make the lender and the shopkeeper the same person if you want.

      Debt gets repaid in 100 days. Borrowers can borrow again and restart the cycle. The key point is that the system is stable.

  5. Ok. So the shopkeeper creates 100 dollars and injects it into our economy. That’s all the money in the economy right now.

    We’ll say the borrower was a farmer and had a bad year and needed some whiskey and food to make it until the harvest…

    Where does the actual currency to pay the interest come from? It has to be created no? At interest right?

    The key point is that the system is stable

    Right.

    • Uh… it gets complicated very quickly. The example can grow and grow and there are always unanswered questions. They key point is that you can set up a stable circuit. So the idea that debts cannot be repaid due to interest is logically wrong.

    • NeilW says:

      The key point is that debt is in currency units ($) and interest is charged in a different units ($/month). One is a stock and one is a flow.

      You can’t mix them up – they are as different as miles and miles per hour.

      • Daniel Antinora says:

        At Work. My Phone Has An annoying Auto-Capitalization Glitch.

        I’ll Get Back To this.

        Even Assuming There Is A Distinction Between The Two Things Where Does The Currency Come From To Pay The Interest That Will Materialize Over The Life Of The Loan?

        Are We Going To Say That The Farmer Demands The Full Amount Of His Debt Come Harvest Should The Shopkeeper Get Hungry? So The Shopkeeper Gets To Create Money Again And Give It To Himself Interest Free?

      • JakeS says:

        Even Assuming There Is A Distinction Between The Two Things Where Does The Currency Come From To Pay The Interest That Will Materialize Over The Life Of The Loan?

        From the money the lender spends to get stuff from the borrower without giving the borrower any stuff in return.

        Assume a two-person economy: Robinson Crusoe and Friday.

        Crusoe has the gun, so he gets to play the lender. Friday has no gun, so he gets to play the borrower.

        Friday borrows $ 100 to buy a cave from Crusoe, so he has somewhere to sleep when it rains (Crusoe started by owning the whole island because, again, Crusoe is the man with the gun).

        The terms of the loan state that Friday must pay 1 % per day in interest. Crusoe states that he is willing to pay $ 1 for each coconut Friday sells him.

        Friday is able to gather 2.1 coconuts per day on average, but he also needs to eat one coconut per day to stay alive, and an average of 0.1 coconut per day spoils due to being stored for too long.

        So Friday will be perpetually treading water, just being able to pay interest but never getting out of debt, and Crusoe will get one coconut per day forever, without having to do any work for it.

        Now, since there are only two people in this example, Crusoe could just institute a command economy where he demands one coconut per day from Friday (because Crusoe is the man with the gun), and provides Friday with shelter and the privilege of continued breathing.

        Or Crusoe could declare Friday his slave, and set Friday to the task of gathering coconuts, which Crusoe would then own in full. But he would still need to provide Friday with food and shelter, because otherwise Friday would not be able to work.

        Or Crusoe could charge $ 1 in day rent for the cave instead of selling it on margin.

        Or Crusoe could charge 1 coconut in day rent.

        In the two-person toy model, these are all equivalent. But once you have more than two people, you start getting more complex institutional structures and power relationships, and then the precise method by which the man with the gun gets his coconut starts to matter. All the above methods have been used at some point or another in history, with societies going back and forth between them as politics, culture, technology and traditions evolved over time.

        – Jake

      • NeilW says:

        Interest is just the bankers share of the profit margin. It comes from the same place as profit (the ‘turn’) and is, in the correct configuration, the payment to the banker for enabling the production to come about (primarily by assessing that this project was worth creating money for, over the many others that are a waste of time).

        Enabling things that will work to happen is a vital skill that deserves reward because without it nothing happens.

        To many of the analogy stories start with the assumption that people cause things to happen automatically as an innate nature (some sort of other belief in the ‘natural order’ as far as I can see). I can assure you that doesn’t happen in the real world. Stuff has to be organised by people with organisational skills.

  6. The key point is that the system is stable

    And just (for some of us)

  7. socred says:

    “C.H. Douglas’ theories of social credit were influenced by Medieval Scholastic ideas about a ‘Just Price’ and manifested a tendency to blame most of the world’s economic ills on ‘usury’. ”

    While Douglas’s theories were slightly influenced by ideas about the “Just Price”, Douglas did not blame most of the world’s ills on usury. This is a classic case of a “strawman” argument, which I assume is based upon Gary North’s ridiculous work which used the same type of argument.

    Douglas wrote,

    “The rapturous iconoclasm of certain groups of monetary reformers’, to whom Usury”, the sparring-partner of the bankers “inflation” is the Scarlet Woman of Babylon, has had the inevitable effect of encouraging the financial authorities to abolish, for practical purposes, the interest paid on undrawn current balances, and deposit accounts. We do not say they would not have done it anyway – the one thoroughly sound feature of the banking system was its dividends to shareholders and its interest payments to depositors which I jointly with the insignificant mint issues, provided almost the only fresh unattached purchasing-power. It is obviously lost time to beg of our amateur currency experts to consider whether they really mean what they ask, which is, the replacement of unattached purchasing-power by loans. But they must not complain if we, and others with us, regard them as propagandists for totalitarianism. ”
    The Social Creditor, Oct. 27, 1945.

    Douglas’s ideas on “monetary reform” were based upon his A+B theorem which demonstrates that prices increase faster than incomes. The theorem is reproduced below:

    “In any manufacturing undertaking the payments made may be divided into two groups:

    Group A: Payments made to individuals as wages, salaries, and dividends;

    Group B: Payments made to other organizations for raw materials, bank charges and other external costs.

    The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

    In terms of Douglas’ ideas relating to Medevial Scholars with respect to the “Just Price”, what Douglas demonstrated was that the real cost of production is consumption over an equivalent period of time. Since consumption is always less than potential producton in an industrialized society, prices can be reduced by multiplying the financial price by the ratio of consumption/production. The similarity between this and Thomas Aquinas’s “Just Price” is minimal at best.

    Dr. North actually needs to read something written by Douglas before he tries to critique his ideas.

    • There are multiple points in the text where Douglas chastises the private banks for charging interest; for example, to the government. Example:

      Now the first point to notice is that the result of this complicated process is exactly the same as if the Government itself had provided forty millions, in Currency Notes, with the important exception that the public pays 4 or 5 per cent per annum on the forty millions, instead of merely paying the cost of printing the Currency Notes. The effect on prices, while the forty millions is outstanding, is the same, and the contractors pay 6 or 7 per cent for their overdrafts instead of getting the use of the money, free. (Social Credit, p45)

      • JakeS says:

        That is not a criticism of usury. That is a criticism of an unjust and unjustified subsidy paid by governments to bankers for the privilege of using its own money.

        Interest rates are regulatory instruments, far more than they are payment for services rendered. To argue that it is a perversion for the government, which is supposed to be the regulator, to be a net payer of interest to the banks, which are supposed to be the regulated, is some way from arguing that it is perverse for business firms, who are the regulated parties, to be net interest payers to banks, who in that relationship are the regulators.

        – Jake

  8. those are two different kinds of “interest” no?

    when the government can issue a bond (or sell a bond to raise ‘funds’) why couldn’t it instead just print the currency in the form of its own iou? they are both just promises to pay.

    the first douglass quote seemed to specifically be referring to interest paid to interested parties that invested in productive loans or interest paid to people saving for retirement. phil’s quote seems to be about the actual government borrowing funds for doing its business.

    i think.

    it also highlights, if i’m correct, the psychotic nature of money. we want it to be a store of value and to be worthless enough to use as the “oil” of trade in the economy and it has trouble doing the double duty.

    • JakeS says:

      There are plenty of perfectly habitable halfway houses between “absolute store of value” and “worthless transactional token.” In a well-managed monetary contract economy, you want money to maintain its value to within a couple of per cent over the duration of the typical business turnaround time, or around half a year. You do not, however, want idle money to maintain its value over a human lifetime – about a century.

      Fortunately, we are in the agreeable situation that a lifetime is a much longer span of time than the typical inventory turnover. This leaves a very large range of rates of inflation and nominal interest which both discourage hoarding of voluntarily idle currency and yet does not materially inconvenience businesses who keep their ready reserves in the coin of the realm.

      – Jake

      • There are plenty of perfectly habitable halfway houses between “absolute store of value” and “worthless transactional token.”

        Sure. We can consider it a spectrum if we want but “money” is big and I think demanding that it be both a retirement vehicle and transactional token might be asking a bit too much. At least it seems so to me right now. But that might be the case because we are also demanding that is serve the purpose of a lever and instrument of the wealthy to extract the economic surplus. I dunno. I guess my studies will tell.

        You do not, however, want idle money to maintain its value over a human lifetime – about a century.

        Right. I wouldn’t want what should be productive capital and should be invested in productive enterprises laying around collecting interest or being amassed into some giant pool and used as a weapon in some sort of derivative gambling.

        Fortunately, we are in the agreeable situation that a lifetime is a much longer span of time than the typical inventory turnover. This leaves a very large range of rates of inflation and nominal interest which both discourage hoarding of voluntarily idle currency and yet does not materially inconvenience businesses who keep their ready reserves in the coin of the realm.

        And although we are here we still seem to be in the horrible situation where economic parasites seem to come out on top.

      • JakeS says:

        “money” is big and I think demanding that it be both a retirement vehicle and transactional token might be asking a bit too much.

        That is perfectly true, which is why, in a properly run economy, it would not be a retirement vehicle. Old age pensions should be paid out of general appropriations, not corporate profits or debt service. There is a variety of reasons for this, but they all basically boil down to the fact that large private pension trusts create a socially and economically corrosive rentier (sub)culture.

        – Jake

      • NeilW says:

        That and pensions are always a current production issue. You can’t save bread for your retirement. You have to obtain bread out of the current production capacity of bread – which may or may not be sufficient depending upon how much investment has been lavished on it in the past.

      • JakeS says:

        I count that as a symptom of the unhealthy rentier culture created by large pension savings. No law of nature prevents the government from using fiscal policy to keep the economy on an adequate capital accumulation trajectory even in the presence of large pension trusts. The problem is that the political culture created (or at least reinforced) by basing old age pensions on private savings is a culture which historically has not used government for this purpose.

        – Jake

      • rentier says:

        who would you recommand if you want to read more on “(…)boil(t) down to the fact that large private pension trusts create a socially and economically corrosive rentier (sub)culture.”?

      • JakeS says:

        Hi rentier (if you’re still around),

        I don’t know anybody who has studied the link between privatized pensions and rentier culture formally. It’s just one of those things that seems obvious once you’ve been in a few arguments with (otherwise reasonable and politically agreeable) people who think society owes them 3 % annually compounding risk-free real return on their pension savings, come Hell or high water.

        – Jake

      • Daniel Antinora says:

        Shit… The common assumption of blue collar guys like me is that our fund oriented 401k’s should be performing between 8-11% a quarter!

        I’m probably one of the last guys in my field with a true pension program as well. if it is still around when I retire.

  9. i guess jake said it more eloquently but i was groping to express the same sentiment.

  10. socred says:

    Jake, your quote is taken out of context. Douglas is merely pointing out that if the government were to print notes, as opposed to creating the same money through private banks, that the cost to the government would be the cost of printing the notes as opposed to the cost of interest on loans, and that this was the reason why private banks oppose the government printing of notes.

    Nowhere, ever, did Douglas advocate interest free loans. Further, nowhere did Douglas say that interest was to blame for most of our economic ills.

    Anyone, even remotely familiar with Douglas, knows that most of his recommendations for monetary reform stem from his A+B theorem, which demonstrates that incomes distributed in production are always insufficient to buy back that production. To alleviate this problem, Douglas proposed a national dividend and price rebate mechanism.

    The monetary reformer who thought that interest was to blame for most of our economic ills was Frederick Soddy, not C.H. Douglas. Douglas claimed that there was an accounting flaw, which relates to technology displacing labour in production, which creates a situation where prices are always increasing faster than incomes.

    • JakeS says:

      Point of order: That wasn’t my quote.

      Douglas is wrong, though, for the same reason the anti-usury crowd is: He forgets that capitalists gotta eat too.

      The problem isn’t profits, or interest, or return on capital investment. One may dislike those as a matter of political inclination, and that’s fine as far as it goes. But they are all perfectly compatible with a functioning mass production economy.

      What is fundamentally incompatible with industrial mass production is gross inequality. Because that stops the flow of cash which enables the mobilization of men and machines in the service of the material provisioning of society.

      It doesn’t matter whether that inequality comes from manufacturing profits, rent of land, interest payments, sordid embezzlement, or even exorbitant pay scales for particular classes of professionals. What matters is that if you have a class of people who have more money than they can spend productively, the money-hoarding will break the institutions that enable industrial mass production.

      (Also, people with more money than they can productively spend tend to busy themselves with buying politicians and similar mischief.)

      – Jake

      • socred says:

        “The problem isn’t profits, or interest, or return on capital investment.”

        Who said it was? Not I, nor Douglas.

      • JakeS says:

        Yes he does. He says that payment to other organizations for provision of capital and intermediate goods is the problem.

        This is false. Every expense is someone else’s income, somewhere down the line. All payments must eventually end up as wages, rents or dividends. What is paid out will be precisely sufficient to purchase what is produced, because the manufacturing firm is neither a cashflow source nor sink – at no point do payments disappear into the darkest night, nor appear ex nihilo. (We ignore for the moment changes in the firm’s net cash position, which does serve as a cash flow source or sink.)

        The suppliers of machinery and intermediate goods, the “B” group, must equally split the “B” payment between wages, rents, dividends, etc. and a “C” group of their suppliers. C < B if the supplier is to be financially viable. But supplier C must equally have a "D" for which D < C, etc. ad infinitum. Not unlike Zeno's parable of Achilles and the tortoise.

        Cashflow sources and sinks are found in only four places in the economy: At the border, through exports and imports; at the bank, through borrowing and debt service, in the form of changes in the stock of savings by the private non-financial sector, and at the government, through taxation and outlays.

        And it is imbalance between cash flow sources and cash flow sinks that causes problems. Which is why fiscal policy is helpful in stabilizing the economy, and interest rate policy can be helpful so long as there remain creditworthy entrepreneurs in the economy.

        – Jake

  11. socred says:

    The problem with economists is that they mostly do not understand basic accrual accounting.

    The A+B theorem deals with basic cost accounting as it pertains to income and prices.

    “In any manufacturing undertaking the payments made may be divided into two groups:

    Group A: Payments made to individuals as wages, salaries, and dividends;

    Group B: Payments made to other organizations for raw materials, bank charges and other external costs.

    The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

    Like you said, the problem isn’t profit, or interest, or returns on capital. The problem is that consumers are given insufficient income to buy back all of production.

  12. socred says:

    “This is false. Every expense is someone else’s income.”

    This is false. Every expense is someone else’s revenue. Very little revenue actually gets distributed as incomes to individual consumers, but according to accounting standards, all costs are ultimately paid for by the consumer.

    Further, you raise an interesting point about “cash flows”. Cash flows and profits are two totally different things.

  13. This is false. Every expense is someone else’s revenue.

    Yes. But all income comes out of revenue.

    • socred says:

      “Yes. But all income comes out of revenue.”

      No, businesses operate on a revolving line of credit. Workers don’t wait until the product they created sells in order to get paid (that could be months). Businesses borrow the money in advance in order to pay the workers, and most revenue is used to either repay existing loans or replace working capital. Only a small percentage of revenues which is distributed as dividends makes its way to the consumer.

      • Ok. I see what you mean now.

      • JakeS says:

        You’re making an elementary double-counting error: You are counting intermediate goods consumed in production both when it is sold by the original producer and when it is sold again by the producer of the final goods.

        Let us imagine a toy economy with one firm making everything. Production is instantaneous, workers are paid instantly for their work, workers spend their whole wage instantly to buy stuff, and the firm is run as a workers’ cooperative so there are no capitalists or dividends.

        In this firm, the whole of the revenue goes to the workers.

        Let’s put some numbers on the example:
        Firm produces 100 Units of Stuff per day.
        Workers get paid € 80 per day.
        Firm uses 20 Units of Stuff to repair and replace machines.
        Firm sells the remaining 80 Units to workers for € 1/unit.

        Total revenue = A, in your terminology.

        Now we paint a line on the assembly floor, and say that on the one side of the line we have one firm and on the other side of the line we have another firm.

        You still have 80 workers, paid € 1 per day, per worker, and each worker buys one Unit per day. And they do precisely the same things they did yesterday. But now Firm 1 buys 10 Units of Stuff from Firm 2 at € 10 and pays € 40 to its labourers. In turn, it sells 100 Units of half-made Stuff to Firm 2 for € 50.

        Firm 1 Revenue = A + B, where A is 40 and B is 10.

        Firm 2 buys € 50 worth of HalfStuff from Firm 1 and pays its workers € 40 to turn the Halfstuff into 100 Units of Stuff, of which it spends 10 to maintain its own machinery and sells the other 90 for € 1 apiece.

        Firm 2 Revenue = A + B, where A is 40 and B is 50.

        The same workers, the same firms, the same wages, the same prices. But now A + B > A, while before A + B = A.

        The example scales trivially to include capis, multiple firms, etc.

        This is why you need to follow the cash flows up- and downstream to their ultimate sources and sinks, rather than simply add up the revenues.

        The cash flow has three sources:
        *Spending out of prior or future savings (spending out of future savings is better known as “borrowing to spend”).
        *People outside your scope of analysis buying stuff from people inside the scope of analysis.
        *The man with the gun spending from seigniorage in order to obtain stuff without working for it.

        Conversely, the cash flow has three sinks:
        *Saving for future or past expenditures. (The latter being commonly known as debt service.)
        *People inside your scope of analysis buying stuff from people outside the scope.
        *The man with the gun collecting money.

        If the sinks exceed the sources, then there is insufficient cash flow to buy the production of the economy. While if the sources exceed the sinks, there are insufficient goods to cover the demands being placed upon the material provisioning of society by solvent customers wishing to spend money.

        – Jake

      • socred says:

        Hi Jake:

        I’m not “double counting”. I’ll give you a concrete example.

        Let’s say I’m constructing a building and the only costs are labour costs (ie. all costs are simply A costs). Let’s assume that the cost to construct the building is $100,000. And let’s also assume that the depreciation of the building is over 20 years, and it’s salvage value after 20 years is $0.

        Now, in the construction phase of the building, workers are paid $100,000 in income, but the workers will spend this $100,000 in the current time period, say 1 year, on the day to day needs of living. Once the workers spend this income, it ceases to exist as income to anyone. This activity has the tendency to inflate the price of consumer goods which are currently on the market due to the fact that the suppliers of these goods act based upon the “law” of supply and demand, and they find that the effective demand for their goods is rising.

        After period 1, the income no longer exists, but the company that built the building enters it as an asset on their books, and starts to depreciate it in the cost of the consumer goods they produce at a rate of $5,000 per period. Let’s assume the consumer goods they produce cost $100,000 per period in labour costs, and $5,000 in depreciation expense. Now the price of these consumer goods is $105,000/period, but the income distributed per period is $100,000: leaving a discrepancy of $5,000/period.

        In a sense, you are correct. I’m not “double counting”, but I’m claiming that capital is paid for twice. It is paid for initially via the inflation of the price of consumer goods as the capital is constructed because during the capital’s construction, income is distributed and used for purchase of consumer goods, yet the capital itself is incapable of producing consumer goods at this point. This inflates the price of consumer goods, and if it was not for the fact that efficiency in production reduces prices at the same time, inflation during this process would be far worse. However, according to the rules of accrual accounting costs are pushed into the future to “match revenues and expenses”. As a consequence, consumers pay for the capital twice: once through the inflation of consumer goods during the capital’s construction, and again as it is expensed in the price of consumer goods through depreciation expenses.

      • JakeS says:

        Now, in the construction phase of the building, workers are paid $100,000 in income, but the workers will spend this $100,000 in the current time period, say 1 year, on the day to day needs of living. Once the workers spend this income, it ceases to exist as income to anyone.

        Wait, what?

        The workers pay this money to some chap. He has profits and costs. The profits are his income, the costs, except for taxes and debt service, are some other chap’s income. And the grocery store owner’s income, less his savings, is some other chap’s income as well.

        You need to follow the money all the way home to a cash flow sink – savings, debt service, import or taxes – in order to be able to conclude that it ceases to be income for anyone.

        After period 1, the income no longer exists, but the company that built the building enters it as an asset on their books, and starts to depreciate it in the cost of the consumer goods they produce at a rate of $5,000 per period. Let’s assume the consumer goods they produce cost $100,000 per period in labour costs, and $5,000 in depreciation expense. Now the price of these consumer goods is $105,000/period, but the income distributed per period is $100,000: leaving a discrepancy of $5,000/period.

        No, the $ 5,000 liquid assets freed up will either be reinvested, thereby being paid out as revenue to some chap as payment for services rendered, released to the shareholders as income, retained as retained earnings (increasing the firm’s stock of savings, which is a cash flow sink), or used to service debt (which is a cash flow sink).

        Again, you must follow the cash flow all the way forward to a sink.

        I’m not “double counting”, but I’m claiming that capital is paid for twice. It is paid for initially via the inflation of the price of consumer goods as the capital is constructed because during the capital’s construction, income is distributed and used for purchase of consumer goods, yet the capital itself is incapable of producing consumer goods at this point. This inflates the price of consumer goods, and if it was not for the fact that efficiency in production reduces prices at the same time, inflation during this process would be far worse. However, according to the rules of accrual accounting costs are pushed into the future to “match revenues and expenses”. As a consequence, consumers pay for the capital twice: once through the inflation of consumer goods during the capital’s construction, and again as it is expensed in the price of consumer goods through depreciation expenses.

        That doesn’t follow, unless you assume that all businesses invest at the same time and depreciate at the same time.

        One business can build a building in year 1, the second in year 2, the third in year 3, etc. The level of building activity is constant, so there is no sudden spree of activity to generate supernormal inflation, and such that each investment precisely cancels out the savings or debt service caused by the other investments of prior or future years.

        Of course, in the real world we do see a business cycle precisely because everybody invests at the same time. But firstly, this is a property of the timing of investment, not of the fact that capital plant must be mobilized prior to the commencement of production. And secondly, the business cycle is fixable with sufficiently heavy-handed fiscal policy interventions.

        – Jake

  14. Interest is just the bankers share of the profit margin.

    Then they should only get it when there is profit.

    It comes from the same place as profit

    Profit, increase, etc. come from God (or whatever great spirit you believe in that makes the sun shine and the rain faill) and hard work. Bankers don’t do any of that force times distance shit that I’m pretty good at.

    Enabling things that will work to happen is a vital skill that deserves reward because without it nothing happens.

    Sure. The question is whether the financial sector does that.

    To many of the analogy stories start with the assumption that people cause things to happen automatically as an innate nature (some sort of other belief in the ‘natural order’ as far as I can see). I can assure you that doesn’t happen in the real world. Stuff has to be organised by people with organisational skills.

    It doesn’t have to be bankers doing the organizing. Bankers don’t create society. In fact, society has existed without bankers.

    Order typically does happen organically until bankers, administrators and other clipboardy-paper-pusher-types get involved and ruin it.

  15. socred says:

    Banks provide a valuable service (they are the world’s accountants). Double entry accounting is a wonderful device, but it is a two dimensional art in a three dimensional world. Douglas put the problem succinctly in a letter to William Aberhart:

    “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.”

  16. socred says:

    “The profits are his income”

    The profits, less retained earnings are someone’s income, but that could be distributed months after the revenue was received.

    “the costs, except for taxes and debt service, are some other chap’s income.”

    Sure, and that income was likely distributed months before the good or service was sold, it most likely does not still exist as income.

    Your whole analysis does not take into account TIME.

    At some point in time all costs distribute as income, but that does not mean that the income is still available as income when the cost finally reaches the consumer (in the case of some capital projects, this may take decades), Further, when someone re-invests their income, they create an additional set of costs without creating the additional income.

    “No, the $ 5,000 liquid assets freed up will either be reinvested, thereby being paid out as revenue to some chap as payment for services rendered, ”

    If that income is re-invested, then it creates an additional set of costs without creating addtional purchasing power.It will restore equilibrium between costs and income in the current time period, but that re-invested $5000 is expected to be returned (with interest), so it merely pushes the disequilibrium to a future point in time.

    “One business can build a building in year 1, the second in year 2, the third in year 3, etc. The level of building activity is constant, so there is no sudden spree of activity to generate supernormal inflation, and such that each investment precisely cancels out the savings or debt service caused by the other investments of prior or future years.”

    You’re making alot of assumptions here, but let’s take your example of a car manufacturer who is constructing a building to build cars. Assume only labour costs for simplicity.

    In year 1, the car company gives its labourers $100,000 to construct the building, and it enters the building as an asset and depreciates it over 20 years ($5000/year). It also is currently distributing $100,000 to it workers at another manufacturing plant to produce cars totalling 100, and cars are the only thing being produced.

    So in year 1 there is 100 cars and $200,000 in income distributed. Operating on the “law” of supply and demand, the company charges ($200,000/100) = $2000/car in year 1, and all 100 cars are distributed to consumers.

    In year 2 the second building is constructed and it produces 100 cars and so does the first building. Both distribute $100,000 in income. In year 2 total costs are $100,000 + $100,000 + $5000 (depreciation expense of second building) = $205,000, but only $200,000 was distributed in income. There is now a shortage of income of $5000.

    • JakeS says:

      You’re conflating cash and accrual accounting. The depreciation is an accrual accounting item, not a cash expense.

      What your example demonstrates is that if the car company wants to have any clear profits, it needs to have more than five thousand in cash profits.

      If those five thousand are neither reinvested nor disbursed as dividends, then yes you have a demand deficiency. This is because your cash flow network has more sink than source in that case. In that case the government needs to spend more cash flow into existence, in order to balance cash flow source and cash flow sink.

      None of this requires distinguishing between depreciation and other expenses, nor does that distinction help to tell you when the cash flow network is net source or net sink.

      It’s a shiny distraction from the real issue, which is that the cash must flow.

      – Jake

      • socred says:

        “You’re conflating cash and accrual accounting. The depreciation is an accrual accounting item, not a cash expense.”

        I’m not conflating the concepts at all.. I’m not the least bit interested in cash accounting, because that is not how most businesses determine their costs which in turn affects their prices. Economists (and I don’t know if you’re a professional economist or not) are the ones who confuse the two because they act as if businesses operate using cash accounting methodology as opposed to accrual accounting.

        Most businesses use accrual accounting because if they were to use cash accounting, they’d likely never be able to report a profit, especially if they are to invest in capital assets. Most costs in the economy are determined using accrual accounting methodology.

        Douglas’s A+B theorem demonstrates that businesses are always generating costs at a faster rate than they are distributing incomes.

      • JakeS says:

        Douglas had the causal story back-assward.

        The cause is investment and desired savings (ex ante). The effect is price increases and inadequate income (respectively).

        If you re-invest precisely at the rate of depreciation, then Douglas’ paradox goes away. It is only when you are expanding the capital stock of society that you have the imbalance Douglas suggests.

        Which of course comes with the corollary that any sustainable increase of the capital stock of society requires sovereign deficit spending, as the sovereign is the only player in the economy which can create free cash.

        You can keep nattering on about the microeconomics of the firm as long as you want – I’m a patient guy. But if you want to talk about macroeconomics – such as the flow of available income – then you need to set up the correct boundary conditions and aggregate consistently. Otherwise you’re playing the same game of just-so stories as the neoclassical microfounded general equilibrium models.

        – Jake

      • socred says:

        “It is only when you are expanding the capital stock of society that you have the imbalance Douglas suggests.”

        Bingo! But the capital stock in aggregate is expanding. Capital appreciation > capital depreciation, so the imbalance does exist.

        “You can keep nattering on about the microeconomics of the firm as long as you want – I’m a patient guy. But if you want to talk about macroeconomics – such as the flow of available income – then you need to set up the correct boundary conditions and aggregate consistently.”

        Douglas’ A+B theorem does what Keynes’ theories do not – they demonstrate a microeconomic foundation for the insufficiency of aggregate demand observed by Keynes and Douglas. I believe your implicit assumption in the above statement about macroeconomis is that incomes=prices.

        If all firms are generating costs at a greater rate than they are generating incomes, then the economy as a whole is generating costs at a greater rate than it distributes incomes. In other words, prices > incomes: they do not equate.

    • JakeS clearly meant to say “expanding capital stock that is outpacing the creation of new income”. This is a well-known problem in Post-Keynesian economics. It can be found laid out in detail in the Harrod-Domar growth model. See here.

      • socred says:

        “The simple Keynesian model of income determination suffices to develop the concepts.

        (X.1) Yt = Ct + It

        where Yt is total output/income in period t, Ct is total consumption in period t, and It is total investment in period t.

        We are assuming a closed economy with no government spending or taxation to be faithful to the original work.

        Income can be either consumed or saved and St = sYt, where s is the marginal propensity to save (which is 1 – the marginal propensity to consume).”

        http://bilbo.economicoutlook.net/blog/?p=26724

        “The foregoing is sufficient answer to the quotation from Mr. J. M. Keynes, which begins: “Let X be equal to the cost of production of all producers. Then X will also be equal to the incomes of the public.” This is the well-known logical fallacy known as the petitio principii, which consists in assuming the truth of the fact which you have set out to prove and then proving the assumption from the logical conclusion. The cost of production is not equal to the incomes of the public, and therefore the rest of the argument merely indicates what would happen if it were equal.” (C.H. Douglas, “The New and The Old Economics, pge. 16)

        http://douglassocialcredit.com/resources/resources/new_and_old_economics_c_h_d.pdf

      • Awful rubbish. Douglas clearly wasn’t the sharpest knife in the drawer. Anyway, Jake can argue with you if he wants. I don’t deal with crank arguments.

      • socred says:

        LOL, ad-hominem is the lowest form of argument.

      • There’s no point in arguing with you because you’re trying to change accounting norms. It’s like proving 2 + 2 = 5 because you change the nature of the decimal system. It is a characteristic crank argument that you come across in multiple fields. The crank tries to redefine the language of the discipline to prove a point that cannot be proved using the language within the discipline. Then they complain that no one is listening to them because they are speaking in their own language.

      • socred says:

        I’m not the one trying to change accounting norms. Most companies use accrual accounting, not cash accounting. I have demonstrated through real life examples how prices and incomes do not equate.

        Keynes’ aggregate income formulas implicitly assume that prices equal incomes. Therefore, any analysis using these formulas will demonstrate what should occur assuming these two things are in equilibrium.

        Douglas’ A+B theorem demonstrates that they are not in equilibrium.

      • There are reasons that the national accounts are not the same as the accounts used by individual firms. They deal with entirely different things.

        Also, prices do not equal income in macroeconomic theory.

        Anyway, use your own language if you want. But people will dismiss you as a crank just as they would me if I started hassling chemists after rewriting the table of elements or mathematicians after having rewritten the decimal system. That is the definition of being a crank.

        “Cranks who contradict some mainstream opinion in some highly technical field, such as mathematics or physics, frequently… misunderstand or fail to use standard notation and terminology”

        http://en.wikipedia.org/wiki/Crank_%28person%29

      • socred says:

        Hi Phil:

        If you’re comparing the theories of economics to those of physics or chemistry, you’re living in a dream world. Ph.D’s in the subject are writing books about the fallacies of economic reasoning:

        http://www.amazon.ca/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926

        Douglas was an engineer and an actual scientist. Like a scientist, he started with an observation, devoloped an hypothesis, and actually tested his theory against reality. It pains me to admit it, because I studied economics in university, but the greatest economist who ever lived was an engineer, not an economist.

      • NeilW says:

        Accrual accounting depends upon accounting policies, and any sizeable firm has to publish a cash flow analysis as well these days.

        As we say in accounting, accounts are a matter of opinion, cash is a matter of fact.

        The economy, and the pressures on the macro-economy, function on cash transactions.

        Beyond that it is a matter of opinion which of those cash transactions are called ‘investment’ and which are called ‘consumption’.

        But firstly the economic model must function in cash terms – and be stock flow consistent on that basis.

      • socred says:

        Neil, all companies publish a balance sheet, income statement and cash flows. All three are equally important in determining the long term viability of any organization.

        Accrual accounting pushes expenses into the future as certain expenses are capitalized. Consumers are forced to pay for all the costs of production including capitalized expenses. Hence, depreciation expenses are added to the cost of goods sold and form a part of prices.

      • No, scored, I am not comparing economics to physics. But it is, like mathematics or physics, a highly technical field with a set framework and terminology.

        What I am saying is that you and Douglas deploy classic crank arguments which, as Wiki says, are based on trying to redefine the terms of the field to “prove” your points. You are perfectly entitled to do this if you please but very few people will take you seriously and economists will consider you a crank.

      • socred says:

        Phil, economics is not scientific. It may employ higher mathematics, but mathematics is merely a form of deductive reasoning : GIGO. Your arguments about differing uses of terminology making someone a “crank” are nonsense, because many of the theories in economics, and terminology developed from those theories,are nonsense. Economics is not a field of study like Physics or Chemistry.

        I find the fact that you have now resorted to name calling rather amusing, and I really could care less what you think of me personally, because I don’t know you from Adam.

      • It’s not about the mathematics. It’s about the underlying norms that we use to discuss economics — these are the norms found in the national accounting framework. Arguing against these is like arguing against the current decimal system with a mathematician or arguing against the table of elements with a chemist. What you are trying to do is supplant the current language of the discipline with your own.

        I’m sorry that you think I’m trying to insult you. I’m really not. What I’m saying is that this is the hallmark of a crank argument. And if you make it people will see you as a crank. If you find this offensive that is your prerogative. But this is a simple fact: argue in this manner and economists will (rightly) think you a crank.

      • socred says:

        They may be “norms” but they’re nonsense and at the end of the day it doesn’t change the fact that they’re nonsense. Norms change all the time. Keynesianism wasn’t a norm when it was first introduced by J.M. Keynes.

        At one time the conception of a geocentric universe was the “norm”. I’d rather be called names and be right, than have the acceptance of my peers and be wrong.

      • That’s your call. But it must be rather lonely on that side of the field.

        Maybe I’m a moron though and I can’t see the ‘grand truth’ of what you’re saying (I doubt this but I’m willing to entertain it). In that case, if I were you I would go straight to the statistics bureaus and make your case there. The guys that work at these bureaus are very open to changing their accounting rules if they think there is good reason. The folks in the US are by far the most forward-looking (and influential) so maybe you should contact them. (Details here).

        Please do open your mind to the possibility that it is you and not the rest of the world that is in error here though. Try not to chalk up the negative responses that you may receive as part of some conspiracy of lies.

      • socred says:

        I don’t chalk up negative responses as a “conspiracy”, and I’m willing to admit that I may be in error.

        As a bit of background, I was educated in orthodox economics at university and fell upon Douglas’ ideas as a bit of an accident. I had heard of Social Credit because I live in Alberta, but had no idea what it was actually about, and actually had many of the negative preconceived notions that you probably have. I chanced upon someone who actually was friends with one of the technical experts (L.D. Byrne) that came to Alberta upon Douglas’ request. It was upon hearing him speak that I realized that these guys aren’t “cranks” but actually quite knowledgeable in the field of economics. They just speak a different language because many of the preconceived notions that I held true can easily be demonstrated to be false (understanding the fallacy of the quantity theory of money was my greatest hurdle to understanding Social Credit).

        Douglas testified before many government committees, including the MacMillan Committee to which J.M. Keynes attended and actually questioned Douglas.

      • NeilW says:

        “Accrual accounting pushes expenses into the future as certain expenses are capitalized.”

        Based upon policies. Which are chosen – by people. They are choices based upon what you want to see and what you believe is important.

        They are not laws of nature.

      • socred says:

        Hi Neil, sure, laws of nature don’t determine accounting procedures, but accounting procedures determine how incomes are distributed and costs are charged into prices. There are very good reasons why certain costs are capitalized, but I’m not an accountant to argue the theory behind why things are done the way they are. I only understand how they are done, and what affect this has on the macroeconomy.

      • A testimony to the sad state of affairs in economics that students must turn to the likes of Douglas to do away with the crude notion of the Quantity Theory of Money!

      • socred says:

        Out of curiosity Phil, how many works written by Douglas’ have you read?

        Yes, Douglas does dispose of the quanity theory of money, but there are many more myths in economic orthodoxy that Douglas dispels as well. Another would be the sanctity of “full employment” as technology and capital replace labour in production. That myth seems to still hold for orthodoxy and the heterodox like MMT.

      • I read through Social Credit very quickly. It’s awful stuff. Completely unreadable. I could see why Keynes saw Gesell’s work as having some worth and Douglas’ work as being the work of a “private, perhaps, but not a major in the brave army of heretics”.

      • socred says:

        Keynes’ remarks are interesting, and it’s interesting that you bring up Gesell as well.

        The following is from Keynes’ “The General Theory of Employment, Interest and Income”:

        “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 to-morrow. ”

        And the following war written by Douglas almost a decade earlier:

        “In the first place, these capital goods have to be sold to someone. They form a reservoir of forced exports. They must, as intermediate products, enter somehow into the price of subsequent ultimate products and they produce a position of most unstable equilibrium, since the life of capital goods is in general longer than that of consumable goods, or ultimate products, and yet in order to meet the requirements for money to buy the consumable goods, the rate of production of capital goods must be continuously increased.”

        I’ll leave it for others to determine which is more “readable”, but they are saying the exact same thing.

        As for Gesell, the following was written by Douglas:

        “Now this book of Mr. Maynard Keynes to which I have referred, represents apparently a sudden conversion on the part of the author to the monetary theories of Silvio Gesell, the originator of the idea of “disappearing money,” that is, money that loses its value month by month unless spent (as if money did not disappear fast enough already).

        The idea is that if you have got a lOs. note today you have to put a penny stamp on it a fortnight hence to keep it worth lOs., and another penny stamp in a further fortnight’s time so that it shall still remain at the value of lOs. Gesell’s theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster.

        Disappearing money is the heaviest form of continuous taxation ever devised.
        The theory behind this idea of Gesell’s was that what is required is to stimulate trade – that you have to get people frantically buying goods – a perfectly sound idea so long as the objective of life is merely trading.

        When a lOs. note becomes worth only 9s. 11d. tomorrow, a man will go and buy something and so stimulate trade. In fact you have exactly the same state of affairs as existed at the time of the stupendous German inflation of the mark.
        When a waiter received payment in millions of marks he hardly waited to throw down his napkin before dashing out to buy something, because the value was disappearing so rapidly that what he bought one minute would require a billion marks ten minutes hence. “

      • It’s not that the prose is unreadable. It’s that the argument is hair-brained.

      • socred says:

        How would you know? You’ve aditted to just perusing one book written by Douglas, and the article above your wrote the following fallacious claim:

        “(Douglas) manifested a tendency to blame most of the world’s economic ills on ‘usury’” (parenthesis added)

        This claim is completely false. Douglas did not blame most of the world’s economic ills on usury. Douglas did not see banks charging interest on loans as an issue whatesoever.

      • I can tell a bad argument from a good one pretty quickly. Trust me. I’ve had to cut through an awful lot of mainstream stuff. Douglas’ arguments are poor. You’re not going to get a “convert” here, sorry.

      • socred says:

        I wasn’t looking for a “convert”,. If you read my original post I was clearing up a blatantly false statement in the article you wrote. This is very similar to the academic standards shown by Dr. Gary North.

      • (a) I responded showing a quote that talks about the evils of having the government issue interest-bearing debt to the private sector.

        (b) Many of Douglas’ followers were anti-usury fascists. Which is not to say that Douglas was one, he probably wasn’t. But the connection is not altogether arbitrary.

      • socred says:

        Hi Phil:

        (a) And I responded demonstrating that the quote you took was out of context.

        (b) There may have been some followers of Douglas who claimed that interest was the cause of all our economic ills and who also may have supported fascism (Ezra Pound comes to mind), but that’s not what your article states. It doesn’t claim that some misled followers of Douglas were led astray this way, it claims that :

        ““(Douglas) manifested a tendency to blame most of the world’s economic ills on ‘usury’” (parenthesis added)

        This statement is completely false, and a blatent misrepresentation of Douglas’ ideas. Douglas’ monetary reform ideas were based upon his A+B theorem, and have nothing to do with “usury being the cause of most of the world’s economic ills.”

        This is shoddy research, and the article is a straw man. It’s similar to Dr. Gary North’s work in that respect. If you’re going to write an article criticizing Douglas’ ideas, I would hope that you would do a modicum of research to at least accurately portray those ideas.

      • Right. Next time I’ll be sure to note that Douglas et al don’t understand basic macro accounting and want to replace it with their own crank accounting to prove their own nonsense. It’s actually LESS valid than being against extensive usury… Which at least is based on a moral imperative rather than the unbridled narcissism that you know better than everyone in the field who have agreed to speak in a given language.

      • NeilW says:

        Whatever people get off on talking past each other, the Douglas idea that you can just give people money and all will be well doesn’t pass the smell test.

        It’s a socialist ideal again – like being a ‘global citizen’ and having ‘world government’, and frankly everybody being blue-eyed and blonde. It’s the sort of thing that persists in concepts like the EU, and fixed exchange rates. Make everything centralised and the same and we will be free – as long as the Very Clever People are in charge.

        Unfortunately reality is messy because it has these things called human beings in it, and as biological entities they have a tendency not to follow the patterns ascribed to them

        Humans live in tribes and need to see quid pro quo if they are to share resources with others. And no amount of declaring that behaviour ‘irrational’ will change the underlying biology. It is how we have evolved and the economic system has to deal with that reality.

        We need countries and jobs. Superstates and handouts won’t work and can’t work.

      • Daniel Antinora says:

        It isn’t about just “handing” shit out. That isn’t socialism. It’s a question of just distribution of the surplus.

        Plus, just handing the surplus over to bankers and economic parasites is far worse than a little bit of welfare.

        Although race and nation are real and biologically rooted and a properly ordered economy would take notice.

        But make no mistake, there is a plan even in a non command economy. The question is in fact a question about how clever the planners are, who they are, what class they represent, how noble and just they are, etc.

      • NeilW says:

        That’s a straw man argument. I never said anything about the status quo being acceptable.

        There is a different way, but it is a middle way that respects the reality of the way human beings work. We need something to do with our time that we like doing and others consider useful. The income comes from doing that.

        And yes we need to stop the casino games in the banking centres, because they serve no purpose – other than to tie up huge quantities of brain power on pointless activities.

        We have to take back our democracies.

      • Daniel Antinora says:

        Well I’m no democrat but I’m sure we have plenty of common ground. I’m not being contentious. I believe in the importance of meaningful work. Of course ultimately some folks are simply cut out for menial labor and it truly isn’t worth as much as my labor (and probably yours) but a more just distribution is certainly possible.

  17. socred says:

    “One business can build a building in year 1, the second in year 2, the third in year 3, etc. The level of building activity is constant, so there is no sudden spree of activity to generate supernormal inflation, and such that each investment precisely cancels out the savings or debt service caused by the other investments of prior or future years.”

    I wanted to elaborate on this a little further. In terms of capital production, the consumer goods that the capital creates, and the cost of said capital in those goods, may take decades to fully reach the consumer. People use their income to purchase consumer goods and services at, or near, the time of the construction of capital. They don’t wait decades to spend their money as the cost of said capital finally makes its way to the consumer.

    Ultimately, the consumer ends up paying for the capital twice. Once as it inflates the price of consumer goods, at, or near, the time of the capital’s construction, and again as the capital is depreciated over time via depreciation expenses.

    This “timing” issue is completely ignored by economists. They simply add up the income distributed in the capital’s construction, and add up the depreciation expense and say they equate, so that income = costs. They forget that it may take decades to depreciate capital, but the people who constructed the capital can’t wait decades to spend their income.

  18. Oliver Heydorn says:

    “Whatever people get off on talking past each other, the Douglas idea that you can just give people money and all will be well doesn’t pass the smell test.

    It’s a socialist ideal again – like being a ‘global citizen’ and having ‘world government’, and frankly everybody being blue-eyed and blonde. It’s the sort of thing that persists in concepts like the EU, and fixed exchange rates. Make everything centralised and the same and we will be free – as long as the Very Clever People are in charge.

    Unfortunately reality is messy because it has these things called human beings in it, and as biological entities they have a tendency not to follow the patterns ascribed to them

    Humans live in tribes and need to see quid pro quo if they are to share resources with others. And no amount of declaring that behaviour ‘irrational’ will change the underlying biology. It is how we have evolved and the economic system has to deal with that reality.

    We need countries and jobs. Superstates and handouts won’t work and can’t work.”

    ————————————-

    Douglas’ recommendation of a National Dividend, the distribution of debt-free money to all consumers is not socialism. It is not financed by robbing Peter to pay Paul (through redistributive taxation). The money used to finance the dividend is debt-free money created for the purpose of helping to bridge the gap between the prices of consumer goods and the incomes that are distributed in the production of those goods. If anything, the National Dividend represents the universalization of capitalism: we are all part owners (via natural resources, the cultural heritage, and the unearned increment of association) of the real capital which makes modern industrialized production possible and so we should all receive a DIVIDEND on the operation of that real capital in the production process. This dividend is not only just (in a moral sense), it is also pragmatically necessary because with advancing technology (automation, artificial intelligence, etc), there are fewer and fewer jobs for people to do – we can produce everything people can profitably use without calling on the full capacity of the workforce. We don’t need to create more jobs; we need to recognize that the replacement of human labour by machine labour means that the people who are being thrown into unemployment need an income not tied to employment if they are to have access to the goods and services they need to survive and flourish.

    Furthermore, anyone who has read Douglas’ works would know that Douglas was vehemently opposed to World Government, supranational economic and political blocs like the EU, as well as National Socialism …. to say nothing of an international financial system. The underlying philosophy and policy of Social Credit is to decentralize economic and political power as much as possible in the direction of the sovereign individual. The individual must be liberated from the domination of the group and of the elite (the ‘very clever people’) who invariably control the group and its activities. In short, Social Credit is anti-totalitarian. Ideed I would argue that Social Credit, conceived of as a political and economic system, is the most anti-totalitarian option conceivable that is also feasible, i.e., without qualifying as anarchism.

  19. bob klinck says:

    It’s obvious who is the polite analyst and who is the blustering name-caller in this discussion. On the criteria of argumentative discipline and adherence to rationality, “socred” defeats “pilkingtonphil” wins hands down.

    As for “Daniel Antidora”, one rarely comes across such an inflated ego as the one exemplified in this statement: “I believe in the importance of meaningful work. Of course ultimately some folks are simply cut out for menial labor and it truly isn’t worth as much as my labor (and probably yours) but a more just distribution is certainly possible.” It practically defines priggishness.

    • lolz. the guy openly calling for socialism is the one with the ego?

      I’;ve worked over 600 hours of OVERTIME already this year bud. And I ain’t manning a fucking cash register.

      No. All labor is not worth the same. No. All people are not worth the same.

      • Wallace Klinck says:

        I am not sure that your response is a model of clarity. It hardly uses a level of language that one would expect to find in an intellectual or cultured environment. If the quality of your work approximates that of your literary expression I would have grave doubts concerning its “value.” Quantity of work is no indication of quality whatsoever. There is an old adage “strong in the arm and weak in the head.” Moreover the value of one’s effort is quite subjective depending upon individual opinion. Surely, a sense of humility would recognize the right of another person to assess the “value” of one’s labours. It would also negate the right to force the results achieved by a “worker”, who values his own effort above all others, upon unwilling recipients. Intellectual pride contains its hazards and dangers and is typically an expression of the “will-to-power” over other persons.

        That all labour is not evaluated equally is universally known and is hardly a new principle. To say that all people are not worth the same is a rather dangerous subjective judgement probably best left to a Higher Power unless, perhaps, one regards himself as that Power.

        Your reference to “the guy openly calling for socialism” is typically obscure but if you are referring to “Socred”‘s advocacy of Social Credit you obviously know less that nothing about the subject. Socialism involves the State ownership and centrally planned administration of the means of production which is diametrically opposed to Social Credit policy which upholds private enterprise and a fully consumer-motivated economy. You appear to have an erroneous idea that a “sharing society” involves taking from some to give to others. If all production were consequent to human labour this might be a valid concern. In the modern economy, however, this condition is increasingly less true because of the continuing displacement of labour by technology. The Social Credit consumer credits to be issued as National (Consumer) Dividends and to retailers at point of sale to effect falling prices (i.e., Compensated Prices) would be issued at source, as produced goods emanate from the production line, as a means of distribution and in no way involve re-distribution of anyone’s income.

        I assume that you are sufficiently rational as to recognize the benefits of automation, the efficiency of which produces increasing abundance with minimal human effort. When we have fully automated production and created an enormous storehouse of consumer wealth would you then barricade it and advise consumers that with no jobs they obviously possess no money and therefore have no legitimate access to the storehouse? Please forgive me, but if so I can only regard such an attitude and policy as nothing less than psychotic–not to mention mean-spirited in the extreme. The purpose of production is consumption–not to create work. Without consumption all production would be meaningless and would cease to exist.

      • Well perhaps you just misread me because you are the very asshole you are accusing Phil of being? Or perhaps you didn’t read anything except for a single comment that I wrote and inferred that it was indicative of some intolerable hubris rather than trying to understand the entire thrust of my contribution to the thread.

        But perhaps it wasn’t exactly clear. I figured that within the overall context of my admittedly limited commentary on the page that it might have been for the casual reader. I will just grant you the point instead and try to remedy the deficiency.

        If the quality of your work approximates that of your literary expression I would have grave doubts concerning its “value.”

        Quantity of work is no indication of quality whatsoever.

        I disagree. In a modern, wage-earning society people are reluctant to pay you time-and-a-half and doubletime (and sometimes even triple) when you aren’t exchanging valuable labor-power for it.

        But fine. Point granted. You win. My work is not important at all.

        Who are you to judge the quality of my expression or the value of my work? Both seem to be intersubjective on your understanding.

        There is an old adage “strong in the arm and weak in the head.”

        Sure. We say “work smarter not harder” in my trade. Of course this doesn’t relate to quantity at all (except for quantity of “work” as in the actual physics concept).

        It does however get at what I was saying about meaningful work. Meaningful work (in Christopher Lasch’s sense-and mine) is that which requires both mental and physical effort. Thankfully I’m blessed with a job that allows me just and compensates me well for it.

        When I say I was advocating socialism I was advocating as wide a distribution of this type of work as possible and as wide a distribution of property as possible, because as both Major Douglas and Phil and Socred were getting at above (albeit in different ways), this alone makes a non-barter, currency based, exchange economy sustainable in the long run.

        I wasn’t advocating a fully commanded economy.

        Moreover the value of one’s effort is quite subjective depending upon individual opinion. Surely, a sense of humility would recognize the right of another person to assess the “value” of one’s labours.

        Agreed. I could quibble but I’m in broad agreement.

        That all labour is not evaluated equally is universally known and is hardly a new principle. To say that all people are not worth the same is a rather dangerous subjective judgement probably best left to a Higher Power unless, perhaps, one regards himself as that Power.

        All people cannot contribute equally valuable labor whether via a medium of physical, mental, artistic, entrepreneurial, literary, or other form of labor. Therefore all people are not worth the same to the market or to society.

        Perhaps folks are equal in some spiritual sense but my Westminster Protestantism and its concomitant Creeds would deny me even that equality since some folks are predestined by the “Higher Power” you speak of to go straight to Hell.

        Egalitarianism of this kind is a worse attempt at sham equality than even its Marxist variant.

        Insisting that all people are equal in some vague and abstract sense as a cloak to disguise one’s own pride at how clever one is for figuring out and forcing said equality down everyone else’s throat… Well that’s just silly.

        Your reference to “the guy openly calling for socialism” is typically obscure but if you are referring to “Socred”‘s advocacy of Social Credit you obviously know less that nothing about the subject.

        Who the fuck are you to determine what is typical of me?! You don’t even know me brah.

        No. I wasn’t. I’m actually referring to myself. (See above). I’m also actually grateful for Socred (and Phil’s commentary). I have been coming here and lurking since I discovered the site because of the high level of the commentary from all parties.

        If you peruse my comments you’ll see that I also defended Ezra Pound who defended Major Douglas. I will certainly acknowledge that my grasp of Social Credit was tenuous at best and I’m grateful for Socred’s exposition. I’m leaning more toward the Post-Keynesian camp at the moment but I’m just beginning my studies in earnest.

        Socialism involves the State ownership and centrally planned administration of the means of production which is diametrically opposed to Social Credit policy which upholds private enterprise and a fully consumer-motivated economy.

        And as I state above I wasn’t referring to a command economy. I was referring simply to redistribution (particularly thru the lever of debt cancellation and Jubilee on my understanding of “sharing” and redistribution).

        I do uphold private enterprise however, even in collective forms. Nor did I understand Social Credit to be an advocate of a command economy. I was under no such delusion there.

        You appear to have an erroneous idea that a “sharing society” involves taking from some to give to others. If all production were consequent to human labour this might be a valid concern. In the modern economy, however, this condition is increasingly less true because of the continuing displacement of labour by technology. The Social Credit consumer credits to be issued as National (Consumer) Dividends and to retailers at point of sale to effect falling prices (i.e., Compensated Prices) would be issued at source, as produced goods emanate from the production line, as a means of distribution and in no way involve re-distribution of anyone’s income.

        This is not sarcasm: That is the best one paragraph summary of the subject I have seen so far. I will actually crib that when explaining Social Credit to my blue collar buddies. Especially the bit about the credit being issued “at the source.”

        While not a Luddite I’m not fully on board with every technological advance that displaces human labor. I dig creative destruction but it has to be done in a way that respects the human beings involved.

        I assume that you are sufficiently rational as to recognize the benefits of automation, the efficiency of which produces increasing abundance with minimal human effort.

        Yes but I also see the downside which is more than simply displaced human effort. Craft for craft’s sake (where craft is an intersection of mental and physical labor that generates a durable and “artful” product for consumption).

        When we have fully automated production and created an enormous storehouse of consumer wealth would you then barricade it and advise consumers that with no jobs they obviously possess no money and therefore have no legitimate access to the storehouse?

        No but fully automating everything doesn’t sound like a worker’s paradise (or non-worker’s paradise) to me.

        Please forgive me, but if so I can only regard such an attitude and policy as nothing less than psychotic–not to mention mean-spirited in the extreme. The purpose of production is consumption–not to create work. Without consumption all production would be meaningless and would cease to exist.

        I agree that denying anyone sustenance in a fully automated (or even mostly automated economy) would be psychotic and mean.

        I can’t agree with your assessment of production. I believe there is inherent value in meaningful work (defined above) and that consumption, while important, is not the end (in the teleological sense) of production.

      • socred says:

        “I can’t agree with your assessment of production. I believe there is inherent value in meaningful work (defined above) and that consumption, while important, is not the end (in the teleological sense) of production.”

        There is inherent value in some activities (I prefer not to use the word “work” for reasons that will become obvious), but the simple fact is that less and less “work” is needed to produce the goods and services we require or desire. Is there “value” in writing a song, or painting a picture, or writing a poem, or……….. I believe these activities are very valueable. What machines are doing is eliminating the activities that are less valueable, but we still have to find a way to compensate people in order to purchase the goods and services those machines make. This will free up people to do activities that are more “valueable” even if those activities are not necessarily paid activities.

        What Social Crediters are striving for is the “leisure state”, where people are freed from the bondage of dehumanizing work as this work is replaced by automation. I believe Douglas’s vision of liberty far surpasses that of the Ayn Rand and the Libertarians (never mind his understanding of the actual process of money creation and accrual accounting far surpassing that of the Austrian School of Economics).

        The Social Credit dividend and price rebate is not redistributive and has nothing to do with Socialism (in fact, Douglas was quite opposed to socialism). I joined this discussion because the article written by Phil was so factually incorrect that I couldn’t let it go without correcting the errors.

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