Wednesday, 12 August 2015

The Social Credit National Dividend and Compensated Price and capital investment by Wallace Klinck

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Douglas made very clear that his proposals are appropriate to the modern capital intensive economy and have little to offer for a primitive economy.  I believe that when approached by representative of a poorly developed country he advised that they should concentrate on formation of a real, i.e., physical capital base and then he might be able to assist them.  His analysis of the modern credit system as it works with industrial cost-accountancy confirms this to be the case. Obviously Social Credit does not apply to barter economies or exchange systems, per se.  The unique aspect of Social Credit is that it is distributive.

If industrialized nations were to get their own financial affairs in proper order they would be in a much better position, were this so desired, to assist other less fortunate countries benignly rather than in exploiting their resources as they now do as they engage in an intensifying quest for lower production costs so to compete in world export markets.  You are correct that a Social Credit “Dividend” can only be paid where sufficient product is available and this can only occur in an increasingly capital-intensive economy where efficient “tools” make it possible.  This is a circumstance which is simply a fact of reality.  Perhaps others may be overly optimistic about the prospects for Social Credit in some less advanced nations, although some living examples have demonstrated the realization of surprisingly rapid industrial advancement under favourable conditions.

Regarding the issue of Consumer Dividends and implementation of the Compensated Price in the modern economy, certain axioms attach to the Social Credit analysis and corrective prescriptions, among which are:
(1) all things physically possible and desired must be financially possible, 
(2) the true cost of production is consumption, 
(3) physical cost is less than computed financial costs, 
(4) “money” is simply an order system of effective demand, i.e., a ticket or “counter” system and is a matter of accountancy having necessarily, and preferably, no physical substance in itself, 
(5) new production must be financed by new credit, 
(6) finance must reflect reality.

When a program of capital goods production is pursued it is financed by new credits issued in the form of bank credit.  These credits are not a gift and must enter costs and prices by which they must be recovered from consumers and returned to the issuing bank for cancellation.  The bank claims ownership of said credit.  Consider what happens:
The new production credits which are used to pay out incomes are paid in advance of new consumer goods but constitute an expansion of demand units which dilutes current purchasing-power in respect of existing goods.  They cause an inflationary rise in the price-level.  But do they cause greater consumption of actual physical  goods?  No.

When we produce new capital goods what are we doing?  We are increasing or enhancing the real credit of the nation.  What does this mean?  It means that we are increasing the ratio of production to consumption and by definition the real cost of production is being reduced.

How are we to compensate the rising prices which have resulted from the issue of new production credits which the banks claim wrongly as their own?  How to “expiate” this crime—this theft by the banks of the communal credit?  We cannot simply add further consumer credit by way of Dividends the money value of which would be simply be lost by an expansion or inflation of figures.

Douglas claimed that money can be issued either to increase of decrease prices.  It is all a matter of accountancy.  So, if we issue credit to reduce prices by means of consumer Price Compensation in combination with payments of consumer credits in the form of Consumer Dividends directly to citizens, we can effect falling prices and increased purchasing power to reflect accurately the increase achieved in the communal credit in accordance with Douglas’s “natural law of cost”, i.e., the overall consumption/production ratio.

Proper financial accountancy must always reflect physical reality, automatically, constantly, dynamically and simultaneously insofar as this is possible without confusing or mixing the relevant figures attaching to successive costing cycles.

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