New economists petition
>Date: Sun Feb  7 18:15:49 1999
>From: ("William B. Ryan")
>Subject: [lets] Re: New economists petition
>1. Paul Davidson writes:
>>>This is a list of shame...<<
>What is truly shameful is that most of these economists know better,
>many of them have expressed quite contrary opinions in the past.
>Social Security obligations are simply certain future U. S. 
>Government obligations to which a cost has been assigned. The 
>so-called Trust Fund has been given the appearance of being an 
>insurance fund because it holds income producing securities. But the 
>securities it holds are specially issued U.S. Government securities 
>paying arbitrarily fixed interest rates. It is said to be "unsound" 
>because its income from those securities will be insufficient to meet 
>it projected payouts at some future date.
>This entire argument is a chimera and a sham.
>There are many U.S. Government obligations to which a cost has not 
>been assigned or cannot be projected, in fact, most. All of these
>obligations are faced when the time comes. As a matter of finance,
>Social Security obligations will be met exactly like every other
>obligation is met when the time comes--by A) collecting taxes, B)
>borrowing, or C) printing money.
>Using the current surpluses to pay down the debt compounds the crime.
>Paying down the debt from tax revenues disproportionally reduces
>effective demand in the hands of those who pay the bulk of taxes--the
>middle class. Repaid funds are not automatically routed into the 
>hands of investors. The theorem that loans create deposits has its
>counterpart in the theorem that the repayment of loans destroys
>deposits. Paying down the debt in this manner must surely depress
>economic activity.
     JCT: Very true. Paying down the debt reduces liquidity. 
>I think what we are really witnessing is a conscious fraud intended 
>to strip the last vestiges of real power from democratic government, 
>where our elected representatives will however be rewarded with the 
>great responsibility to decide whether it is better to fill pothole 
>A or pothole B with the "limited" resources left available to them.
     JCT: They lost all power when they gave up the plates but 
fortunately, there is a vestige which could take those plates back at 
any time. 
>>2. William Hummel writes:
>>...The Treasury does not accumulate a surplus in the general fund
>>other than what it needs for on-going operations. That means its
>>spending remains essentially balanced against tax revenues 
>>(including FICA taxes) and the sale of bonds to the public. This can
>>be viewed as a circular flow of funds between the public and the 
>>government. As government spending increases, so does the size of 
>>this circular flow...<<
>The A + B theorem is premised on the fundamental theorem that inputs 
>to expanding nodalities must at all times, in the statistical sense, 
>exceed outputs. Regarding government fiscal operations, if government 
>spending is increasing - government is an expanding nodality. Tax 
>revenues plus proceeds from borrowing must therefore exceed 
>government spending proportionally to the rate of growth of 
>government. The concept is easy enough to illustrate.
>At some time in the past the rate of government spendxing was half of
>what it is now. The pool of funds constituting the government's
>transactional balances, "what it needs for on-going operations," is 
>now twice the size it was then. This transformation could have 
>occurred only if intputs into the pool have exceeded outputs during 
>the ellapsed past. It is not unreasonable to presume that inputs 
>will exceed outputs into the future, if government continues to grow, 
>cet. par.
>The government sector is one such nodality that is purported to be
>reciprocally interacting with a second such nodality, the consuming
>sector, also an expanding nodality. A closed system of this type is 
>a logical impossibility that cannot exist.
>Corollaries to Hummel's "circular flow" fallacy include Say's law,
>equilibrium theory, the claim that budgets can be balanced, and, of
>course, the "net to zero" fallacy of Mosler, Forstater and Wray.
     JCT: I think that budgets can be balanced automatically is not 
>3.  Mason Clark wrote:
>>"The government handed out shopping a city in
>>southwestern Japan." Friday, January 29. The 1000 yen vouchers are
>>good for six months. They went only to the elderly and those with
>>children--35 million people will be given $170 worth of this 
>>short-term money (total $6B).
>>Remind me, who was it proposed this experiment--Friedman or
>>Keynes?...The Japanese are trying it to boost their economy.<<
>Dan Parker replied:
>>Actually C. H. Douglas, the founder of Social Credit advocated
>>distributing purchasing power as the Japanese are now doing. 
>>Friedman tagged along with his negative income tax proposal. Keynes 
>>blanketed the concept under government deficit spending. Robert 
>>Theobold has another version of this I believe.
     JCT: I have a stream on Japan issuing such money in the archives 
at in the lets newsgroup
>>Douglas was an engineer and his reasoning was mathematical in nature
>(i.e. it allowed purchasing power to equal the costs built into the
>goods produced, which is not the case today, hence the huge debts).
     JCT: My only disagreement with Douglas are the sources of the 
imbalance. We both blame interest rate feedback but he also blames 
raw materials, taxes, reinvestment, overhead, etc. costs which do have 
corresponding purchasing power available.  
>Additionally, he saw it as a way out of the automation dilemma of 
>what has been described as the "machine wages" problem. He justified 
>it all on ethical grounds by stating the inventions and processes 
>that had replaced labour in most production belonged to everyone 
>after their inventors died (cultural inheritance was his 
>terminology). Keynes took most of Douglas' ideas, but ignored the key 
>one of the A plus B theorem, which showed interest costs had to lead 
>to increasing government deficits. 
     JCT: Right you Socreds are. Interest costs are the only bad part 
of any government's budget. 
>Keynes came clean once when he 
>demurred to an admirer that Douglas, not he, was the world's greatest 
>economist. Douglas' ideas were a great threat to the movement for a 
>world government and millions of dollars were spent to discredit him. 
     JCT: They could only successfully discredit his ideas that other 
costs than interest cause the problem. I know I can. Yet I've always 
admitted that his solution effectively negated the interest problem 
though the LETS solution effectively eliminates it. With a no-interest 
LETS currency, there's no need to negate the effects of interest and 
no need to deny government the use of interest-free funding anymore 
whether run by an interest-free Treasury or interest-free private or 
public banks. 
>Keynes was the more astute political analyst though, in his 
>conclusion that a world government was more important than Douglas' 
>ideas at the time. 
     JCT: And we know that it's useless to settle how we rule 
ourselves before we've settled how we save ourselves. Douglas, the 
engineer, was out to fix the economic machine, Keynes, the ecnomist, 
was out to set up voting on it first.    
>The great danger is that this policy is being applied by those who 
>don't understand all the ripple effects regarding industrial age 
>institutions. The environmental connection is lacking for one thing.
     JCT: Nothing hard there. There's not enough money to fund the 
saving of our environment. Business survives capitalist competition by 
paying its interest and cheaper wins at the expense of cleaner every 
time. When business won't have to face their debt clock every month, 
they'll be able to offer cleaner at its exact expense. 
     Remember, once government joins everyone on a LETS database, the 
first thing I'd do is eliminate any restrictions on Green credit lines 
to all businesses who want to invest in cleaner operation. Including 
poor guys who today can't afford to fix their mufflers. 
     LETS will lend Green credit for all useful enterprise or 
collateral. It's that simple. Name a problem we can't solve with 
enough money.
>>PS. Canada also tried out some of Douglas' policies under such
>schemes as the family allowance payments given freely to families on 
>a per kid basis. (Douglas addressed the Canadian Parliament in the
>1930's, also advised the Social Credit government elected in Alberta
>before it got slam dunked.<<
     JCT: What Canada tried out was not family allowance payments with 
newly created money by the Treasury but payments with newly created 
money by the private banks. So we had to pay interest. Douglas always 
wanted interest-free public Treasury money, never interest-bearing 
private bank money. 
     Also, any attempts by Aberhart to set up a Provincial LETS 
currency were squelched by the Supreme Court of Canada as above his 
jurisdiction even if the feds were screwing it up. His other alternate 
currency attempts, like a currency needing stamps, always fared well. 
After all, in a province with virtually no liquidity during the Great 
Depression, any liquidity Aberhart did provide did alleviate the 
poverty in some way. He could have gotten around the restriction 
just like the Argentinian provinces did in the mid 1980s by calling 
the currency "provincial bonds." Since they did have the right to sell 
their million dollar bond to New York at 10%, they certainly could sell 
a thousand dollar bond at 5% if they can get it. So they could 
certainly sell a ten dollar bond at 0% for labor instead of cash. 
That's the move to counter the Ottawa Aberhart didn't see. So Social 
Credit was never tried in Canada. 
>I might add that they are being tried out in Alberta's and British
>Columbia's neighboring State of Alaska , in the
>form of the Alaska Permanent Fund. 1998 dividend checks in the amount
>of $1540.88 are being mailed to every man, woman and child resident 
>of the state.
     JCT: Again, this is only out of already existing government 
revenues, their oil concessions in particular. Douglas wanted the 
dividend to be new money, never taxed money. 
>The anecdote attributed to Keynes is probably spurious. Keynes never
>understood Douglas, although he had made a sincere effort to do so. 
     JCT: I too thought this of Keynes though some very informed 
correspondents have indicated to me that Keynes had finally come 
around to advocating Treasury funding rather than bank funding. I 
haven't seen any actual evidence that Keynes understood the theft of 
governments licensing banks to print money to loanshark back to 
government. Until I do, Douglas was certainly not only the one to have 
seen the unnatural nature of interest but to have also found one of 
the two solutions. Of course, A Treasury LETS is the better of the 
>In an early draft of the *General Theory,* (Or was it correspondence
>related to?) Keynes attempts to derive the A + B theorem from Marx'
>monetary circulation theory. The project was abandoned by the time 
>of the book's publication, where Keynes demotes Douglas from "major" 
>to "private" in his "brave army of heretics." 
     JCT: That would have been an unfair demotion considering the 
major did engineer the numerator solution to the imbalance. That my 
denominator solution cannot detract from his achievement since he had 
no way to handle the thousands of foreign trade inputs to the 
denominator in his day which may be handled with the computer 
centralization of the world's banking systems. 
     The major financial issues of late was the proposal to allow the 
merger of two of Canada's largest banks. While most people objected at 
the thought at that much power in private hands, I welcomed it as one 
less computer I'll have to reprogram with the LETS upgrade software. 
>That demotion no doubt also reflects class prejudice on the part of 
>Keynes. Douglas' origins were definitely middle class, and the 
>middle class should aspire to be "sergeants," not "officers" and 
>"gentlemen." Notwithstanding the fact that Douglas' military title 
>was earned through a distinguished professional career and service 
>in the armed forces of his country during time of war.
     JCT: I would have bet that it was nothing more than the same 
reaction of most economists I beat in debate. The more their brains 
get beaten up, the more they react by denigrating engineers who should 
leave comment on the economic system to economists who have studied 
it. As if systems engineers can't study the economic system from a 
systems engineering perspective, top looking down, rather than the 
economist perspective, bottom looking up. 

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