From - Tue Oct 11 10:48:06 2005 From: wesburt@juno.com Subject: Re: Part 2, Extrapolating A+B Date: Mon, 10 Oct 2005 16:42:23 -0400 Dear Bill [Ryan], When I first saw your Flux-Reflux diagram, Fig14 attached, it simply did not compute for me. But after you used it, a few months back, to explain the action of bank credit in an economy, and in the message below to explain the relation of income to spending in a business or household, I now find that Fig14 adds a helpful extra perspective to the several points of view already on Dr. W. C. Priest's web site below. This extra perspective is particularly helpful in presenting the published data on inflation and the profile of the M1 money supply shown in Fig2-3, from 1959 to date in the US. Fig14a embellishes fig14 with a few dates and extension lines such as draftsman would use on a blue print for a machine or a house. It follows Martin Hattersley's observation that the flow of money in the real economy is much like the flow of fluid in the automatic transmission of a recent model automobile. I recall a New Zealander, at that time, remarked that their automobiles had manual transmissions. When Fig14 shows bank credit, as in revision "a," M1 (the only money in the economy) is the distance ($) between the flux and reflux lines. M0 is the part of M1 that continuously circulates between business and household checking accounts to define the total of A + B transactions, which amount to 250% of GDP (annual gross domestic product). This flow of M0 is nearly synchronous with the production of real wealth. I say "nearly" synchronous, because the ratio of M0 disbursed during the billing period and the real wealth produced during that same period has varied, in the United States, from 0.98-99, prior to the "great transformation" of the 1890s, to 1.023, and increasing, since the 1890s. That 2.3%/year, and increasing, rate of inflation since the 1890s is the only exponential function I can find in an industrial economy, and it is completely independent of debt owed or interest paid inside the economy. That run-a-way, out of control condition, is the root cause of the 20th century malfunctions of the US economy, except for the perturbations caused by misguided attempts to regulate the economy by deficit spending. Notice that Karl Polanyi's "great transformation" was completed at least thirteen years before the Federal Reserve system, and the direct tax on all income, were established in 1913. Those two additions to our economy are able to further impair the operation of the economy, if mismanaged, but they cannot correct the root cause of its 20th century malfunctions. The root cause is an imbalance of purchasing power, over the income distribution shown in Fig8d.gif. An imbalance caused by our failure of our government to capitalize the whole cost of human development as completely as our corporations capitalize the whole cost of their capital development. It seems, to me anyway, that the input/output, flux/reflux, relationship of Fig14 applies as well to a business or household as it does to the real part of a national economy; with the limitation that only the federal government, and/or, its designated banking industry can create M1 money. Businesses and households, in marked contrast, have to earn their money by producing wealth and receiving their due share of the flow of M0 as $sales, salary, or wages. In the home work assignment in your post below, Bill, you wrote: "Let the flux represent the rate of spending by the statistical entrepreneur, and the reflux represent receipts over his sales counter. Inasmuch as he is always receiving back less than he is spending, how is it possible for him to record a profit? I assume that the statistical entrepreneur had accumulated a positive balance in his checking account of M1 minus M0 at T0. At T1 he has complete records of his spending, along the dotted line that defines the top of M0, and, of his sales receipts along the reflux line which defines the bottom of M0. If his M0 at T1 is less than M0 at T0, he would have booked a profit for the T1 minus T0 period. Rather like balancing a check book. An equally interesting feature of the profile of M1 as shown in Fig14a is that in the course of expanding from $250 Billion in 1970 to $1.369 Billion today, M1 held nearly constant at $1,200 Billion for eight years, 1994 to 2002. Recall also, that in 1970, Federal debt held by the banks accounted for about half of M1. The other half of M1 being corporate debt held by the banks. By 1994, corporate debt had vanished from M1, so the taxpayers pay the entire interest on M1 and corporations enjoy interest-free working capital as a courtesy of the consumers. During that eight years; the CPI increased at 3.3%/year, real wealth production increased at 2.2%/year according to John L Perkins, so M0 must have increased by 5.5%/year to support the CPI and productivity increases between 1994 and 2002. And all this while holding M1 constant. That's what I call fine tuning of the economy. Where did I go wrong, Bill? Or should we be teaching Fig14a and the rest of Dr. W, Curtiss Priest's web site to our ten year old sixth graders so they can grow up to become members of Congress and make the whole Law of Moses the law of the United States? Kind regards, Wes Burt --------- Forwarded message ---------- From: "William B. Ryan" To: ijccr@yahoogroups.com, socialcredit@elistas.com Date: Thu, 29 Sep 2005 08:12:10 -0700 (PDT) Subject: [socialcredit] Part 2: Extrapolating A+B --- Per Almgren wrote: "If the lenders use all their interest and other types of income to buy goods and services, there will be no exponential growth of the debt in the society. In that case all interest costs will turn back as income to the rest of the society. "If the lenders choose to only use part of their income to buy goods and services, the payers of interest won't get back all the interest paid as an income." -------------------------------------------- --- "William B. Ryan" responds: Although you will be reluctant to admit it, with this you have now effectively abandoned the argument that interest "causes" anything. In its place you now substitute the bankers' underconsumption thesis. Intellectually, it is a big step forward. I'm not being facetious. But the underconsumption thesis in general (not just limiting it to the bankers) is itself based upon a rather subtle fallacy, which I'll introduce here. I again append the flux-reflux diagram. http://www.geocities.com/socredus/compendium/flux_reflux2.gif If now we take the flux to represent income, and the reflux as representing spending from income, there is always a residuum represented by the gray shaded area. At any point in time the statistical recipient of income will have spent something less than the income he has received. - The economy is a physical process. It takes time for action to be accomplished. Homework assignment: Let the flux represent the rate of spending by the statistical entrepreneur, and the reflux represent receipts over his sales counter. Inasmuch as he is always receiving back less than he is spending, how is it possible for him to record a profit? - --- Per Almgren wrote: Subject: The condition for interest causing exponential debt growth Date: Wednesday, September 28, 2005 If the lenders use all their interest and other types of income to buy goods and services, there will be no exponential growth of the debt in the society. In that case all interest costs will turn back as income to the rest of the society. ~~~~~~ Balance of text snipped by Wes Burt ~~~~~~ The Optimum Policy (TOP) is shown on Dr. W. Curtiss Priest's web site at: ~~ Either refute it or incorporate it in your public policy proposals. ~~