Not well put. It forgets/denies the factors of taxes which further diminish aggregate demand by an average of 20-25% of individual incomes for almost 95% of wage earners, and waste which is actually probably the biggest factor in the gap which macro-economically includes the entire costs of interest…which alone, as you have often quoted Margaret Kennedy as saying, is as much as 45% of total costs. The discount formula is TOTAL costs of consumption, that is what we actually INDIVIDUALLY purchase over TOTAL SYSTEMIC costs for the same period of time. TOTAL SYSTEMIC costs.

Harping about interest alone is the cranks response to monetary reform because some of Banking’s income is re-circulated back into the economy, HOWEVER, having said that, MACRO-ECONOMICALLY SPEAKING, ALL OF INTEREST IS AN ADDITIONAL COST ON TOP OF THE ORIGINAL COST BORROWED, HENCE ALL, THAT’S ALL, OF THAT COST GOES INTO THE DENOMINATOR OF THE DISCOUNT FORMULA. A rather smallish percentage of the Bank’s income redistributed as individual income to the vast majority of individual wage earners goes into the numerator of the formula, that is true, but the vast majority of profit and savings going to the few owners, executives and all stockholders goes into the denominator….because profit and savings are diminutions to the circular flow of the economy and re-investments, as they are a carryover of present incomes into a proceeding financial and productive cycle are diminutions to the circular flow as well.

Adrian:  “I’d like to see a lucid explanation of how this part of the SC theory works, that is, not just a restatement, but an explication”

Me:  Accounting is as concrete a discipline as you can get. Go to the cost accounting figures of any enterprise and distinguish between labor/individual incomes and total costs including of course the total costs of replacing capital equipment which has to be garnered in addition to the total of original financing costs PLUS a profit. From those statistics the ratio of individual incomes generated to total costs = less than 1. As this is the normal and continuous state of commerce/the economy the calculus of that flow reveals the Social Credit insight.

Me:  The Georgist/financialist insight is a valid one. As is Public Banking. I have said this numerous times here. However, they are not the only diminution of individual income from the circular flow of the economy, nor do they account for all the additional costs that also destabilize it as well. Social Credit factors ALL of the diminutions and excess costs into its theory and policies. It is a complete macro-economic analysis. Do we want a comprehensive and actual solution to our economic and monetary problems…or are we willing to settle for half measures, palliatives and insistence on same for personal agenda reasons…despite the fact that the unstable, unworkable system dominated by the Banks’ monopoly on credit…is in the honest and last analysis…enslaving????

We can band together in a movement that is totally conscious of the total problem and focused on an actual solution, or we can remain theoretically atomized and weakened…precisely the way the Banks would prefer.

Adrian: Steve,

Me:  Adrian,

I appreciate the reply, but you’re not going to find a more bedrock empirical source of data than cost accounting. Cost accounting goes beneath the surface of mere debits and credits which appear to confirm general equilibrium, and get into the actual three and four dimensional (space-time) aspects of the economy which means what? ….that they reflect ACTUAL TEMPORAL realities instead of the abstract notions of mere debit and credit.

“I suppose Douglas wants to say that profits are somehow unearned income,”

Actually Douglas claimed no such thing. Douglas was a fervent advocate of profit making systems, and opposed to socialism because it was just as administratively tyrannical as Finance capitalism and also like capitalism did not recognize the need to supplement individual incomes. Douglas wanted businesses to make MORE profit…by eliminating many of their costs (like welfare, unemployment and even eventually social security taxes which with a sufficient dividend would make such taxes immediately redundant and unnecessary) and helping to reduce their ongoing needs/costs for finance as a result of the increased profits therefrom.

I hope I’ve cleared up the fogginess some.

Adrian:  Appreciate your reply as well. Of course accounting vs. no accounting is no contest. But accounting is in terms of current money prices. Those prices do not necessarily reflect real value, the most obvious case being the externalities that industry is allowed to project onto society and the environment in terms of pollution, health costs, etc. etc. So any accounting system is no better than the underlying pricing system. So still not clear how A+B works.

Me:  I’m all for handling externalities in as technologically efficient and philosophically wise way as possible. Making the system as a whole actually function in a way that frees business to make more profit, monetarily frees both the individual and businesses from the stress of that unworkable and onerous system without having to worry about unemployment due to the gifting of money and so better frees innovation to reduce resource usage and find undiscovered energy sources will go a long way toward doing the former. Understanding the various aspects of Grace like for instance balance as in enoughness and creating an ethic and zeitgeist based on all of the aspects of Grace will help with latter.

Regardless, making the system work in as free and efficient way as possible is necessary to effectively deal with the externalities. Unfortunately the Banks will be happy to pit the environmentalists/deep ecology advocates against monetary reformers and also bring up the false duality of capitalism versus socialism (when Distributism is the correct freeing and efficient alternative). We must be conscious of their ploys and conscious and focused on the overall solutions.

Interest is a cost. As costs exceed the production of individual incomes in the normal flow of the economy interest IS A PART of the problem. That is why the discount is necessary…to reduce costs and prices. Diminutions to the flow of money in the economy is also a part of the problem. That is why the dividend is also necessary….to enable an actual economic equilibrium.

A + B describes the actual condition of the economy, that is, disequilibrium. The mechanisms of Social Credit resolve that problem. Grace as in gifting handles the pure economic aspects of the problem, grace as in mental, emotional and philosophical balance, i.e. rationality handles our recognition for the necessity of an ecological viewpoint as well.

Me:  

Ardeshir,
Yes income inequality is a problem which is increasingly de-stabilizing and of course the dividend would resolve that problem quite well.

A + B relates to both costs and incomes. Therefore diminutions to money and to income are thus as much a part of the gap expressed by A + B as excess costs. No where near all of the business revenue of any business most especially Banks goes back into the circular flow of the economy. What, do millionaires and billionaires spend all of the income on consumer goods? Of course not they put it in bonds and other investments which pool large amounts of their income and pay out only a very small fraction of that total out as income. Taxes similarly diminish the circular flow and end up more often than not in CAFR’s etc. Re-investments of any kind reduce the circular flow of total money, and of course not all of that total immediately becomes individual incomes ACTUALLY AVAILABLE TO BE SPENT ON RETAIL CONSUMPTION.

The totality of the gap is much larger than merely the excess cost of depreciation charges.

Finally, the discount mechanism is a macro tool and macro derived. Macro-economics is concerned with TOTALS/AGGREGATES. Therefore the TOTAL DIMINISHMENTS TO INCOME FROM THE CIRCULAR FLOW OVER THE TOTAL COSTS, THAT IS TOTAL INTEREST, TOTAL DEPRECIATION, TOTAL PLANT CHARGES, TOTAL COSTS OF WASTE TOTAL, TOTAL, TOTAL FOR THE PERIOD OF TIME THAT THE DISCOUNT IS COMPUTED FOR becomes the ratio. And that is why the discount could easily to a quite large percentge. If 45% and the CPI is only 3% (which is probably the actual monetary inflation figure showing that increasing the money supply is not the bugaboo that libertarians claim it is) then consumer’s/everyone’s purchasing power went up by 42% That would mean the economy was in a state of price deflation….even though we had also added the dividend into the circular flow.!???? The current financial and economic systems are so titanically inefficient it is incredible.

Me in response to John Rawson: Fine, A + B may technically refer only to the excess costs aspect of the gap….but the gap still consists of BOTH excess costs AND diminutions to the circular flow. It only goes to point out the completeness and comprehensiveness of the theory. And also, the banks didn’t ascend to being so profitable and powerful without being a monopoly and they financialize/pool those profits, and as you yourself point out re-investment diminishes present flow and pushes it over into a new cycle with very scant or no additional production of individual income. Then factor in waste….and the gap is much larger than most orthodox economists conceive.

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Me:  All present theories are incomplete except Social Credit. General equilibrium theories are wrong, and that ideology prevents them from taking the corrective policy actions necessary. All disequilibrium theories are incomplete analyses and so merely palliative in their policy prescriptions. Steve Keen has unknowingly/unconsciously come to most of Douglas’s conclusions including disequilibrium and the relevance of money, debts and Banks. His call for “a modern debt jubilee” and his IDEA website’s call for a “complementary currency”, i.e. a social credit for Greece are both conceptually/philosophically reflective of Social Credit’s basic economic and monetary philosophy of monetary grace as in the free gift. In fact in several of his latest videos on his youtube channel he exactly states that Keynesian/disequilibrium theorists need a new philosophy/paradigm to overcome general equilibrium as a theory. Keen is truly a nascent Social Crediter, awakening before our eyes. However, paradigms which are habitual ideas and ways of looking at life, are difficult things to conceive while still inside of the old one. Once you’re out, it becomes much more clear and almost obvious.

It’s like flight. Flight is actually controlled falling, but it’s odd and somewhat difficult to think of it that way unless you’re outside of the atmosphere/(paradigm) in orbit and realize that the only way you can actually fly around serenely without effort is to be in orbital free fall.(two aspects of Grace are serene focus without mental effort and power/movement without apparent effort)

And by the way, another aspect of Grace is a flow of consciousness itself, continuous consciousness, continuous realization of your own self awareness, continuous realization of each moment being brand new and so the flow of moments as each brand new…which makes it exactly opposite of being mentally stuck in an old habitual paradigm.

Grace, it’s a totality type concept that just keeps giving if you contemplate it.