What is wrong with capitalism? And what is its evolutionary, not socialist and reactionary replacement?

It is an anachronism, an appendix, an economic and social system which has gone on too long and that refuses to integrate with anything other than the wholly inadequate primary purposes of profit and power. Not that profit and even power are wrong in and of themselves, but if one integrates economic theory and aligns its philosophy and policies with a truly human and adequate primary purpose…profit and power will still exist within such a system, but they will be tempered if not transformed by the guidance of such adequate philosophy and policies.

So what is the philosophy and what are the policies of such a system? Well, as Wisdom is the integrative process and the pinnacle result of such integrative contemplation is a philosophy, an ethic and the experience of graciousness, then Grace and policies completely aligned with Grace are exactly the the idea and the paradigm we need to focus on.  The major characteristics of the idea, the policies and the experience of Grace are balance, equilibrium and flow as in, “The dancer flowed gracefully across the dance floor in perfect balance and equilibrium.” That these same characteristics are the sine qua non and intended goals of economic theory is no coincidence. Such a system based primarily on Grace and its reflective policies would be a more human and encompassing philosophy and would not destroy, but rather evolve. And policies enacted that aligned with such a philosophy would immediately transform the system and end the reign of the asymmetrical powers that currently “control” the present system. Finance which, in what is allegedly free market theory, enjoys a glaring monopoly on credit creation, and whose product and sole paradigm is Debt…would immediately have that monopoly balanced by policies aligned with an aspect of Grace, namely monetary grace the free gift to the individual. In sufficient quantity this would immediately transfer unextortable power to make policy/determine which economic entities would survive and those who would not…from a self interested elite into “the many hands of individuals.” With such policies in place it matters not whether everyone immediately sees the efficacy of such philosophy and policies. Wisdom after all by definition is the best, most ethical, most practical and yes the necessary guide for both individual development and systemic policy, and the highest integration of both thinking and acting. Hence it cannot be irrelevant. The concept of Grace is not “pie in sky” but rather the signature, the hallmark and the result of the fully integrated personality,….and policies based on that same concept are powerful, ethical and necessary. Necessary? Yes, the one common denominator of every period of relative economic “good times” is more money actually available for the consumer to spend and so make the economy flow…and the lack of such readily available money is also the one common denominator of every economic downturn.

So enough of the mereness, the fragmentation and lack of clarity and alignment of economic theory with Humanity whose species designation is homo sapiens, wise and discerning man. Let us have Wisdom as our guide, because of ourselves and despite our flaws. A Wisdomics, a Gracenomics is the necessary, the liberating and the more fruitful future for the cynic, the oppressed and even the already powerful.

Revolution is old hat. Capitalism is even more old hat. What we require is both individual and systemic evolution. The route to systemic evolution is a policy of grace the free monetary gift to individuals, and the route to individual evolution is the contemplation of graciousness.

Me:  Of course the money goes somewhere. It gets pooled into lots of different places one instance of which in America is it goes into various financial instruments discoverable in what are called CAFR’s (Comprehensive Annual Financial Reports) which are taxes on the city and state level accumulated to pay for all manner of governmental needs and services. Nationally this cumulatively translates into trillions of dollars.And that is only one example. Basically any business profit or individual saving held in account in the aggregate is a huge sum of money with very little of it becoming individual income that is withheld from the circular flow of the economy. Not that trying to track money flows is a bad thing, but it plays along the surface of the debit-credit appearance of accounting and consequently doesn’t penetrate to the real problem which is the effects on individual incomes found in the subset of double entry bookkeeping known as cost accounting. Cost accounting takes one below that two dimensional surface and into the three dimensionality of the micro-economy…where the deepest cause of our economic instability is to be found.

Precisely Billy. Except the libertarian and Austrian puritans are way too much into the moralistic necessity of employment and utterly orthodox thinking to countenance a leisure society which could have been a reality for the last 90 years instead of the veil of tears of almost constant economic slowdowns and war.

You want an economic agenda that integrates the best from both sides of the idiot unimaginative right and left who only know the power game instead of actually crafting policies that free both the individual and the system? Try this:

Implement a universal dividend of at least $1500/mo. to everyone 18 and over. Result? Unemployment and welfare taxes for businesses and individuals immediately become redundant. You could also then rapidly Phase out Social Security and those taxes also become redundant. That would be the biggest tax break to businesses and largest governmental downsize in US history. It would also create more economic democracy than the left ever even dreamed of accomplishing. Oh but I hear minds snapping shut on both sides of the aisle already. With a sufficient dividend the country would be freed from the “necessity” to wring their hands about unemployment and could rapidly re-industrialize in as high tech and robotic a fashion as possible making us a much more robust economy and less dependent on imports. Again this ought to hearten the unimaginative and orthodox on both the left and right.
Then right along with the dividend implement a compensated retail discount based on the total costs of what is consumed in say a month’s time over the total costs of what was produced. This discount is passed on to consumers at retail sale…and then the participating merchants (which of course besides typical retail outlets would include Banks, lawyers, corporations etc….after all their retail products are mortgages, leveraged stock purchases, and legal work) would be refunded every cent of their discounts to consumers so they could be whole on their overheads and margins. This discount is a general percentage for every product based on the formula above…and it is not heavy handed and idiotic price controls at all because each merchant discovers his/her normal price FIRST and then the discount is given to the consumer ….and then rebated back to the merchant.

How much more profit would businesses make with such cuts in taxes and with such a permanent abundance of consumer purchasing power? How much more free flowing would the economy be with such permanent adequate demand and with a mathematical macro-economic equation of the costs of consumption and the costs of production? It’s the perfect integration of the left and right’s agendas. Open your minds to it. Even a chimp like Billy Bonobo can see it 🙂 Don’t be an orthodox and puritan dunce. Bring on the friggin’ robots and lets have a leisure society. Try it, you’ll like it.

Blah, blah response to me

Me:  You’re looking at what I said through the filters of puritanism and orthodoxy. I point that out immediately after I re-iterate that the reason the economy is unstable is because whatever money is created….goes through the processes of the economy…before it gets translated into INDIVIDUAL income, that is less total individual income than total costs and hence prices. The plan I advocate distributes and additional income DIRECTLY TO THE INDIVIDUAL FIRST….thus avoiding the instability of forcing financial outlays through the processes of the economy. If you don’t get that essential distinction…you’re off into orthodoxy that assumes the economy tends toward equilibrium, which in case you hadn’t noticed is in disarray, and rightfully so. Your use of the word “earning” betrays your fallacious puritan beliefs in austerity. Fallacious because as the economy under its current cost accounting rules (the rule is, all costs must go into price) that means that labor costs, i.e. individual incomes are only a fraction of total costs for every enterprise which means that as a flow total costs will always tend to exceed total individual incomes. And that means that without an ADDITIONAL supplementary GIFT of income distributed directly to the individual…the economy will never be in equilibrium…no matter how much orthodoxy idiot theorists on both the right and left regurgitate forever and ever. Did everyone finally get that?

Me: The already disruptive economic and monetary factors of innovation and artificial intelligence are just getting started and will be acceleratingly erosive of aggregate demand. Whether one cares to believe the additional Social Credit insight that the rate of flow of total costs tends to exceed the rate of flow of total individual incomes actually in the hands of individuals and available to purchase production, or not…its policies will need to become the reality for modern technologically advanced economies.

You’re all nascent Social Crediters.

SmackMacDougal: 

Are we back to that Clifford Hugh Douglas flawed theory where he tried to analyze a dynamic system with a static snapshot?

1. B pays workers.
2. The Σ P × Q = Sales of A = Pay of B’s Workers
3. Sales of A at break even covers costs (labor + capital), i.e., net profit = 0

As long as C enters with workers buying B’s ΣPQ of B at prices so B’s net profit = 0 and all transaction is staggered, how do costs exceed individual incomes? Individual incomes are a component of costs.

It should be clear that net profits > 0 can arise only if some firms go out of business. Thus, it should be quite clear that protectionism by legislators increases net profits for some and thus bankruptcy for others.

As long as true wages rise or true costs fall or some combo thereof along with new entrants from an ever growing population, what is the problem?

Economies aren’t static. Douglas’ balance sheet view suffers from trying to measure something dynamic (e.g., flow) with something static (e.g., length).

Me: Labor costs/Individual incomes are only a fraction of total costs….for every enterprise and at all times by cost accounting convention. Your math is GIGO because it does not factor in that
pervasive, ever present and consequently flowing through time DYNAMIC FACT.

SmackMacDougal:

Saying so doesn’t make it so.

See the math above. Good luck!

Me:  It’s an obvious fact. The micro-economy is ruled by cost, and individual incomes i.e. labor costs which is the only thing that can liquidate a cost, are only a fraction of total costs. The well known libertarian phrase “There ain’t no free lunch!” correctly points this out. The problem with libertarian theory is, being believers in general equilibrium, they don’t recognize this most basic destabilizing fact and so use the above phrase as an answer to systemic disequilibrium theorists instead of understanding it as the lament it actually should be.

SmackMacDougal: 

Even at rest, your body burns energy to achieve homeostasis. You won’t die if you aren’t taking in food every second of your life.

In spite of your Douglas-induced prejudice, all costs don’t arrive at once for any producer.

If Douglas were right, how is it that mankind has engaged in modern commerce over the last 465 years?

Good luck!

ps. Equilibrium is a static concept.

Me:

It’s not a prejudice it is cost accounting conventions and calculus. You are the one not confronting/including in your analysis the cost accounting.

Equilibrium, as is any goal, is static. The system in its normal operations is in a continual state of disequilibrium. The “holy grail’ of economic theory is (correctly) to attain economic equilibrium. Hence crafting policy to attain and maintain equilibrium is the correct, adult and responsible thing to do.

Me:   “No one in neoclassical economics has ever claimed equilibrium is a goal. You don’t seem to know what you are talking about.”

Oh they regurgitate it all the time in almost everything they say and offer up as policy…or lack thereof…because as you point out yourself they (incorrectly) think the economy tends toward it. These sophist tricks are meaningless.

As for explaining how commerce has survived for the last however many years…it has “rolled” fitfully and occasionally limpingly along, especially since the last depression, because of Keynesian palliation of the fact that the rate of flow of costs/prices tends to exceed the rate of flow of individual incomes. Keynes was a contemporary of Keynes and his palliative policies were the fall back position for the more aware Financial powers which knew that with them they could maintain their control of the system and ignore/morph those palliative policies while profiting stupendously. Stimulus that is meager, indirect and does not challenge the paradigm of Debt is pansy-@$$ed, but it does kick the can down the road.

Billy Bonobo: When debt is capital, anything is possible in the narratives of Life.

Me:   Actually Billy, make that: When Debt is the only monetary paradigm, disequilibrium, unnecessary suffering, disguised enslavement and ultimately chaos are the inevitable narrative. But your head is in the right place and your eyes are wide open.

Post to RWER blog in response to a question of how a dividend would not make housing prices rise:

Barney,
You accomplish that by applying the second monetary mechanism of Social Credit the compensated retail discount wherein the total cost of consumption over the total cost of all production produces a percentage which participating merchants apply at retail sale (after they have discovered their own price so it is not some idiotic heavy handed and intrusive price control/production quota) and the merchant is granted/rebated back, the totality of his discounts so that he can be whole on his overheads and margins. Generally housing prices, even during the recent now exploded bubble, rarely if ever rose at a rate of 10% per month and most of the estimates for this discount have been from 14% and up. And if a house building firm, even after having been guaranteed/granted the above gift, inflated their prices more than the discount rate to the consumer the intelligent systemic thing to do would be to then tax such inflationary merchants for the percentage above the discount rate. Gifting balances and equilibrates the system and actually transforms it, and rational and ethical reforms can then be utilized in a straightforward fashion after the clarity of equilibrium and individual economic freedom is accomplished by the other of Social Credit’s mechanisms the universal dividend.

Amazing, Rudolf Steiner’s thinking almost perfectly parallels my own, (or vice versa) and my concept/formula Duality Within Trinity as the essential process for an actual integration-mental ascension from data to theory-philosophy to Self knowledge-Spirituality also parallels Steiner’s thinking.  Having never studied Anthroposophy I again find this very interesting, and also, as I see a definite commonality between the the description of the experiences of Grace, satori and the Hindu concept of the atman, a further confirmation of the relevance and reality of spirituality.

Wally:

Social Credit reveals that the consumer is rightly charged with capital depreciation but wrongly not credited with capital appreciation. In the primitive economy labour charges constituted the major proportion of costs and so more nearly approximated total costs and prices.

C. H. Douglas proceeded from the standpoint of cost accountancy and made quite clear the fact that the inherent deficiency of effective consumer purchasing-power becomes increasingly burdensome as modern technology increases the capital component of cost in prices. Thus, Social Credit becomes increasingly relevant as the economy becomes more efficient by replacing labour as a factor of production with modern real capital, i.e., tools, plant, technique, automation, robotization and artificial intelligence.

Douglas’s “A + B Theorem” is simply a statement of observable fact. All businesses make internal (A) and external (B) payments. “A” payments are wages, salaries and dividends and are effective consumer purchasing-power. “B” payments are all payments made to other organizations and are not purchasing-power to the personnel of the business making these payments. Although “B” payments originated as “A” payments, they are spent “A” payments. They are not and can never again be effective purchasing-power in the possession of consumers. They have gone back through the production system to be cancelled as purchasing-power when a producer loan is repaid to the bank, or when used to replace capital reserves–from whence they can only be issued to create new production which incurs entirely new and additional financial costs. Because of increasing non-labour factors of production, “B” costs are, of course, always growing in relation to “A” costs.

“A” payments cannot liquidate “A + B” costs, for individual businesses or in the aggregate nationally. The only way total costs can be “liquidated” is through further credit issues to finance new production or to mortgage future incomes. Governments increasingly accrue debt in order to compensate the shortage of purchasing-power in the overall economy. The point is, that payments financed by debt do not finally liquidate financial costs but merely transfer such charges as a claim against future incomes–which is no liquidation whatsoever.

When banks make loans they not only create this very necessary credit but wrongly claim ownership of it. They monetize the community’s real assets but do not create these assets–upon which they will foreclose in the case of loan default. They do not return such foreclosed assets to the community. By claiming ownership of the credits they issue by monopoly privilege they effectively appropriate the communal credit and acquire control over the Cultural Heritage. Monetary theorists who ascribe our economic problems to “usury” as such reveal themselves as captives of religious obsession, seemingly incapable of rational scientific analysis of the comprehensive role of money and credit. As such they seem willing to overlook the theft of our rightful inheritance in the communal capital while engaging themselves in shadow-boxing with a result rather than a cause of economic evil. Their are willing to sacrifice our very inheritance for a “mess of potage.”

Growing and accumulating debts, private and public represent the extent to which the banking fraternity assert their bogus claim to the community’s assets. They represent wrongfully appropriated purchasing-power of the community and should reside on the credit rather than the debit side of the national accounts. Douglas very appropriately recommended new consumer credits as an extraneous injection of purchasing-power so as to properly balance the price-system with sufficient unattached income capable of defraying all production costs, dynamically, as the occur. Such credits would be drawn from a properly constructed National Credit Account representing the estimated value of the nation’s real credit or ability to create and deliver goods and services. They would be paid equally to all citizens in the form of National or Consumer Dividends and to all retailers at point of sale on condition that they lower or “Compensate” their prices in accord with the varying current ratio of overall national consumption to production. As items representing consumption they would be debited to the National Credit Account–which latter nevertheless would always be increasing due to addition of new real capital assets. All things physically and psychologically possible would be made financially possible.

The critics of Social Credit almost always totally ignore and seem entirely oblivious to Douglas’ analysis of financial cost as this relates to actual physical cost–which he demonstrated is increasingly becoming much lower than computed financial cost. Social Credit demands falling prices but in the context of industrial financial liquidity–unlike deflation in the orthodox sense which is caused by credit restriction resulting in widespread bankruptcy.

Money in the modern economy is mere accountancy, which should simply represent our commercial activity but never restrict it. Being mere accountancy, “money” must be made the servant and not the master of mankind.

Me:

An exact, comprehensive and complete analysis. Thank you very much Wally. If one actually looks at and understands the productive/economic system, the accounting rules that enforce the original problem and the Financial system’s dominating monopoly powers in this affair…the debate ends and the only question is…how do we best band together and make it clear to the politicians and financial authorities that we DEMAND our immanent and un-extortable economic freedom from this non-functioning system with the means of economic freedom in a monetary economy….the policies of an ongoing universal dividend and retail discount!

The Social Credit position as outlined by Douglas is that the gap between prices and incomes is caused primarily by the ways in which real capital (factories, machines, equipment, etc.) are financed and the ways in which their costs are then accounted for under current financial (i.e., banking and cost accountancy) conventions. This means that even if you were to eliminate the charging of interest, a significant gap between prices and incomes would remain. N.B. Douglas never denied that profits derived from interest (like any other type of profit-making) can intensify or exacerbate the gap.

There are many processes which are responsible for the “accountancy problem” related to real capital. Here is just one concrete example. A company borrows 1,000,000 (and let’s make it interest-free) from a bank (which creates the credit out of nothing) and uses it to erect a factory (including machines). Let’s further assume, for the sake of simplicity, that all of that money is used to pay workers and so the whole of the one million is transformed into wages and salaries. The company then issues shares in an “Initial Public Offering”. The workers buy those shares, which are collectively worth 1 million, with the 1 million they were paid. The company then uses the money to pay off its capital loan. The money and the debt cancel each other out of existence (every repayment of a loan destroys a deposit). At this point, however, the company will try to recover the price-value of the factory (one million) in the form of depreciation charges over the life of the industrial assets in question – these are some of the company’s overheads or operating costs. This will allow the factory to be replaced. But, no money has been issued with which these charges might be met. All of the money created and issued in the name or in virtue of the factory during its construction period has been prematurely cancelled, i.e., it is not available to offset the costs associated with the consumption of the factory. There is therefore an imbalance between what the company is trying to recover in costs and the income available to meet those costs. Notice that this particular imbalance has nothing to do with the charging of interest since we’ve assumed interest-free credit at the beginning of the thought experiment.

If the financial system were properly designed, i.e., if it were constructed in such a way that it adequately reflected reality, it would automatically re-create sufficient money free of any debt in order to allow for the depreciation charges to be met as the company is consuming its real capital. It would distribute this directly to consumers as income because only consumers can liquidate final costs. This is what SC proposes to do via the dividend. The present financial system does not automatically register the real capital by representing it in terms of purchasing power because it is not designed to accurately represent the physical economic reality. Right now, we rely on increases in consumer debt (credit cards, mortgages, lines of credit, overdrafts, installment plans, etc.) to compensate for the lack of purchasing power, or on increases in government debt (to distribute incomes to government workers on government projects, esp. public works, while not simultaneously adding to the costs of goods that consumers must pay for, on an excess of exports over imports, or on business expansion (esp. in relation to capital goods). If the compensatory debt money cannot be raised, the company will have to take a hit in its prices and risk bankruptcy. This is all wasted effort from the point of view of the true purpose of economic association: the delivery of desired goods and services, as, when, and where required with the least amount of trouble to everyone. As an added bonus, fill the gap the Social Credit way and all of the interest that is charged on the compensatory debt would be completely eliminated as by-product.

This is the “money is a veil over barter” Dynamic Stochastic General Equilibrium theory assumption….and it is a false one. Steve Keen the Australian economist has de-bunked most of the assumptions behind DSGE, the most basic of which is Equilibrium itself. We live in a monetary economy. Both cost push and monetary inflation exist, and the economy does not tend toward equilibrium, but rather, as Keen has recently re-discovered and Douglas realized over 90 years ago, it is in a continual state of disequilibrium. DSGE theorists like the libertarians in America are actually market idolaters who think that the market is all powerful and you can just let it righteously decide things. What we actually need is to take adult, responsible and gracious control of both cost push and monetary inflation via the policy mechanisms of a universal dividend and a compensated retail discount whose plus (dividend) and minus (discount) are in fact the anatomy of macro-economic equilibrium. People are not entirely rational and businesses aren’t either, but in most affairs they tend in that direction…especially if they are informed by an ethic of Grace. One of the major aspects of Grace is balance as in balanced thinking and acting, i.e. rationality. An ethic of Grace, precisely what we need…in every way.

Wisdomics: Knowing What to Avoid, and What, Where, When and to Whom to Apply Economic Policy

The economic/commercial system itself creates the problems that economics is attempting to fix. Hence there is no solution to micro-economic problems by applying inputs into the system first, or of dealing with aggregate/macro-economic statistics without waiting until after a period of time has elapsed in order to perceive the policy necessary, and only then applying them directly to those aggregations which are the actual and operative problems.

The two most significant and chronic problems of modern economies are a scarcity of actually available money to spend by the individual and the continuous condition of inflation. Given these two metrics and the above fact of the system itself being the problem it follows that an input of money, a dividend, must go directly to the individual without it going through commerce/the economy first, otherwise it will initiate/re-initiate the disequilibrium of the system. This is the essence of Direct Distributism. Likewise and macro-economically, an attempt to regulate only a specific aggregate or one that is not systemically significant will never encompass the entire macro-economy including as per above the element of time. That is why a discount based on a ratio of aggregate statistics and applied to retail sales to the individual which is the sum point of costs for that item, is the macro-economic policy that will maintain and continue through time, the virtual equilibrium created by the dividend.

The essential goal to always keep in mind is the freedom of the individual. In a monetary economy such as ours freeing the individual monetarily and economically also frees the system, and then adjusting the system in aggregate, in order to keep its costs and abilities to clear them as equal as possible, maintains that freedom for all entities individual, commercial and national within the economy. This is the adult, concrete, responsible and most importantly individually ethical thing to do as opposed to declaring that the market, like some conscious and rational entity, will automatically clear itself despite its incredible complexity of form and individual decision making.

Size 15 Carbon Footprint: Greece has been the slow burning fuse for years ,let us all hope it reaches the powder keg soon and blows the whole stinking corrupt mass of the EUSSR into smithereens, in an orgy of riot, chaos, and civil disobedience.

Me: That’s a funny kind of hope. Returning hope and confidence to the economy with “a modern debt jubilee” and maintaining that hope and confidence with the policies of a universal dividend and a compensated retail discount…now that aligns with not only a true sense of hope, but Wisdom and its pinnacle natural experience Grace, as well.