Something a little bit different (continued)

Today I am going to launch into a more detailed explanation of the economic system I proposed yesterday. If you have not read yesterday’s post, I strongly recommend it. Before I begin: for the purpose of convenience (my own), I have decided to dub the system I discussed yesterday “Applied Monetary Management,” or AMM. This name is somewhat appropriate, and it will spare me some lengthy sentences.

I would first like to discuss overproduction in more detail, since this is one of the central points I brought up yesterday. Overproduction is a condition in which a nation produces more products than it can consume. In a capitalist system, this is disastrous to the economy if the country suffering from overproduction cannot find an economically viable way to get rid of the excess. In most cases, though, the philosophy of “favorable balance of trade,” in which countries are encouraged to export more than they import, has countered overproduction in most cases. Today, the concept of foreign aid has been added to this as a way to alleviate overproduction. But where there are no more markets for the excess goods, prices plummet and the economy crashes. (This is what happened during the Great Depression—demand dropped because Europe could no longer afford to buy our goods and did not need war materiel, so the US was left with a surplus we were unable to get rid of.) According to C.H. Douglas, overproduction—or at least shortage of money—occurs naturally in capitalism. Douglas explained this idea in his A + B Theorem. In this proof, Douglas explained that a product’s cost is made up of two parts, A, the cost of wages to pay the employees who produce the product, and B, the cost of the materials (including land) needed to produce it. Thus, the price of the product must be A + B + C, where C is the profit. But how can the public possibly purchase all the products created if the collective purchasing power is equal to A when the collective price of all products is equal to A + B + C? The answer: they can’t. This is the rationale for Douglas’s Social Credit as well as for AMM—if more money is pumped into the economy, overproduction can be turned into an advantage rather than a liability.

Next, I would like to talk about taxation and investments in relation to my AMM system. Taxation is entirely useless, as it withdraws money from circulation. Since the national dividend is the opposite of taxation and the government can just print fiat money anyway, taxation is useless. Investments detract from the productivity of an AMM nation, since money used to buy insurance or invested cannot be used to purchase products. Thus, both of these would have to be discouraged and perhaps more strictly regulated (though not banned) in an AMM system. 

I would also like to briefly touch on trade in an AMM system. As I mentioned yesterday, all trade is to be controlled by the government because of the fact that the AMM nation’s currency would probably be worthless elsewhere in the world. Thus, the government will use the barter system to get what it needs from other countries and foreign companies. Though this is somewhat cumbersome, it adds to the power of the government in terms of economic control, which is central to the success of the AMM system as a whole. This does make it difficult to travel to other countries, but this is a minor concern in the big picture.

I would now like to counter some of the standard arguments that are used against C.H. Douglas’s Social Credit, as many of them apply to AMM, the system I am proposing.

Firstly, I would like to counter the argument that AMM suffers because it is overly socialistic. Though it is true that the concept of the national dividend is somewhat socialistic, it does not make anyone’s job into a sinecure. As I briefly touched on yesterday, AMM accounts for the cultural factor that is often the downfall of socialistic systems: lack of incentive to work.  Recall that the national dividend can be distributed either in a more socialistic way (more equal) or in a more capitalistic way (rewarding hard work). Also, remember that it is elected officials who determine how the dividend is doled out. Thus, whichever way the cultural pendulum swings, the distribution of the national dividend can account for it.

Secondly, I would like to further discuss the issue of hyperinflation. As mentioned in the paragraph above, AMM can account for the cultural factor present in the downfall of socialistic systems. Also (and perhaps more importantly) AMM creates perpetual, unlimited demand. This, in turn, creates more production, and hence more work. Also, remember that the government also controls prices to a certain extent. (This is one of the fundamental differences between AMM and Social Credit—Douglas proposes freezing prices, which he calls the “Just Price” system; I propose giving an option fiat money subsidy to lower prices. Companies would prefer to accept this, because not only ensures that they will be paid well for what they produce, but also because the lowered cost (coupled with the national dividend) ensures that they will not have excess goods.

Lastly, I would like to explain my apparent grudge against bankers and capitalists. As I discussed previously when talking about the automakers’ hearing in Congress, the self-declared motive of any capitalist is to seek wealth and personal gain. I am not begrudging selfishness as a personal philosophy, though; I see no problems with selfishness or egoism in general. The problem is that when a company or a few companies are the only major ones in their industry, the executives of those companies have an enormous social responsibility thrust upon them: they are now charged with ensuring the continued prosperity of that industry. But what have they done to earn this position? Though many hold that their ability to succeed in their industry is what qualifies them—however, this is only half true. Though having proficiency in running a company of a particular industry does qualify that person to manage the industry, it does not change the fact that that person is self-serving, not a public servant. Instead, controlling the direction of an industry (as opposed to directly managing it) is a job that should be taken up by the government, which serves the people.

I have also expressed my distaste for powerful privately owned banks and other financial institutions; I would like to explain my reasons for this as well. Banks and other financial institutions are among the most powerful organizations when it comes to determining the value of money; banks can even create money using fractional-reserve banking policies. This is dangerous because banks, like capitalist individuals, have selfish motives. To allow organizations with selfish motives to have so much power over the monetary system is clearly very dangerous. Instead, the government should ensure that it has the most control over the monetary system by forcing banks to utilize commodity money-based polices. Once again, since the government serves the people it is a far better candidate to control the value of money than a bank owned by a self-serving capitalist.

I would also like to discuss some of my influences and some recommended reading on this subject. For information on the economic philosophy of Social Credit, I recommend reading three of C.H. Douglas’s books, Social Credit, Economic Democracy, and Credit-Power and Democracy. Though these aren’t among the most gripping or entertaining books out there, they explain Douglas’s ideas and are very thought provoking. I would also recommend Robert A. Heinlein’s 1939 novel For Us, the Living, which is more of a lecture than a novel, in which Heinlein offers his own take on Douglas and applies to philosophy of Social Credit to culture.

**As a side note: Any real economists reading this are probably laughing at me. I have thus far failed to provide any hypothetical examples, case studies, or any other proof besides logic to back up my arguments. My theory is based mostly off of early 20^th century thinkers rather than modern economics, which probably makes it obsolete. I admit, I am quite a neophyte as far as economics goes—this is mostly the reason I approached this problem from a philosophical standpoint rather than an economic one. But this theory is the best one I’ve got, and I suspect there is actually some validity something to it. In the future, I will do some research and try to provide some tangible proof for what I am saying. 

Tomorrow I may or may not continue on this subject—I may decide to take a day off from it to discuss the global economic crisis instead, in particular President Obama’s recent speech.