A + B = A, when B is a free gift from nature. (open list of lists)

Hi Folks,

My understanding of C. H. Douglas' work is complete 
(I think) regarding the Social Dividend and the 
Compensated Price.  But I am not so sure of the A+B 
theorem and how it relates to the deficiency of 
purchasing power observed in industrial economies.

The subject heading of this note resolves that 
uncertainty and makes the A+B theorem compatible 
with the standard pricing formula used by; the ten 
corporations I worked for between 1947 and 1985, 
and by Wal-Mart Stores.  That is: Selling Price = [direct 
labor (A) + purchased material (B)]/(0.7).  Where 
dividing by (0.7) applies the 30% general & 
administrative rate (G&A), the cost of management, 
or "30% markup," to the direct manufacturing cost.

I am in debt to <walt.p@free.fr> for shining a light 
on the difference between owners and employees, 
in his 1/6/04 post to list FixGov, on Albert Einstein, 
and have revised Fig4.6.gif to reflect that "difference."
Now, I hope, Fig4.6 will be as perfectly clear to Doug Everingham and
John Gelles as it is to me.  But, what 
can that funny looking diagram add to a discussion 
about malfunctions of the economic system?  Perhaps 
three things:
1, An insight into the relationship between direct and 
indirect taxes.
2, An insight into how money is used in an industrial 
economy, and why M1 has remained nearly constant 
at $1,200 Billion since 1994.
3, An assurance that the cause of the shortage of 
purchasing power cannot be found in the corporate 
policies of the private sector, and must be located in 
the domestic policies of the public sector.


As revised, Fig4.6 now clearly illustrates how shifting 
the tax burden from direct taxes on personal income 
to indirect taxes on productive output, while holding 
the cost of government constant, will justify Douglas' 
compensated price.   Or, require a larger social dividend 
to stabilize the labor market at 1-2% unemployment, at 
zero inflation, and with purchasing power = to (A flow) 
to the workforce (wages, salaries, interest, and 
dividends).  This is the mode of operation enjoyed by 
Germany and Japan during their three decade 
"economic miracles" after World War II.  

Another thing Fig4.6 can add to our discussion is a 
reasonable understanding of how much money (M1) 
is actually employed to produce our $10 Billion/year 
gross domestic product (GDP).  But first, it helps to 
be assured that the US economy has become more 
efficient since my 1994 letter #157 to Katharine Graham, 
Danial P. Moynihan, and Peter G. Peterson remarked 
that US GDP/capita was 36% less than the Swiss 
GDP/capita.  More recent data tabulated below shows 
that we have moved up to 89% of Swiss GDP/capita.   
                         
From 2003 World Bank ATLAS, data for Fig.1.gif 
                           2001          GNI/capita      Cap. Inv.    
                      GNI/capita    % of Swiss    % of GDP  
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Switzerland   38,330            100.0                18.6
Norway           35,630               93.0               22.1
Japan              35,610               92.9               25.5
USA                 34,280               89.4               20.7
Sweden          25,400               66.3               17.6
France            22,730               59.3               20.1
Germany        23,560               61.5               20.0
UK                   25,120               65.5               17.2
Australia         19,900              51.9                21.1
Israel               16,750               43.7               19.3
Turkey              2,530                 6.6               16.5
Russia              1,750                 4.6                22.1
(Don't these people ever talk to each other?  It's 
been almost 60 years since Douglas MacArthur 
and John J. McCloy performed their economic 
miracles in Asia and Europe.  When is Peter G. 
Peterson going to do the same for the last four 
nations on the list and the third world?)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Now, back to the question about how much money 
is enough?  In Fig4.6, the real economy consists of 
$15,000 Billion/year in business to business transactions 
(Douglas' B flow, I believe) plus $10,000 Billion/year in 
value added (GDP or Douglas' A flow, I believe).  The speculative
transactions, rising above the real economy 
like the foam on a mug of beer, are more than an order 
of magnitude larger than our GDP.  But each private 
sector corporation and government agency, which 
constitute the "Capital Plant," engages members of 
the workforce according to their ability. So the human
contribution to the production of wealth is delivered 
all along the height of the capital plant.  

The free gifts of nature enter the diagram at the zero 
$B/yr. level and combine with the human contribution 
as purchased material in several successive transactions 
before it is delivered to the world market.  Each item of production may
be counted several times, as it rises to 
the $15,000 B/yr. level.  So Fig4.6 allows us to visualize 
the National Input-Output tables developed by Wassily 
Leontief in 1966, which put GDP output to households 
in the real economy at about 40% of total corporate sales.  

The $10,000/year GDP is disbursed to households in 
several different ways.  Many corporate dividends are 
paid quarterly.  Social security payments are paid 
monthly.  Wages and salaries vary from monthly to 
daily for casual labor.  We have established above 
that the net flow through the capital plant is only the 
$10,000/year GDP.  If the mean number of pay days 
per year is 12, the amount of M1 needed would be 
$833.3 billion, or less if payments were scattered 
over the month.  If the mean payment interval were 
shortened to two weeks, only $484.6 billion of the 
$1,200 billion M1 would be required to run the real 
economy, and the balance of M1 would be hunting 
around the world for profitable investments or 
speculative opportunities to be Globalize.  

A more detailed look at the US role in Globalization 
is by the profile of the US medium of exchange (M1) 
since 1959, as tabulated below and illustrated in 
Fig2-3, Fig10b and Fig10d.

The US money supply M1 (Billions) consists of two 
components, issued as debt by the banks: 

(1) Federal Debt held by banks = ( Federal Debt) minus 
(Federal Debt held by the public).  Source: Economic 
Report Of The President, February 1995.
(2) Private Sector Debt held by banks = (M1) minus 
(Federal Debt held by banks).                 
   
~~~~~~~~~~~~~~~~ Federal Debt ~~ Private Sector Debt
Year             M1        Held By Banks         Held By Banks
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1959         141.0B            52.8B                         88.2B
         2.3%/yr. for 5 yr.
1964         158.7B            59.3B                         99.4B
         5.5%/yr. for 10 yr. 
1974         271.3B          140.2B                       131.1B
           7%/yr. for 10 yr.
1984         543.9B          264.2B                       279.7B
           7%/yr. for 10 yr.                                        
1994      1,152.1B       1,211.5B                     ?(59.4B)? 
~~~~~~~~~~~~~~ End Profile Of M1 Components ~~~

Notice that the private sector retired all of its debt held 
by banks in decade ending 1994.  So the taxpayers and 
consumers are providing the private sector's "working 
capital" (M1).  Since 1994, M1 has remained nearly 
constant as follows:

1995      1,142.2B                                     
1996      1,096.0B                                          
1997      1,066.9B        Low = 96.8% of 1994 M1  
1998      1,078.8B
1999      1,096.2B
2000      1,099.9B
2001      1,199.9B          
2002      1,192.5B        High = 103.5% of 1994 M1


1994 Data:
GDP = $6,891.1B/yr
Federal debt        $4,643.7B    
                                        ($3,432.2B held by the public)
                                        ($1,211.5B held by the banks)
Mortgage. debt    $4,366.6B
Consumer debt      $931.5B
                              ~~~~~~~~~~~~~~~~~
National Debt      $9,941.8B in 1994
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
So what can the funny diagram in Fig4.6.gif tell us 
about item 3 above concerning the shortage of 
purchasing power in the US economy in 2004?  

The above dissertation has convinced my sixth 
grade Sunday School class of ten year olds that 
the US private sector, consisting of the "capital 
plant," but excluding government, has been 
developed to perfection.  It works.  It produces 
everything for which an "effective demand" can 
be identified by business men.  It produces parts 
for 18 year old automobiles.  There is nothing about 
the Macro Model, following the leftward flow of the 
human contribution from the labor market at 180 
degrees to the world market at 0 degrees, to suggest 
a deficiency of purchasing power.  It seems obvious 
from the M1 profile above that any John Gelles dollars, 
debt free and at zero interest, would join the 
unemployed balance of M1, issued as debt, with only 
second order effects, if any, on the real economy.

The very real shortage of purchasing power among 
parenting households is balanced by a corresponding 
excess of purchasing power among the WHIPs (our 
wealthy, healthy,intelligent, and powerful folks) and 
exists only in the workforce at 270 degrees on Fig4.6.gif

Notice on Fig4.6.gif that 50% Capitalism for Employees 
is entirely due to the fact that the first tithe for Education 
and Development was capitalized at the 50% level (1-12 
public education), leaving subsistence and higher 
education to be charged to each household budget 
as a fixed and unavoidable expense, as illustrated in 
Figures 7-9d, 7.1, 8.1, and 9.1 forthcoming.

Gotta work on Fig9.1.gif.  Talk to ya later.

Wes Burt

Please explore "The Optimum Policy" illustrated at 
URL <http://www.epie.org/cyber-soc/default.htm> 
and post your comments to list <TOP@topica.com>.