MONETARY: Binary Economics & Social Credit: Part I

[Norman Kurland <thirdway@cesj.org>]

BINARY ECONOMICS AND SOCIAL CREDIT: AN EXCHANGE WITH MICHAEL LANE, PART
I

INTRODUCTION: Participants in the monetary reform discussion group are
exploring alternative approaches for monetizing capital growth in ways
that bring about a more democratic, just and non-inflationary market
economy.  One such approach are the ideas of social credit, as developed
by Major Douglas and another are the ideas of binary economics, as first
developed by Louis O. Kelso and amplified by Robert Ashford and Rodney
Shakespeare in their 1999 book, BINARY ECONOMICS: THE NEW PARADIGM. This
is the first of a three-part series, starting with the following letter
of November 12, 2001 from Michael Stephen Lane, editor of the monthly
publication, TRIUMPH OF THE PAST, Columbus, Ohio, to Norman Kurland of
the Center of Economic and Social Justice.  Excerpts from Mr. Lane’s
letter of November 12, 2001are repeated in Parts II and III and enclosed
within <<        >>.  Mr. Kurland’s responses of December 2, 2001 in
Parts II and III follow each of the segmented points in the order
presented by Mr. Lane.  Mr. Lane has given permission to make this
exchange available to interested persons.  Of course, both writers and
readers are encouraged to make further comments in the interest of
promoting a scholarly dialogue, deeper mutual understanding and
collaborative initiatives between those advocating the binary economic
theory of Louis Kelso and the social credit theory of Major Douglas.



November 12, 2001

Dear Mr. Kurland:

You will recall that pursuant to en e-mail exchange between yourself and
a
Mr. Bill Ryan, I sent you a four-part article, "The Social Credit of the

Left," with a promise to have a look at your article referred to in the
exchange, "A New Look at Prices and Money."  (Page numbers refer to this

article unless otherwise noted.)

  The Kelsonian binary theory and social credit plainly embody the same
social philosophy, which I am in the habit of calling the distributist
philosophy.  New ("pure") credit for new production (p. 4f., 10f.); the
capital homestead-or cultural heritage-account with the dividend
displacing
the wage as the main form of income (pp. 9, 18, 20, 22); the job paid
for out
of the job (pp. 5, 7 ); naturally falling prices (pp. 12, 20); the
fallacy of
full employment (pp. 16, 18, 22); and the significance of leisure-work
(Kurland et al., "The Third Way," p. 23f.) are all key social credit
themes.

    The predominant role of capital in contradistinction to labor as a
factor
of production in the Power Age (the origin of the term binary, p. 3) is
the
basis of the Douglas analysis.  I would therefore only question the
accuracy
of calling it "new" (p. 4).  I presume that Kelso was not prideful about

being original and would have rejoiced to find a predecessor if he had
known
it.
    I believe I can very easily describe to you what social credit is in

terms of capital homesteading and your diagram on p. 8.  If you take
your
ESOPs, ISOPs, CICs, and CSOPs and merge them, to make every citizen an
equal,
inalienable shareholder in USA, Inc., you have the social credit
dividend.

Social crediters distinguish between "administrative" ownership and
"beneficiary" ownership:  we don't all want to play the flute, we just
want
to enjoy the music.  The social credit dividend satisfies "consumer
sovereignty" (itself precisely the kind of "democratic accountability"
proper to the marketplace) without requiring that consumers also become
owners of means of production in the administrative sense (cf. "Third
Way,"
pp. 13, 18).  Just as we don't need full employment, we don't need full
"share-voting" either.

There is one more thing: the amount of the dividend.  Based precisely on

the technological change that is the justification for binary economics,

Douglas argues that Say's Law fails.  I cannot put it more concisely
than I
did in "The Social Credit of the Left":

". . . all businesses in the system should be able to start paying out a
third
less at time t2.  Yet prices at time t2 will reflect the higher costs at
time
t1.  Therefore, the price of boots at time t2 will exceed the money
distributed by the boot industry at time t2. . . . A system that is not
continuously self-liquidating at time t1 and time t2 and time t3 is not
self-liquidating at all.  (Triumph of the Past, October 2001, p. 1, col.
1f.)"

    The social credit dividend would be paid week by week and would
represent
the difference between total disposable (after-tax) personal income for
the
week and total price of consumer goods and services coming onto the
market
that week.  The former represents all wages, salaries, and dividends
paid
that week; and the latter represents all past costs incurred, plus
profit, on
all goods and services that come onto the market that week.

    The Bureau of Weight and Measures standardizes the value of the
inch, the
pound, the gallon, and so on:  we do not have "market gallons," varying
from
one business to another.  Just so, a price control mechanism should set
maximum profit as a percentage over cost, varying for different
businesses
according to risk.  That way-and only that way-the dividend will be real

purchasing-power and a self-liquidating system achieved.  This puts
flesh on
your "national policy to maintain stable or lower prices" (p. 21).

I have studied the mathematic part of your paper, but I do not find that

it does justice to the main body.  In your defense, you are trying to
win
over orthodox economists by presenting binary economics in their
language,
and the fit is not perfect.

For example, NNPF = C + I + G and NNPE = EL + EC + ET are said to be
expressions of Say's Law, which should mean they make a substantial
assertion
subject to proof.  But they are also said to be definitions, which is
completely different.  If they are just definitions, there is a problem
with
later statements:  "All increases to the nation's output (NNP) would
result
from added consumer spending (C) and expanded investment (I)" and "All
future increases in total national incomes or net national product (NNP)

would be tied directly to marketable production increases that take the
form
of increases in employment incomes (EL) and increases in ownership
incomes (EC
)" (pp. 17f.).   If these are just restatements of definitions, the
italicized expressions should read simply consist of.  On the other
hand, if
they are not definitions but a law, where is the proof of the law?  (And

where also is the definition of the term NNP, without which the law
doesn't
mean anything.)

Again, M appears only in the expression M x V, with V defined as NNP ÷
M.
 That means that M is irrelevant because no matter how big it is, it
always
cancels out.    This makes your later statement incorrect: "We can see
from
the formula M x V = P x Q that either the total supply of money in
circulation (M), or the velocity of circulation of money (V), or both,
would
have to increase in order to accommodate increased Q" (p. 21).

I am not too alarmed by these problems, however, as they don't in any
way
diminish the validity of the Kelsonian model.  I just put them down to
your
heroic effort to fit a round peg in a square hole.

The concept of self-liquidating projects-"the job paid for out of the
Job"-in itself makes perfect sense (p. 5).  It makes perfect sense in
physical terms, but we can't assume that credit will by osmosis take on
the
characteristics of the physical projects that it finances:

What makes capital credit special is that by nature it is procreative or

"self-liquidating."  That is, capital credit is restricted to the
purchase
of assets that are expected to pay for themselves out of the revenues
generated from the capital project which it financed, and thereafter
these
assets are expected to earn a continuing flow of profit for whoever owns
the
assets.  ("Third Way," p. 15)

Whether a physically self-liquidating project will be financially
self-liquidating depends on whether your credit system has a mechanism
(like
the social credit dividend) to compensate for the t1/t2 lag.

It would give me no pleasure to show "where Kelso went wrong" (as you
put it to Ryan) when he went so far obviously right.  The fact that he
discovered the binary paradigm independently only confirms it the
better.
And you have brought in new ideas (two-tiered loan terms and capital
credit
insurance) that I think would complement the social credit dividend.

All best wishes,

Michael Lane

P.S.  Ryan would have you believe that Douglas's preferred expression
for
"productive capital" was  labor displacements, and you obligingly use
it.  I
know Douglas's writings as well as anyone living, and I have never seen
this
expression.

cc:  Frances Hutchinson, Social Credit Secretariat