Index July 2024 The Newstart OnLine Journal 5 pages Item 9
Corrective Economic Approaches
by Charles Pinwill June 2024
The first thing when attempting to make changes is to look to what tools may be available to do them. This may involve things material and intellectual, and even knowledge from history. Here, above all we are talking about sanctions.
A sanction is anything which allows you to achieve a result. I can remember working in a remote place trying to drive a nail to secure a pump into place to water thirsty stock, and without my full toolbox. I tried the back of a shifting spanner and the side of an axe. Driving nails was impossible.
The sanction I needed here was a hammer.
History teaches that is every society there is a key sanction. In Imperial Rome the key sanction was the Legions. If you had the support and affections of the Legions you ruled the world. All other sanctions; moral, intellectual, rhetorical or money were secondary. They were all available, but only if you held the key sanction.
With the break-up of Rome, power was localised and the medieval system emerged. When all of the things which supported your life such as food and shelter had to be had from just a few miles from your home, the key sanction became land. The ownership and monopoly of land was now the key sanction and fell to the local Lord of the Manner. This situation prevailed for some hundreds of years.
In time the rivers and waterways were reopened and the roads also became operative. The local Lords’ monopoly of your life support was increasingly undone. He had to compete with wheat, honey and other materials coming in from elsewhere. His monopoly was progressively broken by the activity of merchants. We had arrived into the mercantile system.
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The means of operating the mercantile system was now money. We had left the key sanction of the Legions and the monopoly of land; it was now money which was the key. For a time commodities such as honey, grain or precious metals may perform the function of money, but that soon passed. Trade between Italy and the mouth of the Rhine was complicated and demanded a flexible currency.
The Bankers of Northern Italy, such as the Medici family, came into prominence. They loaned to both traders and purchasers and soon the credit you had with these Banks was the form of money.
Our money is still our bank deposits. Notes and coins are an insignificant 2% of money. Before we look further an corrective economics we need to understand something of this key sanction.
New and additional bank deposits are created when banks give loans. Banks never lend their deposits in spite of misunderstandings. None of us have ever had our deposit reduced to lend it to another.
Every time a bank makes a loan the amount of money in existence is increased, and when we repay a loan the deposit we use to do so is cancelled out. The function of banks is to both create and destroy our money.
The above is elementary knowledge, but critical to understanding the key sanction now existant in society.
When men seek to understand anything, be it an asteroid, a radio wave or a substance we always do it in the same way. What’s that? We measure it. We measure it in all of its known properties; length, weight, velocity, shape, chemical makeup etc.
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So what is he first thing if we are attempting to a change to the economy? We measure it!
Strangely, Governments barely bother with such. They do do a few accounts. They do a budget which is an estimate for next year, or more probably, largely a guestimate for it. They do calculate gross activities, or the turnover, for the previous year which they call a Gross Domestic Product or GDP.
No Company Director would consider such limited accounts as being sufficient to understand their company’s affairs.
Companies do much more extensive and important accounts to understand their affairs. Chief amongst these are Comprehensive Balance Sheets and Profit and Loss Accounts.
Balance Sheets measure their advantages, such as their land, productive capacity and intellectual property etc. Secondly they measure those things which constitute claims upon their assets, their liabilities, and arrive at a net worth, even if it is negative. Secondly, they do Profit and Loss accounts.
These measure the value of their productivity against the cost of achieving it, to arrive at either a profit or a loss for their activity.
No Company Director would pretend to understand his company, and no one would invest in a company without these accounts. Comprehension without them is impossible.
National Accounts
All large entities, and most small ones too, do these accounts with one notable exception. Governments, though responsible for national economics, show no interest in measuring the economy in this way and do no such accounts.
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The governments of Canada and Australia each did one National Balance Sheet in about 2020. They were both very deficient, as they included neither the largest asset nor liability. A nation’s largest asset is its people. Even just valuing the vocational training of its people dwarfs other assets in value. The largest of national liabilities is its money.
Money in our pockets is our asset as it represents our claims upon others, but the national money supply represents the claims upon the economy, as it were the IOUs that we have issued against our national assets and are outstanding.
Without basic accounts politicians regularly sell national assets to foreigners for money. They exchange assets to acquire liabilities and think they have done well. It is a little more complicated then this but perhaps more on that later.
The absence of a National Profit and Loss Account leaves the economy unmeasured in important ways. This account measures the value of consumer products available, against the purchasing power available to consume it.
If purchasing power is inadequate to use our consumption more money needs to be created. If it is excessive it needs to be constrained to prevent inflation through excessive demand.
While no nation has ever done a National Profit and Loss Account, some such accounts have been done privately using available national statistics.
One was done for the year 2014 for the United States and was published in the book Different Essays published by Balboa Press.
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It showed that the total consumer production produced by Americans was $12,501 billion. The total aggregate personal income of all Americans available to buy it, was only $10,100 billion. The deficiency of purchasing power was $2,401 billion. This amounted to a deficiency of $7,528 per person or of $30,114 per family of four.
Another way of saying this is that Americans produced $12,500 billion for a cost of doing it of $10,100 billion. The national profit was $2,400 billion. Of course this was untenable as 20% of the national production could not be by increasing indebtedness. Federal Reserve Bank statistics show that indebtedness increased in 2014 by $2,278 billion, approximating the deficiency.
Another National Profit and Loss Account was published for Australia for the year 2020 in the book Where Money Comes From, published by
This measured total consumer production as $1,082 billion and consumer incomes of $795 billion; a deficiency of $287 billion. Taking the population as 23 million, the deficiency per living Australian was $34,560 or $138,560 per family of four. This required an increase of indebtedness in Australia of $287 billion, or $34,560 each. The fact that the economy did not collapse into recession is testimony that this happened.
Another way of considering the above is that the Australian economy is inherently profitable. Our profit of production above its costs was $287 billion or $34,560 each. In a corporate situation where profits are understood, this would have been available to pay the shareholders a dividend.
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In a national consideration, the shareholders are our people who own this country by our right of inheritance. If we had this information we would then have been able to make a choice to keep the economy liquid. Either increase our indebtedness by $287 billion or pay a National Dividend of $34,560 each.
Both the books mentioned by Charles Pinwill as having Prototype Accounts, Different Essays and Where Money Comes From, are available from Amazon.
With the proper accounts this national dividend would not have been inflationary. When it is measured to meet the deficiency only, there is no excessive demand here.
Without proper accounts Governments regularly expand the money supply by either too little or too much. They don’t know what they are doing, and can’t, without measurement.
The key to all this is measurement, and once done, the choice between debt or dividend will become apparent. It may not become apparent immediately, but with regular accounts year after year, done with the credibility of authoritative accountants. the penny will eventually drop.
This is the hope of the world for sound economics. There is no hope (except with rare intelligences) with expounding theory, however sound. Proclaiming our rights in the economy will resound with few.
The prospects of inducing Governments to measure their economies are minable. The primary means of Politicians’ success is had by kissing babies and such like, and other considerations are peripheral.
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Prestigious accountants remain unawares of the enormity of the contribution to public welfare which they might effect. So where is the road forward?
Back to basics: the key sanction of money. Until sufficient accountants with standing can be recruited to the cause, they will, at least, respond to generous payments. Financing them and the promotion of the accounts as important and significant, is necessary.
We need someone with a few millions of dollars, or to somehow acquire same for the task. While the endeavour is daunting and difficult, it is what it is.
