Reciprocal System #557 "The Road to Permanent Prosperity" ch15-Money and Credit C [Thomas Newsome]

Transcript

all right how is everybody doing today welcome to my channel and we have here an educational Channel we do deep dives into great theories of everything ancient and modern and just try to figure out how to best use these things in our own lives today is our 557th video that we've done on the reciprocal system of theory from one Dy Bernard Larson and LaRon was an American engineer who lived in the 20th century died in 1990 left behind a lot of great books on physics and chemistry and astronomy but also on metaphysics including uh philosophy and religion biology and psychology and also two books on economics and we're checking out one of these books on economics today called the road to permanent Prosperity uh we started this uh work maybe uh five weeks ago or so and we are smack dab in the the middle of chapter 15 money and credit um now if you'd like to get a little bit more of an explanation about Larson's Theory of Everything his uh reciprocal system of theory uh check out one of my first 474 videos on the subject and go back to five weeks if you want to start at the beginning of this book uh for the rest of this I'm going to mostly assume that you understand some of Larson's ideas or else that you're just ready to go um bear back and um you know figure it out as you go along um I will say that Larson um his uh Theory of Everything Is founded on a universe of motion lson believed that the universe not made out of matter it's not made out of energy but it is made out of motion and for Larson uh he's not the only person that's ever had this idea but I think he was the only person to redefine motion as the relationship between space and time and that is a reciprocal relationship a generalized to cover all forms of uh really scientific quantity uh that he says all of our scientific quantities are forms of motion matter is a kind of motion energy is a kind of motion pressure is a kind of motion they all can be expressed in fractions with space or time as the numerator and time or space as the denominator space or time can come in multiple exponents or Dimensions so you can have uh you know matter space to the uh time to the third power over space to the third power pressure is time over space to the fourth power acceleration is space over time to the second power capacitance uh well redefined uh at least by one of Larson's Associates is s to the third power over time uh but anyway and so on and so forth and the other thing that I would say about Larson system is that he is using a kind of a gener a generic form of motion uh he eventually uh started to use the just the term change in three dimensions but uh Larson's motion is uh what he calls scalar motion that's a motion with a magnitude but no specific Direction a scalar motion can be envisioned using a balloon that you put dots on uh if as you blow up the balloon all the dots will be moving away from each other they will each dot will be moving away from from each other dot uh but they're not moving in any specific Direction they're really moving in all directions every dot is moving away from every other Dot and if you contract the balloon they will all be moving toward each other but in no specific Direction these are the two fundamental motions in larsson's system the outward motion he calls the progression the inward motion is uh analogous to gravitation and that outward motion is always occurring uh because that the progression of the natural reference system when that rate is at one unit of space SP per one unit of time larsson's whole system is quantized his first postulate reads that the um universe is composed entirely of one component motion existing in three dimensions in discrete units and with two reciprocal aspects space and time so that kind of uh gets at it then uh Larson uses that and uh arriv at a theoretical universe and uh applies it uh to every subject including economics where he uses the uh the economic system as a form of motion and um the fundamental quantities in the system are production and consumption and um if you like more of an explanation again go back to the beginning of this book but we're going to start right here in chapter 15 money and credit uh probably 2third of the way in the outstanding characteristic of credit money from a functional standpoint is that there are no limitations on its volume other kinds of money are limited by physical factors there is relatively little flu uation in the total supply of intrinsic money except for the net change due to additions from mining operations and losses by diversion to Industry Etc the total World stock of the monetary Metals remains constant issuance of token money does not add to this total as this token money is merely a representation of a now immobilized store of intrinsic money but the supply of credit money can be increased or decreased inreased at will without any physical limitations from the principles developed in the preceding Pages it is apparent that the significant effect of issuing or retiring credit money in actual practice where the new money is always created for the specific purposes of financing additional spending is to vary the flow of purchasing power to the markets in the terms used in this study these monetary operations constitute purchasing power Reservoir transactions when new money is being issued and poured into the Purchasing Power Stream prices rise when existing money is being withdrawn from the stream and retired prices fall not because the quantity of money has been altered but because the rate of flow has been changed a very important point in this connection is that no type of inflation or deflation increases or decreases purchasing power in terms of goods any change is solely in terms of the circulating medium when additional credit money is created for spending in the goods markets this does not enable buying more Goods the same amount of goods is brought is bought at higher prices purchasing power in terms of goods is not determined by the amount of money available for spending but by the amount of production the community as a whole is able to buy the volume of goods produced no more no less aside from the relatively minor V variations due to Goods storage if the quantity of goods V is given a price p in the production Market by establishing an average wage rate then the suppliers of Production Services receive for these Services an amount of money purchasing power B which is equal to the product PV and is therefore just sufficient to buy all of the produced Goods at a market price equal to the production Price p under these equilibrium conditions the market price is determined solely by the production price that is by the wage rate and it is completely independent of the total amount of money in the system but if more credit money is issued and used in the markets so that the active purchasing power is increased from B to CB then the price level rises from P to CP because the credit transactions increase only the flow in the money Purchasing Power Stream and leave the flow of goods at the original level V credit is basically a transaction between individuals irrespective of how complicated the actual credit mechanism may be the ability of one individual to consume before he produces is entirely dependent on his ability to gain access to Goods previously produced by other individuals the economy as a whole has no such outside source of goods aside from foreign transactions which we will consider later as a community we must produce first and consume afterward therefore we have principle 15 credit can make Goods available to one individual or group of individuals only by diverting them from other individuals the significance of this principle is that any purchasing power in terms of goods that may be obtained by means of new issues of credit money can only be exercised at the expense of those who take part in the production process workers and supplier of Capital Services if the government issues more currency it is able to buy Goods therewith or to provide subsidies to individuals or groups which they can use to buy Goods but the ability of recipients of normal income to buy Goods is decreased proportionately this fact is generally recognized ized in the case of severe currency inflation as it has been demonstrated over and over again in actual practice but it should be realized that this is a general principle which applies to all money inflation including that resulting from banking transactions new credit money obtained from the Federal Reserve and loaned by the Banks has buying power only to the extent that the buying power of current income from other sources is decreased the new currency increases money purchasing power but it does not alter the real purchasing power ability to buy Goods principal 15 cannot be evaded credit can make Goods available to one individual only by diverting them from other individuals the result is the same when the bank lends money deposited by its customers that is the depositors must foro the use of their purchasing power in order to make it available to the borrowers but in this case the depositors are parting with their purchasing power only temporarily and they are doing so knowingly and voluntarily on the other hand when the bank lends money from new currency issues the purchasing power attached to this new money is permanently abstracted from consumers in general through the mechanism of an inflationary price rise without their consent and under present conditions without their knowledge the truth is that money inflation due to new currency issues is a tax it has exactly the same effect as a tax on business that is it diverts a portion of the income of the consumers by means of an increase in the general price level to the government if the government is the money issuing agency as it is in modern practice since the new money can be issued without the knowledge of those that are being taxed this method of meeting part of the cost of government is increasingly being used by governments whose popular support is doubtful and might not withstand the antagonism which attacks increase would be greeted it has not yet become a substitute for taxation in the United States except in Wartime uh the Civil War greenbacks for instance but the operations of the Federal Reserve System have the peculiar effect of allowing the banks to accomplish the equivalent of Taxation to finance business expansion as long as the demand for new loans does not exceed the available Bank Reserves each loan amounts to a temporary transfer of funds from one individual or agency to another and there is no effect on the incomes of the general public however if the demand for loans becomes greater than the banks are able to meet from funds on hand some of the credit instruments that they have been holding are rediscount Ed with the Federal Reserve which Issues new money on the strength of this collateral as brought out in chapter 12 the entry of this new money into the active Purchasing Power Stream raises the market price level which means that consumers in general are without realizing it supplying the purchasing power requirements of the business enterprises out of their own individual incomes if the upward and downward phases of the business cycle were symmetrical the consumers not necessarily the same individuals would C recapture their losses when the volume of loans again contracted and the banks paid off their obligations to the Federal Reserve but the lack of symmetry previously noted prevents this balancing of the accounts if the cyclical swing is anything more than a minor movement thus we have here another reason why steps should be taken to control the business cycle an important corollary of principle 15 is that purchasing power in terms of goods cannot be transferred from one time to another it is commonly assumed that we have the option of spending today's income today or saving it for some future time the individual obviously can and does exercise this option but aside from the saving that takes place automatically in the production of durable goods the community as a whole cannot do so beyond the very minor degree that producer storage of goods is feasible storage of the circulating medium does not Aid in the purchase of tomorrow's output of goods since tomorrow's production in itself generates all of the purchasing power that is necessary for buying the goods produced and any additional amount of money purchasing power issuing from Storage is not only Superfluous but detrimental to the operation of the economy the forgoing comments apply specifically to Goods as defined in chapter 4 that is things that satisfy human wants however we must also take into account certain things which have some of the properties of goods although they cannot qualify under this definition unfortunately the economic profession not having looked at these items in the way in which they will be treated in this work has not devised any terminology that will enable us to draw the distinctions that are vital to the inquiry and it will therefore be necessary to coin some new terms the characteristics of these quasi Goods on which the classification will be based are the same as those applying to the corresponding forms of money and to emphasize the analogy and contribute toward a clear understanding of the presentation the equivalent terms will be used in addition to those goods which qualify as such in their own right and have a standing analogous to that of intrinsic money there are token goods and credit Goods the term token Goods will be used to refer to those things which are representations of goods actually existing included in this class are stocks bonds mortgages Warehouse receipts and similar instruments this classification should not be confused with with the question of legal title Bond holders for instance do not have legal title to the property involved but the bonds do represent a certain portion of the value of the property that is they represent actual tangible wealth while the bonds are outstanding the values behind them cannot be made the basis for other such instruments a 10 million dollar Corporation with $3 million in bonds outstanding cannot persuade anyone that it stock is worth $10 million creating token bonds or retiring them does not alter the total amount of goods in existence if a $100,000 home is mortgaged for $50,000 this does not mean that there is now $150,000 worth of property that can be bought and sold its total the total value is still $100,000 what has actually been accomplished is to split the $100,000 property into a $50,000 mortgage and a $50,000 Equity either of which can be sold independently of the other the great bulk of present-day credit transactions aside from commercial accounts involve the care creation of such token goods and these transactions only take place to the extent that Capital assets are available to back up the token Goods as the cynic puts it a bank is a place where you can borrow money if you can prove that you don't need it even though it was meant to be humorous this definition is not without its merits it calls attention to the point that bank credit is is not normally available for the purpose of Furnishing purchasing power to those who do not have it but rather to provide a convenient means whereby those possessing purchasing power in some other form can temporarily exchange it for money as in the case of money however it has been found possible to create instruments which appear to be of the same character but which rest entirely on the credit of the issuing agency rather than on actual physical assets government bonds are the outstanding example these credit Goods differ from token Goods in that their creation is not limited by the physical realities since the credit since the creation of token Goods does not alter the total amount of goods that can be bought and sold the total volume of goods flowing to the markets remains just the same as if these Goods did not exist but the creation of credit Goods is another form of reservoir withdrawal it swells the stream of goods and hence has the same effect on the markets as the withdrawal of real goods from producer storage the volume of goods V now becomes EV and if B is unchanged Price p drops to P over e the new equilibrium equation is B over EV equal p over e but B does not normally remain unchanged as the purchasing power obtained by the sale of credit Goods is generally used in the markets the original price p is then restored EB over EV equals P what has been accomplished by this credit transaction is that a volume e minus one of real Goods has been obtained by the issuing agency without the need to make any monetary payment and the individuals who would otherwise have received these Goods now have the credit Goods government bonds or similar instruments instead the issuing agency usually the government has thus obtained something for nothing at the expense of someone else as always credit Goods like credit money are basically a device for accomplishing this purpose getting something for nothing government govern faced with abnormal expenditures or with insufficient revenues find it politically expedient to meet their financial problems by some means which do not involve direct levies on the citizenry in earlier times the preferred answer was a resort to the printing press and this solution of the problem is by no means out of fashion even yet as a glance at the financial picture around the world will readily verify but it has become quite clear that currency inflation plunges the nation into deeper trouble and the more advanced governments have turned from credit money to credit Goods as the best means of avoiding unpleasant realities the essential difference between government and private borrowing is that the private borrower is not permitted to evade these realities he cannot except in rather unusual circumstances obtain money on pure credit he must put up some kind of tangible security for the loan what he actually does is to sell some asset on a temporary basis the individual who borrows $20,000 on the strength of a mortgage on his home is in effect selling a $20,000 uh uh selling a $20,000 on the strength of um in effect selling a $20,000 share of the ownership with an agreement that he will purchase it after a specified period of time private credit transactions thus deal with real values they involve the sale and purchase of token Goods most government credit transactions on the other hand deal only with fictitious values they involve the sale and P and purchase of credit Goods the advantage from the government standpoint of raising money for spending purposes by selling bonds rather than by taxation is that the former conceals the true situation and postpones the Day of Reckoning to some future time when the task of putting the financial house in order will fall on other shoulders as indicated by equation EB over EV equals P sale of government bonds in the markets does not alter the general price level as long as the government spends the proceeds in the market these and other credit Goods have all of the economic characteristics of real Goods up to the time of consumption and the effect of their entry into the system is the same as if there were an increased production of physical Goods but the bonds cannot be consumed unlike real Goods they must be put back into the system and converted to something else before they can yield any utility they amount to no more than a claim against production and they cannot be used except when and as workers and suppliers of capital give up real values to make the fictitious values good to the government of the future there Falls the embarrassing choice between two unpleasant Alternatives higher taxes or inflation either taxes must be raised enough to provide uh the money for Redemption of the bonds or new money must be printed one of the most unfortunate features of this situation is that the era of Reckless Finance when the wealth of the nation is standing still or even slipping downward has the appearance of prosperity whereas the convalescent period when sound progress is actually being made is viewed as a trying and difficult time this false and misleading impression is actively aided and encouraged by the prevailing methods of compiling economic statistics which take price level variations only in an incomplete Manner and totally ignore the factor of credit Goods the level of money income has no real meaning in itself it is significant only in relation to the price of goods economic well-being must be measured in real income not in money income in order to arrive at a measure that is representative of the true situation it is necessary to correct money income and money wages not only for the full change in the price level but also for the amount of fictitious wealth that has been accepted in lie of real wealth when we do this and get a true picture of the actual conditions many of the anomalies that seem to exist in economic life are cleared up we no longer have to wonder how it is possible to have prosperity in Wartime why labor can make gains and business can pile up profits while we are devoting most of our energies to destruction it now becomes clear that there was was no prosperity for the nation as a whole there were no gains what we saw was a mirage an illusion created by government finance that must inevitably be followed by disillusionment if we are able to keep our feet on the ground during difficult periods of Readjustment it is necessary to realize that our headache is not due to the doctor's medicine it originated at a time when everything looked Rosy the foregoing comments should not be interpreted as a condem condemnation of all use of government bonds and other forms of credit Goods it is not the use but the misuse of such devices that causes trouble in reality the practicability of creating credit Goods which are the equivalent of real goods from the market standpoint provides a very convenient means of regulating the Purchasing Power Stream by issu in government bonds selling them in the markets and then retiring the currency received in payment we can substitute credit goods for credit money and diminish the Purchasing Power Stream by the necessary amount likewise by issuing new currency and repurchasing the bonds in the markets we can reverse the transaction and increase the flow of purchasing power if there is an EV inflationary withdrawal from the consumer purchasing power reservoirs which raises B to CB market price would normally increase from P to CP but by selling government bonds in an amount e where E equals c and retiring an equivalent amount of currency the market price can be held constant at the original level CB over e v = p * the quantity c = e the outstanding advantage of this method of purchasing power control is that no individual gains or loses by the transactions the exchanges that take place simply substitute an asset in one form for an asset of equal value in another form and the desired effect on the economic system is accomplished without disturbing other economic relations facilities for handling transactions of this kind have already been set up under the opes of the Federal Reserve System and the use of these open market operations in a more systematic and organized manner for economic control purposes will be discussed at length in chapter 25 and that's the end of chapter 15 on money and credit chapter 16 is called for foreign trade and we'll be starting that up tomorrow thanks for tuning in today