The following message was posted to Paul Craig Roberts PaulCraigRoberts.org in response to an article by Paul Craig Roberts and Michael Hudson: "Russia's Weakness is its Economic Policy."
The essential problem with the modern economy, per se, is that nations generate industrial costs and prices at a greater rate of flow than they distribute effective consumer incomes capable of liquidating the costs of production. This is consequent to a fundamental flaw in the operations of the Banking (i.e,., credit) system as it interacts with industrial cost-accountancy. Simply put, the price system is intrinsically non- self-liquidating. This problem magnifies as we become more capital intensive through modern technology and increasingly displace the need for human input into productive processes--a wonderful and marvelous development in itself. The problem is that it creates an increasing gulf between costs and incomes--a gap which we can only "bridge" by increasing bank debt and attempting to export more than we import, an obvious impossibility for all nations of the world Of course the dysfunctional nature of the price-system leads to the alternating economy and periodic bankruptcies and foreclosures which liquidate debts, but at the expense of loss of borrowers' assets to the banking industry..
The appropriate solution is for each nation to finance internally its capital development and business enterprise in accordance with its own real credit, i.e,, ability to deliver goods and services as, when and where required or desired and to ensure that consumers always have at their disposal adequate cash income to purchase the entire national production of consumer wealth output as it emanates from the production line. The real as opposed to financial cost of production, i.e.., the human and non-human energy and material, is met as production takes place and is fully met when any produced good is completed and ready for consumption. Otherwise it could not exist. That is simply axiomatic. The financial system, which is simply a system of accountancy, must be made to reflect this elementary fact.
The vast sums of consumer bank credit which are issued as inflationary debt mortgaging future production are absolutely required. The goods exist and await consumer acquisition. We have demonstrated our ability to produce them and have every right to access them. When incomes are used to purchase them these incomes are cancelled as businesses retire their initial bank loans or place funds to reserve. They do not "pile up" to enlarge the existing money supply as existing consumer monetary demand. The money required to compensate for the inherent deficiency of consumer income, or effective demand, should be issued without debt from an actuarily constructed National Credit Account, being simply an approximated accountancy evaluation of all the nation's real assets which if used for production might result in financial prices. This National Credit Account would nevertheless alway be growing as it was credited with the value of all new capital assets.
The new "debt-free" consumer credits (for which there is an outstanding claim in the cost of retail goods) should be issued as an inalienable inheritance to each citizen in the form of a regular National Dividend and to retailers at point of sale, allowing them to sell at Compensated (reduced) Consumer Prices--the latter to be determined macro-economically in relation to the statistically determined ratio of national consumption to production--this ratio to replace the traditional bank rate. The Compensated Price would be the essence of simplicity: The retailer would sell to the consumer at regular price. The consumer would tender his "i.O.U." (debit card, credit card or cheque) as usual. The bank would credit the retailer's account for the full amount but debit the consumer only for the compensated price and claim the outstanding balance from the National Credit Account..
International trade should be balanced. So long as all nations are forced to attempt to balance their domestic price-systems by exporting more than they import there will never be peace in the world and international friction will continue to grow. As the problem intensifies sinister schemes designed allegedly to solve the problem by making it larger through the destruction of nation states will continue the malignant drive toward a World State.
Major C.H. Douglas on "Causes of War" - part 1 - YouTube
Major C.H. Douglas on 'The Causes of War' - part 2 - YouTube