[GJM] 03-05-09 The Optimum Policy (TOP), Lost Since The 1890s

[wesburt at juno.com]

Hi Folks,

My 19 Jul 2006 post to Norman Kurland, 
"World Wide Injustice At The Local Level 
of Government" evoked a flood of serious 
e-mails on my favorite lists. But they all 
failed to mention the fundamental questions 
raised in the following three year old post.

~~~~~~~ Begin three year old post ~~~~~~~ 
From: "Wesley S. Burt" wesburt at juno.com <mailto:wesburt at juno.com> 
To: wesburt at juno.com 
Date: Fri, 9 May 2003 11:23:40-0400 
Subject: The Optimum Policy (TOP), Lost Since 
The 1890s

To: My few friends lurking on my copy list.
Hi folks,
My post of Thu, 24 Apr 2003, and the four which followed, have been
completely stonewalled by my readers. None of my favorite interlocutors,
W. Curtiss Priest, Charley Musselman, ichinen1, nor Todd Boyle returned a
comment. Perhaps, if I had revised my 24 April reply to Curtiss as
follows, a serious discussion of "The Optimum Policy" might have started.
~~~~~~~~~~ Snip redundant text ~~~~~~~~~
Because the US economy presently dominates 
the global economy, and systemic defect in 
US public policy which unbalances the flow 
of money or goods across US boundaries 
cannot be corrected or compensated for by 
the combined policies of other nations in the 
global economy. To the contrary, if the US economy is properly balanced
by applying 
"The Optimum Policy" to the public sector, 
as consistently as it has been applied to
the private sector during the 20th century, 
every other nation's WHIPs (their wealthy, 
healthy, intelligent, and powerful folks) 
will find their own advantage in applying 
"The Optimum Policy" to their own economy. 
Do Afghanistan and Iraq deserve any less?
"The Optimum Policy" has been a matter of standard operating practice
(SOP) for our 
capital intensive industries since a founder 
of the AEA, Henry Carter Adams devoted 15 
pages of his 1887 paper, "Relation Of The
State To Industrial Action," to describing 
three classes of industry; those with 
increasing returns to scale, those with 
constant returns to scale, and those with 
decreasing returns to scale.

Adams concluded that only industries 
with decreasing returns could be properly 
regulated by the competitive action of a 
free market, or automated by computer 
control which simulated a free market 
pricing mechanism. 

The reason why was as well understood 
by Paul A. Samuelson and electrical 
engineers in 1953 as by H. C. Adams in 
1887. Both increasing returns and
constant returns provide excessive gain 
in a closed loop regulating system and 
form a hysteresis loop which shifts 
violently between two physical states. 
So free market or automatic control of 
production requires each productive 
asset to exhibit decreasing returns to 
scale in order to achieve stable and 
efficient operation of a population of 
such assets.

Sooner or later, the many diverse critics 
of the status quo on my copy list will 
have to find common ground and speak 
as one voice, if they expect to prevail 
over the DDotSQ (Devious Defenders of 
the Status Quo).

My work experience and research since 
1969 indicates only two places in our 
history and literature where that common 
ground has been documented.

One place is in the Pentateuch, or Five 
Books of Moses, which anticipated all 
of the diverse religious teachings that 
presently divide and conquer humanity. 
But Curtiss Priest, quite rightly, fears 
that I'll be taken for a religious fanatic 
if I continue to advocate that source of 
common ground. So let's move on.

The second place for finding this common 
ground is in the fact that both the public 
sector and the private sector of every 
national economy are composed of 
reproducible productive assets, human 
and capital. Both types of assets require 
a sustained investment during their 
development period to realize their full 
potential during their productive period. 
The extent to which those two development 
expenses are "capitalized," and thereby 
assure "decreasing returns to scale" for 
either type of asset, is the primary 
determinant of stability and efficiency 
among corporations or nations.
Visual-aids to bring that concept into 
sharp focus are provided by 
attached Fig4 & 8h.gif. Fig4 serves to 
integrate the data presented on the 
supporting charts which have been so 
bravely posted to the URL in the 
signature below, but not yet discussed 
seriously, by my mentor and favorite 
contemporary economist, W. Curtiss Priest. 

As you all know, the medium of exchange 
in any national economy flows through 
three closed loops, the GDP loop presently 
at $10 Trillion/year in US, the business to 
business transactions loop at 150% of GDP, 
and the speculative transactions loop at an 
order of magnitude larger than the GDP.

As shown in Fig 2-3 at the web site, the 
US medium of exchange (M1) expanded 
from $250 Billion in 1965 to $1,200 billion 
in 1994 and has remained at that level to 
date, while the other debt instruments 
continued their upward trends. This 
indicates a remarkable improvement in 
the speed of payments by electronic 
means throughout the global economy.

Fig4, however, tell us nothing about 
growth, stability, or efficiency in a family 
farm, a corporation, an industry, a national 
economy, or a global economy.
After we digest and reject all of the red 
herrings that are every day promulgated 
to the public on money, interest, taxes, 
banks, and globalization there remains 
only ONE significant systemic requirement 
for social development such as Germany 
and Japan exhibited in the three decades 
after World War II. That ONE is an adequate 
capitalization of both capital and human 
assets, sufficient to bring both types of 
assets to market with "decreasing returns 
to scale." That is to say, bring both types 
of assets to market without pricing young 
and startup assets out of the market. 

Fig8 shows the $6,500/year expense of 
1-12 education, which is adequately 
capitalized in the US, on the left side of 
the horizontal (Value added or consumed) 
scale. The $5,000/year expense of 
supporting dependent children and students, 
which is not adequately capitalized in the 
US, is shown by the dependent lines on 
the right side of the chart where this 
uncapitalized expense diminishes the 
purchasing power of the work force by 
$5,000/year per dependent. 

This is a total expense equal to the DOD 
budget, which is charged per dependent, 
to US households. For more than a century, 
the US business community has kept its 
employees and the public ignorant of this 
ONE systemic requirement for a growing, 
stable, and efficient national economy. 
To cure what has ailed the US economy 
since the 1890s, we have three options, 
but are discussing only two of them:

1, Tax cuts, as proposed by Congress and President Bush, which will
produce future 
budget deficits, but does not address the 
systemic defect in US public policy.
2, A Keynesian expansion of the M1 money 
supply, as proposed by subscribers to list 
Post Keynesian Thought (PKT), which also 
does not address the systemic defect in 
US public policy.
3, Adequately capitalize the remaining 
fixed costs that presently dominate the 
budget of US parenting families, which 
will restore the rising trend in the value 
of the dollar that Americans enjoyed prior 
to the 1890s, except during time of war. 

As Fig4 shows us, our human assets 
operate in tandem (Binary) with our 
capital assets, so a maximum flow of 
real goods and services cannot be 
realized by optimizing only our capital 
plant, if our human assets are under 
capitalized and thereby burdened with 
fixed and unavoidable fixed costs as 
shown by the dependent lines (1 to 6) 
in Fig8. 
~~~~~~~ End three year old post ~~~~~~~

What can be more fundamental than 
doing justice to those who must 
depend on others for justice.

Kind regards, 

Wes Burt  

The Optimum Policy (TOP) is shown on 
Dr. W. Curtiss Priest's web site
at: <http://www.epie.org/cyber-soc/default.htm> 
If you can't refute it, then make it public knowledge.
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