[GJM] #858, Clement Clarke, Mary Rose, Lurban Kohler, And John Hermann on Solving Inflation

[wesburt at juno.com]

Dear Old Friends And Other Members Of The Thirteenth Tribe,


I am pleased to see four old friends get serious about 
"solving inflation. "  My obsession with inflation began 
with a profile of the US Consumer Price Index published 
in the October 1966 issue of FORTUNE Magazine, and 
has continued unabated to date.  In the four following 
messages: Mr. Clarke agrees with the late Milton 
Friedman that inflation is the result of excess money. 
Mary Rose proposes barter as an alternative to money 
which is losing value.  Mr. Kohler believes a little 
inflation is to be expected and not as important as 
spending the money we have on doing the right thing.
Mr. Hermann agrees with Martin Hattersley, Q.C. from 
Canada, that money in an economy acts like the fluid 
in the automatic transmission of an automobile, 
except that this economic transmission has millions 
of flow paths which may restrict and skew the 
distribution of flow among the multitude of paths.

The mechanism of skewed money flow is "so simple it 
repels the mind," as J. K. Galbraith said of how banks 
create money.  Say's Law may still hold for each sector 
of an economy, but be violated in parts of a sector by 
the skewed flow among the parts of a sector.  Invariably, 
skewed money imposes a shortage of money on the 
MANY and an abundance of money on the FEW. So read 
the following four messages with an eye to answering 
the basic question:  How could the FEW keep such a 
simple mechanism out of the public mind?  Recall that 
the systemic defect which skews the flow of money in 
any one of the three sectors of an economy has not 
been mentioned or documented since King Rehoboam 
(I Kings 12) promulgated the "Divine Right Of Kings" 
in B.C. 975.

Below the four messages, please find a five year old 
letter which Dr. W. Curtiss Priest had posted on his 
web site before he was persuaded by the FEW to 
abandon the site and solve inflation by means of 
a 28th Amendment to the US Constitution.

~~~~~~~~~~~~~~ One Of Four ~~~~~~~~~~~~~~
From: Clement Clarke 
Date: 2/18/2008 6:56:14 PM 
To: ERANet at yahoogroups.com; A renewed Mai-Not; 
FixGov at yahoogroups.com 
Subject: [FixGov] Solving Inflation 

If Inflation is caused by too much money, then surely 
the cure is to reduce the amount of it? 

Clement Clarke 

PS: Of course the banks would squeal as they are 
only interested in creating lots of it, and charging 
interest on what they make from thin air. 
~~~~~~~~~~~ End Clement Clarke ~~~~~~~~~~~~~~

~~~~~~~~~~~~~~ Two Of Four ~~~~~~~~~~~~~~
mary_rose at aabol.com>
To: <Cyber-Soc at topica.com>, 
<FixGov at yahoogroups.com>
Date: Tue, 19 Feb 2008 02:31:06 -0800 (Pacific Standard Time)
Subject: Fw: [FixGov] Solving Inflation

 Good thoughts, Clement. Let's do reciprocity 
and pay it forward, while creating barter and 
trade agreements to replace the money that 
is becoming more worthless every day. 
Do we really need it? 

Keep up the good work. 

mary rose 
~~~~~~~~~~~ End mary rose ~~~~~~~~~~~~~~

~~~~~~~~~~~~~~ Three Of Four ~~~~~~~~~~~~~~
From: lurban kohler lurbankohler at yahoo.com
To: FixGov at yahoogroups.com
Date: Tue, 19 Feb 2008 22:27:36 -0800 (PST)
Subject: Re: [FixGov] Solving Inflation

Urban: Inflation may be a problem in some ways, but it
doesn't seem all that important. Everyone expects a
moderate amount of it, and it does tend to diminish
the value of large accumulations of money, which might
be a good thing . . . 

But I think what is REALLY important is when money is
created as debt, (or non-debt) what is done with it
--where it is infused into the economy. If instead of
literally billions a day being infused into the
economy through the industries of domination and
terror (while we are told there isn't any money for
health, education & infrastructure repair etc.) --if
those same billions were spent but NOT on blowing up
things and beating up people, wouldn't this be a much
different world??? 

We need money to be created and spent into the
economy. If instead of spending it on instruments of
fear and greed, we were spending it on nurturing, on
art, on sustaining the natural environment &
empowering all of our people, on raising consciousness
. . . . what a dream world!!
> 
I read somewhere today if twelve tribes lived
peacefully and cooperatively and a thirteenth was
belligerent competitive and greedy, the first twelve
would have to become like the thirteenth in order to
survive. In light of that its a wonder humanity has
survived this long. 
~~~~~~~~~~~ End lurban kohler ~~~~~~~~~~~

~~~~~~~~~~~~~~ Four Of Four ~~~~~~~~~~~~~~
From: "John Hermann" hermann at picknowl.com.au
To: ERANet at yahoogroups.com
Date: Wed, 20 Feb 2008 08:43:30 +1030
Subject: Re: [ERANet] Solving Inflation

Where did you get the idea that inflation is 
generally caused by "too much money" Clem? 
As I view the situation, we have too little money 
for transaction purposes. The problem in my 
view is the maldistribution, or skewed nature, 
of money available to the investment sector 
compared with money that is needed for 
everything else. One solution would be to 
implement a 100% reserve monetary system 
(as proposed by William Hummel for example), 
supplemented by the abolition of interest-bearing 
deposits and the provision instead of government 
infrastructure bonds - which would provide risk-free 
(or very low risk) returns on invested money. 
The latter being necessary in order to keep 
the superannuation, pension and mutual fund 
managers happy. 

Regards,
John H 
~~~~~~~~~~~ End John Hermann ~~~~~~~~~~~~~

~~~~~~~~~~~~ A Five Year Old Letter ~~~~~~~~~~~
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, any 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 that form of 
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 nations, 
corporations, and households.

Visual-aids to bring that concept into sharp focus 
are provided by attached Fig4 & 8i.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 more 
than 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 the development expense 
of both capital and human assets, sufficient to bring 
both types of assets to market with "decreasing returns 
to scale."  That is to say, 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 
(1-6) lines on the right side of the chart where this 
uncapitalized expense diminishes the purchasing 
power of each parenting household in the work force 
by $5,000/year per dependent. 

This is a total expense similar to the US 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 
do 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 a rising trend in the value 
of the dollar, such as Americans enjoyed, except 
during time of war, prior to the 1890s. 

As Fig4 shows us, our human assets operate in 
tandem 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 sunk and unavoidable fixed costs as shown by 
the dependent lines (1 to 6) in Fig8. 

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.
~~~~~~~~~~ End five year old post ~~~~~~~~~~

   TOP and TWP are cognoscible by sixth graders from
         Fig. 7-9.gif on Dr. W. Curtiss Priest's web site:
          <http://www.epie.org/cyber-soc/default.htm>
 TOP = 100% Capitalism --- TWP = 0 to 50% Capitalism


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