The New Start Journal

    Vol 2. Issue 7

    August 2021

    Odoo text and image block

    The Production/Consumption Dichotomy

    Debt is the way to do it.

    A most important function of a money system is in it allowing the cost of production to be measured. It not only measures the cost of production, but imposed the discipline of efficiency. If a productive activity cannot repay the debt which funded it at completion, this evidences the fact that more value has been consumed in the process than it has produced. The discipline this imposes is probably the greatest strength of capitalism. Inefficient production atrophies allowing efficient ones to grow.

    Production financed from reserves operates similarly though not in the same way in one respect. When a bank loan finances production, new and additional money is brought into existence. When the production cycle is completed and the loan is repaid this money goes out of existence. When funded from reserves and the reserves are replaced this money continues in existence. In a sense when production is in progress it is in debt either to a bank or to the reserves which funded it, however the implications for the economy may differ.

    Replenished reserves may, either in part or wholly be used for consumption, while of course the repaid bank loan cannot. Retained reserves have also “disappeared” from enabling consumption to take place.

    The consensus which has come down from Douglas, Keynes and MMT is that either money tends to disappear before consumption is fully funded, or that insufficient money was distributed to consumers in the course of production to fully fund it. Over 99% of Economists now believe that without some form of stimulation to consumption recession is inevitable.

    Yes, debt is the way to fund production, but how should we finance this consumption stimulus?

    Debt is not the way to do it.

    When money is spent on consumption it travels back to and through the production system and liquidates industry’s debts to the banks or the reserves which funded it. This allows the next cycle to take place.

    Debt financed consumption allows industry to liquidate its debts to the extent that its products are desired by consumers. Yes it allows industry to do its job and continue doing it. While some income is distributed to consumers in the course of production, how should we fund any insufficiency of consumer purchasing power still existent? Since we all now accept that this insufficiency exists, how to fund it is the last great economic question to be answered.

    Funding consumption with debt can only be described as a “no-brainer”. Why?

    The only National Profit and Loss Account every done to measure this insufficiency was done for the year 2014 for the United States. The full account can be accessed at

    Social Credit . Com  

    It suggests that the deficiency was the result of the fact that the total aggregate of all Americans’ incomes was 20% less than the nation’s consumer products produced and sold. Let us accept this 20% provisionally and do an exercise. The amount will not affect the outcome of our experiment.

    To speed up the experiment let us say that the entire purchasing power shortfall was funded by debt repayable in one year.

    In the first year consumer debt must be increased by 20% of all consumption.

    In the second year the shortfall is again 20% plus another 20% because of the previous debt now repayable; 40% in all is now required to be financed by debt. In the third year it is now 20% plus the 40% of debt that was funded in the second year by debt. The debt is and must be cumulative; this is inescapable. 

    Why does this insufficiency of incomes exist? Because Americans are producing consumer goods to a value of 20% more than they are being paid to produce them. This surplus is a National Profit. A National Dividend paid without any requirement for its repayment or interest charged is the only thing which can work.

    The world is waiting for economists and political leaders to come to this realisation. 

            Return Journal Index

        Previous Page

          Next Page