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"Eminent Economists” or Quacks?

on Sunday, 01 July 1956. Posted in Social Credit

Alarmed by inflation — a wide-spread evil — the government of Canberra (Australia) asked eight "eminent economists" to study the situation and give advice for a remedy. After scratching their book-nurtured brains, the bright fellows found no better than the much-publicised medicine recommended by their confreres of the United States, of Canada and of all countries. Inflation, they maintain, is the ailment of too much money chasing too few goods, and the remedy therefore is to decrease the amount of money in circulation through higher taxation, restriction of credit and limitation of hire-purchase (payment by instalments). The following letter, sent by Dr. Monahan to "The Canberra Times", but not published, deals with this matter:

Canberra, 5th March, 1956

Dear Sir,

The Eight Eminent Economists who lend their Authority to the practice of robbery through taxation apparently subscribe to the theory that: an increase in the quantity of money is the cause of a rise in prices. Correctly defined, inflation is an increase in prices, accompanied by an increase in the quantity of money. This is a problem of the horse and cart, not of the chicken and egg.

Under the virtually universal adoption of strict cost-accountancy, prices represent cost plus profit. Since profit represents, in the majority of cases, only a small fraction of costs — the total profit of companies divided amongst wage earners would represent only a few shillings per week — they do not represent the heart of the problem, which in fact is cost.

Costs are made up of materials, direct labour charges (wages, salaries, advertising), and plant charges — i.e, the charge against the consumer of the depreciation of premises and machinery Under the present system of accountancy, an increase in any cost must be reflected in an increase in price...

The progressive introduction of plant increases the element in prices of the cost represented by depreciation. This acts as a diluent of purchasing power. Because of this, workers must obtain ever higher wages, merely to maintain an existing standard of living. But these higher wages mean increased costs, and hence increased prices, which again react on the standard of living. Inflation, as defined, therefore is a natural consequence of the current system of cost-accountancy, and, clearly, is an accelerating process.

Hire-purchase is the mortgaging of tomorrow's income to purchase yesterday's production. What it really demonstrates is the inadequacy of current income to purchase that production. Not enough money chasing too many goods.

The remedy proposed by the Eight Eminent Economists, being based on an incorrect diagnosis, will ultimately make things worse.

They propose to remove the "excess" money by taxation. This "excess" is supposed to derive from excessive capital development — i.e. production which distributes incomes, but does not make goods available at present. But if this "excess" income is removed by taxation, it deprives the consumer of the money which he will need in the future to meet the depreciation charges — when the capital equipment is brought into operation, and so further "excessive" capital development is necessary for just the same reason.

There is one thing, and one thing only, which will halt, or remove, this inflation which is destroying the fabric of our society, and that is an alteration in the conventions of cost-accountancy.

Higher itaxation, the credit squeeze, and choking off hire-purchase, will infallibly make the situation worse. The economists may not think so, but then economists have been aptly described as all perfectly honest men who reach positions of comfort and security, not by saying what they do not believe, but by being able to believe anything, even if all experience contradicts it, and to put their beliefs into such a form that the absurdity of them requires a little more analysis than most readers have the time and the inclination to give them; and to this! may add that, as in the case of quacks in medicine, their eminence and their emolument's only serve to confirm them in their wrong beliefs.

If this appears to be a strong condemnation, I can only say that academic support to robbery through taxation deserves it. Wage-earners are heavily taxed. They have earned and are entitled to their money, without having recourse to hire-purchase arrangements which would be less necessary if they were less taxed.


"The Social Crediter", Sydney, Australia

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