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Price Adjustment

Written by Louis Even on Monday, 17 October 2016. Posted in In This Age of Plenty (book)

In this age of plenty - Chapter 16

The Just Price

Since products are made for the consumer, it then follows that products must be offered to the consumer at a price which allows the consumer to acquire them.

In other words, at all times there must be an equilibrium between the collective prices to be paid and the collective purchasing power of consumers.

To establish the retail price, the producers or the retailers calculate what the manufacturing of the product has cost and add the costs of handling, transportation, storage, and the necessary profits to the different intermediaries. But nothing ensures that this "marked price" corresponds to the consumer’s purchasing power.

The marked price must be claimed by the retailer so as not to cause anyone involved to go bankrupt. But on the other hand, the price to be paid by the buyer must be such that it corresponds to the purchasing power found in the consumers’ hands. Otherwise, products remain unsold in the face of real needs.

For this reason, prices must be adjusted.

The monetary technique of Social Credit provides for this.

In the Social Credit vocabulary, the “Just Price” is the price which corresponds exactly to consumption. This will be seen shortly.

When we say “Just Price”, we do not mean an “honest price” or “fair price”. The price marked by the retailer may be totally honest and fair, and yet it could be far from being the "exact price".

Thus, during the Depression, the marked prices might have been honest and fair but they were not exact; they did not correspond to consumption. When the total production of requested goods exceeds their total consumption, prices are certainly not exact since consumption over a given period of time is an indicator of the true costs incurred for production during the same period.

The honest price is a moral matter while the exact price is a mathematical matter.

The exact price, the “Just Price” of the Social Credit system, is arrived at through an arithmetical formula. So there is no question of fixing prices arbitrarily, nor of upper price limits, nor of restrictions, nor of rewards, nor of sanctions — but one of simple arithmetic.

The Social Credit technique involves taking two figures that are the making of the people themselves, figures that are not fixed arbitrarily by men who are in the habit of imposing their will upon other people. Two figures:

  1. The figure expressing the total sum of prices. (Prices are arrived at by producers and retailers.)
  2. The figure expressing the consumers’ purchasing power. (This is based on what the consumers want to buy and on the money they have available.)

And then, to be able to put an equal sign (=) between these two figures, Social Credit lowers the first figure to the level of the second.

Let us explain by first presenting a few unfamiliar notions which bear far reaching consequences.

The real cost of production

The exact price of a given product is the total sum of expenses incurred during its production. And this is true whether you count in dollars, ergs, man hours, or any other unit of measurement.

A given task requires four hours of time, ten ounces of sweat, a workman’s meal and the wear of a tool. If the enumeration is complete, the exact price of this task is four hours of time, ten ounces of sweat, a workman’s meal and the wear of a tool — no more, no less.

In Canada, we evaluate prices in dollars. We also evaluate work, the wear of tools and plant, and all the other elements that make up costs, in dollars. It is therefore possible to establish a relationship between prices and costs in terms of dollars.

If, all in all, expenses for materials, for work, for energy and for the wear and tear, add up to $100, then the exact price, the real cost of the product, is one hundred dollars.

But there is also an accounting price. During the course of production of an article in a factory, a tab is kept on the raw materials bought, processing costs, wages and salaries, capital costs, etc. All of which make up the financial cost of the article's production.

Are the accounting and the exact price the same? They might be the same by accident or in certain cases, but it is easily proven that, as a whole they certainly are not.

Take a small country that supplies, in one year, capital and consumable goods for a total production evaluated at 100 million dollars. If, within that time, the total expenses of the country’s inhabitants add up to 80 million dollars, we can readily see that the country’s production for that year has cost exactly $80 million, since $80 million is all that was consumed by the population that made the production. The financial cost of production was evaluated at $100 million, by cost price accounting, but it has actually cost only $80 million in real expenses. This is an inescapable fact: both totals are there to prove it.

The exact price of the $100 million production was therefore $80 million.

In other words, while $100 million in wealth was produced, $80 million in wealth was consumed. The consumption of $80 million worth of products is the real price of the $100 million worth of production.

The real price of production is consumption.

But, as was said above, if production exists for the purpose of consumption, then consumption must be able to buy production.

In the above example, the country deserves its production. If, in spending $80 million, it produces $100 million worth of goods and services, it must be able to get these $100 million worth of production while spending the $80 million. In other words, in paying $80 million, the consumers must get the $100 million worth of production. If not, $20 million worth of production will remain to be stared at, awaiting the moment it will be sacrificed, destroyed before a people deprived and exasperated.

The increase and reduction of wealth

A country increases its wealth when it develops its means of production: its machinery, factories, means of transportation, etc. These are called capital goods.

A country also increases its wealth when it produces goods for consumption: wheat, meat, furniture, clothing, etc. These are called consumer goods.

A country again increases its wealth when it gets wealth from abroad. Thus, Canada becomes wealthier with fruits when it receives bananas, oranges, and pineapples; this is called importation.

On the other hand, the country’s wealth is reduced when the means of production are destroyed or worn: burnt factories, worn out machinery, etc. This is called depreciation.

A country’s wealth is also reduced when it is consumed: food eaten, clothes worn out, etc, are no longer available. This is destruction through consumption.

A country’s wealth is again reduced when some of it leaves the country: apples, butter, bacon, sent to England, are no longer in Canada. This is called exportation.

Calculation of the Just Price

Now let us suppose that a year’s returns are as follows:

Production of capital goods $3 billion
Production of consumable goods $7 billion
Importations $2 billion
Total acquisitions $12 billion (assets)
Depreciation of capital goods $1.8 billion
Consumption $5.2 billion
Exports $2.0 billion
Total deductions $9.0 billion (liabilities)

We may conclude that:

While the country's wealth increased by a production worth $12 billion, the country used up, consumed, or exported $9 billion worth of production.

The real cost of the $12 billion production is $9 billion. If it actually cost the country $9 billion to produce $12 billion worth of goods and services, the country must be able to enjoy its $12 billion worth of production while spending only $9 billion.

With $9 billion, we must be able to pay for $12 billion. To pay 12 with 9. This requires a price adjustment: to lower the accounting price to the level of the real price. And this must be done without causing prejudice to anyone.

When presented with the above figures, the following conclusion is logical in an economy where production exists for consumption:

Since the consumption of $9 billion worth of products, with the wear of machines included, has allowed a production worth $12 billion, with improvements included, $9 billion is the real price of production. In order for the country to be able to use this production, so long as it is truly needed and desired, the country must be able to get it at its real price, $9 billion. This does not prevent the retailers from being compelled to claim $12 billion.

On the one hand, the country’s consumers must be able to buy 12 with 9. They must be able to draw on their country’s production by paying for it at 9/12 of the marked price.

On the other hand, the retailer must recover the full amount: 12; otherwise, he cannot meet his costs nor obtain his profit which is the salary for his services.

The compensated discount

The buyer will pay only 9/12 of the marked price if he is granted a discount of 3 over 12, or 25 percent.

A table costs $120.00; it will be sold to the buyer for $90.00. A pair of stockings costs $4.00; it will be sold to the buyer for $3.00.

It will be likewise for all the country’s goods since it is a national discount decreed by the National Credit Office in order to reach the goal for which the Office was instituted.

If all of the country’s consumer goods are thus paid for at 75 percent of their marked price, the country’s consumers will be able to get all of their production, worth $12 billion, with the $9 billion that they will spend for their consumption.

If the products for sale do not suit the buyers, they will not buy them and the producers will simply stop making these products since they do not constitute a real wealth and do not answer consumer needs.

Retailers will get 75 percent of their prices from the buyers. If they are to survive, they will need to get from another source, the 25 percent that the buyers will not pay.

This source can be none other than the National Credit Office which has the mandate to equate money with reality. Upon presentation of the appropriate vouchers, attesting to the sale and the national discount granted to the buyer, the retailer will receive from the National Credit Office the amount of cash credits that makes up for the missing 25 percent.

The goal will have been reached: The whole of the country’s consumers will have obtained the total of the country's production, products that answer their needs. The retailers, and through them the producers, will have obtained the amount needed to cover the costs of production and distribution.

There will be no inflation, since there is no lack of products to supply the demand. In fact, this new money is created only in the presence of a product that was sought after and purchased.

Furthermore, this issue of money does not enter into the price since it is neither wage, nor salary, nor investment. It comes after the product has been manufactured, priced and sold.

Another way of arriving at the same result would be to ask the buyer to pay the full price. The retailer would give the buyer a receipt attesting to the amount purchased. Upon presentation of this receipt at the branch of the National Credit Office, the buyer would receive cash credits equal to 25 percent of the amount purchased.

The first method is a compensated discount, a discount granted by the retailer and repaid (compensated) to him by the National Credit Office.

The second method is a rebate given to the buyer. The result is exactly the same.

In either case, the price paid by the consumer must be a fraction of the marked price as expressed by the ratio of total consumption to total production. Otherwise, the production is only partially accessible to the consumers for whom it was made.

The just price = the marked price X (Consumption / Production)

 

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