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Salient. Official Newspaper of the Victoria University Students' Association. Vol 42 No. 21. September 3 1979

"A $ B Theorem"

"A $ B Theorem"

The "A $ B Theorem" was invented by Major Douglas during WW1 as a means of explaining a "gap" between incomes distributed to consumers and cost incurred by businesses in running production. According to Douglas, firms nave to make two types of payments: salaries, wages, etc (A); and raw materials, depreciation, tax, rent, etc (B). "...everv business has to recover A $ B costs from the public, but distributes only A incomes," claims a NZSC publication, The Problem of Money.

This is easily exposed if one considers that all the "B" payments also represent income to other people: raw material producing companies, banks, transport companies, etc. These people spend the money in their turn, and, since every cost to one person is income to another, production will be balanced throughout the whole economy.

Economic crises occur because of the many conflicting interests and the anarchy they cause in capitalist production, not as Socred supposes. If the A $ B Theorem was correct, there could never be a boom, and in fact capitalism could never have developed out of feudalism!