Deficiency in Keynesian Theory of Circular Flow of Expenditure and income

Deficiency in Keynesian thinking

It is worth mentioning here Keynes' theory on the model of Circular Flow of Expenditure and Income. In brief, flow of expenditure on goods and services comes from consumers, investors and governments, which goes to firms, which produce outputs. The income from firms then flows to consumers (labour), after some is paid to the government as taxes and part of the income may then be replaced or income may be given to persons by transfer payments (eg social security payments to individuals).There are some fundamental discrepancies in this model from a PROUTist perspective. Firstly, income taxes on wages and salary essentially reduce a person's purchasing capacity. PROUT does not accept income taxes on individual labour.

However, in order to support wealth ceilings and as a transitional measure income taxes may be used as a proxy for wealth taxes and therefore in support of a wealth ceiling so as to limit and help prevent the excess accumulation of wealth.Traditionally in the Keynesian model the bulk of taxation is derived from income taxes. Although this has changed over the decades towards indirect taxes such as sales taxes and consumption taxes, these by no means solve wealth disparities if no wealth ceiling or limits on the accumulation of wealth are in place. Instead, PROUT support taxes at the point of production, which means that taxes must be imposed before income reaches individual workers as a result of that production. It is arguable that such a system imposes on firms an obligation to ensure that they prove themselves to be efficient (and not wasteful), because as part of their productive activity, they must contribute also to the collective welfare (eg for education facilities) through making allowance for taxes when they produce.

This is so even if the effect of those production taxes do flow through to prices to the end consumer (who in any case will have adequate purchasing capacity). The effect of production taxes is also likely to be minimal to any single consumer, eg a resource extraction tax relative to the scale of production is likely to have minimal effect on any single consumer. Further, the Keynesian model assumes the existence of a welfare state and expenditure through transfers in the form of welfare payments. PROUT, in general, does not support welfare state mentality. Rather, PROUT supports full employment, and by this is meant all forms of social contribution involving physical, psychic or spiritual capabilities. There is also no reason to exclude the bringing up of children, care of the elderly, etc.

All these can be done through co-operative assistance and enterprises, and through rational distribution of profits to workers and/or shareholders (be it via wages, salary, bonus payments, dividends or contributions to superannuation funds, annuities, pensions or insurance co-ops for members), this will largely take care of the need for government transfers for contingencies such as are now covered by social security payments. Furthermore, money applied for these purposes would not fall directly into government hands thereby avoiding the concentration of economic power via centralised government management or control.

Concentration of economic power in government hands has recently been demonstrated by the governments of Hong Kong and Japan investing large sums of money, either directly or indirectly through controlled entities, in the stock markets of those countries so as to artificially prop up those market indices. Such money would have been better utilised toward programs that increased real production in the country and so as to increase the minimum necessities and special amenities of the people as appropriate. This also demonstrates how far removed the ordinary person has become in having a local say in their local economy.