A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders. Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase. When dividends are paid, shareholders typically must pay income taxes, and the corporation does not receive a corporate income tax deduction for the dividend payments.
A dividend is allocated as a fixed amount per share with shareholders receiving a dividend in proportion to their shareholding. For the joint-stock company, paying dividends is not an expense; rather, it is the division of after-tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholders' equity section on the company's balance sheet – the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. Cooperatives, on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense.
In financial history of the world, the Dutch East India Company (VOC) was the first recorded (public) company ever to pay regular dividends. The VOC paid annual dividends worth around 18 percent of the value of the shares for almost 200 years of existence (1602–1800).
Cash dividends are the most common form of payment and are paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid $50. Dividends paid are not classified as an expense, but rather a deduction of retained earnings. Dividends paid does not show up on an income statement but does appear on the balance sheet.
Stock or scrip dividends are those paid out in the form of additional stock shares of the issuing corporation, or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares).
Nothing tangible will be gained if the stock is split because the total number of shares increases, lowering the price of each share, without changing the market capitalization, or total value, of the shares held. (See also Stock dilution.)
Stock dividend distributions do not affect the market capitalization of a company. Stock dividends are not includable in the gross income of the shareholder for US income tax purposes. Because the shares are issued for proceeds equal to the pre-existing market price of the shares; there is no negative dilution in the amount recoverable.
Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer, however they can take other forms, such as products and services.
Interim dividends are dividend payments made before a company's Annual General Meeting (AGM) and final financial statements. This declared dividend usually accompanies the company's interim financial statements.
Other dividends can be used in structured finance. Financial assets with a known market value can be distributed as dividends; warrants are sometimes distributed in this way. For large companies with subsidiaries, dividends can take the form of shares in a subsidiary company. A common technique for "spinning off" a company from its parent is to distribute shares in the new company to the old company's shareholders. The new shares can then be traded independently.
The most popular metric to determine the dividend coverage is the payout ratio. Most often, the payout ratio is calculated based on earnings per share:
Payout ratio = (Dividends per Share (DPS) / Earnings per Share (EPS)) x 100
A payout ratio greater than 1 means the company is paying out more in dividends for the year than it earned.
Dividends are paid in cash. On the other hand, earnings are an accountancy measure and do not represent the actual cash-flow of a company. Hence, a more liquidity driven way to determine the dividend’s safety is to replace earnings by free cash flow. The free cash flow represents the company’s available cash based on its operating business after investments:
Payout Ratio = (Dividends per Share (DPS) / Free Cash Flow per Share) x 100
Declaration date — the day the board of directors announces its intention to pay a dividend. On that day, a liability is created and the company records that liability on its books; it now owes the money to the stockholders.
In-dividend date — the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend'). In other words, existing holders of the stock and anyone who buys it on this day will receive the dividend, whereas any holders selling the stock lose their right to the dividend. After this date the stock becomes ex dividend.
Ex-dividend date — the day on which shares bought and sold no longer come attached with the right to be paid the most recently declared dividend. In the United States, it is typically 2 trading days before the record date. This is an important date for any company that has many stockholders, including those that trade on exchanges, to enable reconciliation of who is entitled to be paid the dividend. Existing holders of the stock will receive the dividend even if they sell the stock on or after that date, whereas anyone who bought the stock will not receive the dividend. It is relatively common for a stock's price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's assets resulting from the declaration of the dividend.
Book closure date —when a company announces a dividend, it will also announce a date on which the company will ideally temporarily close its books for fresh transfers of stock, which is also usually the record date.
Record date — shareholders registered in the company's record as of the record date will be paid the dividend. Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.
Payment date — the day on which the dividend cheque will actually be mailed to shareholders or credited to their bank account.
The dividend frequency describes the number of dividend payments within a single business year. Most relevant dividend frequencies are yearly, semi-annually, quarterly and monthly. Some common dividend frequencies are quarterly in the US, semi-annually in Japan and Australia and annually in Germany.
Some companies have dividend reinvestment plans, or DRIPs, not to be confused with scrips. DRIPs allow shareholders to use dividends to systematically buy small amounts of stock, usually with no commission and sometimes at a slight discount. In some cases, the shareholder might not need to pay taxes on these re-invested dividends, but in most cases they do.
Most countries impose a corporate tax on the profits made by a company. A dividend paid by a company is not an expense of the company, but is income of the shareholder. The tax treatment of this dividend income varies considerably between countries:
The United States and Canada impose a lower tax rate on dividend income than ordinary income, on the assertion that company profits had already been taxed as corporate tax.
Australia and New Zealand have a dividend imputation system, wherein companies can attach franking credits or imputation credits to dividends. These franking credits represent the tax paid by the company upon its pre-tax profits. One dollar of company tax paid generates one franking credit. Companies can attach any proportion of franking up to a maximum amount that is calculated from the prevailing company tax rate: for each dollar of dividend paid, the maximum level of franking is the company tax rate divided by (1 - company tax rate). At the current 30% rate, this works out at 0.30 of a credit per 70 cents of dividend, or 42.857 cents per dollar of dividend. The shareholders who are able to use them, apply these credits against their income tax bills at a rate of a dollar per credit, thereby effectively eliminating the double taxation of company profits.
Dividends from UK companies are paid out of profits after corporation tax (Corporation tax is at 20% but decreases to 19% from 1 April 2017 - split periods are pro-rated). Dividend income is taxable on UK residents at the rate of 7.5% for basic rate payers, 32.5% for higher rate tax payers and 38.1% for additional rate payers. The income tax on dividend receipts is collected via personal tax returns. The first £2,000 of dividend income is not taxed, however dividend income above that amount is subject to the rate that would have applied if the £2,000 exemption had not been given. UK limited companies do not pay tax on dividends received from their investments or from their subsidiaries. This is classed as "franked investment income".
In India, companies declaring or distributing dividend, are required to pay a Corporate Dividend Tax in addition to the tax levied on their income. The dividend received by the shareholders is then exempt in their hands.Dividend-paying firms in India fell from 24 per cent in 2001 to almost 16 per cent in 2009 before rising to 19 per cent in 2010. However, dividend income over and above Rs. 1,000,000 shall attract 10 per cent dividend tax in the hands of the shareholder with effect from April 2016.
After a stock goes ex-dividend (i.e. when a dividend has just been paid, so there is no anticipation of another imminent dividend payment), the stock price should drop.
To calculate the amount of the drop, the traditional method is to view the financial effects of the dividend from the perspective of the company. Since the company has paid say £x in dividends per share out of its cash account on the left hand side of the balance sheet, the equity account on the right side should decrease an equivalent amount. This means that a £x dividend should result in a £x drop in the share price.
A more accurate method of calculating this price is to look at the share price and dividend from the after-tax perspective of a share holder. The after-tax drop in the share price (or capital gain/loss) should be equivalent to the after-tax dividend. For example, if the tax of capital gains Tcg is 35%, and the tax on dividends Td is 15%, then a £1 dividend is equivalent to £0.85 of after-tax money. To get the same financial benefit from a capital loss, the after-tax capital loss value should equal £0.85. The pre-tax capital loss would be £0.85/(1-Tcg) = £0.85/(1-35%) = £0.85/65% = £1.30. In this case, a dividend of £1 has led to a larger drop in the share price of £1.30, because the tax rate on capital losses is higher than the dividend tax rate.
Finally, security analysis that does not take dividends into account may mute the decline in share price, for example in the case of a Price–earnings ratio target that does not back out cash; or amplify the decline, for example in the case of Trend following.
Some believe that company profits are best re-invested in the company: research and development, capital investment, expansion, etc. Proponents of this view (and thus critics of dividends per se) suggest that an eagerness to return profits to shareholders may indicate the management having run out of good ideas for the future of the company. Some studies, however, have demonstrated that companies that pay dividends have higher earnings growth, suggesting that dividend payments may be evidence of confidence in earnings growth and sufficient profitability to fund future expansion.
Taxation of dividends is often used as justification for retaining earnings, or for performing a stock buyback, in which the company buys back stock, thereby increasing the value of the stock left outstanding.
When dividends are paid, individual shareholders in many countries suffer from double taxation of those dividends:
In many countries, the tax rate on dividend income is lower than for other forms of income to compensate for tax paid at the corporate level.
A capital gain should not be confused with a dividend. Generally, a capital gain occurs where a capital asset is sold for an amount greater than the amount of its cost at the time the investment was purchased. A dividend is a parsing out a share of the profits, and is taxed at the dividend tax rate. If there is an increase of value of stock, and a shareholder chooses to sell the stock, the shareholder will pay a tax on capital gains (often taxed at a lower rate than ordinary income). If a holder of the stock chooses to not participate in the buyback, the price of the holder's shares could rise (as well as it could fall), but the tax on these gains is delayed until the sale of the shares.
Certain types of specialized investment companies (such as a REIT in the U.S.) allow the shareholder to partially or fully avoid double taxation of dividends.
Shareholders in companies that pay little or no cash dividends can reap the benefit of the company's profits when they sell their shareholding, or when a company is wound down and all assets liquidated and distributed amongst shareholders. This, in effect, delegates the dividend policy from the board to the individual shareholder. Payment of a dividend can increase the borrowing requirement, or leverage, of a company.
Cooperative businesses may retain their earnings, or distribute part or all of them as dividends to their members. They distribute their dividends in proportion to their members' activity, instead of the value of members' shareholding. Therefore, co-op dividends are often treated as pre-tax expenses. In other words, local tax or accounting rules may treat a dividend as a form of customer rebate or a staff bonus to be deducted from turnover before profit (tax profit or operating profit) is calculated.
Consumers' cooperatives allocate dividends according to their members' trade with the co-op. For example, a credit union will pay a dividend to represent interest on a saver's deposit. A retail co-op store chain may return a percentage of a member's purchases from the co-op, in the form of cash, store credit, or equity. This type of dividend is sometimes known as a patronage dividend or patronage refund, as well as being informally named divi or divvy.
In real estate investment trusts and royalty trusts, the distributions paid often will be consistently greater than the company earnings. This can be sustainable because the accounting earnings do not recognize any increasing value of real estate holdings and resource reserves. If there is no economic increase in the value of the company's assets then the excess distribution (or dividend) will be a return of capital and the book value of the company will have shrunk by an equal amount. This may result in capital gains which may be taxed differently from dividends representing distribution of earnings.
In the case of mutual insurance, for example, in the United States, a distribution of profits to holders of participating life policies is called a dividend. These profits are generated by the investment returns of the insurer's general account, in which premiums are invested and from which claims are paid. The participating dividend may be used to decrease premiums, or to increase the cash value of the policy. Some life policies pay nonparticipating dividends. As a contrasting example, in the United Kingdom, the surrender value of a with-profits policy is increased by a bonus, which also serves the purpose of distributing profits. Life insurance dividends and bonuses, while typical of mutual insurance, are also paid by some joint stock insurers.
Insurance dividend payments are not restricted to life policies. For example, general insurer State Farm Mutual Automobile Insurance Company can distribute dividends to its vehicle insurance policyholders.
In short, the portion of the premium determined not to have been necessary to provide coverage and benefits, to meet expenses, and to maintain the company's financial position, is returned to policyowners in the form of dividends.
The Alaska Permanent Fund is a constitutionally established permanent fund managed by a state-owned corporation, the Alaska Permanent Fund Corporation (APFC). It was established in Alaska in 1976 by Article 9, Section 15 of the Alaska State Constitution under Governor Jay Hammond. From February 1976 until April 1980, the Department of Revenue Treasury Division managed the state's Permanent Fund assets, until, in 1980, the Alaska State Legislature created the APFC. As of the end of 2016, the fund is worth nearly $55 billion that has been funded by oil revenues.Andrew Yang
Andrew Yang (born January 13, 1975) is an American entrepreneur, the founder of Venture for America (VFA), and a U.S. 2020 Democratic presidential candidate. He worked in startups and early-stage growth companies as a founder or executive from 2000 to 2009. After he founded VFA, the Obama administration selected him in 2012 as a "Champion of Change" and in 2015 as a "Presidential Ambassador for Global Entrepreneurship". In Yang's bid for the 2020 presidential nomination, one of his main campaign goals is to implement a provision for Universal Basic Income (UBI) known as the Freedom Dividend for every American adult, in response to the rapid development of automation that is leading to workforce challenges.Citizen's dividend
Citizen's dividend is a proposed policy based upon the principle that the natural world is the common property of all persons (see Georgism). It is proposed that all citizens receive regular payments (dividends) from revenue raised by leasing or taxing the monopoly of valuable land and other natural resources.Dividend discount model
The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to value stocks based on the net present value of the future dividends. The equation most widely used is called the Gordon growth model (GGM). It is named after Myron J. Gordon of the University of Toronto, who originally published it along with Eli Shapiro in 1956 and made reference to it in 1959. Their work borrowed heavily from the theoretical and mathematical ideas found in John Burr Williams 1938 book "The Theory of Investment Value."
The variables are: is the current stock price. is the constant growth rate in perpetuity expected for the dividends. is the constant cost of equity capital for that company. is the value of the next year's dividends.
In finance, a dividend future is an exchange-traded derivative contract that allows investors to take positions on future dividend payments. Dividend futures can be on a single company, a basket of companies, or on an Equity index. They settle on the amount of dividend paid by the company, the basket of companies, or the index during the period of the contract.
For example, if company A pays a quarterly dividend of $0.25 in 2012. If an investor buys a 2012 dividend future, the settlement price of the future will be equal to 4 x $0.25 = $1 per contract. The profit or loss the investor makes depends on the difference between the price they bought or sold the future and the settlement price. For instance, if the investor bought the 2012 dividend future at $0,90, he would make a profit of $0.10 per contract.
Most dividend futures trades occur before the dividend is known, hence allowing investors to go "long" or "short" the future dividend payment. The "buyer" of the contract, is said to be "long", and the "seller" of the contract, is said to be "short". The terminology reflects the expectations of the parties: the buyer thinks the dividend is going to increase, while the seller thinks it will decrease. The contract itself costs nothing to enter; the buy/sell terminology is a linguistic convenience reflecting the position each party is taking (long or short).
Dividend futures are usually traded in increments/lots/batches of 100 or 1000 and have a 1-year time span. When purchased, no transmission of share rights or dividends occurs. Being futures contracts, they are traded on margin, thus offering leverage, and are not subject to the taxes equity holders must pay when they receive dividend distribution on their stocks. They are traded in various financial markets, mainly in Europe, and Asia, and several Blue chip companies and Equity Indices are available with maturities going as long as 5 years for Equities and 10 years for Equity indices.Dividend policy
Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power. When cash surplus exists and is not needed by the firm, then management is expected to pay out some or all of those surplus earnings in the form of cash dividends or to repurchase the company's stock through a share buyback program.
If there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, and excess cash surplus is not needed, then – finance theory suggests – management should return some or all of the excess cash to shareholders as dividends. This is the general case, however there are exceptions. For example, shareholders of a "growth stock", expect that the company will, almost by definition, retain most of the excess earnings so as to fund future growth internally. By with holding current dividend payments to shareholders, managers of growth companies are hoping that dividend payments will be increased proportionality higher in the future, to offset the retainment of current earnings and the internal financing of present investment projects.
Management must also choose the form of the dividend distribution, generally as cash dividends or via a share buyback. Various factors may be taken into consideration: where shareholders must pay tax on dividends, firms may elect to retain earnings or to perform a stock buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies will pay "dividends" from stock rather than in cash; see Corporate action. Financial theory suggests that the dividend policy should be set based upon the type of company and what management determines is the best use of those dividend resources for the firm to its shareholders. As a general rule, shareholders of growth companies would prefer managers to have a share buyback program, whereas shareholders of value or secondary stocks would prefer the management of these companies to payout surplus earnings in the form of cash dividends.Dividend recapitalization
A dividend recapitalization (often referred to as a dividend recap) in finance is a type of leveraged recapitalization in which a payment is made to shareholders. As opposed to a typical dividend which is paid regularly from the company's earnings, a dividend recapitalization occurs when a company raises debt —e.g. by issuing bonds to fund the dividend.
These types of recapitalization can be minor adjustments to the capital structure of the company, or can be large changes involving a change in the power structure as well. As with other leveraged transactions, if a firm cannot make its debt payments, meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy. Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises.
Typically a dividend recapitalization will be pursued when the equity investors are seeking to realize value from a private company but do not want to sell their interest in the business.Dividend swap
A dividend swap is an over-the-counter financial derivative contract (in particular a form of swap). It consists of a series of payments made between two parties at defined intervals over a fixed term (e.g., annually over 5 years). One party - the holder of the fixed leg - will pay its counterparty a pre-designated fixed payment at each interval. The other party - the holder of the floating leg - will pay its counterparty the total dividends that were paid out by a selected underlying, which can be a single company, a basket of companies, or all the members of an index. The payments are multiplied by a notional number of shares.Like most swaps, the contract is usually arranged such that its value at signing is zero. This is accomplished by making the value of the fixed leg equal to the value of the floating leg - in other words, the fixed leg will be equal to the average expected dividends over the term of the swap. Therefore, the fixed leg of the swap can be used to estimate market forecasts of the dividends that will be paid out by the underlying.Dividend tax
A dividend tax is the tax imposed by a tax authority on dividends received by shareholders (stockholders) of a company.Dividend yield
The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant. It is often expressed as a percentage.
Dividend yield is used to calculate the earning on investment (shares) considering only the returns in the form of total dividends declared by the company during the year.Its reciprocal is the Price/Dividend ratio.Division (mathematics)
Division is one of the four basic operations of arithmetic, the others being addition, subtraction, and multiplication. The mathematical symbols used for the division operator are the obelus (÷) and the slash (/).
At an elementary level the division of two natural numbers is – among other possible interpretations – the process of calculating the number of times one number is contained within another one. This number of times is not always an integer, and this led to two different concepts.
The division with remainder or Euclidean division of two natural numbers provides a quotient, which is the number of times the second one is contained in the first one, and a remainder, which is the part of the first number that remains, when in the course of computing the quotient, no further full chunk of the size of the second number can be allocated.
For a modification of this division to yield only one single result, the natural numbers must be extended to rational numbers or real numbers. In these enlarged number systems, division is the inverse operation to multiplication, that is a = c ÷ b means a × b = c, as long as b is not zero—if b = 0, then this is a division by zero, which is not defined.Both forms of divisions appear in various algebraic structures. Those in which a Euclidean division (with remainder) is defined are called Euclidean domains and include polynomial rings in one indeterminate. Those in which a division (with a single result) by all nonzero elements is defined are called fields and division rings. In a ring the elements by which division is always possible are called the units; e.g., within the ring of integers the units are 1 and –1.Father's Little Dividend
Father's Little Dividend is a 1951 American comedy film directed by Vincente Minnelli and starring Spencer Tracy, Joan Bennett, and Elizabeth Taylor. The movie is the sequel to Father of the Bride (1950).Long division
In arithmetic, long division is a standard division algorithm suitable for dividing multidigit numbers that is simple enough to perform by hand. It breaks down a division problem into a series of easier steps. As in all division problems, one number, called the dividend, is divided by another, called the divisor, producing a result called the quotient. It enables computations involving arbitrarily large numbers to be performed by following a series of simple steps. The abbreviated form of long division is called short division, which is almost always used instead of long division when the divisor has only one digit. Chunking (also known as the partial quotients method or the hangman method) is a less-efficient form of long division which may be easier to understand.
While related algorithms have existed since the 12th century AD, the specific algorithm in modern use was introduced by Henry Briggs c. 1600 AD.Modulo operation
In computing, the modulo operation finds the remainder after division of one number by another (sometimes called modulus).
Given two positive numbers, a (the dividend) and n (the divisor), a modulo n (abbreviated as a mod n) is the remainder of the Euclidean division of a by n. For example, the expression "5 mod 2" would evaluate to 1 because 5 divided by 2 leaves a quotient of 2 and a remainder of 1, while "9 mod 3" would evaluate to 0 because the division of 9 by 3 has a quotient of 3 and leaves a remainder of 0; there is nothing to subtract from 9 after multiplying 3 times 3. (Note that doing the division with a calculator will not show the result referred to here by this operation; the quotient will be expressed as a decimal fraction.)
Although typically performed with a and n both being integers, many computing systems allow other types of numeric operands. The range of numbers for an integer modulo of n is 0 to n − 1. (a mod 1 is always 0; a mod 0 is undefined, possibly resulting in a division by zero error in programming languages.) See modular arithmetic for an older and related convention applied in number theory.
When either a or n is negative, the naive definition breaks down and programming languages differ in how these values are defined.Preferred stock
Preferred stock (also called preferred shares, preference shares or simply preferreds) is a form of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior (i.e., higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company) and may have priority over common stock (ordinary shares) in the payment of dividends and upon liquidation. Terms of the preferred stock are described in the issuing company's articles of association or articles of incorporation.
Like bonds, preferred stocks are rated by the major credit rating companies. The rating for preferred stocks is generally lower than for bonds because preferred dividends do not carry the same guarantees as interest payments from bonds and because preferred-stock holders' claims are junior to those of all creditors.Quotient
In arithmetic, a quotient (from Latin: quotiens "how many times", pronounced ) is the quantity produced by the division of two numbers. The quotient has widespread use throughout mathematics, and is commonly referred to as a fraction or a ratio. For example, when dividing twenty (the dividend) by three (the divisor), the quotient is six and two thirds. In this sense, a quotient is the ratio of a dividend to its divisor.Share (finance)
In financial markets, a share is a unit used as mutual funds, limited partnerships, and real estate investment trusts. The owner of shares in the corporation/company is a shareholder (or stockholder) of the corporation. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.
The income received from the ownership of shares is a dividend. The process of purchasing and selling shares often involves going through a stockbroker as a middle man.
There are different types of shares such as equity shares, preference shares, bonus shares, right shares, employees stock option plans and sweat equity shares.Social credit
Social credit is an interdisciplinary and distributive philosophy developed by C. H. Douglas (1879–1952), a British engineer who published a book by that name in 1924. It encompasses economics, political science, history, and accounting. Its policies are designed, according to Douglas, to disperse economic and political power to individuals. Douglas wrote, "Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic." Douglas said that Social Crediters want to build a new civilization based upon "absolute economic security" for the individual, where "they shall sit every man under his vine and under his fig tree; and none shall make them afraid." In his words, "what we really demand of existence is not that we shall be put into somebody else's Utopia, but we shall be put in a position to construct a Utopia of our own."It was while he was reorganising the work at Farnborough, during World War I, that Douglas noticed that the weekly total costs of goods produced was greater than the sums paid to individuals for wages, salaries and dividends. This seemed to contradict the theory of classic Ricardian economics, that all costs are distributed simultaneously as purchasing power. Troubled by the seeming difference between the way money flowed and the objectives of industry ("delivery of goods and services", in his opinion), Douglas decided to apply engineering methods to the economic system.
Douglas collected data from more than a hundred large British businesses and found that in nearly every case, except that of companies becoming bankrupt, the sums paid out in salaries, wages and dividends were always less than the total costs of goods and services produced each week: consumers did not have enough income to buy back what they had made. He published his observations and conclusions in an article in the magazine The English Review, where he suggested: "That we are living under a system of accountancy which renders the delivery of the nation's goods and services to itself a technical impossibility." He later formalized this observation in his A+B theorem. Douglas proposed to eliminate this difference between total prices and total incomes by augmenting consumers' purchasing power through a National Dividend and a Compensated Price Mechanism.
According to Douglas, the true purpose of production is consumption, and production must serve the genuine, freely expressed interests of consumers. In order to accomplish this objective, he believed that each citizen should have a beneficial, not direct, inheritance in the communal capital conferred by complete access to consumer goods assured by the National Dividend and Compensated Price. Douglas thought that consumers, fully provided with adequate purchasing power, will establish the policy of production through exercise of their monetary vote. In this view, the term economic democracy does not mean worker control of industry, but democratic control of credit. Removing the policy of production from banking institutions, government, and industry, social credit envisages an "aristocracy of producers, serving and accredited by a democracy of consumers."The policy proposals of social credit attracted widespread interest in the decades between the world wars of the twentieth century because of their relevance to economic conditions of the time. Douglas called attention to the excess of production capacity over consumer purchasing power, an observation that was also made by John Maynard Keynes in his book, The General Theory of Employment, Interest and Money. While Douglas shared some of Keynes' criticisms of classical economics, his unique remedies were disputed and even rejected by most economists and bankers of the time. Remnants of social credit still exist within social credit parties throughout the world, but not in the purest form originally advanced by Douglas.Social dividend
The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to each citizen derived from the property income generated by publicly owned enterprises, representing the individual’s share of the capital and natural resources owned by society.Although the social dividend concept has not yet been applied on a large scale, similar policies have been adopted on a limited basis. In both the former Soviet-type economies and non-Socialist countries, the net earnings of revenue-generating state enterprises were considered a source of public revenue to be spent directly by the government to finance various public goods and services.The concept of a social dividend overlaps with the concept of a universal basic income guarantee, but is distinguished from basic income in that a social dividend implies social ownership of productive assets whereas a basic income does not necessarily imply social ownership and can be financed through a much broader range of sources. Unlike a basic income, the social dividend yield varies based on the performance of the socially owned economy. The social dividend can be regarded as the socialist analogue to basic income. More recently the term universal basic dividend has been used to contrast the social dividend concept with basic income.
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Economic, financial and business history of the Netherlands
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