Introduction to Social Credit

CONTENTS

PHYSICS - ECONOMICS - POLITICS - METAPHYSICS -
THE SOCIAL CREDIT MOVEMENT

PREFACE

The essay which follows was written primarily to meet the needs of those readers of The Australian Social Crediter to whom the articles in its pages were their first introduction to the ideas expressing or derived from the doctrine of Social Credit.
Those ideas were first expressed by Major C. H. Douglas in a comparatively short article which appeared in The English Review in December 1918 and took the form of a "frankly material, 'practical' examination of the central proposition of political economy being put forward at that time.
The fundamental doctrine, from which this examination proceeded, was stated first in The New Age, and in 1920 was published as the book Economic Democracy. This was a "severely concentrated," but nevertheless comprehensive, statement. Major Douglas has since then contributed an enormous amount to the expansion of the doctrine: but every part and aspect of this expansion derives from his original conception.
This development of the original idea is probably the ultimate criterion of its essential reality.
In his Development of Christian Doctrine, Cardinal J. H. Newman, wrote:
"When an idea, whether real or not, is of a nature to arrest and possess the mind, it may be said to have life, that is, to live in the mind which is its recipient. Thus, mathematical ideas, real as they are, can hardly properly be called living, at least ordinarily. But, when some great enunciation, whether true or false, about human nature, or present good, or government, or duty, or religion, is carried forward into the public throng of men and draws attention, then it is not merely received passively in this or that form into many minds, but it becomes an active principle within them, leading them to an ever-new contemplation of itself, to an application of it in various directions, and a propagation of it on every side".
And Newman proposed seven tests of the essential unity of a doctrine, and summarised these in the statement that
to guarantee its own substantial unity, it must be seen to be one in type, one in its system of principles, one in its unitive power towards externals, one in its logical consecutiveness, one in the witness of its early phases to its later, one in the protection which its later extend to its earlier, and one in its union of vigour with continuance, that is, in its tenacity.
It is a temptation to apply these tests to Social Credit. but space does not allow the demonstration. But perhaps the difficulty experienced by the majority of those coming first to the, comparatively, later phases of the doctrine, lies in their misconception of the earlier. It is the hope that this Introduction will overcome the difficulty to some extent which forms its second justification.
Newman also pointed out that "the idea which represents an object or supposed object is commensurate with the sum total of its possible aspects . . . and in proportion to the variety of aspects under which it presents itself to various minds is its force and depth, and the argument for its reality."
In the historic development of Social Credit doctrine, different aspects, all of them implicit in Douglas's original conception, have required the contemporary emphasis
"There is no one aspect deep enough to exhaust the contents of a real idea, no one term or proposition which will serve to define it; though, of course, one representation of it is more just and exact than another, and when an idea is very complex, it is allowable, for the sake of convenience, to consider its distinct aspects as if separate ideas."
This presentation. then, deals with some of the aspects of Social Credit as these have been brought out by the moving tide of events. If it will bring its readers to read and understand Douglas in his original writings, it will be insofar justified.
The essay, written in the latter part of 1946, appeared serially in the pages of The Australian Social Crediter and (except Part II) in The Social Crediter in the first half of 1947.
The difficulties of the times are responsible for the delay in its appearance in its present form; but it is hoped that it contains sufficient that is not contingent on passing events to render it acceptable as an introduction to the deep study which the subject deserves.
BRYAN W. MONAHAN Canberra. August, 1947.

PHYSICS
(1)

Most Social Crediters must have been asked the question from time to time: "What is Social Credit." There is no short answer. Social Credit is a way of looking at things, a point of view that seems to bring every branch of knowledge into a new and more clear perspective. Equally all knowledge is relevant to Social Credit.
In his Introduction to Mathematics, A. N. Whitehead writes: 'We have thus arrived at a position where we can effect a complete interchange in ideas and results between the two sciences. Each science throws light on the other, and itself gains immeasurably in power'. It is impossible not to feel stirred at the thought of the motions of men at certain historic moments of adventure and discovery. . . . Such moments are also granted to students in the abstract regions of thought, and high among them must be placed the morning when Descartes lay in bed and invented the method of co-ordinate geometry. Whitehead refers here to Descartes' revelation of the elation between the hitherto separate sciences of algebra and geometry.
Such a revelation commonly comes in a flash; its recipient knows instantaneously that contained in that revelation is the solution, beyond any doubt, of previously insoluble problems.
It is not the specific solution of a specific problem that is known; it is the certainty that a solution will be found in the new method of approach made possible. Actual solutions of given problems will be the work of many men in many years.
Social Credit is just such a revelation.
It is a method which comprehends the relation between physical and industrial science, economics, and politics.
A knowledge of Social Credit pre-supposes an awareness of the problems of those subjects, and a knowledge of the problems lying between them. Thus, in coordinate geometry, "the immediate question which starts to the mind is, What sort of loci correspond to the well-known algebraic forms?"
This is a question that can be put only from the point of view of coordinate geometry, while at the same time it is put with the certain knowledge that a useful answer can be found.
So, with Social Credit, we can ask certain sociological questions with the knowledge that to posit the problem implies the answer. It is a matter of great importance to understand to what an extent progress in any subject depends on a correct positing of the problem.
A classic example is the problem of Achilles and the tortoise.
In its classical form, with the classical pre-suppositions, the problem is insoluble.
As stated by William James, the problem, or paradox as it is usually known, runs:
"Give that reptile ever so small an advance and the swift runner Achilles can never overtake him, much less get ahead of him; for of space and time are infinitely divisible (as our intellects tell us they must be), by the time Achilles reaches the tortoise's starting point, the tortoise has already got ahead of that starting point, and so on ad infinitum, the interval between the pursuer and the pursued growing endlessly minuter, but never becoming wholly obliterated,"
The modern mind can "see through" the problem at once because we are the possessors of new points of view to encompass such paradoxes; the problem has in fact vanished, and we concern ourselves with the more practical problem:
"Given that the tortoise and Archilles have such and such speeds, and start with such and such a distance between them, how long will it take Achilles to overtake the tortoise?"
The technique of algebra brings the solution within the competence of a child. Yet behind the simplest algebraic technique lies a vast domain of abstract knowledge, whose nature makes a short answer to the question "What is algebra" as impossible as in the case of Social Credit.
One might say "Algebra is the technique of a mathematical conception, and that would be a correct and penetrating answer. Similarly, Social Credit has been described by Major C. H. Douglas, its originator, as "The policy of a Philosophy."
And just as algebra enables us to give a short answer to a particular mathematical problem, so Social Credit enables us to give a short answer to a particular problem of political economy. But neither the answer, nor the technique by which it is found, is algebra or Social Credit as such.
Social Credit possesses its appropriate techniques, but stands to them exactly as does mathematical philosophy to its prosaic calculations, transcending them, and reaching back to what we call Reality.
Social Credit does indeed enable us to grasp an aspect of Reality, and it surely belongs among the great historic insights.
By the accidents and necessities of its development as a social dynamic, Social Credit has come to be widely and superficially identified with monetary reform until recently. Now, however, a renewed interest and great curiosity concerning the fundamental ideas of Social Credit is becoming apparent as never before.
The materialist delirium is passing; everywhere men are looking for a rebirth of those spiritual realities which underlay the great achievements of civilisation in other epochs.
Though much can delay, or even set back still further, that rebirth, nothing except utter destruction can prevent it.
What form it will take none can say. But it is to that rebirth, and a fresh expansion of the achievements of the Spirit incarnated in Man, that Social Credit belongs.
Just as mathematical philosophy has entered into the being of civilisation, so does Social Credit. What forms and developments this living force will take are essentially unpredictable, but we may be sure that as the tide of our disasters is turned, the great conceptions embodied in Social Credit will come to fruition.

(2)
Bearing in mind that the solution of a particular problem, or apparent problem, is only an application of Social Credit like the application of algebra to Zeno's problem, we may approach the greater subject through the well-known "paradox of poverty amidst plenty."
Seven years of war and post-war disturbance have admittedly abolished both the poverty and the plenty. Poverty is thought of as a financial condition, and plenty as a material one; and at the present time incomes are widespread and at a high level, while goods of most descriptions are in short supply. Unless a further phase of the war supervenes shortly, however, it is certain that both poverty and plenty will return.
This at least seems to be a basic assumption of official economics, which, in consequence, is freely forecasting a depression in the near future.
The nature of "plenty" is the first subject we have to examine; this is the field of physical and industrial science referred to earlier. From the purely physical, material point of view, man is a machine performing work by the conversion of energy. He is a form of internal combustion engine, obtaining energy by the burning of fuel.
Now the primary condition of individual life must obviously be that the amount of energy obtained from the "fuel" - food - shall be sufficient to allow for the expenditure of energy in the searching for and consumption of food.
It is possible to conceive of a state of life where the consumption of food just balanced the expenditure of energy in obtaining it, and in these circumstances no other activity would be possible.
Life must have started at least slightly above this level, for otherwise no progress beyond it would have been possible.
Now the difference between the energy - expenditure necessary merely to sustain life, and the energy available altogether, represents "profit" in its most fundamental sense. It forms the basis of the ability of the animal to pursue other ends than the mere obtaining of food.
A thorough understanding of this basic physical reality is essential to our subject, for it lies at the very heart of Social Credit.
An individual which has to devote the whole of its time to obtaining the mere necessities of its existence has the nature of its activities wholly determined by this necessity. But as soon as it has a surplus energy above this fundamental requirement, it has a choice as to how it will expend it.
There are, of course, innumerable ways in which this surplus energy may be expended. One of them, however, is of peculiar importance. This is the use of this energy to improve the efficiency of the individual as a machine - to further increase the useful effect produced by a given expenditure of energy.
Of the many ways in which this may be done, the important one for our enquiry is the construction of tools; for the use of tools introduces a new factor, not only enabling a much greater economy in the expenditure of energy, but rendering possible processes hitherto impossible.
We might imagine an individual man, equipped with neither knowledge, training, nor tools, and suppose that he could support himself by grubbing for food with his bare hands. Let us suppose that, after allowing for necessary sleep, he has an hour or two a day to spare, when he need not search for and consume food. That hour he might spend in "amusement," but if he devotes it say to making a net with which to catch fish or birds; or to making an instrument with which to dig; or a spear; or even if he devotes it to devising better methods by which to obtain his basic requirements; then he makes it possible to obtain those basic requirements in a still shorter time, and thus to have at his disposal increased time which again may be devoted either to "amusement" or to improving efficiency.
We need not explore the natural limits of this process, for it is only the principle which is of importance.
An exact grasp of the principle, however, is of the first importance.
It is the basic physical reality underlying the conception of investment.
This is the elementary form of investment, on which the modern complicated superstructure is founded. Investment is the devotion of energy to the increasing of the efficiency resulting from the expenditure of energy. It begins in the individual, and its original benefits accrue to the individual.
The tools and knowledge of processes which result from this basic form of investment make use of the individual's own energy, and the total amount of such energy available in the individual limits the usefulness of tools. Yet even within this limit, the cumulative effect of the use of tools and of the knowledge of process, results in a marvellous expansion of the possible results of effort.
One has only to think of the change wrought by the use of the spade in the practice of horticulture. But it is most important to realise that it is not the spade alone, but also the knowledge of the use of the spade, and of the habits of plants, which results in the realisation of the possibilities.
Now many tools have a life exceeding the life of their maker, and commonly they are passed to a succeeding individual.
This we call inheritance.
It is only less obvious that all we may call knowledge is also the subject of inheritance. The sort of knowledge we are considering is, in fact, a cumulative inheritance; it is a growth from generation to generation, a growth and a condensation; for a knowledge of the origin of knowledge is commonly lost.
But - in this context - the knowledge inherited is a working knowledge; the individual inherits with the spade a knowledge of "spadepractice," without which the spade has only a fraction of its possible usefulness. This working knowledge, this knowledge of process and practice, in all its wide ramifications, inherited parallel with physical inheritance, we call the cultural inheritance.
This again is a fundamental conception of immense importance, as real as, and more effective than, the longevity of tools and structures. For it enables not only the adequate use of the tool, but the tool's replacement.
Thus we have found basic physical meanings for the terms profit and investment.
Profit we may define as improved efficiency accruing to the individual; and investment as the application of profit to the enhancement of efficiency.
Profit, investment, and inheritance, especially cultural inheritance, are basic elements of economics, and a correct understanding of them apart from any economic, and particularly financial, theories, is essential.
"Plenty" has its origin in these elements; it begins in the little surplus energy at the disposal of the individual, is increased by the application of this surplus to the improvement of process, and enhanced through the accumulations of the cultural inheritance.

(3)
So far we have considered the subject of "plenty" from its origin in the individual. We have considered what is available to the individual as such, allowing him the cultural inheritance, but otherwise using only his own animal energy and the tools he has made or inherited. Tools and knowledge place him at a great advantage over the primitive condition, and this advantage is enormously, incalculably, extended and enriched by three further factors.

The first is the association of individuals to achieve a common objective. The first obvious result of association is that a given job may be accomplished more quickly and more easily; and this is the least important result. For association makes possible results impossible for the individual as such. Not only may two men lift a heavy object more easily than one - two men may lift a weight that neither alone could lift. Within reasonable limits, new results become possible with every addition to the number. Thus there is a benefit in association far beyond the benefit of simple addition of numbers. What emerges and above the simple addition is called the unearned increment of association. It is difficult to think of much that modern man does which does not rest somewhere on this increment, the various forms of which are of great complexity.
The "division of labour" and consequent mass-production on which we all increasingly depend is a simple extension of the idea of primary association; more complex are the relations between various associations. The telephone, itself the result of complex associations, depends on there being at least two users, and the addition of each new user Increases the potential usefulness of the system to all the existing users. But the existence of the telephone system as a whole enhances the efficiency of all industry, and some processes are dependent on the telephone, or some equivalent system, of instantaneous communication.
Thus the "association of associations' produces a further increment. It is, of course, impossible to follow and analyse the ultimate complexity of association; but the principle can be grasped so that its immense multiplying power may be appreciated.
It must be remembered that this multiplication operates on the individual achievements we considered first.

The second factor is the introduction of solar energy in place of animal energy as the basis of work done. Solar energy means energy derived in one way or another from the energy of the sun; it therefore includes energy stored in the form of wood, coal, and water-power derived from the changes in the distribution of water due to the sun's heat.
It must be emphasised that it is energy, and not machines as such, which is under consideration here. Machines are simply a form of tools, and the relation of these to output, in principle, has already been considered.
From a theoretical point of view, it is a matter of indifference what is the source of energy which powers the tools; what is important is the total available energy, and the efficiency with which it is utilized. On this basis, human labour is only a proportion of the total energy, and although exact figures are not available, it is certain that human labour contributes less than a fiftieth of the total; and since solar energy is harnessed more rapidly than the human population increases, the human contribution of energy is a decreasing fraction.
In fact, from the point of view of energy, human labour is negligible, and could for the most part, be dispensed with entirely; its importance lies in quite another direction.
It has become, as Major Douglas describes it, a catalyst. This is an illuminating analogy. The term "catalyst" is used in chemistry to denote a substance the presence of which either enables a chemical reaction to take place, or to take place very much more rapidly, but which does not itself enter into the reactions; thus the catalyst is not consumed in the reaction, though it may be dissipated to some extent. Manufacturing chemistry is to a large extent dependent on the use of catalysts. In the same way, modern industry is dependent on human labour; production is effected predominantly by solar energy and tools, but it requires the presence of human "labour" to "catalyse" the processes.
The quantity of production is proportional to the total energy, not to the number of men employed, for example, a machine tended by one man may go faster or slower, according to the power supplied to it, without making much difference to the man supervising it. The amount of solar energy already harnessed is immense - many times the man-power of the entire world - and the efficiency of its utilisation, from a mechanical point of view, is constantly increasing.
For this reason the energy which might be derived from nuclear fission (so-called atomic energy) or from genuine atomic energy is largely of academic interest. Every individual at present has at his potential disposal the solar energy equivalent of fifty or more man-power.

The third factor is the introduction of automaticity into the operations of machines. There is a vast difference between say a power-driven grinding-wheel against which a man may sharpen a blade, and a machine which automatically grinds the edge; but of course the application of automaticity, even in such a simple machine, goes much further.
A machine which is fed from strip steel and cuts shapes, grinds, sharpens, and finishes a tool, and mounts it into a handle, or wraps and packs it (as with razor blades, for example), is a simple machine as machine go these days.
Extraordinarily complicated procedure are carried out entirely automatically, and with extreme precision.
This development is equivalent in its effect to the use of solar energy; it represents a multiplying factor.

The development of what is popularly called "electronics" marks almost a further multiplying factor. Electronics centres largely around the use of the photo-electric cell and related appliances. The peculiar importance of the development is that it gives machinery "eyes" - but eyes that for certain purposes transcend the limitations of the human eye as does the microscope.
Thus this "eye can analyse fast-moving stuffs that to the human eye would be only a blur.

Related to the "eye," and another development of electronics is machinery which can perform with incredible speed certain functions of human thinking. It can perform mathematical "calculations" of extreme complexity and great length.

We are certainly only on the threshold of these developments, which will transform industry, as the introduction of solar energy transformed "manufacture". So immense, so far removed from mere animal existence, are the processes and developments we have been considering, that it is all too easy to misapprehend them; and the very division of labour confuses the total picture and conceals the totality.
To gain some perspective and clarity, it is legitimate to adopt a special point of view.
So we may consider Mankind and its history as if it were one man who has lived part of his span of life.
In the beginning, that man is a helpless infant, whose almost sole external activity is suckling at his mother's breast. Later, he is a child, taking more concentrated food, and possessing a surplus of energy which he spends in play; but that play teaches him the techniques embodied in his cultural environment, and he learns more and more how to do things for himself.
By degrees his play becomes more purposive; it is consciously directed to the acquisition of knowledge and skill.
At some point the child begins the accumulation of possessions. To begin with, they are toys, but soon they become tools in the more general sense. By virtue of the knowledge gained and the tools accumulated, the child become adult is able constantly to add to his possessions; and some of these outlast his lifetime and pass to his successors.
This man displays two essential types of activity: there are those that merely subserve his simple existence, and those which are a sort of efflorescence. The former are those which relate to the production of the materials for his necessary consumption of food, clothes and shelter, and the latter those which relate to his production of permanent assets in the most general sense.
The former activity is the production of consumer s goods, and these, of course, may go far beyond the bare necessities; the latter is the production of capital goods.

(4)
Now just as one man can pursue both types of activity, so Mankind does. The division of labour means that one man grows wheat, while another lays bricks to build houses. But if it is possible for one man to do more than provide for his own sustenance, and he devotes his surplus energy to capital activity, in the broad sense, then the same is true of Mankind; and there is an exceedingly important special consequence.
Mankind in the aggregate has been engaged during its history in the construction of an industrial machine, just as the individual in his spare time may engage in the construction of his own workshop. The result of this aggregate activity has been to shift the burden of the maintenance of life from the backs of men on to the backs of machines.
The consequence is, in Major Douglas's unsurpassed description, that
"the industrial machine is a lever, continuously being lengthened by progress, which enables the burden of Atlas to be lifted with ever-increasing ease. As the number of men required to work the lever decreases, so the number of men set free to lengthen it increases." (Credit-Power and Democracy.)
This is the conception known in mathematics as acceleration. Iin production, if the principle of "capitalisation" can be introduced at all, it results in an acceleration of capitalisation. But there is a limit to the amount of capital which can be usefully utilised; there is no sense whatever in adding to the number of boot-producing factories when the existing factories can produce all the boots that people want; there is a limit to the miles of railroad which will be put to use; and the limit to capitalisation is approached at an accelerating rate.
The difficulty at this point is to obtain a comprehensible estimate of the magnitude of this process.
Probably the clearest picture is given by the wartime activities of the United States of America. During the war, the general standard of living in America rose by 40%; at the same time, twenty-one million people were engaged in the armed forces and in munition production, and were therefore a pure drain on the resources of the country.
The munition production reached an almost incredible volume, and consisted of a considerable proportion of highly elaborated production, including complex new inventions; and on top of tremendous industrial resources were devoted to research into and production of "atomic energy."
The meaning of all this is that it was a complete demonstration of the fact that a small proportion of the population could provide the requirements for a high standard of living of the whole population, and that at the same time another proportion could increase the capitalisation of the country.
The ultimate meaning of industrialisation in a developed country is that the necessary amount of work to maintain a high standard of living is something of the order of an hour per day per man.
"The primary fact on which to be clear is that we can produce at this moment, goods and services at a rate very considerably greater than the possible rate of consumption of the world, and this production and delivery of goods and services can, under favourable circumstances, be achieved by the employment of not more than 25 per cent, of the available labour, working, let us say, seven hours per day. It is also a fact that the introduction of a horse-power-hour of energy into the productive process could, under favourable circumstances, displace at least ten man-hours. It is a fact that the amount of mechanical energy available for productive purposes is only a small fraction of what it could be. It seems, therefore, an unassailable deduction from these facts that for a given program of production, the amount of man-hours required could be rapidly decreased, or conversely, the program could be increased with the same man-hours of work, or any desired combination of these two could be arranged." (C. H. Douglas: Social Credit.)
This, then, is the physical and realistic basis of "plenty."
It should be carefully noted that all considerations other than the physical have been excluded.
But it is particularly important that the student should have a thorough appreciation of the physical situation, which is rooted in the history of thousands of years, and underlies economic vagaries as the ocean underlies the waves on its surface. It is particularly to be understood and remembered in the case of America, for America is virtually a self-contained economy, with industrialisation further advanced than anywhere else and still accelerating.
It must be obvious, therefore, that in no physical sense (apart from military invasion or cosmic cataclysm) can America suffer a "crisis."
The crises that have occurred, and which threaten, must be due to something super-imposed.
At this point it is convenient to observe that the theoretical limit to industrialisation is a condition where all production derives from solar energy, operating through machinery which is fully automatic and self-renewing; man would be completely superfluous and displaced.
Now while it is improbable that such a limit will ever be reached, it is quite certainly the direction in which production is moving at an accelerating rate. A rate which has been calculated to be proportional to the fourth power of the increment of time. Clearly, only either leisure, or "employment" outside production can dispose of the unemployment problem.
The problems of economics and politics are absolutely conditioned by the physical realities described; short of sabotage or cataclysm, the progress of the situation is inexorable; and anyone who really grasps what is involved can "see through" the confusions which result from a wrong positing of the problems.
Now of "employment" is regarded as the problem, the result will be increasingly artificial employment - employment outside production, as for public works whose only benefit will be to yet unborn generations, or for a surplus of exports over imports.
That is the real physical situation, and it will gradually dawn on everyone involved in it that he is engaged in unnecessary work; and he will have to be constrained by force to continue in it; or else the objective will have to be altered.
That is the aspect of high politics; but before we consider it, we must examine the financial economics of the situation.

ECONOMICS
(1)
It is undoubtedly significant that most of the controversies about Social Credit have raged round the subject of Major Douglas's analysis of the costing of industry.
There appears to be a large proportion of people who are quite unable to grasp the solution to the old twister "Brothers and sisters have I none, yet this man's father is my father's son."
The answer for many is in the category of "now I see it, now I don't."
Major Douglas's analysis shows why it is impossible for the purchasing-power (income) distributed in connection with production over any given period of time to buy the whole of that production.
In order to see exactly what it is which is asserted in this proposition, let us put it in simplified particular form; let us say that for one year Mankind produces nothing but bread, and that the cost-price of that bread works out at one million pounds.
The assertion is that Mankind's income is something less than one million pounds - let us say, quite arbitrarily, half a million pounds. Then we say that there is a gap between Mankind's purchasing power, and the cost of the production which he has to buy. In technical terms we say that the income cannot liquidate the cost; and, since the income, or purchasing-power, and the bread derive from the same process - the making of bread - we say that the process is not "self-liquidating."
Note: We are not concerned at this point with whether the assertion is true or false, or with whether the example is sufficient or insufficient; we merely seek to make plain the sense in which our terms are used.
Now, the bread stands for all production - shoes and ships and sealing wax, and cabbages and Kings, and much more besides bureaucrats and beauty creams, and factories and things - and purchasing-power in respect of this production is the money paid out as wages and salaries in the course of it.
The proposition is that the total money paid out and constituting purchasing power i.e., ability to buy the production; is always less than the cost-price of the whole of production as assessed by standard methods of accounting, as Major Douglas has observed, there are endless inductive proofs of this proposition.
That is to say, without concerning ourselves with the logical proof of the proposition, we can accept it as provisionally true, and see how it applies in practice.
This is exactly the method, known as "the scientific method," employed in the natural sciences.
The scientist forms what he calls a "hypothesis" - a provisional explanation of a certain course of events; he says that if the hypothesis is true, it should be possible to predict certain events, and if the prediction proves in practice correct, the hypothesis is confirmed - not proved, but strengthened.
Every such confirmation strengthens the hypothesis; on the other hand, a single instance where the hypothesis proves incorrect rules it out. Short of this, the inductive proof approaches certainty the greater the number of instances where it is confirmed.
A favourite example is the inductive proof that the sun will rise tomorrow; the certainty most people feel about this is derived inductively from the number of instances where it has been confirmed, without its ever having failed.
The other type of proof is the deductive proof - the sort of proof which is employed in geometry. It is a logical argument built up from given facts or premises - the data. Its weakness is that the premises may be false, in which case strict logic will lead to a false conclusion - but a conclusion which is logically true in relation to the premises.
Where the inductive and the deductive proofs agree,
we have the strongest reason for believing a proposition to be objectively true.
Granted certain premises, we can prove deductively that the sun will rise tomorrow,
(Granted other premises, we can equally prove that the sun will not rise tomorrow!)
Undoubtedly, most people attach the greater weight to inductive proofs; they do this unconsciously, for the most part, in exactly the same way as they expect the sunrise; and they distrust "logic," or the deductive method, just because they are aware that someone may "prove" that there will be no sunrise tomorrow.
In response to the Social Credit analysis, orthodox economists have spent a good deal of ingenuity in "proving" that the industrial process is self-liquidating, and Social Crediters in "proving" that it is not; and for many people this is too abstract and altogether confusing.
In the controversy, the fact that we are dealing with real processes in the real world is commonly lost to sight.
The first consequence of the proposition that costs exceed purchasing power should be that there accumulates a surplus of goods unsaleable within the area which produced them, and the obvious thing to do then is to sell them outside that area. And at once we observe in confirmation that a ruling axiom of economics is that there should be a "favourable balance of trade."
A "favourable" trade-balance is one where exports exceed imports, and money is obtained for the difference.
If there is a deficiency of purchasing within the producing area, then this "balance" is indeed favourable; for some of the previously unsaleable surplus is exchanged for extra money - purchasing-power - and this can be used to buy what is left of the "surplus".
What is really happening in this case is that a community suffers a real physical loss.
Physically, the balance of trade is unfavourable, because the community parts with more goods than it receives in return. It is not until money is included in the transaction that there can be the slightest doubt about that.
Now, millions of people accept it as axiomatic that an excess of exports over imports is favourable; and they have inductive support for their belief. That is, actual prosperity is experienced in association with a booming export trade, and "depression" accompanies a decline in that trade. This of course, is exactly what should happen if it is the case that costs of production exceed purchasing power.
On the other hand, it is easy to see that not all producing areas can have this favourable balance; and hence we have the expressions "competing in the world's markets," "trade wars," "most favoured nations" and so on.
We have the drive for "self-sufficiency" to reduce the necessity for imports, combined with national organisation in order to achieve "prosperity" by developing an expanding export trade.
Economically, military war is only an extension of trade war.
Shells and ships and tanks and bombs delivered to the enemy are a specialised form of export.
True, they are delivered "on credit"; but the credit operates in the producing country as immediate purchasing power; there is a rising "national income," which is reflected in the early stages of the war by the buying of stored products, and a consequent general prosperity. So great is the productive capacity of America that the prosperity lasted throughout the war, special shortages of some commodities being offset by expanded production of others.
Theoretically, at the conclusion of the war, the loser pays the winner monetary "reparations" which repay the "credit" extended to him throughout the conflict. Then the old problem of finding markets returns; so that it is quite in accordance with the necessities of the case that we find the belligerents preparing for post-war exports before the war's conclusion.
Thus Mr. Harry Hopkins said in effect that after the war, if America was to maintain her prosperity, she would have to export on an unprecedented scale;
and before the American entry into the war, President Roosevelt stated that one of the reasons why America could not stand aside from the conflict was that a German victory would destroy American markets.
Since America is so very nearly entirely self-sufficient physically, the relation of deficient internal purchasing-power to the "dumping" of surplus production abroad is seen in a particularly clear light.

(2)
At this point it is worth analysing in greater detail the American economy.
The primary economic fact about America is that it is in nearly every respect physically self-sufficient. Practically every raw material required for modern industry is available within its boundaries, and it possesses a range of and climates which enables it to grow produce of nearly every description.
Some of the few deficiencies can be made good by synthetic substitutes, but in any case the amount of necessary raw materials required to complete the full range is less than 3% of the economy, and can easily be obtained in exchange for a few American goods and materials such as oil.
To simplify the discussion, let us suppose that the real deficiencies have been made good by barter, and consider the economy from that point on.
The second point is that America is technically self-sufficient; overall industrial technique has been brought to a higher stage of development there than anywhere else.
Now the spokesmen for America are protagonists of the policy that America must "trade" on an increasing scale; and more specifically, they say that if the people previously engaged in munition production and the armed forces are to be absorbed in peace-time industry, expanding export markets are essential.
How is America to be paid for her exports?
If the payment is by an import of goods, then those goods replace an equivalent quantity of American-made goods, and thereby unemploy the men who might have made them.
The payment might be made by gold or other form of "hard" currency. In this case, the currency could only be spent, by hypothesis, on existing American production; but it is realistically unnecessary to import money to buy your own production.
Thirdly, the exports may be financed by credit: America lends dollars to the importing country which uses them to buy the American goods; or, what actually happens, the dollars never leave America, but are paid to the producer of the exported goods. And just as in the case of gold, these dollars can only be spent on existing American goods.
During the war, an article in an American magazine prophesied great difficulties in the post-war period for America.
The argument was that the requirements of war production had resulted in a very great expansion of industry on the west coast of America, and the difficulty that was foreseen was that the West would not need to import so much from the industrial East. This is just the same argument as the one we have been considering.
America, in fact, poses within itself the economic problems of the whole world's economy. If it is the case, however, that industry is not self-liquidating, that incomes distributed in the course of production are not sufficient to buy that production, then the problematical features of the export policy disappear. Then it is necessary to import money to buy American production; then exporting on credit does solve the difficulty (although, of course, it solves it only for the time being), by exporting the problem with the goods, but what is true of America is true of the world as a whole, just as it is true of a part of America.

Great Britain certainly has to import considerable quantities of goods, particularly of foods, and these have to be paid for by exports; but when this essential barter has been effected, there is a surplus for export: a "favourable trade balance" is a fundamental British policy.
Again, this is a perfectly natural consequence of a deficiency of purchasing power.
As has already been observed, it is the inevitable aim of every industrial country to diminish its dependence on imports - hence protective tariffs, etc. - and to develop its exports; and inevitably "backward" peoples are looked on as a means to prosperity.
"If we can raise the standard of living of the natives in New Guinea," the argument runs, "we shall enter on an era of increasing prosperity. There is little of importance the New Guinea natives can supply to us; and that is just their virtue.
Similarly, America sees prosperity in the coolies of China. And world economists generalise the proposition:
Let us raise the standard of living of all the backward peoples, and we shall all be prosperous.
The standard of living of the backward peoples can only be raised at the physical expense of the developed peoples, since the proposition is not that the backward peoples should raise themselves. But prosperity actually does result, because purchasing power becomes equated with the cost of the goods remaining to be sold in the producing countries.
The real relationships underlying international trade would be much more apparent of national currencies circulated internationally, and national goods could be bought only with their national currency.
Thus if America sold goods to Australia, America would be paid in Australian dollars; and those dollars could be employed only to purchase Australian goods; and if the dollars were imported by America, and could not be used to buy American goods in America, it would become clear that the export of American goods was a real loss, which could only be compensated by the import of Australian goods to exchange for the dollars.
The position is concealed by the use of gold, and by the more modern equivalent of international currency exchange transactions, and by the still more modern proposal to use an international "monetary fund" - which is simply a device to create a substitute for gold, since the natural output of gold is insufficient to meet the needs of expanding national currencies.
But so long as the American exporter is paid in a medium - dollars, - which has an immediate purchasing power for American goods in America, the real nature of the transaction is not apparent.
It is true that less is heard these days of the necessity for a "favourable" trade balance, and more is made of the argument that large markets mean mass-production, with a cheapening of process. But it has to be remembered that the whole of the output has to be disposed of; the total cost has to be liquidated, and although the price of individual units of production may be less, the total price may be very great, and the liquidation of part of it by exporting a proportion of the production, and using imported currency to meet part of the bill simply results in a loss of that much of the production.
To revert to our earlier example, if we call all production bread, then although mass production results in a lower price for a loaf of bread, we find that this is achieved by making say fifteen loaves for every ten that were made previously, but only consuming twelve of them; the three wasted (exported) loaves represent the real loss; they are exchanged for money which is used to meet part of the price of the remaining twelve loaves.

(3)
The second consequence of the proposition that costs exceed purchasing-power is the existence of an expanding debt.
Our proposition is quite general; it applies to any given economic area. We have seen that a surplus of exports over imports solves the problem for a particular area, but only at the expense of compounding the problem in another area; some nations become creditor nations, but others become debtors; and we should expect to find that the total of general indebtedness exceeds credits, and exceeds them more and more as time goes on.
This is, in fact, exactly what we do find.
But not only do we find this increasing international indebtedness, but we find that every industrial nation has an internal debt which exceeds the total amount of its currency. This constant rise in debt has been stated by the Technocracy Group to be at the rate of the fourth power of time, one hundred years being taken as the unit.
It is, and can only be the reflection in time of the cumulative gap between purchasing power and prices.
If the "surplus" goods are not to be destroyed, and their cost written off nor disposed of in any equivalent manner then a source of purchasing-power other than that distributed in the course of their production must come from somewhere. This source is the banks, which, by creating new and additional money, known as bank-credit, make good the gap, and record it as debt.
Before we examine the mechanism of this device, it is necessary to emphasise that the continuous growth of debt is an objective fact which any one can confirm for himself; that such a growth of debt is an expected consequence of the proposition that costs exceed purchasing power; and that the finding of the fact is an inductive proof of the proposition.
A third inductive proof may be given in Major Douglas's words: It is found
"in examining the assessments for Death Duties in Great Britain and elsewhere, in which it will invariably be found that an estate alleged to be worth, let us say, £100,000 and taxed in money on that sum, consists only to the extent of two or three per cent, in purchasing power, the remainder of the estate being in assets of one kind or another which have price values attached to them, and require purchasing power to buy them."
This is an indication of "the immense excess of price values over purchasing power," and similar information can be obtained by examining the assets of businesses generally. The total price value of all assets could not be met at any given instant by the amount of purchasing power in existence at that instant - a fact which again can be confirmed by anyone who cares to examine the figures of valuation of assets and of existing purchasing power.
Again, we can take the growing of foodstuffs and the production of raw materials. It is a commonplace to "value" say a wheat or wool crop at so many million pounds.
The production of a crop undoubtedly creates an asset; but it does not create purchasing power.
Now realistically, so long as there is a real demand in the world for the whole of that crop, the whole of that crop is a real asset; but because it does not bring its purchase price in the form of money into existence, increased production results in a lower price per unit, and over-production" in the monetary sense; and despite a real physical demand for the crops, the situation does result in the ruin of the producer, or the arbitrary destruction of the crop "to keep prices up".
This is simply another indication that there is no automatic relation between the "value" of assets and the purchasing power available to liquidate those values.
Now, disregarding "cost" and "value", the price of an article is "what it will fetch", and this depends on the number of articles, their relative desirability, and the amount of money available.
In the absence of special "stabilisation" schemes, this system actually does determine the price of primary products, which in consequence show great variations from year to year in their price.
The physical demand for foodstuffs in particular is, however an extremely stable quantity, since the capacity of the individual to consume is limited, and the number of individuals in a given area is subject only to slow fluctuations.
But the monetary demand for foodstuffs, etc. is a very variable quantity, and a low purchasing power may coincide with a bountiful production, resulting in a ruinous fall in prices; that is to say, there is no ascertainable relation between the growing of foodstuffs and the availability of money.
Instability in an essentially stable process of primary production is another consequence to be expected from a general deficiency of purchasing power.
It is true that at times primary production meets a high purchasing power; the reasons for this are most conveniently dealt with in a subsequent stage of the argument. In general, however, we can see that the theory of a cumulative deficiency of purchasing power in relation to costs fits the objective facts of the world's economy.
It explains the search for expanding export-markets, accompanied by tariff barriers to imports - trade war, culminating in military war.
Intra-nationally it explains social friction, since there is bound to be a scramble for an adequate share of the available money, because this is the only effective claim to goods which may be in sufficient abundance to satisfy the real demand.
It explains the paradox of poverty amidst plenty, since poverty is a monetary condition.
It explains the continuous, and increasingly rapid growth of debt, as will be seen more clearly subsequently.
For the moment, it is sufficient to regard debt as the mounting record of
the cumulative deficiency of purchasing power.
The student is asked at this stage simply to hold hard to the fact, to ask himself whether, irrespective of theoretical considerations, the theory that income in the aggregate is less than the cost-price of production in the aggregate, does or does not fit the facts.
It may occur to him that the theory does not explain inflation, when money available exceeds the supply of goods; how this occurs, when it does occur, also falls to be considered later in detail. But at this point it may be observed that inflation occurs in respect of the end products of industry - ultimate consumer goods; but behind these stand intermediate goods, with costs waiting to come forward.
The "surplus" purchasing power is purchasing power held in respect of these intermediate goods, waiting for them to become end-products. This matter is intimately related to the theory of the proposition we are considering, and it is to the theoretical side that we must now turn.

(4)
It is quite characteristic of theorems generally that a number of deductive proofs of them may be elaborated.
This is the case with the Social Credit theorem, now commonly known as the A plus B theorem;
a name which is derived from one of the various available proofs.
The Social Credit theorem is the proposition that in any given period, in any given area, the rate of generation of prices is greater than the rate of generation of incomes.
The point to be noted in this statement is the use of the words "rate of generation". They refer to the fact that production is continuous. We don't know at what point in the past production began, but from whatever point we choose as the beginning of production, we can say that it has proceeded continuously ever since.
We are using the word "production" in the general sense: the conversion of materials from one form into another suitable for the purposes of man. Production varies, becomes more or less elaborate, and changes; but it is continuous. It is a flow, like the flow of a river.
The production of goods is accompanied by the production of costs, which reach the public as prices; and at the same time, the production of goods is accompanied by the distribution of incomes, in the form of wages, salaries, and dividends.
This is the meaning of the expressions "generation of prices" and "generation of incomes".
It is absolutely essential to grasp the fact that prices and incomes are, like production itself, flows.
There is a stream of purchasing power, and a stream of prices. Both are measured in units of money; say in pounds.
Our proposition is that the size of the flow of income, in pounds, is smaller than the flow of prices, in pounds.
To avoid any confusion, the relation of prices and costs must be stated. The cost of an article is the sum of the disbursements of money, direct or indirect, in the course of the production of that article. It includes the cost of the raw material, the payments of wages and salaries, and a charge for the use of plant and other "overhead charges" such as rent and interest on borrowed money.
The price of an article is at least the cost, but is usually the cost plus profit.
The argument which follows is unaffected by the question of profit, so that the terms cost and price are used as convenient to the context.
Now let us see what actually happens to costs and incomes in the course of production. Let us consider any factory, and assume that it is engaged on the production of an article which takes, from start to finish, six weeks to complete. Let us assume that the raw material is obtained free, and that no charge is made for "overheads", so that the only costs are the wages and salaries paid to the workers.
Now the greater part of these wages and salaries is spent week by week as received on meeting the cost of living, and at the end of six weeks very little of the money will have been saved. At the end of the six weeks, however, the cost of what has been produced (both finished and unfinished) will be the total of the six weeks' wages and salaries of all the workers concerned.
To meet this total cost, there is only available the money which has been saved, which is only a small proportion of the total cost. It is quite true, of course, that only a part of the total production is at that point available for sale - the finished production ; - but the cost has been created, and clearly exceeds the amount of purchasing power left to meet it.
The firm is "out of pocket" to the extent of six weeks' wages and salaries. That "out-of-pocketness" represents the generation of prices. The costs, and hence prices, go forward all the time, whereas income is spent as received on meeting the cost of living.
Thus the position can be stated more generally: the cost of production includes the cost of living of those concerned in the production; but this has been spent within the period of production.
This is true of any given unit of production, and consequently of every unit of production, and thus of production as a whole, and over any period of time.
That is to say, costs going forward are progressively greater than income going forward -
just as Achilles goes forward faster than the tortoise.
These costs are increasingly represented by "overhead charges"; that is to say, an increasing part of prices consists of the cost of capital equipment and "intermediate" production, Such costs are continuously coming forward into the price of final production, and represents incomes distributed, but spent, at some time in the past.
Thus the product of manufacturing industry is involved in the same difficulty as primary production: it does not automatically find a purchasing power awaiting it sufficient to discharge its cost, or "value" in the monetary sense.
At this point the inductive and deductive proofs converge.
Neither primary production nor industry themselves provide the whole of the purchasing power necessary to buy their products - or, as Major Douglas puts it, neither the farmer nor the industrialist "make" money: they scramble for money in the possession of others.
But it is true that money is "made", in the literal sense.
Manufacturing money is, in fact, the actual basic business of banking in exactly the same sense that making things is the business of industry.
The manufacture of money by banks is technically known as the creation of credit.
This manufactured money, or credit, is loaned by the banks against various securities, for various periods of time. On the whole, however, more of this new money is loaned than is repaid, so that in practice there is a continual expansion in the amount of money in the community. It is this new money which becomes available to meet the deficiency in purchasing-power; and it is recorded as debt.
That is why we noted earlier that mounting debt is the record in time of the deficiency of purchasing-power.
But still there is no automatic or necessary relation between the provision of this new purchasing-power, and the amount required to make good the deficiency. The amount of new money provided by banks is governed not by arithmetical considerations, but by a number of factors which can be included under the heading of policy.
For reasons of policy the provision of credits may be restricted, in which case the effect of the deficiency of purchasing-power becomes manifest, and the so-called "depression" is experienced. At other times credits are advanced freely, leading to the "boom" or inflation.
Credits, however, are advanced in connection with production of some sort or other, and consequently become a cost, since they have to be repaid to the banking system. What actually happens is that credits are advanced for such a purpose as the building of a new factory, the installation of machinery, and so on. The credits are distributed as wages and salaries, and spent on goods already produced; but, as we have already seen, those wages and salaries become costs to be recovered in the future, when the factory or machinery is in production.
Now when goods already produced are in short supply, for one reason or another - as, for example, following the conclusion of war, when industry is adjusted for the production of munitions - and at the same time payments are being made out of credit for the "reconversion" of industry or some similar reason, purchasing-power may be in excess of the collective prices of goods available for immediate sale; this is the condition called "inflation".
It results in a rise of prices, which drains off the excess purchasing-power. But it must be remembered that this purchasing-power is distributed in respect of anticipated future production, of which it forms one of the items of cost; and if this money is drawn off either by a rise in prices, or by high taxation, this fact aggravates the deficiency which will in any case accompany the ultimate appearance of the goods.
The money cannot be both spent on existing goods, and available to meet future prices.
Public works, financed by "loan" money, are a special case of this general principle.
Instead of private enterprise building factories, governments build dams and hydro-electric schemes and so on, But these are paid for with fresh money created by the banking system, and this money is recorded as "public debt".
The money is - and can only be - spent on existing goods; and the process is only possible because there is a deficiency in the purchasing -power distributed through the production of those goods.
Public works, however, will have to be paid for, because the credit advanced for their construction has to be repaid, and interest has to be paid on it. This repayment, and the payment of interest, takes the form of taxation; public indebtedness, in fact, is another form of "cost" - exactly equivalent to the plant cost in industry; and since the payments made in the course of building public works are spent on current production, they are not available in the future for the repayment of the original bank loan.
Now, so long as the present system of accounting is followed the continuous operation of industry is absolutely dependent on the continuous expansion of the amount of money - an expansion of minted money, printed notes, or chiefly bank credits, And simple inspection of yearly statistics shows that the expansion is, in fact, continuous.
It also shows that the expansion of credits - recorded as debt to the banks - is far and away the most important, the largest part of that expansion.
It is in this fact that the convergence of the inductive and the deductive proofs of
the proposition we have been examining are found.
When the relationship of expanding credit to industrial production is grasped, it can also be seen that a continuous rise in taxation is a further inductive proof. Apart from the redistribution of income through taxation, an increasing sum must be taken to meet debt charges; and to the extent that this money is used to repay the debt, it disappears; there is nothing received in exchange for it.
Now this is exactly the same thing as obtains in the prices of goods: an increasing proportion of the total price goes to repay old "costs" - either this repayment of bank loans, or the replacement of capital.
This means, of course, that wages and salaries can liquidate only a diminishing proportion of the production which gave rise to them. The general consequence of the whole process is that to distribute even a constant quantity of production to ultimate consumers, an increasing quantity of "intermediate or capital production must be undertaken".
As saturation point in the number of factories which can reasonably be constructed is reached, the emphasis passes to public works and to production for export.
This then is the financial explanation of the paradox of poverty amidst plenty.
As noted previously, there are a number of methods of demonstrating the central proposition. Students are referred to the technical writing of Major Douglas, where various proofs are to be found, including a proof in mathematical terms. The subject is very exhaustively discussed in The Monopoly of Credit.
The emphasis in Social Credit has, however, passed from the technical economic considerations. Several years ago, it was necessary to prove that banks create credit, since this was denied by the officially recognised economists. Today, the creation of money by the banks is an everyday topic of newspaper discussion.
It is equally true, though less obvious to the uninitiated, that the fact of a deficiency in purchasing-power is also admitted in official circles.
The very emphasis on the necessity of embarking on public works to "avoid another depression" is a tacit admission.
Now the real bone of contention has always been in connection with the policy governing the availability of credit, but that fact for many years was concealed behind the controversies centred in economic theory.
The present phase, however, is concerned directly with the question of, in the broadest sense, credit-policy.
Major Douglas's original book, Economic Democracy, was concerned primarily with that question of policy, and treated of the financial issue because the financial system was the chief mechanism of a policy.
The controversy which subsequently developed on the technical side had the effect of concealing the major issue of policy; that is the significance of the emphasis on the subtle aspect where most confusion could be caused.
But although the emphasis has shifted, a knowledge and understanding of the mechanism of finance in relation to production is still vital to a proper grasp of politics.
Export drives, public works, and high taxation are still the outstanding features of our economy, and they all amount to literal and large scale robbery of the community, besides leading to a form of organisation which is within a short distance of rendering any protest against the robbery futile because ineffective, if not impossible.

(5)
The officially sanctioned "science" of economics is inextricably intertwined with the operation of the financial system.
This is as of a unit of measurement in the science of physics were wrongly defined. Theoretically sound, the "laws" of economic science are in practice worthless for the most part, and predictions based on them are less reliable than the notoriously unreliable forecasts of weather.
Before the war, economists were for this reason becoming the laughing-stock of the public; and if their prestige has recovered to some extent, this is because governments have taken powers to make theories work as nearly as possible despite the facts.
It is easy enough correctly to predict a shortage of wheat if for reasons of financial policy you take powers to restrict its production.
Major Douglas has, however, enunciated a real and fundamental natural law of economics:
The real cost of production is measured by the consumption incurred in that production.
For example, the real cost of a crop of wheat is measured by the wheat used as seed, and consumed; if we supposed that nothing but wheat were consumed, the cost would be measured directly in wheat.
This specific example can be generalised: the real cost of total production over a period is the total consumption in the same period.
Since production, even in war, exceeds consumption, the ratio in question is a fraction which is less than one.
The difference between that fraction and one represents, in the most fundamental sense, profit - real as opposed to financial profit.
This fundamental law is modified by a most important factor, Production capacity, as opposed to simple production, must be taken into account. Production may include the building of a number of factories; the point is that these factories enhance the potential production of the ensuing period.
The fundamental costs and profit, therefore, must be measured in terms of production capacity -
that capacity which we examined in Part I.
This production capacity is called by Major Douglas the real credit of a community, and defined by him as the ability to deliver goods and services as, when and where required.
Financial credit is similarly defined as the ability to deliver money as, when, and where required.
Financial credit is based on real credit.
Banks can create financial credit because that credit can be exchanged for goods and services.
The connection is perfectly obvious in the case of 'war; the output of industry is enormously expanded, and it is financed by an expansion of credit.
Now the essential respect in which financial credit created by the banks differs from minted money is that it is subject to recall and cancellation within a period determined by the banks. It is issued as a loan by the banks.
Even when this money is "earned" by a man's labour, it is still subject to recall by the banks - a reality reflected by the enormous burden of taxation, but it operates effectively as real money because fundamentally it is based on the capacity of industry to expand its production.
The matter may be put another way: potential production capacity can only be drawn on provided new money is made available; and this new money is bank-created credit.
Thus financial credit is in the nature of a licence to draw on the real credit.
In the sense in which we are using the term "real profit", a factory as such is not profit.
This profit lies in the "factory delivering the goods, as, when, and where required' again, a dynamic conception.
Here, the factory symbolises all those factors, tangible and intangible, which make up the realistic basis of "plenty".
The extent to which this profit is available depends on the degree to which financial credit is made available.
There are two important observations to be made in relation to this situation.
The first is that there is at present no connection between real cost, and financial price. Cost is properly measured as a ratio, in which production-potential, the denominator, is increasing much more rapidly than actual consumption, the numerator; therefore real costs are falling.
Prices, however, are based on rules of accounting and are constantly increasing. The implications of this we shall examine later.
The second observation, which amounts to a revelation, is that
the poor are not poor because the rich are rich; they are poor because of the operation of the financial system.
But class-war is founded on the delusion that "profiteering" is the cause of poverty; and class-war is the foundation of Socialism. Our present circumstances are dominated by the conscious conception of class-war; and the policy which leads to it requires careful examination.

POLITICS
(1)
The very great importance of the automatic deficiency of purchasing-power resulting from the method of accounting the cost of production lies not in itself, but in the consequential importance of financial credit, and hence of the system which provides this credit.
It is very probable that many of the honest critics of Social Credit theory miss this point.
Because industrial production is continuous, although subject to fluctuations, booms and depressions, they argue against the existence of the automatic deficiency. But the fact of the matter is that production is continuous, because there is a continuous, though fluctuating, supply of fresh money in the form of bank-created credit.
Now, so long as the accounting rules are followed, industry is dependent on that supply of fresh money. It is, in this way, governed by banking policy.
Again, so long as the rules are adhered to, banking policy must be limited in certain important ways.
In the first place, the bank must be concerned with the probability of recovering the money advanced, and in this respect credit policy must be governed by purely financial considerations.
In the second. credit money put into circulation can only be effective in making good the gap between prices and purchasing-power if that credit is paid out in respect of production which does not appear on the market immediately, or at all.
Thus new industries, production for export, the production of munitions, and the financing of public works, distribute incomes which are effective in shifting existing goods into the hands of consumers, and thus stimulating industry generally.

But as we have already seen, this use of credit, which occurs automatically during the original period of capital development, and artificially under the comparatively modern theory of "pump-priming, is only a temporary expedient, since the deficiency in purchasing-power is cumulative, and reflected in an ever-mounting indebtedness, an indebtedness which can never be repaid, but which forms a continuously growing burden in the form of debt-charges, both industrial and governmental.

The practical effect of this process is to mortgage both industry and, through its Government, the nation, to the banking system; and since the indebtedness cannot be repaid, because the money does not exist, the banking system becomes the virtual owner of industry and nation: and both the nominal owners of industry, and the Government, become managers for the owners;* and it is the business of the managers to carry out the policy of the owners.
That is to say, the banking system controls the policy of industry and Government.
The first point to note about this situation is that the individual bank is not autonomous.
The ordinary operating banks, or trading banks, work on almost mechanical principles.
They do create and advance credit to their customers; but the extent to which they can do this depends on their cash position, and this in turn depends on the current policy of the central bank.

*" ... The Civil Service has a managerial function. Whitehall is a great head office of business enterprise with a whole host of branch offices, directly or indirectly dependent on it. The Civil Service must adapt itself to this role. "Departments which used to be self-contained units now have to remember that they are no more than 'departments' of the larger whole. A narrowly departmental attitude can only bring frustration and delay. . . ."
Mr. Herbert Morrison, reported in The Daily Telegraph, June 7, 1947,

The central bank is far more autonomous; it is, in fact, the specific function of the central bank to govern the credit policy of the whole nation. The credit created by the central bank is treated as cash by the trading banks.
But even central banks are not completely autonomous. In the days of the Gold Standard, the central bank's credit policy was related to its holdings of gold.
The Gold Standard is gone, and gone forever, since the rate at which gold can be mined is progressively less than the minimal rate at which total money must be expanded in order to keep industry functioning under the existing system.
Now since the rate at which new money is required is greater than the rate at which gold is mined; and since money is advanced at interest as a loan to industry, it is obvious that the gold must come into the possession of the lending institutions, the banks.
Lending at interest means that more money must be repaid than is lent.
This is, in fact, the first stage of the process by which the system becomes virtual owner of industry. So we have the position that the theoretical basis of the credit system, gold, which has become the property of the banking system. is insufficient; some substitute must be found, having the international properties of gold.
This is the situation which culminated in the formation of the Bank of International Settlements before the war, and the International (monetary) Fund and World Bank after it.
These three, which are different aspects of one thing, constitute a Central Bank for central banks, and allow a world credit policy to be imposed on national central banks. That is to say, the loans - credit - advanced by the World Bank will be cash for central banks.
Once securely instituted, this system will render the banking system independent of gold. Individual banks, however, will be, as they are at present, integrated into a system control of which resides at the apex, and is extra-national.
Since industry and Governments, are dependent on credit policy, it is clear that this extra-national apex controls the fundamental policy of both. The actual and practical meaning of the situation is. of course, that the individuals in control of the apex of the world banking system are in control of the overall policy of the world; and this fact must form the proper starting point for any analysis of politics.
It is the matter of this policy and its background which forms, and always has formed, the essential subject - matter of Social Credit.
Only to the extent that the financial system has provided the mechanism of this policy has the financial system come under consideration. When Major Douglas published his first book Economic Democracy, the financial system was, as he has since expressed it, the headquarters of that policy; and an attack on the system was, in consequence, an attack on the policy.
Now partly because of the nature of the system, and partly because of the publicity resulting from the attack on it, it was impossible for it to remain as it was; that is to say, politics ceased to be imbedded and concealed in the system as such, and emerged as concrete policies.
Or to put it another way, the central policy of the financial system has had to be buttressed with other sanctions.
In consequence, the natural emphasis has shifted from economics to politics. What has happened is just what happened with the outbreak of war: the enormous expansion of credit required to finance the expansion of output for war necessitated extra-financial "controls".
But war is only an acceleration of the normal processes of finance.
As we have already seen, the operation of industry under the existing rules requires this expansion of credit, and the extra-financial controls were in fact appearing in embryo form before the war, and would have developed, only more slowly, without the war.
That is to say, at one time finance and control were synonymous; they are so no longer.
Consequently, the policy of control has emerged as the subject of examination.
Particularly at the present time, the essential theory of Social Credit could be re-written without reference to finance, and in fact numerous groups act on the essential basis of Social Credit policy without reference to finance.
Nevertheless, money forms one of the most beautiful administrative devices which can be imagined, and an understanding of the use to which it has been put, and of the use to which it could be put in the service of another policy, is still the shortest road to an understanding of the political problem.
On the other hand, no financial adjustments by themselves could rectify the present situation; and if a financial system is retained, it will certainly be a modified one.

(2)
Before we proceed further it is very necessary to have a clear understanding of the meanings of two important words in common use, which are confused to varying degrees in many discussions and analyses.
They are policy and administration.
Policy is concerned with the choice of objectives, and includes the sense of action taken to achieve that objective. Thus it is more than the "ends" of the common expression "ends and means". To have a policy is to take action to achieve some chosen objective.
Administration, on the other hand, is much more nearly synonymous with "means". It concerns the technical arrangements necessary to carry a policy into effect. It is not the action taken to achieve an objective, but the methods which that action makes use of. For example, a bank may have a policy of contracting credit, the immediate objective being to reduce the advances made by the bank. The policy will be initiated by some sort of directive, and carried through by supervision and further directives. This policy is administered, however, by the technical staff of the bank.
Administration involves specialised knowledge of book-keeping methods, law, and expediency, as well as of specific banking procedure.
With this distinction in mind, we must examine the nature of the policy administered by and through the banking system.
As we have already seen, the banking system is, through the central banks, integrated into a world banking system; the system is a world organisation. and clearly that organisation must have some general overriding policy.
One way to describe that policy is to say that it is to maintain and secure the predominance of the banking system; and this means, of course, the power of those ultimately in control of the system to impose policy on-to issue directives to the industry and Governments of the world.
The banking system is, in fact, a system of world government, and when this fact is realised it is easy to see that it constitutes a form of world dictatorship.
And what might be called the derived policies arising from this situation comprise the practical policies of the banking system. These are policies designed to secure the predominance of an international medium of monetary exchange; to maintain the "value" of money in the commodity sense; and to facilitate the administration of banking policy.
This latter policy is expressed in the promotion of centralisation in every sphere: the amalgamation of businesses into combines or cartels, the union of autonomous political areas into federations, the strengthening of the federal government at the expense of its constituent parts; and the organisation of populations into trades and professional unions, and the "federalisation" of these.
In short, the policy promoted by those in control of the banking system is centralisation of everything: the promotion of a pyramidal form of world organisation with the banking system at the apex.
The policy is, in fact, the centralisation of the control of policy: totalitarianism.
Money-power was used in the first place to secure a monopoly of money-power; and the monopoly of money-power - the monopoly of credit - was used to bring about a monopoly of political power.
We are witnessing today the consolidation of political monopoly. The number of effective antonomous governments in the world is being reduced; we are at the stage of the Big Five, Big Four, Big Three, or Big Two-and-a-half, according to the context.
And at the same time, the administrative agencies of a single world government are being brought into being.
Another aspect of the construction of a world monopoly of control is the "nationalisation" of banking. What this means is, of course, the amalgamation of banking and government.
It would be too much to ask public opinion to swallow anything which might be called the "bankisation" of government, so that it is essential, if the process is to be *Compare the 'plan' to "Save Europe"- essentially a plan to secure centralised control of vital raw materials and sources of power,. got away with, that it should be called by a name which would at the least not antagonise public opinion.
But it is a matter of observation that the control of banking policy remains in the same hands; and the combination of banking and political power is rendered independent of the public as regards obtaining money for government purposes.
And in just the same way, "socialism" is a political technique to reconcile public opinion to the final stages of the construction of monopoly. Socialism is centralisation, the policy of the bankers.
The objective - and we can see the steps to its consummation day by day and week by week is world government dominated by those at the head of the international banking system, and supported by a world police force and control of food supplies and essential raw materials by the agencies of that government.

* This is a bare outline of the politics of banking control: it is unnecessary to fill it out, since it is the subject matter of contemporary Social Credit literature. Apart from the theoretical approach we have adopted, there is abundant evidence.
But one further point of extreme importance must be mentioned.
For some years it was an open question whether the policy pursued by the banking system was merely a natural consequence of its structure; that is to say, whether the accident of the development of the system had thrown certain men to the top, who more or less unconsciously protected their position and its privileges.
On the other hand was the possibility that the whole situation was the result of conscious intention.
In 1935 a Government was elected in Alberta, Canada, with a mandate to put into effect certain Social Credit technical proposals. Every attempt to carry out this mandate was "disallowed" by the Federal authorities, and a tremendous campaign of publicity was put into operation to discredit the Government. In this campaign quite obviously deliberate and conscious lies and misrepresentation were made use of, and the conscious intention behind the disallowances and publicity were perfectly evident.
In any case, if Social Credit theories were fallacious, the quickest way of disposing of them would be to allow them a trial under circumscribed conditions; and nobody can miss the significance of the fact that that trial has up to the present been prevented by agencies outside Alberta, although the people of Alberta have three times voted for that trial.
For the wider evidence of conscious intention behind the policy of the banking system, evidence which establishes the deliberate intention to make use of world war and other catastrophes in the pursuit of the ultimate objective - readers are referred to The Brief for the Prosecution, by C. H. Douglas.

(3)
One of the most misused and abused words in the political vocabulary is the word "democracy". The reductio ad absurdam of its use is the claim by the masters of Soviet Russia that the system in operation in that country is "democracy', for nowhere outside Russia and her satellites is it seriously contended that the Soviet system is not totalitarianism differing in no essential respect from the German totalitarianism.
Similarly, it is an implicit assumption in the rejection of the term "democracy as suitable to connote the Soviet system, that "democracy" connotes in fact a system the antithesis of the totalitarian system.
At all events, it is practicable to analyse the totalitarian system and to see in what respects an antithetical system is possible and desirable. In this matter we are dealing with a collection of individuals, a collection which can be delimited in some way - as, for example, that they constitute a club, or a nation, or a race.
From the political point of view, they are an association; and the questions we are examining are the objectives of the association, and its organisation. That is to say, we are concerned with policy and administration.
The antithetical possibilities in regard to each of these are that control may be centralised, or de-centralised; and consequently, the combinations offer four possibilities:

1 . Centralised control of policy and centralised control of administration.
2. Centralised control of policy, and decentralised control of administration.
3. Decentralised control of policy, and centralised control of administration.
4. Decentralised control of both policy and administration .

Let us examine these possibilities in relation to a cricket club.
In the first example, we have the club organised so that there is an authority at the top, which exercises control through various administrative grades of authority. That is to say, authority is hierarchical. This is, of course, the familiar form of administrative organisation; it is found, in fact, wherever there is efficient administration.
But in the case we are examining, a centralised hierarchy also controls policy; it decides what objectives the club shall follow.
Thus an authority, say a board, or the President, may say that the club shall play twenty cricket matches, fifteen of them against one team, and five in Tim-buctoo.
The wishes of the members have no part in this decision. It is taken "for their good" in the opinion of the authority.
It will be noted that in order that this decision should be effective, the authority controlling policy must also control the administration. The whole organisation is completely centralised in respect of policy and administration.
But one further point must be noted: the individual members of the club must not be able to contract-out if they do not like the policy dictated by the authority, since otherwise there would be the danger that the policy could not be carried through for want of personnel.
Now this is the system in operation in Russia, the system called "totalitarian". Decisions of policy are made either by Stalin, or that very small group known as the Politbureau; and the whole of the administrative apparatus is centralised under the control of the same group, and the sanctions which enforce the decisions are controlled from the same centre.
There is no contracting-out; orders must be obeyed, and no one is free to leave the country. It will be obvious that our second possibility, centralised control of policy. and decentralised control of administration, is merely a theoretical possibility.
Decentralised control of administration means that anyone who likes does anything he likes, so that there is no assurance that a given decision on policy will be carried into effect.
In the cricket club, the decision to play a match against another club requires a program of action which in the very nature of things must be arranged by a hierarchical authority-the committee, co-ordinated under the authority of the President.
Similarly, it is perfectly evident that the Russian Politbureau's decisions could not possibly be effective unless a centralised administrative system, acting under orders, existed under the control of the Politbureau to carry the directives into effect.
This same requirement rules out the fourth theoretical possibility in the same way.
In this case, indeed, the whole idea of organisation is missing. The only practicable possibility besides the totalitarian system is, therefore, the third of the above possibilities: decentralised control of policy, and centralised control of administration.
Thus we can arrive at a valid basic definition of democracy from first principles.
It does not follow from this, that in a democratic system administration is fully centralised. Administration must be hierarchical, and subject to direction from its apex, in respect of a given undertaking.
But a democratic organisation may have several separate administrative hierarchies in respect of several undertakings. On the other hand, all administration is ultimately centralised in one system in the totalitarian organisation. because it is all subject to one over-riding direction on policy.
Policy is manifested in the issuance of "directives" to the administrative organisation or organisations competent to carry them into effect. It is in relation to the origin of these directives that the words "totalitarian" and "democratic" are relevant.
The real meaning of totalitarianism is that one man, or a small group of men, are in an exclusive position to have their directives carried into effect; and the real meaning of democracy is that individuals as such shall all be in a position to have their own directives carried into effect.
The general problem of political democracy is to find a mechanism to give practical effect to this principle.
Parliaments, Soviets, and voting systems generally are merely mechanisms which might or might not give such practical effect to political democracy. It may be said at once that the British system does not.
If we overlook the many, and not unimportant, side-issues such as personalities, electoral tricks, misrepresentation, etc., etc., we find that in theory the electorate is asked to vote for a "platform" comprising several policies.
It is self-evident that no genuine decision can be given by a single act of voting on more than one policy at a time. But even if an election were held on the basis of a single alternative, the result would be to issue a single directive to which all individuals, including those who had voted against it, would be subject until a further opportunity arose to vote against it.
This is simply a form of totalitarianism limited in time.
It is an improvement on outright totalitarianism in that there is a periodic opportunity to review the policy; but it is not democracy. It could quite suitably be named "ballot-box" totalitarianism.
It would be merely tedious to explore all the numerous factors which modify ballot-box totalitarianism; but some are important. In the first place, as we have already seen, ultimate policy is controlled through the highly centralised financial system by a small group in control of that system.
Political possibilities are narrowly limited by financial possibilities. As a result of this, large areas of the platforms of different political parties overlap. For example, taxation in its present form and extent is purely and simply the policy of those in control of the financial system; it is not a necessity; it is robbery.
Now different parties merely propose variations in the forms and rates of taxation, and all proceed from the basic assumption that heavy taxation is axiomatic.
Again, financial considerations determine most other policies that come up for consideration, for example, various methods to "keep up prices or to re-distribute income, when that income in the aggregate is already insufficient to liquidate costs.
A genuine alternative to existing policies, therefore, would have to traverse the "axioms" of sound finance; and to the extent that the proposals of any party do not, the ballot-box system comes closer to outright totalitarianism.
On analysis, it is easy to see that in a great many cases the choice offered to the electorate is simply the choice of different methods (associated with particular parties) embodying the same policy.
Now methods are a matter of administration, and a vote on them is simply the expression of opinions as to whether one team or another is more capable of forming an efficient administrative hierarchy to carry out a policy which is not open to decision.
The second important factor modifying ballot-box totalitarianism is propaganda.
Only "broad" propaganda affects broad issues. This is a somewhat subtle matter, But it is "broad" propaganda which maintains general beliefs in the "axioms" of sound finance, and such absurdities as that already examined, that in any real sense a nation benefits from a constant excess of exports over imports.
Similarly, the "trend to the left" is not a natural phenomenon, but the result of carefully controlled propaganda. This aspect of the matter has been very adequately described by F. A. Hayek in his book The Road to Serfdom.
But in general it is obvious that broad propaganda - i.e., extensive, pervasive and long-term propaganda-requires enormous financial resources which could not be obtained against the interests of the Money Power.
It ought, in fact, to be conclusive that anti-"Capitalism" -i.e., Socialism, is supported by such "Capitalist" papers as The Times, The Economist, et. al., and it is a demonstration of the effectiveness of the mass hypnotism exercised through such propaganda channels that the delusion of Socialism as a "workers'" movement is so prevalent.

(4)
The General Election in Great Britain in 1945 undoubtedly included Socialism as one of the policies offered, so that the Labour Party could claim an unusually definite mandate to administer an unusually clear-cut policy. This is not to say that the electorate was conscious of this fact, or that it understood exactly what the mandate implied.
And an examination of the opposition policies discloses that they offered the same policy less clearly expressed.
In fact, the Labour Party simply made explicit the policy that had been followed by preceding Governments.
A leading article in the London Daily Telegraph (Oct. 18, 1946) makes the situation reasonably plain:

"To go no further back than its war-time predecessor, the famous Coalition, the present Government found much of the planning for education, other social services, finance, and defence already done. Even attempts to iron out' the peaks of economic fluctuations, the point with which Mr. Morrison made such play, are very far from being a Socialist invention. Such devices as Exchange Equalisation Funds, the accumulation of projects for public works, quantitative regulation of imports, censuses of production. adjustments of taxation to economic or social purposes, have been used by a long succession of Governments, not excepting the Socialist Government of 1929-31 . . ."

This line of policy can be seen to be derived almost entirely from financial considerations. And it is all consistent, and all represents the concentration of control over both policy and administration.
Financial policy promoted monopoly developments, and did so quite explicitly; the Bank of England, the local agency of International Finance, called the policy "rationalisation."
Such monopoly development is an almost necessary preliminary to nationalisation," Nationalisation is merely the penultimate stage in a process, Rationalisation, or monopoly control of specific industries, is a step to nationalisation, where distinct industries are brought under the one control.