The Nature of the Present Crisis and its Solution

An Address delivered at the City Hall, Newcastle-on-Tyne, October 7th, 1932
by
MAJOR C. H. DOUGLAS, M.I., Mech.E.

· It is a fallacy that any one section of society is the only sufferer from the present economic system. The evil effects are by no means confined to any one class of society, although it is commonly assumed that what is called ''labour'' is the chief sufferer.

· It is not an unreasonable deduction that those classes in which suicides, and therefore unbearable suffering, are most frequent would also contain the largest proportion of bearable suffering

· The problem is not, in any sense, a quarrel between the "haves" and "have nots." It is not a class problem. It is one which affects everyone.

· The present crisis is not of unemployment, (by unemployment is commonly meant human unemployment). This fallacy is deeply rooted.

· There is no difficulty, for anyone with money, in obtaining all the goods and services.

· Our best brains have been at work for the past 100 (now nearly 200) years, with the specific object of producing more and more goods with less and less human labour.

· "Capitalism," might be defined as production for profit. Including in this definition is administrative relations between employers and employed… these relationships have nothing to do with production for profit.

· What is it that the capitalistic system really claims to do? Broadly, it is a system which enables people to combine together under a suitable organisation, so that together they can achieve results which the same number of people acting separately could not achieve.

· In technical language, the capitalistic system is a system of organisation designed to use real capital, that is, tools, land, scientific knowledge, administrative ability, and many other things, so as to produce something which we call "the unearned increment of association."
· Get this idea very clearly in your mind, as it is probably the most important idea that you can possibly assimilate at the present time.

· Socialists made a colossal mistake in arguing about the distribution of what they have called the "product of labour." The product of labour has become increasingly unimportant as compared with the unearned increment of association, that is, the product of the machine.

· It is this unearned increment of association out of which profits, not merely to the capitalist, but to so-called ''labour'' are paid.

· The community is, in a money sense, definitely becoming poorer.

· The failure of the present economic system is not in production, it is in distribution.

· Before tinkering with the production system, you ought to make quite sure that other aspects, such as exchange and distribution, are equally successful.

· If you have a production system which demonstrably produces a glut of goods and services, and at the same time not only those who work in it, but those who operate it, are getting poorer and poorer, by which we mean they can get less and less of those goods and services which the production system generates, there can be only one place to look for the difficulty.

· That is in the link between production and consumption, and that link is the money system.

· The nature and source of money. It is no use wanting goods and services of any description, nor is it any use that those goods and services shall be in existence and available, if your request to be supplied with those goods and services is not backed by something which we call money.

· Money and its source: Practically all money is actually created by the banks, and claimed as their property.

· The situation we are faced with amounts to this -- no matter what the physical realities in regard to food, clothes, houses and luxuries, and no matter how abundant they may be, we cannot obtain them without obtaining something which we call "money".

· All money is derived from the operations of the banking system. Please be quite clear in your mind about this.

· But when a bank makes money, it makes money out of nothing, it gives nothing, and lends everything. It has, as we say in technical language, "a monopoly of credit."

· Only Social Credit seriously attacks the control over human life and Industry which is exercised by the money system. Be quite clear as to what is meant by this.

· The fundamental evil from which the world is suffering at the present time is the control of its destinies by the money system.

· The money system is an accounting system, and if properly operated is of great value as an indication of what is going on in the industrial and productive systems.

· The type of mind which is attracted to banking and finance is not suited to deal with the highly technical organisation of the modern world.

· This matter is so important and so little understood, it must be made clear to you, even at the risk of some repetition. If you look at the physical reality of the productive system in the Western world today, you cannot fail to realise that we are living in an age of material wealth and plenty.
· If you turn to the Press, which is paid to express the views of the financial interests, you will be told that only severe economy, lower wages, higher taxation, and other symptoms of severe scarcity can be deduced from the present situation, and that we have to accept them.

· It must be obvious to ordinary common sense that one set of statements cannot reflect the condition depicted by the other of statements.

· The proposals put forward seem to be unable to get away from the idea, that it is the function of the barometer to control the weather. The first step is to force those in charge of the finance system to reconsider their position in the scheme of things.

· In the higher realms of financial circles the financier regards himself as the vice-regent of God upon earth.

· The question of taxation is interwoven with this idea of moral government by finance, and I am strongly of opinion that the whole system of taxation, as at present understood, will eventually, if not immediately, become obsolete. It is altogether too suggestive of allowing the policeman to make the law and pocket the fine.

· It is a short step to the organisation of this country into a co-operative commonwealth, which will not in the least mean anything like the nationalisation of industry - while at the same time organising the country in such a way that every citizen shall draw a dividend from the activities of the community as a whole -- as his or her inheritance.

THE NATURE OF THE PRESENT CRISIS AND ITS SOLUTION
An Address delivered at the City Hall, Newcastle-on-Tyne, October 7th, 1932,
by
Major C.H. Douglas, M.I., Mech.E.

The nature of the present crisis is complicated by the existence of vested interests, each of them
anxious to maintain and increase its importance -- interests by no means confined to one class or stratum of society, just as the evil effects of the present crisis are by no means confined to any one class of society, although it is commonly assumed that what is called "labour" is the chief sufferer.

Because I speak to-night entirely without any personal interest to serve, representing neither any special class nor any special business interest, and am merely concerned to tell you the truth (which, I imagine, is a somewhat novel and not necessarily pleasant experience), one of the first fallacies that I should like to expose is that any one section of society is the only sufferer from the present economic system. So far as I am aware, there is practically no method by which it is possible to obtain statistical information as to bearable suffering, and only one method by which to obtain information in regard to unbearable suffering, and this latter is furnished by the statistics of suicides, and it is not an unreasonable deduction that those classes in which suicides, and therefore unbearable suffering, are most frequent would also contain the largest proportion of bearable suffering. We find that the percentage of suicides, besides increasing at an appallingly rapid rate per 100,000 of the population, is higher in classes which are commonly supposed to be more fortunately situated from an economic point of view than in those commonly classed as destitute. My object in touching upon this is to emphasise that this problem with which we are attempting to deal to-night is not in any sense, as commonly supposed, one which can be regarded as being a quarrel between the "haves" and "have nots." It is not a class problem. It is one which affects everyone.

Another fallacy is that the present crisis is a crisis of unemployment, and that it would he solved if unemployment were eliminated (by unemployment is commonly meant human unemployment) . This fallacy is deeply rooted, because the ordinary man finds it extremely difficult to separate the idea of unemployment from privation and poverty. But, in fact, all our best brains have been at work for the past lot) years, or more, With the specific object of producing unemployment, or, in other words, of producing more and more goods with less and less labour. In addition to that, the unemployment which exists at the present time is not merely unemployment of human labour, but is also, and to an increasingly large extent, unemployment of plant and yet there is no difficulty, for anyone with money, in obtaining all the goods and services which they can possibly require. incidentally, if the problem were one of employment, its obvious solution would be to destroy as much plant as possible, much after the manner of the Luddites a hundred years ago, and to set everyone to work again by the most primitive methods.

A broader generalisation, very popular in Labour politics, is to attribute all our present troubles to something which is called "Capitalism," which is not generally defined, but which, I suppose, might fairly be defined as production for profit, including in this definition administrative relations between employers and employed, although, in fact, these relationships have nothing whatever to do with production for profit, and are not sensibly different in a Government Department.

Now, curiously enough, it never seems to occur to those who complain of production for profit that the so-called capitalistic system always works worst when no producer is making a profit, which is, broadly speaking, the case at the present time. It is an astonishing fact, well worthy of note, that the capitalistic system, in the sense in which it is commonly understood, survives shocks and attacks which one would imagine would be quite sufficient to overthrow it, and one of the greatest dangers with which, in my opinion, the world is faced at the present time would be that by superhuman exertion, those in control of the money system will put into operation such arrangements as will permit the capitalistic system to recover for a time, because I feel confident that if such amelioration can be arranged, the world at large will be only too pleased to return to work on the old terms. So that it is much more correct to say that it is not the capitalistic system, but the breakdown of the capitalistic system, or in other words, the inability of the capitalistic system to do what it claims to he able to do, and as, in fact, in the past to some considerable extent it succeeded in doing, that is the more obvious cause of our present troubles.

Now what is it that the capitalistic system really -claims to do? I think that broadly speaking it would
be fair to say that it is fundamentally a system which enables people to combine together tinder a suitable
organisation, so that by combining together they can achieve results which the same number of people acting separately could not achieve. To put the matter in technical language, the capitalistic system is a system of organisation designed to use real capital, by which I do not mean money, but tools, land, scientific knowledge, administrative ability, and many other things, so as to produce something which we call the unearned increment of association." I want you to get this idea very clearly in your mind, as it is probably the most important idea that you can possibly assimilate at die present time. In my opinion, Socialists have made a colossal mistake in arguing about the distribution of what they have called the "product of labour". The produce of labour is becoming increasingly unimportant as compared with the unearned increment of association, to which I have referred, the product of the machine.
Now, it is this unearned increment of association out of which profits, not merely to the capitalist, but to so-called "labour" are paid, and we do not know of any method by which these profits representing the unearned increment of association can he paid, either to labour or capital, except by something called
"money." And if, as is most unquestionably the case, there is an enormous and increasingly unearned increment of association and yet on the whole, the community is not only not making profits, but is, in a money sense, definitely becoming poorer, we are, I think, inevitably driven to the conclusion that this breakdown of capitalism has nothing whatever to do with the organisation of production, but baa everything to do with the money system. I am not suggesting that the organisation of production is perfect, because I am sure it is not, and I think that by its aggregation into large, unwieldy units it is becoming worse rather than better, hut I am quite confident that it is not in the organization of production that our difficulty lies, and that no reorganisation such as, for instance, nationalisation in place of what is commonly called "private ownership,'' would in itself affect any change for the better, and might easily result in a very definite change for the worse. The failure of the present economic system is not in production, it is in distribution.
At this point it may be helpful to deal shortly with the object lesson provided by Russia, since there
are large numbers of people in this country and else where, by no means confined to any one class of society, who regard Russia as a model for reconstruction. Now, I think that no serious student of these
matters can have failed to regard the Russian experiment with the most profound interest, and further, to have felt their sympathy increased rather than diminished by the flood of inaccuracies and biassed propaganda which has been a general feature, at any rate of the London press, for the past fourteen years. I have myself been in fairly close touch with reliable sources of information, and have discussed Russia at first hand with Soviet officials. I know Mr.Polakov, the American Consulting Engineer to the Soviet Government, and have within the last few months discussed industrial affairs with Mr. Stewart, who is Mr.
Polakov's partner in Russia, and I think that the first point on which to be quite clear is that the problem facing the Russian people at the present time, and for some considerable time to come, is fundamentally and radically different from the problem with which we have to deal in Europe end America. It is a problem of actual scarcity, and therefore is a problem of production, whereas our problem is a problem of glut, and is therefore not a problem of production at all, but is a problem of distribution. It will be many years under the most favourable circumstances before Russia begins to arrive at the situation which is common elsewhere, and I see no indication that the methods by which Russia is solving her problems of production are in any way fundamentally different to those by which they have been solved elsewhere. That, of course, is why there is no unemployment in Russia.
I might go so far as to say that I have strong doubts as to whether these problems of production are being solved so successfully as they would have been by merely turning Russia over to contractors for what is commonly called "exploitation," but however that may be, so far as our particular problems are concerned, it cannot be too clearly understood that we cannot in the nature of things hope to learn anything from Russia.
I have touched upon this for two reasons, the first of which is that a number of persons, whose confidence in dealing with industrial problems is only equal to their complete ignorance of them, are demanding that what is required for this country is a Five-Year Plan. It seems to me that where you have in operation a production system which has been even more successful than is necessary, that even if it is not perfect, you ought to make quite sure that the other aspects of your economic system, those of exchange and distribution, are equally successful before you begin to tinker with it. And the second reason is that I am confident that, so far from being hostile to the state of affairs in Russia, the international financial groups are beginning to look upon Russia with great favour as providing a field for their activities of exactly the type that they desire, which is to have control without responsibility. The so-called rationalisation policy of the Bank of England is definitely aimed at the same organisation as the Five-Year Plan, and we all know the state of affairs that it has produced in Lancashire and in the ship-building industry. The head of a well-known trust associated with the Bank of England is speaking openly in favour of a Five-Year Plan for England.
If, then, we cannot, in fairness, look to the productive system for the root of our troubles, where must we look? I think the answer is simple and obvious. If you have a production system which demonstrably produces a glut of goods and services, and at the same time not only those who work in it, but those who operate it, are, as the phrase goes, getting poorer and poorer, by which we mean they can get less and less of those goods and services which the production system generates, there can be only one place to look for the difficulty, and that is in the link between production and consumption, and that link is the money system.
I do not think that an occasion of this character is particularly suitable for dealing with technical details, but certain general ideas are indispensable to any understanding of the situation in which we find ourselves. Unquestionably, the first of these is that of the nature and source of money. As to its nature, I think it is sufficient to say that money is an effective demand for goods and services, by which I mean that it is no use wanting goods and services of any description, nor is it any use that those goods and services shall he in existence and available if your request to be supplied with those goods and services is not backed by something which we call money. Now the second point in regard to money is as to its source, and I will put this as shortly as possible by saying that practically all money is actually created by the banks, and claimed as their property. There is now no argument possible about this, nor is it, in fact, denied by bankers themselves. So that the situation in which we are faced amounts to this -- that no matter
what are the physical realities in regard to food, clothes, houses and luxuries, and no matter how abundant they may be, we cannot obtain them without obtaining something which we call "money," and all money is derived from the operations of the banking system. Please be quite clear in your mind about this. When the employer, the so-called "capitalist," says that he is making money, what he means, and what he only can mean, is that he is making goods for which he gets money which previously belonged to someone else. He is simply exchanging goods for money, but when a bank makes money, it makes money out of nothing, it gives nothing, and lends everything. It has, as we say in technical language, "a monopoly of credit."
Now there are quite a number of people who are beginning more or less vaguely, to understand this, and they are by no means confined to any particular interest or class, and, as a result, a number of suggestions, almost as numerous as the numbers of suggesters, are beginning to he made in regard to modification of the banking system, to none of which, I need hardly say, do the bankers pay much attention. But it is fair to say that, so far as I am aware, no one of these, other than proposals which have been put forward under the name of Social Credit, seriously attacks the control over human life and Industry which is exercised by the money system as such. I want you to be quite clear as to what I mean by this. It is quite possible, and not very difficult, and it is in fact, being done at the present time by means of inflation, to go some considerable way towards relieving a business depression such as that in which the world has been plunged for the last four years, just as it is most unquestionably true that that business depression was proximately caused by what is called "deflation." But you do not fundamentally alter the control of an engine by its throttle valve if you open its throttle valve and make the engine run faster, and it is, at any rate, my opinion that the fundamental evil from which the world is suffering at the present time is the control of its destinies by the money system at all.
To push the metaphor, it is not reasonable to slow down an electric light engine when the price of coal goes up. Looked at from any sane point of view, the money system is an accounting system, and if properly operated is of great value as an indication of what is going on in the industrial and productive systems. It is, as one might say, a barometer, or, if you prefer it, a pressure gauge, to indicate the state of affairs in business or industry in a highly convenient form, but it is just as sensible to suggest that the barometer should control the weather as it is to suggest that the money system ought naturally to control the industrial system. The business of a money system or a barometer is to indicate, not to control. Entirely apart from the fundamental and technical unsuitability of the money system as a system of government, which is what it is at the present time, the type of mind which is attracted to banking and finance is not suited to deal with the highly technical organisation of the modern world.

This matter is so important and so little understood that I must try to make it clear to you, even at the risk of some repetition. If you look at the physical reality of the productive system in the Western world today, you cannot fail to realise that we are living in an age of material wealth and plenty. Not only are the shops full of goods, of all descriptions; not only in corn, coffee, rubber, all the metals, and, in fact, ever raw material so much in excess of requirements that practically all producers arc engaged in all sorts of schemes to endeavour to stem the flow of real wealth, but nearly every farm and factory in this and almost every other country, with the exception of Russia, is working much less than a quarter of its possible output. Yet, if you turn to the Press, and more particularly to the London Press, which is paid to express the views of the financial Interests, you will be told that only severe economy, lower wages, higher taxation, and other symptoms of severe scarcity can be deduced from the present situation, and that we have to accept them. Now I think it must be obvious to
ordinary common sense that one set of statements cannot reflect the condition depicted by the other of statements. Either I am deluded in telling y that there is plenty of corn, coffee, rubber and ma materials, or else, a set of financial figures, which says that we must economise because there is not enough, must be false. In other words, it is impossible that these figures can be a reflection of the facts. So that the first essential in dealing with the situation which arises out of this conflict of facts and figures is correct the figures. I would point out to you that what the financiers tell us to do is to correct the fact which is some indication of the state of mind which too much concentration on figures will drive people. Having corrected the figures so that we are in possession of statistics as to what it is we have to distribute, the radical differences which I suggest to you as necessary is that we should decide on the distribution as a conscious act of policy, and not let those figures in themselves control the distribution.

The complaint that I, myself, have to make about man y of the proposals which are now becoming so common in regard to the financial system, is that they seem to be unable to get away from the idea to which have previously referred, that it is the function of the barometer to control the weather.

You may quite properly ask me how these somewhat general statements can be translated into something which will form a basis for action. The first step in my opinion, is to force those in charge of the finance system to reconsider their position in the scheme of things. It is quite beyond dispute that in the higher realms of financial circles the financier regards himself as the vice-regent of God upon earth. The late Mr
J. Pierpont Morgan, who, without using unrestrained language, might be regarded as one of the largest- scale buccaneers the world has ever known, left detailed instructions as to his funeral, and amongst these instructions was the request that the hymn, 'For all Thy saints who from their labours rest," be sung at his funeral. I honestly believe people like Mr. Montagu Norman, who in his capacity as Governor
of the Bank of England, has been directly responsible for more mental and physical misery in the last twelve years than any other living man, are under the impression that it is their divinely appointed prerogative to discipline the country. As I have just said, it is an idea of which they must be disabused, gently if possible but disabused anyway. We must, then, clear up the defects and inaccuracies of the financial system itself, in which is included the price-making system as well, and quite as importantly as that portion of the system which deals with the issue of credit or purchasing power.

The question of taxation is interwoven with this idea of moral government by finance, and I am strongly of opinion that the whole system of taxation, as at present understood, will eventually, if not immediately, become obsolete. It is altogether too suggestive of allowing the policeman to make the law and pocket the fine. When we have got so far as that it will, in my opinion, be a comparatively short step to the organisation of this country into a co-operative commonwealth, which will not in the least mean anything like the nationalisation of industry, it is perfectly possible to retain and to extend the present system of private administration and private property, while at the same time organizing the country in such a way that every citizen shall draw a dividend from the activities of the community as a whole, of such magnitude that almost immediately poverty, financial anxiety, economic depression, and all other features of our present social system will disappear like the bad dream that they are. Let no one suppose from this that I am suggesting a state of affairs in which all men and women will be equal. Men and women never were equal, are not equal at the present time, and, in my opinion, never will he equal, but their inequalities rest on a far more fundamental basis than that of differences in a bank pass-book, and the abolition of such artificial inequalities will not only bring into the light of day the real difference in individuals, but will secure by common consent their general acceptance.