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 "All that is necessary for the triumph of evil is that good men do nothing" Edmund Burke |
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The Thoughts of DouglasPart I II III IIIA IV V VI VII VIII IX P R E D I C T I O N S I am convinced that if you go along the lines that you are following at present, and if you continue along those lines for any considerable period of time ... I am perfectly certain that you are heading for the most terrific disaster the mind of man can conceive. From Evidence by Major C.H. Douglas before Select Standing Committee on Banking and Commerce, House of Commons, Canada, April 1923. --------------------- The SUPREME STATE, PLANNING, and SCARCITY I will put the objective as I see it for your consideration in a very general form and that is, we want to establish a correct relationship between the individual and the group so that the group, and the attributes of the group shall serve the individual and not the Individual be the slave of the group. The whole of society exists from
my point of view - it may not be yours - but from my point of view
the whole of society exists for the benefit of the individual. ...
The great danger at the present time is not that the present financial
system will persist ... but that under the confusion that will exist
as a result of the crises caused by the breakdown of the financial
system, an even greater tyranny may be put over on you as in the cases
of many countries at the present time, and which is in active progress
in still more countries even as I speak. We are at the present time unquestionably
under the domination of a financial system, which rules us. It rules
us in our most basic necessities; the necessity for bed, board and
clothes, and the other things that go to make up the standard of living.
But we do not want to transfer that domination from, let us say, what
we can call the banking, system under another name to something we
call the State. In Great Britain the phrase under
which this change is taking place is called Rationalisation or Planning;
in Italy as the Fascisti or Corporate State; in Russia it is the Dictatorship
of the Proletariat ... and is being aimed at in Germany by the Nazis
Whether it be by accident or design, the world is steadily moving
over from a financial tyranny which has both the elements of breakdown
and has also been found out to another tyranny, a tyranny of administration
... the setting up of an entire State which can say, "You shall do
so and so". "You shall have such and such rations". "You shall live
in such and such a house, you shall work such and such hours". "You
shall be taught such and such things". "And any deviation from those
laws which we lay down for you will be penalised by either starvation
or by all the rigours of the law". ----------------- THE COMING CRISIS - WORLD WAR TWO "You have two alternatives; you
can drift passively through concealed stages to an absolute dictatorship
of finance as suggested in the New Deal where you have a cabinet,
a dictatorship of three or four who will do exactly what the big financiers
and manufacturers want them to do, and will subordinate the ends of
the common man to the social interests of this or that industry. The other path is take a hand
in your destiny and say, no, I can say quite fearlessly that the world
is faced with a succession of dictatorships, and I am willing to take
the risk of trying a real democracy as a very much preferable alternative.
The game is in your hands, as they say at Monte Carlo. Make your play
faites vos jeux. The game will not wait. ------------------ THE OUTBREAK OF WORLD WAR TWO ... All we can say is that the
time is so short that we must use all those energies... wisely...
in the hope - I believe it to be a forlorn hope that we may avert
a great catastrophe... Within the next two or three years; I will
say, in spite of my well known objection to prophesying in terms of
time, certainly within the next five, years ... We shall enter this
critical period in the autumn, for if it has not already actually
begun, we are at any rate in what may be described as the foothills.
------------------ THE WAR AIMS 1939-1945 "It is therefore, I think, quite
possible to state the real as distinct from the proximate objectives
of the present war. -------------------- S Y N O P S I S ------------------- Part 2 The Financial System: Money - Its Nature and Origin - Division of Labour and Process - Money not Wealth or Production - Control by Money - The Creation and Destruction of Money by the Banking System - Addendum; Authorities other than Douglas (Macmillan Committee, Patterson, Hawtrey, Colin Clark) - Dangers of ill-informed criticisms of Financial System - Fallacy of tank Nationalisation - Bank of England before and after Nationalisation - State-issued money, abolition of interest and other errors of certain monetary reformers Price Structure, acquisition of Interest-bearing Securities 'and Taxation the real issues. - Parallel passages on the power of finance from H.H. Pope Pius XI and C.H. Douglas. -------------------- Part 3 The Price System Costs and Purchasing Power: Economic problem - Root causes resident in Financial and Price systems - The "Produce More" cry - Production and the generation of costs and distribution of purchasing power -The fallacy of "More Production" - The orthodox view of the relation between prices and purchasing power, Enormous increase of world debt proof that financial price system is not self-liquidating - The A plus B Theorem, Saving, and the Repetition of Payments Increasing Prices Reply by Douglas to criticisms of Professors Copland and Robbins. -------------------- Part 4 Effects on Prices of Unregulated Issue and Recall of Credit,: Real Causes of Inflation - Community does not control Credit-issue or Price-making - Why Consumers' Goods are scarce and Capital Goods abundant - Cost of Living constantly rising under present system - Summary of defects in Credit-issue and Price-making - Industrial Depression and Deflation the result of Financial Policy -Paradox of Poverty amidst Plenty - Its resolution not complete solution of present problems - Some absurdities of present economic and financial systems. ------------- Part 5 Employment: Full employment and Materialism - Basic guiding principle Power production and its effects - Two inducements to employment - Work as a means and not as an end - Error of Organised Labour attitude to employment - Results of "Full Employment" inevitably disastrous - Leisure and pseudo-morality. -------------- Part 6 Principles of Financial and Economic Reform - The Just Price and the National Dividend: Price - making and continual depreciation of the currency - True Price the ratio that total consumption bears to total production - The National Dividend - Its justification - Statement of General Principles necessary to effective reform - Model of relationships involved - The Just (or Compensated) Price - The price factor - Real and Financial Credit - Where the Money is to come from. ------------------- Part 7 Political Philosophy of Social Credit - The Nature of Democracy: Democracy and Majority Rule - Ballot-Box majorities devices for despoiling minorities -Perversion of Democratic Theory ... Majorities and the Fuhrerprinzip - Freedom and Liberty - Realistic Constitutionalism, Christianity, The British Constitution , Russia and Professor Laski - Common Law derived mainly from the Church, not from electorate - Successful Constitutionalism Organic - Magna Carta, the Church of England, the Constitution and the Church - Equalitarianism unnatural - Planning and the Rule of the Expert - Power and Responsibility - The Strategy of Reform - The Political Vote - Individual must accept responsibility for his vote - Substitution of open, recorded and responsible vote for Secret Franchise - A place for the secret ballot. ------------------ Part 8 World Control: Political Zionism, Freemasonry, Communism - Causes ultimate and proximate of world unrest - Increasing separation of ownership from control - Russia - some observations - Money and Social Welfare - Exports and Imports - Money Goods and Prices - Bretton Woods - Individualism - Hydro-Electric Scheme and Schemers. -------------- THE POLITICAL AND ECONOMIC PROBLEM
It is suggested that the primary requisite is to obtain in the re-adjustment of the economic and political structure such control of initiative that by its exercise every individual can avail himself of the benefits of science and mechanism; that by their aid he is placed in such a position of advantage, that in common with his fellows he can choose, with increasing freedom and complete independence, whether he will or will not assist in any project which may be placed before him. The basis of independence of this character is most definitely economic; - it is simply hypocrisy, conscious or unconscious, to discuss freedom of any description which does not secure to the individual, that in return for effort exercised as a right, not as a concession, an average economic equivalent of the effort made shall be forthcoming. Institutions exist, to serve
Individuals It is necessary to be very clear
in thus defining the scope of our inquiry, since the exhaltation of
the State into an authority from which there is no appeal, the exploitation
of a public opinion which at the present time is frequently manufactured
for interested purposes, and other attempts to shift the centre of
gravity of the main issues; these are all features of one of the policies
which it is our purpose to analyse. The Policy of Centralisation
of Power and its Effects This demand to subordinate individuality to the need of some external organisation, the exaltation of the State into an authority from which there is no appeal (as if the State had a concrete existence apart from those who operate its functions), the exploitation of "public opinion" manipulated by a Press owned and controlled from the apex of power are all features of a centralising policy commended to the individual by a claim that the interest of the community is thereby advanced . Thus far we have examined the psychological aspect of control exercised through power. Let us turn for a moment to its material side. Inequalities of circumstance confront us at every turn. The vicious circles of unemployment, degradation and unemployability, the disparity between the reward of the successful stock-jobber and the same man turned private soldier, enduring unbelievable discomfort for eightpence per day, the gardener turned piece-worker, earning three times the pay of the skilled mechanic, are instances at random of the erratic working of the so-called law of supply and demand. In the sphere of politics it is
clear that all settled principle other than the consolidation of power,
has been abandoned, and mere expediency has taken its place. The attitude
of statesmen and officials to the people in whose interests they are
supposed to hold office, is one of scarcely veiled antagonism, only
tempered by the fear of unpleasant consequences. In its relations with labour, the State is hardly more happy. In the interim report of the Commission on Industrial Unrest, the following statement occurs: "There is no doubt that one cause of labour unrest is that workmen have come to regard the promises and pledges of Parliament and Government Departments with suspicion and distrust." In industry itself, the perennial struggle between Capital and Labour, on questions of wages and hours of work, is daily becoming complicated by the introduction of fresh issues such as welfare, status and discipline, and it is universally recognised that the periodic strikes which convulse one trade after another, have common roots far deeper than the immediate matter of contention. In the very ranks of Trade Unionism, whose organisation has become centralised in opposition to concentrated capital, cleavage is evident in the acrimonious squabbles between the skilled and unskilled, the rank and file and the Trade Union official. Although the diversion of the forces of industry to munition work of, in the economic sense, an un-reproductive character has created an almost unlimited outlet for manufactures of nearly every kind, it is not forgotten that before the war the competition for markets was of the fiercest character and that the whole world was apparently overproducing; in spite of the patent contradiction offered by the existence of a large element of the population on the verge of starvation (Snowden Socialism and Syndicalism), and a great majority whose only interest in great groups of the luxury trades was that of the wage-earner. The ever-rising cost of living has brought home to large numbers of the salaried classes problems which had previously affected only the wage earner. It is realised that "labour-saving" machinery has only enabled the worker to do more work; and that the ever-increasing complexity of production paralleled by the rising price of the necessaries of life, is a sieve through which out and forever out go all ideas, scruples and principles, which would hamper the individual in the scramble for an increasingly precarious existence. We see, then, that there is cause for dissatisfaction with not only the material results of the economic and political systems, but that they result in an environment which is hostile to moral progress and intellectual expansion; and it will be noticed in this enumeration of social evils, which is only so wide as is necessary to suggest principles, that emphasis is laid on what may be called abstract defects and miscarriages of justice, as well as on the material misery and distress which accompany them. The reason for this is that the twin evil (common more or less to all organised Society) of servility is poverty, as has been recognised by all shades of opinion amongst the exponents of Revolutionary Socialism. Poverty is, in itself a transient phenomenon, but servility (not necessarily, of course, of manner) is a definite component of a system having centralised control of policy at its apex; and while the development of self-respect is universally recognised to be an antecedent of any real improvement in environment, it is not so generally understood that a world-wide system is there by challenged. In referring the existent systems to the standard we have agreed to accept, however, it seems clear that the stimulation of independence of thought and action is a primary requirement, and to the extent to which these qualities are repressed, social and economic conditions stand condemned as undesirable. Chapter 3 The Fallacy of Socialism The danger which at the moment threatens individual liberty far more than any extension of individual enterprise is the Servile State; the erection of an irresistible and impersonal organisation through which the ambition of able men, animated consciously or unconsciously by the lust of domination, may operate to the enslavement of their fellows. Nationalisation not the Remedy It is a most astonishing fact that the experience of hundreds of thousands of men and women in such departments as the Post Office has not been sufficient to impress the public with the futility of mere nationalisation. World-wide Movement towards
Centralised Control It has its counterpart in every sphere of activity; the coalescing of small businesses into larger, of shops into huge stores, of villages into towns, of nations into leagues, and in every case is commended to the reason by the plea of economic necessity and efficiency. But behind this lies always the will-to-power, which operates equally through politics, finance or industry, and always towards 'centralisation .... Chapter 4 ... We are, therefore, faced with an apparent dilemma, a world-wide movement towards centralised control, backed by strong arguments as to the increased efficiency and consequent economic necessity of organisation of this character (and these arguments receive support from quarters as widely separated as, say Lord Milner and Mr. Sydney Webb), and, on the other hand, a deepening distrust of such measures bred by personal experience and observation of their effect on the individual. A powerful minority of the community, determined to maintain its position relative to the majority, assures the world that there is no alternative between a pyramid of power based on toil of ever-increasing monotony, and some form of famine and disaster; while a growing and ever more dissatisfied majority strives to throw off the hypnotic influence of training and to grapple with the fallacy which it feels must exist somewhere. Personality and Organisation As it is hoped to make clear,
the effect of a single organisation of this pyramidal character applied
to the complex purpose of civilisation produces a definite type of
individual.... It cannot be too heavily stressed at this time that similar forms of organisation, no matter how dissimilar their name, favour the emergence of like characteristics, quite irrespective of the ideals of their founders, and it is to the principles underlying the design of the structure, and not to its name or the personalities originally operating it, that we may look for information on its eventual performance. The Methods of Industrial Organisation
As we have seen, the development of industrial activity has been, very largely a practical application of the economic proposition in regard to the division of labour; the "military" organisation conceives a large business or Government Department as an aggregation of human units to carry out on a large scale that which one immensely able and versatile man could do on a small scale, and, broadly considered, the perfect organisation of this character would be derived by dissecting the various attributes of the perfect one-man business making each of them a Department, and staffing them with men who in the aggregate, represented nothing but an expansion of that attribute. Fortunately, the perfect organisation of this character has yet to appear, but the effect to endeavour to achieve it has quite definitely left its mark on civilisation.... and the development due to the unbalanced exercise of one set only of perhaps many abilities resident in the human unit, is a very definite factor in the existing discontent one which, if perpetuated, could only be increased by wider education. A little consideration will at once suggest that this type of organisation carried out to its furthest limits is pyramid control in its simplest form, and it is clear that successive grades or ranks decreasing regularly in the number of units composing each grade, until supreme power and composite function is reached and concentrated at the apex, are definitely characteristic of it. The next step is to, split the functions of the higher ranks so that each unit therein becomes the head of a separate little pyramid, each of which as a whole furnishes the unit composing a larger pyramid; in every case, however, eventually centralising power and responsibility concentrated in one man, representing the power of finance and of control over the necessaries of life. Several points are to be noticed in the conditions produced by such an arrangement: Firstly, there: is fundamental inequality of opportunity. The more any organisation, whether of society as a whole or any of the various aspects of it, approaches this form the more certain is it that there cannot possibly be any relation between merit and reward - it is, for instance, absurd to assume that there is only one possible head, for each railway company, Government Department, or great industrial undertaking. There is no doubt whatever that
the intrigue which is a commonplace in such under takings has its
roots almost entirely in this cause and contributes in no small degree
to their notorious inefficiency. General Dissatisfaction of Worker, and Consumer Chapter 5 Quite apart, therefore, from all questions of payment, there has grown up a. spirit of revolt against a life spent in the performance of one mechanical operation devoid of interest, requiring little skill and having few prospects of advancement other than by the problematical acquisition of sufficient money to escape from it. The very efficiency with which factory operations have been sectionalised has resulted in a complete divorcement between the worker and the finalised product, which is in itself conducive to the feeling that he is part of a machine in the final output of which he is not interested. His foreman and departmental heads are from the largeness of the undertakings, almost inevitably out of human touch with him, while all the well-known phenomena of bureaucratic methods contribute to maintain a constant state of irritation and dissatisfaction... Chapter 8 Bearing these distinctions (between
consumers and producers) in mind it will be recognised that there
are two separate lines along which to attack the situation presented
by the dissatisfaction of the worker with his conditions of work,
and not less serious discontent of the consumer with the machinery
of distribution; and these may be called medievalism and ultra-modernism.
While appreciating the temptation to compare the two periods to the very great disadvantage of the present, it does not seem possible to agree with the conclusion of the Medievalist that we are in a cul-de-sac from which the only exit is backwards; and it is proposed to make an endeavour to show that there is a way through, and that we may in time regain the best of the advantages on which the Medievalist rightly sets such store, retaining in addition a command over environment, which he would be the first to recognise as a real advance; a solution which may be described as Ultra-Modernist. Analysis of Existing Difficulties
THE FINANCIAL SYSTEM Money -Its Nature and Origin! The best definition of money with which I am acquainted is that of Professor Walker, which is that Money is any medium which has reached such a degree of acceptability that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product". You will see that this definition
rules out any physical properties in respect of money. The properties
that are left, therefore are not physical. They can be summed up in
the word "credit", which is, of course, derived from "creders", to
believe. The essential quality of money therefore, is that a man shall
believe that he can get what he wants by the aid of it. This is absolutely
the only quality that it is required to possess, although of course,
certain minor attributes, such as convenience have a bearing on the
decision as to what particular description of money, if it fulfils
the major requirements, is likely to come into most general use. In every criticism of the social
distribution of wealth made public prior to 1918, the assumption is
implicit that money or purchasing-power is confined to legal tender,
and that bank deposits, etc., on which cheques are drawn, are deposits
and withdrawals of legal tender only. This is in part equivalent to
saying that banks and financial institutions only re-lend money which
has previously been lent to, or deposited with them. This idea, while not specifically
expressed in words, is sedulously fostered by the Press, and by other
media of propaganda which are employed to convince the public that
our economic difficulties proceed from insufficiency of production.
It is significant that the peculiar brand of economics popular amongst
Marxian-Socialist and Communistic propagandists is at one with apparently
more orthodox economists, in suggesting the comparative unimportance
of money in the economic system; that it is nothing but a reflection
of the economic facts beneath it. If I grow a ton of potatoes and exchange those potatoes for five currency notes of one pound each, held at the moment by my neighbour next door, all that has happened is that I have five pounds which he had before. My ton of potatoes has not increased the number of pounds, although it may have but probably has not increased the purchasing power of each pound. If we imagine this five pounds to be the only five pounds in existence, and money to be the only effective demand for goods, no one will be able to exchange any goods until I part with, at any rate, a portion of my five pounds. Ibid. Division of Labour and Process:
Money not Wealth or Production: The second point is that, so far as we can conceive, the co-operative industrial system cannot exist without a satisfactory form of effective-demand system, and the result of an unsatisfactory money system (that is to say, a money system which fails to function as effective demand to the general satisfaction) is that mankind will be driven back to the distinguishing mark of barbarism, which is individual production. And the third point, and the point which is perhaps of most immediate importance at the present time, is that the control of the money system means the control of civilised humanity. In other words, so far from money, or its equivalent, being a minor feature of modern economics, it is the very keystone of the structure. Ibid. Control by Money: But from the moment that he arises in the morning to the moment that he goes to bed at night, or, more comprehensively, from the moment that he draws breath to the moment of his death, and after, his activities are governed and limited by the money system. His clothes, his food, his house, his education, either in the more literal sense or in the broader sense of ability to travel and see the world, his avocation in life, and the rapidity with which he progresses in it, are largely matters of money, and very often nothing but money. Further than that, a lack of money
is sufficiently pronounced, is pretty certain to bring him up against
either the legal system, or starvation and death, and it is no sense
an exaggeration to say that in all civilised countries (so-called),
and the more civilised the country the more true is the statement,
the individual lives entirely by the grace of the money system. It (money) is essentially a mechanism
of administration, subservient to policy and it is because it is superior
to all other mechanisms of administration that the money control of
the world is so immensely important. ... the position into which money
and the methods by which it is controlled and manipulated have brought
the world, arises, not from any defect or vice inseparable from money
(which is probably one of the most marvellous and perfect agencies
for enabling co-operation, that the world has ever conceived), but
because of the subordination of this powerful tool to the objective
of what it is not unfair to call a hidden government. The Creation and Destruction
of Money by the Banking System: . ... if money is of such importance, the first point to which to direct an inquiry in regard to it must concern its point of origin, and it is one step towards this end to recognise the fact that you do not make money by making goods or by working ... Similarly, you do not make money by agriculture. If I grow a ton of potatoes and sell them for money, I merely get the money that somebody had before in return for my potatoes, and the coming into existence or the disappearance by consumption of those potatoes does not itself make the slightest difference to the amount of money in existence; it merely affects its distribution. ...That is the first step. The second step to realise is that only to a very limited extent does money proceed from the State. ...The Chairman (Mr. McKenna)
of the Midland Bank, at its annual meeting in 1924, made the following
statement: ...legal tender in this country (England, in the year 1921) consists of gold, silver, and copper coinage, and Treasury Notes, to the value of say, £400,00,0,000. it will at once be obvious from a superficial examination of the accounts of the banks, that there is a good deal more money in the country than there is legal tender. The deposits of the "Big Five" banks and their affiliations alone represent about £2,000,000,000, and overdrafts and bills discounted represent about £1,000,000,000 more. For practical purposes, all this money is homogeneous - the average individual would draw no vital distinction between ten pounds in his pocket-book and ten pounds in his current account with one of the great banks. But it must be obvious, on a little consideration, that something curious must have happened to enable, say £400,000,000 of legal tender to become at least £3,000,000,000 of money, because, as far as can be seen on a cursory examination of the phenomenon, however much £400,000,000 changes hands in the course of trade, It still remains £400,000,000. Something curious does happen
- it is the creation of new money, which ranks equally with tender
as purchasing power, by banks and financial institutions. One method
by which this result is brought about will serve as an example of
the remainder. Imagine a new bank to be started - its so - called capital is immaterial. Ten depositors each deposit £100 in Treasury Notes with this bank. Its liabilities to the public are now £1000. These ten depositors have business with each other, and find it more convenient in many cases to write notes (cheques) to the banker, instructing to adjust their several accounts in accordance with these business transactions, rather than to draw out cash and pay it over personally. After a little while the banker notes that only about 10 per cent. of his business is done cash (it is really only .7 of 1 per cent.), the rest being merely book-keeping. At this point Depositor No. 10, who is a manufacturer, receives a large order for his product. Before he can deliver, he realises, that he will have to pay out, in wages, salaries., and other expenses, considerably more "money" than he has at command. In this difficulty he consults his banker, who, having in mind the situation just outlined, agrees to allow him to draw from his account not merely his own £100, but an "overdraft" of £100 making £200 in all, in consideration of repayment in, say, three months of £102. This overdraft of £100 is a credit to the account of Depositor. No. 10, who can now draw £200. Ibid. The banker's liabilities to the
public are now £1,100; none of the original depositors have had their
credits of £100 reduced by the transaction, nor were they consulted
in regard to it; and it is absolutely correct to say that £100 of
new money has been created by a stroke of the banker's pen. In round numbers, in this country
England ... (legal tender) amounts to about 380 millions.... the other
90 per cent. ... is represented by bankers' credit, that is to say,
by payment by cheque. Now, every effort is made to convey the impression
that a cheque upon a bank is an order to the bank to pay out money
which was paid in, either by the drawer or by someone else. This idea
is, of course, fostered by the, fact that, so far as personal banking
accounts are concerned (as distinct from commercial banking accounts)
it is roughly a true statement, but it must be remembered that very
few personal banking accounts bear any considerable ratio to the so-called
wealth of the persons to whom they refer. Very few people keep large
personal bank balances. It is perhaps unnecessary before this Committee to go over the ground which has been so ably covered by one of its members, the Right Hon. R. McKenna to the effect that the main cause of the increase or decrease in the amount of money available at any time may be found in banking policy, and notably in central banking policy. Mr. McKenna's argument may be epitomised in the statement that "every bank loan creates a deposit and the repayment of every bank loan destroys a deposit''. Since, rather surprisingly, there
are certain orthodox economists who are not prepared to admit this
statement, I attach a simple mathematical proof which would appear
to put the matter outside the range of discussion: -
dL/dt + dC/dT = dD/dt , K being fixed dK/dt = 0
dC/dt = 0 Therefore dL/dt = dD/dt
Which means, of course, that the rate of increase, or decrease, of loans is equal to the rate of increase or decrease of deposits. ADDENDUM AUTHORITIES OTHER THAN DOUGLAS The bank can carry on the process of lending or purchasing investments, until such time as the credit created, or Investments purchased, represents nine times the amount of the original deposit of £1,000 in cash. The Founder of the Bank of
England R.G. Hawtrey, Assistant Secretary
to the British Treasury, "Further, I agree with him (Douglas)
that banks create money" Colin Clark, Australian Economist:
Economic Adviser to Queensland Government C.H. Douglas writing in 1922
on the Power of Finance If the civilised world continues
to permit this centralised, irresponsible, anti-public control of
the life-blood of production to continue, and at the same time the
possibility, wel-?meaning but ill-informed and dogmatic Syndicalist
makes good what is in essence exactly the same claim in the administrative
field, then the world, in no considerable time, will be faced with
a tyranny besides which the crude efforts of the Spanish Inquisition
may well retire into insignificance. His Holiness, Pope Pius XI
writing in 1931 on the Power of Finance It is fair to say that almost
any explanation which is not a full and accurate explanation of the
working of the financial system, has the curious result of playing
into the hands of the upholders of that system. The simple Labour-Socialist
criticism, which emphasises the contrast between the rich and poor,
forms a perfect moral sanction for the imposition of taxes on any
portion of the community which is above the starvation level ... The business of dealing in money as a commodity is, as has already been pointed out, advantaged by anything which accentuates the scarcity of money, so that any form of attack on the business system, the constructive effect of which is to support increased taxation, can, and does, receive support from the inner circles of High Finance. Since the greater part of the real purchasing power of the world is in a potential form which is not represented by any figures anywhere, but can be materialised by those in possession of the secret of the process, as and when required, taxation of visible purchasing-power is exactly what is most valuable in maintaining the power and supremacy - the power to reward and punish - of the money-makers". .. There is probably not a levelling down movement of any description anywhere, which is unsupported from Lombard Street, Wall Street, and Frankfurt. Ibid. Modern taxation is legalised robbery,
and it none the less robbery because it is effected through the medium
of a political democracy which is made an accessory by giving it an
insignificant share in the loot. But, I do not think robbery is its
primary object. I think policy is, much more than mere gain, its objective. The Fallacy of Nationalising
the Banks Bank of England Before and
After Nationalisation Now, it is quite certain that
the Banks of England would never have been permitted to repeat this
performance in "private" ownership. But it is doing exactly that same
thing at the present time. The austerity racket, the £80,000,000 to
UNRRA, the "export drive" and the whole policy of control and restriction
of British consumer expansion, are precisely the policy of the Bank
of England under Montagu Norman. And Dr. Dalton (London School of
Economics), Sir Stafford Cripps, Mr. Atlee (London School of Economics)
and the Cabinet as a whole state that taxation of the British is now
not for revenue but to embody "Socialist" ideas of Utopia; and the
Bank of England will be used, not to finance the well-being of Britons,
but to see that they remain permanently impoverished. What control
has the consumer over this policy? If monetary reformers would only recognise (a) that the monetary policy of the major nations, during war-time at least, is nationalised; (b) that it offers no problem whatever on the issue side; (c) that it is prices which do offer a problem, and that this problem has been solved with spectacular success by the use of the compensated Price, they would perhaps cease to worry about money issue and realise that there are only three for their attention, financial questions. First, Price Structure. Second, the acquisition of interest bearing securities. Third, Taxation. It is, unfortunately, obvious that numbers of people with a conscious ,or unconscious will to domination have come to realise that a managed money system (as distinct from a reflective or realistic, money and price system) offers the most tremendous instrument of generalised tyranny at present known. It is particularly significaht that advocacy of managed money is coming to be combined with centralised control over land. Sir Reginald Rowe, a managed money advocate, writes to the threepenny daily so well known for its democratic principles, in its issue of September 17, that "some provision such as that proposed by the Uthwatt Report is necessary". So it is ? if we are aiming at the Totalitarian State with a slave population. Planners are solidly in favour
of the abrogation of individual priviledge and its transfer to them. Abolition of Interest on Bank
Deposits If our enthusiasts for the abstract
virtues of the restoration of money to a central source of issue (the
Nation, or what-have-you) would spare it little time to contemplate
this situation, it is possible that misgivings of their complete adequacy
to cope with the problem might assail them. But probably not. The rapturous iconoclasm of certain
groups of monetary reformers', to whom Usury", the sparring-partner
of the bankers "inflation" is the Scarlet Woman of Babylon, has had
the inevitable effect of encouraging the financial authorities to
abolish, for practical purposes, the interest paid on undrawn current
balances, and deposit accounts. We do not say they would not have
done it anyway - the one thoroughly sound feature of the banking system
was its dividends to shareholders and its interest payments to depositors
which I jointly with the insignificant mint issues, provided almost
the only fresh unattached purchasing-power. It is obviously lost time
to beg of our amateur currency experts to consider whether they really
mean what they ask, which is, the replacement of unattached purchasing-power
by loans. But they must not complain if we, and others with us, regard
them as propagandists for totalitarianism. Christopher Hollis and Monctary
Reform THE ECONOMIC PROBLEM Its root causes reside in Financial and Price Systems It will be seen... that we have in the industrial field, a double problem to solve; while retaining the benefits of mechanism for productive purposes, to obtain effective distribution of the results and to restore personal initiative. C.H. Douglas, Economic Democracy", Chap. 4, 1920 edit. THE "PRODUCE MORE" CRY The proposition, which is being
urged for orthodox capitalistic quarters as a means of dealing with
this situation, is a little ingenuous. It consists of an intensification
policy by which, in some mysterious way, all the unpleasant features,
by being exaggerated, are to disappear, and it is usually summed up
at the moment in the phrase, "We must produce more". 1. We must pay for the war and
for betterment schemes. Now this is a very specious argument;
a large number of people, whose instincts warn them that there is
a fallacy somewhere, have not felt themselves able to offer any effective
criticism of it, since some practical knowledge of technique is involved. ...purchasing power is the amount of goods of the description desired which can be purchased with the sum of money available, and it is clearly a function of price. . Ibid. It is a widely spread delusion that price is simply a question of supply and demand, whereas, of course, only the upper limit of price is thus governed, the lower limit which under free competition would be the ruling limit, being fixed by cost plus the minimum profit which will provide a financial inducement to produce. Ibid. Where competition is restricted by Trusts, price is cost plus whatever profit the Trust considers it politic to charge. Ibid. Money is essentially an order system. It has been defined by Professor Walker ("Money, Trade and Industry" p.6) "as any medium no matter of what it is made or why people want it, no one will refuse it in exchange for his goods". Ibid. PRODUCTION The Generation of Costs, and
the Distribution of Purchasing Power Such an undertaking would, let
us assume, make a complicated engineering product, requiring expensive
plant and machinery, and would absorb considerable quantities of power
and light, lubricants, etc., much of which would be wasted; and would
inevitably produce a certain amount of scrap, the value of which would
be less than the material in the form in which it entered the works.
The machinery would wear out, and would have to be replaced and maintained,
and generally it is clear that for each unit of production there would
he three main divisions of factory costs, the "staple" raw material,
the wages and salaries, and a sum representing a proportion of the
cost of the upkeep on the whole of the plant, which might easily equal
200 per cent. of the wages and salaries. The Gap between Prices and
Purchasing Power A concrete example will make this
clear. A steel bolt and nut weighing ten pounds might require in the
blank about eleven and a half pounds of material representing, say,
3s.6d. the nett selling price of the scrap recovered would be about
one penny. The wages value of the total man-hours expended on the
conversion from the blank to the finished nut and bolt might be 5s.
and the average plant charge 150 per cent. on the direct time charge,
ie. 7s.6d. The factory cost would, therefore, be 15s.11d., of which
7s.6d., or just under one-half, would be plant charge. On this plant
charge probably 75 per cent. or about 5s.7d., is represented by the
sum of items which are either afterwards wiped off for depreciation
and consequently not distributed at all at that time, or are distributed
in payments outside the organisation, which payments clearly must
be subsequent to any valuation of the articles for which they are
paid, and so do not affect the argument. An additional factor also comes
into play at this point. All large-scale business in settled on a
credit basis. The reason that the decrease in the consumers purchasing power has not been so great as would be suggested by these considerations, is, of course, largely due to intrinsic cheapening of processes which would, if not defeated by this dilution of the consumer's purchasing power, have brought down prices faster than they have risen. - Ibid. There are thus two processes at work; an intrinsic cheapening of the product by better methods, and an artificial decrease in purchasing power due to what is in effect the charging of the cost of all waste and inefficiency to the consumer. And it is clear that under this system the greater the volume of production the larger will be the absolute value of the waste which the consumer has to pay for, whether he will or not, because as the bank credits are created at the instance of the manufacturer, and repaid out of prices, each article produced dilutes, by the ratio of its book price to all the credits outstanding, the absolute purchasing power of the money held by any individual. Ibid. These facts are quite unaffected by the perfectly sound argument that increased production means decreased cost per price, since it is the total production price which has to be liquidated. Ibid. The Fallacy of "More Production!"
The whole argument which represents a manufactured article as an access of wealth to the country and to everyone concerned, no matter what its description and utility, so long as by any method it can be sold and wages distributed in respect of it, will, therefore, be seen to be a dangerous fallacy based on an entirely wrong conception, which is epitomised in the use of the word "production", and fostered by ignorance of financial processes. Ibid. THE ORTHODOX CONCEPTION OF THE RELATION BETWEEN PRICES AND PURCHASING POWER The point we have to make is not merely that financial purchasing power is unsatisfactorily distributed, it is that, in its visible forms, it is collectively insufficient. C.H. Douglas, "Social Credit". Part, 2, Chap. 1, 1924 edit. One stage in advance towards this end is the theory generally associated with the name of Mr. J.A. Hobson, who attributes the general lack of purchasing power (the fact of which he most properly emphasises) to the undue investment of savings, on the part of the more fortunate members of Society in what are termed capital undertakings, with the result that production of capital goods is in excess of the amount required. That such unbalanced production does take place is, unquestionable; but that Mr. Hobson's explanation is inadequate to explain the process, which accompanies and complicates this unbalancing, is, I think, not less certain. Nor does this theory account for the collective growth of bank deposits. Ibid. Both of these explanations really proceed from a misconception of what actually takes place in the financial and costing departments of Industrial organisations, and a further failure to grasp the possible relation which can exist between the abstraction of money and the concrete physical realities to which it relates. There is every justification for these misconceptions; they are strictly orthodox in the sense of being the general teaching of the majority of those people who claim to be experts on the matter; and it is necessary that they should be stated in order that the invalidity of them may he exposed. - Ibid. This orthodox theory, then, assumes that the money equivalent to the price of every article which is produced, is in the pocket, or the bank pigeon hole of somebody in the world. In other words it assumes that the collective sum of the wages, salaries and dividends distributed in respect of the articles for sale at any given moment, which represent collective price, are available as purchasing power at one and the same moment. Certain persons have more money or bank pigeonholes than they wish to spend on consumable goods. They do not spend it; they save it, as the phrase goes. By this abstinence from spending they form a fund which enables capital goods, ie. tools, plant, factories, to be paid for, and therefore produced, and because of the process by which these are paid for the capital goods thus produced become the property of those persons who have thus saved. - Ibid. Now the first point to be grasped in regard to this argument as a whole is that, even supposing at any given moment it were true, one week afterwards it could no longer be true. If on a given day, there was extant in the world sufficient money to buy all the goods in the world at the prices it had cost to produce those goods, and any portion of that money were applied to form the payment for the production of new goods, then that money so applied forms the cost of the new goods, and immediately there is a disparity between the total costs, which are the minimum total prices, of goods, and the amount of money in the world which would ex-hypothesi, be exactly the same as before. This would be true even if no one "saved" any further quantity of money. The persons who have saved the money would not have saved the goods which the original money represented, they would merely have transferred their claims from the original goods in existence to new goods, and could only "get their money back" by the sale of those goods; nor would there be any mechanism in existence by which the old goods could be bought. That surely must be self-evident. - Ibid. But the process does not stop there. From the investor's or "savers" point of view, his only object in putting his money into capital goods is to get an increased amount of money back, and on Mr. Hobson's assumption, in particular, he can only get his money back from the public in the form of prices. The condition then is, that there are more goods in the world at each successive interval of time, because of the financial saving, and its application to fresh production, while the interest, depreciation, and obsolescence, on this financial saving has to be carried forward into the prices of production during a succeeding period. - Ibid. Each pound saved would be a pound withdrawn from consumption and put into production. Since costs must be less than prices, it only requires a very simple examination of this condition to see that the cycle would become unworkable in a very short period of time, since no one would be able to buy anything. Depreciation alone would absorb the world's purchasing power, although not seriously diminishing the world's true wealth, and if no other factors intervened, we should have starved in the midst of plenty many years ago. - Ibid. He (the manufacturer) has no power of making money in the literal sense, but he has the prerogative of allocating cost. At this point please note that his allocation of cost can fall into three main headings at any moment. First, the money or purchasing power which he is actually distributing to the citizen in his capacity as an earner. Secondly, an additional figure which represents his idea of his own remuneration, and which he calls "profit", and thirdly, the sum which represents the claim for debt, including semimanufactures. I do not wish to go at the moment into the exact division of allocated costs into profit and recovery of debt, or the justification of these divisions, I merely wish to establish that every manufacturer can and does distribute costs in the form of wages and salaries and allocates costs which are not distributed as wages and salaries. These latter costs can only be distributed after he has sold all his goods, and collected both the distributed and the allocated costs, and he does not distribute enough before they are sold to buy them. - C.H. Douglas Hawtrey Debate, March 22, 1933. ... there seems to me to be a confusion between price values and purchasing power, the confusion to which I referred at the beginning of my reply. For instance, Mr. Hawtrey says that incomes arise out of production. They do not. Price values arise out of production, incomes arise out of purchasing power created by the banks. - Ibid. Receipts are prices; dividends are paid out of them. Wages and salaries are costs, together with profits. They are not paid out of receipts, but antecedently, out of credit. - C.H. Douglas, "The Labour Party and Social Credit", 1922. Two misconceptions are apparent in the arguments adduced (to prove that total incomes are equal to total costs). the first and less important, is the failure to realise that depreciation and maintenance, obsolescence, etc., are added into prices, and written off profits. Dividends come out of profits, consequently, are smaller than the profit item in prices and cannot liquidate it. - Ibid. Enormous Increase of World Debt Proof that Financial Price System is not Self-Liquidating Your Majesty, Mr. President, Members
and Guests of the Handelsstands Forening, Oslo: ... In the year 1694
the Bank of England was formed in Great Britain. ...In the 17th century
that is to say in the century in which the Bank of England was founded,
the world debt - and we have pretty accurate figures with regard to
these matters - increased 47 per cent. We also know that in fact, in those times of boom which are referred to by economists as proving that it is self-liquidating, the rate of increase of debt is greater than in times of depression; so that in real fact, in times of boom even, there is no justification for saying that, at any time of the trade cycle, the price system is self-liquidating. "Money and the Price System" - a speech delivered by Major C.H. Douglas at Oslo on February 14, 1935, to H.M. The King of Norway, H.E. The British Minister, and the President and Members of the Oslo Merchants Club. Having in view the importance
of the issues involved, it may be desirable to summarise the conclusions
to be derived from a study of the methods by which the price of production
is based on cost under the existing economic arrangements. The New and The Old Economics
by C.H. Douglas, 1933. THE A PLUS B THEOREM, SAVING,
AND For the convenience of readers who have not Professor Copland's paper, or the book in which this theorem is contained, it is printed herewith: "A factory or other productive organisation has, besides its economic function as a producer of goods, a financial aspect - it may be regarded on the one hand as a device for the distribution of purchasing power to individuals, through the media of wages, salaries, and dividends; and on the other hand, as a manufactory of prices - financial values." From this, standpoint, its payments may be divided into two groups: " Group A - all payments made to individuals (wages, salaries and dividends)." "Group B - all payments made to other organisations (raw materials, bank charges, and other external costs)." "Now the rate of flow of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A." It is fortunate that the criticism of Professor Copland is practically contemporaneous with a criticism of the same theorem by Professor Robbins, as it is possible to use either of them to confute the other. It is, however, obvious that, at any rate, Professor Copland has not understood, what seems to me to be, in fairly simple language, and what are the consequences which might be expected as a result of its truth. The A plus B theorem, then, may
be said to be, first, an assertion that, under certain circumstances,
almost universal in modern industry, which will subsequently be specified,
purchasing power cannot be equal to prices, if purchasing power and
prices are both considered as a flow, which is the commonly accepted
and correct method of regarding the matter. The second aspect of the
theorem is that it puts forward an explanation as to the mechanism
through which this disparity is produced. Obviously, the correct method
of approaching the subject, although not that commonly employed by
professional economists, is first of all to ascertain if the situation
does, in fact, confirm the theorem. As association of American engineers
and technologists at Columbia University remarks: "The advent of technology
makes all findings based on human labour irrelevant, because the rate
of energy conversion of the modern machine is many thousand times
that of man. The total capacity of U.S. industrial equipment is one
billion horsepower which does the work of ten billion men, or five
times the earth's total population". On the other hand, we way regard
Governments as being spokesmen of the financial system, since it is
by the sanction of Governments that the existing system is maintained.
It is claimed by these governmental spokesmen that we are living in
a period of great stringency, that financial economy is necessary,
both of the voluntary or saving description and of the involuntary
description, which may be for the present purpose described as taxation. Turning to the specific criticism
of the theorem, Professor Copland begins by remarking as follows: |
