WARNING DEMOCRACY

BY C.H. DOUGLAS

THIRD EDITION. STANLEY NOTT 69 Grafton Street Fitzroy Square LONDON

PREFACE: IN reprinting a series of addresses and articles which have been delivered or have appeared between the years 1920-31, it is hoped that two objectives may be, to some extent, attained. The first of these is to put in colloquial form much of the matter of other books which it has seemed necessary to inflict upon a long-suffering public. The second is to suggest that as the test of science is prophecy, the correspondence between the course of events as they have developed, and are developing, and the arguments embodied in these addresses, affords solid ground for optimism. Difficult as the present times may be, and worse as they may become, we know that the monetary system is the main cause of our discontents, and we are for that reason so much the nearer to a cure.

C. H. DOUGLAS, 8 Fig Tree Court, Temple, E.C.4.

WARNING DEMOCRACY

I SOME DIFFICULTIES FACING MONETARY REFORM ^[1]

[1] Notes for an address delivered to the Anthroposophical Society.

IT might appear at first sight that there is little or nothing in common between what is in one sense a branch of economics and a society such as yours. But such an opinion would, I think, be mistaken. Money and the money system now occupy the place of religion.

It is not my intention to inflict upon you to any considerable extent any views upon the existing financial system, or the modifications which, in my opinion, are urgently required in it, as, apart from other reasons, there is a fairly extensive literature on the subject, and it is one which lends itself better, in the first place, to assimilation through the printed word than through the medium of an address. My object, rather, is to indicate the reaction which the presentation of those ideas has evoked in various cases, and to consider, and to ask you to consider, the apparent reasons which have hindered the more rapid translation of those ideas into the stage of practical action.

In order, however, to do this it is necessary, I think, to give you some short epitome of the subject in order that you may judge for yourselves what may be the motives and psychology behind the reactions to which I have referred. Very briefly, then, it is our contention that the industrial, international, and, to a large extent, the social difficulties with which the world is plagued at the present time do not arise either, on the one hand, from anything in the nature of physical scarcity, that is to say, lack of either raw or finished materials, goods, or services, nor, on the other hand, are they the result of the administrative relations between employers and employed, or any lack of what is commonly called goodwill in any of the parties concerned in the actual processes of industry.

Similarly, in a wider field, we say that the danger of international conflict, which is insistent and growing, also does not arise from any desire on the part of the populations of the world to fight each other. And the constant and somewhat wearisome demand for goodwill and understanding between nations belongs to the same order of sentimentality as those somewhat similar exhortations addressed to those threatened with industrial strife. We point, on the one hand, to the half-employed factories, whose one constant preoccupation is to obtain" orders"; to the farms going out of cultivation because they do not "pay"; to the shops and stores full of goods which in many cases they cannot sell, tothe millions of unemployed and half-employed working people, asking to be allowed to make more goods, and, on the other hand, to the millions of people, frequently the same, whose one idea of the better life is that they should be able to obtain more goods, food, clothes, housing and services, which as producers they are not allowed to create. We say that it should not require intelligence above the ordinary to appreciate that there must be something which stands between the mechanism of production, with its farms, factories, tools, materials and men, on the one hand, and these millions of people whose only desire is to obtain the products which the productive organisation could give them if it were allowed. Examining the organisation by which goods pass from the producer to the consumer, we find that it is the money system, and we naturally suspect the money system as being at fault. In other words, it is not goods which are scarce, it is money, or, more accurately, purchasing power, which is scarce.

Now, if it were in the nature of things that in some way the quantity of money in the world was fixed by the laws of nature, our case would be desperate, but we find by technical investigation that it is not so fixed, that the amount of money in the world is almost entirely dependent upon the action of those institutions which we call banks, that, in fact, the banking system can, and does, control the prosperity of every country in the world, and that the banking system is a man-made system controlled by men and can be altered by men. The method by which this position can be rectified, and with it, at any rate in our opinion, a very large number of the troubles from which humanity at the present time suffers, is technical and as I previously said, I do not propose to inflict it upon you. I am going to ask you tonight to accept the statement that I have just made as correct, and as being proved both mathematically and by the inductive method of comparative statistics. Taking this for granted, then, you would naturally assume that the great majority of people would regard such a matter as being not only of the greatest possible interest, but as the nature of a very happy discovery. It is quite possible that my own method of communicating information may be to some extent at fault, although I do not think this is the whole explanation, because it is a common experience. But, speaking generally, the information to which I have referred is not received with the enthusiasm which at first sight you would expect.

Now, one of the first conceptions which is driven home to a consistent critic of the money system is the curious and widely spread desire which seems to exist to attribute our troubles to anything but the money system. From one quarter you will be told that it is the incorrigible laziness of what is called "labour" which is at fault. On the other hand, the rapacious employer is the difficulty, or lack of education, or too much education, or obsolete tools, or too many tools, or the climate, or spots on the sun. On the whole, however, there is a strong tendency to suggest that it is the depravity of human nature that is at fault, and to epitomise the matter ... "If we all went to church our incomes would be larger." In a smaller number of cases, but still quite numerous, one's criticism of the existing money system, and the suggestion that it could be improved, provokes the most furious resentment, akin to the resentment roused by religious heresy in the Middle Ages.

I have never been able to explain to my own satisfaction this resentment, although no doubt it has some connection with the prevalent idea that the money system is so simple, obvious, and natural, that it is an insult to one's intelligence to assume that anything very serious could be the matter with it, which would not be patent to the man in the street. While the broad functions of the money system are simple enough, the mechanism of it is, of course, very far from simple, and so far from being " natural," it is highly artificial. Since the institution of a modified financial system of a suitable nature would rapidly increase the (what is called) material wealth of everyone without detracting from the wealth of anyone, it would be imagined that when once agreement had been obtained as to the feasibility of such a readjustment opposition would cease. But this is far from being the case. The more important the individual with whom one is dealing in these matters, and the more able such a person may be to assist in the end desired, the more likely one is to find a very definite dissent, not as to the competency of the mechanism, but as to the desirability of the end. It is a curious feature of the average human being that he deems himself singular in the ability to make a right and proper use of wealth. "It is a good and desirable thing for me to have ten thousand pounds a year. I am a sober and right-minded person, but it would be absolutely disastrous for my neighbour over the way to have a comfortable income. He would not know what to do with it, and it would only hasten his career of drunkenness and depravity."

Shortly after the war I had several conversations with the late Lord Leverhulme on these matters, and he was quite clear that only the fear of poverty kept the vast majority of people at work, and he took it for granted that they ought to be kept at work. Two or three sentences after disposing of the question in the foregoing manner, he explained that he worked much harder than any of his employees. That, of course, was because he was different.

Analogous to this, and no doubt closely connected with it, is the rooted objection existing in the minds of most people that anyone but themselves should get something for nothing. I have heard innumerable cases of furious resentment against the grant of what is so improperly called "the dole" (which is, of course a form of contributory unemployment insurance to which the workman himself contributes) and these denunciations, proceeding from normally kind-hearted, persons of both sexes, are usualIy accompanied by remarks on the demoralising effect of money received without working. If you enquire, as mildly as possible, of such people, if by chance they receive any didends which enable them to exist without working, you will, of course, be very unpopular, and you will be told that that is different, and if you suggest that a generalisation of the dividend system if it could be obtained (and it can) would be desirable, you will be called "Socialistic," a Parliamentary epithet for dangerous. An extreme variant of the same idea is that there is some virtue in poverty.

Speaking to Labour and Socialist audiences I have been struck with the hypnotism exercised by such phrases as " Public Ownership." It never seems to penetrate the minds of the large numbers of people who clamour for Public Ownership of this, that, or the other, that they already have public ownership of such things as the Army, Navy, Post Office and many other services. I should like to see one of the public owners step upon a battleship of the Royal Navy with a view to removing his bit of property or making some use of it. The real fact is that the word "ownership" is quite meaningless when it is applied to the relations between any undertaking and a large number of what the law calls "tenants-in-common." It is quite impossible for a hundred people to own a piece of land, although there is a legal fiction to the effect that they can. Either they have to let it and divide the rents, or each one of them can walk about on it, in which case there is no rent and nothing to divide. Even a Public Park is subject to regulations which the individuals using it are generally powerless to alter as individuals.

It is a fact inherent in the nature of the case that ownership must vest in an individual, and :my attempt to get away from this law of nature results as a practical consequence in the appointment of an administrator whose power increases as the number of his appointers increases. This is, of course, the idea which is contained in the continuous extension of the voting franchise, and, a very Machiavellian policy it is, resulting as it does in the intelligent voter being completely disfranchised.

Another very curious and almost universal form of resistance which is met with by the credit reformers is the general determination to believe that any proposal which offers a radical amelioration in the economic situation must be a fairy tale. Inspired by the bankers and orthodox economists, political spokesmen have been at one in asserting that there is no short cut out of our difficulties. That is what they are paid to say, and it is perhaps not surprising. But what is surprising is the unanimity with which most people accept the statement. We all know Mark Twain's story of the man who was imprisoned for twenty years and then walked out having just discovered that the door had never been locked, and some of us think it is funny. Personally I do not think it funny. I consider it a somewhat boring statement of fact. The world at large is in prison, and shows many symptoms of dying in prison, and there is nothing whatever to prevent it from walking out.

No doubt some of you may remember a book by Mr. Tawney, a well-known Socialist, and Fellow of an Oxford College, called The Sickness of an Acquisitive Society. I must confess that I never read the book itself, although I read several reviews of it, but I never saw the title without wanting to write another book under some title such as "The sickness of people who write about the sickness of an Acquisitive Society." It has always been quite incomprehensible to me why people should be expected, when they don't want to, to work unless they get something for working. Please do not misunderstand me. There is a very great satisfaction to be derived from creative work, quite irrespective of the result. But that is not the primary objective of work, used in the ordinary sense of the word. That primary objective is to obtain something which had not existed before the work was done, and the fundamental defect of the existing financial system is that it does not give people enough return for the work that they do, or conversely, they do not get in confident security a standard of life such as they have a right to expect without devoting far too much time and energy to its acquisition. It is my own personal opinion that the undue acquisitiveness of a small section of society very largely arises out of fear, and that by far the best way to reduce it to its normal proportion would be to remove the fear and insecurity in the existing state of affairs by making plain what is undoubtedly the truth that the modern production system can meet every possible need of society without any stress or strain, if only it is freed from the fetters imposed upon it by the existing financial system.

I do not claim in the foregoing remarks to have more than sketched the outlines of the curious perversity which seems to exist in regard to our social troubles, but ,I hope that I have given you sufficient indicitation that the nature of that "change of heart," of which we hear so much, is not so simple as many people would have us believe. Those very persons who are loudest in their demand for a human spirit in industry are very often the most determined that the results which they pretend to desire shall not be attained by methods which would remove the necessity for the philanthropist. There is a great deal of truth in the saying that "People will do anything for the poor, except make them rich." It is my own opinion that until it is clearly recognised that the only sane objective of an industrial and productive system is to deliver goods as, when, and where desired with the minimum of trouble to anyone, and that the moment you begin to mix this clear-cut objective up with moral considerations, so called, including a strong dash of Mosaic law, you produce, maintain, and increase friction, inefficiency, and mental and physical distress, and that if you persist, as we are persisting, in this confusion of objective, you will eventually arrive at a situation involving the serious elements of breakdown.

II ENGINEERING, MONEY, AND PRICES^[1]

[1] Extracts from a paper read at the Institution of Mechanical Engineers on April 22nd, 1927.

THE subject cannot be covered in the space of the time available this evening with any approach to thoroughness, and I should like therefore, to begin by an apology and a warning. The apology refers to the necessarily wide, and therefore somewhat thin, treatment of the subject, and the warning is in regard to the danger of detaching any one aspect of the subject from the others. I propose to deal briefly with three points, each of which may serve as points of departure for further discussion.

1. The application of the word "engineering" to this subject.

2. The general nature of money.

3. An outline of the nature of prices.

I. Engineering

In regard to the first, the charter of the Institute of Civil Engineers defines engineering as "the application of the forces of nature to the uses of man." It is quite probable that what are commonly known as physical forces were in the mind of Telford when he framed this admirable definition, but I suppose that, on consideration, there is no one here tonight who would not recognise that such a restriction is unwarranted. It is not sensible to detach an engineering project from the purpose to be attained by it. The force of gravity is not half such a serious obstacle to the development of, let us say, the Severn Barrage scheme, as a lack of finance, and a strike on the railway system of England is much more effective in paralysing transportation than an inferior valve gear. We arc constantly being told of the necessity of goodwill and tact in industry. While these are obviously desirable, it seems to me that arrangements which require so much tact and goodwill are suspect, just as would be a machine which required too much oil, and that it is our business to look into those arrangements, even if it were only to enable us to conform to them intelligently.

A curious point in connection with this matter is that the truth of what I have just been saying is fully recognised within the limitations imposed by the factory walls. No one would contend that it is outside the province of the Works Manager to make such arrangements as would tend to keep his men at work, but it is well enough understood both by the Works Manager and by the Trades Union agitator that the one difficulty which never remains composed for any length of time is the wages difficulty. On the other hand, during the past few years, we have witnessed the reconstruction of many of the largest engineering concerns in this country - a reconstruction the necessity for which has almost uniformly been attributed to bad management, but which can in fact simply be attributed to the inability to sell at prices which the market can afford to pay. The situation was the direct result of the policy of the Bank of England acting within the existing financial system, and management had very little to do with it.

These reasons alone would be sufficient to justify the inclusion of the financial system as an integral part of the production and distribution system. There are, however, many more reasons. The influence of finance upon design is predominant. The horse-power tax on motor cars has a great deal to do with the position, or lack of position,of the British car in the world's markets. Those familiar with design during the war, which is realistic, will remember how questions of performance, ease of production and so forth, outweighed questions of money. Peace is not realistic at the present time, and financial questions are apt to outweigh all others. It is often said that we British allow other nations to develop everything that we invent. The reason is simple, and is financial.

II. The General Nature of Money

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 acceptablility 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 "credere," to believe. The essential quality of money, therefore, is that a man shall beleive 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 the most general use. The cheque, no doubt, owes its popularity to this latter attribute.

Looked at from this point of view, money is simply a ticket. A railway ticket is, in the truest sense, a limited form of money and differs only from any other sort of money in that the owner of it only beleives, and is only justified in believing, that he will receieve in return fir it a particular service, i.e., transportation.

Now, if the whole of the population of Great Britain were to besiege the gates of the great London termini, under the urge of some necessity, such as, let us say, the invasion of London, to remove themselves to Scotland, and were to be told that there were plenty of trains, plenty of tractive power, and that, in fact, the whole of the railway system was physically capable of meeting their necessity, but that unfortunately only 15 per cent. of the tickets necessary to entitle them to seats were available and that the Traffic Department, as a matter of policy, did not propose to print any more, it would probably be agreed that the Traffic Department would hear something to its disadvantage.

The extraordinary feature of the present day is that, when people arc told that the workshops of this country are clamouring for orders, that the shops and department stores are full of goods, that a large proportion of the population is, at one and the same time, asking to be allowed to make more goods and services, while complaining that it cannot get more than a bare minimum of those goods and services that are available, because it has not got the tickets to hand over in exchange for them, the situation is regarded as being in the nature of an act of God, and impressive gentlemen deliver homilies to us on the inexorable nature of economic law. In other words, the statement that a thing cannot be done because there is no money with which to do it is accepted as a good and final reply to a demand for action.

Some examination into the mechanism, therefore, by which these tickets that we refer to as money are issued, and the conditions governing the control of their issue, is an important part of this subject. In the first place, we have anumber of tickets described as "legal tender," which are comprised under the description of Bank of England notes, Treasury notes, gold silver and copper coin. In round numbers, in this country these amount to about 380 millions, and bear about the same relation to the total volume of thickets as do teetotallers in America to prohibition. In figures, it is about 10 per cent. The other 90 per cent of the ticket system iwht which we are dealing 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 hwich was paid in, either by the drawer or by some else. This idea is, of course, foseterd 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. Nevertheless, no transaction as between a buyer and a seller can take place without the use of money in some form or another. To see where this money comes from, it is necessary to examine the technique of Bank Loans.

The railway ticket, described above as a limited form of money, has, however, in addition to being only a demand for transportation, a rigid relation to a certainkind of transportation: that is to say, one first-class ticket will obtain one first-class seat, other things being equal, but £1 sterling in 1914 would obtain probably more than twice as much of the average articles that you use as the same £1 sterling in 1927. To begin with, you buy in 1927 to the extent of at least 20 per cent of your income something that you do not want, that is to say, taxes. It has, therefore, to be recognised as fundamental that the amount of money available at any one time only derives importance in relation to the price of goods. In other words, a money system derives its features not either from money alone or prices alone, but from the ratio between the two of them. If this ratio of money to goods is such that there is more money than goods, goods will be more important and money will be unimportant. if the ratio is such that there are always more goods than money, money will be important and goods will be unimportant. The plain issue before the world at the present time is which is more important, money or goods? The facts of the situation are that there are clearly more goods than there is money with which to buy. The reason for this situation is complex, but one of the fundamentals, without attention to which the situation cannot be rectified, is as follows. When a manufacturing concern pays out wages and salaries, its costing department enters this payment in the costs of production. Let us imagine that these wages and salaries are always paid in Treasury Notes. These Treasury Notes go back to their source after a very short time, through the agnecy of prices paid to retails distributors, and are paid out again. Each time they are paid out, they pass through the cost accounts and, consequently, each time appear as a component of prices. There is nothing in this circulation of the Treasury Notes which increases the amount of money in the world, but each cycle represents the creation of a batch of prices . To put the matter shortly, when you make goods you make prices but you do not make money. As a result of this divergence, total prices produced over a given time are greatly in excess of total money distributed over the same period of time. In concequence, the ratio of money to prices is considerably less than unity, and there is a constant struggle on the part of the industrial system to obtain purchasing power, either from export markets (which struggle is the prime incentive to war) or by the manufacture of so-called capital goods, the money distributed in respect of which temporarily assists in the payment fro consumable goods.

The problem set for, I believe, the engineer to solve, therefore, may be stated thus. He has to obtain a clear statement as to what the production
system is aiming at. Such a statement is certainly not available at the moment. If the aim is maximum production, he must stipulate for the provision of buying power to take away the production as fast as it is turned out. If it is a given standard of living with a consequent steady increase in leisure, he must specify for the provision of buying power which is not derived from employment, because such an objective postulates a constant decrease in the amount of labour required in the industry. What he cannot be expected to do, in my opinion, is to combine the fundamentally incompatible objectives of labour-saving and the provision of unlimited employment.

Having attained an objective, he ought to be in a position to state the conditions under which he can achieve it. These conditions, on the one
hand, have to do with the physical capacity for output of his plant, but they have equally to do with the number of demand tickets, or money,
which his output brings, or ought to bring, into existence. If this latter aspect is not satisfactorily adjusted, his programme of production
must inevitably break down.

III The Only Real Socialism ^[1]

[1] Address to the London Socialist Forum at Caxton Hall, October 22nd, 1930.

"SOCIALISM" is a word which is commonly used in these days, and, like many other things, is more freely talked about than it is understood, even by those who call themselves Socialists. Before proceeding to a slight sketch sketch of my own views on the general situation and such suggestions as I can make for its improvement, I think it would be well worth your attention to consider the various meanings that can be attached to the word "Socialism."

I suppose that its literal meamng is "that which appertains to society." it is quite obvious that this meaning is so wide that it embraces every human activity. But the professed Socialist would probably not accept so wide a definition and would, at any rate until a few years ago, probably have defined "Socialism" as a system of society in which the State was supreme and all individuals were equal but subject to a common will expressed by the State. Without in any way presummg to criticise the many high-minded leaders which the Socialist movement has evolved, I think it will be admitted first of all that in using the word "society" they had a strong tendency to regard the human indiyidual as being for all ordinary purposes that fiction of imagination callede the "economic man," and, secondly, that in the nature of things, being unfamiliar ,with the technique with which the economic world is, as a matter of fact, carried on, they made the grave and even fatal error of confusing econpomic policy with economic administration, and they assumed, therefore, that some process of democratisation of administration would result in removing the many inequalities and injustices, which they very properly resented.

Now, curiously enough, the mechanism which was logically enough evolved from these incorrect premises was exactly the mechanism most calculated to produce an accentuation of the discontents it was intended to remove, and was, in fact, closely allied to the form of mechanism which. the alleged arch-enemy of Socialism, Capitalism, is evolvmg, or has, in fact, evolved, for the express purpose of still further fettering the individual in the toils of the economic system. With the exception of the fact that a higher standard of technical ability has been applied to their organisation, the large Government Departments, such as the Post Office, the grouped railway companies, or the huge industrial organisations such as, for instance, Imperial Chemical Industries, are indistinguishable from the ideals of State Socialism, at any rate, in its more finished stage, and it is significant that Fascism in Italy, which was the capitalists' reply to Communism, is practically indistinguishable to the unprejudiced observer from the so-called Bolshevism of Russia, which is at present our only avowedly socialistic commonwealth.

It is, therefore, I think, important to endeavour to isolate the nature of the genuine urge at the root of the Socialist movement, in order to find, if possible, a mechanism which is compatible with its attainment.

This is not by any means so easy a matter as it might seem, partly because men and women have an unfortunate habit of clamouring for things by names that they do not understand. We have, of course, the simplest possible instance of this at the present time when millions of unfortunate people are asking for employment. Anyone who will devote a minute's serious reflection to the matter will realise that the greater proportion of these unemployed millions could employ their own time to their own satisfaction if they were supplied with the means, or to put it shortly, the money with which to buy food, clothes, housing, and the available luxuries of civilisation. People clamour for equality, although not so much as they used to do, whereas the very last thing the average individual really desires is equality. He is convinced, and in my opinion, properly convinced, that he is quite different to everyone else, and the modern demand to realise one's real personality is far nearer the truth than the clamour for equality of the beginning of the last century.

Many people complain bitterly of the injustice of the world. I am afraid that the last dispensation which we should any of us ask for, if we really understood what it meant, would be justice, and for my own part I am inclined to think that a large proportion of the misery of the world is due to the arrogant claim of society to dispense something which it calls "justice." One of the most illuminating lines ever penned, by that extraordinary genius, the poet Blake, was that "one law for the lion and the lamb is oppression."

Now if you have followed me so far you will, I think, on consideration, agree with me that the last thing that anyone really desires is the imposition upon us either by the State, big business, religion, or any other of the agencies which have been active in the matter, of a rigid, uniform ideal. The only thing that we agree in wanting is that we want what we want, when we want it, and not because our nextdoor neighbour wants it at the same or some other time. So that, so far from the realisation of some machine-made Utopia which would embrace us all, I think what we all as individuals desire is a state of affairs which would enable us to use the benefits conferred upon us by science and education for the furtherance of our own individual ideals and desires, which must be just as different, in the nature of things, as our personalities are different, and must become increasmgly different as our personalities become further individualised.

The Social Credit proposals at any rate start from this point of view, and in one sense they may be considered as a complete inversion of either State Socialism, Fascism, or Sovietism. So far from desiring to impose some abstract ideal called the "common will" upon the individual, their proposals have for their objective the employment of the common heritage (a phrase which I will define shortly) for the furtherance of the individual objective, whatever that may be, and without defining it.

In order to make this a little clearer I shall be obliged to devote a few moments to a consideration first of the nature of property and secondly of the nature of what is called "Credit."

In what sense can a man own a factory? It is quite obvious that he cannot himself either operate it, eat it, live in it, or dress in it in any comprehensive sense. Under existing circu:nstances he can administer it, but administration is clearly not the monopoly of ownership, since probably more than 99 per cent. of the factories, farms, and other property in the world are administered by persons who do not own them. Not to take up too much of your time, the ownership of a factory may be said to consist in taking the profits, if any, of it, in the power of appointment of its administration, and in the power of divesting oneself of the ownership by sale or otherwise .. Now a little consideration will, I am sure, convince you that the majority of people only desire ownership of any such thing as a factory for one reason, and that is the profits which may be obtained from it. These profits take the form of money, and money is the financial embodiment of something which we call "Credit." What is this "Credit" about which we hear so much?

In the first place it is necessary carefully to distinguish between real credit and financial credit. Real credit is a well-founded, that is to say, correct belief or estimate of the capacity of a person or community to materialise its desires. It is, as one might say, a blue-print of a state of affairs which the community can achieve, but has not yet achieved. It is the same thing as that sort of faith which was defined as "the substance of things hoped for, the evidence of things not seen," and fundamentally it takes its rise out of that marvellous faculty of human nature which consists of first imagining a state of affairs and then successfully reproducing the thing imagined in the everyday world. That is real credit. Note that it is not belief only, it is well-founded belief.

Financial credit is a sort of reflection of this real credit in figures, and might be defined as a correct estimate of a person's or a community's ability to deliver money. Money is an effective demand for goods and services, and most of us believe, and probably correctly believe, that we cannot further our desires without command over a certain amount of money. The Social Credit proposals therefore may be stated somewhat in this manner. They are not concerned with either the nature or the result of an individual's ideals; their objective is to help man to achieve them. As a matter of observation it is clear that on the material plane the possession of money is, as the world is constituted, an essential to the realisation of almost any objective. The problem therefore is to provide the greatest number of people with the greatest amount of money that they can use effectively, bearing in mind the limitations inherent in the nature of ownership and at the same time to make sure that in doing so we do not destroy the properties which at present seem to inhere in money.

Before passing on to a short outline of the mechanism of these proposals I should like to touch upon some of the objections which are raised against them. One of the first and most widespread objections met with is fundamental, and probably the most powerful obstacle to their realisation, and might be perhaps called the "Puritan Ideal." That "it is not good for people to have what they want, that human nature is essentially bad, and that life should consist to a very large extent in running to see what Johnnie is doing and telling him he mustn't." It is quite evident that if this position be taken up no progress along these lines is' possible, and it is obviously not a matter for argument but is purely one of belief. I would however, repeat that in a more or less veiled form, it is very prevalent and will have to be faced in the open sooner or later. A second objection, perhaps worthy of a little more respect, is that human nature will not be permanently satisfied by what is called "material progress." This is quite probably true, but as an objection to Social Credit it is, I think, irrelevant. If, as is quite probable, the result of an initial extravagance is a reversion to a very much simpler life than we have at the present time, so much the better. Such a state of afairs would be far more stable if it came as a result of experience than as a the result of an imposed ideal. A third objection, perhaps almost universal, is that Social Credit, by reieving everyone of the fear of poverty, would remove the chief stimulas to what is called "work," iwht the result that civilisation would fall to pieces.

Now superficially this is an important objection, and not lightly to be disregarded. If the existing state of affairs provided evidence that the fear of poverty was a successful stimulus, was a successful motive power for society, it might perhaps - I do not say that it would - be justified on pragmatic grounds; but it must be quite obvious to anyone who is familiar with the facts of industry that the fear of poverty is the worst possible incentive to successful industry. I have no hesitation whatever in saying that the most important work, the hardest work, and. the most work per man in the world is done by men who have no fear whatever of poverty and no human likelihood of ever being poor. Conversely, these sections of society which are constantly faced with the fear of poverty tend automatically to become incapable of anything but the lowest grade of work, and ultimately do even this work less efficiently than better-paid and socially better-placed individuals. Whatever function it may have fulfilled in the past, it is my personal opinion that fear of any kind is the most destructIve and generally undesirable motive which can be imported into any human action, and, that no greater service can be made to mankind than its elimination. There is, however, an addItional factor to be considered in regard to the objection that the work of the world would not be done except under the stimulus of poverty and that is that we are rapidly passing from the human labour stage of progress into the machinery stage of progress, and that if the enormous amount of unnecessary work which is stimulated by the existing financial system were eliminated, notably, of course, the completely non-productive labour of what is called "business" as opposed to production and distnbution, the work of the world could be done with a surprisingly smaIl percentage of the labour available, a state of affairs which might be visualised perhaps by imagining the human being to pass four years in a school, three years in a university, and three or four years in an industrial organisation, passing, perhaps, at the age of twenty-four or twenty-five into what we might call the "reserve."

Having the preceding considerations in mind, we are in a better position to examine the reasons why the economic and financial system does not at present fulfil them and what changes would be necessary in order that it should do so.

Let us first be clear that the defect does not lie in any failure of the production system. The rate of production of a given article per human unit of labour has enormously increased and is continually increasing over that which was competent to give a reasonable standard of living four or five hundred years ago. For instance, in 1928 the rate of production of pig iron was three times as great per man employed as it was in 1914. A workman using automatic machines can make 4,000 glass bottles as quickly as he could have made 100 by hand twenty-five years ago. Taking 1914 as 100, in 1919 the index of factory output was 147 and the index of factory employment was 129. By 1927 output had risen to 170 and employment had sunk to 115. In 1928 American farmers were using 45,000 harvesting machines and with them had displaced 130,000 farm hands. Motor car output per man had increased during the same period by 210 per cent.

Similarly it would be absurd to contend that human necessities, much less human desires, are fully met. The existence of a poverty problem face to face with an unemployment problem and side by side with a marvellously effective production system ought to direct our attention unfailingly to the fact that it something that stands in between consumption and production which is the cause of our difficulties. There is only one thing which stands between production and the desire to consume and that is the ability to pay, in other words, money, and thus it is to the money system we must look for the source of our troubles

Now the simplest method of obtaining a physical conception of the situation is to regard the money system and the price system as a double-entry system of book-keeping. Every article which is produced has a price attached to it, and somewhere on the opposite side of the account there should be a sum of money capable of moving each and every article out of the production system into the consuming system. Since money is the mechamsm by which the consumer gives orders; no money, no order; no order, no delivery; and ultimately, no delivery, no production. Having this conception firmly fixed in your minds, you will see at once that if the total amount of money available on one side of the account is less than the total amount of prices on the other side of the account there must be something remaining unsold always. Now the reasons why the amount of money on the consumers' side of the ledger is always less than the collective amount of prices of the goods which that money ought to buy, are complex, but the two more important ones, which in themselves are quite sufficient to account for the difficulty are (1) the double circuit of money, which has been dealt with by me under what is called the "A plus B theorem," and (2) the reinvestment for production, of money which is obtained by the production of goods for consumption.

These two, while not identical, are to some extent interlocked, and are not very suitable for explanation verbally, so I have arranged to
have upon sale a short leaflet which explains them, and I will merely ask you to accept from me the statement which I have made above
that the collective price of goods for sale is ahlways much greater than the collective money available to buy them. This being the case,
certain very interesting and very important considerations become evident. The first of these is, that it is easy for a condition to arise in which it is impossible to obtain goods which are physically available in sufficient quantity, for lack of money which can only be obtained by making further goods, which may or may not be physically necessary. That is why unemployment without money is called "industrial depression," although unemployment with money is called "leisure" and a "high standard of prosperity." The second consideration is that, since under no conditions can an industrialised country buy all that it produces, it is forced, not by physical circumstances, but by its book-keeping system, to compete in foreign
markets with other countries suffering from exactly the same difficulty, and we have, in this artificially produced competition for a market,
which ultimately must, as a mathematical proposition, fail to absorb all its goods, the primary and overwhelmingly important cause of war. It is not too much to say that there is no single cause operating in the world to-day which is of such primary importance in a consideration of world conditions and is so fraught with the possibility of world disaster as is this disparity between purchasing power and prices. Now you may ask, as indeed many people have asked, since at one time or another purchasing power is distributed to an amount equal to the cost of any article, how is it possible that purchasing power is not equal to prices in spite of the fact that you can demonstrate that it is not? In other words, where has the
money gone to? The answer to this is quite short. It was created by the banks, and it has gone back to its creators and been destroyed. The banking system, therefore, is the core of the monetary problem, and when I say this I particularly want you to avoid making the mistake of assuming that it is the profits of the banking system which I am attacking. I think these profits are exorbitant, but they are quite unimportant in comparison wiht the disastrous effects of the system itself which the bankers operate.

Space will not permit me, nor in my opinion is it tactically desirable, to go into great detail in regard to the mechanism by which the situation can be put right, but the main principles arise directly out of consideration of the disease and are quite simple. There are three: (1) That the cash credits of the population of any country shall at any one moment be equal to the collective cash prices for consumable goods for sale in that country (irrespective of the cost price of such goods), and such cash credits shall be cancelled or depreciated only on the purchase or depreciation of goods for consumption. (2) That the credits required to finance production shall be supplied not from savings but from new credits relative to production, and shall be recalled only in the ration of general depreciation to general appreciation. (3) That the distribution of cash credits to individuals shall be progessively less dependent on employment, that is to say that the dividend shall progressively displace wages and salaries as production keeps increasing per man hour.

The relation of the first two of these considerations will be clear to you upon a careful consideration of what I have previously said. I should like, however, to add a few words in regard to the third of these, and I might premise my remarks by pointing out how completely it inverts the normal Socialist idea that there is somethmg wicked about a dividend and something laudable about a wage or salary.

From one point of view a perfect financial system would simply be a mirrored reflection of every change in physical facts of the economic
system, and the first physical fact which ought to be obvious to us is that the busmess of .production is being transferred by the labour of science and the progression of the industrial arts from the backs of men on to the backs of machinery. Now can there be anything more insane than to say that the benefits of this transference shall not be enjoyed by men at large unless they are working? But apart from this insanity it is wholly impracticable. While engineers, industialists, organisers and administrators are doing their best, as they are doing their best, to put men out of :work, or as they phrase it, to produce more units of production for less units of labour, the politician is screaming that the most important problem of the present time is the one of unemployment, and that the best brains of the country should be concentrated on the problem of finding a job for everyone. Whether or not the best brains are concentrated on this problem, the fact remains that the unemployment figures are rising daily. You wIll see, I think, without difficulty that the solution of this situation is easy if you wIll only divest it of any preconceived ideas of social morality, and turn your back on such ideas as "if a man will not :work neither shall he eat," a sentiment which in my opinion was merely a statement of fact in the conditions under which it was written and not intended to be a canon of ethics. If one imagines a state of affairs in which one man working short hours can produce all that the requirements of ten men can absorb the proper thing to do is to pick the best man for the production and issue to the other nine men tickets which will enable them to get their share of the production, or in other words, draw a dividend on it. If we do not do this, it is not the slightest use letting him produce enough for ten men, because they cannot get their share and are driven to work, not because there
is any necessity for work, but because we have not enough sense to accept the benefits which the progress of civilisation is endeavouring to
force upon us.

IV SOClAL CREDlT PRINCIPLES ^[1]

[1] Address at Swanwick in 1924. Reprinted from The New Age, November 20th, 1924.

The financial system is to the works or factory system of the world, considered as one economic unit, just as the planning department of amodern factory is of that factory. No discussion of the financial system which does not recognise:

(a) That a works system must have a definite objective.
(b) That when that objective has been decided upon it is a technical matter to fit methods of human psychology and physical facts, so that that objective will be most easily obtained.

In regard to (a) the policy of the world economic system amounts to a philosophy of life. There are really only three alternative policies in respect to a world economic organisation: The first is that the end in itself for which man exists. The second is that while not an end in itself, it is the most powerful means of constraining the individual to do things he does not want to do; e.g., it is system of government. This implies a fixed ideal of what the world ought to be. And the third is that the economic activity is simply a functional activity of men and women in the world; that the end of man, while unknown, is something towards which most rapid progress is made by the free expansion of individuality, and that, therefore, economic organisation is most efficient when it most easily and rapidly supplies economic wants without encroaching on other functional activities.

You cannot spend too much time in making these issues clear to your minds, because until htye are clear you are not in a position to offer an opinion on anyeconomic proposal whatever. In regard to (b) certain factors require to be taken into consideration.

1. That money has no reality in itself. That in itself it is either gold, silver, copper, paper, cowrie shells, or broken tea-cups. The thing which makes it money, no matter of what it is made, is purely psychological, and consequently there is no limit to the amount of money except a psychological limit.

2. That economic production is simply a conversion of one form of energy into another, and is primarily a matter of energy. It seems highly probable that both energy and production are only limited by our knowledge of how to apply them.

3. That in the present world unrest two entirely separate factors are confused. The cry for the democratisation of industry obtains at least 90 per cent of its force from the desire for the democratisation of the proceeds of industry, which is, of course, a totally different thing. This confusion is assisted by the objective fact that the chief controllers of industry get rich out of their control.

I do not, myself, believe in the democratic control of industry any more than I should believe in the democratic control of a cricket team, while actually playing, and I believe that the idea that the average individual demands a share in the administative control of industry is a pure myth.

The present world financial system is a government based on the theory that men should be made to work, and this theory is considerably intermixed with the even stronger contention that the end of man is work. I want you to realise that this is a statement of fact, not a theory. More than 95 per cent of the purchasing power expended in consumption is wages and salaries. It will therefore be seen that there are two standpoints
from which to examine its mechanism. The first considered as a method of achieving its political end of universal work, and the second as a means of achieving some other political end - for instance, the third alternative already mentioned.

Considered as a means of making people work (an aim which is common both to the Capitalist and Socialist Party politics) the existing financial
system, as a system, is probably nearly perfect. Its banking system, methods of taxation and accountancy counter every development of applied science, organisation, and machinery, so that the individual, instead of obtaining the benefit of these advances in the form of a higher civilisation and greater leisure, is merely enabled to do more work. Every other factor in the situation is ultimately sacrificed to this end of providing him with work, and at this moment the world in general, and Europe in particular, is undoubtedly settling down to a policy of intensive production for export, which
must quite inevitably result in a world cataclysm, urged thereto by what is known as the Unemployment Problem. To blame the present financial system for failing to provide employment is most unfair; if left alone it will continue to provide employment in the face of all scientific progress, even at the cost of a universal world-war, iri which not only all possible production would, be destroyed, but such remnants of the world's population as are left will probably be reduced to the meagre production of the Middle Ages.

Considered as a mechanism for distributing goods, however, the existing financial system is radically defective. In the first place, it does
not provide enough purchasing power to buy the goods which are produced. I do not wish to enter at any great length into the analysis of
why this is so, because it is always a matter of some heated controversy. I have, however, no hesitation whatever in asserting not only that
it is so, but that the fact that it is so is the central fact of the existing economic system, and that unless it is dealt with no other reforms
are of any use whatever. And the second feature of equal importance is that considerably less than the available number of individuals, working with modern tools and processses, can produce everything that the total population of the world, as individuals, can use and consume, and that this situation is progressive, that is to say, that year by year a smaller number of individuals can usefully be employed in economic production. To summarise the matter, the principles which must govern any reform of the financial system which wIll at one and the same time avoid catastrophe, and re-orientate world economic policy, along the lines of the third alternative, are three in number:

1. That the cash credits of the population of any country shall at any moment be collectively equal to the collective cash prices for consumable goods for sale in that country, and such cash credits shall be cancelled on the purchase of goods for consumption.
2. That the credits required to finance production shall be supplied, not from savings, but be new credits relating to new production.
3. That the distribution of cash credits to individuals shall be progessively less dependent upon employment. That is to say, that the dividend shall progressively displace the wage and salary.

I may conclude by a few remarks on the position of the banks, in respect of this situation. It is becoming fairly well understood that the banks have the control of the issue of purchasing power to a very large extent in their hands. The complaint which is levelled at the banks is generally, that they pay too large a dividend. Now, curiously enough, in my opinion, almost the only thing which is not open to destructive criticism about the banks is their dividend. Their dividend goes to shareholders and is purchasing power, but their enormous concealed profits, a small portion of which goes in immensely redundant bank premises, etc., do not provide purchasing power for anyone, and merely aggrandise banks as banks. But the essential point in the position of banks, which is so hard to explain, and which is grasped by so very few people, is that their true assets are not represented by the difference between a society functioning under centralised and restricted credit and a free society unfettered by financial restrictions. To bring that perhaps somewhat vague generalisation into a more concrete form, the true assets of banks collectively consist of the difference between the total amount of legal tender, or Government money, which exists, and the total amount of bank credit money, not only which does not exist, but which might exist, and which is kept out of existence by the fiat of the banking executive.

V THE GOLD STANDARD AND INTERNATIONAL EXCHANGE

It must be within the experience of most people who have endeavoured to popularise the idea of finance with which this review is associated, to find that the question of international exchange forms a stumbling block. In the case of those persons of whom, perhaps, it is most important to make converts, such as business men and others who deal practically with the everyday transactions of commerce, it is frequently possible to obtain an admission that some new conception of finance, besides being desirable, does not appear to present insuperable difficulties in regard to internal business, but is ruled out of the sphere of practical politics because of (what seems to them) the insurmountable difficulty of international trade on a basis other than that of the gold standard.

It is relevant to observe in the first place that this is exactly the idea which the upholders of the gold standard would wish to disseminate. It is fairly obvious that if you can imbue an effective majority with the idea that nothing can be done for the financial system except as the result of world-wide and international agreement, you are going to put off any considerable action for a long tune. It is convenient, though not necessarily accurate, to say that the length of time required to obtain action in regard to any fresh idea, varies directly as the square of the number of people required to be convinced, and inversely as the simplicity of the proposal, and is unaffected by its essential soundness.

But while, I think, there is reason to suspect conscious assistance to the idea that finance can only be treated as a world-wide problem, and that reform on any other basis is impracticable, there are doubtless genuine difficulties in the apprehension of the fallacy involved in this idea; difficulties which in the main arise from the conception of money, and more particularly gold, as having some fixed value in itself.

Now the theory, if theory it may be called, of a gold exchange standard is that if two articles, A and B, have prices attached to them in different currencies, those prices will vary inversely as the amount of gold which tbe currencies in question will buy, varies. That is to say, if the price of gold in English currency is £4 per ounce, the price of gold in American currency is $20 per ounce, and the price of two articles, A and B, in the respective countries is £1 and $5, a rise in the price of gold in Great Britain to £5 per ounce would mean a fall in the price of article A, if bought by United States currency, by 25 per cent, and a rise in the price of article B, if bought in British currency, by a similar amount. That is the theory, although it is very far from being what actually happens.

The first point to observe is that we are considering the interplay of two kinds of credit systems. The national currency depends for its validiity on the fact that, if tendered inside the country of origin, goods will be delivered in exchange for it: Gold, in the post war world, has been artificially elevated into a super-credit sysytem of a peculiar kind. For the individual, gold is an effective demand for currency of any country at the gold exchange rate. For the banking institution, however, gold is not merely an effective demand for currency at the gold rate, it is an effective demand for international credit to the amount of several times the face value of the gold. These considerations may enable us to get a firm idea of the tremendous power given to banking institutions by persistence in the use of gold, and on the other hand, to realise that its use is essentially unnecessary. In regard to the first, we have the astonishing situation that an ounce of gold in the hands of John Smith is worth only £5, but in the hands of the Bank of England it is worth probably £50 - a situation which obviously cannot fail to keep John Smith where he belongs from the point of view of the Bank of England. In regard to the second point, we can see from the proposal enunciated above, to the effect that a national currency derives its validity from its effectiveness as a demand for goods and services, that the problem of maintaining, the exchange value of a national currency, while eliminating the use of gold, depends on the validity in a foreign country of the given currency as a demand for the currency of the second country in question. It is easy to prove that this is ultimately dependent on the ration of unit prices to unit purchasing power in the same country. If we exclude the trade in money as a commodity in itself, the only object in buying a currency of a foreign country is in order that one may, with a currecny so bought, buty goods or settle an acoount. If this be borne in mind (and an astonishing number of people seem to lose sight of it) the value of that currency depends solely on what it will buy. In other words, if we untie a currency from the gold standard, its exchange value is inversely proportional to the relative price level of commodities in the countries concerned. The lower the price level, the higher the exchange value of the currency. This is fundamentally incontestable, and I have never, in fatc, heard it seriously contested.

If, as is suggested in the ideas that I have put forward, a considerable proportion of the credits which are created in the country are applied to the reduction of prices, then it is quite obvious that a given unit of, let us say, English currency will buy more than it would before: the ratio

is raised. Consequently a given unit of currency will find a purchaser in foreign currency at a higher price than it would before, assuming that the ordinary influences of the market were allowed free play. I do not think that if such a scheme were put into operation these influences would be allowed free play, and the first result would possibly be a wholly artificial depreciation of, say, the British unit of currency in the world exchange market--a matter which the exchange brokers could quite easily arrange. But the result of this would be that the British unit of currency, bought at less than its true exchange value in some foreign currency, would, in terms of that foreign currency, buy still more goods than even it ought to under the proposed change. The result of this is easy to foresee. In the first place, it would result in an enormous yet temporary export trade, against which competitors would have no effective weapon other than to apply the same modifications to their financial system. Secondly, in the language of the stock market, the money "bears" would be caught short of British currency, and caught short without the least possible chance of ever buying to cover, except at a ruinous loss. I am inclined to grant them sufficient intelligence to see this very quickly, and I .have no doubt at all that the almost immediate result of the application of credits to the reduction of prices in, for instance. Great Britain, would be to send the British exchange above par.

VI FINANCE AND BRITISH POLITICS ^[1]

[1] Address delivered at Westminster, February, 1926.

I. Internal

In addressing you upon the subject of "Finance and British Politics," I think it would be worth while devoting a few minutes to examining the meaning of the words of the title. I find on consulting an etymological dictionary that the word "finance" has two alternative derivations, one meaning" to pay a tax," and the other " to come to a settlement with." I think these meanings both have their interest, but they do not furnish the definition for which we are looking. Finance as it concerns questions such as national politics is often referred to as High Finance, and I would suggest to you as a definition of High Finance that it is the business, art, or science, of manipulating the money system to obtain political or economic results. Please note that it is not the money system in itself. The money system can accurately be described as a ticket system, and the relations between, for instance, the quantity of tickets issued and those which are automatically recovered through the price system, while of immense and even preponderating importance, since they afford High Finance its opportunities, are not those relations which correctly come under the description of High Finance. They are more or less automatic relations, and High Finance concerns itse1f with using this price-and-money system as it stands, to obtain varying ends. I myself, and others, have devoted a great deal of time to the money system, both in books and in speeches, which have been reprinted, and those of you who are not familiar with that, the primary aspect of the question, might perhaps consult those publications. I think it is of practical importance to keep the conception of money systems, and the use which is made of the present money system, separate, for reasons which will become apparent as we examine the subject.

The essence, however, of the existing money system is that it creates an artificial scarcity of purchasing power on the one hand, and places the power to relieve this scarcity in the hands of an international organisation on the other hand.

Let us turn now to the second half of the title "British politics." Taking the second half of the title, "politics," it is again of interest to find that there are three words, which are allied, which bear upon it; one of these is "policy" in the sense of a plan or scheme, the second is "police," which originates from a word meaning "civil government," but has come to mean the use of physical force to enforce law, and the third is again "policy," which means a warrant for money. We are familiar with the latter chielfy in connection with what we call an insurance policy. I mention these etymological derivations for the purpose of suggesting how closely connected are the words meaning Government, and those meaning money transactions.

It is common to assume, at any rate as a convention, that British Policy is the greatest-common-measure of what would be the policy of individual Britons. On the firts points I wish to make to you is that this is not true, that it probably never was true, that it is probably less true now than it ever was. The same argument can be applied to the politcs of other countries, but we are not tonight concerned with these.

Now, before proceeding further in examining divergence between so-called Britilsh Policy amd the policy of the individuals who live in Great Britain, it is worth while considering certain facts. To avoid a charge of plagiarism I may say that the whole of this address was drafted some weeks before the delivery by Mr. McKenna, the chairman of the Midland Bank, of the speech which so lucidly emphasises these facts.

It is notorious that, wiht numerically few exceptions, at the present time the individual Frenchman is richer than he ever was and more prosperous than he ever was. it is notorious that in the years 1919, 1920, and 1921 the individual German was more prosperous perhaps then he had ever been, and that since the Dawes plan was applied, Gremany is "on her feet," but the Germasn are starving. It is said at the present time that France is financially bankrupt, just as it was said in 1922 that Germany was financially bankrupt. I mention this, not necessarily to commend either the condition of affirs in France at the present time, or those which existed in germany before the so-called stabilisation of the Mark, but to point out that, even in the language of the Press, it is possible for there to be a complete contradiction between what is called the prosperity of the individual (and I mean by that, the prosperity of the great majority of individuals), and something which is referred to as National Prosperity. You will see that there is in fact a suggestion tjhat the two stand on opposite sides of an account, that the State becomes rich at the expense of the individual, or the individual becomes prosperous in proportion as he escapes from the powre of the State. And it is most significant that France, which has the weakest central Government in Europe, is making the most successful stand against financial domination. There is in fact strion reason to suggest that a prosperous and powerful Government, where theGovernment is closely connected with finance, does not be any means mean a prosperous and powerful citizenry.

At this juncture I should like to meet a probable criticism in advance. I can imagme someone saying "This is another Hidden Hand theory." Do not allow such an idea to affect your judgment of facts one way or another. Every theory of events which has any soundness must at the present time be a "Hidden Hand" theory, because events are not controlled by Voting or Parliamentary Debate, but by Finance. A theory is neither more nor less likely to be true because it appears to be romantic, nor does it necessarily involve conscious turpitude on the part of, e.g., Statesmen. If you train a man from youth, you can make him honestly believe anything, and I can assure you that there are very few "accidents" in the rise to power of public men. If you consider the influcnce of such men as the late Sir Ernest Cassel on the London School of Economics and the care taken to see that high permanent oflicials have an orthodox training, you will see how subtle this influence may be. No doubt many of you have read a short story by Mr. Rudyard Kipling, "As easy as A.B.C.," and considered it to be a brilliant flight of imagination. If there is anyone here who is familiar with the world-wide intrigue to obtain control of the Air Services of the world, and to attach them to some organisation such as the League of Nations, it will require very little emphasis to convince them that that brilliant short story was very far from being a mere flight of fancy. At the present time a much better name for the Hidden Government would be "Dollar Diplomacy," although that is by no means comprehensive.

Since the time of Cromwell, excluding the short Restoration, the financial policy of the British Government has been based on a theory of scarcity.It has been the custom in this country to suggest that, figuratively speaking, the individual only clings on to economic life by his eyelids. As time passes, I am beginning to be more and more doubtful whether this was ever necessarily true, while I am quite certain that it is not necessarily true at the present time. But if you will cast your mind back over the known periods of economic distress in this country, you will find that they are definitely traceable to financial policy in some sense or other. For instance, a serious depression stretched from the time of the Crusades to the beginning of the Renaissance and is explainable, I think, far better by the fact that the English nobles were all mortgaged to the Jews as a result of the Crusades, than in any other way. The Renaissance itself was specifically due to the opening up of the wealth of the West Indies, and the influx of gold and other treasure, as a result of the forays of Drake, Hawkins, and their confréres, combined with the isolation of British Finance from that of the Continent. The Hungry Forties were no more due to the Napoleanic Wars than the present industrial distress in this country is due to the European War. They were due to the hold which financiers, such as the Rothschilds, obtained upon this country, and the consequent passing of the Bank Act Charter and other financial restrictive legislation; and coincided with the rise of the Joint Stock Banks and the absorption of the English private banks, and they were relieved by the discovery of gold in California in 1848. A similar period of prosperity followed the discovery of gold in. South Africa. We have just been favoured with speeches from the Chancellor of the Exchequer and the Prime Minister demanding economy. Those speeches merely justify a policy which is continuous, but which has received temporary setbacks for reasons which are easily understandable, but need not detain us tonight.

This theory of scarcity is closely allied to a financial policy of money saving or its more elaborate successor, Insurance. No one can make any pretence to an intelligent understanding of the present situation who does not recognise firstly how deeply ingrained this policy has become in the methods of the British Government, and at the same time how completely divorced this practice is from any relation to physical fact, just as those two speeches to which I have referred have no justification for their demand for sacrifice.

If I have an income of £500 per annum and I save, as the phrase goes, £100 per annum of this sum, either by the simple process of putting it in a bank, or by the investment of it in an insurance policy, I decrease my expenditure by 20 per cent., and I certainly provide myself with money for use at some future time. But there is no physical saving corresponding to this money saving. In fact, owing to the interconnection of the financial system with the producing system, there is probably an actual destruction of wealth due to the fact that I do not spend the whole of my income. More goods would have been drawn from the shops, more orders would have been given to the manufacturers to replace those goods, and consequently a real ability to produce more goods per unit of time would have been created, probably by an extension of manufacturing facilities, had I spent my income. But if I save my money, only one of two things can possibly happen in the world of actualities either goods which have been produced will not be bought and will therefore be wasted, or in anticipation of the fact that I should not buy them they will never have been produced. That, I think, is an accurate description of the result of financial saving and insurance, so far as it affects the production system. I do not, of course, overlook the immense forces which impose this policy of saving upon the individual, due to the much greater importance to him of the possession of money than the production of goods.

That is merely to say that Finance has the power to impose a policy on the public, even if that policy is demonstrably anti-public in character. Notice that the effect of this is still further to reduce an amount of purchasing power which would be insufficient to buy the product, even if it were all spent.
British financial policy has become a policy of heavy taxation of the individual. Taking the present situation as being the logical culmination of this policy, a few concrete figures will perhaps put the situation as shortly as possible. Let us begin with our particular form of capital levy, the Death Duties. These range from 10 per cent. to more than 50 per cent. of the total sums devolving upon the death of the individual, and it must be remembered that while these are strictly equivalent to an individual capital levy, the sums received from this source go to swell the revenue of the current year. In other words they are a peculiar form of Income Tax ranging up to 6o per cent. Then we pay in Excise Taxes more than 1 millions sterling per annum, every penny of which goes on to the cost of the articles consumed. We pay nearly two millions sterling per annum on the matches we strike and over 50 millions per annum on the tobacco we smoke. Our motor car taxes are more than four times as heavy as any other country in the world. But it is in the Income Tax that our financiers show what they really can do, and the position is best shown by a contrast with the only other country which seriously levies an Income Tax, I mean the United States of America. In the United States of America a married man with two children, having an income of £1,000 per annum, would pay a tax of £5 5s. od. The tax under similar circumstances in England at the present rate would be from thirty to forty times as much. The taxes upon large incomes are fantastic, running up to fifty or more per cent. of the total income, where this exceeds £30,000. In the United States a married man is exempt from any tax on an income of about £500. In Great Britain he is only exempt on half that sum. Each child in the United States is the basis of an allowance of about £90 of income free from tax, in England there is a nominal rebate of £35, but owing to the peculiar way in which this is computed the allowance is really only half that. Remember that all these enormous sums have appeared in prices.
There never was a time, and there never was a country, in which so-called insurance (which if it means anything, means a defence against economic uncertainty) grew to such dimensions as exist in Great Britain at the present time. And I suppose that there never was a time, and there never was a country, in which there was such a general feeling of insecurity and economic danger. I think that this feeling of insecurity is more due to penal taxation and powerlessness to resist it than to any other single cause.
We have considerably more than a million able-bodied workers unemployed; we have a high bankruptcy rate; our railways, and especially our electric power services, are falling behind those of any other first-class power, half our shipping is laid up, and our shipyards are idle. Our housing conditions are a byword, and it is proposed to remedy them by methods which would not be accepted on the Canadian prairies. Three hundred thousand so-called Fascisti are preparing to start a civil war with about a similar number of striking coal-miners, who cannot produce coal at a profit while charging the consumer twice what he paid ten years ago, and all that we can show, I think, on the other side of the ledger, is that we have 8,6oo branch banks on most of the corner sites of the country, and the most elaborate and successful insurance offices in the world.

Consider also the Land question, which has again come to the fore as the result of the efforts of a statesman well known in connection with pheasants and mangel-wurzels. There has been a persistent attack upon the private ownership of land by the Liberal Party for the last hundred years. The Liberal Party (for many of whose ideas I have the greatest respect) has been consistently financed by the banking interests in this attack upon property, and especially in that particular aspect of it which has to do with site values. What has been the result of this attack? The answer is easy. Ninety-seven per cent. of the finest sites in this country are owned by banks and insurance offices, and the only reason that they have not got the other three per cent. is that for the moment they do not want them.
I am going to commit myself to a somewhat strong statement. Modern taxation is legalised robbery, and it is 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. I think it is most significant that every effort is made by economists of the type turned out by the London School of Economics to instill into the Labour Party that it is possible to obtain some sort of a millennium by accelerating the process of stealing. It is one of the many symptoms which make me fairly sure that there is a close connection between High Finance and the propaganda supplied to what is called revolutionary labour in every country, a connection such as has been traced between Wall Street and Russia. So far from the expression of extreme Socialism of this type being a bar to advancement in the Treasury and the great Financial Houses, it is almost a requisite to promotion.

You will quite properly feel inclined to ask at this stage of the argument: " Are you stating that the condition of affairs in Great Britain is
the result of conscious policy aiming at producing the results that we see round us, or are you merely suggesting that British financiers are incompetent ? If the former, what is the ultimate object of that policy ?

Taking all these matters into consideration, and having made it my business to observe the course of events in the United States of America, together with what information it is possible to glean in regard to Italy and Russia, I have come to the conclusion that we are witnessing a gigantic attempt, directed from sources which have no geographical nationality, to dispossess a defective democracy, and to substitute a dictatorship of Finance for it. I do not think public men necessarily agree with this, but I do not think they struggle very hard against it. They would not become public men if they did. The tactics which are being employed to further this policy must necessarily involve an attack upon all forms of purchasing power which are not gained by what is called work. It is a matter of no consequence to such a policy that an individual should receive high wages or a large salary. These can be taken from him at any time should he develop an inconvenient faculty of criticism. It is not even a matter of serious importance that he should acquire securities which are a basis of dividends, if by means of heavy inheritance taxes it can be ensured that he only acquires them by work of a specified kind. Given a sufficiently passive acquiescence in the policy which is imposed upon him, there is no reason why he should not be well fed and materially prosperous But it is necessary that he should not have(power until he has been through such a training as will ensure his docility to the hierarchy of Finance, and I may, perhaps, say that I think that the elimination of an independent upper middle class is an intermediate objective of that policy.

In my subsequent address I hope to show you legible indications of the working of this policy in international relationships, and the only line in my opinion, along which it is possible to take effective action to counter it.

II. External

It will have been plain to those who have followed the examination of the relations between Finance and Internal British Politics that the validity of the ideas involved in that action rests largely upon the acceptance of somewhat unorthodox or at any rate unfamiliar theory of world politics. I think perhaps i would be convenient at this point to state that theory.

In the first place it is suggested that the aim of national Governments are by no means the same things as the aims of the majority of individuals in the countries they are supposed to represent. Further, that these Governments are far more responsive to influence from financial sources than they are to popular influence. We might almost go so far as to say that the modern Government is quite insensible to popular influence, and that no serious change of policy is effected by a change from one party to another. This is certainly true where the subject in which such influence might desire to be exercised conflicts with the interests of Finance. A consideration of the relative progress, during a period of acute housing shortage, in the building of small houses on the one hand, and the building of branch banks on the other, will perhaps afford an example of what I mean.
It therefore becomes a matter of the first importance to find out what would be the interests of Finance in relation to the apparently conflicting interests of various national Governments, because if we can get any clear idea in regard to this, and we admit (as I have suggested we are obliged to admit) that Finance can make itself effective through any Government, and is common to all Governments, then we should be able to obtain some insight into the probable trend of international politics.
Now I think there is very little doubt that Finance has this in common with human nature. Self-preservation is the first law of