Read "Us, the living", from Robert Heinlein, i.e. social credit from C-H Douglas.
A. HAMILTON M'INTYRE, Esq., C.A.
WILLIAM BLACKWOOD AND SONS LTD.
By A. HAMILTON M'INTYRE, ESQ., C.A.
(Being a Lecture delivered to the Glasgow Chartered Accountants Students' Society on Wednesday, 13th November 1935.)
SOCIAL CREDIT is a comparatively new idea. The first formulation of this new idea in public by Major C. H. Douglas was in 1918, so that Social Credit is now some seventeen years old. This is by no means a hoary age for a new idea. Some of our greatest ideas have taken a hundred years before they were generally accepted. The opposition to a new idea is well described by the German philosopher, Goethe:--
"If anyone advance anything new which contradicts, perhaps threatens, to over-turn the creed which we for years have respected and have handed down to others, all passions are raised against him and every effort is made to crush him; people resist with all their might; they act as if they had never heard nor could comprehend; they speak of the view with contempt, as if it were not worth the trouble of even as much as an investigation or a regard, and thus a new truth may wait a long time before it can make its way."
Even a suggested change of a comparatively slight character meets with tremendous opposition. For several years before the war the late Mr William Willett advocated a method of dealing with time, which method was finally put into use early in the war and has remained in practice ever since. For several years Major Douglas has been advocating a method of dealing with money, which method may be put into practice in the near future under
the stress of some occasion which might quite well also take the form of a war. People who remember the reception given to Mr Willett's proposals regarding Daylight Saving will recollect that the chief opposition came from those people who regarded time as being something fixed by God, and who predicted that if the clocks were changed, terrible disasters would occur and heaven would be revenged on us for daring to interfere with time. We have learned now, however, that you cannot destroy time by putting back the clock nor increase time by putting it forward. We can only set up a condition whereby people freely make use of time to the best advantage.
In a similar way, the opposition to Major Douglas's proposa1s chiefly comes from those people who think that the present money system is of God, and that any alteration of it will bring down on our heads the wrath of the heavens; but just as the planets still stayed in their courses after the Daylight Saving Bill was passed, so in some future time to come the world will still revolve round the sun--even after Social Credit legislation is in force. People will then have learned by that time that you cannot save energy by accumulating money, nor lose energy by destroying money.
The remedial proposals of Social Credit are formulated in principle, not in detail, and the main principles involved are:--
(1) The opening of a National Credit Account. This principle is based on the conception of Real Credit, which I will refer to later.
(2) The second of the main principles involved is the Price Assistance Scheme, sometimes referred to as the Just Price or the Scientific Price. This is based on the axiom that the cost of production is consumption.
(3) The third main principle involved is the payment of a National Dividend, which is based on a true conception of modern machine power, allied with a realisation of the part played in production by what is called the Cultural Inheritance.
These proposals are based on an analysis, and it quite naturally follows that if the analysis is wrong, the con-
structive proposals are wrong. It also follows that discussing the proposals with anyone who does not accept the analysis or know the analysis is merely a waste of time. The Douglas analysis is to be found in the Social Credit literature, which is now stocked by all leading booksellers and is open to study by anyone interested.
The remedial proposals are based on an analysis or diagnosis, and the diagnosis arises from a consideration of the symptoms of disease. The proposals, the analysis or diagnosis, and the distinguishing of the important symptoms from the non-important, are all part of what is called Social Credit. Just as in medicine, a lasting cure can only be prescribed from a recognition of the real underlying disease as opposed to a mere attempt to get rid of the symptoms of the disease, so, in the economic body, all proposals which merely aim at abolishing the symptoms and thus mistake the symptoms for the underlying disease are doomed to failure.
I do not propose to-night to make any detailed examination of the remedial proposals or of the analysis. What I wish to do is to draw your attention to some of the fundamental ideas which lie behind the analysis. This involves some consideration of the symptoms of trouble and some weighing up as to whether the apparent troubles are the real disease or only symptoms arising from that real disease. Without consideration of these basic ideas, it is almost impossible to understand Social Credit, and the trouble with those people who say they oppose Social Credit seems to be chiefly that they have not given consideration to the basic ideas behind it. The ideas concerned belong to a type of mind such as is characteristic of an engineer, as opposed to the type of mind which is characteristic amongst bankers, stockbrokers, and accountants, and it seems to me that it is only by a very serious consideration of these underlying ideas that the accountant, for instance, can overcome the handicap of his professional training and make any progress with the study of Social Credit.
Let us consider, for a start, the engineer's attitude to the economic problem as a whole. He has a very clear idea that the fulfilling of economic wants is fundamentally a question of producing material things--food, clothes, houses, &c. Life is lived by expending energy, and that
energy must be replaced, and the human body, which produces the energy expended in life, requires food, clothing, and shelter .
At this point it is of advantage to consider the theory of maldistribution. The modern or engineering mind looks at this theory that the poor have to go short of needs and desires because the rich have too much, and the modern mind sees that there is no realistic foundation for this theory at all. The man whose income is £20,000 a year does not consume two hundred times more food than the man whose income is £100 a year. The rich man probably eats little or nothing more of the necessities of life than the poor man. The power of the productive system to produce food is not diminished in any real sense by the existence of the rich. The rich man may build himself a house with a hundred rooms, but again the powers of the productive system to build houses for the ordinary man are not thereby diminished to any appreciable extent. The rich may clothe themselves in a multiplicity of garments, but the cloth mills and tailors are still unemployed. The engineer, therefore, sees that there are no physical difficulties whatever in the economic problem, which, let us remember, is a problem of producing material things in the form of food, clothes, and shelter. He sees, in fact, that material wealth which has already been produced for the purpose of satisfying economic needs is actually being destroyed.
To the engineer's question, "Why should such goods be destroyed?" he receives answers to the effect that the destruction is done in the interests of price, and he is told that unless industry can recover its costs through prices, industry will cease, and, therefore, economic needs will be no longer met. This is not the engineer's first introduction to financial difficulties. In the course of his career he has probably many times designed methods to achieve certain physical results, and some of his designs have been refused on the grounds of cost, and, alternatively, designs and methods which did not achieve such good physical results have been proceeded with. To the engineering mind a thing is right if it works--that is all there is to it. To the classical type of mind there are other considerations which are taken into account.
Many years ago it was really believed that if a man was
pure enough in heart he could plunge his hand into a fire without burning himself, but nowadays the proprietor of a foundry would have severe labour trouble if he tried to run his business on these lines. To an engineer, then, the right kind of machine will turn out the work irrespective of the morals of the operator.
If you have followed me so far, you will realise that to the mind of the engineer the best economic system is one which will produce and deliver to the people who require them the things required to satisfy economic needs with the minimum amount of trouble to anyone. The engineering mind, therefore, cannot accept as right schemes which advocate, say, the giving of employment or the keeping of certain sections of the people short of the things they need, while at the same time restricting production or destroying the results of previous production. The modernist, as typified by the engineer, sees two questions somewhat in the following terms:-- .
(a) Should the economic system be run with the object of producing a physical result in the satisfaction of needs and desires up to the potential of industry , or,
(b) Should the economic system be run, either to bring out a certain financial result, or to conform to certain rules of accountancy, or for a moral purpose such as to make a certain method of Government more easily managed?
If you answer the first question in the affirmative and the second in the negative, then you have a modern mind, and you will belong to the school of the new economics. If you answer the first question in the negative and the second in the affirmative, or if you fail to answer at all, then you have a classical mind, and belong to the school of the old economics.
In passing, may I say that the question of whether you belong to the old or the new school of economics will have little influence on your professional work. So far as I am able to appreciate the position, the main principles of accountancy which you have learned or are learning as applied to the individual audit would be the same whether you belong to the old or the new school, but the conven-
tions of accountancy applied to an individual business are based on the assumption that there is nothing wrong with national accountancy and nothing wrong with the money system, and therefore we get the anomalies between facts and figures in our daily experience.
It is only on a national scale that the error in the money system is apparent, and it is fairly true to say that in applying accountancy rules and conventions to a single audit of ordinary dimensions no fault is apparent, although it is quite conceivable to my mind that in dealing with a very large undertaking of such wide ramifications as, say, Imperial Chemical Industries, the basic error is bound to show signs of appearing. For example: Imperial Chemical Industries having reached such huge dimensions, it is extremely probable that continued expansions of the share capital will be required at approximately the same rate as profits are earned.
The first basic idea which I wish to deal with is the idea of credit. Credit, of course, is belief or faith. The schoolboy's definition of faith is said to have been "Believing in something which ain't true," but I think the Pauline definition is the correct one. St Paul described faith as "The substance of things hoped for: the evidence of things unseen."
I think it is correct to say that Major Douglas was the first writer to distinguish between two kinds of credit, which he described as Real Credit and Financial Credit. "Real Credit," he says, "is a correct estimate of the ability to deliver goods and services as when and where required." Please note it must be a correct estimate. "Financial Credit," he says, "is a correct estimate of the ability to deliver money as when and where required."
It is of the greatest importance to distinguish clearly between these two kinds of credit, and I will have something to say of the distinction later in my address. In the meantime, it is sufficient to point out that Financial Credit gives a title to draw on Real Credit, but under our present system the fact that a person or a community has a certain amount of Real Credit does not mean that that person or community has the right to Financial Credit to an equivalent amount. .All credit is Public Credit or Social Credit. The very fact that there is a community or nation means that
there is co-operation and wherever there is co-operation or association there is Real Credit. It is inconceivable that any community can exist without having this thing called Real Credit.
The extent of the Real Credit attaching to the community will depend mainly on what progress it has made in the industrial arts. The Real Credit of a progressive industrial country will be greater than the Real Credit of a more primitive community. We say, therefore, that every improvement in process is an addition to a community's Real Credit. The discovery of steam, for instance, probably had the effect of increasing potential resources many times over. During the last century or so it is estimated that the Real Credit of Britain increased more than forty times as a result of invention and discovery in the industrial arts. During the same period it is questionable if the standard of living increased as much as four times. The cause of this discrepancy in proportion will be evident to any student of Social Credit, but in the available time I cannot go into too much detail, and I wish just now to confine myself to two outstanding points of interest in a consideration of the nation's Real Credit.
During the war the Real Credit of Britain, instead of being depleted, was vastly increased, and it is a rather startling thought that the dangers and perils of war were apparently required to make that progress which was, equally apparently, stifled during peace. The explanation of this fact is, of course, that consumption does not necessarily deplete Real Credit, and may indeed augment it. A steady demand for goods has the effect of improving industrial process and resources, not of depleting them.
Incidentally, it is of interest to remember what has been said about the effect of war on our resources and what is still being said by the old school of economics. We have been, and are, told that the war made us poorer, and figures of internal and international debts are put forward as proofs of this contention. The modern mind, however, cannot be convinced by mere figures of the non-existence of material assets in the form of stone and lime and machinery when he sees these material assets with his own eyes. The modernist knows that in such circumstances it is the figures that are wrong.
The other aspect of Real Credit which requires consideration is the dual nature of the ownership. In assessing the nation's Real Credit, public and private assets are accounted, and the value of all these, together with the capitalised value of the population, makes up the Real Credit of the community as assessed in terms of money. It has, I am sure, puzzled a great many people to understand why Major Douglas suggests that private assets are part of the community's credit. To the ordinary accounting mind, a mill owned by an individual cannot also be said to be owned by the community, yet it is obvious that this is so. There is a duality of ownership in all things.
This duality of ownership has been dealt with very extensively, not only by Major Douglas and his immediate followers, but particularly by Le Comte de Serra in his book, 'Property, its Substance and Value,' which is now translated from the French. De Serra distinguishes between substance in property and value in property. He also draws distinction between static or accountancy values and dynamic or communal values. I do not intend to go into the matter in too much detail, but it is quite simply illustrated if you will consider the case of, say, a factory owner. What does the ownership of the factory amount to?
< We will suppose that the factory makes boots. The proprietor may, if he cares, make for himself hundreds of pairs of boots, but he can only wear one pair at a time. He could make boots and give them away for nothing, but this he can only do for a limited time. His real position is that he only has the right to administer the running of the factory, and he is limited in this right by his own resources unless he conforms to the necessity for achieving a certain financial result. The achieving of this financial result not only depends on his skill in management, but on general financial policy over which he has no control whatever. It is obvious that if his ownership of the mill is to be effective to him, it is necessary that the community must have sufficient money to buy the product of the factory and ultimately the factory itself. The effective ownership of the factory depends on the community having the potential ownership of the product. The titular owner has no real credit in his factory unless the community have the credit attaching to the things which the factory makes.
It is of the greatest importance to get this fact· firmly into one's mind. The cry for nationalisation of the means, of production derives its force from a complete misunderstanding of the true position which I have tried to outline. To suggest that democracy wants the factory is entirely wrong. What democracy wants, and what democracy is entitled to, is the boots which the factory makes. The fact that the titular owner of the factory sometimes gets rich by his control of the factory confuses the true position. Social creditors are willing to leave the cow under private a dministration so long as the public gets the milk.
Let us now consider the word 'Money.' In our economic classes we are taught that money is a medium of exchange, a standard of value, a store of wealth, and a standard of deferred payments. Now, in any strict sense, money fulfils none of these functions at all. The days of money as a medium of exchange are long past. When the days of commodities individually produced and exchanged had passed, the days of money as a medium of exchange passed with them. The real nature of the modern system is that it is a synthetic assembly of output of machines operated by power and requiring continuously less operation by human operators. Money is, and should be, a system of numbers or accounting, a kind of numerical system represented by tickets whereby everybody draws from a pool of wealth created by industry.
Consider money as a standard of value. There is really no such thing as a standard of value. To refer to it is like referring to speed in distance without any relation to time. Money might be called a measure of relative accountancy or static value, but never a standard of value.
Is money a store of wealth? Ask anyone who .has been marooned on a desert island whether his money was any use to him. The individual who has a pocketful of money has thereby access to wealth in the hands of other people, provided the other people will accept his money, but that does not mean that money is a store of wealth. If you consider money on a national scale, you will realise the true value of it. It is simply a ticket. Perhaps it might be described as a universal ticket. In the same way as a railway ticket is a limited ticket, or a theatre ticket is a limited ticket, money is a universal ticket, the possession
of which gives one the right to acquire anything, including limited tickets.
The fourth function of money was given as a standard of deferred payments. All that I wish to say about that is, that if money under the conditions obtaining during the last thirty years is a standard of deferred payments, it is a very poor standard indeed.
One of the most common fallacies of economics is that money is wealth, and the first thing necessary to an understanding of the position is to eradicate that idea from one's mind. I cannot do better than use the words of Major Douglas himself:--
"Money has no reality in itself. In itself it may be either gold, silver, copper, paper, cowry 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 psychological limit."
What makes money is the belief in it by the community, and all value attaching to money is created by the community's belief. I shall be referring later to the monopoly of credit, by which is meant that the present-day banking system has abrogated to itself the control of money, with consequences which are of a very far-reaching nature.
Mr G. K. Chesterton, in his inimitable style, refers to the position in the following words:--
"The main mark of modern government is that we do not know who governs, de facto any more than de jure. We see the politician and not his backer; still less the backer of the backer; or (what is most important of all) the banker of the backer. . . . Throned above us all, in a manner without parallel in all the past, is the veiled prophet of Finance, swaying all men's lives by a sort of magic and delivering oracles in a language not understanded of the people. . . . Yellow journals talk a great deal about Red troubles. They ask indignantly where the Communist money comes from. But does anybody know where any money comes from?"
As an illustration of what Chesterton refers to as the delivering of oracles in a language not understanded of the people, I choose an extract from the address delivered at the meeting of the British Association·for the Advancement of Science in 1933 by Professor J. H. Jones:--
"Without pausing to consider the case for bimetallism, I venture to express the belief that the restoration of the gold standard is necessary to the progress of the world. . . . In the first place, it would be folly on our part to return to gold until we knew precisely the rate of exchange that would enable international trade to be distributed in the manner determined by real costs of production. The new rates should be determined by purchasing power parities. We are not yet agreed, however, upon the precise meaning ·of purchasing power parity, neither do we possess the information that would enable us to estimate purchasing power parity, howsoever defined."
After a slight pause to enable you to recover from the sense of awe and reverence which I am sure you must have felt by listening to the voice of the oracle, I would like you again to tune in your ears to common-sense.
Let us consider two words in everyday use--the words, 'Value' and 'Cost '--two words which are used very loosely and are often interchanged. They are probably the most difficult words in economics.
We can appreciate certain values without any great difficulty. First of all, there is such a thing as accountancy value. We prepare balance-sheets of businesses, and sums of pounds, shillings, and pence are shown in these balance-sheets opposite certain assets and liabilities. In almost every case the value has a different meaning, although they are all stated in the same terms. In the case of goodwill, for instance, the sum may mean that that is what the accountants think it is worth, or it may mean that that is what was paid for it, or it may mean that that is what you hope to get for it. Its basis is, more or less, an accountancy convention. Take the figure appearing opposite plant and machinery--it may be that the sum shown is what was paid for the plant and machinery; it may be that it is the
result of conventional accountancy over a period of years writing down depreciation at conventional rates; it may be, in reality, over-valued or under-valued.
Take the asset, sundry debtors--this means that some person, or number of persons, are under obligation to pay to the business certain definite sums of money, whether in cash or cheques or contras or in any other conceivable way. Generally, it means that you anticipate getting certain papers from these debtors with certain figures on them, which will, in turn, be accepted by your bank, and these figures will be marked up to your credit in your bank pass-book. Broadly speaking, the assets in any balance-sheet can be divided into two groups--ascertained values and indefinite values. The ascertained values, subject to minor exceptions, have relation to past or future bank lodgments, and the unascertained values have relation to price fixing. The point which I wish you to observe at this stage is that all such values belong to the realm of accountancy values. They have nothing to do with value in any realistic sense.
There is another kind of value which has relationship, more or less, to accountancy values, but which differs from them in many ways and which again has little or no relation to real value. I refer to the value which is arrived at by demand and supply. This value is related to scarcity, and the penalties which can be enforced because of that scarcity. If I wish to cross a river it would seem that the first requirement is a boat, the real value of which is its use in transporting me. In our present society, however, the value of the boat is linked up with the question of how many boats there are available, and the monetary penalty that can be imposed on me for using the boat varies inversely with the number of boats.
The realistic value of anything is its use value, which I have already touched upon in dealing with Real Credit. The value of a personal belonging, like a suit of clothes, is quite easily realised in the use one derives from it, but then one does not dream of selling one's suit of clothes. It is quite clearly understood that its use is derived from the destruction of its substance.
The same condition applies to business assets. The real value is derived from the destruction of the asset, and such
use value goes ·to the community. From the accountancy point of view, however, and rightly so, the administrator of the business asset derives only an infinitesimal fraction of such use value from its destruction, and requires to make a charge in price to recover his accountancy value. As already pointed out, this he can only do provided the community have got the money to pay the required price.
Major Douglas says that the community at no time have the necessary money to meet all outstanding prices. He has given many reasons for this position, and he has also, in dealing with this matter, put his statement in a form which has come to be known as the "A. plus B. Theorem." I do not intend in this address to deal with the A. plus B. Theorem. I am content to state that if the community have the money necessary to pay the prices required, why is it that the whole record of industrialism is a record of debt, and why is it that the total community's money, including bank deposit, does not amount to more than 2500 million, whereas debts outstanding requiring ultimately to be met must amount to twenty times that sum?
One of the causes of a deficiency as between prices and the money required to meet them is the building up of accountancy values without any distribution of money to the community. An illustration will be of interest:--
If I am an inventor and invent a machine which will do the work formerly done by five men, and such machine will cost a certain sum to produce, I can calculate how much that machine will be worth to the man who buys it. I can also estimate the number of people who will be willing to buy it, and on that basis I can put a certain price on my invention and offer to sell it for that price. We will suppose that the price is £100,000. I would call that the value of my invention. A company is floated, lays down the property and plant to produce this machine, and pays me £100,000, which I use to take up 100,000 shares in the company. The company starts to produce and sell the machine.
What the company is really hoping to do over the course of its existence is to recover all its expenditure on factory and plant, the £100,000 it paid to me, and in addition to make a profit. Every man who buys a machine from the company pays, say, £5000. What he hopes to do over the
course of a number of years is to recover that £5000 in prices and in addition make an extra profit. He hopes to do so by reducing his labour charges and increasing his output.
The points which I wish you to observe are--that the company says the value of its goodwill is £100,000, and if you disputed it they would tell you that it must be because that is what they paid for it. Each man who buys a machine would say the value of his machine is £5000 because he paid that for it. The use to which the machine is being put is to dispense with labour, and at the same time the hope of all parties in the chain is to extract from the consumer something in excess of £100,000 more than has ever been distributed to the community. Query: What is the value of the invention?
The word 'Cost' is also a difficult word in economics. It does not always mean the same thing. For instance, we might say a cup of tea in a smoke-room costs the proprietor of the smoke-room a farthing, or we might say that it costs the proprietor twopence, meaning that that is his accountancy cost after adding overhead charges. We say it costs the consumer threepence. For all these different circumstances we use the same word.
We might also say a plate costs threepence to produce, and we might invert that and say that the value of a plate is threepence--the word is used so very loosely--but the point I want to bring out here is that when we say a plate costs threepence to produce, we do not mean that three pennies have been used up and destroyed in the process of producing the plate. The term—'Cost, 3d.'--is merely a relative term, and it means that a threepenny plate stands in relation to a two-shilling golf ball, so far as its cost of manufacture is concerned, in the ratio of three to twenty-four.
Because of this, people are often heard to talk loosely about values, and you might often hear people say, for example, "that a two-shilling golf ball is eight times the the value of a plate." This would be, of course, sheer nonsense. All that one can say is that the accountancy figures which attach themselves to a plate in the course of production and sale bear the ratio of one to eight to the accountancy figures which attach themselves to a golf ball in the course of production and sale.
No money is either created or destroyed in the process of production and consumption. The man who grows a ton of potatoes does not thereby create the money necessary to buy these potatoes. He merely hopes to get for his potatoes money which had previously been in somebody else's possession. Similarly, the man who eats the potatoes does not destroy money in the process of eating them as he has parted with his money to somebody else before he got the potatoes. The point which I am trying to make is, that the words cost or value as applied to any particular thing are quite meaningless except in a relative sense. Accountancy cost may quite well include waste, and there may be accountancy value in an earthquake or a storm.
A great deal has been said and written about the enormous increase in productive capacity, and the strange thing is that the great majority of people, while paying lip service to this belief, at the same time will not accept the obvious implications which the facts raise. Orthodox economists admit productive capacity on the one hand and deny it on the other, which is just a further illustration of the admitted fact that a great many people have the facility for holding two entirely contradictory ideas in their mind at the one time.
The advent of the technologist, however, has put the matter beyond all doubt. The outstanding fact regarding the productive system is that considerably less than the available number of workers using modern tools and processes can produce everything that the world, as individuals, can use, and that this situation is progressive. That is to say, year by year a smaller number of workers can usefully be employed in production.
Adam Smith was one of the old school of economists, but there is one observation which he made which hit the nail on the head and, strange to say, seems to have been ignored by later economists. This observation was that "consumption is the sole end and purpose of all production." The Archbishop of York, William Temple; has put the matter another way. He says:--
"The Christian will have an initial sympathy with those lines of thought and suggestion which start
with the consumer, and ask how he is to be able to obtain what he desires or needs to consume because it is in consumption that the human value, the end for which all economic processes exist, is found to reside."
The object of production, therefore, is consumption. To suggest that the purpose of production is to give employment or to produce certain accountancy results is to look at the matter in entirely the wrong way. An efficient productive system, therefore, depends on an efficient consuming system. This is true in fact as in theory. Coal can only be brought to the surface efficiently if the sidings at the pit-head have been cleared of previous production. A factory can only maintain its output provided arrangements are made for taking away, without undue delay, the production of the previous week.
Now, a factory or other business organisation may be looked at in two ways. It may be looked at in its economic capacity as a producer of goods for use. From the other aspect, the 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, at the same time, a manufactory of prices or accountancy values.
In its economic aspect as a producer of goods for use, it is fulfilling its objective--the object of production being consumption. In its ·financial aspect--i.e., when it distributes wages, &c., and builds up price values--it is merely serving an accountancy purpose. It is of vital importance to draw this distinction. After years of industrialism the accountant, banker, and economist is very apt to fall into the error of forgetting the real purpose of the factory and mistaking the financial aspect of production for the true object of production.
If, then, the productive system is not giving the results expected, the aspect of it in which the fault is to be found is the financial aspect. The pertinent questions which arise are, therefore:--
(a) Does industry distribute purchasing power at the same rate as it builds up price values?
(b) Can industry continue indefinitely to distribute all purchasing power to all consumers?
(c) As all living people require purchasing power, can they all get direct employment in industry or receive enough purchasing power from industry indirectly by means of redistribution or taxation?
Reference has been made to the necessity for disposing of the product of industry if industry is to continue running efficiently. Reference has also been made to the idea of the money system being in part an accountancy method to enable everybody to draw their needs and desires from the pool of real wealth produced by the industrial system. Reference has also been made to the potentialities of the productive system being progressively greater, while requiring the labour of progressively fewer human hands. You will recollect also the aspect of industry already mentioned, one side of the financial aspect being that industry was a distributor of incomes to individuals. In all these circumstances it is easy to see that incomes cannot continue indefinitely to be derived solely from the rewards of taking an active part in production.
The dictum of St Paul to the effect that "he who will not work, neither shall he eat," while being quite sound in an age of scarcity, is no longer workable in an age of plenty. Already the productive system is slowed down for lack of customers, and the only solution to the difficulty is to realise in terms of what has already been said, that the community must have an income outside of the income derived from employment.
In a primitive community, production was largely the result of direct human effort. As progress was made in the industrial arts, the output of the productive system depended less on current human energy and more on past knowledge. In a mechanised age the accumulation of past knowledge and invention has become relatively a more important factor than current human effort.
We are all familiar with the old argument--that labour is the only producer, and labour is exploited by the capitalist. There is no substance in this complaint nowadays. If one was to take any labourer or artisan and make him dependent upon the results of purely his own labour, he would starve in a very short time. It is only when labour is in touch with tools and process that any adequate results are forth-
coming. The real division is not between capital and labour--it is between finance, on the one hand, and united capital and labour on the other.
This increasingly important factor in production, arising from past knowledge and invention in the form of tools and processes, is called by Major Douglas "The Cultural Inheritance." Who, then, have rights in the Cultural Inheritance? It is the view of the social creditor that individuals, as citizens of the community, have equal rights in the Cultural Inheritance. It is also the view of the social creditor that up till now the community has been deprived of its inheritance by the financial system. It is as if we had all been left a substantial legacy by our forebears, and the financial system, as trustees of that legacy, had kept us in ignorance of the fact that it had been left to us. The financial system as trustees has had, and still has, wrong ideas of what is revenue and what is capital, and the community has accordingly up till now been deprived of its proper life-rent. All citizens, therefore, have equal rights in the national inheritance, and this can quite easily be expressed through the payment of a national dividend of so much per head.
All production is a result of the application of energy to material, and is simply a process of converting one thing into another. Nothing is destroyed. The real cost of production is consumption.
If I take a branch of a tree and fashion it into a table leg, what is the cost of the table leg? The answer is, that the tree in the course of its growth absorbed energy from the sun, water from the earth, and certain chemicals from the air and the earth. A certain proportion of all these components was represented in the branch which I took to my lathe. After I had made the table leg I had still the same amount of wood--some of it in the form required, the rest of it in the form of shavings. The lathe was used to a certain extent which, fractionally, lessened its life. The tools I used were, fractionally, shortened by wear; I myself in the process used up energy to replace which I would require to eat a certain amount of food and drink. That was the real cost of production of the table leg, and, tracing it back, it really came from the use of the sun and the rain, my knowledge, and the knowledge of those who went before me.
Applying that view to the present-day world, we say what was the cost of producing our country as we find it to-day, with all its streets, buildings, plant and equipment, and population? The cost of it was the consumption involved up to the present time, the lives of our forebears, the sun that shone on them and the rain that fell on them, and their knowledge which they used but which they have also passed on to us, and which knowledge was not lost in the process of use, but, on the other hand, was improved.
There can be no debt attaching to anything in the physical world or the real world. Everything which is made is, in reality, paid for as it is made, and it cannot be otherwise. You cannot shoot to-day's dinner with the gun that you are going to make to-morrow. Nothing physical can be borrowed from the future. Every real thing we have has been paid for.
How does this undoubted fact contrast with what we see to-day? The whole record of production is a record of debt, and the efforts of the modern nations to-day seem to be exerted in the direction of trying to borrow themselves out of debt--a process which, you will agree, can never have a successful issue. Broadly speaking, the position seems to be that the most advanced countries have the biggest burdens of debt, and only the primitive countries are financially solvent.
There is a story told of a minor African potentate somewhere on the west coast who was visited by a delegate from the home country. After the usual inquiries about trade, &c., had been made, the delegate made some inquiry as to whether the little State had any budget deficits, and was told, "We have no deficit because we have no budget."
If you will consider for a minute the position of our own country with a national debt somewhere in the region of 8000 millions, a municipal debt which must amount to a very large figure indeed, an industrial debt represented by the accountancy values of all buildings, plant and machinery, and individual debts arising from goods and houses bought on the hire-purchase principle, you will agree with me that the total debt must amount to an extraordinary sum, and you will also agree with me that such total debt is increasing in geometric progression. It is probably no exaggeration to say that every child born in Britain to-day is immediately born into debt to the extent of £900.
It is obvious that there is something wrong, and advocates of Social Credit say that what is wrong is that the financial system which is employed all over the world does not reflect physical fact.
It is most important to remember that as money is not wealth, no financial system can ever be anything else than a system of counting, and the figures brought out under such a system of counting can only be relative to each other; but the principles underlying any financial system can have a relation to fact, and a workable financial system will necessarily reflect physical fact.
You will recollect that earlier in the course of my address I referred to Real Credit and Financial Credit. If Financial Credit was a reflection of Real Credit, then there would be little complaint against the present money system, but the present financial system does not reflect reality, although a pretence is made that it does so. The object of Social Credit is to institute a financial system which will accurately reflect what happens in reality.
Now in the real world, credit arises in capacity, materialises in production, and is extinguished in consumption. In the present money system, Financial Credit arises in the banking system, materialises as a loan, and is cancelled by the repayment of that loan. The banking system creates and destroys money according to certain rules of procedure, which for all practical purposes it has laid down for itself. These rules of procedure are not based on the principle that Financial Credit should reflect Real Credit, although a pretence is made that they are so based.
So long as these rules are not challenged, the banking system, both national and international, is consolidating its financial hegemony through what Major Douglas refers to as the monopoly of credit. Many of the world's prominent men have realised this situation in part, and many examples could be given of such realisation. It is sufficient for my purpose to quote two of these examples:--
His Holiness Pope Pius XI,: "Control of financial policy is control of the very life-blood of the entire economic body."
President Woodrow Wilson: "The great monopoly in this country is the monopoly
of big credits. A great industrial nation is controlled by its system of credit. The growth of the nation, therefore, and all our activities are in the hands of a few men who chill and check and destroy genuine economic freedom."
And now I wish to put before you for your consideration an illustration of the fact that the present financial system does not reflect physical fact, although a pretence is made that it does so. I take no particular credit for this illustrative example; it appeared in 'The Accountant' of January 1934 in an article contributed by myself. In reality, it is an adaption of one of Major Douglas's own illustrations.
Let us take the physical circumstances first:--
"If twenty men are employed on a piece of land, ten of them working in producing the necessities of life for the whole twenty, the remaining ten being occupied in building a factory, the outstanding physical cost of the factory is nothing. The men have got it by working for it. They have used up a certain amount of energy in building, which energy has been replaced by the food, &c., consumed. There has been an increase in real credit to the extent of a factory."
Let us now put this operation under financial rules and the result is quite different:--
"Assume that I employ the twenty men. I charge them no rent for the land, and I promise to make no profit out of them. Then I think you will agree that questions of land monopoly and profits do not enter into this. I employ these twenty men at £1 per week each. Ten of them, as before, provide for the living of all by way of growing food, making clothes, &c., the remaining ten build a factory. I give them all £1 a week as wages and take back 10s. a week each for the food supplied to them. We will suppose that the operation is complete in one hundred weeks. In that time I have paid out as wages £2000, and I have got back, as cost of food, &c., supplied, £1000. The twenty men have each saved £50.
"I now offer them the factory for £1000, which is
what it cost me. The workmen agree to buy, each subscribing £50, and I now have my £1000 back. I am now retired from the transaction, and I am just in the very same position in which I was at the beginning and the workmen have the factory, which they would say cost them £1000. They then proceed to run the factory between themselves. The produce of the factory would have to be priced to include the wages paid out to the small community, plus a certain sum for depreciation of the factory. This requires to be done to fulfil finance accountancy rules. It will be seen at once that none of the community have the money to liquidate the charge for depreciation, and, if they wish to charge depreciation, they will require to give themselves an equivalent amount of money, in addition to wages, before they will be in a position to buy the produce of their own factory, costed on orthodox lines."
There are three main criticisms which have been made in reply to my illustration of the small community.
The first of these criticisms was to the effect that the financier still had £2000 with which he would be able to make up the deficiency in money as compared with price. This criticism is of no value. In the first place, the conditions laid down did not necessarily mean that the financier had ever £2000 at one time. The circumstances laid down are that the financier employed twenty men and paid them each £1 per week as wages, and took back l0s. per week each for the food supplied to them, the operation continuing for a hundred weeks. Even if the men hoarded the whole of their savings, the initial capital required to finance the transaction would only be £1000. If the men banked their savings with the financier every week, the total cash required to finance the whole process was £20. As a matter of fact, the whole operation could have been carried on by pure book-keeping, in which case no actual cash would have been required at all.
The second criticism which has been made is to the effect that another factory would, or should, be in process of building, and the wages distributed for building the second factory would help to make up the depreciation on the
first factory. This criticism is also of no value, as it fails to take into account the question of how long a factory takes to make compared with how long it takes to wear out.
The third criticism which has been made is to the effect that the increased production made possible by the erection of the factory will cheapen unit prices, and, therefore, all the goods produced will be able to be sold. This is a major fallacy. If I, as an industrialist, put in a new machine which is going to double my output without any increased labour, it is quite true that my unit costs may be almost halved, but I must recover in price over the life of the new machine the full cost of the new machine, and, therefore, the total prices which I charge must be greater by the cost of the machine, although the unit price is less.
I conclude by a quotation from a speech made by His Majesty King George at the opening of the World Economic Conference:--
"It cannot be beyond the power of man so to use the vast resources of the world as to insure the material progress of civilisation. No diminution in these resources has taken place. On the contrary, discovery, invention, and organisation have multiplied their possibilities to such an extent that abundance of production has itself created new problems."
PRINTED BY WILLIAM BLACKWOOD &: SONS LTD.
--------------------------------------------------------------------- Some introductory materials to the discussion topic of this list are at http://www.geocities.com/socredus/compendium You're subscribed to this list with the email firstname.lastname@example.org For more information, visit http://www.eListas.com/list/socialcredit
Pour nous soutenir, mieux résister aux manipulations, rester unis et recevoir des nouvelles différentes et vraies, un abonnement est indispensable. Pour la Suisse, 5 numéros par année de 16 pages par parution: le prix modique de l'abonnement est de 16 Sfr.- par année (envois prioritaires)
Libellez et adressez vos chèques à:
Mme Thérèse Tardif C.C.P. 17-7243-7
Centre de traitement, 1631-Bulle, Suisse
Avec mes meilleures salutations.
François de Siebenthal
00 41 21 652 54 83
021 652 55 03 FAX: 652 54 11
La femme est, comme toujours, l'avenir de l'homme, et réciproquement.
Si qua fata sinant...:-) http://www.union-ch.com/file/portrait.wmv
http://www.m-c-s.ch/ et www.pavie.ch/mobile www.pavie.ch