| Subject: | [socialcredit] From The New Age | | Date: | Thursday, September 14, 2006 14:38:20 (-0700) | | From: | MODERATOR <socredus @.....com>
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The following important essay is excerpted from "The
New Age" of October 2, 1919.
"The New Age" under the editorship of A. R. Orage,
from May, 1907, through April, 1922, has become
available for free online from the Modernist Journal
Project at
http://dl.lib.brown.edu:8080/exist/mjp/mjp_journals.xq
This series contains the full text of Douglas's books,
*Economic Democracy* and *Credit-Power and Democracy.*
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Towards National Guilds.
[In the present series of Notes we have in mind the
scheme already several times referred to for bridging
over, without social catastrophe, the interregnum
between Capitalism and Economic Democracy.]
One of the neatest pieces of analysis made in our time
is the demonstration of Major C. H. Douglas that "the
sum of the wages, salaries, and dividends distributed
in respect of the world's production is diminishingly
able to buy that production at the price which the
Capitalist by his system is forced to charge"
("English Review," August, 1919). Various
consequences, it will be seen, follow of necessity
from the proposition--if, indeed, it cannot now be
regarded as an axiom. Let us set some of them out in
simple form:
(1) There must always be a surplus of production over
consumption, since consumption, as represented by the
purchasing-power of wages, salaries, and dividends, is
always less than production as measured in price.
(2) The surplus is an increasing surplus. It
increases with the "economy of Labour"; for the
economy of Labour consists in *reducing* the sums
disbursed in wages and salaries while *increasing* the
product. Wages, salaries, and dividends are thus less
and less able to purchase the product of their
industry in the exact proportion that their industry
becomes more and more economically organised.
(3) This surplus, which cannot be absorbed by wages,
salaries, and dividends, must nevertheless be disposed
of somehow, somewhere. Since it cannot be consumed at
home--the purchasing-power distributed in respect of
production being insufficient to buy it--it must be
either exported or wasted--that is, destroyed. If
exported, it enables its owners to put another country
into debt to them--that is to say, it is "loaned" to
foreign countries, the interest being credited to the
exporting capitalists. Its destruction, on the other
hand, is by means of waste and other forms of luxury
or sabotage.
(4) The competition of our own "surplus" and the
"surplus" of other manufacturing countries for
"foreign markets" leads, however, in the long or short
run, to war. War, in fact, results from the
competition of ever-increasing "surpluses" for an
ever-diminishing market.
(5) Since the *difference* between the sums dispensed
in wages, salaries, and dividends and the Price
charged for the product is the true origin of the
"surplus," it becomes necessary to consider *how* the
Price is fixed, *why* it exceeds the purchasing-power
of the wages, etc., dispensed in the production of the
goods so priced, and what should be done to remedy the
discrepancy.
(6) The how and the why are one and the same thing.
Prices are fixed by the Cost of Production plus
Profit.
(7) In that Cost of Production, however, is included a
Cost which is not actually dispensed in wages,
salaries, or dividends--the cost, name, of "overhead
charges." Overhead charges represent an element in
the cost of production which is not dispensed as
purchasing-power in any form whatever. It is included
in Price, but it is not included in the sums dispensed
in production. It is a book-debt that is presented in
the *figures* of production, but is not actually paid
to anybody.
(8) A costing system which includes this item is,
therefore, bound to result in a Price beyond the
ability of the sums actually disbursed to pay.
(9) To enable wages, salaries, and dividends to
purchase the product of their labour without leaving a
surplus it is necessary, therefore, to eliminate this
item from Cost as at present determined. In other
words, Price must be fixed *below* Cost as now
reckoned.
(10) A just Price would be one that enabled the
producers to purchase the whole of their product or
its equivalent--counting as producers the whole
community.
(11) This can be arrived at (a) by selling below Cost
as now reckoned, or (b) by changing our costing-system
so as to eliminate the element of book-keeping.
(12) Both these, in the end, work out to the same
thing; namely, a transfer of overhead charges to a
credit account separated from the current trading
account of Consumption and Production.
(13) Let it be granted that "overhead charges" are on
credit account, since they have to do with the
estimate of the ability to produce. They represent,
therefore, transactions of credit, and are of such a
nature that they can be separately balanced.
Regarding an industry as a single business, its
"overhead charges" can be set against its credit
account in the following form: To Credit--all the
economy involved in the services rendered; to
Debit--all the charges entailed by the same. The
balance-sheet of the mere *Credit* of the industry is
separate from the current trading account; and the
latter, in fact, should take no cognisance of it. By
this means, the Cost of overhead charges being
eliminated from final Cost of Production. *Prices*
could be reduced to pure Cost--that is to say, the
cost represented by wages, salaries, and dividends.
(14) Under these circumstances, a country so
industrially organised would require, as it were, two
sets of books: one representing its Credit (that is,
its ability to produce), and another representing its
actual Consumption and Production. The element of
Credit would be kept separate from Price, with the
consequence that Price would approximate to current
Cost, and this Price would be purchasable by the sums
actually dispensed in production.
(15) The object of Production is to produce for
Consumption. But if the sums dispensed for the
purposes of Consumption are insufficient to absorb
Production, the purpose of Production is defeated.
The means to enable us to consume what we produce is
the fixing of Prices in accordance with the sums
actually dispensed in the course of Production.
Prices must be fixed, therefore, by the ratio of our
consumption to our productive ability. A just Price
is that which enables Consumption to equal
Production.(16) As Consumption is to Production, so
must Price be to Cost. If Consumption and Production
are equal, Price and Cost will be equal. If
Consumption is less than Production, Price will be
less than Cost. Price will thus *increase* with the
increase of the ratio of Consumption to Production;
but it will *decrease* with the decrease of
Consumption relatively to Production.
(17) Under these circumstances, an increase in
Production would immediately be reflected in a
decrease of Price, which would have the effect of
increasing Consumption. Similarly, a *decrease* in
Consumption would be instantly reflected in a
*decrease* of Price.
(18) Since the aim of Price is to enable us to consume
all we produce (in other words, to maintain a balance
between Consumption and Production), Prices should
*rise* as Consumption threatens to overtake
Production, and *fall* as Production threatens to
exceed Consumption.
(19) The Costing system is one thing, the Pricing
system is another. We must keep them separate.
Costing concerns Production, Pricing concerns
Distribution or Consumption.
(20) The aim of a sensible Productive community is to
distribute fairly over the whole community the cost of
production in (a) expenditure of energy and (b) the
depreciation of raw materials and machinery. The
accounts of Production are concerned with these two
factors only.
(21) The aim of a sensible Distributive community, on
the other hand, is to distribute equitably over the
whole community the sum of the commodities produced,
and this can be effected by Price.
National Guildsmen.
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