Thirteen Years of Progress
A Review of the Official Labour Party Publication,
"Socialism and Social Credit," 1935
By A. HAMILTON McINTYRE, C.A.
AUTHOR'S NOTE
In writing this review of "Socialism and Social
Credit"--a Report issued by the Labour Party last year
and priced at twopence--I have had, first of all, to
consider whether the subject should be dealt with at
length or whether it should be disposed of in as short
a manner as possible. Was it worth while to deal with
the pamphlet, as it were, page by page, or should the
method to be adopted be one of putting down the
fundamental ideas of the authors of the pamphlet with
regard to the matters under consideration, and then,
shortly, contrasting these ideas with the fundamental
ideas of the Social Credit movement?
My decision was taken in favour of dealing with the
matter at some length, following fairly strictly the
order of the Report. Whether or not the adoption of
such a method makes the review more interesting I
leave to the reader. The method obviously has
disadvantages, but these are possibly outweighed by
the ease with which the reader may deal with the
Report and this review concurrently.
INTRODUCTORY
It is stated that the Report was prepared by a
subcommittee at the request of the National Executive
Committee. Nothing is said about its submission to the
Labour Party Conference at Brighton early in October,
1935, but it is understood that it was submitted to
that conference and was adopted. The following extract
is taken from the introductory note to the Report:-
"The Report deals fully with Major Douglas's 'Social
Credit' proposals and the National Executive Committee
associates itself with the Subcommittee's conclusions
on this subject." (Page 3, line 4.)
The subcommittee consisted of three members- E. F. M.
Durbin, Hugh Gaitskell, and W. R. Hiskett - each of
whom had, previous to their appointment, repeatedly
expressed their antagonism to the Social Credit
proposals. I think it is true to say, however, that no
one of them, in criticising Serial Credit, has ever
given much indication of having really studied the
main principles involved. Their criticisms have been
directed largely against what is known as the A + B
Theorem.
Mr. Hiskett, from one point of view, might be called
the most logical critic of the Social Credit
contentions regarding the gap between purchasing power
and prices. He, at any rate, realises that if he is
not going to accept the A + B Theorem he is logically
compelled to postulate a condition of affairs where:-
"The total volume of money is sufficient to purchase
at one time all final products awaiting sale or in
process of manufacture, all raw materials and
semi-manufactures and all the machinery for future
production at its present value after allowing for
depreciation." ("Social Credits or
Socialism."-Gollancz, 1935.)
The committee state their purpose in the following
terms:-
"What is the Douglas Scheme? How does it compare with
Labour's policy? Are there any points of agreement
between them? What are the points of disagreement, and
why?" (Page 6, line 4.)
As to how far the committee have endeavoured to carry
out their avowed purpose I will leave the reader of
the Report to judge. It is probably agreed that they
have searched for all points of agreement; but have
they made any effort to find out and disclose in the
Report what the vital points of disagreement are, and
why? In view of the composition of the committee, one
naturally expects the Report to be an attack on Social
Credit, and so it is rather amusing to find that the
Report begins by setting forth the alleged "Points of
Agreement."
FIRST POINT OF AGREEMENT?
The first matter about which there is said to be some
agreement is connected with the deficiency in
purchasing power. It seems to me the committee suggest
that Douglas maintains that there is a chronic
deficiency between total purchasing power and RETAIL
PRICES, or prices of goods for immediate consumption.
This is illustrated by a statement in the Report that
in boom periods there is a surplus of purchasing power
over prices. This, the committee seem to think,
disposes of Douglas's case that the money system is
never self-liquidating.
What the committee do not seem to grasp or,
alternatively, are quite determined to ignore, is that
the Social Credit case is that purchasing power is
never equal to TOTAL PRICES when both are regarded as
a flow.
If purchasing power was chronically unequal to meet
the prices of consumable goods on the market at the
time, the system obviously would not last for very
long.
The true position may be put thus:-
(a) The rate of flow of purchasing power will be,
almost certainly, less than the rate of flow of prices
of CONSUMABLE GOODS when the rate of production of
intermediate and capital goods is slackened.
(b) The rate of flow of purchasing rower will, almost
certainly, exceed the rate of flow of prices 0F
CONSUMABLE GOODS when the rate of production of
intermediate and capital goods is accelerated.
(An inflationary rise of price and the investment of
excess profits must be mentioned here--it is embraced
in the A + B Theorem.)
(c) The rate of flow of purchasing power will always
be less than the rate of flow of TOTAL PRICES. One
might possibly add here a proviso to the effect that
this may not be so during momentary periods of
wholesale bankruptcies and losses. Even then, however,
the deficiency will only be deferred.
Industry must recover its bad debts out of future
prices, and losses must be restored by future profits.
In other words, bankruptcies and losses are themselves
a cost against the future.
That the committee hold, or pretend to hold, the idea
that Douglas alleges a chronic deficiency between
purchasing power and prices of goods for consumption,
is further illustrated by the following quotation:-
"During the boom, he (Douglas) admits the gap is
temporarily filled, but only by the creation of
additional debt to the Banks. This is. to Major
Douglas, evidence of deficiency." (Page 9. line 2.)
The above is rather an extraordinary comment.
Commonsense would indicate that industry does not get
into debt unless it is unable to pay its costs from
its income, so that the fact of a creation of an
additional debt to the banks should, in all
commonsense, be evidence of deficiency. Yet the
committee seem to think that this particular statement
of theirs strikes a mortal blow at Social Credit.
SECOND POINT OF AGREEMENT?
The second point of agreement is stated to be the
common objection to destruction and restriction
schemes as a cure for economic depression. This is a
point of agreement, without doubt, but the Report goes
on to say that "both Socialists and Social Crediters
recognise the schemes for what they are--monopolies
which aim at holding up prices and squeezing the
utmost from the consumer." (Page 9, line 31.)
I should hesitate to say that this sentence expresses
a point of agreement. There is just a subtle
distinction which illustrates the difference in
.outlook between a Socialist and a Social Crediter.
The Socialist sees in the situation the results of
greed, extortion, profit, and so on. The Social
Crediter sees the results of faulty arithmetic. The
Socialist sees an evil Capitalist extorting money from
the worker. The Social Crediter sees a harassed
business man trying his best to square his accounts.
THIRD POINT OF AGREEMENT?
The third point of agreement is stated to be a common
attitude to certain moral aspects of the banking
system. Reference is made to bank credit functioning
as money and the power of the banks to create and
cancel money. The Report then goes on to say:-
"These facts were not discovered by Major Douglas.
They are to be found in all orthodox writings on the
subject and are clearly stated in the pages of the
Macmillan Report, but Major Douglas and other monetary
reformers have certainly popularised them better than
the Text Books and have also pointed to certain
implications which tend to be slurred over in more
orthodox accounts." (Page 10. line 9.)
I am sure this paragraph must have given the committee
much thought in its composition. Major Douglas, I am
certain, would make no claim to being the first man to
have discovered the facts, but he is entitled to claim
that he published the facts and drew certain
conclusions from them in 1918. The facts were
certainly contained in textbooks prior to that
date--for example, H. D. McLeod's--but the conclusions
from the facts had not, so far as I know, been drawn
until Major Douglas's first publications. To suggest
that the Macmillan Committee had any share in
pioneering is merely laughable. The phrase "certain
implications which tend to be slurred over" is, I
think, worth a second thought. Apparently the
committee have also "slurred over" them.
THE NATIONALISATION COMPLEX
The Report proceeds, at some length, to consider the
Socialist conclusions from these facts regarding our
banking system, and it is obvious that the committee's
whole outlook is coloured by the nationalisation
complex. There is no suggestion made at all that even
if the banks were nationalised the methods used in
accounting the public moneys would be changed. The
complaint, according to the Socialist outlook, is
entirely that such powers are in the hands of private
persons or institutions. That no change of method is
contemplated is evident, I think, from the following
extract:-
"That such great powers--of special significance now
that the money system of this country is not tied to
others through the Gold Standard--should be exercised
by bodies which are legally beyond the control of the
Government, is an anachronism as dangerous as it is
absurd." (Page 10, line 32.)
I am not at all sure what interpretation is intended
to be given to this sentence, but the only conclusion
I can come to is that the committee would not see so
much harm in the condition described if the Gold
Standard was in operation. This shows quite clearly, I
think, how much they have misunderstood the true
position. That the committee are suffering from the
complex I have suggested is further confirmed by the
concern they show over the profits which the Bank of
England makes. Pointing out that the profits of the
Issue Department fall to the Treasury, they seem to
think that so far as the Issue Department is concerned
that problem is disposed of; but they also point out
that since credit is not less money than cash and bank
credit is quantitatively of much more importance
"there is a strong moral case against the exploitation
of credit creation for the purpose of making private
profits." (Page II, line I.)
All the above shows clearly that the committee have
not concerned themselves with the method of issue and
cancellation of money, but rather with the titular
right to create money and the profits accruing from
such right. It is quite fair to suggest that if the
committee had their way and the banks were
nationalised, the same methods of issuing and retiring
money would still be in operation and the essential
problem, therefore, would be no nearer a solution. An
admission is made in the Report that expenditure on
public works can be carried out only by incurring
further debt, thus burdening future taxpayers with
interest and sinking fund payments. The Report
states:-
"Simply because the right of creating new money does
not belong to the State. the necessary impetus to
recovery cannot be given." (Page II, line 26.)
One is left wondering how, if the right to create new
money belonged to the Labour Party, they would account
it. There is nothing in the Report, so far as I am
aware, to show that they would account it as anything
else but debt, nor that they would not insist on its
recovery via taxation. It is true that this point is
dealt with to a certain extent on page 32 of the
Report, but it is stated that where debt is not repaid
out of taxation it is only a temporary expedient and
the quantitative issues of such credit will not be
large.
Before coming to their criticism of the Social Credit
analysis the committee make the following statement:-
"It is most unlikely that the full Social Credit
proposals could be applied without either producing
inflation or making it impossible for the Banks to
exist in their present form." (Page II, line 34.)
This statement is used as an argument for
nationalisation. It is quite carefully worded. If we
amend the terms of it a little, I think most Social
Crediters would agree with it as follows:-
Social Credit proposals cannot be applied within the
present money system. They can be applied only in a
changed money system and such change involves a change
in the policy of the banks and the Treasury.
It is merely childish at this time of day to say the
Social Credit methods would cause inflation. Social
Credit could not be applied within any system which
permits of inflation.
The committee of the Labour Party is simply up to the
old game of criticising Social Credit in terms of
orthodox finance.
THE A + B THEOREM
The second division of the Report is stated to be a
criticism of the Social Credit analysis, and early in
this section the A + B Theorem is quoted. This
theorem, it is said, is the central argument on which
Major Douglas bases his conclusion. I would suggest
that this is entirely wrong, and that the A + B
Theorem is the method by which Major Douglas
illustrates his conclusion.
According to the committee of the Labour Party, the
suggestion seems to be that one day Major Douglas
discovered the A + B Theorem and the rest of the
analysis followed. However pretty the mental picture
conjured up by such a suggestion, I am afraid that
idea must be discarded.
The A + B Theorem is merely a condensed method of
stating facts which were discovered by independent
means.
In Major Douglas's first published book, "Economic
Democracy ," the A + B Theorem does not appear.
The committee having decided to deal with the A + B
Theorem, it is a pity, to my mind, that they could not
quote it correctly in their Report. They state:-
"A factory, or other productive organisation, has,
besides its economic function as a producer of goods,
a financial object." (Page 12,line 34-my italics.)
While it is true that productive organisations have a
financial object under the present system, that is
precisely what the Social Crediter says is wrong. The
correct statement of the A + B Theorem begins by
saying:-
A factory, or other productive organisation, has,
besides its economic function as a producer of goods,
a financial aspect, which is an entirely different
matter.
The Report proceeds to examine the A + B Theorem in
its different interpretations. I do not intend to deal
with these at length, as they have already, to my
mind, been ably dealt with by Mr. A. W. Joseph in a
pamphlet called "The A + B Theorem."
Broadly speaking, the Report ignores the facts of
accumulation of financial capital and involuntary
investment and, therefore, its arguments against the
theorem are weak. I will, however, deal with a few of
the higher lights in this section of the Report.
Under the division headed "Repayment of Bank Loans"
the Report says:-
"Now it is certainly true that if on balance
throughout the whole of industry loans are repaid to
the Banks, a deficiency of purchasing power is bound
to arise...The question here is simply one of fact. Is
there a tendency for the total of Bank loans to
diminish? The answer is, that at certain times--during
depressions--this is the case, but at other times the
total of loans definitely expands." (Page 16, line 5.)
Further on in the Report it is stated:-
"Equally, if a firm is voluntarily repaying a loan out
of profits, and the Banks do not immediately create
another loan to another producer, then again
deficiency is bound to arise, but as we have already
said, the question here is really one of fact and the
facts show no general and chronic tendency for the
total of Bank loans to diminish." (page 17, line 9.)
The argument here is not very clearly stated, but I
think it is fair to assume that the committee admit
that repayment of bank loans charged into prices and
appearing, therefore, as profit, do create a
deficiency of purchasing power, but that such
deficiency is corrected by the banks issuing further
loans to other producers, and, therefore, so long as
total bank loans do not show any sign of diminishing,
there is no deficiency.
In my opinion, this illustrates the fundamental
difference between the views of the committee and the
views of the Social Crediter. Social Crediters
realise, as the committee apparently does not, that
these further bank loans to other producers have got
to be repaid, and, therefore, do not correct the
admitted deficiency--they merely postpone it.
The committee evidently do not see that bank loans
repaid may undergo a metamorphosis and become
securities or reserves which still remain a charge
against the ultimate consumer.
It is surely obvious that industrial debt and national
debt, requiring ultimately to be met and forming a
charge against the consumers (admittedly unpayable
under the present system), are not to be measured by
the increase in bank loans. While bank loans have on
balance probably diminished since 1920, Government,
municipal, and industrial debt has increased in
fantastic proportions. The committee's failure to see
this arises from the fact that they ignore
accumulations of financial capital in considering the
A+B Theorem.
A little later in the Report it is stated:-
"It is, in fact, the policy of the Labour Party to
stabilise prices; and prices can only be stabilised,
when production is increasing, if there is an adequate
increase in the quantity of money." (Page 17, line
3B.)
It seems to be clear from this statement that the
committee look on stabilisation as having some
miraculous quality, and it is also clear that they
regard the volume of money as being something which
should control prices which again goes to show that
they have not understood the principal Social Credit
contention, which is that the money system must no
longer be used to control prices through the so-called
law of supply and demand. Prices should be controlled
by the real cost of production.
THE ILLUSIVE INVESTMENT
In three paragraphs under the sub-heading of
"Investment," the committee go on to record their
criticism of an aspect of the deficiency. They record
the views of the Social Crediter in the following
terms:-
"The act of saving withdraws money from the market for
finished commodities and makes it impossible to sell a
part of the product. The money which is saved is
invested and paid out eventually in wages, and so
passes into consumers' income; but in the meanwhile,
it is argued, the process of investment has led to the
production of new capital goods and there is no
purchasing power available to purchase these." (Page
IB, line 15.)
The above statement of the Social Credit case is a
reasonably fair one, but it does emphasise the problem
as if it was entirely one of individual consumers or
workers saving actual cash from their incomes and
buying new investments. It ignores, or at any rate
does not make it clear, that the processes of saving
and investing are going on all through the industrial
system and are being carried on by producers of all
kinds in the form of reserves and undistributed
profits.
The Report goes on to say that the above stated
argument is quite unsound, for the reason that if
investment takes place concurrently with saving the
deficiency caused by the saving is balanced by the
money spent on the investment.
"It is true that if saving increases, some finished
commodities cannot be sold at their old prices, but at
the same time some investment goods, machinery,
buildings, raw materials, etc., will be sold at more
than cost prices. There will be depression in certain
industries and boom in others; less money will be
distributed in some, and more in others. Consumers'
income as a whole will be unchanged." (Page 18, line
36.)
One is left wondering what on earth the committee
meant when they wrote this. Investment goods,
machinery, buildings, raw materials, etc., are not
sold in the sense that their costs are defrayed. They
are merely transferred from one ownership to another,
the financial costs attaching to thein still remaining
to be defrayed by the only person who can defray
costs, namely, the consumer.
The following quotation, I think, shows clearly the
wrong ideas on which the committee are working. It
occurs shortly after the previously quoted extract:-
"As the new capital goods are produced, they will
continue to be bought by the savings of consumers.
They will then be used in production. This will lead
to an increase in the output of industry. If there is
to be no fall in prices, it is necessary that the
quantity of purchasing power and the incomes of
consumers should now be increased. This is, of course,
implicit in the Labour Party policy of stabilising
prices. A failure to increase purchasing power at this
point might be said to constitute a deficiency; but it
is certain that this is not the main deficiency to
which Major Douglas refers." (Page 19, line 12.)
This extract is, I think, worth a little careful
study. Take the first sentence. The suggestion that
new capital goods are bought by the savings of
consumers is nonsense if it is intended to suggest, as
I think it quite clearly is, that the costs incurred
in making these new capital goods are thereby wiped
out. If new capital goods are paid for by the savings
of consumers, the consumers who did pay for them are
now investors holding shares, mortgages, or
debentures, in the form of scrip. They look to this
scrip to bring them a return in the way of income and
ulrimately to repay to them the money originally paid
for the scrip. If consumers, as a whole, have invested
in capital goods, then they can only look to
themselves as the source out of which their dividends
are to come and out of which their capital is to be
repaid to them.
Consider the sentence above, beginning "If there is to
be no fall in prices." This again shows quite clearly
that the committee of the Labour Party think that the
volume of money should control price. One can only
assume from the next sentence that the official Labour
Party policy of stabilisation recognises that in these
circumstances there would be a deficiency of
purchasing power and that they have a remedy for such
deficiency. This remedy can take only one of two
forms. It can take the form of encouraging still
further increased production of capital goods, or it
can take the form of distributing free credit either
to the consumer or to the producer for reduction of
prices.
There seems to be no doubt whatever which of the above
two forms would be adopted by the Labour Party. It
must be the former, through which schemes of public
works or the encouragement of production of still
further capital goods would provide an agency by means
of which an increased total volume of wages would
serve the purpose of preventing too severe a fall in
the prices of finished goods.
STATIONARY EQUILIBRIUM?
The committee's arguments under the heading of
"Depreciation" are a re-hash of the old argument that
while depreciation is being charged on one factory,
there would, or should, be another factory in the
process of erection, the wages paid on the
construction of which would meet the depreciation
charged on the first factory.
It is merely another aspect of the argument about
industry being in a state described by Professor
Robbins as "Stationary Equilibrium," or, if one
prefers it, "A steady state of self-repeating
movement."
The argument takes no account whatever of the fact
that although a factory may take only one year to
build, it may take fifty years to wear out, and seeing
such an argument in print, or listening to it in
conversation, has always conjured up a vision before
my eyes in which the erection of the second factory is
carefully scheduled to take fifty years to build, in
order that the money distributed in course of its
erection will correspond to the depreciation charged
on factory number one.
SUBTLETY
The opponents of Social Credit have often said, as
indeed the Labour Party's Report suggests, that Major
Douglas in his writings is very obscure. What, then,
are we to make of the clarity of the following extract
from the Report?--
"A more subtle form of this argument maintains that
the actual change-over from labour to machines causes
a diminution of the actual monetary circulation. Since
cost reduction, it is maintained, is the stimulus to
replace labour with machines, the new costs will be
less than the old, and hence the amount of money used
by industry will be less. There are doubtless
occasions when this will be so, but it seems equally
probable that since the reduction of costs offers the
prospect of higher profits, more, rather than less,
will be borrowed by industry. Because a firm reduces
its unit costs, it does not necessarliy reduce the
total amount which it spends, i.e., its aggregate
costs." (Page 20, line 25.)
The last sentence in the above extract is, of course,
a clear statement of fact, but what the meaning, or
intention, of the paragraph as a whole is, I must
confess I do not know. Presumably this "subtle form of
the argument" is being fathered on to the Social
Credit movement, but Social Crediters will have no
hesitation in disowning it.
LABOUR SAVING
This particular section of the Report finishes up by
saying that "the real objection to the replacement of
labour by machinery" is that it "generally throws
certain workers out of employment," and that:-
"in any case it continually tends to reduce the
relative share of labour in the product and increase
the share of capital." (Page 20, line 40.)
The Social Credit proposal, as we all know, is to give
every citizen of the country a share in the capital of
the country in the form of a National Dividend, or, if
you like to look on it in that way, to make everybody
a capitalist.
But the Labour Party committee say:-
"The method of dealing with this evil is not monetary
policy, but Socialism. The community must, itself, own
the machines." (Page 20, line 41.)
It is evident, therefore, that the committee are still
unable to distinguish between titular ownership and
administration.
Incidentally, no Social Crediter has any objection,
real or fancied, to the displacement of labour by
machinery, but, on the contrary, welcomes it.
WHEN DOCTORS DIFFER
The third section of the Report is devoted to a
consideration of the Social Credit cure, and the
Report admits that this cure follows, for the most
part, quite logically from the analysis. It is
therefore rather extraordinary that, having to their
mind completely disposed of the analysis, they should
be at any trouble at all to deal with the cure.
However, actually almost seven pages of the Report
concern themselves with exposing the "fallacies" of
the cure.
This particular aspect of the matter is dealt with by
the committee in the following terms:-
"Before proceeding to consider this scheme, we must
emphasise that disagreement with Major Douglas's
analysis is not in itself an adequate reason for
rejecting his proposals entirely. It has already been
pointed out that at a time when resources are not
fully employed an increase in the quantity of money is
required. Major Douglas does, in fact, suggest one way
by which this might be provided. It remains to be seen
how far this is the best way, and also how far the
Social Credit proposals can secure not only the
achievement but also the maintenance of a high level
of production." (Page 22, line 1.)
The above paragraph confirms my previous contention
that the committee had, at the back of their mind,
some faint hope or fear--whichever way you like to put
it--that the Social Credit proposals might possibly be
operated within the present system. Having failed
altogether to consider in any adequate way the basis
on which the Social Credit proposals are founded, the
committee naturally adopt the above outlook. If the
committee had really examined the basic ideas which
are fundamental to the Social Credit proposals, and
rejected them, then there would have been no necessity
whatever for them to deal with the remedial proposals
at all.
The Social Credit proposals fall under three heads:-
(I) The setting up of a National Credit Account: This
proposal is based on a conception of Real Credit.
(2) The compensated price, sometimes referred to as
the just price, or the national discount: This is
based on the axiom that the real cost of production is
consumption, together with a realisation of the uses
to which financial credit can be put.
(3) The issue of a National Dividend: This is based on
the previous conceptions together with a realisation
of the part played in production by what is called
"The Cultural Inheritance."
The astonishing thing about the whole Report is that
nowhere in it is there any sign that the committee
have considered either:-
(a) The distinction between Real Credit and Financial
Credit.
(b) The axiom that the real cost of production is
consumption, or
(c) The idea of The Cultural Inheritance.
Nowhere in the Report are any of these three things
mentioned, and yet, as I have said, these three things
are the fundamentals of Social Credit.
With regard to (b), namely, the axiom that the real
cost of production is consumption, it is not
surprising that the Labour Party committee do not deal
with this, because, so far as I know, no critic of
Social Credit has ever dealt with this. They have all
considered it much wiser to ignore it.
STRANGE SILENCE
Assuming, for the moment, that the present mqney
system works as the committee seem to think it does:-
In any one year let us suppose that the financial
figures attaching themselves to the total production
of the country are as follow:-
Consumable goods £3,000 million
Capital goods and development £1,000 Total
production £4,000
million
Then, presumably, the committee's conception of what
happens is that people as a whole get £4,000 millions,
out of which they spend £3,000 and invest £1,000. The
question is, have the community been fairly charged?
If it is true that the real cost of production is
consumption, then. the real cost of this year's
production is only £3,000 million, not £4,000 million,
and the correct price at which the £3,000 million of
consumable goods should have been charged was-£3,ooo x
- 3,000/4,000 or £2,250 million; so that on a question
which suggests that the community as a whole are
possibly being overcharged £750 million per annum, the
Report is curiously silent.
THE DIVIDEND
The section of the Report which deals with the
National Dividend is very small. Its value as
effective criticism is even smaller. Reference in it
is made to the Draft Scheme for Scotland which should,
at any rate, suggest that the committee have studied
that scheme. On the other hand, the paragraph goes on
to suggest that it is proposed to distribute
purchasing power equal to the total capital value of
all assets.
There is, of course, no such proposal in the Draft
Scheme for Scotland. The initial National Dividend in
the scheme is suggested at one per cent. of such
capitalised value, so that to the mind of the
committee one per cent. must be equal to the total.
This short paragraph on the National Dividend
illustrates also the previous contention that the
committee have made no study whatever of the question
of Real Credit and Financial Credit. The following
extract will make this clear:-
"An obvious fallacy here lies in the fact that Major
Douglas appears always to include the capitalised
value of all assets in his estimate of production. and
even goes the length of capitalising the productive
capacity of individuals." (Page 27, line 38.) .
What the significance of the words "estimate of
production" is, in the above sentence, is one which I
am not quite able to solve. If it is an estimate of
real resources up to date, then that is one matter; if
the committee are suggesting that it is an estimate of
increase annually, then, of course, that is another
matter altogether. To illustrate the real worth of the
committee's statement, I would refer the reader to the
Scheme for Scotland: "From the Grand Total thus
obtained" (valuation in money of physical assets plus
population) "a figure representing the price value of
the Scottish Capital Account could be obtained."
By some peculiar means the committee translate "the
price value of the Scottish Capital Account into
"estimate of production."
THE ONLY WAY
The last section of the Report deals with what it
calls "The Real Solution." It is quite clear that to
the mind of the committee no change in the financial
system is required, so that from one point of view
further comment on this section should be unnecessary.
There are, however, some high lights which might be
dealt with:-
Extract (1)- "By varying the lending policies of the
Banks and thus the volume of money, it should be
possible to increase very considerably the volume of
output." (Page 28, line 24.)
Again is illustrated the conception that money and the
volume of money is to control production.
Extract (2)- immediately following Extract (1)- "The
standard of living could be made to rise slowly but
steadily as the real productive power of society grew
larger." (page 28, line 26.)
Earlier in the Report the proportion of unemployed
resources is stated at 30 per cent., so that it seems
rather extraordinary to suggest that the standard of
living requires only to rise slowly but steadily. One
would think that a 30 per cent. increase at least
would be due immediately.
Extract (3)- "In the View of the Labour Party, the
course of capitalist depression is characterised by a
deficiency of purchasing power at certain times, and
an excess of purchasing power at others." (Page 28,
line 30.)
Here, presumably, the committee are referring to
purchasing power as against consumable goods.
Extract (4)- "Only money in active circulation
provides a market for 'production and increases
employment. One method, and again a perfectly orthodox
one, of intensifying the activity of monetary
circulation is for the Government to spend more money
on capital account." (Page 30, line 33.)
The above illustrates the committee's belief in the
velocity of circulation theory which, of course, is
involved in their acceptance of control of price by
the volume of money. The extract also illustrates what
I have suggested earlier as the method the committee
advocate of making good the deficiency which they see
as between money and prices. The method, of course, is
merely to "borrow yourself out of debt." The extract
also shows that the committee think the objective of
industry is to provide employment.
Extract (5)- "No doubt there is room for further
capital expenditure on housing, but it should always
be accompanied by the kind of investment in productive
industry which will provide continuous employment at
higher real wages. The real social income must be
increased...It is not possible to persuade industry to
borrow more when it is in the throes of acute
depression." (Page 31, line 15.)
This extract again illustrates the previous statement
that the committee think that the objective of the
industrial system is employment. What real wages are,
and what the real social income is, is perhaps a
little doubtful, but there is a suggestion at any rate
that it is only real if it is the result of work. The
last sentence is, I think, of special significance.
Extract (6)- "This method, however; in so far as it
involves an unbalanced budget, is not in accord with
the Labour Party's official policy." (Page 32, line
5.)
So now Mr. Montagu Norman and his friends can sleep
soundly at nights. Their pretty little financial
system is in no danger from the official Labour Party.
At this point, one might pose a genuinely orthodox
conundrum:-
Query: When is an unbalanced budget not an unbalanced
budget? Answer: When the expenditure on public works
is funded.
Illustration: If your football team gets beaten by
four goals to two, the simple remedy is to fund three
of your opponent's goals, in which case your team has
won by
2--1, and for the next three years you start the match
a goal down.
This illustration, of course, is given strictly within
the orthodox framework of present-day finance.
Extract (7)- dealing with a suggestion made by Mr.
Thomas Johnston in connection with applying new
creations of credit to reduce the price of certain
commodities for supply to the poor--
"The difficulty about such policies is purely
psychological. They could, and would, be represented
by the opponents of financial control as dangerously
inflationary. They are nothing of the kind. They
differ in no important economic respect from the most
orthodox methods of financial reflation, but they
could be misrepresented." (Page 33, line 2.)
Apart from the somewhat loose phraseology of the
above--for example, "differing in no important
economic respect from methods of financial reflation"
it seems to me that the committee have, when they
recorded this statement, come nearer the truth of the
matter than in the whole of the rest of the Report. In
view of this, it is a pity that they chose to ignore
the fact that their own difficulty with the Social
Credit proposals is purely psychological, too. They
see in prospect, opposition to a particular aspect of
their own ideas of precisely the same nature as their
own opposition to the Social Credit idea. Whether such
opposition is the result of an honest failure to grasp
the proposals or not I leave to each individual reader
of the Report.
Extract (8)- "It will be necessary for the Government
through the machinery of central economic and
financial authorities to control the lending policies
of the Banks, the money income of the community, the
volume of saving and the volume of expenditure. It can
do these things most easily if it owns all
industries." (page 34, line 2.)
So now we know. Here is the picture of the ideal
Socialist state. Studying the extract slowly again,
one is tempted to add-- "and it can do these things
more easily still if it owns all the population."
THIRTEEN YEARS' PROGRESS
It remains now only to consider the Report in relation
to the previous Labour Party Report, which was
published in 1922, and to which Major Douglas made an
official reply published shortly afterwards.
It is interesting to note that the first Report by the
Labour Party has been allowed to go out of print and
is no longer available to the ordinary public, but
presumably it was available to the present
subcommittee of three.
One would imagine, therefore, that the committee, in
making this present Report, would have consulted the
earlier one and also Major Douglas's reply.
In his reply to the first Report, Major Douglas laid
down the four premises from which the first Labour
Report proceeded, as follow:-
(1) That financial credit is a concrete thing
conditioned by limitations inherent in itself.
(2) That banks and bankers cannot and do not create
financial credit.
(3) That the price of an article should be what it
will fetch.
(4) That the objective of the industrial system is
employment.
These were the premises from which the 1922 Report
proceeded. Does the 1935 Report show any alteration in
these premises? The answer is that the present Report
admits that banks and bankers can and do create
financial credit. It has to admit that, because it has
been proved; but obviously the implications of such an
admission have been ignored.
For all practical purposes, therefore, the premises
from which the 1935 Report proceeds are the same as
the premises from which the 1922 Report proceeded. In
his reply to the earlier Report, Major Douglas laid
down the premises of the Social Credit movement as
follows:-
(1) That financial credit is a mere device which can
have no economic significance apart from real credit.
(2) That banks and bankers can and do create financial
credit, and by successful manipulation appropriate the
power resident in the real credit of the community for
purposes largely anti-social as well as purely
selfish.
(3) That the price of an article should be that which
will get it produced and delivered in the maximum
quantity desired.
(4) That the objective of the industrial system should
be the delivery of goods and services to the orders of
individual consumers. It should not be employment, nor
is it a common aspiration of the community that it
should be designed to place any individuals whatever,
either high financiers or members of the Labour Party
Executive (however great their moral and intellectual
qualifications may be), in a position to arbitrate on
what is, or is not, useful work, and to withhold a
share in economic prosperity from "non-workers" as
thus arbitrarily defined.
The Labour Party committee, therefore had this
statement of the premises of the Social Credit
movement before them for their consideration, and I
leave to each individual reader of the Report the
question as to how far the committee have studied
these premises, and to what extent they have attempted
to shake them.
Imagine that some person put forward for your
consideration certain proposals. Would not your first
questions be:-
(a) "What are you trying to achieve, and why?"
(b) "Are the proposals you suggest going to achieve
your object?"
These questions show what might be called a
commonsense attitude to any proposals of any kind.
The question for the reader's consideration is-- "Have
the committee of the Labour Party, before rushing in
to criticise the methods to be employed, made any
attempt to find out what the Social Credit Movement is
trying to achieve, and why?"
The pronouncements of the Labour Party on Social
Credit will, therefore, in my opinion, never be of any
great value until they will make a pronouncement upon
the aims of Social Credit as distinct from the methods
advocated. However efficient the engine of a motor car
may be, it is not of much value if the bonnet is
aiming in the wrong direction.
CONCLUSION
In conclusion, I would draw the attention of the
reader to the correspondence which passed between the
Labour Party and the Social Credit Movement both in
connection with the previous Report and in connection
with the present Report.
The committee state:-
"We were anxious to have the assistance of recognised
supporters of these proposals in exploring how far
they might be harmorused with Socialist belief and
policy. We accordingly approached the Social Credit
Secretariat with an invitation to nominate a
representative who would be willing to meet us for a
discussion of matters in which we were mutually
interested...We explained that we made no claim to be
an impartial committee in the sense of having no
attachments, that we were, in fact, convinced
Socialists...We emphasised our desire to explore the
possibilities of partial agreement between the Labour
Party and the Social Credit Movement."
The above extracts and other statements of a similar
nature included in the Preface to the Report show that
the committee were trying to make their position
clear. This is quite understandable when one considers
who the committee were, but I do not think that the
arguments put forward dispose of the particular aspect
of the matter which I have dealt with above, and the
Social Credit Secretariat, quite naturally, declined
the invitation.
Somewhat the same position was disclosed in the 1921
correspondence, with the exception that no points of
agreement were alleged to exist then.
I think, on the whole, that the truth of the matter is
that the official Labour Party has never clearly
stated the premises on which it takes its stand, what
it is trying to achieve, and the methods by which it
hopes to achieve it.
It has, more or less, confined itself in its
publications to questions of administration as opposed
to questions of policy, and to questions of
morals--that is to say, expressions as to things being
right or wrong--as opposed to questions as to whether
things are workable or not workable.
In this sense the official Labour Party, it seems to
me, are more concerned with making individuals "good"
than with making them free.
Orthodox Socialism would suggest that only a limited
number of individuals can be free and that these can
obtain their freedom only at the expense of others.
The Social Credit Movement, on the other hand,
suggests that it is now possible to grant individual
economic freedom to all, and that such individual
economic freedom is socially desirable.
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