| Subject: | Re: [socialcredit] From The New Age | | Date: | Friday, September 15, 2006 01:54:15 (-0600) | | From: | Wallace Klinck <wmklinck @....ca>
|
Thanks, Bill--I have copied this over to the http://groups.msn.com/
Economic-Democracy Group for the benefit of their subscribers. I
hope that the Modernist Project decides to make available later
issues of The New Age under the editorship of Arthur Brenton and
Alfred Orage also but my impression is that they consider later
series as of "less interest." The New English Weekly has valuable
Social Credit content as well. I appreciate your taking the trouble
to make this latest contribution. I copy below Douglas's short piece
"Socialism and Banking: A Reply", The Nineteenth Century, March ,
1925 and attach also a PDF.
Sincerely
Wally
Pages 384-87
THE NINETEENTH CENTURY
March, 1925
SOCIALISM AND BANKING: A REPLY
In an interesting article in the February number of The
Nineteenth Century Mr. Herbert G. Williams examines the growing
interest which is being taken in banking by the Socialist Party. He
mentions that this party is pressing for the nationalisation of
banks, and, in particular, the Bank of England; and remarks that this
movement ‘has had considerable impetus given to it’ from my book
Credit Power and Democracy, with its commentary by Mr. A. R. Orage.
Now this is a misapprehension. It is true enough that the
Socialist Party is pressing for the nationalisation of banks,
Socialist Party is pressing for the nationalisation of banks,
together with many other large undertakings, and it is perhaps true
enough to say that that party has devoted some additional attention
to this matter as a result of the book which Mr. Williams has been
kind enough to mention; but the impression that there is any
suggestion of nationalising banks in that book is incorrect.
But I do not think Mr. Williams is alone in this misapprehension, nor
do I think, on the other hand, that the fault is entirely with the
book in question. It has become a habit to regard, almost without
further examination, any criticism of the present methods by which
the business of the world is carried on as being ipso facto a plea
for the nationalisation of the industry criticised. The common
antithesis, in fact, is the so-called private administration of
business versus the so-called national administration of business.
There is room for a good deal of discussion on this question, which,
if stripped of many of the irrelevancies with which it is surrounded,
really resolves itself into a question of centralised or
decentralised administration. It is even possible that a certain
amount of industrial unrest can be attributed to questions of
maladministration, and more particularly to over-centralised
administration, resulting in a feeling of helplessness on the part of
the individual to remedy technical defects, such helplessness
producing either irritation in the case of the keener spirits, or
perhaps, more usually, loss of interest in the work in hand. So far
as this may be true, it is more prevalent in Government departments
than anywhere else, although by no means absent in such large
undertakings as the railway companies, and such attractions as
careers in these organisations offer are largely based on economic
security. Any other argument which can be deduced from them is
adverse to what is commonly called nationalisation.
But the point which I wish to make in this connexion is that the real
issue in regard to banking is only very indirectly concerned with
administration at all. It may be put in this way.
Whether banks are nationalised or whether they are administered on
their present quite efficient lines, the matter with which they deal
is public credit. This credit functions as money. The present banking
system lends credit to individuals; that is to say, it assumes a
priori that the credit with which it deals belongs to the banks. It
must be borne in mind that these loans are new money, just as truly
as though new Treasury notes were printed. The question at issue may
be quite broadly stated by inquiring whether this credit does so
belong to the banks, in which case they are correct in lending it, or
whether it arises from the organisation of individuals, which for
want of a better term we call the nation, and that therefore it
belongs to individuals in their capacity of tenants-for-life of
nationality, and is not properly lent to them, but (in order that the
business of the world may be carried on smoothly) should be given to
them, the banks being paid, of course, for their valuable services as
trustees.
Now there is no practical solution, as far as I am aware, to this
inquiry along the lines of orthodox ethics, although even along these
lines it is possible to put up an unanswerable case in connection
with the basis and consequent logical ownership of the purchasing
power which bankers create. Broadly speaking, the ethics on which,
equally, orthodox finance and orthodox Socialism proceed, fail to
recognise what may be called ‘the unearned increment’ of
association.
In any case, however, the pragmatic line of attack is infinitely
preferable. If the present methods of credit control and distribution
produced satisfactory results; even if there was any probability that
the present methods could be continued without carrying in their
train a catastrophe of the first magnitude, there would be a good
deal to be said for leaving matters very much as they are. Industrial
unrest on the one hand and international politics on the other are
sufficient evidence that there can be no question of leaving things
as they are. The choice is not between stagnation and change, it is
merely between varieties of change.
A consideration of the practical side of this matter most
conveniently starts, not with the banking system, but with the price
system. Prices are the agency through which credit purchasing power
is returned to the banking system, which, as Mr. McKenna has so
lucidly explained in his addresses as chairman of the Midland Bank,
creates all but an insignificant fraction of the purchasing power in
this country. Prices have two limits, the upper limit being governed
only by what the purchaser will or can pay, and the lower limit being
governed by the cost of production. Bankers and business men are very
apt to forget the lower limit of price, and this forgetfulness takes
the form of assuming that if the community’s purchasing power is
restricted, prices will indefinitely fall–a proposition which the
last few years of deflation in this country should be sufficient to
confute. The fact is that when prices have fallen approximately to
the cost of production, any attempt further to depress them by
orthodox financial methods merely arrests production and removes the
article of production from the market.
Modern productive methods depend more and more upon the use of power
and of machinery. Factory cost of production includes sums in respect
of these items, as well as costs which are incurred for wages and
salaries. In so far as the machines, etc., which go into the cost of
production of articles produced by their aid have already been paid
for, and the payments have been used to cancel bank loans, the price
of production, even without profit, is collectively in excess of the
ability of the public to pay. This matter would require more space to
deal with fully than is available at the moment, but to put it in its
shortest form, the rate of flow of prices from the producing system
is greater than the rate of flow of purchasing power, and this
difference is measured by the disparity between bank credits created
minus bank credits cancelled by repayment, and prices created minus
price values destroyed, and it will be seen that the difficulty
arises fundamentally from the necessity, under existing arrangements,
of repaying bank loans. To say, as does Mr. Williams, that the
effective bridging of this gap between collective prices and
collective purchasing power involves unlimited inflation is merely to
misuse words.
The outcome of the process of orthodox finance is a constant tendency
to what is erroneously termed over-production. In spite of the patent
need for goods and services of every kind, a need by no means
confined to the destitute classes, and in spite of the ever-growing
ability of the productive system, simply as a system, to meet this
need for goods and services, we are constantly faced with periods of
trade depression and such social phenomena as housing problems and
wheat famines, to take only two of many examples. That is to say, the
economic problem is not a technical or productive problem; it is, as
the business man would say, a selling problem, or, as the economist
would say, a problem of distribution. At the present time the
situation is partially met by the stimulation of what is probably
unnecessary and undesirable, namely surplus production for export
(over and above exported product exchanged for consumable goods) in
order that the money distributed by this means as wages and salaries,
which is mainly derived from bank credits, may be applied to the
purchase of commodities already existing in the country. This is a
process which merely consists in mortgaging future production in
order to buy present production, and at the same time raises up the
most formidable problems of international competition for export
markets.
No question of administration enters into this problem at all.
Whatever views may be held on the question of private or Civil
Service administration, so long as the system which is administered
is similar, the results of this administration will not be
substantially affected; and it is not too much to say that a grasp of
this proposition is the most formidable menace to orthodox Socialism
with which that doctrine can be confronted.
C. H. Douglas.
Sincerely
Wally
On 14-Sep-06, at 3:38 PM, MODERATOR wrote:
> 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.*
> ---------------------------------------------------------
> -------------------------------------------------------------
> ------------------------------------------------------
>
>
>
> 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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