| Subject: | [socialcredit] The Monopoly of Credit | | Date: | Monday, September 18, 2006 09:45:36 (-0700) | | From: | MODERATOR <socredus @.....com>
|
The following, courtesy of Wally Klinck, is excerpted
from *The Monopoly of Credit.* The text in this
excerpt appears identical to the earliest edition
printed some two decades earlier.
Inasmuch as international copyright law was amended to
protect the Disney and Microsoft franchises, posting
it in this extended form might well be interpreted as
being in violation of the Douglas copyrights, which a
former listmember claims to "own" through gift of some
sort from Douglas's widow.
Be that as it may, works published originally before
1922 are unquestionably in the public domain, which
includes the entirety of *The New Age* under Orage,
now made available to the entire world via the
Internet by the Modernist Journals Project.
This body of work includes the entire text of
*Economic Democracy* and *Credit-Power and Democracy.*
-
[BEGINNING]
CHAPTER IV
THE GAP BETWEEN PRICES AND PURCHASING POWER
It may reasonably be asked why a system which, on the
face of it, does not appear to have undergone
important modifications during the past hundred years
or so, has become so powerful and so oppressive. A
correct answer to this question is probably of more
importance than the solution of any other problem
before the world at the present time.
A student of the preceding pages will have grasped the
important fact that money is not made by industry.
Neither is it made by agriculture, or by any
manufacturing progress. The farmer who grows a ton of
potatoes does not grow the money whereby the ton of
potatoes may be bought, and if he is fortunate enough
to sell them, he merely gets money which someone else
had previously.
Purchasing power, therefore, is not, as might be
gathered from the current discussions on the subject,
an emanation from the production of real commodities
or services much like the scent from a rose, but on
the contrary, is produced by an entirely distinct
process, that is to. say, the banking system. Bearing
this in mind, we can understand that it is impossible
for a closed community to operate continuously on the
profit system, if the amount of money inside this
community is not increased, even though the amount of
goods and services available are not increased. This
obvious but commonly overlooked fact forms the
justification, if any, for the idea on which Socialist
policy for the past hundred years has been based--that
the poor are poor because the rich are rich. If a
number of persons continue to sell articles at a
greater price than that paid for them, they must
eventually come into possession of all the money in
the community, and the only flaw in such a state of
affairs would be that it would be self-destructive,
since in a comparatively short period of time a small
section of the community would own all the money, and
therefore the remainder of the community would be
unable to pay, and production and sale would stop.
This process probably contributed largely to the rapid
accumulation of wealth in the hands of the
entrepreneur at the beginning of the nineteenth
century, and the limited extent to which the benefits
of industrial progress were passed on to the general
population; but the profit-making system is certainly
not to any great extent responsible for the present
situation, since profits have ceased to form an
outstanding feature of business. It is an
extraordinary feature of the controversy that they are
attacked as immoral as well as undesirable. It has
never been clear to me why any man in any position of
life should be expected to perform any action whatever
which was not in some sense of the word profitable to
him, and there is more than a suspicion that the
attack upon profits can ultimately be traced to a fear
of the economic security offered by this type of
remuneration, as compared with that of the wage and
salary.
The factor which is probably at the root of the
problem is at once more complex and more subtle, and
has during the past few years been a matter of
acrimonious controversy. On its physical or realistic
side it is intimately connected with the replacement
of human labour by machine labour.
The physical effects of this replacement are not
difficult to apprehend. If one unit of human labour
with the aid of mechanical power and machinery will
produce ten times as much as the same unit working
without such aids, it is obvious that there will
either be ten times as much production or only
one-tenth the amount of labour will be required.
The productivity of a unit of human labour has
increased somewhat irregularly over the whole field of
production. In some cases the increase in a hundred
years has amounted to thousands per cent, in some
cases the increase of output per unit has been much
less. It is, however, broadly true to say that general
economic production, which may be defined as the
conversion of existing materials into a form suitable
for human use, is proportional to the rate at which
energy of any description is used in the process, and
this line of attack is probably closer to reality than
any method in which financial units are employed.
On this basis it is safe to say that one unit of human
labour can on the average produce at least forty times
as much as was the case up to the beginning of the
nineteenth century. The following examples are some
indication of the progress made in the past few years
alone.
The rate of production of pig-iron is three times as
great per man employed as it was in 1914. A workman
using automatic machines can make 4,000 glass bottles
as quickly as he could have made 100 by hand
twenty-five years ago. In 1919 the index of factory
output (based upon 1914 as
100) was 146, and the index of factory employment was
129. By 1927 output had risen to 170, but employment
had sunk to 115. In 1928 American farmers were using
45,000 harvesting and threshing machines, and with
them had displaced
130,000 farm hands. In automobiles, output per man has
increased to 310 per cent, an increase of 210 per
cent.
When we approach the question of distribution,
however, we find a remarkable discrepancy. Professor
Paul H. Douglas states in his examination of the
problem that, in the first quarter of the twentieth
century, real wages increased 30 per cent,
productivity per employee increased by
54 per cent. In 1923 production increased 38 per cent,
but consumption by wage-earners 32 per cent. In 1925
production increased 54 per cent, but consumption only
30 per cent. These latter figures compare with 1913 as
a basis.
Eliminating the pseudo-moral complications commonly
introduced into this aspect of the subject, it is
clear that certain consequences were bound to ensue.
Either the requirements of the population must
increase at the rate at which the capacity for
production increases, and at the same time the
financial mechanism must be adjusted to provide for
the distribution of the production, or a decreasing
number of persons would be required in production.
Unless the wages of this decreasing number of
individuals collectively rises to the amount which,
previously distributed to a larger number of workers,
would buy the still greater production, either costs
and prices must fall, or an increasing proportion of
the goods must be unsold to the persons who produced
them. Certain consequences, readily understood if it
be remembered that wages, costs, and purchasing power
are only different aspects of the same thing,
accompany a continuous fall in costs under the
existing financial system, and a fall of prices, while
off-setting these consequences to some extent,
involves the entrepreneur in a loss on the whole of
his stocks, a loss which he is not usually willing, or
indeed able, to take.
The first aspect of this complex situation which
demands attention is the financing of capital
production by means of the reinvestment of savings,
which, it should be noticed, is the method commonly
stated to be the proper method. It is doubtful whether
more than an insignificant proportion of financing is
done in this way, the greater part coming from new
credits supplied by banks and insurance companies in
return for debentures, but it forms the smoke-screen
which conceals the fact that public issues are in the
main acquired by financial institutions through the
medium of drafts upon themselves. The growth of
insurance has no doubt been a considerable factor in
accelerating the process. If we consider the case of a
workman earning, let us say, £5 per week, who saves £1
of this and at the end of a hundred weeks subscribes
for shares in a new manufacturing company, the effect
is not hard to trace. The original £5 per week was
wages paid to the workman, and these wages were, by
the orthodox costing system, debited to the cost of
the articles produced by his employer. Eventually, due
to his saving, these articles cannot be sold, as a
simple arithmetical proposition shows, since he has
taken 20 per cent of the necessary purchasing power
off the market. His investment of this 20 per cent we
may assume results in the manufacture of machinery in
which his £100 again appears as wages. Assuming that
no physical deterioration has taken place, or that the
goods have not been exported, the 20 per cent
deficiency in the first cycle of production has now
been restored, and the original goods could be bought.
But the machinery which has been made in the second
cycle of production is now a charge on further
production for which no purchasing power whatever
exists. This proposition may be generalised as
follows:
Where any payment in money appears twice or more in
series production) then the ultimate price of the
product is increased by the amount of that payment
multiplied by the number of times of its appearance)
without any equivalent increase of purchasing power.
With this fundamental proposition in mind we are in a
position to take a more generalised view of the defect
in the price system which is concerned with the double
circuit of money in industry, and which has become
known as the A plus B theorem. The statement of this
is as follows: In any manufacturing undertaking the
payments made may be divided into two groups: Group A:
Payments made to individuals as wages, salaries, and
dividends; Group B: Payments made to other
organisations for raw materials, bank charges, and
other external costs. The rate of distribution of
purchasing power to individuals is represented by A,
but since all payments go into prices, the rate of
generation of prices cannot be less than A plus B.
Since A will not purchase A plus B, a proportion of
the product at least equivalent to B must be
distributed by a form of purchasing power which is not
comprised in the description grouped under A.
Now the first objection which is commonly raised to
this statement is that the payments in wages which are
made to the public for intermediate products which the
public does not want to buy and could not use, when
added together, make up the necessary sum to balance
the B payments, so that the population can buy all the
consumable products. But an examination of the diagram
on page 37 will show that this is not a satisfactory
explanation. If we imagine consumable products to be
produced in five stages, each stage taking one month,
a product begun in January will be finished in May. We
can regard the first four stages as capital
production. It is irrelevant that in the modern world
all of these five processes are taking place
simultaneously and that the product may be found in
any of the five stages at any moment. It is still true
that you cannot bake bread with corn which you are
simultaneously grinding.
Consider the nature of these B payments. They are
repayments collected from the public of purchasing
power in respect of production not yet delivered to
the public. If the wage-earners in process "I" use
their current month's, i.e. May's, wages to buy their
share of one current month's production of consumable
goods, they are using money distributed in respect of
production which will not appear as consumable goods
till October. They are in fact involuntarily
reinvesting their money in industry, with the result
previously explained. When we consider the increasing
sub-division of process–and in "process" we may
include the using of machine-tools, buildings, and the
general plant of the country-it will readily be
understood that this period shown as five months in
the diagram may easily cover many years.
As the economic system may be said to depend upon this
matter, it is essential that a clear understanding of
it should be obtained.
Let us imagine a capitalist to own a certain piece of
land, on which is a house, and a building containing
the necessary machinery for preparing, spinning, and
weaving linen, and that the land is capable of
growing, in addition to flax, all the food necessary
to maintain a man. Let us further imagine that the
capitalist in the first place allows a man to live
free of all payment in the house and to have the use
of all the foodstuffs that he grows on condition that
he also grows, spins, and weaves a certain amount of
linen for the capitalist. Let us further imagine that
after a time this arrangement is altered by the
payment to the man of £1 a week for the work on the
linen business, but that this £1 is taken back each
week as rent for the house and payment for the
foodstuffs.
Let us now imagine that from the time the flax is
picked to the time that the linen is delivered to the
capitalist, a period of six weeks elapses. Obviously
the cost of the linen must be £6, and this will be the
price, plus profit, which the capitalist would place
upon it. Quite obviously only one-sixth of the
purchasing power necessary to buy the linen is now
available, although "at some time or other" all the £6
has been distributed. It should also be noticed that
the arrangement is a perfectly equitable arrangement.
The employee obtains definite return for his services
in the form of bed, board, and clothes, which quite
probably he might not have been able to obtain had not
the knowledge and organisation of the capitalist
brought together housing, flax, food, and machinery.
In other words, the problem disclosed is not a moral
problem, it is an arithmetical problem.
Let us now imagine that half of the employee's time is
devoted to making a machine which will do all the work
of preparing and manufacturing linen, and that the
manufacture of this machine takes twelve weeks. We may
therefore say that the machine costs £6, the total
value of the production of machine and flax being
still £I per week. At the end of this period the
machine is substituted for the man, the machine being
driven, we suppose, by the burning of the food which
was previously consumed by the man, and the machine
being housed in the house previously occupied by the
man, and being automatic. The capitalist will be
justified in saying that the cost of the operation of
the machine is £1 per week as before, and if there is
any wear, he will also be justified in allocating the
cost of this wear to the cost of the linen. It should
be noticed, however, that he will now not distribute
any money at all, since it is obviously no use
offering a £I note a week to a machine. He will merely
allocate this cost, and once again the allocation will
be perfectly fair and proper, but no one will be able
to pay the price, because no one has received any
money.
In the modern industrial system, this process can be
identified easily in the form of machine charges. For
instance, a modern stamping plant may require to add
600 per cent to its labour charges to cover its
machine charges, this sum not being in any true sense
profit. In such a case, for every £1 expended in a
given period in wages, £6, making £7 in all, would be
carried forward into prices. Although this is an
extreme case, the constant, and in one sense
desirable, tendency is for direct charges to decrease
and for indirect charges to increase as a result of
the replacement of human labour by machinery. There is
no difference between a plant charge of this nature
and a similar sum repaid as a " B" payment. The
essential point is that when a given sum of money
leaves the consumer on its journey back to the point
of origin in the bank it is on its way to extinction.
If that extinction takes place before the extinction
of the price value created during its journey from the
bank, then each such operation produces a
corresponding disequilibrium between money and prices.
For these causes and others of a similar character, it
seems to me quite beyond argument that the production
of such a quantity of intermediate products, including
plant, machinery, buildings, and so forth, as is
physically necessary to maintain a given quantity of
consumable products, will not provide a distribution
of purchasing power sufficient to buy these consumable
products. This would be true even if prices and costs
were identical. But since prices can and do rise much
above costs, additional purchasing power from
intermediate production is rapidly absorbed.
To say that at some time or other the money has been
distributed is in the nature of a general assertion
which does not bear upon the specific fact. The mill
will never grind with the water that has passed, and
unless it can be shown, as it certainly cannot be
shown, that all these sums distributed in respect of
the production of intermediate products are actually
saved up, not in the form of securities, but in the
form of actual purchasing power, we are obliged to
assume what I believe to be true, that the rate of
flow of purchasing power derived from the normal and
theoretical operation of the existing price system is
always less than that of the generation of prices
within the same period of time.
There is another method of regarding this matter which
is helpful to the grasp of an admittedly difficult
subject. Suppose that the wages, salaries, and
dividends distributed were exactly sufficient to buy
the new production on sale at any moment and did so
buy it, i.e. let us suppose that the financial system
worked as it is supposed to work. Obviously numbers of
things would be bought, such as houses, furniture,
etc., which would have a considerable life. But ex
hypothesi the sale between consumers
(as distinguished from sales from producer to
consumer) of these would be impossible-they would have
no money, since at the moment of transfer of the goods
from the producing to the consuming system their money
value would have disappeared on its journey back to
the bank, to finance a fresh cycle of production.
Sales between consumers are an important though
frequently overlooked factor in distribution, and
require that the money value of "second-hand" goods
shall be in existence until the goods have physically
disappeared.
It may, with reason, be asked how, if this be so, is
it that in fact consumable products are sold at all?
The answer to this is again complex, but the main
forms in which assistance is given to the defective
purchasing power of the population (although that
assistance is much less than is required to enable the
production system fully to be drawn upon) are the
redistribution of money through the social services
such as the so-called dole, the use of money received
from the sale of exports, from foreign investments and
from invisible exports such as shipping, redistributed
through the medium of taxation, the distribution of
bank loans (advanced on mortgage, debentures, ete.) in
wages for excessive capital production, and the
selling of goods below cost through the agency of
bankruptcies, forced sales, and actual destruction.
These latter three are a direct discouragement to
production, and in fact represent a subsidy in aid of
prices from private sources, a conception which it is
desirable to bear in mind in considering remedies, in
view of the fact that, so far from this subsidy
raising prices, it comes into operation only by the
lowering of prices.
It is also clear that the longer the average period
over which money is collected in respect of the
creation and destruction of a capital asset (which
corresponds to the "life" of an asset), and the
shorter the average period over which money is
collected for day-to-day living on the part of the
community (which corresponds to the "life" of
consumable goods), the greater will be the discrepancy
between purchasing power and prices.
[END OF EXCERPT]
__________________________________________________
Do You Yahoo!?
Tired of spam? Yahoo! Mail has the best spam protection around
http://mail.yahoo.com
|
The Monopoly of Cr
Reply to this message