| Subject: | [socialcredit] A Mechanical View of Economics | | Date: | Wednesday, September 20, 2006 09:07:05 (-0700) | | From: | MODERATOR <socredus @.....com>
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I believe this was Douglas's first essay to be
published by Orage.
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*The New Age* January 2, 1919
A Mechanical View of Economics.
By Major C. H. Douglas.*
Elsewhere an attempt has been made to show the
dangerously false premises on which the New Unionist
Party bases all its hopes of Reconstruction. As *The
New Age* has pointed out, the keynote of the symphony
we are to play under the conduct of Mr. Lloyd George
and the industrial federations behind him is
production, production, yet more production; and by
this simple remedy we are to change from a nation with
a C3 population and many grievances into a band of
busy B’s (or is it A1’s?) healthy, wealthy, happy and
wise.
It is a simple little remedy--one wonders why we never
thought of it before. You seize any unconsidered
trifle of matter which may be lying about, preferably
on your neighbour’s territory, and you make it into
something else quite unspecified. You assert by a
process of arithmetical legerdemain known as cost
accounting that the value of the original matter,
which we may call “a” is now a+(b+cj+(d+e), “b” being
labour, “c” overhead charges, ”d” selling charges and
“e” profit, and that the “wealth” of the country is
increased by this operation in respect of a sum equal
to (b+c+d+e). With the aid of your banking system you
now create credits which show that “a” is a
+-etc.--(x+y) (where “x” is loss in trading, etc., and
“y” is depreciation) and there you are--A1.
The chief objection to this otherwise fascinating idea
is that despite a large body of most respectable and
even highly paid accountants and bankers who will
produce quantities of figures to prove that “a” has
now become (a+b, etc.) and that the wealth of the
country has been increased, etc., etc., the facts do
not, unfortunately, confirm their statements.
The power used in doing work on “a” has been
dissipated in heat and otherwise; the tools have been
worn, the workmen have consumed food and clothes and
have occupied houses, and what you have actually got
is “a" minus any portion of "a" lost in conversion; b,
c, d, e, etc., are the price paid by the community for
the increased adaptability of "a” to the needs of the
community, which price must in the last event be paid
for in effort. The question of the gain in
adaptability depends on what you produce; but payment
is inevitable.
It is not the purpose of this short article to
depreciate the services of accountants; in fact, under
the existing conditions probably no body of men has
done more to crystallise the data on which we carry on
the business of the world; but the utter confusion of
thought which has undoubtedly arisen from the calm
assumption of the book-keeper and the accountant that
he and he alone was in a position to assign positive
or negative values to the quantities represented by
his figures is one of the outstanding curiosities of
the industrial system; and the attempt to mould the
activities of a great empire on such a basis is surely
the final condemnation of an out-worn method.
While the effect of the concrete sum distributed as
profit is overrated in the attacks made on the
capitalistic system, and is far and increasingly less
important than the overhead charges added to the value
of the product in computing its factory cost, it is
the dominant factor in the political aspect of the
situation, because the equation of production is
stated by the capitalist in a form which requires it
to be solved in terms of selling price while “e” the
profit, is always a plus quantity.
Now the prime necessity of the situation, which is
world wide at this time, is to realise that in
economics we are dealing with facts and not figures;
and mechanical facts at that. The conversion of a bar
of iron into a nut and bolt and its change in price
from or 3d. to, say, 1s means absolutely nothing at
all beyond the fact that we have transformed a certain
amount of potential energy into work in the process of
changing the bar of iron into a nut and bolt, and that
an arbitrary and totally empirical measure of this
potential energy in various forms is contained in the
figures of price. The factor which gives real
character to the operation is the “inducement to
produce.”
If the object of this use of material and energy is
simply finance, we shall get a financial result of
some sort--but two real things result in any case.
First we have definitely decreased the energy
potentially available for all other purposes, and
secondly we have obtained simply a nut and bolt, in
return for a bar of iron and a definite amount of
energy dissipated.
If by wealth is meant the original meaning attached to
the word--“well-being”--the value in well-being to be
attached to our bolt and nut depends entirely on its
use for the promotion of well-being (unless we admire
bolts and nuts as ornaments), and bears no relation
whatever to the empirical process of giving values to
a, b, and c, etc.
Let us particularise: The immediate necessity as to
which all political parties are agreed is improved
housing. The financier says, “Yes, YOU shall have
money for housing as the result of building gunboats
for Chile,” thereby implying that there is a chain of
causation between gunboats for Chile and houses for
Camberwell. Not only is there no such real chain of
causation, but the building of gunboats for Chile, or
elsewhere, decreases the energy available to build
those houses, and when the total available energy is
utilised, as has been approximately the case during
the war, and may easily be so again, not all the
gunboats ever sold, no matter what the
accounting-figures attached to the transaction may
indicate in added wealth to this country, will produce
one house at Camberwell, or anywhere else. What is, of
course, common to the two is the “inducement to
produce,” but that may or may not be a sound
inducement,
The matter is really very serious. The economic effect
of charging all the waste in industry to the consumer
so curtails his purchasing power that an increasing
percentage of the product of industry must be
exported. The effect of this on the worker is that he
has to do many times the amount of work which should
be necessary to keep him in the highest standard of
living, as a result of an artificial inducement to
produce things he does not want, which he cannot buy,
and which are of no use to the attainment of his
internal standard of well-being. While the mechanism
of the process is possibly too technical for his
general comprehension, he has grasped the drift of the
situation and shows every sign of a determination to
make things interesting. On the other hand, we see a
good sound reason for the capitalist’s hatred for
internationalism; failing interplanetary commerce, he
will have nowhere to export to, and will be faced with
the horrible prospect of dividing up the world’s
production amongst the individuals who produce. In
which case a larger number of people than at present
will agree that it is possible to overproduce
gunboats. Given this situation, what will be the
result of a “strong” Coalition Government?
-
* “English Review” for December.
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A Mechanical View 
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