| Subject: | [socialcredit] The Mechanism of Consumer Control | | Date: | Saturday, September 23, 2006 13:22:29 (-0700) | | From: | MODERATOR <socredus @.....com>
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*The New Age*
The Mechanism of Consumer Control.
By Major C. H. Douglas.
[A paper read before the Sociological Society,
December 7, 1920.]
December 16, 1920
I.
No doubt, to some members and guests of this Society,
much of the subject with which we are concerned
tonight will be elementary, even if the method of
approach to it is somewhat novel; but to others to
whom the subject of Finance, which is an important
component of it, is a mysterious and incomprehensible
jungle through which they feel they could never hope
to find a way, I would make the following suggestions.
Money is only a mechanism by means of which we deal
with things--it has no properties except those we
choose to give to it. A phrase such as “There is no
money in the country with which to do such and so”
means simply nothing, unless we are also saying “The
goods and services required to do this thing do not
exist and cannot be produced, therefore it is useless
to create the money equivalent of them.” For instance,
it is simply childish to say that a country has no
money for social betterment, or for any other purpose,
when it has the skill, the men and the material and
plant to create that betterment. The banks or the
Treasury can create the money in five minutes, and are
doing it every day, and have been doing it for
centuries.
Secondly, you will hear a good deal to-night about
credit, and I would ask you to bear most consistently
in mind the two following definitions:
*Real credit* is a correct estimate of the rate, or
dynamic capacity, at which a community can deliver
goods and services as demanded.
*Financial credit* is ostensibly a device by which
this capacity can be drawn upon it. It is, however,
actually a measure of the rate at which an
organisation or individual can deliver money. The
money may or may not represent goods and services.
I would also ask you to realise that the validity of
the criticisms passed on the existing financial system
does not rest to any considerable extent on the
personal character, or the good or bad motives, of
financiers. The motives of both sides of the Irish
question, for example, may be of the most lofty, for
all that I know to the contrary, and no one would
suggest that there are not charming men on both sides;
but one can hardly say that the result of their policy
is happy, and that either side can be allowed to
pursue a policy having such results, indefinitely, and
the same line of reasoning can be applied to the
existing financial system.
Before dealing with the subject described by the title
of this address, I would therefore beg your indulgence
for a short space of time in order to review briefly
certain premises fundamental to the subject; because
it has been found that even people very familiar with
these matters are apt to raise vigorous objections
which are really based on other and inconsistent
premises unless they are placed in the limelight at
once, and as far as possible, simultaneously. If you
disagree with these premises, you will of course
disagree with our conclusions, but if you agree, and
still dislike the conclusions, I hope you will tell us
where the hiatus occurs and suggest another solution
based on them.
Categorically, they are as follows:
(1) Modern Co-operative industry (all modern industry
is co-operative) serves two purposes; it makes goods,
and distributes purchasing power by means of which
they are distributed.
(2) The primary object of the overwhelming majority of
persons who co-operate in industry is to get goods
with a minimum of discomfort, both of the right
description, “right” being a matter of individual
taste, and in the right quantity. It is not
“employment,” and it is only “money” in so far as
money is a means to these things.
If the system fails to achieve this end, it fails in
its primary object and will break up, from the failure
of the majority to co-operate.
(3) If we insist that the distribution of the goods is
entirely (Marxist) or chiefly (Capitalistic) dependent
on the doing of work in connection with the production
of them, then it follows that either, (a) it takes all
the available labour to provide the requisite amount
of goods, or (b) an increasing number of persons
cannot get the goods, or (c) goods or labour must be
misapplied or wasted, purely for the purpose of
distributing purchasing power.
We know that (a) is not true. If it were, the whole of
modern progress would be a mere mockery. But, on the
contrary, it is quite indisputable that, apart from
many other factors making for real progress,
production is practically proportionate to the dynamic
energy applied to it, and the means developed during
the past century by which solar dynamic energy (steam,
water, oil-power, etc.) has been made available to the
extent of thousands of times that due to human
muscular energy (which yet, previous to this
development, was able to secure for humanity a
standard of life in many ways more tolerable than that
existing to-day) is sufficient basis for such an
assertion. Speaking as a technical man, I have no
hesitation in saying that it is the programme of
production and not the productive process which is
chiefly at fault, and that where the productive
process is working badly, it is because of the
inclusion of unnecessary labour in it.
(b) and (c) are true, as matters of both common and
expert observation.
(4) The system under which the whole of the world, not
excluding Russia, carries on the production and
distribution of goods and services, is commonly called
the Capitalistic system, which system, contrary to
general opinion, has nothing, directly, to do with the
relations of employers and employed, which are
administrative relations. The fundamental premises of
the Capitalistic System are first, that all costs
(purchasing power distributed to individuals during
the productive process) should be added together, and
recovered from the public, the consumer, in prices;
and second, that over and above that the price of an
article is what it will fetch.
If you will give the foregoing premises your careful
consideration, you will see that the existing economic
system is breaking up, not so much from the attacks on
it, which, on the whole, are neither very intelligent,
nor very well, directed, but because of the inherent
incompatibility of its premises with the objective of
industry and modern scientific progress as a whole.
The latter, taking the objective of industry as it
finds it, endeavours, and fundamentally succeeds, in
obtaining that objective with an ever decreasing
amount of human energy, by shifting the burden of
civilisation from the backs of men on to the backs of
machines; a process which, if unimpeded, must clearly
result in freeing the human spirit for conquests at
the moment beyond our wildest dreams.
The existing economic system, on the contrary, ably
backed by the Marxian Socialist, takes as its motto
that saying which I cannot help thinking proceeded
rather from Saul of Tarsus than from the Apostle of
Freedom--“if a man will not work, neither shall he
eat”--and defining work as something the price of
which can be included in costs and recovered in price.
It completely denies all recognition to the social
nature of the heritage of civilisation, and by its
refusal of purchasing power, except on terms,
arrogates to a few persons selected by the system and
not by humanity, the right to disinherit the
indubitable heirs, the individuals who compose
society.
May I emphasise this fact before passing or to more
concrete arguments--if wages and salaries, forming a
portion of costs, and re-appearing in prices, are to
form the major portion of the purchasing power of
Society, then modern scientific progress is the deadly
enemy of Society, since it aims at replacing the
persons who now obtain their living in this way, by
machines and processes.
(To be continued.)
December 23, 1920
II.
The prevalent assumption that human work is the
foundation of purchasing power has more implications
than it is possible to emphasise to-night; it is the
root assumption of a world-philosophy which may yet
bring civilisation to its death-grapple; but one
result of it is that a man and a machine are, in the
eyes of a cost-accountant, identical to the extent
that both are an expense, a cost which must re-appear
in price, the man, however, being at this disadvantage
as compared with a machine, that he has to bear his
own maintenance and depreciation charges. Costs are a
dispensation of purchasing power; and whether you are
disciples of the ‘‘Cost” theory of prices, or of the
“Supply and Demand” theory, you must admit that
Capitalistic prices cannot be less than cost, over any
considerable period of time.
If, therefore, a portion of the “costs” of production
are allocated to machines, and yet re-appear in
ultimate prices, it is obvious that the costs
(purchasing power) in individual hands are not
sufficient to pay these prices.
I do not wish to pursue at great length this aspect of
the subject to-night, because it has been elaborated
in considerable detail in print and does not lend
itself to platform discussion. But one consideration
must be mentioned--the effect on the prices of
ultimate products--those consumed by individuals--of
the production of intermediate products--tools,
factories, raw materials, etc. While, as has just been
suggested, the flow of purchasing power to individuals
through the media of wages, salaries, and, it may be
added, dividends, is not sufficient to buy the total
price-values created in the same time, it must be
remembered that a great and increasing quantity of the
total production of the world is not bought by
individuals at all--it is bought and paid for by
organisations, national or otherwise, and is of no use
to individuals.
Now the costs of this production represent effective
demand to individuals; and the second postulate of the
present economic system is that average price =
effective demand
---------------------
goods in demand.
Consequently, the more of these intermediate products
we produce, under the present system, the higher rise
the prices of goods for individual consumption; which
is the reason why the cry for indiscriminate
super-production is both inane and mischievous. You
will see at once that if the above formula for price,
under the so-called law of supply and demand, is
correct, which I suppose is not disputed, then it is
really immaterial whether more or less goods are made,
and more or less money distributed--any quantity of
goods *less than sufficient* will absorb all the money
available. And because the Capitalistic incentive to
production is money, production stops when there is no
more money.
You will see that, firstly, the existing system does
not distribute the control of intermediate production
to individuals at all; and, secondly, gives them no
say whatever as to the quantity, quality, or variety
of ultimate products.
The distribution of purchasing power through the
agency of the present volume of wages, salaries, and
dividends thus fails to distribute the product; and,
since when distribution stops production stops, the
system would appear quite unworkable.
But we know, as a matter of observation, that,
although the grinding and groaning of the machine is
plainly audible evidence that it is working very
badly, it is working, and there must be something to
account for the fact that distribution of a sort does
take place. There are two things: export credit and
loan credit. Now I may say at once that I do not see
how it is possible to conceive of an economic system
capable of dealing with the modern productive system
in which this credit factor in the total sum of
purchasing power does not play a preponderating and
increasing part. It is far better to arrive at
conclusions of this sort inductively rather than
deductively, and I will simply direct your attention
to the present trade position in this country and in
America. There is the plant; there is the raw
material; there is labour; and there is real, though
not effective, demand; but production is decreasing
along a very steep curve.
Why? I do not suppose anyone here to-night is
guileless enough to believe that it is all the fault
of Labour. It would do the Labour extremists all the
good in the world, and might modify their policy, if
they could be brought to realise that Labour, while a
necessary factor in production, is less and less a
determining factor. The success of the various
dilution measures carried through under the stress of
war is quite convincing proof of that fact.
Nor is it Capital, in the ordinary sense of the word.
A man who has sunk large sums of money in a
manufacturing plant wants to manufacture, if he can,
because otherwise his plant is a dead loss to him.
There is no doubt whatever, and I do not suppose that
anyone at all familiar with the subject would dispute
the statement for a moment, that the present trade
depression is directly and consciously caused by the
concerted action of the banks in restricting credit
facilities, and that such credit facilities as are
granted have very little relation to public need;
that, whatever else might have happened had this
policy not been pursued, there would have been no
trade depression at this time, any more than there was
during the war; and that the banks, through their
control of credit facilities, hold the volume of
production at all times in the hollow of their hands.
You will, of course, understand that no personal
accusation is involved in this statement; the banks
act quite automatically according to the rules of the
game, and if the public is so foolish as to sanction
these rules I do not see why it should complain.
I should like, however, to emphasise this point: if
the civilised world continues to permit this
centralised, irresponsible, anti-public control of the
life-blood of production to continue, and at the same
time the possibly well-meaning but ill-informed and
dogmatic Syndicalist makes good what is in essence
exactly the same claim in the administrative field,
then the world, in no considerable time, will be faced
with a tyranny besides which the crude efforts of the
Spanish Inquisition may well retire into
insignificance.
Let me repeat--the only true, sane origin of
production is the real need or desire of the
individual consumer. If we are to continue to have
co-operative production, then that productive system
must be subject to one condition only--that it
delivers the goods where they are demanded. If any
men, or body of men, by reason of their fortuitous
position in that system, attempt to dictate the terms
on which they will deliver the goods (not, be it
noted, the terms on which they will work), then that
is a tyranny, and the world has never tolerated a
tyranny for very long.
There is, I think, a widespread idea that if agitators
would only stop agitating, and reformers stop trying
to reform, the world would settle down. For myself, I
am quite convinced that both agitation and reformism
are merely symptoms of a grave and quite possibly
fatal disease in our social and economic system, and
that unless an adequate remedy is administered there
will be an irreparable breakdown. I am emphasising
this lest anyone should imagine that mere
laissez-faire or, on the other hand, a vigorous
suppression of symptoms is all that is necessary to
cause things to “come right.’’
The roots of this disease, then, are as follows:-
(1) Wages, salaries, and dividends will not purchase
total production. This difficulty is cumulative.
(2) The only sources of the purchasing power necessary
to make up the difference are loan and export credits.
(3) All industrial nations are competing for export
credits. The end of that is war.
(4) The major distribution of purchasing power to
individuals is through the media of wages and
salaries. The preponderating factor in production is
improving process and the utilisation of solar energy.
(5) This latter tends to displace wages and salaries
and the consequent distribution of the product to
individuals. The credit factor in purchasing power
thus increases in importance and dominates production.
(6) This production is consequently of a character
demanded by those in control of credit and is capital
production.
(7) The fundamental derivation of credit is from the
community of individuals, and because individuals are
ceasing to benefit by its use it is breaking down.
(To be concluded.)
Dec. 30, 1920
III.
If you have followed me so far you will see that there
are two main and increasing defects in the present
system--it makes the wrong things and so is colossally
wasteful, and it does not satisfactorily distribute
what it does make. The key to both of these is the
control of credit.
I should like to direct your attention to the meaning
which can be attached to the word “control.” We talk
about the “public” control of this, that, or the
other. Is there any person in this room who has ever
met the public, or knows, in any clear-cut, tangible
fashion, this alleged entity, the public, or
really--if he or she is honest in the use of
words--cares a broken rush about the public? Is it the
public which wants better houses, better food, a wider
life? I think not. When there is “unemployment” it is
John Smith, Jane Smith, and the Little Smiths who
experiment with rationing. When there is a war it is
Private, Lieutenant or Colonel Smith who loses an arm
or whose wife places a wreath on the Cenotaph. I have
not noticed that the name of the Public appears in the
casualty lists of any of the nations, engaged in the
late war.
I do not suggest for a moment that there is not a real
group-consciousness--I think that there is such a
consciousness. But the ills from which we are
suffering do not take effect on that plane of
consciousness, they take effect on individuals; and
if, as I have tried to indicate, the key to the
solution of those ills is to be found in a modified
control of credit, then that modification must be in
favour of individuals. We can, I think, safely leave
the group-consciousness to look after itself.
The problem, then, is to give to individuals such
personal control of credit as will enable each of
them, for himself or herself, to get from the machine
of civilisation those things, now lacking, to the
extent that the machine is capable of meeting the
demand, and the answer is almost childishly simple--it
is contained in the proposition that he ought to be
able to buy those things with the money at his
disposal, and that if he does not want to buy them,
then he should not be made to pay for them.
If you will consider this matter in the light of
everyday conditions in the world of business, you will
find that the practical steps necessary to embody
these principles in a practical mechanism resolve
themselves into two groups--the control in the
interest of the consumer of the credit issued to
manufacturers, in order that those things shall be
made which the ultimate consumer wants made--because
the ultimate consumer should be the sole arbiter of
the policy of production, though not concerned with
the processes by which his policy is materialised;
and, secondly, that the credit, or purchasing power,
in the hands of the consumer shall be adequate to
enable him, if necessary, to draw on the maximum
resources of the productive organisation; otherwise,
it is clear, a part of those resources is ineffective.
As we have previously noticed, individuals in the
modern world obtain their purchasing power through
three sources--wages, salaries, and dividends. This
purchasing power is taken away from them through the
medium of what we call prices, and it will be quite
obvious to you that the first thing necessary is to
make total purchasing power equal to total prices, a
proposition which has no other known solution than by
the addition of a credit issue to purchasing power.
That is to say, we must give the consumer purchasing
power *which does not appear in prices.*
Please remember that prices contain not only
production costs, but capital costs, and these latter
are the increasing factor in both costs and prices. If
we take them out of prices and distribute them as
purchasing power, then prices bear the same relation
to costs as does consumption to production. You will
see that this is so if you remember that capital
charges. represent sums based on the credit value of
tools, etc.
But, of course, this results in speedy bankruptcy to
the producer who is selling under cost, unless we go a
good deal further.
It must be borne in mind that, though we find that we
require to eliminate these credit-capital charges from
prices, the credit-capital is a real if intangible
thing, and can be drawn upon, because tools,
processes, solar power, etc., represent a real
capacity to deliver goods and services. Therefore
there must be something somewhere which stands in the
position of trustee for the collective credit, and
should administer it in the interests of the
individuals. There is such an organ--it is the
Treasury.
But the Treasury does not in normal times deal with
manufacturers, it deals with the banks, and the banks
are so-called private institutions which administer
this collective credit for their own ends, and those
ends are by no means similar to the ends of the
community of individuals from whom the credit takes
its rise.
If, therefore, we wish to solve the first half of the
problem, that of the control, in the interest of the
consumer, of the credit issued to manufacturers, we
have to put control of the policy of the banks at the
disposal of the consumer interest.
If, at the same time, we wish to ensure that the
goods, when they are produced, are distributed amongst
the individuals in whose interest, ex hypothesi, they
were made, we have to get the credit purchasing power
which attends the capacity to make and deliver them
into the hands of those individuals. We can deal with
this latter problem in two possible ways--either by a
gift of Treasury “money” obtained by a creation of
credit, or by reducing prices below cost to the
individual consumer, and then making up this
difference between price and cost by a Treasury issue
to the producer. I hope you realise that the only
basis for such a credit issue is the difference
between what the productive organisation is called
upon to deliver and what it could deliver if its
capacity were stretched to the utmost.
The latter of the two foregoing alternatives is, I
think, by far the more practicable, because it not
only delivers the purchasing power at the moment that
it is wanted--at the moment of purchase--but it is
also far better adapted to the psychology of the
present time. It is the method which has been embodied
in the suggestions which Mr. A. R. Orage and I have
been endeavouring to bring to the notice of the public
in the Draft Scheme for the Mining Industry.
This scheme has been fairly widely discussed, both
here and in America, but there is one feature of it
which will perhaps bear a little elaboration--the
obvious traversing of all accepted Socialist policy in
the provision not only for the continuance of
dividends to present shareholders, but the wide
extension of those dividends to still more
shareholders. I will not take up your time with the
philosophic basis of the proposal, although it has
such a basis; but would merely draw your attention
once again to the quite undeniable fact that there is
simply not room in economic industry--by which I mean
industry financed from public credit--for more than a
small and decreasing fraction of the available labour.
The attempt to cram all this human energy into a
function of society which has no need of it is neither
more nor less than lunacy. But we have to recognise,
as a matter of common sense, that to throw a large and
inexperienced section of the population out of its
usual pursuits suddenly, and without preparation, and
with more spending power than it has the training to
use, might have a number of unpleasant consequences. I
do not believe for one moment in all the nonsense
talked about work and drink being the only
alternatives of the British working-man--it is a gross
calumny; but a smooth and rapid transition stage is
desirable, and that is provided in the scheme by the
increasing substitution of wages by dividends. When
this process had proceeded far enough we should have
defeated also one of the worst features of the present
system, which is unable to distribute goods made and
stored, without making more goods, whether these are
required or not, merely for the purpose of
distributing purchasing power. You will no doubt ask
what are the prospects of such a scheme as we are
considering.
Well, in the first place, it has to be observed that
the uncoordinated parts of it are coming into being
with tremendous rapidity and, to those who have eyes
to see, with irresistible momentum. In this country it
is quite obvious that not only cannot the public debt
(all issues of securities, whether to so-called
private companies, local authorities, or Governmental
bodies, are public debt fundamentally) be reduced, but
the business of the country cannot be carried on for a
month without a continuous increase in it. The
immediate effect of an attempt to restrict the flow is
a slump in trade and an avalanche of business crises,
which is only just beginning, but which will, unless I
am very much mistaken, or war provides an alternative,
proceed to lengths quite sufficient to establish the
principle.
The mechanism is being forged. The Brotherhood of
Locomotive Engineers in America has, on the first of
this month, opened the doors of the first of a series
of banks whose credit rests fundamentally on the
railway services of the American Continent, not on the
cash in the vaults of the bank. The Confederation
General de Travail is about to inaugurate a bank with
a nominal capital of 25,000,000 francs on the same
lines. These are the beginnings of the shifting of
control.
The operations of these organisations will, in the
first place, assist in raising prices--in fact, by
enormously enhancing the economic power of Labour,
will tend to raise them considerably. But as the
toothache is the only agency which will drive the
majority of people to a dentist, there will be posed
thereby a plain issue--and to that issue I do not know
any other reply than that I have endeavoured, so far
as time has allowed, to put before you.
(The End.)
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