|Date:||Monday, September 24, 2007 07:59:10 (-0700)|
|From:||william_b_ryan <william_b_ryan @.....com>
We have been discussing Reginald McKenna. I just
realized that McKenna was a member of the Macmillan
Committee that questioned Douglas in 1930. This is
from a previous posting:
A couple of years ago Victor Bridger graciously sent
me a vintage copy of Douglas's presentation to the
Macmillan Committee of 1930 that was published some
years ago in Australia. I've just gotten around to
converting it into a photocopy in PDF format, an
approximately 2.5MB file which I'll be glad to email
to anyone who requests it.
Evidence Submitted to the Macmillan Committee of
Finance and Industry by C. H. Douglas, M.I.E.E.,
(Reprinted from the Official Minutes of Evidence)
TWENTY-FOURTH DAY Thursday, 1st May, 1930
Present: The Rt. Hon. LORD MACMILLAN, Chairman,
Sir THOMAS ALLEN,
The Rt. Hon. LORD BRADBURY, G.C.B.,
The Hon. R. H. BRAND,
C.M.G. Professor T. E. GREGORY, D.Sc.,
Mr. J. M. KEYNES,
C.B. Mr. LENNOX B. LEE,
Mr. CECIL LUBBOCK,
The Rt. Hon. REGINALD McKENNA,
Mr. J. FRATER TAYLOR,
Mr. A. A. G. TULLOCH,
Sir FREDERICK LEITH-ROSS, K.C.M.G., C.B.,
Mr. G. ISMAY, Secretary.
Major CLIFFORD HUGH DOUGLAS, M.I.Mech.E., M.I.E.E.
called and examined...
4461. PROFESSOR GREGORY: May I go back to the
motor-car? You say if the motor-car costs me £100 I
will get a chit, which I deposit with Mr. McKenna's
bank, and he finally deposits it with the Treasury,
and by a series of book-keeping entries 25 per cent.
of additional purchasing power is created?--
[Major DOUGLAS] That is one form of mechanism.
4462. [PROFESSOR GREGORY] That is one form of
mechanism, but I do not want to pay too much attention
to the consumers' side--what is the position of the
manufacturer? Are you assuming that the car costs the
manufacturer £100, or that it costs the manufacturer
more than £100? Is the actual cost price to the
manufacturer what you pay for it?--
[Major DOUGLAS] Do you mean, is he making a profit?
4463. [PROFESSOR GREGORY] No, I am asking is he
covering his cost if he sells at £100?--
[Major DOUGLAS] Oh! yes.
4464. [PROFESSOR GREGORY] You are assuming that he is
carrying on his business on a perfectly definite
[Major DOUGLAS] Absolutely. He is selling in
competition with other people who may sell at £99.
4465. [PROFESSOR GREGORY] Your £25 does not really go
to that motor-car manufacturer at all?--
[Major DOUGLAS] No.
4466. [PROFESSOR GREGORY] It is added to the general
borrowing or purchasing power of the community. Well,
I do not see, in those circumstances, how you can
prevent prices from rising.--
[Major DOUGLAS] I cannot see, as a matter of fact, how
it can possibly cause prices to rise, again as a
matter of mechanism, by this process. Supposing they
do rise, your subsidy becomes inoperative.
4467. [PROFESSOR GREGORY] Let us suppose in a given
period of time, one month, the total turnover of
consumable goods in this country is £1,000,000,000,
and let us take your figure of 25 per cent.; that
means that at the beginning of next month there would
be £1,250,000,000 of purchasing power available. I am
only using your own figure of 25 per cent.--
[Major DOUGLAS] No, that is not quite true. I should
not regard it, incidentally, as very important if it
4468. [PROFESSOR GREGORY] Let us clear up that point
[Major DOUGLAS] The result of your having done this is
greatly to increase the total amount of sales in the
country. Now, the whole of the price which is
collected from the public becomes an item for
cancellation, just as it does at the present time.
4469. [PROFESSOR GREGORY] How do you get it back? You
get it from the consumer, you pay it into the bank,
who pay it into the Treasury, who get additional
credit from some source, but you never do get that
[Major DOUGLAS] I will pursue this subject as far as
you like, but I am frankly much more interested in
making you see that the thing is perfectly possible.
If you would really like me to get out a considered
report as to the mechanism by which it can be done I
shall be delighted to do it, my services are entirely
at the disposal of the Committee, but the point that I
want to hammer home is that it is inconceivable that
you cannot get a mechanism which will enable you to
equate purchasing power to the capacity to deliver.
4470. Mr. KEYNES: Is it not probable that those of us
who are criticising are not inclined to accept the
inherent difficulty which you develop in paragraph 16
of your Memorandum. You divide payments there into A
and B payments?--
[Major DOUGLAS] Yes.
4471. [Mr. KEYNES] The cost of production to the
manufacturer is A plus B. Of that A goes to the
public and is spent by them on manufactured goods, but
B goes elsewhere?--
[Major DOUGLAS] Yes.
4472. [Mr. KEYNES] Where does it go?--
[Major DOUGLAS] I felt sure that this would arise,
because it generally does arise. May I put it this
way? The wording of this statement is very careful. I
always make the wording very careful. I say "Since A
will not purchase A + 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." I have not said it must
4473. [Mr. KEYNES] I did not want to go on as far as
that. Just previous to that you see "Group B," which
includes raw material; I assume you mean imported raw
material; is that right?--
[Major DOUGLAS] "Group B. All payments made to other
organisations (raw materials, bank charges, and other
external costs)". Yes; simply what we should call in
a company, bills payable at the end of the month.
4474. [Mr. KEYNES] If they are paid through another
business then that business will pay the amount as
part of its cost of production to individuals? Is
[Major DOUGLAS] Yes, I quite understand the
difficulty. The real weight to be attached to this
undoubted statement of fact--as it stands it is simply
a statement of obvious fact--is whether the transfers
from one firm to another are financed by either trade
credit or from the firm's own credit, let us say its
working capital, or by a bank's credit. The exact
weight which that has in the whole of the statement
depends to a very large extent on that. If the B
payments are really financed from working capital then
that working capital must, I think, inevitably have
been obtained by the process of investment which is
criticised under (b) in the same précis. That is to
say, the whole of the savings which have formed the
working capital of that concern must previously have
appeared in the cost of production.
4475. [Mr. KEYNES] That would be true, but I thought
the emphasis here was on the phrase "other
organisations," and what you are saying has no bearing
[Major DOUGLAS] I am sorry! I missed that.
4476. [Mr. KEYNES] I thought the force of the argument
here was that it was a payment made by this
manufacturing firm to other organisations?--
[Major DOUGLAS] Yes.
4477. [Mr. KEYNES] Its working capital is required to
meet its expenditure under Group A during the period
of production just as much as under Group B, so what
you are saying now does not seem to me to distinguish
between Group A and Group B?--
[Major DOUGLAS] Yes, it does, because in Group A you
paying out to the consumer; all the payments under
Group B are purchasing power; which, if it was
obtained by re-investment, was originally in the hands
of the public and never gets back into the hands of
the public at all.
4478. [Mr. KEYNES] Other organisations which were
receiving money under Group B are getting back that
amount from this first one?--
[Major DOUGLAS] Yes, that is the case; but there is a
large amount of purchasing power which is permanently
retained purely in the productive system, and never
gets out into the consumers' system.
4479. [Mr. KEYNES] If all firms were united in a
single firm would your difficulties be overcome?--
[Major DOUGLAS] That is the obvious remedy for the
financial difficulty but not necessarily the right
remedy. Even from the purely financial standpoint it
is a little difficult to say; you understand a time
lag comes in.
4480. [Mr. KEYNES] You think it would vanish?--
[Major DOUGLAS] No, I do not think it would completely
4481. [Mr. KEYNES] Why not?--
[Major DOUGLAS] Because there would be a considerable
amount of money being paid out in wages for delayed
production, and your hypothesis assumes that the
distributed costs of a given week are the total prices
of the goods for sale in the same week.
4482. [Mr. KEYNES] It would be diminished?--
[Major DOUGLAS] It probably would be diminished I
4483. [Mr. KEYNES] Insofar as the fact that you have a
differentiation in industry means that some people
have to have bank accounts which they pay to others,
it means you have to create a certain amount of
credit, and really it acts as a revolving fund?--
[Major DOUGLAS] Yes.
4484. [Mr. KEYNES] If a revolving fund has been
established, why do you have to add to it?--
[Major DOUGLAS] If the revolving fund is as large as
the total amount of money required to finance the
whole of all business from the time the first process
takes place to the time the article goes out to the
consumer--it is possible--I should not be inclined to
admit it offhand--that the question might disappear;
but that is certainly nothing like the actual case.
4485. [Mr. KEYNES] If you once raise the volume of
credit to whatever level may be required by your
profit in relation to the volume of production you
have only to go on increasing it in proportion as
[Major DOUGLAS] No; there are all sorts of questions
that would still arise. The question of turnover,
depreciation, and the fact that the purchasing power
of credit, or whatever you like to call it, which has
been transformed into price values of fixed assets in
the industrial system would in existing circumstances
have to enter into the cost of the goods--and cost
items of that type would always raise the price of the
articles above the amount of purchasing power.
4486. [Mr. KEYNES] And if in the interval you had to
have new machines to replace old ones you would have
to have individuals to produce them. How does that
differ from any other form of consumption?--
[Major DOUGLAS] Because you are not starting from
zero. You are starting from a world as it is.
4487. [Mr. KEYNES] How does that bear on the matter?--
[Major DOUGLAS] It bears on the matter that you have a
tremendous amount of real capital which at the present
time is creating prices and which has not contributed
anything like that amount of purchasing power.
4488. [Mr. KEYNES] Do you mean that the receipts of
capital are greater than the amount it pays out in
[Major DOUGLAS] Yes; that is an obvious statement of
fact; the accounts of any company will show that.
4489. PROFESSOR GREGORY: What happens to the
[Major DOUGLAS] It is represented by the fixed assets
in the company which it cannot distribute in the form
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