A. HAMILTON M’INTYRE, Esq., C.A.
WILLIAM BLACKWOOD AND SONS LTD.
By A. HAMILTON M'INTYRE, ESQ., C.A.
(Being a Lecture delivered to the
Glasgow Chartered Accountants Students' Society on Wednesday, 13th November
SOCIAL CREDIT is
a comparatively new idea. The first formulation of this new idea in public by
Major C. H. Douglas was in 1918, so that Social Credit is now some seventeen
years old. This is by no means a hoary age for a new idea. Some of our greatest
ideas have taken a hundred years before they were generally accepted. The
opposition to a new idea is well described by the German philosopher, Goethe:--
advance anything new which contradicts, perhaps threatens, to over-turn the
creed which we for years have respected and have handed down to others, all
passions are raised against him and every effort is made to crush him; people
resist with all their might; they act as if they had never heard nor could
comprehend; they speak of the view with contempt, as if it were not worth the
trouble of even as much as an investigation or a regard, and thus a new truth
may wait a long time before it can make its way."
Even a suggested
change of a comparatively slight character meets with tremendous opposition.
For several years before the war the late Mr William Willett advocated a
method of dealing with time, which method was finally put into use early in the
war and has remained in practice ever since. For several years Major Douglas
has been advocating a method of dealing with money, which method may be put
into practice in the near future under
the stress of
some occasion which might quite well also take the form of a war. People who
remember the reception given to Mr Willett's proposals regarding Daylight
Saving will recollect that the chief opposition came from those people who
regarded time as being something fixed by God, and who predicted that if the
clocks were changed, terrible disasters would occur and heaven would be revenged
on us for daring to interfere with time. We have learned now, however, that you
cannot destroy time by putting back the clock nor increase time by putting it
forward. We can only set up a condition whereby people freely make use of time
to the best advantage.
In a similar
way, the opposition to Major Douglas's proposa1s chiefly comes from those
people who think that the present money system is of God, and that any alteration
of it will bring down on our heads the wrath of the heavens; but just as the
planets still stayed in their courses after the Daylight Saving Bill was
passed, so in some future time to come the world will still revolve round the
sun--even after Social Credit legislation is in force. People will then have
learned by that time that you cannot save energy by accumulating money, nor
lose energy by destroying money.
The remedial proposals
of Social Credit are formulated in principle, not in detail, and the main
principles involved are:--
(1) The opening of a National Credit Account. This principle
is based on the conception of Real Credit, which I will refer to later.
(2) The second
of the main principles involved is the Price Assistance Scheme, sometimes
referred to as the Just Price or the Scientific Price. This is based on the
axiom that the cost of production is consumption.
(3) The third
main principle involved is the payment of a National Dividend, which is based
on a true conception of modern machine power, allied with a realisation of the
part played in production by what is called the Cultural Inheritance.
are based on an analysis, and it quite naturally follows that if the analysis
is wrong, the con-
proposals are wrong. It also follows that discussing the proposals with anyone
who does not accept the analysis or know the analysis is merely a waste of
time. The Douglas analysis is to be found in the Social Credit literature,
which is now stocked by all leading booksellers and is open to study by anyone
proposals are based on an analysis or diagnosis, and the diagnosis arises from
a consideration of the symptoms of disease. The proposals, the analysis or
diagnosis, and the distinguishing of the important symptoms from the
non-important, are all part of what is called Social Credit. Just as in
medicine, a lasting cure can only be prescribed from a recognition of the real
underlying disease as opposed to a mere attempt to get rid of the symptoms of
the disease, so, in the economic body, all proposals which merely aim at
abolishing the symptoms and thus mistake the symptoms for the underlying
disease are doomed to failure.
I do not propose
to-night to make any detailed examination of the remedial proposals or of the
analysis. What I wish to do is to draw your attention to some of the fundamental
ideas which lie behind the analysis. This involves some consideration of the
symptoms of trouble and some weighing up as to whether the apparent troubles
are the real disease or only symptoms arising from that real disease. Without
consideration of these basic ideas, it is almost impossible to understand
Social Credit, and the trouble with those people who say they oppose Social
Credit seems to be chiefly that they have not given consideration to the basic
ideas behind it. The ideas concerned belong to a type of mind such as is
characteristic of an engineer, as opposed to the type of mind which is
characteristic amongst bankers, stockbrokers, and accountants, and it seems to
me that it is only by a very serious consideration of these underlying ideas
that the accountant, for instance, can overcome the handicap of his
professional training and make any progress with the study of Social Credit.
Let us consider,
for a start, the engineer's attitude to the economic problem as a whole. He has
a very clear idea that the fulfilling of economic wants is fundamentally a
question of producing material things--food, clothes, houses, &c. Life is lived by expending energy, and that
energy must be
replaced, and the human body, which produces the energy expended in life,
requires food, clothing, and shelter .
At this point it
is of advantage to consider the theory of maldistribution. The modern or
engineering mind looks at this theory that the poor have to go short of needs
and desires because the rich have too much, and the modern mind sees that there
is no realistic foundation for this theory at all. The man whose income is
£20,000 a year does not consume two hundred times more food than the man whose
income is £100 a year. The rich man probably eats little or nothing more of the
necessities of life than the poor man. The power of the productive system to
produce food is not diminished in any real sense by the existence of the rich.
The rich man may build himself a house with a hundred rooms, but again the
powers of the productive system to build houses for the ordinary man are not
thereby diminished to any appreciable extent. The rich may clothe themselves in
a multiplicity of garments, but the cloth mills and tailors are still
unemployed. The engineer, therefore, sees that there are no physical
difficulties whatever in the economic problem, which, let us remember, is a
problem of producing material things in the form of food, clothes, and shelter.
He sees, in fact, that material wealth which has already been produced for the
purpose of satisfying economic needs is actually being destroyed.
engineer's question, "Why should such goods be destroyed?" he
receives answers to the effect that the destruction is done in the interests of
price, and he is told that unless industry can recover its costs through
prices, industry will cease, and, therefore, economic needs will be no longer
met. This is not the engineer's first introduction to financial difficulties.
In the course of his career he has probably many times designed methods to
achieve certain physical results, and some of his designs have been refused on
the grounds of cost, and, alternatively, designs and methods which did not
achieve such good physical results have been proceeded with. To the engineering
mind a thing is right if it works--that is all there is to it. To the classical
type of mind there are other considerations which are taken into account.
Many years ago
it was really believed that if a man was
pure enough in
heart he could plunge his hand into a fire without burning himself, but
nowadays the proprietor of a foundry would have severe labour trouble if he
tried to run his business on these lines. To an engineer, then, the right kind
of machine will turn out the work irrespective of the morals of the operator.
If you have
followed me so far, you will
realise that to the mind of the engineer the
best economic system is one which will produce and deliver to the people who
require them the things required to satisfy economic needs with the minimum
amount of trouble to anyone. The engineering mind, therefore, cannot accept as
right schemes which advocate, say, the giving of employment or the keeping of
certain sections of the people short of the things they need, while at the same
time restricting production or destroying the results of previous production.
The modernist, as typified by the engineer, sees two questions somewhat in the
following terms:-- .
(a) Should the
economic system be run with the object of producing a physical result in the satisfaction
of needs and desires up to the potential of industry , or,
(b) Should the
economic system be run, either to bring out a certain financial result, or to
conform to certain rules of accountancy, or for a moral purpose such as to make
a certain method of Government more easily managed?
If you answer
the first question in the affirmative and the second in the negative, then you
have a modern mind, and you will belong to the school of the new economics. If
you answer the first question in the negative and the second in the
affirmative, or if you fail to answer at all, then you have a classical mind,
and belong to the school of the old economics.
In passing, may
I say that the question of whether you belong to the old or the new school of
economics will have little influence on your professional work. So far as I am
able to appreciate the position, the main principles of accountancy which you
have learned or are learning as applied to the individual audit would be the
same whether you belong to the old or the new school, but the conven-
accountancy applied to an individual business are based on the assumption that
there is nothing wrong with national accountancy and nothing wrong with the
money system, and therefore we get the anomalies between facts and figures in
our daily experience.
It is only on a
national scale that the error in the money system is apparent, and it is fairly
true to say that in applying accountancy rules and conventions to a single
audit of ordinary dimensions no fault is apparent, although it is quite
conceivable to my mind that in dealing with a very large undertaking of such
wide ramifications as, say, Imperial Chemical Industries, the basic error is
bound to show signs of appearing. For example: Imperial Chemical Industries
having reached such huge dimensions, it is extremely probable that continued
expansions of the share capital will be required at approximately the same rate
as profits are earned.
The first basic
idea which I wish to deal with is the idea of credit. Credit, of course, is belief or
faith. The schoolboy's definition of faith is said to have been "Believing
in something which ain't true," but I think the Pauline definition is the
correct one. St Paul described faith as "The substance of things hoped
for: the evidence of things unseen."
I think it is
correct to say that Major Douglas was the first writer to distinguish between
two kinds of credit, which he described as Real Credit and Financial Credit.
"Real Credit," he says, "is a correct estimate of the ability to deliver goods
and services as when and where required." Please note it must be a correct
estimate. "Financial Credit," he says, "is a correct estimate of
the ability to deliver money as when and where required."
It is of the
greatest importance to distinguish clearly between these two kinds of credit,
and I will have something
to say of the distinction later in my address. In the meantime, it is sufficient
to point out that Financial Credit gives a title to draw on Real Credit, but
under our present system the fact that a person or a community has a certain
amount of Real Credit does not mean that that person or community has the right
to Financial Credit to an equivalent amount. .All credit is Public
Credit or Social Credit. The very fact that there is a community or nation means
co-operation and wherever there is co-operation or association there is Real
Credit. It is inconceivable that any community can exist without having this thing
called Real Credit.
The extent of
the Real Credit attaching to the community will depend mainly on what progress it has made in the industrial
arts. The Real Credit of a progressive industrial country will be greater than
the Real Credit of a more primitive community. We say, therefore, that every
improvement in process is an addition to a community's Real Credit. The
discovery of steam, for instance, probably had the effect of increasing
potential resources many times over. During the last century or so it is
estimated that the Real Credit of Britain increased more than forty times as a
result of invention and discovery in the industrial arts. During the same
period it is questionable if the standard of living increased as much as four
times. The cause of this discrepancy in proportion will be evident to any
student of Social Credit, but in the available time I cannot go into too much
detail, and I wish just now to confine myself to two outstanding points of
interest in a consideration of the nation's Real Credit.
During the war
the Real Credit of Britain, instead of being depleted, was vastly increased,
and it is a rather startling thought that the dangers and perils of war were apparently
required to make that progress which was, equally apparently, stifled during
peace. The explanation of this fact is, of course, that consumption does not
necessarily deplete Real Credit, and may indeed augment it. A steady demand
for goods has the effect of improving industrial process and resources, not of
is of interest to remember what has been said about the effect of war on our
resources and what is still being said by the old school of economics. We have
been, and are, told that the war made us poorer, and figures of internal and
international debts are put forward as proofs of this contention. The modern
mind, however, cannot be convinced by mere figures of the non-existence of
material assets in the form of stone and lime and machinery when he sees these
material assets with his own eyes. The modernist knows that in such
circumstances it is the figures that are wrong.
The other aspect
of Real Credit which requires consideration is the dual nature of the
ownership. In assessing the nation's Real Credit, public and private assets are
accounted, and the value of all these, together with the capitalised value of
the population, makes up the Real Credit of the community as assessed in terms of
money. It has, I am sure, puzzled a great many people to understand why Major
Douglas suggests that private assets are part of the community's credit. To the
ordinary accounting mind, a mill owned by an individual cannot also be said to
be owned by the community, yet it is obvious that this is so. There is a
duality of ownership in all things.
This duality of
ownership has been dealt with very extensively, not only by Major Douglas and
his immediate followers, but particularly by Le Comte de Serra in his book,
'Property, its Substance and Value,' which is now translated from the French.
De Serra distinguishes between substance in property and value in property. He
also draws distinction between static or accountancy values and dynamic or
communal values. I do not intend to go into the matter in too much detail, but
it is quite simply illustrated if you will consider the case of, say, a factory
owner. What does the ownership of the factory amount to?
< We will suppose
that the factory makes boots. The proprietor may, if he cares, make for himself
hundreds of pairs of boots, but he can only wear one pair at a time. He could
make boots and give them away for nothing, but this he can only do for a
limited time. His real position is that he only has the right to administer the
running of the factory, and he is limited in this right by his own resources
unless he conforms to the necessity for achieving a certain financial result.
The achieving of this financial result not only depends on his skill in
management, but on general financial policy over which he has no control
whatever. It is obvious that if his ownership of the mill is to be effective to
him, it is necessary that the community must have sufficient money to buy the
product of the factory and ultimately the factory itself. The effective
ownership of the factory depends on the community having the potential
ownership of the product. The titular owner has no real credit in his factory
unless the community have the credit attaching to the things which the factory
It is of the
greatest importance to get this fact· firmly into one's mind. The cry for
nationalisation of the means, of production derives its force from a complete
misunderstanding of the true position which I have tried to outline. To
suggest that democracy wants the factory is entirely wrong. What democracy
wants, and what democracy is entitled to, is the boots which the factory makes.
The fact that the titular owner of the factory sometimes gets rich by his
control of the factory confuses the true position. Social creditors are willing
to leave the cow under private administration so long as the public gets
Let us now
consider the word 'Money.' In our economic classes we are taught that money is
a medium of exchange, a standard of value, a store of wealth, and a standard of
deferred payments. Now, in any strict sense, money fulfils none of these
functions at all. The days of money as a medium of exchange are long past. When
the days of commodities individually produced and exchanged had passed, the
days of money as a medium of exchange passed with them. The real nature of the
modern system is that it is a synthetic assembly of output of machines operated
by power and requiring continuously less operation by human operators. Money
is, and should be, a system of numbers or accounting, a kind of numerical
system represented by tickets whereby everybody draws from a pool of wealth
created by industry.
as a standard of value. There is really no such thing as a standard of value.
To refer to it is like referring to speed in distance without any relation to
time. Money might be called a measure of relative accountancy or static value,
but never a standard of value.
Is money a store
of wealth? Ask anyone who .has been marooned on a desert island whether his
money was any use to him. The individual who has a pocketful of money has
thereby access to wealth in the hands of other people, provided the other
people will accept his money, but that does not mean that money is a store of
wealth. If you consider money on a national scale, you will realise the true
value of it. It is simply a ticket. Perhaps it might be described as a
universal ticket. In the same way as a railway ticket is a limited ticket, or a
theatre ticket is a limited ticket, money is a universal ticket, the possession
of which gives
one the right to acquire anything, including limited tickets.
function of money was given as a standard of deferred payments. All that I wish
to say about that is, that if money under the conditions obtaining during the
last thirty years is a standard of deferred payments, it is a very poor
One of the most
common fallacies of economics is that money is wealth, and the first thing
necessary to an understanding of the position is to eradicate that idea from
one's mind. I cannot do better
than use the words of Major Douglas himself:--
"Money has no reality in
itself. In itself it may be either
gold, silver, copper, paper, cowry shells, or broken tea-cups. The thing which
makes it money, no matter of what it is made, is purely psychological, and, consequently,
there is no limit to the amount of money, except psychological limit."
What makes money
is the belief in it by the community, and all value attaching to money is
created by the community's belief.
I shall be referring later to the monopoly of credit, by which is meant
that the present-day banking system has abrogated to itself the control of money,
with consequences which are of a very far-reaching nature.
Mr G. K.
Chesterton, in his inimitable style, refers to the position in the following
mark of modern government is that we do not know who governs, de facto any more than de jure. We see the
politician and not his backer; still less the backer of the backer; or (what is
most important of all) the banker of the backer. . . . Throned above us all, in a manner
without parallel in all the past, is the veiled prophet of Finance, swaying all
men's lives by a sort of magic and delivering oracles in a language not
understanded of the people. . . . Yellow journals talk a great deal about Red
troubles. They ask indignantly
where the Communist money comes from. But does anybody know where any money
illustration of what Chesterton refers to as the delivering of oracles in a
language not understanded of the people, I choose an extract from the address
delivered at the meeting of the British Association·for the Advancement of
Science in 1933 by Professor J. H. Jones:--
pausing to consider the case for bimetallism, I venture to express the belief
that the restoration of the gold standard is necessary to the progress of the
world. . . . In the first place,
it would be folly on our part to return to gold until we knew precisely the
rate of exchange that would enable international trade to be distributed in the
manner determined by real costs of production. The new rates should be
determined by purchasing power parities. We are not yet agreed, however, upon
the precise meaning ·of purchasing power parity, neither do we possess the
information that would enable us to estimate purchasing power parity, howsoever
After a slight
pause to enable you to recover from the sense of awe and reverence which I am
sure you must have felt by listening to the voice of the oracle, I would like
you again to tune in your ears to common-sense.
Let us consider
two words in everyday use--the words, 'Value' and 'Cost '--two words which are
used very loosely and are often interchanged. They are probably the most
difficult words in economics.
appreciate certain values without any great difficulty. First of all, there is
such a thing as accountancy value. We prepare balance-sheets of businesses, and
sums of pounds, shillings, and pence are shown in these balance-sheets
opposite certain assets and liabilities. In almost every case the value has a
different meaning, although they are all stated in the same terms. In the case
of goodwill, for instance, the sum may mean that that is what the accountants
think it is worth, or it may mean that that is what was paid for it, or it may
mean that that is what you hope to get for it. Its basis is, more or less, an
accountancy convention. Take the figure appearing opposite plant and
machinery--it may be that the sum shown is what was paid for the plant and
machinery; it may be that it is the
conventional accountancy over a period of years writing down depreciation at
conventional rates; it may be, in reality, over-valued or under-valued.
Take the asset,
sundry debtors--this means that some person, or number of persons, are under
obligation to pay to the business certain definite sums of money, whether in
cash or cheques or contras or in any other conceivable way. Generally, it means
that you anticipate getting certain papers from these debtors with certain
figures on them, which will, in turn, be accepted by your bank, and these
figures will be marked up to your credit in your bank pass-book. Broadly
speaking, the assets in any balance-sheet can be divided into two
groups--ascertained values and indefinite values. The ascertained values,
subject to minor exceptions, have relation to past or future bank lodgments,
and the unascertained values have relation to price fixing. The point which I
wish you to observe at this stage is that all such values belong to the realm
of accountancy values. They have nothing to do with value in any realistic sense.
There is another
kind of value which has relationship, more or less, to accountancy values, but
which differs from them in many ways and which again has little or no relation
to real value. I refer to the value which is arrived at by demand and supply.
This value is related to scarcity, and the penalties which can be enforced
because of that scarcity. If I wish to cross a river it would seem that the
first requirement is a boat, the real value of which is its use in transporting
me. In our present society,
however, the value of the boat is linked up with the question of how many boats
there are available, and the monetary penalty that can be imposed on me for
using the boat varies inversely with the number of boats.
value of anything is its use value, which I have already touched upon in
dealing with Real Credit. The value of a personal belonging, like a suit of
clothes, is quite easily realised in the use one derives from it, but then one
does not dream of selling one's suit of clothes. It is quite clearly understood
that its use is derived from the destruction of its substance.
condition applies to business assets. The real value is derived from the
destruction of the asset, and such
use value goes
·to the community. From the accountancy point of view, however, and rightly so,
the administrator of the business asset derives only an infinitesimal fraction
of such use value from its destruction, and requires to make a charge in price
to recover his accountancy value. As already pointed out, this he can only do
provided the community have got the money to pay the required price.
says that the community at no time have the necessary money to meet all
outstanding prices. He has given many reasons for this position, and he has
also, in dealing with this matter, put his statement in a form which has come
to be known as the "A. plus B. Theorem." I do not intend in this
address to deal with the A. plus B. Theorem. I am content to state that if the
community have the money necessary to pay the prices required, why is it that
the whole record of industrialism is a record of debt, and why is it that the
total community's money, including bank deposit, does not amount to more than
2500 million, whereas debts outstanding requiring ultimately to be met must
amount to twenty times that sum?
One of the
causes of a deficiency as between prices and the money required to meet them is
the building up of accountancy values without any distribution of money to the
community. An illustration will be of interest:--
If I am an
inventor and invent a machine which will do the work formerly done by five men,
and such machine will cost a certain
sum to produce, I can calculate how much that machine will be worth to the man
who buys it. I can also estimate the number of people who will be willing to
buy it, and on that basis I can put a certain price on my invention and offer
to sell it for that price. We will suppose that the price is £100,000. I would
call that the value of my invention. A company is floated, lays down the
property and plant to produce this machine, and pays me £100,000, which I use
to take up 100,000 shares in the company. The company starts to produce and
sell the machine.
What the company
is really hoping to do over the course of its existence is to recover all its
expenditure on factory and plant, the £100,000 it paid to me, and in addition
to make a profit. Every man who buys a machine from the company pays, say,
£5000. What he hopes to do over the
course of a
number of years is to recover that £5000 in prices and in addition make an
extra profit. He hopes to do so by reducing his labour charges and increasing his
The points which
I wish you to observe are--that the company says the value of its goodwill is
£100,000, and if you disputed it they would tell you that it must be because
that is what they paid for it. Each man who buys a machine would say the value
of his machine is £5000 because he paid that for it. The use to which the
machine is being put is to dispense with labour, and at the same time the hope
of all parties in the chain is to extract from the consumer something in excess
of £100,000 more than has ever been distributed to the community. Query: What is the value of the
The word 'Cost'
is also a difficult word in economics. It does not always mean the same thing.
For instance, we might say a cup of tea in a smoke-room costs the proprietor
of the smoke-room a farthing, or we might say that it costs the proprietor
twopence, meaning that that is his accountancy cost after adding overhead
charges. We say it costs the consumer threepence. For all these
different circumstances we use the same word.
We might also
say a plate costs threepence to produce, and we might invert that and say that
the value of a plate is threepence--the word is used so very loosely--but the point I want to
bring out here is that when we say a plate costs threepence to produce, we do
not mean that three pennies have been used up and destroyed in the process of
producing the plate. The term—'Cost, 3d.'--is merely a relative term, and it
means that a threepenny plate stands in relation to a two-shilling golf ball,
so far as its cost of manufacture is concerned, in the ratio of three to
Because of this,
people are often heard to talk loosely about values, and you might often hear
people say, for example, "that a two-shilling golf ball is eight times the
the value of a plate." This would be, of course, sheer nonsense. All that
one can say is that the accountancy figures which attach themselves to a plate
in the course of production and sale bear the ratio of one to eight to the
accountancy figures which attach themselves to a golf ball in the course of
production and sale.
No money is
either created or destroyed in the process of production and consumption. The
man who grows a ton of potatoes does not thereby create the money necessary to
buy these potatoes. He merely hopes to get for his potatoes money which had
previously been in somebody else's possession. Similarly, the man who eats the
potatoes does not destroy money in the process of eating them as he has parted
with his money to somebody else before he got the potatoes. The point which I
am trying to make is, that the words cost or value as applied to any particular
thing are quite meaningless except in a relative sense. Accountancy cost may
quite well include waste, and there may be accountancy value in an earthquake or a
A great deal has
been said and written about the enormous increase in productive capacity, and
the strange thing is that the great majority of people, while paying lip
service to this belief, at the same time will not accept the obvious
implications which the facts raise. Orthodox economists admit productive
capacity on the one hand and deny it on the other, which is just a further
illustration of the admitted
fact that a great many people have the facility for holding two entirely
contradictory ideas in their mind at the one time.
The advent of
the technologist, however, has put the matter beyond all doubt. The outstanding
fact regarding the productive system is that considerably less than the
available number of workers using modern tools and processes can produce everything
that the world, as individuals, can use, and that this situation is
progressive. That is to say, year by year a smaller number of workers can
usefully be employed in production.
Adam Smith was
one of the old school of economists, but there is one observation which he made
which hit the nail on the head and, strange to say, seems to have been ignored
by later economists. This observation was that "consumption is the sole
end and purpose of all production." The Archbishop of York, William
Temple; has put the matter another way. He says:--
Christian will have an initial sympathy with those lines of thought and
suggestion which start
consumer, and ask how he is to be able to obtain what he desires or needs to
consume because it is in consumption that the human value, the end for which
all economic processes exist, is found to reside."
The object of
production, therefore, is consumption. To suggest that the purpose of
production is to give employment or to produce certain accountancy results is
to look at the matter in entirely the wrong way. An efficient productive system,
therefore, depends on an efficient consuming system. This is true in fact as
in theory. Coal can only be
brought to the surface efficiently if the sidings at the pit-head have been
cleared of previous production. A factory can only
maintain its output provided arrangements are made for taking away, without
undue delay, the production of the previous week.
Now, a factory
or other business organisation may be looked at in two ways. It may be looked
at in its economic capacity as a producer of goods for use. From the other
aspect, the financial aspect, it may be regarded, on the one hand, as a device
for the distribution of purchasing power to individuals through the media of
wages, salaries, and dividends and, at the same time, a manufactory of prices
or accountancy values.
In its economic
aspect as a producer of goods for use, it is fulfilling its objective--the
object of production being consumption. In its ·financial aspect--i.e., when it
distributes wages, &c., and builds up price values--it is merely serving
an accountancy purpose. It is of vital importance to draw this distinction.
After years of industrialism the accountant, banker, and economist is very apt
to fall into the error of forgetting the real purpose of the factory and
mistaking the financial aspect of production for the true object of production.
If, then, the
productive system is not giving the results expected, the aspect of it in which
the fault is to be found is the financial aspect. The pertinent questions which
arise are, therefore:--
(a) Does industry
distribute purchasing power at the same rate as it builds up price values?
(b) Can industry
continue indefinitely to distribute all purchasing power to all consumers?
(c) As all
living people require purchasing power, can they all get direct employment in industry or
receive enough purchasing power from industry indirectly by means of
redistribution or taxation?
been made to the necessity for disposing of the product of industry if industry
is to continue running efficiently. Reference has also been made to the idea of
the money system being in part an accountancy method to enable everybody to
draw their needs and desires from the pool of real wealth produced by the
industrial system. Reference has also been made to the potentialities of the
productive system being progressively greater, while requiring the labour of
progressively fewer human hands. You will recollect also the aspect of industry
already mentioned, one side of the financial aspect being that industry was a
distributor of incomes to individuals. In all these circumstances it is easy to
see that incomes cannot continue indefinitely to be derived solely from the
rewards of taking an active part in production.
The dictum of St
Paul to the effect that "he who will not work, neither shall he eat,"
while being quite sound in an age of scarcity, is no longer workable in an age
of plenty. Already the productive
system is slowed down for lack of customers, and the only solution to the
difficulty is to realise in terms of what has already been said, that the
community must have an income outside of the income derived from employment.
In a primitive
community, production was largely the result of direct human effort. As
progress was made in the industrial arts, the output of the productive system
depended less on current human energy and more on past knowledge. In a
mechanised age the accumulation of past knowledge and invention has become
relatively a more important factor than current human effort.
We are all
familiar with the old argument--that labour is the only producer, and labour is
exploited by the capitalist. There is no substance in this complaint
nowadays. If one was to take any
labourer or artisan and make him dependent upon the results of purely his own
labour, he would starve in a very short time. It is only when labour is in touch
with tools and process that any adequate results are forth-
coming. The real
division is not between capital and labour--it is between finance, on the one
hand, and united capital and labour on the other.
increasingly important factor in production, arising from past knowledge and
invention in the form of tools and processes, is called by Major Douglas
"The Cultural Inheritance." Who, then, have rights in the Cultural
Inheritance? It is the view of the social creditor that individuals, as
citizens of the community, have equal rights in the Cultural Inheritance. It is
also the view of the social creditor that up till now the community has been
deprived of its inheritance by the financial system. It is as if we had all
been left a substantial legacy by our forebears, and the financial system, as
trustees of that legacy, had kept us in ignorance of the fact that it had been
left to us. The financial system as trustees has had, and still has, wrong
ideas of what is revenue and what is capital, and the community has accordingly
up till now been deprived of its proper life-rent. All citizens, therefore,
have equal rights in the national inheritance, and this can quite easily be
expressed through the payment of a national dividend of so much per head.
is a result of the application of energy to material, and is simply a process
of converting one thing into another. Nothing is destroyed. The real cost of
production is consumption.
If I take a
branch of a tree and fashion it into a table leg, what is the cost of the table
leg? The answer is, that the tree in the course of its growth absorbed energy
from the sun, water from the earth, and certain chemicals from the air and the
earth. A certain proportion of all these components was represented in the
branch which I took to my lathe. After I had made the table leg I had still the
same amount of wood--some of it in the form required, the rest of it in the
form of shavings. The lathe was used to a certain extent which, fractionally,
lessened its life. The tools I used were, fractionally, shortened by wear; I myself
in the process used up energy to replace which I would require to eat a certain
amount of food and drink. That was the real cost of production of the table
leg, and, tracing it back, it really came from the use of the sun and the rain,
my knowledge, and the knowledge of those who went before me.
view to the present-day world, we say what was the cost of producing our
country as we find it to-day, with all its streets, buildings, plant and
equipment, and population? The cost of it was the consumption involved up to
the present time, the lives of our forebears, the sun that shone on them and
the rain that fell on them, and their knowledge which they used but which they
have also passed on to us, and which knowledge was not lost in the process of
use, but, on the other hand, was improved.
There can be no
debt attaching to anything in the physical world or the real world. Everything
which is made is, in reality, paid for as it is made, and it cannot be
otherwise. You cannot shoot to-day's dinner with the gun that you are going to
make to-morrow. Nothing physical can be borrowed from the future. Every real
thing we have has been paid for.
How does this
undoubted fact contrast with what we see to-day? The whole record of production
is a record of debt, and the efforts of the modern nations to-day seem to be
exerted in the direction of trying to borrow themselves out of debt--a process
which, you will agree, can never have a successful issue. Broadly speaking, the
position seems to be that the most advanced countries have the biggest burdens
of debt, and only the primitive countries are financially solvent.
There is a story
told of a minor African potentate somewhere on the west coast who was visited
by a delegate from the home country. After the usual inquiries about trade,
&c., had been made, the delegate made some inquiry as to whether the little
State had any budget deficits, and was told, "We have no deficit because
we have no budget."
If you will
consider for a minute the position of our own country with a national debt
somewhere in the region of 8000 millions, a municipal debt which must amount to
a very large figure indeed, an industrial debt represented by the accountancy values
of all buildings, plant and machinery, and individual debts arising from goods
and houses bought on the hire-purchase principle, you will agree with me that
the total debt must amount to an extraordinary sum, and you will also agree
with me that such total debt is increasing in geometric progression. It is
probably no exaggeration to say that every child born in Britain to-day is
immediately born into debt to the extent of £900.
It is obvious
that there is something wrong, and advocates of Social Credit say that what is
wrong is that the financial system which is employed all over the world does
not reflect physical fact.
It is most
important to remember that as money is not wealth, no financial system can ever
be anything else than a system of counting, and the figures brought out under
such a system of counting can only be relative to each other; but the
principles underlying any financial system can have a relation to fact, and a
workable financial system will necessarily reflect physical fact.
recollect that earlier in the course of my address I referred to Real Credit
and Financial Credit. If Financial Credit was a reflection of Real Credit, then
there would be little complaint against the present money system, but the
present financial system does not reflect reality, although a pretence is made
that it does so. The object of Social Credit is to institute a financial system
which will accurately reflect what happens in reality.
Now in the real
world, credit arises in capacity, materialises in production, and is
extinguished in consumption. In the present money system, Financial Credit
arises in the banking system, materialises as a loan, and is cancelled by the
repayment of that loan. The banking system creates and destroys money according
to certain rules of procedure, which for all practical purposes it has laid
down for itself. These rules of procedure are not based on the principle that
Financial Credit should reflect Real Credit, although a pretence is made that
they are so based.
So long as these
rules are not challenged, the banking system, both national and international,
is consolidating its financial hegemony through what Major Douglas refers to as
the monopoly of credit. Many of the world's prominent men have realised this
situation in part, and many examples could be given of such realisation. It is
sufficient for my purpose to quote two of these examples:--
His Holiness Pope Pius XI,: "Control of
financial policy is control of the very life-blood of the entire economic
President Woodrow Wilson: "The great
monopoly in this country is the monopoly
of big credits.
A great industrial nation is controlled by its system of credit. The growth of
the nation, therefore, and all our activities are in the hands of a few men who
chill and check and destroy genuine economic freedom."
And now I wish
to put before you for your consideration an illustration of the fact that the
present financial system does not reflect physical fact, although a pretence is
made that it does so. I take no particular credit for this illustrative
example; it appeared in 'The Accountant' of January 1934 in an article
contributed by myself. In reality, it is an adaption of one of Major Douglas's
Let us take the
physical circumstances first:--
men are employed on a piece of land, ten of them working in producing the
necessities of life for the whole twenty, the remaining ten being occupied in
building a factory, the outstanding physical cost of the factory is nothing.
The men have got it by working for it. They have used up a certain amount of
energy in building, which energy has been replaced by the food, &c.,
consumed. There has been an increase in real credit to the extent of a
Let us now put
this operation under financial rules and the result is quite different:--
that I employ the twenty men. I charge them no rent for the land, and I promise
to make no profit out of them. Then I think you will agree that questions of
land monopoly and profits do not enter into this. I employ these twenty men at
£1 per week each. Ten of them, as before, provide for the living of all by way
of growing food, making clothes, &c., the remaining ten build a factory. I
give them all £1 a week as wages and take back 10s. a week each for the food
supplied to them. We will suppose that the operation is complete in one hundred
weeks. In that time I have paid out as wages £2000, and I have got back, as
cost of food, &c., supplied, £1000. The twenty men have each saved £50.
"I now offer
them the factory for £1000, which is
what it cost me.
The workmen agree to buy, each subscribing £50, and I now have my £1000 back. I
am now retired from the transaction, and I am just in the very same position in
which I was at the beginning and the workmen have the factory, which they would
say cost them £1000. They then proceed to run the factory between themselves.
The produce of the factory would have to be priced to include the wages paid
out to the small community, plus a certain sum for depreciation of the factory.
This requires to be done to fulfil finance accountancy rules. It will be seen
at once that none of the community have the money to liquidate the charge for
depreciation, and, if they wish to charge depreciation, they will require to
give themselves an equivalent amount of money, in addition to wages, before
they will be in a position to buy the produce of their own factory, costed on
There are three
main criticisms which have been made in reply to my illustration of the small
The first of
these criticisms was to the effect that the financier still had £2000 with
which he would be able to make up the deficiency in money as compared with
price. This criticism is of no value. In the first place, the conditions laid
down did not necessarily mean that the financier had ever £2000 at one time.
The circumstances laid down are that the financier employed twenty men and paid
them each £1 per week as wages, and took back l0s. per week each for the food
supplied to them, the operation continuing for a hundred weeks. Even if the men
hoarded the whole of their savings, the initial capital required to finance the
transaction would only be £1000.
If the men banked their savings with the financier every week, the total
cash required to finance the whole process was £20. As a matter of fact, the whole operation could have been
carried on by pure book-keeping, in which case no actual cash would have been
required at all.
criticism which has been made is to the effect that another factory would, or
should, be in process of building, and the wages distributed for building the
second factory would help to make up the depreciation on the
This criticism is also of no value, as it fails to take into account the
question of how long a factory takes to make compared with how long it takes to
criticism which has been made is to the effect that the increased production
made possible by the erection of the factory will cheapen unit prices, and,
therefore, all the goods produced will be able to be sold. This is a major
fallacy. If I, as an industrialist, put in a new machine which is going to
double my output without any increased labour, it is quite true that my unit
costs may be almost halved, but I must recover in price over the life of the
new machine the full cost of the new machine, and, therefore, the total prices
which I charge must be greater by the cost of the machine, although the unit price
I conclude by a
quotation from a speech made by His Majesty King George at the opening of the
World Economic Conference:--
be beyond the power of man so to use the vast resources of the world as to
insure the material progress of civilisation. No diminution in these resources
has taken place. On the contrary, discovery, invention, and organisation have
multiplied their possibilities to such an extent that abundance of production
has itself created new problems."
PRINTED BY WILLIAM
BLACKWOOD &: SONS LTD.