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Subject:[socialcredit] Reconstruction
Date:Friday, February 29, 2008  20:52:45 (-0800)
From:william_b_ryan <william_b_ryan @.....com>

This is the text from the document circulated earlier
today by Wally Klinck:-
-----------------------------------------

The Glasgow Evening Times 
Articles of May, 1932, on SOCIAL CREDIT 

BY Major C. H. DOUGLAS 

Liverpool: K.R.P. Publications Limited, 1943. 

RECONSTRUCTION 

NOTE 

THE three articles here reprinted from The Evening
Times, Glasgow, appeared in that newspaper on the 
6th, 13th, and 27th of May, 1932, as a sequel to
publication by the same journal of an article, also by
Major Douglas, "outlining a plan for the application
to Scotland of the credit scheme which he has put
forward as a means of social reconstruction." 

While the "Social Credit Scheme for Scotland" is still
available to those who are both willing to study its
provisions and able to assess their practical social
and economic consequences, it has become very markedly
apparent since 1932 that it is not the absence of a
plan that inhibits the carrying into effect of
technical measures adapted to the reconstruction of
social life on lines capable of leading to general
satisfaction. Power to execute plans of any
description, designed to implement any policy is
monopolised by a small minority of individuals, of all
countries and of none, not inaccurately identified as
those in control of International Finance. During the
present phase of the world war, this fact has become
plain to many, if not to the majority, of intelligent
newspaper readers, who are still nevertheless,
confused concerning what are the relevant economic
facts of the present world situation, and thus fall an
easy prey to planners whose objectives are hidden, to
every eye but the expert's, under a disguise of
pleasant-appearing devices propagandised at immense
expense in terms of current abstractionism, e.g., the
'Four Freedoms' of Mr. Roosevelt, and the single
'Freedom from Want' of Sir William Beveridge. The
disposition of the public to 'fall for' vast schemes,
emanating, without any doubt, from a single
centralised source, and obviously requiring for their
imposition the further expansion of the gigantic
war-time bureaucracy, has been noticeably corrected by
that same public's growing resolution to free itself
from the menacing grasp of this monster if it can, and
as soon as it can. 

In consequence, a lusty crop of subtler devices to
trap the elector may be expected within a very short
time, and, indeed, organisations are already
appearing, bearing obvious signs of attention to the
recommendations of Major Douglas and his followers
concerning the correct lines along which to work to
obtain results. Of these some can be distinguished as
unsound only by close inspection of the histories and
affiliations of the individuals promoting them. Their
true character remains to be revealed when enthusiasm
for their supposed objectives has risen to such a
point as heavily to discount any revelation of the
kind. 

Unsteadied, the public mind swings from one error of
judgment to its opposite. The remedy, if there is a
remedy, obviously lies in proceeding steadily to
inform the public along .as many lines as possible at
once, with due regard to the greatest danger of the
moment. At the present moment, a great, if not the
greatest danger is that the root facts of our
situation may be lost sight of. The articles of 1932
go far to make these clear to the widest circle of
readers, and, not unnecessarily to limit this appeal,
a specific reference to the Scheme for Scotland
introducing the original articles has been removed.
There has been no further alteration. References to
the glut of produced goods, even now only partially in
suspense, have been retained. It does not require
unusual powers of discernment to grasp the fact that
the jeeps, tanks, aeroplanes, shells, etc., etc., of
our vast war production are really kitchen ranges,
electrical installations, aluminium saucepans,
fertilizers and POWER in an altered form, and that if
they were being offered for sale in the shops, the
public could not buy them. References to time present,
while they are in all cases references to 1932, are
relevant to 1943, a circumstance which in itself
reveals how little the realities underlying world
events have changed even in these years of change
usually dubbed momentous, and the exceptional power of
the author to penetrate to their real rneaning.
EDITOR. 

I 

CAN WE HAVE TOO MUCH WEALTH? 

Now I suppose no one would suggest that, even at the
present time, there is any serious shortage of
actually existing consumable goods—that is to say,
food, clothing, and, with certain reservations,
shelter from the weather. I have never met a tradesman
even yet (although I may if the present situation
persists) who complained that his difficulty was that
he could not get delivery of the goods on order. His
complaint is always that he cannot sell, certainly not
at a profitable price. So that it is quite certain
that if the general population had more purchasing
power they would get more goods than at the present
time, even if no more goods were produced. That is to
say, there is an actual surplus of consumable goods at
the present time, quite a considerable amount of which
surplus goods are wasted, or are sold at a loss to the
producer. 

Immense Sources of Real Wealth 

But having said this, we have only touched the fringe
of the situation. For every loaf which is baked, and
for every suit of clothes which is made, there
probably exists the potential capacity, even at the
present time, to produce three or four times as much,
even without the installation of fresh machinery. So
that behind the actual surplus of existing consumable
goods there is a surplus (in some cases such as, let
us say, that of shipbuilding and machinery-making, a
colossal surplus) of unused potential products. But
even this is not all. 

Behind the unused surplus of existing consumable goods
and the unused potentialities of existing productive
capacity there lies a huge undeveloped capacity to
extend our productive capacity. If anyone doubts that
let them consider the immense destruction of
productive capacity which has been systematically
carried out in this country since the war by the
break-up of industrial undertakings and the decadence
of industry. It is probable that the productive
capacity of Great Britain has been cut in half since
1920 by the deliberate policy of sabotage pursued by
the Bank of England, and it would have been still
further decreased had not inventive capacity,
organisation, and engineering skill still further
improved and increased the output per man-hour of
labour employed. 

So that there are three planes upon which it is true
to say we possess immense undrawn-upon sources of real
wealth. 

The "Scarcity Complex" 

Now the first trap into which we are likely to fall in
considering this matter is, in my opinion, not so much
as to whether we have at our disposal the means to
become materially wealthy, because I believe that
anyone who will regard the matter without prejudice
along the lines that I have just indicated can have no
doubt as to the truth of that suggestion. It is to
what extent, and for what fundamental purpose, we wish
to draw upon this capacity. 

Remember that, thanks to the illusion that a scarcity
of money is the same thing as a scarcity of wealth, we
are nearly all of us under the spell of what the
psychologists call a "scarcity complex." We cannot
believe that it is possible to have too much wealth of
a material kind. But it is easily possible to have too
much wealth. We could, for instance, no doubt
enormously increase the industrial capital value of
Scotland by developing every waterfall and' every
salmon river into a water power for hydro-electric
purposes, but I think myself that that would be a sad
day for Scotland. We could each and all of us have a
powerful loud-speaker in every room, but I hope we
never shall. 

So that we have to be very careful to see that we run
our productive system for the purpose of supplying all
the tangible wealth that we can, as individuals, use
with profit to ourselves, and do not, as at the
present time, allow it to be run for a number of
ulterior purposes, amongst which we might instance
that of a moral discipline, a hidden government, or a
system of rewards and punishments. 

The Money-Producing System 

Now it must be plain, from the co-existence in the
world at the present time of material poverty,
economic friction, a struggle for markets, and other
scarcity phenomena on the one hand, and the real and
potential wealth I have just indicated above on the
other hand—firstly, that money does not represent
wealth, because there is a scarcity of money and there
is not a scarcity of wealth; and, secondly, that our
primary concern is not with the wealth-producing
system but with the moneyproducing system. Or, to put
the matter another way, it seems very difficult to
deny that the first problem in dealing with the
situation is to make finance, or the money system,
reflect facts, and cease to let it control them. 

The facts, as we have seen or can ascertain, are that
a given amount of material wealth can be produced with
a diminishing amount of human labour, but that when
this wealth has been so produced the general public
cannot buy it because it has not enough money. Since
probably well over 85 per cent. of the money which is
distributed in industry is distributed in wages and
salaries, it is easy enough to see that the problem of
the mere distribution of purchasing power through the
agency of wages and salaries (as apart from its total
amount) becomes increasingly difficult as we get more
and more production with the aid of less and less
labour. 

Money and Prices 

But we also find that, apart from this question of the
distribution of purchasing power, there is not enough
purchasing power distributed to buy the goods which
are for sale if the production of these goods has been
financed by ordinary methods. There are many
contributory causes to this situation, but it is
probable that the main cause is due to the
reappearance in prices of the same sum of money
several times, a state of affairs which is rendered
possible by the splitting up of production into a
large number of processes. 

If each one of these processes was financed by a fresh
creation of money, which money remained in circulation
until the goods in respect, of which it was
distributed were finally destroyed (which is far from
the actual case), this situation would not arise. But,
unfortunately, even then we should be subject to other
technical difficulties connected with what is called
the "quantity theory" of money, which would result in
prices rising very considerably above costs where the
public had sufficient money to pay these increased
prices, thus robbing every wage-earner of part of the
value of his wages. In other words, a large additional
issue of money by existing methods. would tend to
produce the phenomena of what is called "inflation."
Many banking authorities, having for years quite
incorrectly described my own proposals as "disguised
inflation," are now calling for undisguised inflation
and a rise in prices. So that we have to find some
method of issuing the money in such a way that it does
not cause a rise in prices. 

II 

THE CASE FOR THE SOCIAL DIVIDEND 

It has frequently been stated that it is impossible to
issue money in such a manner as to cause a reduction
of prices. Perhaps the shortest answer to this is that
it is being done all over this and many other
countries at the present time. If I, having a capital
of a million pounds, manufacture an article of which
the cost of manufacture is £5, and by reason of bad
business methods, economic depression, or other
causes, am forced to sell the article for £4, I am
applying my private store of credit which I call my
capital of a million pounds, as a subsidy in aid of a
reduction of price to the extent of 20 per cent., and
I can go on doing it until I have sold a million
articles at a pound below cost. And I can continue to
do it if my bank will give me an overdraft. 

So, to put the matter another way, it is always
possible to arrange that the price of an article can
be paid from two sources—one source being the person
who buys the article, and the second source the person
who sells it if he sells it below the cost to him.
Now, if we imagine the general credit of the country 
(which is the source from which banks provide
overdrafts) to be substituted for the private credit
of the individual, the question as to whether we can,
at one and the same time, issue credit and lower
prices is obviously only limited by the question of
the quantity of credit that we can issue. 

Bank Control of Credit 

We know quite well that the mechanism for expanding
credit to a very large extent exists at the present
time, but we also know that this mechanism is at the
present time controlled by the banking system, that
every grant of aloan by a bank creates a deposit (or
an expansion of credit), and every repayment of a loan
destroys a deposit. Also every purchase of a security
by a bank expands credit. That is the same thing as
saying that when a bank buys shares or War Loan it
gets them for nothing—since the payment is made by
drawing a cheque upon itself. With certain
reservations it is quite obvious that a bank will not
dishonour a cheque signed by itself. When this cheque
is paid into some other bank again it creates an
increase in deposits--which is again an expansion of
credit. 

The same thing is true of the purchase of gold by the
Bank of England, which is merely paid for by a draft
upon the credit of the bank, the real value of this
credit being dependent on the willingness of the
British community to supply goods and services in
return for the credit and not upon any tangible value
owned by the bank which is handed over in exchange for
the gold. 

But the question will obviously arise in the mind of
the reader as to the limits to which this expansion of
credit, under proper conditios, can be carried. He may
say reasonably that there must be some limit to the
creation of new money, and he would be quite right.
What is that limit? 

Dynamic Economic System 

Now at this point we approach a somewhat more
difficult aspect of the subject, because the economic
system is not static, it is dynamic. Production and
wealth and consumption can only properly be measured
in rates. If we attempt to look at the matter from a
static point of view we are sure to make the mistake
which formed the point of the story regarding the
committee of "scientists" who, it is said, were asked
to report upon the nature of the hum in a humming top.
Their report was that: the whole subject was nonsense,
as they had taken the top carefully to pieces and were
able to report that there was absolutely no sign of
the existence of any hum! 

If we grasp this idea, we shall not find it difficult
to accept the statement that the wealth of a country,
and therefore the basis of its financial credit, is
not so much in the things that it actually possesses
as in the rate at which it can produce them. 

Now, the rate at which it can produce them is a
composite thing, because side by side with production
we always have consumption, so that we can say that
the net rate of production is the gross rate of
production minus the rate of consumption, and it is
also possible to say that the absolute cost of all
consumption is the rate of consumption divided by the
rate of production. 

Interesting Stage 

We are now getting to a very interesting stage,
because it is only a step further to say that if we
issue money at a rate corresponding to the rate of
production we ought not to take it back at the same
rate 
(which is what we do at the present time when we
charge all costs into prices), but we only ought to
take back at the rate of consumption, which results in
the startling conclusion that we ought to charge less
than cost for articles sold, even if the rate of
consumption as compared with the rate of production
remains constant. 

But we know that it does not remain constant. Every
improvement of process, machines, and the application
of power to industry increases the rate of production
without necessarily increasing the rate of
consumption, so that not only ought we to have the
prices of goods below cost, but we ought to have them
decreasing in relation to cost. So that the rate at
which we can issue additional credit is easily seen to
be dependent upon the rate of increase of productive
capacity, while the rate at which we take back
existing credit and the new credit should be dependent
upon the rate of consumption. 

Use of Purchasing Power 

So much for the general principles by which it is
possible to issue additional purchasing power, while
at the same time allowing prices to fall. What shall
we do with this additional purchasing power? Obviously
there are two things to be done with it. First of all
we have to make up the loss to the producer which he
would incur by selling his product below cost and to
allow him a reasonable remuneration in the form of
profit. But we shall, I think, find that we have to do
more than this, bearing in mind that every improvement
of process for a given level of consumption means the
displacement of labour. Leaving all humanitarian
principles out of consideration, it is not sensible to
produce more goods with a decreasing number of
individuals employed, unless we make provision that
the increasing amount of goods is consumed. So that we
have to find a method of providing what we call
"purchasing power," so that those individuals
displaced may get the goods which they are not
required to produce, and I think there is no doubt
that the conception of the dividend provides a perfect
mechanism for this. Necessity for Dividend System 

If anyone doubts the necessity for the dividend system
in addition to the wage and salary system, they will,
no doubt, have a perfect explanation for the fact that
as a result of the failure of many industrial concerns
to pay a dividend during the past few years purchases
of consumable goods of various kinds have declined to
such an extent that unemployment has increased, and
the amount distributed in wages and dividends has
consequentlydecreased. So, to put the matter another
way, it has been demonstrated, in my opinion quite
beyond contradiction, that you cannot keep the modern
productive system even moderately busy unless you have
an increasing number of people who are not employed in
it, but are using its products. 

That is the justification for the social dividend. If
I have made myself clear it will be seen both that it
is required, and can be provided, by methods which are
fully understood at the present time. 

III 

THE MONOPOLY OF CREDIT 

To realise the nature of the powers conferred upon the
holders of the monopoly of credit is to realise at
once that, human nature being what it is, any
suggestion designed to release the man in the street
from the power of this monopoly is certain to be
actively, if not openly, resisted. The monopoly is in
itself so indefensible, however, on the grounds of
reason or equity that a realisation of its nature is
quite sufficient to induce the banker (who in many
cases is a thoroughly well-meaning member of society)
to admit in private that it cannot continue. 

At the current meeting of the Scottish Ballkers'
Association a resolution was carried instructing the
committee to consider the terms which bankers should
ask on being confronted with nationalisation, it being
considered that this was bound to come. If for the
word "nationalisation" the phrase "socialisation of
credit" were substituted I should agree. 

Types of Criticism 

The criticism to which schemes designed to effect the
socialisation of credit (by which is meant its
distribution to individuals as distinct from its
monopoly by bankers) are subjected can in general be
separated into three classes. The first type is
anonymous, frequently disingenuous, and, in the main~
relies upon an attempt to make the subject ridiculous
rather than an appeal to reason. From its nature, and
probable origin there is not very much to be said
about it. 

The second type of criticism arises in the main from a
complete or partial failure to understand the existing
financial system, and a quite natural tendency to
disbelieve that the extraordinary state of affairs
which does, in fact, exist has not been exaggerated by
its critics. An exhortation to further study seems to
be the only reply to this class of objector. 

The third type of criticism is in general based on a
failure to appreciate the physical possibilities of
the modern economic system as distinct from its
financial features. Related to this latter class are
most of the serious criticisms which have been
advanced against the Scottish scheme of
reconstruction, which appeared in the pages of The
Evening Times of March 11. One correspondent based his
criticism on a suggestion that the Scottish capital
account could not be properly constructed so that a 1
per cent. dividend upon it would provide the national
dividend mentioned in that scheme. 

Capital Values 

Now, I confess that the first clause of that scheme
was specifically drafted to induce exactly that
criticism. There are many ways of arriving at capital
values, and fundamentally there is very little doubt
that the correct method of arriving at the capital
value of any property is not so much what it cost to
produce as the increased production which results from
it. We are accustomed to measure production in
monetary values, but if the dependence of monetary
values upon monetary policy is understood, there is no
difficulty. in grasping how illusive is such a method.


If I have a shipbuilding plant which cost one million
pounds to build, and it is making a loss of £100,000
per annum, I may value the plant at one million
pounds, but it is certain that nobody else will. On
the other hand, if by a change in monetary policy
consequent, let us say, on the outbreak of another
war, I am able to make an annual profit of £200,000
per annum instead of a loss of £100,000, it is quite
possible that numbers of people will agree that my
plant is now worth two million pounds. 

Now, the figures of the value of real assets are
consistently written down as a result of the operation
of a number of factors, none of which are realistic
and all of which are financial. In the first place,
rating values are based not on what a property cost
but on what it will let for, the owner doing the
repairs. Further, at the instance of banks and
insurance companies, there is a tendency to depress
capital values of real assets so as to increase the
amount of collateral security which has to be provided
by an applicant for a mortgage, which is another way
of saying that the maximum amount of property passes
into the hands of the financial system if or when the
mortgage is foreclosed. Much the same forces are at
work to insure that real property and plant is held on
the books of financial organisations or even big
industrial concerns at figures much below its real
value for productive purposes. It is probable, to take
one instance only, that the buildings belonging to the
five great groups of banks and their associated
insurance companies are shown upon the books of those
institutions at not more than one-tenth of their
value. 

So that in estimating the capital values of the assets
of, let us say, Scotland, there are two main ideas to
be borne in mind. In the first place, these values
have been consistently written down for reasons which
are not physical but are financial. And in the second
place, their earning power is conditioned not by their
physical utility but by financial policy, which again
produces an illusion of diminished assets. 

Simple Question 

So that we really come back to the problem of giving
an answer to a very simple question. Suppose we give,
as an initial step, the additional income mentioned in
the Scottish scheme to all the families entitled to
receive it, and suppose that they spend it in buying
goods at the reduced prices which would be provided
for everyone by that scheme, could those goods be
produced? I have no doubt whatever that they could
and, if space allowed, I do not think I should have
very much difficulty in proving that statement
conclusively. 

But what is quite indisputable, I think, by everyone
is that more goods could be produced than are produced
at the present time. Is there any sane person who does
not want to produce more goods than are produced now?
Certainly it is not the farmer nor the manufacturer,
always supposing they can get remunerative prices.
Certainly it is not the large bodies of unemployed
who, if we believe what they themselves say, are
anxious and willing to return to work on any
reasonable terms. Certainly it is not the shareholders
in those companies whose reduction in turnover is the
direct cause of their failure to pay dividends.
Certainly it is not the large landowner, whose land by
means of penal taxation is being appropriated, not for
the profit of the man in the street, but for the
benefit of financial institutions who are coming into
possession of all those parts of it which are valuable
enough to sustain a mortgage. 

Only One Cure 

With the best will in the world to find a more
complicated explanation of an extremely complicated
world situation, I find it impossible to arrive at any
conclusion other than that I endeavoured to put before
my kindly Scots audience at St. Andrew's Hall, and
that is that the main cause of the world's economic
difficulties at the present time is the same in every
country, and may be found in the annexation and
unjustifiable claim to the monopoly of public credit
by financial institutions. And fundamentally there can
only be one cure for this situation to place that
credit at the disposal of those from whom it
arises—that collection of individuals which we agree
to call "the public." 
-


     
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