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An Address delivered at the City Hall, Newcastle-on-Tyne, October
7th, 1932
by
MAJOR C. H. DOUGLAS, M.I., Mech.E.
· It is a fallacy that any one section of society is the
only sufferer from the present economic system. The evil effects
are by no means confined to any one class of society, although
it is commonly assumed that what is called ''labour'' is the chief
sufferer.
· It is not an unreasonable deduction that those classes
in which suicides, and therefore unbearable suffering, are most
frequent would also contain the largest proportion of bearable
suffering
· The problem is not, in any sense, a quarrel between the
"haves" and "have nots." It is not a class
problem. It is one which affects everyone.
· The present crisis is not of unemployment, (by unemployment
is commonly meant human unemployment). This fallacy is deeply
rooted.
· There is no difficulty, for anyone with money, in obtaining
all the goods and services.
· Our best brains have been at work for the past 100 (now
nearly 200) years, with the specific object of producing more
and more goods with less and less human labour.
· "Capitalism," might be defined as production
for profit. Including in this definition is administrative relations
between employers and employed… these relationships have
nothing to do with production for profit.
· What is it that the capitalistic system really claims
to do? Broadly, it is a system which enables people to combine
together under a suitable organisation, so that together they
can achieve results which the same number of people acting separately
could not achieve.
· In technical language, the capitalistic system is a system
of organisation designed to use real capital, that is, tools,
land, scientific knowledge, administrative ability, and many other
things, so as to produce something which we call "the unearned
increment of association."
· Get this idea very clearly in your mind, as it is probably
the most important idea that you can possibly assimilate at the
present time.
· Socialists made a colossal mistake in arguing about the
distribution of what they have called the "product of labour."
The product of labour has become increasingly unimportant as compared
with the unearned increment of association, that is, the product
of the machine.
· It is this unearned increment of association out of which
profits, not merely to the capitalist, but to so-called ''labour''
are paid.
· The community is, in a money sense, definitely becoming
poorer.
· The failure of the present economic system is not in production,
it is in distribution.
· Before tinkering with the production system, you ought
to make quite sure that other aspects, such as exchange and distribution,
are equally successful.
· If you have a production system which demonstrably produces
a glut of goods and services, and at the same time not only those
who work in it, but those who operate it, are getting poorer and
poorer, by which we mean they can get less and less of those goods
and services which the production system generates, there can
be only one place to look for the difficulty.
· That is in the link between production and consumption,
and that link is the money system.
· The nature and source of money. It is no use wanting goods
and services of any description, nor is it any use that those
goods and services shall be in existence and available, if your
request to be supplied with those goods and services is not backed
by something which we call money.
· Money and its source: Practically all money is actually
created by the banks, and claimed as their property.
· The situation we are faced with amounts to this -- no
matter what the physical realities in regard to food, clothes,
houses and luxuries, and no matter how abundant they may be, we
cannot obtain them without obtaining something which we call "money".
· All money is derived from the operations of the banking
system. Please be quite clear in your mind about this.
· But when a bank makes money, it makes money out of nothing,
it gives nothing, and lends everything. It has, as we say in technical
language, "a monopoly of credit."
· Only Social Credit seriously attacks the control over
human life and Industry which is exercised by the money system.
Be quite clear as to what is meant by this.
· The fundamental evil from which the world is suffering
at the present time is the control of its destinies by the money
system.
· The money system is an accounting system, and if properly
operated is of great value as an indication of what is going on
in the industrial and productive systems.
· The type of mind which is attracted to banking and finance
is not suited to deal with the highly technical organisation of
the modern world.
· This matter is so important and so little understood,
it must be made clear to you, even at the risk of some repetition.
If you look at the physical reality of the productive system in
the Western world today, you cannot fail to realise that we are
living in an age of material wealth and plenty.
· If you turn to the Press, which is paid to express the
views of the financial interests, you will be told that only severe
economy, lower wages, higher taxation, and other symptoms of severe
scarcity can be deduced from the present situation, and that we
have to accept them.
· It must be obvious to ordinary common sense that one set
of statements cannot reflect the condition depicted by the other
of statements.
· The proposals put forward seem to be unable to get away
from the idea, that it is the function of the barometer to control
the weather. The first step is to force those in charge of the
finance system to reconsider their position in the scheme of things.
· In the higher realms of financial circles the financier
regards himself as the vice-regent of God upon earth.
· The question of taxation is interwoven with this idea
of moral government by finance, and I am strongly of opinion that
the whole system of taxation, as at present understood, will eventually,
if not immediately, become obsolete. It is altogether too suggestive
of allowing the policeman to make the law and pocket the fine.
· It is a short step to the organisation of this country
into a co-operative commonwealth, which will not in the least
mean anything like the nationalisation of industry - while at
the same time organising the country in such a way that every
citizen shall draw a dividend from the activities of the community
as a whole -- as his or her inheritance.
THE NATURE OF THE PRESENT CRISIS AND ITS SOLUTION
An Address delivered at the City Hall, Newcastle-on-Tyne, October
7th, 1932,
by
Major C.H. Douglas, M.I., Mech.E.
The nature of the present crisis is complicated by the existence
of vested interests, each of them
anxious to maintain and increase its importance -- interests by
no means confined to one class or stratum of society, just as
the evil effects of the present crisis are by no means confined
to any one class of society, although it is commonly assumed that
what is called "labour" is the chief sufferer.
Because I speak to-night entirely without any personal interest
to serve, representing neither any special class nor any special
business interest, and am merely concerned to tell you the truth
(which, I imagine, is a somewhat novel and not necessarily pleasant
experience), one of the first fallacies that I should like to
expose is that any one section of society is the only sufferer
from the present economic system. So far as I am aware, there
is practically no method by which it is possible to obtain statistical
information as to bearable suffering, and only one method by which
to obtain information in regard to unbearable suffering, and this
latter is furnished by the statistics of suicides, and it is not
an unreasonable deduction that those classes in which suicides,
and therefore unbearable suffering, are most frequent would also
contain the largest proportion of bearable suffering. We find
that the percentage of suicides, besides increasing at an appallingly
rapid rate per 100,000 of the population, is higher in classes
which are commonly supposed to be more fortunately situated from
an economic point of view than in those commonly classed as destitute.
My object in touching upon this is to emphasise that this problem
with which we are attempting to deal to-night is not in any sense,
as commonly supposed, one which can be regarded as being a quarrel
between the "haves" and "have nots." It is
not a class problem. It is one which affects everyone.
Another fallacy is that the present crisis is a crisis of unemployment,
and that it would he solved if unemployment were eliminated (by
unemployment is commonly meant human unemployment) . This fallacy
is deeply rooted, because the ordinary man finds it extremely
difficult to separate the idea of unemployment from privation
and poverty. But, in fact, all our best brains have been at work
for the past lot) years, or more, With the specific object of
producing unemployment, or, in other words, of producing more
and more goods with less and less labour. In addition to that,
the unemployment which exists at the present time is not merely
unemployment of human labour, but is also, and to an increasingly
large extent, unemployment of plant and yet there is no difficulty,
for anyone with money, in obtaining all the goods and services
which they can possibly require. incidentally, if the problem
were one of employment, its obvious solution would be to destroy
as much plant as possible, much after the manner of the Luddites
a hundred years ago, and to set everyone to work again by the
most primitive methods.
A broader generalisation, very popular in Labour politics, is to
attribute all our present troubles to something which is called
"Capitalism," which is not generally defined, but which,
I suppose, might fairly be defined as production for profit, including
in this definition administrative relations between employers
and employed, although, in fact, these relationships have nothing
whatever to do with production for profit, and are not sensibly
different in a Government Department.
Now, curiously enough, it never seems to occur to those who complain
of production for profit that the so-called capitalistic system
always works worst when no producer is making a profit, which
is, broadly speaking, the case at the present time. It is an astonishing
fact, well worthy of note, that the capitalistic system, in the
sense in which it is commonly understood, survives shocks and
attacks which one would imagine would be quite sufficient to overthrow
it, and one of the greatest dangers with which, in my opinion,
the world is faced at the present time would be that by superhuman
exertion, those in control of the money system will put into operation
such arrangements as will permit the capitalistic system to recover
for a time, because I feel confident that if such amelioration
can be arranged, the world at large will be only too pleased to
return to work on the old terms. So that it is much more correct
to say that it is not the capitalistic system, but the breakdown
of the capitalistic system, or in other words, the inability of
the capitalistic system to do what it claims to he able to do,
and as, in fact, in the past to some considerable extent it succeeded
in doing, that is the more obvious cause of our present troubles.
Now what is it that the capitalistic system really -claims to do?
I think that broadly speaking it would
be fair to say that it is fundamentally a system which enables
people to combine together tinder a suitable
organisation, so that by combining together they can achieve results
which the same number of people acting separately could not achieve.
To put the matter in technical language, the capitalistic system
is a system of organisation designed to use real capital, by which
I do not mean money, but tools, land, scientific knowledge, administrative
ability, and many other things, so as to produce something which
we call the unearned increment of association." I want you
to get this idea very clearly in your mind, as it is probably
the most important idea that you can possibly assimilate at die
present time. In my opinion, Socialists have made a colossal mistake
in arguing about the distribution of what they have called the
"product of labour". The produce of labour is becoming
increasingly unimportant as compared with the unearned increment
of association, to which I have referred, the product of the machine.
Now, it is this unearned increment of association out of which
profits, not merely to the capitalist, but to so-called "labour"
are paid, and we do not know of any method by which these profits
representing the unearned increment of association can he paid,
either to labour or capital, except by something called
"money." And if, as is most unquestionably the case,
there is an enormous and increasingly unearned increment of association
and yet on the whole, the community is not only not making profits,
but is, in a money sense, definitely becoming poorer, we are,
I think, inevitably driven to the conclusion that this breakdown
of capitalism has nothing whatever to do with the organisation
of production, but baa everything to do with the money system.
I am not suggesting that the organisation of production is perfect,
because I am sure it is not, and I think that by its aggregation
into large, unwieldy units it is becoming worse rather than better,
hut I am quite confident that it is not in the organization of
production that our difficulty lies, and that no reorganisation
such as, for instance, nationalisation in place of what is commonly
called "private ownership,'' would in itself affect any change
for the better, and might easily result in a very definite change
for the worse. The failure of the present economic system is not
in production, it is in distribution.
At this point it may be helpful to deal shortly with the object
lesson provided by Russia, since there
are large numbers of people in this country and else where, by
no means confined to any one class of society, who regard Russia
as a model for reconstruction. Now, I think that no serious student
of these
matters can have failed to regard the Russian experiment with
the most profound interest, and further, to have felt their sympathy
increased rather than diminished by the flood of inaccuracies
and biassed propaganda which has been a general feature, at any
rate of the London press, for the past fourteen years. I have
myself been in fairly close touch with reliable sources of information,
and have discussed Russia at first hand with Soviet officials.
I know Mr.Polakov, the American Consulting Engineer to the Soviet
Government, and have within the last few months discussed industrial
affairs with Mr. Stewart, who is Mr.
Polakov's partner in Russia, and I think that the first point
on which to be quite clear is that the problem facing the Russian
people at the present time, and for some considerable time to
come, is fundamentally and radically different from the problem
with which we have to deal in Europe end America. It is a problem
of actual scarcity, and therefore is a problem of production,
whereas our problem is a problem of glut, and is therefore not
a problem of production at all, but is a problem of distribution.
It will be many years under the most favourable circumstances
before Russia begins to arrive at the situation which is common
elsewhere, and I see no indication that the methods by which Russia
is solving her problems of production are in any way fundamentally
different to those by which they have been solved elsewhere. That,
of course, is why there is no unemployment in Russia.
I might go so far as to say that I have strong doubts as to whether
these problems of production are being solved so successfully
as they would have been by merely turning Russia over to contractors
for what is commonly called "exploitation," but however
that may be, so far as our particular problems are concerned,
it cannot be too clearly understood that we cannot in the nature
of things hope to learn anything from Russia.
I have touched upon this for two reasons, the first of which is
that a number of persons, whose confidence in dealing with industrial
problems is only equal to their complete ignorance of them, are
demanding that what is required for this country is a Five-Year
Plan. It seems to me that where you have in operation a production
system which has been even more successful than is necessary,
that even if it is not perfect, you ought to make quite sure that
the other aspects of your economic system, those of exchange and
distribution, are equally successful before you begin to tinker
with it. And the second reason is that I am confident that, so
far from being hostile to the state of affairs in Russia, the
international financial groups are beginning to look upon Russia
with great favour as providing a field for their activities of
exactly the type that they desire, which is to have control without
responsibility. The so-called rationalisation policy of the Bank
of England is definitely aimed at the same organisation as the
Five-Year Plan, and we all know the state of affairs that it has
produced in Lancashire and in the ship-building industry. The
head of a well-known trust associated with the Bank of England
is speaking openly in favour of a Five-Year Plan for England.
If, then, we cannot, in fairness, look to the productive system
for the root of our troubles, where must we look? I think the
answer is simple and obvious. If you have a production system
which demonstrably produces a glut of goods and services, and
at the same time not only those who work in it, but those who
operate it, are, as the phrase goes, getting poorer and poorer,
by which we mean they can get less and less of those goods and
services which the production system generates, there can be only
one place to look for the difficulty, and that is in the link
between production and consumption, and that link is the money
system.
I do not think that an occasion of this character is particularly
suitable for dealing with technical details, but certain general
ideas are indispensable to any understanding of the situation
in which we find ourselves. Unquestionably, the first of these
is that of the nature and source of money. As to its nature, I
think it is sufficient to say that money is an effective demand
for goods and services, by which I mean that it is no use wanting
goods and services of any description, nor is it any use that
those goods and services shall he in existence and available if
your request to be supplied with those goods and services is not
backed by something which we call money. Now the second point
in regard to money is as to its source, and I will put this as
shortly as possible by saying that practically all money is actually
created by the banks, and claimed as their property. There is
now no argument possible about this, nor is it, in fact, denied
by bankers themselves. So that the situation in which we are faced
amounts to this -- that no matter
what are the physical realities in regard to food, clothes, houses
and luxuries, and no matter how abundant they may be, we cannot
obtain them without obtaining something which we call "money,"
and all money is derived from the operations of the banking system.
Please be quite clear in your mind about this. When the employer,
the so-called "capitalist," says that he is making money,
what he means, and what he only can mean, is that he is making
goods for which he gets money which previously belonged to someone
else. He is simply exchanging goods for money, but when a bank
makes money, it makes money out of nothing, it gives nothing,
and lends everything. It has, as we say in technical language,
"a monopoly of credit."
Now there are quite a number of people who are beginning more
or less vaguely, to understand this, and they are by no means
confined to any particular interest or class, and, as a result,
a number of suggestions, almost as numerous as the numbers of
suggesters, are beginning to he made in regard to modification
of the banking system, to none of which, I need hardly say, do
the bankers pay much attention. But it is fair to say that, so
far as I am aware, no one of these, other than proposals which
have been put forward under the name of Social Credit, seriously
attacks the control over human life and Industry which is exercised
by the money system as such. I want you to be quite clear as to
what I mean by this. It is quite possible, and not very difficult,
and it is in fact, being done at the present time by means of
inflation, to go some considerable way towards relieving a business
depression such as that in which the world has been plunged for
the last four years, just as it is most unquestionably true that
that business depression was proximately caused by what is called
"deflation." But you do not fundamentally alter the
control of an engine by its throttle valve if you open its throttle
valve and make the engine run faster, and it is, at any rate,
my opinion that the fundamental evil from which the world is suffering
at the present time is the control of its destinies by the money
system at all.
To push the metaphor, it is not reasonable to slow down an electric
light engine when the price of coal goes up. Looked at from any
sane point of view, the money system is an accounting system,
and if properly operated is of great value as an indication of
what is going on in the industrial and productive systems. It
is, as one might say, a barometer, or, if you prefer it, a pressure
gauge, to indicate the state of affairs in business or industry
in a highly convenient form, but it is just as sensible to suggest
that the barometer should control the weather as it is to suggest
that the money system ought naturally to control the industrial
system. The business of a money system or a barometer is to indicate,
not to control. Entirely apart from the fundamental and technical
unsuitability of the money system as a system of government, which
is what it is at the present time, the type of mind which is attracted
to banking and finance is not suited to deal with the highly technical
organisation of the modern world.
This matter is so important and so little understood that I must
try to make it clear to you, even at the risk of some repetition.
If you look at the physical reality of the productive system in
the Western world today, you cannot fail to realise that we are
living in an age of material wealth and plenty. Not only are the
shops full of goods, of all descriptions; not only in corn, coffee,
rubber, all the metals, and, in fact, ever raw material so much
in excess of requirements that practically all producers arc engaged
in all sorts of schemes to endeavour to stem the flow of real
wealth, but nearly every farm and factory in this and almost every
other country, with the exception of Russia, is working much less
than a quarter of its possible output. Yet, if you turn to the
Press, and more particularly to the London Press, which is paid
to express the views of the financial Interests, you will be told
that only severe economy, lower wages, higher taxation, and other
symptoms of severe scarcity can be deduced from the present situation,
and that we have to accept them. Now I think it must be obvious
to
ordinary common sense that one set of statements cannot reflect
the condition depicted by the other of statements. Either I am
deluded in telling y that there is plenty of corn, coffee, rubber
and ma materials, or else, a set of financial figures, which says
that we must economise because there is not enough, must be false.
In other words, it is impossible that these figures can be a reflection
of the facts. So that the first essential in dealing with the
situation which arises out of this conflict of facts and figures
is correct the figures. I would point out to you that what the
financiers tell us to do is to correct the fact which is some
indication of the state of mind which too much concentration on
figures will drive people. Having corrected the figures so that
we are in possession of statistics as to what it is we have to
distribute, the radical differences which I suggest to you as
necessary is that we should decide on the distribution as a conscious
act of policy, and not let those figures in themselves control
the distribution.
The complaint that I, myself, have to make about man y of the proposals
which are now becoming so common in regard to the financial system,
is that they seem to be unable to get away from the idea to which
have previously referred, that it is the function of the barometer
to control the weather.
You may quite properly ask me how these somewhat general statements
can be translated into something which will form a basis for action.
The first step in my opinion, is to force those in charge of the
finance system to reconsider their position in the scheme of things.
It is quite beyond dispute that in the higher realms of financial
circles the financier regards himself as the vice-regent of God
upon earth. The late Mr
J. Pierpont Morgan, who, without using unrestrained language,
might be regarded as one of the largest- scale buccaneers the
world has ever known, left detailed instructions as to his funeral,
and amongst these instructions was the request that the hymn,
'For all Thy saints who from their labours rest," be sung
at his funeral. I honestly believe people like Mr. Montagu Norman,
who in his capacity as Governor
of the Bank of England, has been directly responsible for more
mental and physical misery in the last twelve years than any other
living man, are under the impression that it is their divinely
appointed prerogative to discipline the country. As I have just
said, it is an idea of which they must be disabused, gently if
possible but disabused anyway. We must, then, clear up the defects
and inaccuracies of the financial system itself, in which is included
the price-making system as well, and quite as importantly as that
portion of the system which deals with the issue of credit or
purchasing power.
The question of taxation is interwoven with this idea of moral
government by finance, and I am strongly of opinion that the whole
system of taxation, as at present understood, will eventually,
if not immediately, become obsolete. It is altogether too suggestive
of allowing the policeman to make the law and pocket the fine.
When we have got so far as that it will, in my opinion, be a comparatively
short step to the organisation of this country into a co-operative
commonwealth, which will not in the least mean anything like the
nationalisation of industry, it is perfectly possible to retain
and to extend the present system of private administration and
private property, while at the same time organizing the country
in such a way that every citizen shall draw a dividend from the
activities of the community as a whole, of such magnitude that
almost immediately poverty, financial anxiety, economic depression,
and all other features of our present social system will disappear
like the bad dream that they are. Let no one suppose from this
that I am suggesting a state of affairs in which all men and women
will be equal. Men and women never were equal, are not equal at
the present time, and, in my opinion, never will he equal, but
their inequalities rest on a far more fundamental basis than that
of differences in a bank pass-book, and the abolition of such
artificial inequalities will not only bring into the light of
day the real difference in individuals, but will secure by common
consent their general acceptance.
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