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The Thoughts of Douglas

Part I II III IIIA IV V VI VII VIII IX

P R E D I C T I O N S

… I am convinced that if you go along the lines that you are following at present, and if you continue along those lines for any considerable period of time ... I am perfectly certain that you are heading for the most terrific disaster the mind of man can conceive. From Evidence by Major C.H. Douglas before Select Standing Committee on Banking and Commerce, House of Commons, Canada, April 1923.

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The SUPREME STATE, PLANNING, and SCARCITY

I will put the objective as I see it for your consideration in a very general form and that is, we want to establish a correct relationship between the individual and the group so that the group, and the attributes of the group shall serve the individual and not the Individual be the slave of the group.

The whole of society exists from my point of view - it may not be yours - but from my point of view the whole of society exists for the benefit of the individual. ... The great danger at the present time is not that the present financial system will persist ... but that under the confusion that will exist as a result of the crises caused by the breakdown of the financial system, an even greater tyranny may be put over on you as in the cases of many countries at the present time, and which is in active progress in still more countries even as I speak.
That is the danger, and you must keep in your minds, to avoid that danger, some clear objective, and that objective, the proper relationship of the individual to the group, is in my opinion, the relationship and objective to which we want to strive. ...

We are at the present time unquestionably under the domination of a financial system, which rules us. It rules us in our most basic necessities; the necessity for bed, board and clothes, and the other things that go to make up the standard of living. But we do not want to transfer that domination from, let us say, what we can call the banking, system under another name to something we call the State.
We have no desire whatever if we will analyse what our objective is, to change one master for a still more powerful master. That is one of the greatest dangers at the present time - that large bodies of people will be carried away by words of which they have not analysed the meaning. ... The opponents in this matter - we will put it on its lowest terms - can either allow the world to be plunged into another great delirium tremens, another great World War, or the opponents themselves can take steps to change the system. Now I have myself no doubt as to what is happening at this particular time, and that is that the opponents are endeavouring to change the system and the endeavour is being made to change over from the tyranny of finance to a tyranny of administration. That is being pursued with extraordinary sagacity.
It is coming in many nations, at this particular moment almost under your very eyes. ...

In Great Britain the phrase under which this change is taking place is called Rationalisation or Planning; in Italy as the Fascisti or Corporate State; in Russia it is the Dictatorship of the Proletariat ... and is being aimed at in Germany by the Nazis … Whether it be by accident or design, the world is steadily moving over from a financial tyranny which has both the elements of breakdown and has also been found out to another tyranny, a tyranny of administration ... the setting up of an entire State which can say, "You shall do so and so". "You shall have such and such rations". "You shall live in such and such a house, you shall work such and such hours". "You shall be taught such and such things". "And any deviation from those laws which we lay down for you will be penalised by either starvation or by all the rigours of the law".
Extracts from a speech by Major C.H. Douglas at Calgary, Alberta, Canada, April, 1934.

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THE COMING CRISIS - WORLD WAR TWO

"You have two alternatives; you can drift passively through concealed stages to an absolute dictatorship of finance as suggested in the New Deal where you have a cabinet, a dictatorship of three or four who will do exactly what the big financiers and manufacturers want them to do, and will subordinate the ends of the common man to the social interests of this or that industry.
This insistence upon production all over the world, as though the problem were one of production, is a matter that is hypnotising people into assuming that they must be regimented in industry...
If you allow this thing to go passively you will be regimented through various stages until we arrive at an effective dictatorship in which nothing can be done, and we shall be hurried by the inevitable results into either another world war, which is looming up very fast at the present time, or one long series of revolts and ultimate chaos. That is one of the paths, which you can follow...

The other path is take a hand in your destiny and say, no, I can say quite fearlessly that the world is faced with a succession of dictatorships, and I am willing to take the risk of trying a real democracy as a very much preferable alternative. The game is in your hands, as they say at Monte Carlo. Make your play faites vos jeux. The game will not wait.
It will take one direction or another at the very longest, within the next five years."
Address by Major C.H. Douglas on February 1st 1935.

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THE OUTBREAK OF WORLD WAR TWO

... All we can say is that the time is so short that we must use all those energies... wisely... in the hope - I believe it to be a forlorn hope that we may avert a great catastrophe... Within the next two or three years; I will say, in spite of my well known objection to prophesying in terms of time, certainly within the next five, years ... We shall enter this critical period in the autumn, for if it has not already actually begun, we are at any rate in what may be described as the foothills.
C.H. Douglas speaking in England, July 1935.

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THE WAR AIMS 1939-1945

"It is therefore, I think, quite possible to state the real as distinct from the proximate objectives of the present war.
They are; (1) The establishment of the International Police State on the Russian Model, beginning with Great Britain.
"Can we finally rid Europe of barriers of caste and creed and prejudice? ...
our new civilisation must be built through a world at war.
But our new civilisation will be built just the same."

(Mr. Anthony Eden, broadcasting to America, 11.9.39.)
This contemplates the complete abolition of civil rights.
(2) The restoration of the Gold Standard and the Debt System. (
3) The elimination of Gt. Britain in the cultural sense, and the substitution of Jewish-American ideals. (
4) The establishment of the Zionist State in Palestine as a geographical centre of World Control, with New York as the centre of World Financial Control."
Whose Service is Perfect Freedom by C.H. Douglas, September 23rd, 1939.

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S Y N O P S I S
Part 1 The Political and Economic Problem - General Survey:
Individual Initiative- The Institution exists for the Individual - The Policy of Centralisation of Power Its Effects - Material and Intellectual - Environment The Socialist Error - Pyramidal Organisation and its effect on Personality - Methods of Industrial Organisation General Dissatisfaction of Workers and Consumers Summary.

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Part 2 The Financial System: Money - Its Nature and Origin - Division of Labour and Process - Money not Wealth or Production - Control by Money - The Creation and Destruction of Money by the Banking System - Addendum; Authorities other than Douglas (Macmillan Committee, Patterson, Hawtrey, Colin Clark) - Dangers of ill-informed criticisms of Financial System - Fallacy of tank Nationalisation - Bank of England before and after Nationalisation - State-issued money, abolition of interest and other errors of certain monetary reformers Price Structure, acquisition of Interest-bearing Securities 'and Taxation the real issues. - Parallel passages on the power of finance from H.H. Pope Pius XI and C.H. Douglas.

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Part 3 The Price System Costs and Purchasing Power: Economic problem - Root causes resident in Financial and Price systems - The "Produce More" cry - Production and the generation of costs and distribution of purchasing power -The fallacy of "More Production" - The orthodox view of the relation between prices and purchasing power, Enormous increase of world debt proof that financial price system is not self-liquidating - The A plus B Theorem, Saving, and the Repetition of Payments Increasing Prices Reply by Douglas to criticisms of Professors Copland and Robbins.

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Part 4 Effects on Prices of Unregulated Issue and Recall of Credit,: Real Causes of Inflation - Community does not control Credit-issue or Price-making - Why Consumers' Goods are scarce and Capital Goods abundant - Cost of Living constantly rising under present system - Summary of defects in Credit-issue and Price-making - Industrial Depression and Deflation the result of Financial Policy -Paradox of Poverty amidst Plenty - Its resolution not complete solution of present problems - Some absurdities of present economic and financial systems.

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Part 5 Employment: Full employment and Materialism - Basic guiding principle Power production and its effects - Two inducements to employment - Work as a means and not as an end - Error of Organised Labour attitude to employment - Results of "Full Employment" inevitably disastrous - Leisure and pseudo-morality.

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Part 6 Principles of Financial and Economic Reform - The Just Price and the National Dividend: Price - making and continual depreciation of the currency - True Price the ratio that total consumption bears to total production - The National Dividend - Its justification - Statement of General Principles necessary to effective reform - Model of relationships involved - The Just (or Compensated) Price - The price factor - Real and Financial Credit - Where the Money is to come from.

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Part 7 Political Philosophy of Social Credit - The Nature of Democracy: Democracy and Majority Rule - Ballot-Box majorities devices for despoiling minorities -Perversion of Democratic Theory ... Majorities and the Fuhrerprinzip - Freedom and Liberty - Realistic Constitutionalism, Christianity, The British Constitution , Russia and Professor Laski - Common Law derived mainly from the Church, not from electorate - Successful Constitutionalism Organic - Magna Carta, the Church of England, the Constitution and the Church - Equalitarianism unnatural - Planning and the Rule of the Expert - Power and Responsibility - The Strategy of Reform - The Political Vote - Individual must accept responsibility for his vote - Substitution of open, recorded and responsible vote for Secret Franchise - A place for the secret ballot.

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Part 8 World Control: Political Zionism, Freemasonry, Communism - Causes ultimate and proximate of world unrest - Increasing separation of ownership from control - Russia - some observations - Money and Social Welfare - Exports and Imports - Money Goods and Prices - Bretton Woods - Individualism - Hydro-Electric Scheme and Schemers.

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P A R T 1

THE POLITICAL AND ECONOMIC PROBLEM


GENERAL SURVEY
From "Economic Democracy" First edition (1920), by C.H. Douglas Chapter 1

It is suggested that the primary requisite is to obtain in the re-adjustment of the economic and political structure such control of initiative that by its exercise every individual can avail himself of the benefits of science and mechanism; that by their aid he is placed in such a position of advantage, that in common with his fellows he can choose, with increasing freedom and complete independence, whether he will or will not assist in any project which may be placed before him.

The basis of independence of this character is most definitely economic; - it is simply hypocrisy, conscious or unconscious, to discuss freedom of any description which does not secure to the individual, that in return for effort exercised as a right, not as a concession, an average economic equivalent of the effort made shall be forthcoming.

Institutions exist, to serve Individuals
Chapter 2
Accepting this statement (systems were made for man, and not men for systems) as a basis of constructive effort, it seems clear that all forms, whether of government, industry or society must exist contingently to the furtherance of the principles contained in it. If a State system can be shown to be inimical to them it must go; if social customs hamper their continuous expansion - they 'must be modified; if unbridled industrialism checks their growth, then industrialism must be reined in.
That is to say, we must build up from the Individual, not down from the State.

It is necessary to be very clear in thus defining the scope of our inquiry, since the exhaltation of the State into an authority from which there is no appeal, the exploitation of a public opinion which at the present time is frequently manufactured for interested purposes, and other attempts to shift the centre of gravity of the main issues; these are all features of one of the policies which it is our purpose to analyse.
If, therefore, any condition can be shown to be oppressive to the individual,, no appeal to the desirability in the interest of external organisation can be considered in extenuation; and while cooperation is the note of the coming age, our premises require that it must be the cooperation of reasoned assent, not regimentation in the interests of any system, however superficially attractive.

The Policy of Centralisation of Power and its Effects
The second great factor in the changes which have been taking place during the final years of the epoch just closing is undoubtedly the marshalling of effort in conformity with well-defined principles. ... They may be summarised as a claim for the complete subjection of the individual to an objective which is externally imposed on him; which it is not necessary or even desirable that he should understand in full; and the forging of a social, industrial and political organisation which will concentrate control of policy while making effective revolt completely impossible, and leaving its originators in possession of supreme power.

This demand to subordinate individuality to the need of some external organisation, the exaltation of the State into an authority from which there is no appeal (as if the State had a concrete existence apart from those who operate its functions), the exploitation of "public opinion" manipulated by a Press owned and controlled from the apex of power are all features of a centralising policy commended to the individual by a claim that the interest of the community is thereby advanced ……… ….

Thus far we have examined the psychological aspect of control exercised through power. Let us turn for a moment to its material side. Inequalities of circumstance confront us at every turn. The vicious circles of unemployment, degradation and unemployability, the disparity between the reward of the successful stock-jobber and the same man turned private soldier, enduring unbelievable discomfort for eightpence per day, the gardener turned piece-worker, earning three times the pay of the skilled mechanic, are instances at random of the erratic working of the so-called law of supply and demand.

In the sphere of politics it is clear that all settled principle other than the consolidation of power, has been abandoned, and mere expediency has taken its place. The attitude of statesmen and officials to the people in whose interests they are supposed to hold office, is one of scarcely veiled antagonism, only tempered by the fear of unpleasant consequences.
In the State services, the easy supremacy of patronage over merit, and vested interest over either, has kindled widespread resentment, levelled not less at the inevitable result, than at the personal injustice involved.

In its relations with labour, the State is hardly more happy. In the interim report of the Commission on Industrial Unrest, the following statement occurs: "There is no doubt that one cause of labour unrest is that workmen have come to regard the promises and pledges of Parliament and Government Departments with suspicion and distrust."

In industry itself, the perennial struggle between Capital and Labour, on questions of wages and hours of work, is daily becoming complicated by the introduction of fresh issues such as welfare, status and discipline, and it is universally recognised that the periodic strikes which convulse one trade after another, have common roots far deeper than the immediate matter of contention.

In the very ranks of Trade Unionism, whose organisation has become centralised in opposition to concentrated capital, cleavage is evident in the acrimonious squabbles between the skilled and unskilled, the rank and file and the Trade Union official. Although the diversion of the forces of industry to munition work of, in the economic sense, an un-reproductive character has created an almost unlimited outlet for manufactures of nearly every kind, it is not forgotten that before the war the competition for markets was of the fiercest character and that the whole world was apparently overproducing; in spite of the patent contradiction offered by the existence of a large element of the population on the verge of starvation (Snowden Socialism and Syndicalism), and a great majority whose only interest in great groups of the luxury trades was that of the wage-earner.

The ever-rising cost of living has brought home to large numbers of the salaried classes problems which had previously affected only the wage earner. It is realised that "labour-saving" machinery has only enabled the worker to do more work; and that the ever-increasing complexity of production paralleled by the rising price of the necessaries of life, is a sieve through which out and forever out go all ideas, scruples and principles, which would hamper the individual in the scramble for an increasingly precarious existence.

We see, then, that there is cause for dissatisfaction with not only the material results of the economic and political systems, but that they result in an environment which is hostile to moral progress and intellectual expansion; and it will be noticed in this enumeration of social evils, which is only so wide as is necessary to suggest principles, that emphasis is laid on what may be called abstract defects and miscarriages of justice, as well as on the material misery and distress which accompany them. The reason for this is that the twin evil (common more or less to all organised Society) of servility is poverty, as has been recognised by all shades of opinion amongst the exponents of Revolutionary Socialism.

Poverty is, in itself a transient phenomenon, but servility (not necessarily, of course, of manner) is a definite component of a system having centralised control of policy at its apex; and while the development of self-respect is universally recognised to be an antecedent of any real improvement in environment, it is not so generally understood that a world-wide system is there by challenged.

In referring the existent systems to the standard we have agreed to accept, however, it seems clear that the stimulation of independence of thought and action is a primary requirement, and to the extent to which these qualities are repressed, social and economic conditions stand condemned as undesirable.

Chapter 3
We am thus led to inquire into environment with a view to the identification, if possible, of conditions to which can be charged the development of servility ... and in this inquiry it is necessary to avoid the real danger of mistaking effects for causes, and, further, to beware of seeing only one phenomenon when we are really confronted with several.

The Fallacy of Socialism
For instance, that from the misuse of the power of capital many of the more glaring defects of society proceed is certain, but in claiming that in itself the private administration of industry is the whole source of these evils, the Socialist is almost certainly claiming too much, confounding the symptom with the disease and taking no account of certain essential facts. It is most important to differentiate; in this matter between private enterprise utilising capital, and the abuse of it. ...

The danger which at the moment threatens individual liberty far more than any extension of individual enterprise is the Servile State; the erection of an irresistible and impersonal organisation through which the ambition of able men, animated consciously or unconsciously by the lust of domination, may operate to the enslavement of their fellows.

Nationalisation not the Remedy
In attacking capitalism, collective Socialism has largely failed to recognise that the real enemy is the will-to-power, the positive complement to servility, .... and that nationalisation of all the means of livelihood, without the provision of much more effective safeguards than have so far been publicly evolved, leaves the individual without any appeal from its only possible employer and so substitutes a worse, because more powerful tyranny for that which it would destroy.

It is a most astonishing fact that the experience of hundreds of thousands of men and women in such departments as the Post Office has not been sufficient to impress the public with the futility of mere nationalisation.

World-wide Movement towards Centralised Control
Because the control of capital has given power, the effect of the operation of the will-to-power has been to accumulate capital in a few groups, possibly composed of large numbers of shareholders, but frequently directed by one man; and this process is quite clearly a stage in the transition from decentralised to centralised power. This centralisation of the power of capital and credit is going on before our eyes, both directly in the form of money trusts and bank, amalgamations and indirectly in the confederation of the producing industries representing the capital power of machinery.

It has its counterpart in every sphere of activity; the coalescing of small businesses into larger, of shops into huge stores, of villages into towns, of nations into leagues, and in every case is commended to the reason by the plea of economic necessity and efficiency. But behind this lies always the will-to-power, which operates equally through politics, finance or industry, and always towards 'centralisation ....

Chapter 4

... We are, therefore, faced with an apparent dilemma, a world-wide movement towards centralised control, backed by strong arguments as to the increased efficiency and consequent economic necessity of organisation of this character (and these arguments receive support from quarters as widely separated as, say Lord Milner and Mr. Sydney Webb), and, on the other hand, a deepening distrust of such measures bred by personal experience and observation of their effect on the individual.

A powerful minority of the community, determined to maintain its position relative to the majority, assures the world that there is no alternative between a pyramid of power based on toil of ever-increasing monotony, and some form of famine and disaster; while a growing and ever more dissatisfied majority strives to throw off the hypnotic influence of training and to grapple with the fallacy which it feels must exist somewhere.

Personality and Organisation
Now let it be said at once that there is no evasion of this dilemma possible by the introduction of questions of personality - a bad system is still a bad system no matter what changes are made in personnel. The power of personality is susceptible of the same definition as any other form of power, it is the rate of doing work; and the rate at which a given personality can change an organisation depends on two things; the magnitude of the change desired, and the size of the organisation.

As it is hoped to make clear, the effect of a single organisation of this pyramidal character applied to the complex purpose of civilisation produces a definite type of individual....
Pyramidal organisation is a structure designed to concentrate power, and success in such an organisation sooner or later becomes a question of the subordination of all other considerations to its attainment. For this reason the very qualities which make for personal success in central control are those which make it most unlikely that success and the attainment of a position of authority will result in any strong effort to change the operations of the organisation in any external interest, and the progress to power of an individual under such conditions must result either in a complete acceptance of the situation as lie finds it, or a conscious or unconscious sycophancy quite deadly to the preservation of any originality of thought and action.

It cannot be too heavily stressed at this time that similar forms of organisation, no matter how dissimilar their name, favour the emergence of like characteristics, quite irrespective of the ideals of their founders, and it is to the principles underlying the design of the structure, and not to its name or the personalities originally operating it, that we may look for information on its eventual performance.

The Methods of Industrial Organisation
It may be well therefore to consider briefly the usual methods, which the modern industrial system has developed to deal with the organisation of large numbers of individuals to the end that their combined effort may result in commercial success. Very broadly the main difference lies between what may be defined as the military and the functional systems of control, or some combination of the two, and these involve an interesting difference of conception.

As we have seen, the development of industrial activity has been, very largely a practical application of the economic proposition in regard to the division of labour; the "military" organisation conceives a large business or Government Department as an aggregation of human units to carry out on a large scale that which one immensely able and versatile man could do on a small scale, and, broadly considered, the perfect organisation of this character would be derived by dissecting the various attributes of the perfect one-man business making each of them a Department, and staffing them with men who in the aggregate, represented nothing but an expansion of that attribute.

Fortunately, the perfect organisation of this character has yet to appear, but the effect to endeavour to achieve it has quite definitely left its mark on civilisation.... and the development due to the unbalanced exercise of one set only of perhaps many abilities resident in the human unit, is a very definite factor in the existing discontent one which, if perpetuated, could only be increased by wider education.

A little consideration will at once suggest that this type of organisation carried out to its furthest limits is pyramid control in its simplest form, and it is clear that successive grades or ranks decreasing regularly in the number of units composing each grade, until supreme power and composite function is reached and concentrated at the apex, are definitely characteristic of it.

The next step is to, split the functions of the higher ranks so that each unit therein becomes the head of a separate little pyramid, each of which as a whole furnishes the unit composing a larger pyramid; in every case, however, eventually centralising power and responsibility concentrated in one man, representing the power of finance and of control over the necessaries of life.

Several points are to be noticed in the conditions produced by such an arrangement: Firstly, there: is fundamental inequality of opportunity. The more any organisation, whether of society as a whole or any of the various aspects of it, approaches this form the more certain is it that there cannot possibly be any relation between merit and reward - it is, for instance, absurd to assume that there is only one possible head, for each railway company, Government Department, or great industrial undertaking.

There is no doubt whatever that the intrigue which is a commonplace in such under takings has its roots almost entirely in this cause and contributes in no small degree to their notorious inefficiency.
Another objection which becomes increasingly important as the concentration proceeds is the divorce between power and detail knowledge. This difficulty is recognised in the appointment of official and unofficial Intelligence departments which, of course, are in themselves the source of further abuses....
It will be seen, therefore, that we have in the industrial field a double problem to solve: while retaining the benefits of mechanism for productive purposes, to obtain effective distribution of the results and to restore personal initiative.

General Dissatisfaction of Worker, and Consumer

Chapter 5

Quite apart, therefore, from all questions of payment, there has grown up a. spirit of revolt against a life spent in the performance of one mechanical operation devoid of interest, requiring little skill and having few prospects of advancement other than by the problematical acquisition of sufficient money to escape from it.

The very efficiency with which factory operations have been sectionalised has resulted in a complete divorcement between the worker and the finalised product, which is in itself conducive to the feeling that he is part of a machine in the final output of which he is not interested. His foreman and departmental heads are from the largeness of the undertakings, almost inevitably out of human touch with him, while all the well-known phenomena of bureaucratic methods contribute to maintain a constant state of irritation and dissatisfaction...

Chapter 8

Bearing these distinctions (between consumers and producers) in mind it will be recognised that there are two separate lines along which to attack the situation presented by the dissatisfaction of the worker with his conditions of work, and not less serious discontent of the consumer with the machinery of distribution; and these may be called medievalism and ultra-modernism.
Medievalism seems to claim that all mechanical progress is unsound and inherently delusive; that mankind is by his very constitution compelled under penalty of decadence, to support himself by unaided skill of hand and eye. In support of its contentions it points to the Golden Age of the fourteenth century in England, for example, when real want was comparatively unknown, and green woods stood and clear rivers ran where the slag heaps of Widnes or Wednesbury now offend the eye and pollute the air.
When arts and crafts made industry almost a sacrament, and faulty execution a social and even legal offence; when the medium of exchange was the Just Price, and the idea of buying in the cheapest and selling in the dearest market, if it existed, was classed with usury and punished by heavy penalties.

While appreciating the temptation to compare the two periods to the very great disadvantage of the present, it does not seem possible to agree with the conclusion of the Medievalist that we are in a cul-de-sac from which the only exit is backwards; and it is proposed to make an endeavour to show that there is a way through, and that we may in time regain the best of the advantages on which the Medievalist rightly sets such store, retaining in addition a command over environment, which he would be the first to recognise as a real advance; a solution which may be described as Ultra-Modernist.

Analysis of Existing Difficulties
In order to do this, certain somewhat abstract assumptions are necessary, and it has been the object of the preceding pages to present as far as possible the data on which these assumptions are made. They are as follows:
(1) The existing difficulties are the immediate result of a social structure framed to concentrate personal power over other persons, a structure which must take the form of a pyramid. Economics is the material key to this modern riddle of the sphinx because power over food and housing is ultimately power over life.
(2) So long as the structure of Society persists personality simply reacts against it. Personality has nothing to do with the effect of the structure; it merely governs the response of the individual to conditions he cannot control except by altering the structure.
(3) It follows that general improvement of conditions based on personality is a confusion of ideas. Changed personality will only become effective through changed social structure.
(4) The pyramidal structure of Society gives environment the maximum control over individuality. The correct objective of any change is to give individuality maximum control over environment.

PART II

THE FINANCIAL SYSTEM

Money -Its Nature and Origin!

The best definition of money with which I am acquainted is that of Professor Walker, which is that Money is any medium which has reached such a degree of acceptability that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product".

You will see that this definition rules out any physical properties in respect of money. The properties that are left, therefore are not physical. They can be summed up in the word "credit", which is, of course, derived from "creders", to believe. The essential quality of money therefore, is that a man shall believe that he can get what he wants by the aid of it. This is absolutely the only quality that it is required to possess, although of course, certain minor attributes, such as convenience have a bearing on the decision as to what particular description of money, if it fulfils the major requirements, is likely to come into most general use.
The cheque, no doubt, owes its popularity to this latter attribute.
C. H. Douglas, "Warning Democracy". Chap. 2, 1931 Edit

In every criticism of the social distribution of wealth made public prior to 1918, the assumption is implicit that money or purchasing-power is confined to legal tender, and that bank deposits, etc., on which cheques are drawn, are deposits and withdrawals of legal tender only. This is in part equivalent to saying that banks and financial institutions only re-lend money which has previously been lent to, or deposited with them.
There is also a nebulous idea involved, I think, to the effect that the man who grows, eg. a ton of potatoes, also grows the purchasing power of a ton of potatoes.
C.H. Douglas, "Social Credit", Chap. l, Part 2, 1924 Edit

This idea, while not specifically expressed in words, is sedulously fostered by the Press, and by other media of propaganda which are employed to convince the public that our economic difficulties proceed from insufficiency of production. It is significant that the peculiar brand of economics popular amongst Marxian-Socialist and Communistic propagandists is at one with apparently more orthodox economists, in suggesting the comparative unimportance of money in the economic system; that it is nothing but a reflection of the economic facts beneath it.
Op. Cit. Part 2, Chap. V.

If I grow a ton of potatoes and exchange those potatoes for five currency notes of one pound each, held at the moment by my neighbour next door, all that has happened is that I have five pounds which he had before. My ton of potatoes has not increased the number of pounds, although it may have but probably has not increased the purchasing power of each pound. If we imagine this five pounds to be the only five pounds in existence, and money to be the only effective demand for goods, no one will be able to exchange any goods until I part with, at any rate, a portion of my five pounds. Ibid.

Division of Labour and Process:
Now the distinguishing feature of the modern co-operative production system, depending for its efficiency on the principle of the division of labour, is that the production of the individual is in itself of decreasing use to him, as the subdivision of labour and process is extended.
A man who works on a small farm, can live (at a very low standard of comfort and civilisation) by industry. But consuming the products of his own a highly-trained mechanic, producing some one portion of an intricate mechanism, can only live by casting his product in to the common stock, and drawing from that common stock, a portion of the combined product through the agency of money. Ibid.

Money not Wealth or Production:
There are some deductions of major importance which can be made from these premises. The first is that money is nothing but an effective demand. It is not wealth, it is not production, and it has no inherent and indissoluble connection with anything whatever except effective demand. That is the first point, and it would be difficult to overrate the importance of a clear grasp of it. It lies at the root of the question as to the true ownership of credit-purchasing-power.

The second point is that, so far as we can conceive, the co-operative industrial system cannot exist without a satisfactory form of effective-demand system, and the result of an unsatisfactory money system (that is to say, a money system which fails to function as effective demand to the general satisfaction) is that mankind will be driven back to the distinguishing mark of barbarism, which is individual production.

And the third point, and the point which is perhaps of most immediate importance at the present time, is that the control of the money system means the control of civilised humanity. In other words, so far from money, or its equivalent, being a minor feature of modern economics, it is the very keystone of the structure. Ibid.

Control by Money:
I suppose that we are all familiar with such phrases as "The Power of Money", and others to the same effect, but the Government by money to which I wish to draw your attention tonight is something much more concrete than that. Our thoughts of governments usually range over such subjects as Houses of Parliaments, laws, and at the other end of the scale, policemen. But you will at once agree, I think, that this sort of government is largely negative, and is almost entirely concerned with telling you what you must not do. Even in these law-ridden days (1925), after the long-suffering, citizen has taken out about eighteen licences of various sorts to permit him to move about, to stay still, to listen-in, and so forth, he does not come very much in contact with the law.

But from the moment that he arises in the morning to the moment that he goes to bed at night, or, more comprehensively, from the moment that he draws breath to the moment of his death, and after, his activities are governed and limited by the money system. His clothes, his food, his house, his education, either in the more literal sense or in the broader sense of ability to travel and see the world, his avocation in life, and the rapidity with which he progresses in it, are largely matters of money, and very often nothing but money.

Further than that, a lack of money is sufficiently pronounced, is pretty certain to bring him up against either the legal system, or starvation and death, and it is no sense an exaggeration to say that in all civilised countries (so-called), and the more civilised the country the more true is the statement, the individual lives entirely by the grace of the money system.
C.H. Douglas, "Warning Democracy", Chap. 8, 1931 Edit

It (money) is essentially a mechanism of administration, subservient to policy and it is because it is superior to all other mechanisms of administration that the money control of the world is so immensely important.
C.H. Douglas in Social Credit, Part 1, Chap. 7, 1.924 Edit

... the position into which money and the methods by which it is controlled and manipulated have brought the world, arises, not from any defect or vice inseparable from money (which is probably one of the most marvellous and perfect agencies for enabling co-operation, that the world has ever conceived), but because of the subordination of this powerful tool to the objective of what it is not unfair to call a hidden government.
Op. Cit. Part I, Chap. 3, 1924 Edit

The Creation and Destruction of Money by the Banking System:
Any system (the money system) or institution which is so all pervasive in effects, is a government, whether conscious or unconscious, and one would imagine it to be a matter of first consequence to understand the principles upon which it is based. ?
C.H. Douglas, "Warning Democracy", Chap. 8, 1931 Edit

. ... if money is of such importance, the first point to which to direct an inquiry in regard to it must concern its point of origin, and it is one step towards this end to recognise the fact that you do not make money by making goods or by working ... Similarly, you do not make money by agriculture. If I grow a ton of potatoes and sell them for money, I merely get the money that somebody had before in return for my potatoes, and the coming into existence or the disappearance by consumption of those potatoes does not itself make the slightest difference to the amount of money in existence; it merely affects its distribution. ...That is the first step. The second step to realise is that only to a very limited extent does money proceed from the State.

...The Chairman (Mr. McKenna) of the Midland Bank, at its annual meeting in 1924, made the following statement:
"The amount of money in existence varies only with the action of the banks in increasing or diminishing deposits. We know how this is effected. Every bank loan and every bank purchase of securities creates a deposit, and every repayment of a bank loan and every bank sale destroys one." Ibid.

...legal tender in this country (England, in the year 1921) consists of gold, silver, and copper coinage, and Treasury Notes, to the value of say, £400,00,0,000. … it will at once be obvious from a superficial examination of the accounts of the banks, that there is a good deal more money in the country than there is legal tender. The deposits of the "Big Five" banks and their affiliations alone represent about £2,000,000,000, and overdrafts and bills discounted represent about £1,000,000,000 more. For practical purposes, all this money is homogeneous - the average individual would draw no vital distinction between ten pounds in his pocket-book and ten pounds in his current account with one of the great banks. But it must be obvious, on a little consideration, that something curious must have happened to enable, say £400,000,000 of legal tender to become at least £3,000,000,000 of money, because, as far as can be seen on a cursory examination of the phenomenon, however much £400,000,000 changes hands in the course of trade, It still remains £400,000,000.

Something curious does happen - it is the creation of new money, which ranks equally with tender as purchasing power, by banks and financial institutions. One method by which this result is brought about will serve as an example of the remainder.
C.H. Douglas, "The Breakdown of ?the Employment System", 1923.

Imagine a new bank to be started - its so - called capital is immaterial. Ten depositors each deposit £100 in Treasury Notes with this bank. Its liabilities to the public are now £1000. These ten depositors have business with each other, and find it more convenient in many cases to write notes (cheques) to the banker, instructing to adjust their several accounts in accordance with these business transactions, rather than to draw out cash and pay it over personally. After a little while the banker notes that only about 10 per cent. of his business is done cash (it is really only .7 of 1 per cent.), the rest being merely book-keeping.

At this point Depositor No. 10, who is a manufacturer, receives a large order for his product. Before he can deliver, he realises, that he will have to pay out, in wages, salaries., and other expenses, considerably more "money" than he has at command. In this difficulty he consults his banker, who, having in mind the situation just outlined, agrees to allow him to draw from his account not merely his own £100, but an "overdraft" of £100 making £200 in all, in consideration of repayment in, say, three months of £102. This overdraft of £100 is a credit to the account of Depositor. No. 10, who can now draw £200. Ibid.

The banker's liabilities to the public are now £1,100; none of the original depositors have had their credits of £100 reduced by the transaction, nor were they consulted in regard to it; and it is absolutely correct to say that £100 of new money has been created by a stroke of the banker's pen.
Depositor No. 10 having happily obtained his overdraft, pays it out to his employees in wages and salaries. These wages and salaries together with the banker's interest, all go into costs. All costs go into the price the public pays for its goods - and consequently, when depositor repays his banker who after placing £2, originally created by himself to his profit and loss account, sets the £100 received against the phantom credit created, and cancels both of them, there are £100 worth more of goods in the world which are immobilised - of which no one, not even the banker, except potentially, has the money equivalent. Ibid.

In round numbers, in this country England ... (legal tender) amounts to about 380 millions.... the other 90 per cent. ... is represented by bankers' credit, that is to say, by payment by cheque. Now, every effort is made to convey the impression that a cheque upon a bank is an order to the bank to pay out money which was paid in, either by the drawer or by someone else. This idea is, of course, fostered by the, fact that, so far as personal banking accounts are concerned (as distinct from commercial banking accounts) it is roughly a true statement, but it must be remembered that very few personal banking accounts bear any considerable ratio to the so-called wealth of the persons to whom they refer. Very few people keep large personal bank balances.
C.H. Douglas Warning Democracy", 1931. Edition Chap. 2.

It is perhaps unnecessary before this Committee to go over the ground which has been so ably covered by one of its members, the Right Hon. R. McKenna to the effect that the main cause of the increase or decrease in the amount of money available at any time may be found in banking policy, and notably in central banking policy.

Mr. McKenna's argument may be epitomised in the statement that "every bank loan creates a deposit and the repayment of every bank loan destroys a deposit''.

Since, rather surprisingly, there are certain orthodox economists who are not prepared to admit this statement, I attach a simple mathematical proof which would appear to put the matter outside the range of discussion: -
Let Deposits = D
Let Loans = L
Let Cash in Hand = C
Let Capital = K
Then Assets = L + C
Liabilities = D + K
So that L + C = D + K.


Differentiating in respect to time we have

dL/dt + dC/dT = dD/dt , K being fixed dK/dt = 0


Assuming cash to be kept fixed --

dC/dt = 0

Therefore

dL/dt = dD/dt


From evidence by C.H. Douglas submitted before Macmillan Committee on Finance and Industry, May Ist, 1930.

Which means, of course, that the rate of increase, or decrease, of loans is equal to the rate of increase or decrease of deposits.

ADDENDUM

AUTHORITIES OTHER THAN DOUGLAS
Report of Macmillan Committee on Finance and Industry Para. 74.
It is not unnatural to think of the deposits of a bank as being created by the public through the deposit of cash representing either savings or amounts which are not for the time being required to meet expenditure. But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft or purchasing securities as a bank creates a credit in its books, which is the equivalent of a deposit.
A simple illustration, in which it will be convenient to assume that all banking is concentrated in one bank, will make this clear.
Let us suppose that a customer has paid into the bank £1000 in cash and that it is judged from experience that only the equivalent of 10 per cent. of the bank deposit need be held actually in cash to meet the demands of customers; then the £1000 cash received will obviously support deposits amounting to £10,000. Suppose that the bank then grants a loan of £900; it will open a credit of £900 for its customer, and when the customer draws a cheque for £900 upon the credit so opened that cheque will, on our hypothesis be paid into the account of another of the bank's customers. The bank now holds both the original deposit of £1000 and the £900 paid in by the second customer.
Deposits have thus increased to £1900 and the bank holds against its liability to pay out this sum (a) the original £1000 in cash deposited and (b) the obligation of a customer to repay the loan of £900.
The same result follows if the bank, instead of lending £900 to a customer, purchases an investment of that amount. The cheque, which it draws upon itself in payment for the investment, is paid into the seller's bank account and creates a deposit of that amount in his name. The bank, in this latter case, holds against its total liability for £1900
(a) the original £1000 of cash and (b) the investment which it has purchased.

The bank can carry on the process of lending or purchasing investments, until such time as the credit created, or Investments purchased, represents nine times the amount of the original deposit of £1,000 in cash.

The Founder of the Bank of England
"The Bank hath benefit of interest on all moneys which it creates out of nothing."
William Patterson, Founder of the Bank of England in 1694.

R.G. Hawtrey, Assistant Secretary to the British Treasury,
"Banks lend by creating credit. They create the means of payment out of nothing."
R.G. Hawtrey, Assistant Secretary to the British Treasury,
Encyclopaedia Brittanica, 14th Edition, Vol. 5, p.698.

"Further, I agree with him (Douglas) that banks create money"
R.G. Hawtrey, Asst. Secretary to the British Treasury

in his opening speech in Hawtrey-Douglas debate at Birmingham, March 22nd, 1933.

Colin Clark, Australian Economist: Economic Adviser to Queensland Government
"In banking circles there are still to be found a number of bankers who try to deny that banks can create (or withdraw) credit, though I doubt whether they could find any living economist to support their views. I believe the reasons for the prevalence of this opinion among bankers are largely psychological in origin; a genuine fear of the enormous social and political responsibilities which a banker has to shoulder once it is admitted that banks possess the power of creating or destroying the community's supply of money." - Colin Clark, in an article "Is a Slump Inevitable", in Melbourne "Age", September 21st, 1937.

C.H. Douglas writing in 1922 on the Power of Finance
There is no doubt whatever, and I do not suppose that anyone at all familiar with the subject would dispute the statement for a moment, that the present trade depression (1921) is directly and consciously caused by the concerted action of the banks in restricting credit facilities, and that such credit facilities as are granted have very little relation to public needs; that, whatever else might have happened had this policy not been pursued, there would have been no trade depression at this time, any more than there was during the war; and that the banks, through their control of credit facilities, hold the volume of production at all times in the hollow of their hands.

If the civilised world continues to permit this centralised, irresponsible, anti-public control of the life-blood of production to continue, and at the same time the possibility, wel-?meaning but ill-informed and dogmatic Syndicalist makes good what is in essence exactly the same claim in the administrative field, then the world, in no considerable time, will be faced with a tyranny besides which the crude efforts of the Spanish Inquisition may well retire into insignificance.
The Control and Distribution of Production, Pp. 21, 22, 1922 Edition by C.H. Douglas.

His Holiness, Pope Pius XI writing in 1931 on the Power of Finance
This power becomes particularly irresistible when exercised by those who, because they hold and control money, are able also to govern credit and determine its allotment, for that reason supplying, so to speak, the life-blood to the entire economic body, and grasping, as it were, in their, hands the very soul of production, so that no one dare breathe against their will.
Pope Pius XI in Quadragesimo Anno, 1931.

It is fair to say that almost any explanation which is not a full and accurate explanation of the working of the financial system, has the curious result of playing into the hands of the upholders of that system. The simple Labour-Socialist criticism, which emphasises the contrast between the rich and poor, forms a perfect moral sanction for the imposition of taxes on any portion of the community which is above the starvation level ...
C.H. Douglas, 'Social Credit', part 2, chap.1, 1924 edition.

The business of dealing in money as a commodity is, as has already been pointed out, advantaged by anything which accentuates the scarcity of money, so that any form of attack on the business system, the constructive effect of which is to support increased taxation, can, and does, receive support from the inner circles of High Finance.

Since the greater part of the real purchasing power of the world is in a potential form which is not represented by any figures anywhere, but can be materialised by those in possession of the secret of the process, as and when required, taxation of visible purchasing-power is exactly what is most valuable in maintaining the power and supremacy - the power to reward and punish - of the money-makers". ..

There is probably not a levelling down movement of any description anywhere, which is unsupported from Lombard Street, Wall Street, and Frankfurt. Ibid.

Modern taxation is legalised robbery, and it none the less robbery because it is effected through the medium of a political democracy which is made an accessory by giving it an insignificant share in the loot. But, I do not think robbery is its primary object. I think policy is, much more than mere gain, its objective.
I think it is most significant that every effort is made by economists of the type turned out by the London School of Economics to instil into the Labour Party that it is possible to obtain some sort of millennium by accelerating the process of stealing. It is one of the many symptoms which make me fairly sure that, there is a close connection between High Finance and the propaganda supplied to what is called revolutionary labour in every country, a connection such as has been traced - between Wall Street and Russia.
So far from the expression of extreme Socialism of this type being a bar to advancement in the Treasury and the great Financial Houses, it is almost a requisite to promotion.
C.H. Douglas, "Warning Democracy", Chap. 6, 1931 edit.

The Fallacy of Nationalising the Banks
From "The Situation and the Outlook" by C.H. Douglas in the Social Creditor, Oct. 12, 1946:
Perhaps the greatest disservice to struggling humanity which the past hundred years has witnessed has been fostered by those "money reformers" who have supported the nationalisation of the Bank of England. It is simply appalling in its implications that men, well educated in the every-day sense, should be so unconscious of the very roots of the democracy for which they profess such admiration that they cannot or will not grasp two elemental propositions.
The first is that genuine control of genuine finance was the core of a genuine Parliamentary system, not its electoral devices, and that this involved getting the money from Parliament not from a Ways and Means Account, and that "nationalisation" of the Bank of England has now made it quite unnecessary to bring financial questions into the House of Commons at all.
So evident has this become that the proposal to vote thousands of millions of pounds merely empties the House.

Bank of England Before and After Nationalisation
We wonder whether those people who have clamoured for the nationalisation of the Bank of "England" have the faintest idea what they have asked for, and what they have got. To take one aspect alone, Mr. Montagu Norman told the Macmillan Committee in 1930 that he had been devoting a great deal of his time for ten years to "the stabilisation of the European countries which had lost what they possessed before the war" and the setting up of Central Banks in foreign countries.
Paul Einzig, his great admirer, amplifies this by remarking "It is a fact that in chronological order he devoted his attention in the first place to the reconstruction of the ex-enemy countries'' (eg. Germany).

Now, it is quite certain that the Banks of England would never have been permitted to repeat this performance in "private" ownership. But it is doing exactly that same thing at the present time. The austerity racket, the £80,000,000 to UNRRA, the "export drive" and the whole policy of control and restriction of British consumer expansion, are precisely the policy of the Bank of England under Montagu Norman. And Dr. Dalton (London School of Economics), Sir Stafford Cripps, Mr. Atlee (London School of Economics) and the Cabinet as a whole state that taxation of the British is now not for revenue but to embody "Socialist" ideas of Utopia; and the Bank of England will be used, not to finance the well-being of Britons, but to see that they remain permanently impoverished. What control has the consumer over this policy?
The Social Creditor, Feb. 2, 1946.

If monetary reformers would only recognise (a) that the monetary policy of the major nations, during war-time at least, is nationalised; (b) that it offers no problem whatever on the issue side; (c) that it is prices which do offer a problem, and that this problem has been solved with spectacular success by the use of the compensated Price, they would perhaps cease to worry about money issue and realise that there are only three for their attention, financial questions.

First, Price Structure. Second, the acquisition of interest bearing securities. Third, Taxation.

It is, unfortunately, obvious that numbers of people with a conscious ,or unconscious will to domination have come to realise that a managed money system (as distinct from a reflective or realistic, money and price system) offers the most tremendous instrument of generalised tyranny at present known. It is particularly significaht that advocacy of managed money is coming to be combined with centralised control over land. Sir Reginald Rowe, a managed money advocate, writes to the threepenny daily so well known for its democratic principles, in its issue of September 17, that "some provision such as that proposed by the Uthwatt Report is necessary". So it is ? if we are aiming at the Totalitarian State with a slave population.

Planners are solidly in favour of the abrogation of individual priviledge and its transfer to them.
The Social Creditor, Oct. 2, 1943.

Abolition of Interest on Bank Deposits
The article in the centenary number of the Economist entitled The Future of Banking confirms an opinion we have held for some time - that the studiously fostered outcry against "profits", which the great majority of those who participate in labour and Marxian agitation believe to be synonymous with dividends, will be used to justify first their reduction, and then their abolition so that economic security will be non-existent.
The cart-horse will be "Issued" its bale of hay - on terms. The line which is clearly indicated in the article in question is the abandonment of any pretence that banks are obliged to compete for deposits, in order to re-lend them, and the admission that banks can lend without borrowing, so that no interest need be paid to the ordinary depositor (although interest can be charged to the borrower).
On the contrary the ordinary depositor should be charged for services rendered in keeping his account. The logical consequences of this thesis, which (with a major reservation) is theoretically, as distinct from pragmatically, sound, are far-reaching Public companies will no longer be under any obligation to offer shares to the public, or to pay dividends on them, because the money does not come from that quarter. As a result of this, the share market will, at no great distance in the future, cease to function and the income of those dependent for existence on dividends will cease. This, of course, dovetails perfectly with policy of "full employment".

If our enthusiasts for the abstract virtues of the restoration of money to a central source of issue (the Nation, or what-have-you) would spare it little time to contemplate this situation, it is possible that misgivings of their complete adequacy to cope with the problem might assail them. But probably not.
The Social Creditor, Oct. 16, 1943.

The rapturous iconoclasm of certain groups of monetary reformers', to whom Usury", the sparring-partner of the bankers "inflation" is the Scarlet Woman of Babylon, has had the inevitable effect of encouraging the financial authorities to abolish, for practical purposes, the interest paid on undrawn current balances, and deposit accounts. We do not say they would not have done it anyway - the one thoroughly sound feature of the banking system was its dividends to shareholders and its interest payments to depositors which I jointly with the insignificant mint issues, provided almost the only fresh unattached purchasing-power. It is obviously lost time to beg of our amateur currency experts to consider whether they really mean what they ask, which is, the replacement of unattached purchasing-power by loans. But they must not complain if we, and others with us, regard them as propagandists for totalitarianism.
The Social Creditor, Oct. 27, 1945.

Christopher Hollis and Monctary Reform
Mr. Christopher Hollis, M.P., whose incursion into monetary science some years, ago appeared to promise much, had a rather hush-hush job with President Roosevelt prior to the war. Whether post hoc, or propter hoc we cannot say, but his subsequent pronouncements on money do not inspire enthusiasm, and we would particularly dissassociate ourselves from the inference to be drawn from a recent article bearing his name which suggests that a fall of prices would be a calamity. A fall of prices is absolutely essential to avert a flight from sterling. That does not of course mean that unjust debts should be paid in appreciated pounds, or paper dollars with real values. We have noticed many times that there appears to be a sheer inability on the part of monetary experts both orthodox and unorthodox (we make no attempt to classify Mr. Hollis) to apply the simplest principles of double-entry book keeping, or of cost-accounting, to the money system. In consequence, many of their doubtless well-meaning proposals are as incompatible withe each other, that the whole subject assumes the aspect of a mad-hatters' tea-party.
The Social Creditor, Sept. 22, 1945.

P A R T III

THE ECONOMIC PROBLEM

Its root causes reside in Financial and Price Systems It will be seen... that we have in the industrial field, a double problem to solve; while retaining the benefits of mechanism for productive purposes, to obtain effective distribution of the results and to restore personal initiative. C.H. Douglas, Economic Democracy", Chap. 4, 1920 edit.

THE "PRODUCE MORE" CRY

The proposition, which is being urged for orthodox capitalistic quarters as a means of dealing with this situation, is a little ingenuous. It consists of an intensification policy by which, in some mysterious way, all the unpleasant features, by being exaggerated, are to disappear, and it is usually summed up at the moment in the phrase, "We must produce more".
A fair statement of this demand for unlimited and intensified manufacturing would no doubt be something after this fashion:

1. We must pay for the war and for betterment schemes.
2. This means high taxes.
3. Taxes must come from profits and earnings, which are part of one whole
4. High earnings, high profits, and low labour costs, and low selling and competitive costs,
can only be combined if increased output is obtained.
5. High earnings will mean wider markets.

Now this is a very specious argument; a large number of people, whose instincts warn them that there is a fallacy somewhere, have not felt themselves able to offer any effective criticism of it, since some practical knowledge of technique is involved.
Let us give to this statement ("We must produce more") the attention it deserves...
In order then to make this analysis it is unavoidable that we should enter into some detail with regard to the accountancy of manufacturing. C.H. Douglas "Economic Democracy", Chap. 4, 1920 edition

...purchasing power is the amount of goods of the description desired which can be purchased with the sum of money available, and it is clearly a function of price. . Ibid.

It is a widely spread delusion that price is simply a question of supply and demand, whereas, of course, only the upper limit of price is thus governed, the lower limit which under free competition would be the ruling limit, being fixed by cost plus the minimum profit which will provide a financial inducement to produce. Ibid.

Where competition is restricted by Trusts, price is cost plus whatever profit the Trust considers it politic to charge. Ibid.

Money is essentially an order system. It has been defined by Professor Walker ("Money, Trade and Industry" p.6) "as any medium no matter of what it is made or why people want it, no one will refuse it in exchange for his goods". Ibid.

PRODUCTION

The Generation of Costs, and the Distribution of Purchasing Power
Looked at from this standpoint it is fairly clear that the kernel of the problem is factory cost, since it is quite possible to conceive of a limited company in which the shares were all held by the employees, either equally or in varying proportions, according to their grade, and the selling costs were internal - that is to say, all advertising was done by the firm itself, and the cost of its salesmen, etc., was either negligible, or confined to their salaries. We should then have the complete profit-sharing enterprise in its ultimate aspect, and the argument against Capitalism in its usual form would not arise.
C.H. Douglas. "Economic Democracy", Chap. 5, 1920 edit.

Such an undertaking would, let us assume, make a complicated engineering product, requiring expensive plant and machinery, and would absorb considerable quantities of power and light, lubricants, etc., much of which would be wasted; and would inevitably produce a certain amount of scrap, the value of which would be less than the material in the form in which it entered the works. The machinery would wear out, and would have to be replaced and maintained, and generally it is clear that for each unit of production there would he three main divisions of factory costs, the "staple" raw material, the wages and salaries, and a sum representing a proportion of the cost of the upkeep on the whole of the plant, which might easily equal 200 per cent. of the wages and salaries.
As the plant became more automatic by improvements in process, the ratio which these plant costs bore to the cost of labour and salaries would increase. The factory cost of the total production, therefore, would be the addition of these three items; staple material, labour and salaries, and plant cost, and with the addition of selling charges and profit, this would be the selling price. - Ibid.

The Gap between Prices and Purchasing Power
As a result of the operations of the undertaking, the wealth of the world would thus be apparently increased by the difference between the value of all the material entering the factory, and the total sum represented by the selling price of the product. But it is clear that the total amount distributed in wages, salaries and profit or dividends, would be less by a considerable sum (representing purchases on factory account) than the total selling price of the product, and if this is true in one factory it must be true in all. Consequently, the total amount of money liberated by manufacturing processes of this nature is clearly less than the total selling price of the product. This difference is due to the fact that while the final price to the consumer of any manufactured article is steadily growing with the time required for manufacture, during the same time the money distributed by the manufacturing process is being returned to the capitalist through purchases for consumption. -Ibid.

A concrete example will make this clear. A steel bolt and nut weighing ten pounds might require in the blank about eleven and a half pounds of material representing, say, 3s.6d. the nett selling price of the scrap recovered would be about one penny. The wages value of the total man-hours expended on the conversion from the blank to the finished nut and bolt might be 5s. and the average plant charge 150 per cent. on the direct time charge, ie. 7s.6d. The factory cost would, therefore, be 15s.11d., of which 7s.6d., or just under one-half, would be plant charge. On this plant charge probably 75 per cent. or about 5s.7d., is represented by the sum of items which are either afterwards wiped off for depreciation and consequently not distributed at all at that time, or are distributed in payments outside the organisation, which payments clearly must be subsequent to any valuation of the articles for which they are paid, and so do not affect the argument.
Without proceeding to add selling charges and profit it must be clear that a charge of 15s.11d. on the world's purchasing power has been created, of which only 6s.10d. is distributed in respect of the specific article under consideration, and that if the effective demand exists at all in a form suitable for the liquidation of this charge, it must reside in the banks.
But we know that the total increase in the personal cash accounts in the banks in normal times is under 3 per cent. of the wages, salaries and dividends distributed, consequently, it is not to these accounts that we must look for effective demand.
There are two sources remaining; loan-credit, that is to say, purchasing power created by the banks on principles which are directed solely to the production of a positive financial result; and foreign or export demand. Now loan-credit is never available to the consumer as such, because consumption as such has no commercial value. In consequence, loan credit has become the great stimulus either to manufacture or to any financial or commercial operation which will result in a profit, that is to say in an inflation of figures. - Ibid.

An additional factor also comes into play at this point. All large-scale business in settled on a credit basis.
In the case of commodities in general retail demand, the price tends to rise above the cost limit, because the sums distributed in advance of the completion of large works become effective in the retail market, while the large works when completed, are paid for by an expansion of credit. This process involves a continuous inflation of currency, a rise in prices, and a consequent dilution in purchasing Power. Ibid.

The reason that the decrease in the consumers purchasing power has not been so great as would be suggested by these considerations, is, of course, largely due to intrinsic cheapening of processes which would, if not defeated by this dilution of the consumer's purchasing power, have brought down prices faster than they have risen. - Ibid.

There are thus two processes at work; an intrinsic cheapening of the product by better methods, and an artificial decrease in purchasing power due to what is in effect the charging of the cost of all waste and inefficiency to the consumer. And it is clear that under this system the greater the volume of production the larger will be the absolute value of the waste which the consumer has to pay for, whether he will or not, because as the bank credits are created at the instance of the manufacturer, and repaid out of prices, each article produced dilutes, by the ratio of its book price to all the credits outstanding, the absolute purchasing power of the money held by any individual. Ibid.

These facts are quite unaffected by the perfectly sound argument that increased production means decreased cost per price, since it is the total production price which has to be liquidated. Ibid.

The Fallacy of "More Production!"
Already there is not very much left of the argument for the innate desirability of unlimited, unspecified and intensified manufacturing under the existing economic system, but more trouble is ahead of it. While the ratio of plant charges to total wages and salaries cost is less than 1:1 over the whole range of commodities, a general rise in direct rates of pay may mean a rise (but not a proportionate rise) in the purchasing power of those who obtain their remuneration in this way. But when by the increased application of mechanical methods, the average overhead charge passes the ratio of one to one (which it rapidly will, and should do on this basis of calculation) every general increase in the rates of pay of "direct" labour may mean an actual decrease in real pay, because the consumer is only interested in the ultimate products and overhead charges do not represent ultimate products in existence. Ibid.

The whole argument which represents a manufactured article as an access of wealth to the country and to everyone concerned, no matter what its description and utility, so long as by any method it can be sold and wages distributed in respect of it, will, therefore, be seen to be a dangerous fallacy based on an entirely wrong conception, which is epitomised in the use of the word "production", and fostered by ignorance of financial processes. Ibid.

THE ORTHODOX CONCEPTION OF THE RELATION BETWEEN PRICES AND PURCHASING POWER

The point we have to make is not merely that financial purchasing power is unsatisfactorily distributed, it is that, in its visible forms, it is collectively insufficient. C.H. Douglas, "Social Credit". Part, 2, Chap. 1, 1924 edit.

One stage in advance towards this end is the theory generally associated with the name of Mr. J.A. Hobson, who attributes the general lack of purchasing power (the fact of which he most properly emphasises) to the undue investment of savings, on the part of the more fortunate members of Society in what are termed capital undertakings, with the result that production of capital goods is in excess of the amount required. That such unbalanced production does take place is, unquestionable; but that Mr. Hobson's explanation is inadequate to explain the process, which accompanies and complicates this unbalancing, is, I think, not less certain. Nor does this theory account for the collective growth of bank deposits. Ibid.

Both of these explanations really proceed from a misconception of what actually takes place in the financial and costing departments of Industrial organisations, and a further failure to grasp the possible relation which can exist between the abstraction of money and the concrete physical realities to which it relates. There is every justification for these misconceptions; they are strictly orthodox in the sense of being the general teaching of the majority of those people who claim to be experts on the matter; and it is necessary that they should be stated in order that the invalidity of them may he exposed. - Ibid.

This orthodox theory, then, assumes that the money equivalent to the price of every article which is produced, is in the pocket, or the bank pigeon hole of somebody in the world. In other words it assumes that the collective sum of the wages, salaries and dividends distributed in respect of the articles for sale at any given moment, which represent collective price, are available as purchasing power at one and the same moment. Certain persons have more money or bank pigeonholes than they wish to spend on consumable goods. They do not spend it; they save it, as the phrase goes. By this abstinence from spending they form a fund which enables capital goods, ie. tools, plant, factories, to be paid for, and therefore produced, and because of the process by which these are paid for the capital goods thus produced become the property of those persons who have thus saved. - Ibid.

Now the first point to be grasped in regard to this argument as a whole is that, even supposing at any given moment it were true, one week afterwards it could no longer be true. If on a given day, there was extant in the world sufficient money to buy all the goods in the world at the prices it had cost to produce those goods, and any portion of that money were applied to form the payment for the production of new goods, then that money so applied forms the cost of the new goods, and immediately there is a disparity between the total costs, which are the minimum total prices, of goods, and the amount of money in the world which would ex-hypothesi, be exactly the same as before. This would be true even if no one "saved" any further quantity of money. The persons who have saved the money would not have saved the goods which the original money represented, they would merely have transferred their claims from the original goods in existence to new goods, and could only "get their money back" by the sale of those goods; nor would there be any mechanism in existence by which the old goods could be bought. That surely must be self-evident. - Ibid.

But the process does not stop there. From the investor's or "savers" point of view, his only object in putting his money into capital goods is to get an increased amount of money back, and on Mr. Hobson's assumption, in particular, he can only get his money back from the public in the form of prices. The condition then is, that there are more goods in the world at each successive interval of time, because of the financial saving, and its application to fresh production, while the interest, depreciation, and obsolescence, on this financial saving has to be carried forward into the prices of production during a succeeding period. - Ibid.

Each pound saved would be a pound withdrawn from consumption and put into production. Since costs must be less than prices, it only requires a very simple examination of this condition to see that the cycle would become unworkable in a very short period of time, since no one would be able to buy anything. Depreciation alone would absorb the world's purchasing power, although not seriously diminishing the world's true wealth, and if no other factors intervened, we should have starved in the midst of plenty many years ago. - Ibid.

He (the manufacturer) has no power of making money in the literal sense, but he has the prerogative of allocating cost. At this point please note that his allocation of cost can fall into three main headings at any moment. First, the money or purchasing power which he is actually distributing to the citizen in his capacity as an earner. Secondly, an additional figure which represents his idea of his own remuneration, and which he calls "profit", and thirdly, the sum which represents the claim for debt, including semimanufactures. I do not wish to go at the moment into the exact division of allocated costs into profit and recovery of debt, or the justification of these divisions, I merely wish to establish that every manufacturer can and does distribute costs in the form of wages and salaries and allocates costs which are not distributed as wages and salaries. These latter costs can only be distributed after he has sold all his goods, and collected both the distributed and the allocated costs, and he does not distribute enough before they are sold to buy them. - C.H. Douglas Hawtrey Debate, March 22, 1933.

... there seems to me to be a confusion between price values and purchasing power, the confusion to which I referred at the beginning of my reply. For instance, Mr. Hawtrey says that incomes arise out of production. They do not. Price values arise out of production, incomes arise out of purchasing power created by the banks. - Ibid.

Receipts are prices; dividends are paid out of them. Wages and salaries are costs, together with profits. They are not paid out of receipts, but antecedently, out of credit. - C.H. Douglas, "The Labour Party and Social Credit", 1922.

Two misconceptions are apparent in the arguments adduced (to prove that total incomes are equal to total costs). …the first and less important, is the failure to realise that depreciation and maintenance, obsolescence, etc., are added into prices, and written off profits. Dividends come out of profits, consequently, are smaller than the profit item in prices and cannot liquidate it. - Ibid.

Enormous Increase of World Debt Proof that Financial Price System is not Self-Liquidating

Your Majesty, Mr. President, Members and Guests of the Handelsstands Forening, Oslo: ... In the year 1694 the Bank of England was formed in Great Britain. ...In the 17th century that is to say in the century in which the Bank of England was founded, the world debt - and we have pretty accurate figures with regard to these matters - increased 47 per cent.
The Bank of England was founded only at the end of the 17th century. By the end of the 18th century the world debt had increased by 466 per cent., and by the end of the 19th century the world debt, public and private, had increased by 12,000 per cent., and, according to some very exact calculations which have been carried out by a quite irreproachable professor of industrial engineering of Columbia University, Professor Rautenstrauch, taking the year 1800 as the origin and taking one hundred years as the unit, the world debt is now increasing as the fourth power of time; that is to say, not increasing directly as time goes on, not as the square of time and not as the cube of time, but as the fourth power of time; and that is in spite of the numerous repudiation's of debt, the writing down of debts which takes place with every bankruptcy, and other methods used to write off debts and start again.
That to my mind and to anybody who will appreciate what its real meaning is, is an indisputable proof that the present financial price system is not merely not self-liquidating, but is decreasingly self-liquidating.

We also know that in fact, in those times of boom which are referred to by economists as proving that it is self-liquidating, the rate of increase of debt is greater than in times of depression; so that in real fact, in times of boom even, there is no justification for saying that, at any time of the trade cycle, the price system is self-liquidating. "Money and the Price System" - a speech delivered by Major C.H. Douglas at Oslo on February 14, 1935, to H.M. The King of Norway, H.E. The British Minister, and the President and Members of the Oslo Merchants Club.

Having in view the importance of the issues involved, it may be desirable to summarise the conclusions to be derived from a study of the methods by which the price of production is based on cost under the existing economic arrangements.
They are as follows: 1. Price cannot normally be less than cost plus profit.
2. Cost includes all expenditure on product.
3. Therefore, cost involves all expenditure on consumption (food, clothing, housing, etc. ), paid for out of wages, salary or dividends as well as all factory account, also representing previous consumption.
4. Since it includes this expenditure, the portion of the cost represented by this expenditure has already been paid by the recipients of wages, salaries and dividends.
5. These represent the community; therefore, the only distribution of real purchasing power in respect of production over a unit period of time is the surplus wages, salaries and dividends available after all subsistence, expenditure and cost of materials consumed has been deducted. The surplus production, however, includes all this expenditure in cost, and, consequently, in price.
6. The only effective demand of the consumer, therefore, is a few per cent. of the price value of commodities, and is cash credit.. The remainder of the Home effective demand is loan credit, which is controlled by the banker, the financier, and the industrialist, in the interest of production with a financial objective, not in the interest of the ultimate consumer.
C.H. Douglas, "Economic Democracy", Chap5, 1920 edit.

The New and The Old Economics by C.H. Douglas, 1933.
Being a reply to; Professor D.B. Copland, C.M.G., M.A., B.Sc., and Professor Lionel Robbins, D.Sc.
(Where the subject refers to Professor Robbins' remarks, the paragraph will be distinguished by (R).)

SECTIONS III AND IV

THE A PLUS B THEOREM, SAVING, AND
THE REPETITION OF PAYMENTS INCREASING PRICES

For the convenience of readers who have not Professor Copland's paper, or the book in which this theorem is contained, it is printed herewith:

"A factory or other productive organisation has, besides its economic function as a producer of goods, a 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 on the other hand, as a manufactory of prices - financial values." From this, standpoint, its payments may be divided into two groups: "

Group A - all payments made to individuals (wages, salaries and dividends)."

"Group B - all payments made to other organisations (raw materials, bank charges, and other external costs)."

"Now the rate of flow of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A."

It is fortunate that the criticism of Professor Copland is practically contemporaneous with a criticism of the same theorem by Professor Robbins, as it is possible to use either of them to confute the other. It is, however, obvious that, at any rate, Professor Copland has not understood, what seems to me to be, in fairly simple language, and what are the consequences which might be expected as a result of its truth.

The A plus B theorem, then, may be said to be, first, an assertion that, under certain circumstances, almost universal in modern industry, which will subsequently be specified, purchasing power cannot be equal to prices, if purchasing power and prices are both considered as a flow, which is the commonly accepted and correct method of regarding the matter. The second aspect of the theorem is that it puts forward an explanation as to the mechanism through which this disparity is produced. Obviously, the correct method of approaching the subject, although not that commonly employed by professional economists, is first of all to ascertain if the situation does, in fact, confirm the theorem.
Now, fortunately, or unfortunately, it is not necessary to seek very far for this confirmation.
I do not suppose that Professor Copland, or any responsible student of the economic situation, would deny that it is concerned with a problem of glut, still less would he contend that it was a problem of scarcity.
It is admitted that we can produce all we want, but cannot buy or sell to the extent of our productive capacity. Without going over the well known ground covered by the literature of sabotage, such as the burning of wheat as fuel because it cannot be sold or to keep up the price, the destruction of millions of bags of coffee, the shooting of calves on the Argentine plains, the restriction of rubber tapping, and merely emphasising that this glut of actual consumable products does not take into account the immense unused productivity represented by half-idle factories, large bodies of unemployed, decreasing cultivation of farm lands, and unused processes for increasing the productivity of agriculture, to name only a few of these aspects of the matter, it is quite certain that the introduction of mechanical power into the economic service of men has at least multiplied his productive capacity by the ratio of his muscular energy to the power at his disposal, that is to say, least fifty times.
It is highly probable that the multiplying factor is considerably greater than this.

As association of American engineers and technologists at Columbia University remarks: "The advent of technology makes all findings based on human labour irrelevant, because the rate of energy conversion of the modern machine is many thousand times that of man. The total capacity of U.S. industrial equipment is one billion horsepower which does the work of ten billion men, or five times the earth's total population".
Both from observation, therefore, and by scientific deduction, we are justified in regarding it as beyond all reasonable doubt that, from the realistic or physical point of view, the world actually is rich and could be much richer in real goods and services, and that economic want is an anachronism.

On the other hand, we way regard Governments as being spokesmen of the financial system, since it is by the sanction of Governments that the existing system is maintained. It is claimed by these governmental spokesmen that we are living in a period of great stringency, that financial economy is necessary, both of the voluntary or saving description and of the involuntary description, which may be for the present purpose described as taxation.
Obviously, these two pictures cannot be at one and the same time true, We cannot be rich and poor in an economic sense, simultaneously. That is to say the financial system does not reflect the faces of the physical, economic and production system. Since fact and logic both demonstrate that we are rich, while the financial system says that we are poor, it seems beyond dispute that it is purchasing power which is lacking, and not goods, or, in other words, that the collective prices of the goods for sale are in excess of the purchasing power available to buy them. Professor Copland seems to have some inkling of this in his first paragraph, in which he remarks that:
"With many others, Major Douglas finds a disparity between consumers' spending power and production" (sic).
I am not specially concerned with any claims to priority, and am, therefore, quite content to agree that I have an increasing body of acquiescence on this point, although I do not gather that Professor Copland admits it.

Turning to the specific criticism of the theorem, Professor Copland begins by remarking as follows:
"taking the first part of this argument, it is assumed that the so called B payments are not distribute to consumers. This I believe to be the fundamental fallacy of the Douglas Credit Analysis."
I think I am justified in retorting to the second sentence just quoted that I think the first sentence is conclusive evidence that Professor Copland does not understand the Douglas Credit Analysis.
The B payments to which he refers are specifically stated in the enunciation of it, to be payments made from one producing organisation to another, and are, beyond dispute, the completion of a cycle of cost accountancy. I trust Professor Copland will not consider me unduly elementary if I explain that a cost is created either by the application of paid labour to production, or by costs in the allocation of book costs in respect of previously-incurred expense or by both together.
Payments to labour distribute purchasing power to consumers, who supply the labour as workers, and create costs which go into prices of goods that they produce. The allocation of book costs does not distribute purchasing power, but is the presentation of a claim on purchasing power already distributed, and is met, if it is met, by the inclusion of the sum claimed, in price.
B payments are a settlement of the combined claim produced in this way at every separated stage of production. Fortunately, Professor Copland, while ignoring the diagram on page 31, of the Monopoly of Credit, the book from which he is at the moment quoting, includes a diagram of his own, which confirms my belief. It will be noticed that in this diagram time is non-existent, and apparently, to Professor Copland, of no importance.
That I am not misrepresenting him is, I think, proved by his remark, on page 16 of his pamphlet, that it is "not relevant to the point at issue" that "spending power distributed two years ago is not available for consumption today. The several stages of production are in progress at the same time."

Let us suppose that production is divided into five processes, all of them in progress at the same time. Each of these five processes pays its workmen weekly, and each pays £10 in wages. Each one of the factories carrying out the five processes allocates 100 per cent. on to its direct labour in the form of book charges, which is a very moderate overhead average charge. For the moment we will leave out payments for materials.
The total amount of wages distributed in the week is £50. It seems to me to be merely perverse, to deny that the price values or claims on the public created in that week are £100 while the purchasing power is £50.
When factory No. 4 sells its weekly output to factory No. 5, it sells it for £80. and factory No. 5, if it can sell at all, sells for £100.
If Professor Copland cannot show me a week in which, in the normal opertaion or the cost system, this process is not going on, the only question at issue is whether the £50 of overhead charges still exists in the form of purchasing power.
It is not merely relevant; it is the major portion of the problem.
I might remark that if he can show me a factory which does not allocate book charges I will show him a factory which is heading straight to bankruptcy.
In order to decide this question, we have to examine the nature of the overhead charges, how they were created, and what financial processes have been associated with them.
To make the matter as simple as possible, I shall, for the moment, assume that overhead charges are nothing but charges for the use of buildings and plant, and at a later stage how this definition can be extended.
Before, then, each of the factories in the above illustration could commence operation, it had to be built and equipped with machinery. There are two methods by which this operation could have been financed.
The first is that it could have been financed out of the method commonly suggested by orthodox financial authorities as that by which capital expenditure is financed. It is very questionable whether much modern finance is done in this way. Assuming this course to be pursued, the money to buy the plant must have appeared in the cost of some previous product and therefore, its mere saving causes a deficiency of purchasing power to that extent. If it is now applied to pay the wages, etc., necessary to produce the new buildings and plant, quite obviously, these new buildings and plant are produced without the creation or distribution of any fresh purchasing power. In other words, the money creates a second price value, but does not produce any fresh money. This is the simplest, but by no means the only, example of a sum of money appearing more than once in series or chain production, and producing a cost on each occasion without creating fresh purchasing power.

From the ordinary point of view, the people who put up the money are legitimately entitled not only to a profit on this money but also to get it back again in full, since in their case the money may be assumed to represent past effort, so that the factories in question must make a charge on each article turned out which will provide money to meet claims. The only objection to this perfectly fair assumption is that, in the aggregate, the public has not got the money.

The second method, and probably the method by which most modern financing is done, under cover of a smoke screen provided by comparatively small subscriptions from the public is that some financial institution actually creates the money, taking debentures on the new factories as security. Ethically, there is every difference between money created by a stroke of the pen and money acquired as the result of years of effort, but I am not at the moment concerned with ethics. At first sight it is a better method, considered as an isolated operation.

When the new factories come into existence, new money in distributed to the men who built the factories. But there are two practical objections, leaving aside any question of ethics. The new money or credit is claimed by the financial institution as its property, and therefore when it is lent, creates a debt against the public. At the same time, being distributed in advance of consumable goods, it tends towards true inflation. The debt differs in nature from the debt created by private finance in exactly the same way that a debt to foreigners differs from an internal debt - its repayment actually takes money out of the country. If a rise of prices has occurred, it is repaid twice over, once in increased prices and again on redemption.

Secondly, there is no provision in this method of financing for the money required to pay the interest on the debentures, which, in fact, can only be paid, if it is paid, by the issue of fresh money to pay it, which, under existing circumstances, comes from the same source, that is to say, the financial system. From this point of view, it is the difference between usury and profit - a difference clearly drawn in the Middle Ages.

There is an additional factor, perhaps more important than any of these, and this is that, either by directly calling in the debentures or by selling the debentures to the public and calling in public overdrafts, Financial Institutions can, and most unquestionably do, recall the money equivalent to the plant value at a greater rate than this plant depreciates.
It is, therefore. I think, incontestable that, either wholly or in part, the purchasing power to pay overhead charges on a scale which is legitimate from the plant owner's point of view does not exist, except in times of wholly excessive capital production or quite abnormal exportation.

It is now necessary to see to what extent this conception of overhead charges can be extended, and I think that a little consideration will make it clear that in this sense an overhead charge is any charge in respect of which the actual distributed purchasing power does not still exist, and that practically this means any charge created at a further distance in the past than the period of the cyclic rate of the circulation of money.

There is no fundamental difference between tools and intermediate products, and the latter may therefore be included. Admittedly, at this point, we get into a certain difficulty, both to ascertain the average rate of circulation of money, and the antiquity of the various charges made, but the disparity is so great that, qualitatively, there is no difficulty in proving the point.

In Great Britain, for instance the deposits in the Joint Stock Banks are roughly £2,000,000,000. in rough figures, the annual clearings of the clearing banks amount to £40,000,000,000. It seems obvious that the £2,000,000,000 of deposits must circulate twenty times in a year to produce these clearing house figures, and that therefore the average rate of circulation is a little over two and a half weeks.
At this point it may be desirable to deal with the common error that the circulation of money increases its purchasing power, an error which seems implicit on page 19 of Professor Copland's pamphlet, where he remarks: "A given unit of money will circulate many times in a unit of time. It will make many payments, because it has what economists, call velocity of circulation."
I think that what Professor Copland means by this is that, if I pay £1 to the butcher for meat and the butcher pays the £1 to the baker for bread which the baker has supplied to the butcher, then two debts are liquidated. This is a complete and major fallacy. The butcher incurred costs, perhaps from a farmer in respect of cattle supplied, who in turn possibly borrowed the £1 from a bank. In any case, if the butcher uses my £1 to pay the baker, he has broken the chain of repayment from me to the farmer, and ultimately to the banker, and the costs which were created when the farmer sold his cattle to the butcher were not liquidated. The clearing house figures just quoted contain a large number of "butcher-baker" transactions and these must be deducted in estimating circulation rates the vital fact is, of course, that one unit of money can circulate and indefinite number of times through the costing system, in each case creating a fresh cost, or, if it be preferred, a fresh debt charge, but not fresh purchasing power. It is, perhaps unnecessary to contend that the average antiquity of the debt charges against the population is more than two and a half weeks. It is certainly a considerable number of years, but it would be difficult to say exactly what it is.

Categorically, there are at least the following five causes of a deficiency of purchasing power as compared with collective prices of goods for sale

1. Money profits collected from the public (interest is profit on an intangible).

2. Savings, ie. more abstention from buying.

3. Investment of savings in new works, which create a new cost without fresh purchasing power.

4. Difference of circuit velocity between cost liquidation and price creation which results in charges being carried over into prices from a previous cost accountancy cycle. Practically all plant charges are of this nature, and all payments for material brought in from a previous wage cycle are of the same nature.

5. Deflation, ie. Sale of securities by banks and recall of loans.

There are other causes of, at the moment, less importance.

Excluding taxation, which is a separate although allied subject, all distributed purchasing power is recovered from the public through the agency of prices. This is just as true in connection with the recall of trade loans as in any other form of expense. It seems obvious, therefore that, with the exception of savings, the whole of the above causes of the difference between purchasing power and prices can be found in B payments, which are money ultimately on its way back to the bank, and none of them, with the exception of savings, are found in A payments, and if we subtract the A payments distributed in a given week minus savings from the total prices claimed in a given week, we shall get B payments as a measure of the net debt claims against the public for the week in question.

As bearing upon this, the Association of American Engineers at Columbia University, previously referred to, remarks that "the total debt claim against the physical equipment of all American industry has risen to the fantastic figure of 218,000,000,900 dollars - a debt claim on posterity".
They correctly remark that a temporary revival to "prosperity levels" is possible by increasing the debt claim through a policy of inflation, but that a downward oscillation will result from this that is likely to end in the utter collapse of the price system under which industry has operated.
The foregoing is sufficient answer to the quotation from Mr. J.M. Keynes, which begins:
"Let X be equal to the cost of production of all producers. Then X will also be equal to the incomes of the public".
This is the well-known logical fallacy known as the petitio principii, which consists in assuming the truth of the fact which you have set out to prove and then proving the assumption from the logical conclusion.
The cost of production is not equal to the incomes of the public, and therefore, the rest of the argument merely, indicates what would happen if it were equal.

Professor Copland then goes on to argue that the whole system of production would have broken down had my analysis been correct, and mentions the interesting fact that A payments in Australian industry are about one-fourth of the total value of the output of goods in factories.
It is well understood how it has been possible for industry to carry on up to the present time under the faulty financial system we have examined, and the two more important causes are:
Firstly, the excess of exports over imports, resulting in taking goods out of the country and receiving purchasing power in return for them, thus at one and the same time decreasing the amount of goods in the country and increasing the amount of purchasing power in respect of the remaining goods; and
secondly, by a progressively excessive production of capital goods, the A payments of which become available to buy the consumable goods, the method to which reference is made by the American authorities quoted previously. Both of these latter processes have now become, in practice, impossible to any considerable extent, and the present crisis is the result.

It may now be convenient to deal with Professor Robbins' views on the matter.
(R) "Not only is no reason to attribute a depression to a deficiency of consumption, " said Professor Robbins, "but there is, on the contrary, considerable reason to believe that the coming of depressions is clue to the fact that there is too much consumption."

I cannot help feeling that we are indebted to Professor Robbins, for putting the logical, inference from the financial position into plain words, and it appears to me to be such a reductio and absurdum as should convince anyone that its premises are unsound. Professor Robbins, however, does not agree with Professor Copland, but remarks:
"It was perfectly true, as Major Douglas urged, that the sums distributed as ultimate incomes - wages, salaries, rents, etc. - were insufficient to purchase the total product of industry. But so far from that being the cause of industrial crisis, it was, in fact, an essential condition of the smooth functioning of the industrial system. If a system were considered which was in stationary equilibrium - a system in which no saving was taking place (my italics) - it was clear that, of the total volume of payments being made at any moment, only a comparatively small proportion were made for the final product. The remainder went to facilitate the movement of goods between the different earlier stage of production....
These payments did not go at the moment to the recipients of ultimate income. They were cost, but not net income. In any computation of the net value produced during the unit period they would be set off one against the other, and at the end of such a process there would be available the value of the consumers' goods. To this, and to this only, corresponded the incomes of the ultimate factors of production. In many-stage production the net income did not equal gross income, and it was highly undesirable that it should do so. Only in a system of hand-to-mouth or single-stage production was it compatible with the requirements of equilibrium that the net income and the gross income should be identical."

I am not quite sure whether Professor Copland would regard the foregoing explanation by Professor Robbins as being an outstanding example of clarity, but, apart from that and with a slight modification which I will indicate at once, I should be inclined to say that, if I understand it correctly, Professor Robbins has obtained a more accurate conception of the truth than has Professor Copland.
The exception to which I refer is in respect of the words which I have italicised - "a system in which no saving was taking place", and I should substitute for these words "a system in which no saving had taken or was taking place".
The real meanings of Professor Robbins' statement amounts to this - that if we can imagine the modern industrial system doing only so much work upon capital goods as to maintain them indefinitely in exactly the same state of efficiency, then, quite obviously, consumption would be exactly equal to production. Under these conditions, the amount of wages distributed on maintenance would obviously be added into the cost of the end products, and collectively with the wages paid to the final producers of end products would be sufficient to buy the end product, always providing that no charges in respect of the original plant, building, and other capital goods which were merely being maintained were charged in the prices of either intermediate or ultimate goods, and that no one made a money profit.
The most casual examination of Professor Robbins' example will be sufficient to make it clear that it is not one which has any relation to either the modern costing system or to the actual physical facts of production.

In passing, it may be noted that, not only in the case of Professor Copland and Professor Robbins, but in the discussions which took place before the MacMillan Committee in 1930 and at Ottawa in 1923, it seemed to me and to others that the professional bankers and economists were quite ignorant of rudimentary cost accounting, and it is possible that this ignorance may have some bearing on the remarkable divergence of opinion which seems to exist on matters of fact. Not only is real saving in the physical sense - by which I mean a constant surplus of production in a form tangible or intangible inevitable, apart from being a desirable feature, of the present production system, but there is no possible case in which the present system is worked, as it is supposed to be worked, in which charges do not appear in respect of the use of real, ie., physical capital.

It is a perfectly proper thing, from a cost accounting point of view, for a workman to charge for the use of a hammer, and the moment he does this he is making charges in respect of capital. When the banking system endeavours to drive down prices by deflation, so as to make it possible to collect these charges, it is merely transferring the injustice which it normally inflicts on the general public, to the manufacturers and the investor, who have been induced to undertake the business of providing goods and services on the tacit understanding that, not only shall they be paid for their present work that they shall be paid for their past work, which in their case is represented by savings which they have invested in the new business.
The banking system can at any moment, and normally does, make this payment impossible, eventually forcing the liquidation of the assets without compensation to the persons on whom it is continually urging the necessity and virtue of saving.

PART IV

THE EFFECTS OF UNREGULATED ISSUE
and
RECALL OF CREDIT ON PRICES

The Real Causes of Inflation
The first thing to note is that all these concerns (manufacturing enterprises) are distributing purchasing-power to individuals, in the form of wages and salaries, ahead of production, which causes a rise in the price of existing ultimate commodities, the only commodities that individuals buy; or, to put it in the way described above, all money existing is diluted.

Secondly, they are distributing this purchasing power obtained out of "credit" largely (and this is increasingly true) in respect of capital production - ie. things which in themselves are, of no use to consumers: tools, factories, etc. The community as a whole, therefore, is producing and being paid for real capital as well as ultimate products, and much of the real capital is permanent and, survives the lifetime of its producers.

Now consider these points in connection with the proposition
.... that the current flow of wages, salaries, and dividends is less than the current flow of price values of articles produced - bearing in mind the fact that prices vary between a lower limit represented by cost of production and an upper limit defined by "what they will fetch" - ie., effective demand.
It will be seen ... that the wages and salaries (already insufficient to buy the whole of production) tend to be diluted in value until they represent the subsistence allowance of the persons concerned; in other words, total prices of ultimate commodities barely necessary for the accepted standard of life tend to equate themselves to the total effective purchasing-power of individuals, and this is true even if dividends to individuals are included and are widespread.
Consequently, and this is the all-important point we wish to make, although the unregulated system of credit-issue and price-making distributes purchasing power both in respect of capital-production (tools, factories, intermediate products) and ultimate products (necessaries, services, amenities), it takes back in the prices of ultimate products only, practically the whole of this purchasing-power leaving the community, considered as a permanent institution, in the position of having bought both the plant and the product but having only got delivery - ie., control of the product.
Such a state of affairs so long as it continues makes the control of the policy of the world in the interest of the community a mere sentimental chimera - no nationalisation, guildisation or any other administrative manipulation can affect the existing control otherwise than to introduce friction into it (at the cost of everyone concerned) - so long as the prices of ultimate products - the taking back of purchasing power derived from credit - are equal to or greater than "costs"- the dispensation of purchasing power derived from credit.

Further, the existing control is semi-automatic; every increase of credit-expansion on these terms means a greater capital production and a proportionately smaller use of that capital to deliver ultimate products.
- C.H. Douglas, "Credit-Power and Democracy", Chap. 3, 1920 Edit.

Community Does Not Control Credit-Issue or Price-Making at Present
As a result of the foregoing analysis, then, it seems certain that:
(a) All credit values are derived from the community, regarded as a permanent institution; not merely from the present generation of workers "by hand and brain".
(b) The rate of production is primarily dependent on the scientific and cultural inheritance of the community; secondly, on its tools and plant ... and thirdly on personnel. Personnel, however, set the "pitch" - ie. determine the efficiency of the use of capital, for any given policy, and the arbiters of policy, whoever they may turn out to be, have an interest in selecting the finest personnel to operate it.
(c) The financial system recognises these facts by deriving all financial values from credit, which takes all these factors into account. As, however, the existing system of making prices includes all dispensations of purchasing power to individuals during the processes of production (ie. "costs") in prices; and all prices are purchasing power taken from individuals, it must surely be clear that credit-issue and price-making are the positive and negative aspects of the function which controls the economic life of the community, and so controls the community itself.
(d) The community does not control credit-issue or price-making at the present time.
Op. Cit. Chap. IV.

Why Consumers' Goods are Scarce and Capital Goods Abundant
To understand the trend of the present system from the standpoint of policy, in the light of the above analysis, we must notice that it results in keeping the majority of persons employed approximately eight hours per day either in producing, distributing, or safeguarding, what is admittedly a deficient supply of ultimate commodities, and this in spite of the advancement of science and its application to Production.
We see also that whatever the amount of these ultimate commodities produced, and however much cash the community earns, the aggregate prices of mere consumption goods can be made to equal the aggregate earnings in respect of the production of both capital goods and consumption goods, either by keeping the articles in short supply or making monopoly arrangements to set prices at a "suitable" level; but, in any case, prices of capital goods plus prices of consumption goods are in excess of available cash demands because of the credit factor in the prices; a relation which results in the control of plant and improved process passing from the producers, as fast as produced, into the hands of the credit-mongers and the price-makers, rather than into the hands of the community to whom it belongs in the nature of things.
This concentration of control being assisted by a short supply of ultimate products until competition is finally eliminated, those having control have every inducement to deliver the minimum quantity of goods at the highest obtainable prices, so long as these, in the aggregate, absorb the distributed purchasing-power. Ibid.

Cost of Living Constantly Rising under Present System
Money is distributed in this process (the production of intermediate products or semi-manufactures) but the ratio of this money to the price-value of human necessities - ultimate products - is constantly decreasing for the reasons shown, and the cost of living is therefore constantly rising.
C.H. Douglas, "The Control and Distribution of Production", Chap. 5, 1922 Edit.

…the wages, etc., system distributes goods and services through the same agency by which it produces goods and services - the productive system. In other words, it is quite immaterial how many commodities there are in the world, the general public cannot touch them without doing more work and producing more commodities. Ibid.

…this feature, in conjunction with those previously examined, has many far-reaching consequences - amongst others the feverish struggle for markets, which in turn has an overwhelmingly important bearing on Foreign Policy.
To sum the whole matter up, the existing economic arrangements:
(1) Make credit the most important factor in effective demand.
(2) Base credit on the pursuit of a financial objective, and centralise it.
(3) This involves constantly expanding production.
(4) This must find an effective demand, which means export and more credit.
(5) Makes price a linear function of cost, and so limits distribution largely to those with large credits.
(6) Therefore directs production into channels desired by those with the largest credits.

A careful consideration of these factors will lead to the conclusion that loan-credit is the form of effective demand most suitable for stimulating semi-manufactures, plant, intermediate products, etc., and that "cash" credit is required for ultimate products for real personal consumption.
The control of production, therefore, is a problem of the control of loan-credit, while the distribution of ultimate products is a problem of the adjustment of prices to cash credits. Ibid

Summary of Defects in Credit-Issue and Price-Making
The roots of this disease (industrial and social discontent), then, are as follows:
1. Wages, salaries, and dividends will not purchase total production. This difficulty is cumulative.
2. The only sources of the purchasing power necessary to make up the difference are loan and export credits.
3. All industrial nations are competing for export credits. The end of that is war.
4. The major distribution of purchasing power to individuals is through the media of wages and salaries. The preponderating factor in production is improving process and the utilisation of solar energy.
5. This latter tends to displace wages and salaries and the consequent distribution of the product to individuals. The credit factor in purchasing power thus increases in importance and dominates production.
6. This production is consequently of a character demanded by those in control of credit and is capital production.
7. The fundamental derivation of credit is from the community of individuals, and because individuals are ceasing to benefit by its use it is breaking down.
.…(It follows) that there are two main and increasing defects in the present system - it makes the wrong things and so is colossally wasteful, and it does not satisfactorily distribute what it does make. - Op. Cit. Chap. 1.

Industrial Depression and Deflation the Result of Financial Policy
Industrial depression may be characterised as a lack of sufficient orders to keep both plant and personnel employed, together with an accompanying lowering of the price level in relation to the cost of production, so that both the manufacturer fails to make a profit and the volume of wages of the wage earning class tends to fall. The phenomena are cumulative and have no relation to productive capacity or psychological demand. The material by-products are bankruptcies, the breaking up of plant, and the psychological by-products are industrial and political unrest and the destruction of social morale.

(1) That the primary cause of the industrial depression and consequent unrest is financial. It is due to lack of power to buy, not due to lack of power or will to produce. That is to say, it is not in the main administrative, nor due to the technical relationship between employers and employed, but is due to money relationships which are governed primarily by the financial system, and secondarily by financial policy. Such ''remedies'' as "rationalisation" or "nationalisation" do not touch the fundamental problem.

(2) That while the policy pursued in regard to credit issue probably controls the general rate of production, and may be the main cause of the differential rate of economic prosperity as between one nation and another, the fundamental defect of the financial system, as operated, is mathematical, not political. The existing financial system is not a correct reflection of economic fact, as it should be, and is both misleading and restrictive.

...under the existing financial system the general public can at no time acquire by purchase the whole of production, but while this is so, and the proportion of a given volume of production which the public can buy is probably fixed by the system, the total volume of production is almost certainly governed by financial policy.
C.H. Douglas, "The Monopoly of Credit", 1931 Edit.

Paradox of Poverty Amidst Plenty - Its Resolution not Complete - Solution of Present Problems
Now in speaking of the ills of the economic system at the present time, (financial depression of early nineteen-thirties) it is common to lay stress, sometimes to the exclusion of other factors, upon what is known as "the paradox of poverty amidst plenty". I should, of course, agree that this paradox is of first-class importance, but I should not agree that its resolution necessarily solves the problem with which civilisation is faced. All shades of opinion now recognise the existence of this paradox, and it is put forward as the prime justification for dictatorships of the nature of Fascism or Russian Communism, solutions which, in my opinion, merely substitute a worse disease for that which they pretend to cure.
But before proceeding to consider other aspects of the matter, it may be well to analyse this paradox somewhat more exactly.

Briefly, then, the symptoms of this paradox of poverty amidst plenty are: -
(1) Surplus unpurchaseable production, ie. goods in excess of purchasing power.
(2) Consequent unemployment, ie. surplus productive capacity.
(3) Consequent poverty, ie. lack of purchasing power, accompanied by economic need. The above three factors are those which may be said to chiefly affect the wage-earning classes and they are factors upon which stress is popularly laid. But it is quite superficial to suppose that they are comprehensive.
In addition to them, we have:
(4) Redundant industrial machinery and plant, ie. surplus productive capacity in relation to purchasing power available.
(5) Consequent cutthroat competition to sell, ie. to exchange goods for purchasing power.
(6) Disappearance of industrial profits, ie. failure of dividends to distribute purchasing power.
(7) Consequent business and industrial depression and failure, bankruptcies, etc., with their mental, moral, or material consequences.
(8) Competition for foreign export markets, that is to say, pressure to export real values in exchange for monetary purchasing power to be used at home.
(9) Consequent international friction threatening, and ultimately leading to war.

If you will examine these factors, you will see that they have one common ingredient, and one only, which can be expressed as lack of purchasing power. Or to put the matter another way and in a form which is most important to bear in mind, the richness of the physical economic system is not reflected in a corresponding abundance of purchasing power in those places where it would be effective.
C.H. Douglas, speaking at Birmingham, Dec. 7th, 1934.

Some Absurdities of Present Economic and Financial Systems
Taking into consideration the fact that all business is at present carried on with the express purpose of "making money" it might be imagined that even if the details of the money system were not matters of general knowledge, at any rate there would be little room left for discussion in regard to its main principles. But there is not even elementary consistency and agreement on the subject. One of the more obvious examples of this is the confusion, which is in evidence in regard to matters of foreign exchange, and War Reparations.
It will be remembered that, we are constantly being told that Great Britain, in particular, lives on exports of goods and services. In orthodox circles there is never any discussion in regard to this statement. It is regarded as axiomatic. It is how we become "rich". On the other hand, as a result of the determination to inflict punishment of all descriptions upon Germany for her crime of losing the War (1914-1918) and to reward other countries for their virtue in winning it, the Treaty of Versailles imposed severe economic penalties. These penalties were assessed principally in terms of currency.
It is common knowledge that these penalties, generally referred to as reparations, have not so far been successfully inflicted. Germany has herself expressed her willingness to pay; France in particular amongst her opponents has expressed her determination to make Germany pay. Germany has printed large quantities of paper money and has also incidentally greatly expanded her economic ability to produce, and thus, it might be imagined, to pay, but the payment has not taken place. The reason for this is quite simple, and has been explained in more orthodox quarters. Such payment can only take place by the export of German goods and services in return for a pledging of German credit based on the ability to deliver these goods and services. Notice the grim humour of the situation.
At one and the same time and from one and the same source it is being stated that Great Britain can only become rich by exporting goods and services. Germany, however, can only be penalised and presumably become poorer by exporting goods and services.
A science of finance and economics which will permit absurdities of this description to pass almost unnoticed, can hardly fail to produce chaos in the world. The country on which the penalty of reparations was inflicted is straining every nerve and sinew not merely to export an amount equivalent to the money figure attached to the reparations, but to add to this amount by every means in her power.

Great Britain, which was one of the nations very vocal in asserting that Germany must pay, is feverishly searching for methods either by tariffs or otherwise, which will prevent German goods, which are by common consent the only method by which Germany can pay from entering this country, and is providing Germany with credits in order that she may import British coal.
There must be in every country, a sufficient if small, minority of persons who see these absurdities and understand that they proceed, from a radically defective or obsolete financial system. It can only be assumed that the silence of such persons is either dictated by fear of the results of a general exposure, or by complicity in the policy which is furthered by the existing situation.

Considered merely from the point of view of financial operations, and without trespassing on the domain of world policy, it is not difficult to see that every advantage to finance, as a business, lies in rendering the Reparations Clauses of the Treaty of Versailles ineffective.
To a financier a country is simply something on which to base a mortgage. Just as a private estate which is not mortgaged is, to a money-lender, an excrescence on the landscape, so a country whose National Debt is not as large as is consistent with security is an object of solicitude to International Finance.

If Germany's productive capacity for the next twenty years or so were effectively hypothecated to the service of the allies who were engaged against her in the late war (1914-1918), it is fairly obvious that she would not be good security for loans. For this reason, if for no other, the efforts of the financial interests are likely to be directed to obstructing the payment of reparations, and finally to the cancellation of the obligation to pay them - a state of affairs which in the existing financial arrangements would no doubt be signalised by the grant of an "international" loan to Germany for a reconstruction of which, by all accounts, she is in no need.
(Note: This paragraph was written in 1923. It has been justified in detail by events.)
C.H. Douglas, "Social Credit", Part 2, Chap. 7, 1924 Edit.

PART V

EMPLOYMENT

Full Employment and Materialism
Like all undertakings which have been pursued to the state of realisation, the Big Idea has firstly an objective, secondly a method of technique, and thirdly a dynamics by means of which the human individual can be made to conform to the technique so that the objective may be realised or attained.
The objective is World Dominion.
The technique is centralisation by a graded executive, operating through law and Finance.
The dynamic forces are Fear and Desire.

There are numbers of fairly intelligent people who accept the idea that the world is moving inevitably to Dictatorship of the type adumbrated by Stalin, in the same way that the drawing rooms of the mid-nineteenth century were filled with believers in the inevitability of "Progress". The two ideas are not unconnected - they are the direct consequence of the delirium of materialism - the acceptance of the dogma that the one end of man is gadgets, that he must at all costs be kept employed under discipline making more and more gadgets, and carrying the blessings of his gadget civilisation to the benighted heathen.
That this is not mere unconscious error is easy to demonstrate to anyone open to conviction.

There is not a large newspaper in the world which has not misrepresented the technological increase of production per man-hour as "unemployment", and as a failure of statesmanship. Not because things which ought to have been made, were not made, which may be true, but because of the determination, conscious and vicious, to keep unemployment and poverty synonymous. And that this misrepresentation is part of the Big Idea, is, I think, demonstrated conclusively by the dangerous nonsense being circulated by all the machinery of propaganda at this critical time in regard to the Russian Social and Economic Systems.
C.H. Douglas, The Big Idea, p.38, 1942.

The Basic Guiding Principle
Certain sedulously propagated theories simply must be cleared out of the way. The first, of course, is that it is the business of the Government to "put the people to work". Perhaps the shortest way in which to deal with this is to say that, if the facts of the case require that an individual must work before it is possible for him to obtain those things of which he has the need or desire, then he shall in no case be prevented from working by artificial restrictions. But if, without injury to others, he can be provided with these things without working, the fact that he has not worked for them shall be recognised as a matter of no consequence whatever.
C.H. Douglas, "The Land for the (Chosen) People Racket", Chap. 6, 1943.

Power Production and Its Effects
The physical effects of this replacement (of human labour by machine labour) are not difficult to apprehend. If one unit of human labour with the aid of mechanical power and machinery will produce ten times as much as the same unit working without such aids, it is obvious that there will either be ten times as much production or only one-tenth the amount of labour will be required.
C.H. Douglas, "Monopoly of Credit", p. 25, 1931 Edit.

The productivity of a unit of human labour has increased somewhat irregularly over the whole field of production. In some cases the increase in a hundred years has amounted to thousands per cent, in some cases the increase of output per unit has become much less. Ibid.

It is, however; broadly true to say that general economic production which may be defined as the conversion of existing materials in a form suitable for human use, is proportional to the rate at which energy of any description is used in the process, and this line of attack is probably closer to reality than any method in which financial units are employed. Ibid.

On this basis it is safe to say that one unit of human labour can on the average produce at least forty times as much as was the case up to the beginning of the nineteenth century. Ibid.

The following examples are some indication of the progress made in the past few years alone. The rate of production of pig iron is three times as great per man as it was in 1914. A workman using automatic machines can make 4,000 glass bottles as quickly as he could have made 100 by hand twenty-five years ago. In 1919 the index of factory output (based upon 1914 as 100) was 1146, and the index of factory employment was 129. By 1927 output had risen to 170, but employment had sunk to 115. In 1928 American farmers were using 45,000 harvesting and threshing machines and with them had displaced 130,000 farm hands. In automobiles, output per man has increased to 310 per cent. An increase of 210 per cent. Ibid.

Now, if you will consider the fact that the general output of goods of all descriptions per unit of mechanical labour employed, is, at least, proportional to the total energy put into the productive system, and that this energy has increased in the last 100 years by at least 3,000 to 4,000 per cent., you will see that one of three things must happen.
Either everyone must consume thirty or forty times as much as he did before, and increase the amount as the amount of energy put into production increases, or
(2), we must get rid, by exportation or otherwise, of an increasing amount of production (in competition with very other industrialised country) in the remaining markets of the world, which are decreasing in size owing to continued industrialisation, or
(3) we must recognise that the so-called unemployment problem is something that arises out of the advancement of science applied to industry, and we must modify profoundly our system of distribution.
C.H. Douglas, "Warning Democracy" Chap. 7, 1931 Edit.

Two Inducements to Employment
…there are two separate and distinct inducements to what is called employment. The first of these inducements is involved in the necessity under which humanity labours to provide itself with bed, board, clothes, and such so called luxuries as are effective in setting free individual energies. That is an elemental necessity imposed by the natural conditions of our existence, and it is a primary necessity, in the sense that until it has been met we are not free to devote our attention to other matters.
It is quite incontestable that the most efficient method of dealing with this primary necessity so far evolved is by co-operative methods such as have been incorporated in the industrial system of the past hundred years or so.
"Social Credit", Part 2, Chap. 3, 1924 Edit.

But the second necessity under which men and women labour, after the primary necessity has been met, can broadly be described as the satisfaction of the artistic instinct; which can be further analysed and defined as the incorporation in material forms - of ideals conceived in the mind. Ibid.

…these two human necessities are confused in many arguments which proceed from apparently divergent authorities on industrial and social questions ...

Until recently, the statement that a large body of the public lived on the verge of starvation, because it was unemployed, and that, therefore, the problem of the modern world was the abolition of unemployment received almost universal assent. It is fair to say that opinion is no longer so unanimous on this matter; and in consequence, from the position of being stated as an axiom, it may be observed, that it is receding into the position of a proposition to be proved, and the confusion to which we have just referred is more or less successfully invoked to this end. Ibid.

Work as a MEANS and as an END
…although work for its own sake, or employment as an end and not a means, is objectionable when it is purely functional, or to put the matter in. everyday terms since it is plainly desirable to cut down the amount of time necessary to improve the general environment at whatever rate is deemed desirable, work for its own sake may quite easily be essential to the well being of the individual. The difference is a subtle but it is vital.
To knit a jumper or to dig and plough because of the satisfaction of knitting a jumper or of creating a garden or a wheatfield, or even because it is healthy, is one thing, and it may happen as a by-product that the jumper or the wheatfield will be superlatively well done; to knit jumpers or to dig and plough ten hours a day, six days a week, fifty-two weeks a year, because unless this is done the mere necessities of existence cannot be obtained, is quite another. ...
As society is at present constituted, it is quite definitely to its advantage, and tends to the perpetuation of the present form of Society, that Lancashire mill operatives should work the maximum number of hours at a very dull occupation, with the minimum change of work, and if individuals had no interests as such, that is to say, if they were Robots, contemporary society would probably work very well, and no difficulties would arise. But Lancashire mill operatives are developing personalities, and their interests are clearly not the same as those of Society as at present constructed.
Op. Cit. Part 1, 1924 Edit.

Error of Organised Labour - Attitude to Employment
Now it is fair to say that Labour leaders are, although they may not consciously know it, amongst the most valuable assets of the financial control of industry - are, in fact, almost indispensable to that control; and the reason for this is not far to seek. They do not speak as the representatives, of individuals, they speak, as they are never tired of explaining, as the representatives of Labour, and the more Labour there is, the more they represent.
It is natural that employment should be represented by them as being the chief interest of man; as the representatives of the employed, their importance is enhanced thereby. As a consequence, the battle between the employing and the Labour leaders who claim to represent the employed is, and must be, fundamentally, a stage battle, since there is a consensus of opinion on both sides that what is wanted is more employment.

...Considering the matter always from a practical point of view, it must be evident that the soundness of this stress on the prime necessity for continuous and general employment, using that term in the narrow sense of commercial employment for wages, rests on quite other grounds than the use of employment as a means for distributing wages - can, in fact, only rest on the premises of either the Modernist or the Classical idea.
In regard to the first of these, it is obviously dependent on how much human effort is necessary at the present stage of industrial progress to produce a generally satisfactory standard of material civilisation, and the proportion that the amount of human labour necessary for this purpose bears to the number of individuals who are willing, without pressure of any kind, to employ a reasonable proportion of their time in meeting this requirement.
It has previously been suggested that the facts in relation to this situation do not furnish any justification for suggesting that even a large number of commercially unemployed necessarily threatens the material welfare of the community and there is a large amount of sound evidence pointing in the opposite direction.
Op. Cit., Part 2, Chap.3.

Results of "Full Employment" - Inevitably Disastrous
But we can go further. It is not sufficient to say that the unemployment problem, as distinct from the distribution problem, is largely a delusion. As we have seen in the immediately preceding chapters, there is an employment problem in the sense that our financial mechanism does not bear any specific relation to, nor fundamentally does it take any account of, the introduction into the equation of production of solar energy in its various forms. To put the matter in another way, if the unemployment problem were solved tomorrow, and every individual capable of employment were employed and paid according to the existing canons of the financial system, the result could only be to precipitate an economic and political catastrophe of the first magnitude, either through the fantastic rise of prices which would be inevitable, or because of the military consequences of an enhanced struggle for export markets. Ibid.

Leisure and Pseudo-Morality
Why, then, is there so great a misdirection of attention in a matter of such primary importance?
There is, I think, only one general and comprehensive answer which can be given to this question; and that is, that whether consciously or not, there is a wide spread feeling on the part of executives of all descriptions that the only method by which large masses of human beings can be kept in agreement with dogmatic moral and social ideals, is by arranging that they shall be kept so hard at work that they have not the leisure or even the desire to think for themselves. Ibid.

The matter is rarely stated in so many words. It is more generally suggested that leisure, meaning by that, freedom from employment forced by economic necessity, is in itself detrimental; a statement which is flagrantly contradicted by all the evidence available on the subject. It is hardly an exaggeration to say that 75 per cent. of the ideas and inventions to which, mankind is indebted for such progress as has been so far achieved, can be directly or indirectly traced to persons who by some means were freed from the necessity of regular, and in the ordinary sense, economic employment, in spite of the fact that such persons have never been more than a small minority of the general population.
Even where transcendent genius has been able to overcome the limitations of financial stringency, it is probable that the results achieved have been nothing like those which would have enriched the world had those barriers been non-existent.
To use a somewhat homely simile, it is common, knowledge that every racing stable produces a higher percentage of "weeds" than potential Derby winners; but he would suggest that the way to get more Derby winners would be to work horses of every description at the plough.
It is probably true that there is an appreciable percentage of the population in respect of which any sudden access of material prosperity would be attended with considerable risk, and for that reason the transition from a state of artificial scarcity such as exists at the present time, to a state of prosperity, is most desirably accomplished by methods which do not too suddenly invest such persons with powers which they have not learned to use. But to suggest that an obsolete and outgrown system of organisation must be retained because of this risk is to refuse to develop the railway because of its detrimental effect upon the stagecoach. We are, thus I think, justified in concluding that this misplaced emphasis on "Unemployment" can be explained only by reference to theories which are "Moral" rather than "Economic"; and we are not obliged to take the "Morals" of the Labour leader as proceeding from a source other than that to which we can trace his Economics'.' Ibid.

P A R T VI

PRINCIPLES OF ECONOMIC AND FINANCIAL REF0RM

The Just Price and the National Dividend
We have already seen that the cash-credit provided by the whole of the money distributed by the industrial system, so far as it concerns the wage earner, is only sufficient to provide a small surplus over the cost of the present standard of living, and that only by conditions which the workers repudiate, and rightly repudiate. We cannot create a greater surplus by increasing wages, because the increase is reflected in a compound rise in prices. Keeping for the moment wages constant, we have to inquire what prices ought to be to ensure proper distribution.
C.H. Douglas, "Control and Distribution of Production", Chap. 5, 1922 Edit.

Now the core of this problem is the fact that money which is distributed in respect of articles which do not come into the buying range of the persons to whom the money is distributed is not real money - it is simply inflation of currency as far as those persons are concerned. The public does not buy machinery, industrial buildings, etc., for personal consumption at all. So that as we have to distribute wages in respect of all these things, and we want to make these wages real money, we have to establish a relation between total production, represented by total wages, salaries, etc., and total ultimate consumption, so that whatever money a man receives, it is real purchasing power. This relation is the ratio which total production of all descriptions bears to total consumption and depreciation. Ibid.

The total money distributed represents total production. If prices are arranged as at present, so that this total will only buy a portion of the supply of ultimate products, then all intermediate products must be paid for in some other way, they are paid for by internal and external (export) loan credit. Ibid.

If prices are arranged so that they bear the same relation to cost that consumption does to production, then every man's money will buy him his average share of the total consumption, leaving him with a balance which represents his credit in respect of his share in the production of intermediate products (semi-manufactures) - a share to which he is entitled, but which is now almost entirely controlled by the financier in partnership with the industrial price-fixer. Ibid.

The effective demand is that of the public, based on the money of the public, and the willingness of the producers to respond to economic orders; but the paramount policy which directs the mobilisation is anti-public, because it aims at depriving, with the greatest possible rapidity, the public of the means to make its demands effective; through the agency of prices.
C.H. Douglas, "The Control and Distribution of Production", Chap. 2, 1922 Edit.

If I have made myself clear you will see that credit-issue and price making are the positive and negative aspects of the same thing, and we can only control the economic situation by controlling both of them - not one at a time, but both together ... The issue of credit instruments will then not result in an expansion of money for the same or a diminishing amount of goods, which is inflation, but in an expansion of goods, for the same or a diminishing amount of money, which is deflation. Ibid.

... by controlling both credit issue and price-making the public acquires control of policy with all its attributes.
C.H. Douglas, "Credit, Power and Democracy", Chap. 9, 1933 Edit.

The early Victorian political economists agreed in ascribing all "values" to three essentials: land, labour, and capital ... But it is rapidly receiving recognition that, while there might be a rough truth in this argument during the centuries prior to the industrial revolution consequent on the inventive period following the Renaissance, and culminating in the steam engine, the spinning-jenny, and so forth, there is now a fourth factor in wealth production, the multiplying power of which far exceeds that of the other three, which may be expressed in the words of Mr. Thorstein Veblen "The Engineers and the Price System", ( although he does not appeared to have grasped its full implications) as the "process of the industrial arts".

The National Dividend
Quite clearly no one person can be said to have a monopoly share in this, it is a legacy of countless numbers of men and women, many of whose names are forgotten and the majority of whom are dead. And since it is a cultural legacy, it seems difficult to deny that the general community as a whole, and not by any qualification of land, labour, or capital, are the proper legatees".
But if the ownership of wealth produced vests in the owners of the factors contributed to its production, and the owners of the legacy of the industrial arts are the general community, it seems equally difficult to deny that the chief owners and rightful beneficiaries of the modern productive system, can be shown to be the individuals composing the community, as such.
C.H. Douglas, "Social Credit", Part 1, Chap. 5, 1920 Edition.

…the dividend is the logical successor to the wage, carrying with it privileges which the wage never had and never can have, whether it be rechristened pay, salary, or any other alias; because the nature of all these is a dole of purchasing-power revocable by authority, whereas a dividend is a payment, absolute and unconditional, of something due. The first is servitude, however disguised, the second is the primary step to economic emancipation.
C.H. Douglas, "Credit-Power and Democracy'', 1920 Edition

Statement of General Principles Necessary to Effective Reform
The general principles required of any financial system sufficiently flexible to meet the conditions which now exist and to continue to reflect the economic facts as these facts change under the influence of improved process and the increased use of power, are simple and may be summarised as follows:
(a) That the cash credits of the population of any country shall at any moment be collectively equal to the collective cash prices for consumable goods for sale in that country (irrespective of the cost prices of such goods), and such cash credits shall be cancelled or depreciated only by the purchase of depreciation of goods for consumption.
(b) That the credits required to finance production shall be supplied not from savings, but by new credits relating to new production, and shall be recalled only in ratio of general depreciation to general appreciation.
(c) That the distribution of cash credits to individuals shall be progressively less dependent upon employment. That is to say that the dividend shall progressively displace the wage and salary, as productive capacity increases per man-hour.
C.H. Douglas, "The Monopoly of Credit", Appendix 1, 1931 Edit.

One method by which it is possible to visualise in a familiar form the embodiment of such a set of relationships is in the conception of, let us say, Great Britain Limited. If we imagine a country to be organised in such a way that the whole of its natural born inhabitants are interested in it in their capacity as shareholders, holding the ordinary stock, which is inalienable and unsaleable, and such ordinary stock carries with it a dividend which collectively will purchase the whole of its products in excess of those required for the maintenance of the "producing" population, and whose appreciation in capital value (or dividend-earning capacity) is a direct function of the appreciation in the real credit of the community, we have a model, though not necessarily a very detailed model, of the relationships outlined.
Under such conditions every individual would be possessed of purchasing-power which would be the reflection of his position as a "tenant-for-life" of the benefits of the cultural heritage handed down from generation to generation.
Every individual would be vitally interested in that heritage, and his clear interest would be to preserve and to enhance it.

Contemporaneously with this, he might also be a "producer", and although it is probable that the money incentive could be made small in comparison with the dividends he would receive as a shareholder, the relation between these two forms of effective demand offers a flexible method of transition from the existing arrangements.
It will be obvious that such a set of relationships does not impinge on what is commonly called the rights of property so long as these rights are "consumer" rights. It renders each individual immune from economic penalisation for his personal views, and thus forms the only effective bulwark against tyranny, and it places the underlying facts of co-operative production in a light in which can be seen and grasped by the most modest intelligence.

Under such an arrangement, wages and salaries become what they are in fact at present - merely a credit grant against future production and a measure of the human energy put into production. This credit grant would be cancelled by the writing down of the national assets to an extent represented by the sum of the wages and salaries, the assumption being, of course, that the wages and salaries represent the consumption of goods over a given period which have to be debited against the production of the same period. The dividend, which is declared over the equivalent period, represents the division of the difference between actual consumption and actual production (both of actual products and productive capacity) over the same period.
C.H. Douglas, "Social Credit", Part 3, Chap. 2, 1921 Edition

In order that a financial system may work in accordance with the necessities of the conception on which money rests fundamentally it is necessary:
(a) That the money equivalent of this property should arise from and vest in the owners of the property.
(b) That it shall increase only as this property increases and decrease only as it decreases.
(c) That the relationship established between a unit of property and the money unit representing it shall be maintained.

The original conception of the classical economist that wealth arises from the interaction of three factors - land, labour, and capital was materialistic conception which did not contemplate and, in fact, did not need to contemplate, the preponderating importance which intangible factors have assumed in the productive process of the modern world.
The cultural inheritance, and what may be called the "unearned increment of association" probably include most of these factors, and they represent not only the major factor in the production of wealth, but a factor which is increasing in importance so rapidly that the other factors are becoming negligible in comparison.
It is both pragmatically and ethically undeniable that the ownership of these intangible factors vests in the members of the living community, without distinction, as tenants-for-life. Ethically, because it is an inheritance from the labours of past generations of scientists, organisers, and administrators, and pragmatically because the denial of its communal character sets in motion disruptive forces, threatening as at the present time, its destruction.

If this point of view be admitted, and I find it difficult to believe that anyone who will consider the matter from an unprejudiced point of view can deny it, it seems clear that the money equivalent of this property which is so important a factor in production, vests in and arises from the individuals who are the tenants-for-life of it.
Ibid. Op. Cit., 1933 Edition.

The question of its nett increase is also beyond reasonable question. Every scientific invention and discovery, besides forming a real asset in itself and being essentially an addition to the assets of civilisation, reacts on other assets in a manner which automatically increases their value, just as the addition of a new subscriber to a telephone exchange automatically increases the value of the telephone system to the existing subscribers by giving each one of them an additional line of communication. This factor, probably far more than the material assets of civilisation form the basis of its real and growing store of wealth.
To set against this, is merely the depreciation and obsolescence of material assets, including consumption goods, and it is beyond question that on balance the yearly appreciation of wealth is greatly in excess of depreciation. Ibid.

The Just (or Compensated) Price
The relationship of money issued, to the goods against which it is issued, is completely maintained if prices are in the first place related to costs, and the value of the unit in which costs and prices are computed is consistently related to the changing ratio between production and consumption.
This is not satisfactorily attained by any of the devices for the production of stabilised money, even if it were possible to achieve them, since a stabilised unit of money involves the adjustment of past values on a scale which seems to me, at any rate to be, fantastically impracticable.
But if, without varying the accounting figures which apply to plant, machines, and other real property, we vary the purchasing power of these units for which they are accounted in accordance with the fundamental proposition that the true unit of account derives from the ratio consumption/production, the whole of our values are automatically adjusted in accordance with the facts as they vary from day to day. - Ibid.

It should be emphasised that the practical operation of a price factor of this character involves no difficulty and is, in fact, in various forms a commonplace of business operations at the present time. As compared with the complex system of discounts which are a feature of every business, and vary not merely from business to business, but from one department of the same business to another, the application of a uniform price factor for the purpose of reducing the general price level is a matter of elementary simplicity. Ibid.

Real and Financial Credit
Real credit may be defined, as the rate at which goods and services can be delivered as, when, and where required. Financial credit may similarly be defined as the rate at which money can be delivered, as, when and where required. The inclusion of the word "rate" is, of course, important.
C.H. Douglas, "The Monopoly of Credit", Chap. 3, 1931 Edition

Where the Money is to Come From
It is quite possible to conceive of Great Britain in the light of what financial experts call a "holding company", that is to say, an undertaking which, without interfering with the numerous smaller undertakings that it controls, yet issues additional purchasing power on the credit of all them and distributes this as dividends to its shareholders. Then, without interfering with the management of industry in the country it is possible for "Great Britain Limited", to issue purchasing power in the form of a national dividend, not by taxing its shareholders, but by creating the money in exactly the same way that the banks create it at the present time, and to such an amount as will ensure that all goods which are produced can be bought.
C.H. Douglas writing in the London "Daily Herald", about 1930.

You will, of course, inquire where the bank will receive the necessary funds with which to credit the individual consumer (or alternatively, the retailer - compiler's note) ... The answer to this is that at stated intervals, of say, one to three months, the banks would present an account of such credits to the Treasury, which would in turn pay to the banks a Treasury Draft equalling the amount so that the banks would then be covered in the transaction. The justification for the issue of the Treasury Draft is found in the increased real credit (the rate at which goods and services can be delivered as, when and where required - vide supra - compiler's note) of the community, which accrues from the increased trade which is assured by the lowering of prices.
C.H. Douglas, "Warning Democracy", Chap. 8, 1931 Edition.

The Just Price and the Price Factor
Professor Copland quite correctly states that this part of the Douglas theory follows naturally from the A plus B theorem, and it follows equally naturally, that as Professor Copland's criticism of the A plus B theorem is invalid, that his criticism of the price factor is also invalid. There is a method, however, of looking at the matter which arises from the more fundamental proposition that, while in the modern world consumption is less than production, under the existing financial system it is necessary for the producer to recover costs and prices from the public at a greater rate than he makes disbursements.
This means that the consumption rate represented by prices is greater than the production rate represented by direct costs, and is the direct reversal of the physical facts. Nevertheless, it is essential to the producer who is bound by the conventions of the financial system; otherwise he would make a loss on a year's work, having issued more money than he recovered.

The greater part of the surplus production is capital production, and we have to find a method of restoring his money to the producer of capital goods as soon as they are produced, while only charging the consumer for them at the rate that they are used up. The justification for this, of course, is that real credit is a measure of the rate of production.
So that, if total production (B) capital goods + (A) consumption goods, production costs are A + B, but true consumption costs are A + B/X, where X is the average life of real assets, and if we are only going to charge the consumer true costs, we have to pay the producer B - B/X, representing the value of the capital goods, to enable him to carry on his business.
But if, in addition, he recovered the whole of his costs eventually from the public in prices, he would have recovered his costs twice over, therefore it is necessary to reduce the price to the public by the same amount, B - B/X, that we repaid to the producer of capital goods, that is to say, retail prices must bear the same ratio to total costs that consumption does to production.
C.H. Douglas, "The New and the Old Economics",
a Reply to the Criticisms of Professors Copland and Robbins, Sect. 5.

P A R T VII

POLITICAL PHILOSOPHY

The Nature of Democracy

Democracy and Majority Rule
Democracy is frequently and falsely defined as the rule of the majority - a definition quite sufficient to account for its unpopularity with many persons whose opinion is not unworthy of consideration. As so defined, it is a mere trap, set by knaves to catch simpletons; the rule of the majority never has existed, and fortunately, never will exist. If such a thing were possible it would be the ultimate terror, beside which the worst individual despot would seem a kindly patriarch.
It is under cover of this definition, however, that unscrupulous men in every country are enabled to evade the consequences which anti-social intriguing would bring upon them, by working up a spurious, because uniformed, public opinion, which is the greatest barrier to effective and rapid progress known to the hidden hands of finance and politics.
Real democracy is something different, and is the expression of the policy of the majority, and, so far as that policy is concerned with economics, is the freedom of an increasing majority of individuals to make use of the facilities provided for them, in the first place, by a number of persons who will always be, as they have always been, in the minority.
C.H. Douglas, "Credit-Power and Democracy", pp. 7, 8, 1920 Edit.

Ballot-Box Majorities - Devices for Despoiling Minorities
At the present time, we use words for political purposes, which either have no meaning, or, if correctly defined, describe something which does not exist. We do this at our peril. Democracy is such a word.
Most of the students of this question will find it less elusive if they bear in mind the legal maxim "No law without a sanction". Who controls the "sanction" - the power of enforcement - controls the law.

The etymological description of democracy is "popular government rule' by the people" (Skeat). Out of six words comprising this double definition, four require definition in themselves "popular", "government", "rule" and "people". But even so vague and inexact a definition as that of Skeat would probably not be advanced by most people, who would say that democracy is rule by the majority, or universal suffrage.
C.H. Douglas, "The Brief for the Prosecution", Part II, Chap. 11, 1945. (Note: Chapters - including above from this book appeared serially in the Social Creditor between May and September, 1944.)

When a man says he has something of which some kind of definition or description exists, it is a sound principle, before forming any opinion of the thing, to make sure that he really has it. It is certain, for instance, that the state of affairs in any of the titular democracies cannot be made to agree with even Dr. Skeat. It is almost equally certain that it would be a major catastrophe if it did so correspond. Clearly, there can be two explanations for this. Either the "people" are prevented from "ruling" by the machinations of wicked men, or "rule by the people" is an impossibility. Ibid.

The second explanation has an important consequence - that democracy, being impossible but attractive as an idea, would form the best possible cloak for the condition indicated by the alternative explanation. This is the criticism strenuously propagandised by the admirer's of totalitarian rulers such as Herr Hitler and Mr. Stalin (although Communists amusingly describe Russia as democracy). It can be demonstrated that real democracy is possible; but it must be conceded that a visible dictatorship is preferable to an anonymous tyranny or a manipulated electorate. Ibid.

So-called democracy, ... is a ballot-box device for despoiling minorities, not, it should be carefully noted, for the benefit of majorities, but for the benefit of third parties. Motor taxes do not distribute motor cars, wine taxes do not distribute wine, and expropriated estates do not go to the landless. Ibid.

The present vogue of geopolitics relating wars to a specialised form of dialectical materialism, clearly belongs to the evolutionary blind-force school of thought, from which the German contention that wars, and even greater wars, are salutary can easily be recognised as a "logical" deduction. - Ibid.

It is a curious fact, which may or may not be coincidental, that the type of society which is induced or produced by this type of thinking, bears marks resembling the workings of the thermo-dynamic principle of entropy - the tendency of energy to deteriorate from a potential to a latent and unavailable state - to "run down".

That is to say, so far from this systematic penalising of minorities under the entirely unproved theory that the equalitarian state is a desirable objective and corresponds to anything we can describe as "progress" or the survival of the fittest in any cultural sense, it appears to correspond to the exact reverse. Perhaps the most complete embodiment of dialectical materialism is contemporary Russia, and it will be noticed that the rulers of Russia are living in the monuments of a different era, the Kremlin and the architectural achievements of the period of Catherine the Great, and appear to be unable to produce anything but industrial monstrosities. Ibid.

…the observed working of political systems does make it essential to examine the properties of a political majority and the first characteristic requiring attention is that of homogeneity.
What are the boundaries within which we can say that a uniform vote reflects a uniform opinion? To what extent and in what connection, does an opinion represent a presentation of a fact?
Because it must be indisputable that to base the actions of an organisation on a mass of votes which do not reflect a rational conception, is difficult to justify by the name of a system. Ibid.

Most people of necessity, and especially in these days of mass propaganda, form their opinions at secondhand, and a great deal of opinion formed in this way is purely passive. Little or no critical faculty is applied to it, but on occasion, it is regurgitated as though it has been formed as a result of personal experience. This is always true but when the opinion refers to a complex or subtle problem, it is a mathematical certainty that what is registered is a minority opinion popularised, or has no intrinsic value.
Legislative action based on proposals submitted to a large electorate must, from the very nature of the case, place the population at the mercy of a trained bureaucracy, and if, as in the case of the British Civil Service, this is irremovable and, to the public, irresponsible, the result is indistinguishable from a dictatorship of a most undesirable character. Ibid.

To take an example from comparatively recent history, of what value is the opinion of the average voter on Tariffs? We may further notice, at this point the contemporary emphasis on the virtues of the common man" - not on his uniqueness as an individual, but precisely the opposite; on his "common"-ness, his resemblance to a mass produced article. Ibid.

Perversion of Democratic Theory
...The further the subject is analysed, the more evident it becomes that the primary perversion of the democratic theory is to identify it with unrestricted majority government. When Mr. Asquith announced that the will of "the people'' must prevail, he meant that he would present a bribe to the electorate at the expense of a minority in such a way that he would get a majority.
It is that situation which has to be altered.
It is easy to demonstrate that minorities (not to be confused with any particular economic class) are invariably in the forefront of improvement, and that while a minority opinion is not certainly right, a right opinion on a novel problem is inevitably a minority opinion - beginning with a minority of one. Nevertheless, the democratic idea has real validity if it is separated from the idea of a collectively.
It is a legitimate corollary of the highest conception of the human individual that to the greatest extent possible, the will of all individuals shall prevail over their own affairs. Over his own affairs, the sanctions of society must be restored to the individual affected. There are two provisions to a genuine democracy of this nature. The first is the provision of an absolute check on majority bribery of the description to which reference has been made. And the second is the provision of something which may be called a Civil Service of Policy, as distinct from Administration. Ibid.

Majorities and the "Fuhrerprinzip"
The idea of a political majority is clearly part of the ideology of war, and is closely associated with the "Fuhrerprinzip" ? the conception of society as an army progressing under the orders of a General. "God is on the side of the Big Battalions". How much, if any, reality, is there in this proposition? - C.H. Douglas, "The Big Idea", Chap. 15, 1942.

Now the first point to observe is that it finds no support in history. If the outcome of the present Bedlam should result in a victory for size, and the rule of the world pass to mere populations, whether German, Russian or American, it will be something entirely new. Ibid.

Greece, Rome, Venice, Spain, Holland, England, all of them small, have all, in their turn, set the fashion in civilisation, and, in every case, their eminence has not only been in the midst of far greater, and in most cases, opposing populations, but has, for the most part, been most clearly marked at a period when the disparity in numbers was greatest. Ibid.

Admittedly, this day of splendour has been to a much greater extent than is commonly realised, a monetary phenomenon. But to say that is completely to miss the most important lesson that can be deduced from history. That lesson is that the increment of association is greatest where the association most flexible, or to put it another way, money has been, in the past, the most flexible voting system ever devised, enabling the voter to change his policy and to hold an election every five minutes. Ibid.

It is obvious that a majority is only a specialised and deceptive word for the "Fuhrerprinzip". No majority can act without a Leader. When an individual resigns power to a leader, he resigns it primarily to be used against him. To the extent that the "Fuhrerprinzip" has been effective, the present state of the world is the result of the "Fuhrerprinzip". You can't have it both ways - either the device is ineffective or the results are catastrophic. Ibid.

The attempt to construct a system of human relationships on the "rights" of majorities is not democracy. If it were, democracy would stand self-condemned. Ibid.

Freedom and Liberty
There is probably more nonsense spoken and written around the words freedom and liberty, than in regard to any two other words in the English language. As a result of this, we have been treated to a dissertation by Signor Mussolini, suggesting that liberty is an outworn and discredited word. Signor Mussolini is mistaken. Liberty will come into its own although it is quite possible that two groups which appear to be enemies of it and have much in common including, quite possibly, a similar origin, ie. Bolshevism and Fascism, may be necessary to clear the minds of the public of much of the misconception which surrounds the idea, by demonstrating what it is not.
C.H. Douglas, "Social Credit", Chap. 4, Part 1, 1924 Edition.

Liberty is really a simple thing, though difficult to come by. It consists in freedom to choose or refuse one thing at a time. Ibid.

Some passages from - REALISTIC CONSTITUTIONALISM

My Lord President, my Lords, and Gentlemen,
…The justification, if any, which I should advance for my temerity in addressing an audience of such wide and distinguished qualifications both in Statesmanship and Law, is that I am concerned with what appears to be a somewhat neglected point of view - objective reality. I do not think we realise the extent to which Absolute Idealism, to use its technical name, has tinctured thinking on this subject - that nothing exists outside the mind of the beholder and that, for instance, totalitarian Government only requires mass propaganda to be just as good and much easier than any other variety.

Put quite shortly, my main thesis is that this is not true; that the rules of the Universe transcend human thinking, and cannot in the ordinary sense of the words, be altered, and therefore must be ascertained and obeyed.
In this sense Constitutionalism is an extension of the very comprehensive subject we call Social Credit.

Christianity, The British Constitution, Russia - and Professor Laski
We have Professor Laski as authority for the statement that the supremacy of Parliament (by which he means the House of Commons elected by a majority of declining intelligences) is the core of the British Constitution. Professor Laski joins his opinions of the British Constitution to statements that Christianity has failed and that Russia is the hope of the world, and I think we ought to be grateful to him, because his statements confirm what in a most practical sense I believe to be true; that the crisis through which we are passing is a war against practical Christianity, which has a real bearing on Constitutionalism.

A Constitution is either an organism or an organisation.
All organisation is what used to be called magic, and a good deal of it is black magic - the manipulation of metaphysical forces for questionable materialistic purposes. We all know what happens if you put copper wires into a wrong relationship with a powerful electric current, and there is ample evidence to show that our ignorance or disdain of everything but materialism is causing a spiritual "short circuit".

The real British Constitution - not Professor Laski's - is an organism.
The Russian Constitution - attributed to the Fabian Society and Mr. Sydney Webb is organisation. Ibid.

Common Law Derived Mainly from Church - Not from Electorate
Speaking, not of course as a lawyer, but as a student of history and organisation, it is my opinion that the restoration of the supremacy of Common Law, the removal of encroachments upon it, and the establishment of the principle that legislation by the House of Commons impinging upon it is ultra vires, is an urgent necessity.
The locus or sovereignty over Common Law is not in the electorate, because Common Law did not derive from the electorate and indeed antedated any electorate in the modern sense.
In the main it derived from the Medieval Church, perhaps not directly, but from the climate of opinion which the Church disseminated. There is, of course, nothing very novel in what I am saying; much of it is in Magna Carta, which is not so widely read as it should be, and I am not sure that it cannot be found in an older document, the Athanasian Creed a far more profound political document than is commonly realised. Ibid.

Successful Constitutionalism - Organic
…The main point to be observed is that to be successful, Constitutionalism must be organic ... When England had a genuine trinitarian constitution, with three inter-related and inter-acting loci of sovereignty, the King, the Lords Spiritual and Temporal, and the Commons, these ideas were instinctive, and those were the days of Merri England.
Since the Whig Revolutions of 1644 and 1688, and the foundation of the Bank of England under characteristically false auspices in 1694, the Constitution has been insidiously sapped by the Dark Forces, which knew its strength, and the obstacle which it offered to treachery. We now have only the mere shell of the Constitution, Single Chamber Government dominated by Cartels and Trades Unions (Mond-Turnerism), based on unitary sovereignty, to which the next step is the secular materialistic Totalitarian State, the final embodiment of power without responsibility. Ibid.

Magna Carta, The Church of England, The Constitution, and the Catholic Church
Consider the Famous First Clause of Magna Carta:
…"Quod Ecclesia Anglicana Libera sit et habeat omnia sua jura integra".
It has been claimed that this clause, the importance of which must be realised as something basic to social life, was a claim for independence of the Pope which is just plain nonsense. It was imposed upon King John, not upon the Pope who is expressly stated to have confirmed it, and was a declaration of independence in certain well defined areas from interference by the King or any other power in matters proper to the Church and religion - matters which are more familiarly known as Canon, and also to some extent Common, or Natural Law. We have here in fact, an unequivocal declaration against monocracy.
C.H. Douglas, "The Realistic Position of the Church of England" 1947

It should be noticed that three partial sovereignties were present on that little island of Runnymede on a June morning in A.D.1215, and its important to note that Magna Carta strengthens and confirms all of them - the Church, the King, and a much more real democracy than anything we have nowadays. It is patently false to suggest that the barons acted only for the nobility. They were the spearhead; but the preamble to the document expressly states that it is framed by the advice of the Archbishops of Canterbury and Dublin, inter alia. Ibid.

The contrast in the spirit of the law with that of current legislation is fundamental. The over-riding intention is to establish every man, of what ever degree, in his rights, not to take them away. Clause 69 states that "all the aforesaid customs, privileges and liberties ... as much as it belongs to us towards our people, all our subjects, as well clergy as laity, shall observe as far as they are concerned towards their dependents". ...
Now, in order to constitute a sovereignty there must be present form, substance and sanction. To Say that the Church of England is the same church, and has the same kind of sovereignty as the church in England at the time of King John, is simply to ignore history. I am not at the moment discussing doctrinal matters which are clearly outside my competence. It is the constitution and its nature with which we must come to grips. And the post-Reformation Anglican Church owes its origin and existence to a series of Statutes which clearly indicate that it is a State Institution and a State vassal.
It has no sovereignty ... to say that a church which is established by statute, can be disestablished by statutes and has its higher officials, archbishops, bishops and principal deans, appointed by the secular government of the day, is the same thing as a Church which assists in forcing a king to sign a document declaring it to be free and inviolable from himself or any secular authority, and appoints its officials from outside and without reference to his jurisdiction, is infantile. Ibid.

…The question arising out of the Christian Church ... is the Doctrine of the Incarnation. At bottom what we have to make up our minds upon is whether human-political action is subject to the same kind, or some kind, of compulsion to be "right" as we accept in doing a multiplication sum, and if so, whether the Christian Church, the Mystical Body of Christ, is the living incarnation of that "right-ness".
Magna Carta remains as a witness that this conception was inherent in English life seven hundred years ago. Ibid.

…Is there a moral "law" connecting political transgression with national punishment? Contemporary Governments clearly think that there is not; that they are free to legislate in a moral vacuum. Can anyone point to a pronouncement of the Church of England, as such, which contests that idea? Assuming that so-called nationalisation of this or that has any virtues, which is far from self-evident, has the Church ever criticised the methods by which it has been achieved? Ibid.

…The policy of that religion (or Anti-Christ) is plainly labelled in the names of Communism and Socialism - .it is the treatment of men as a collectivity. The civilisation which results from that policy is exemplified in Russia and in that to which we are fast moving in this country, the Police State, with its "direction" of, "labour" (notice the collectivity). Ibid.

…The "mass" is unsaveable, just as a mob is insane ("without health"); the object of Anti-Christ is to keep mankind in ever larger mobs, thus defeating the object of Christ, to permit the emergence of self governing, self conscious individuals, exercising free Will, and choosing good because it is good. The energising factor is attraction, inducement. Ibid

…We can (now) return to the unsatisfactory part which the Church of England plays in the world drama, and the altered attitude which seems to be essential to its survival. It appears to be axiomatic, as the Roman Catholic Church contends that Socialism and Communism must be fought by any Church which calls itself Christian, whatever may be the differences of opinion as to the weapons to be employed. A church which cannot see that Europe was free and attractive to just the extent that it was Christian, and is torn with dissension and is losing its charm, to the extent that it is Socialistic, has betrayed its vocation. Ibid.

…It must be insisted that Christianity is either something inherent in the very warp and woof of the Universe, or it is just a set of interesting opinions, ... The Roman Catholic Church has always recognised this, and it has never wavered in its claims. Ibid.

During the current local government election (1947), the Scottish Catholic Bishops have circulated a letter to their members, "To be read at all public Masses on any one Sunday before the municipal elections in 1947". After remarking that: "A few years at most, will decide whether the Christian tradition which has made Europe is to survive, or atheistic materialism is, for time at least, to triumph ... "it offers three considerations to govern the exercise of the vote, of which the last is: "No Catholic can in conscience vote for the representative of a party which denies the fundamental truths of Christian philosophy". Ibid.

Have the Archbishops and Bishops of the Church of England issued any similar advice? And, supposing they had, and their perplexed flock had appealed to the Dean of Canterbury and the Bishop of Birmingham (both, incidentally, nominees of Mr. J. Ramsay Macdonald) for a statement of the "fundamental truths of Christian philosophy" what answer would they have received? Ibid.

The Jewish Question is a mass of untruths, half-truths, and false materialism, and one of the essentials of any solution is to strip it of the occultism, which is its chief ally. What has the Church of England to say of Secret Societies?Ibid.

Equalitarianism Unnatural
It has been remarked in many quarters, and the argument is receiving more attention daily, that the present political chaos is directly and consciously connected with the doctrine and popularisation of the unproved Theory of the origin of species, and its corollary, the survival of the "fittest", which, oddly enough, can be, and is, adduced in support of equalitarianism.
C.H. Douglas, "The Brief for the Prosecution".

"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 be 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." -
Speech by Douglas, England, October 7th, 1932.

The main preoccupation of the Armistice years, on the part of those most potent in the world's affairs, has been to prevent the rectification of the dominant financial system, a rectification which would have removed any noticeable distinction between the privileged and the previously underprivileged except those distinctions which continuously serve to ridicule the claim to human equality. Economic equality, which is quite another matter, becomes meaningless in the face of large general surpluses available generally
. C.H. Douglas, "The Brief for the Prosecution" Part 11, Chap. V, 1944.

Planning and the Rule of the Expert
It is this unresolved antithesis which makes the planners so dangerous. No one with ordinary intelligence would contend that, when you are quite sure that you want to go from London to Leeds, you should not "plan" your journey within certain well-defined limits. But if all you know is that you want to go from London to a health resort, you are very foolish if you allow the Leeds Association of Boarding House Keepers to say that Leeds is the only health resort, and anyway they are going to take off all the trains to anywhere else.
C.H. Douglas, "The Land for the (Chosen) People Racket", Chap. 6, 1943.

"A Servant when he Ruleth"
If I were asked to specify the most dangerous feature with which the world in general, and this country in particular, is threatened, I should reply "The Rule of the Organised Functional Expert - the engineer, the architect and the chemist, amongst others". As I am an engineer and retain the most wholehearted affection for engineering, I may perhaps be credited with objectivity in this matter.
Op. Cit., Chap. 7.

Genuine Democracy - The Power to Contract out
Amongst the less intelligent criticisms of the group of ideas known as Social Credit is that it is disguised anarchy - a kind of go-as-you-please free for all. The argument is equivalent to saying that a claim to choose whether I will play cricket or tennis is a claim to make the rules of cricket or tennis. But the criticism has an important truth contained in it - a truth that the collectivist monopolists understand clearly. Freedom of choice does ultimately mean negative control. Negative control is the only control the man in the street requires. He needs a bridle on the mass expert.
C.H. Douglas, "Programme for the Third World War", 1943.

It is necessary to provide individuals, as individuals, not collectively, with much more opportunity to judge political matters by results, and to be able to reject, individually and not collectively, policies they do not like, which involves a large measure of power to contract out.
"Realistic Constitutionalism" An address by Major C.H. Douglas to the
Constitutional Research Association, May 8th, 1947.

Genuine democracy can very nearly be defined as the right to atrophy a function by contracting out. It is essentially negative, although contrary to the curious nonsense that is prevalent about "negativeness" it is none the less effective for that reason.
C.H. Douglas, "The Big Ideal', Chap. 14, 1942.

This genuine democracy requires to be carefully distinguished from the idea that a game is a necessarily bad game because you can't or won't play it, and therefore the fact that you can't or won't play it is the first recommendation for a chief part in changing the rules. On the contrary, that is an a priori disqualification. For this reason, if for no other, a period of discipline in the prevalent social and economic systems in say, the early twenties, seems highly and pragmatically desirable.
No play, no vote. Bad play, Grade 3 vote. But you needn't do either. Ibid

The power of contracting-out is the first and most deadly blow to the Supreme State. Ibid.

Power and Responsibility - The Strategy of Reform
The first strategy has many times been emphasised; it is to insist that members of Parliament are representatives not delegates.
I am still of the opinion that so long as parliamentary institutions subsist,
which may not be much longer, this line of action is vital. Ibid.

There is a key word which forms the solution of this, perhaps the greatest of all problems which confronts the world at the present time. The word is "responsibility". We have got to make individuals bear the consequences of their actions. Instead of electing representatives to inform bankers and industrialists (who understand the technique of their jobs perfectly) how to do them, and to pass a multitude of laws which, (while providing unnecessary jobs for large numbers of people who could be better employed) still further impede industry, the business of democracy is to elect representatives who will insist upon results, and will, if necessary pillory the actual individuals who are responsible either for the attainment of results or their non attainment. It is not a bit of use asking democracies to decide upon matters of technique, and it is quite certain, as has already been demonstrated, that if you throw a plan to a democracy it will be torn to shreds.

It is not the business of the parliamentary machine to reform, for instance, the financial system. It is the business of the parliamentary machine to transmit the desires of the people for results (which at present the financial system is not producing) out of the financial system. And to transmit to the people the names of individuals who are responsible for the financial system, so that, by the exercise of the right of Eminent Domain, which has been established as vested in the representatives of the people, they may, if necessary, take steps to remove those responsible for impeding the will of the people.
If it is pleaded in extenuation that those in charge of any particular function of the State, such as finance, do not know how to produce the results desired, then it is the business of Parliament to provide them with all the advice available, but if they will neither take action within a reasonable period of time, and will not accept advice if provided, then it is the business of the representatives of the people to remove them, whether they are alleged to be operating under a system of private enterprise or as public departments.
C.H. Douglas speaking at Buxton, England, on - The Nature of Democracy, 1934.

The Political Vote -
Individual Voter must be made Individually Responsible for his Vote -
Substitution of Open Recorded and Responsible Vote for Secret Franchise

To an audience of this character, I do not need to enter into a discussion of the merits or otherwise of democracy, because whatever else it may be, Great Britain is not, and never has been, an effective democracy, and was never less so than at present. Nevertheless, short of a coup d'etat, I do not think that the idea of democracy, which is of course very nebulous, can be abruptly abandoned it has been too much propagandised, and means too many things to too many men But whether by the strengthening and elevation of Common Law, and its repository in the care of an effective, Second, non-elective, Chamber, or by some other method, clearly defined limits must be placed on the power of a House of Commons elected on a majority principle.
It ought to be clear to any unprejudiced individuals that a majority is always wrong in its reasons for a given situation, and cannot, therefore, possibly be right in its remedies, although a homogeneous, native-born majority is often instinctively right in its judgement of the nature of a situation.

But, admitting this, the individual voter must be made individually responsible, not collectively taxable, for his vote. The merry game of voting yourself benefits at the expense of your neighbour must stop, whether by Members of Parliament who double their salaries as the first-fruits of an electoral victory or by so-called co-operative societies which acquire immense properties with the aid of Bank of England created money. There is a clear method by which to approach this end - the substitution of the open ballot for the secret franchise, and allocation of taxation according to the voting for a programme which incurs a net loss. This would also imply a large measure of freedom to contract out of legislation of a fundamental character, with a consequent discouragement of the spate of so-called Laws which are little more than Works Orders.
C.H. Douglas, "Realistic Constitutionalism". 1947.

(a) The secret ballot to be abolished and replaced by an open, recorded, and published vote.
(b) The Party system to be retained.
(c) Prior to an election, each party to put forward an outline of any legislative proposals together with both the cost to the taxpayer and a designation of the interests and specific individuals affected.
(d) The cost of Legislation by the successful Party, together with the proved loss to any individual not having voted for the successful Party, to be borne solely by those having recorded votes for the successful Party, and any reduction of taxation directly attributable to specific legislation to be shared as to 25 per cent. by recorded supporters of the unsuccessful Parties, and 75 per cent. by the supporters of the successful Party so long as it may remain in power, after which the Pains shall be equalised.
(e) Consider and if desirable suggest means to make these provisions retroactive over fifty years.
"The Social Creditor", March 16th, 1946.

The Secret Ballot in Parliament
A secret ballot on a Division would defeat the Whip system organised to produce exactly the result the electoral ballot was said to cure and universally admitted to have reduced Parliament to a rather dreary farce. It would, almost in one move, render the personality, rather than the party, of members of Parliament the essential matter for the consideration of the electorate, and give importance to their speeches when elected.
The Social Creditor, Vol. 22, No. 17, p.1, June 25th, 1949.

We believe that few of our worst enemies, accuse us of being incurably optimistic (a concession for which we are duly grateful); but we confess to being considerably impressed by the courageous words of Mr. Martin Lindsay (Wellington and Sandhurst, a battalion commander in the Second Phase of the World War, in which he served with distinction in Norway and North-West Europe; Member of Parliament for Solihull). Mr Lindsay contributes a centre-page article to The Observer for May 13, urging the adoption of the Secret Ballot for MP.'s. The choice of medium is something we frankly do not understand. However, the following opinions, actually printed in this popular (though not with us) newspaper, stand on their own inherent quality and have our emphatic endorsement:
"It is ... ironical to realise that Members of Parliament today are by no means always free to cast their votes in the best interests of the nation, as they judge these to be. For to vote against the Party line on a major issue means expulsion from public life; and Members have no greater desire to be martyrs than anyone else only the ability to vote in secret can restore their freedom of action, and no measure of Parliamentary reform is more necessary today. So the great decisions would once again be made by Parliament and no longer by a caucus. The secret vote would restore a truer conception of democracy be reducing the power of the Cabinet oligarchy. For this reason every Administration of whatever party would fight this proposal to the death. If ever a Government were seriously threatened by protagonists of this reform, the Whips would crack as never before. Now if only we could have a secret vote to decide upon whether or not to have a secret vote ... - Credo quia impossible? -
(The Social Creditor, Vol. 26, No. 12, P.1, May 19th, 1951).

Following upon the recent article by Mr. Martin Lindsay, M.P., advocating secret voting by Members of Parliament, the political correspondent of the Liverpool Daily Post, announcing the tabling of a Motion for discussion in the House of Commons, says it has "deep significance" and "cuts at the roots of the two-party system round which modern British politics revolve. The comment, a column long, is cautious in tone, the sole positive opinion which receives uncontradicted emphasis being that secret voting by MP.'s would leave a government too weak to do their job".
If even the present collection of hand-picked "representatives" were released from fear of elimination from political life, no government could stand - that is of course, only another way of putting the argument. Mr. Silverman, it appears, has jumped into the breach with an amendment which approved the publication of division lists - "in the electors interest":
(evidently the MP's, the Silvermans, are the villains of the piece, for both the all-powerful Cabinet and the all-powerful people must keep their eyes on them! What fantastic nonsense politicians would have us think they think).

Anyhow, the Secret Ballot for MP.'s is out for an airing. The next thing is the open ballot for electors, with responsibility attached to each vote.
The Social Creditor, Vol. 26, No. 13, p.4, May 26, 1951.

PART VIII

WORLD CONTROL
...A world in which individuals were able to indicate what they wanted, to get it without very much trouble, and to express effectively their dislike of a system which could only permit cottages for Camberwell as a result of building gunboats for Guam, would be a world in which people would devote little time to making a living, and more time to making living worthwhile. Why has this not happened?
There are three concrete processes which have been at work. Taken together, they provide a complete explanation.
They are: (a) Export without equivalent imports ("The Favourable Balance of Trade");
(b) The constant expansion of the production of non-consumable goods and the factories and tools for producing them; and
(c) Sabotage, including the sabotage of productive capacity (restriction of output).

While it is incontestable that the monetary system as it is operated will account for all of these it will not account for the persistence in the system. Let us see how War fits into them. War is a contest of tools of sabotage. Let us symbolise the tools by the word "guns". Let us also symbolise useful production, ie., production for ends which individuals wish to attain themselves, by the word "butter".
The productive capacity of a country at any moment is therefore "guns plus butter". Consequently, if you can establish the proposition that it is better to sabotage than be sabotaged, to kill rather than to be killed, arrange that those are your only alternatives, all increases of productive capacity can be diverted to "guns", and the "butter" can be kept constant, or even reduced, thus for all practical purposes nullifying all increase of productive capacity.

The first part of the proposition is self-evident; it is the business of the promoter who does not fight, to produce a crazy and bemused aggressor having centralised under him, sufficient forces, who will establish the second part of it.
There is sound circumstantial evidence that Herr Hitler, like Lenin and Trotsky, was supported by Kuhn, Loeb & Co. of New York. I am not so foolish as to imagine that Messrs. Kuhn, Loeb & Co. have created the worldwide organisation of which we see evidence.

Now, the "Favourable Balance of Trade" theory is so idiotic when it is understood that it has been necessary to give it respectability. Such institutions as the London School of Economics (which was largely endowed by Sir Ernest Cassel, closely associated with Kuhn, Loeb & Co.) have embodied complex versions of it, together with suitable presentations of gold standard banking, "free trade", taxation, etc., in diploma courses ensuring to the discreet holder a reasonable livelihood and a licence to be heard on any economic subject. In passing, it may be observed that in recent years graduates of this and similar institutions have guarded themselves to some extent against certification by two members of another profession, by explaining that it is not the business of Economists of Repute to pass an opinion on the merits of the system in regard to which they received their diplomas, but merely to explain how they work.
As no two explanations appear to be alike, and most of them contradict the facts, the fundamental objective is achieved.
The public is persuaded that the subject is so unbelievably abstruse, that what seems to the ordinary man to be pernicious nonsense must be the deepest wisdom.

Sabotage and restriction of output form so large a subject in themselves that it is only possible to indicate their general nature. Crude destruction, such as the burning of millions of bags of coffee, the killing of thousands of day-old cattle, and many other devices to keep up prices so that the workman's wages will buy him less, are the fringe of the question.
The Grid Electricity Scheme, the child of the brain of Samuel Insull, the London born Chicago Jew, who was pursued round Europe by a United States warrant on a charge of fraud, probably represents the sabotage of fifty millions sterling value in serviceable plant alone, to the end of worse service, higher charges, less reliability, and immensely greater military vulnerability. Bureaucracy and "paper?work" waste the time and energy of millions.

For many years, the stronghold of Finance in British political circles was the Liberal Party (Sir John Simon, the present Chancellor of the Exchequer is a Liberal) although it is quite probably that it has an effective voice in the so-called Conservative Party, also. But the Jewish influence in recent years has been more obviously exerted through the Labour Party whose Socialist-Trades-Union-Fabian policy is unmistakable.
It has taken the form of a threat to the "other'' parties that if they will not bring in "Socialism" a still worse fate awaits them.
The characteristics of the Labour Party are well known.

Attacks upon private property and ownership, particularly of land, complete orthodoxy in finance, amounting to a defence of it, sabotage by restriction of output and bureaucratic control, close connection with the London School of Economics, (Dr. Hugh Dalton, its Chancellor-lect was Sir Ernest Cassel, Reader in Commerce), Internationalism. As I have said elsewhere, the official Labour Party has no fundamental difference of opinion with the controllers of the Financial System - it merely claims that its motives, intelligence, and general equipment qualify it to work the sane system better. I don't suppose there is a member of its Front Bench who could describe in detail a single industrial process; still less, perform it.

It is clear that the Labour Party has been captured. How?

I am inclined to think that, in ascribing the situation to bribery by the agency of large subscriptions to Party Funds (although this may be an essential factor) we are leaving something unexplained. From where does the continuity of Policy come? Why is it pursued in the face of universal dissatisfaction? While it is clear enough that Finance benefits, and some Financiers, there is far too much support for, or at any rate passive acquiescence in, policies quite outside the range or of either of the average politician or the average banker, and too much opposition from the most unexpected quarters to, for instance, Social Credit, to accept simple greed as the only cause.
We want a link to connect widely differing institutions, parties and classes in a common action or a common inaction. I think we can find it.

In "Le Moyen Age" (1922) M. Funck-Brentano writes:
"As the Templars had houses in all countries, they practised the financial operations of the international banks of our times; they were acquainted with letters of change, orders payable at sigh; They instituted dividends and annuities on deposited capital, advanced funds, lent on credit, controlled private accounts, undertook to raise funds, taxes for the lay and ecclesiastical seigneurs".

The Knights-Templars, originally an association of Militant Crusaders of the highest reputation, were suppressed on charges of heresy, black magic, sexual perversion and widespread sedition and anti-monarchism. They "became an imperium in imperio, which threatened the whole social system" The curious phenomenon of Rasputin at the time of the downfall of the Russian Empire has a resemblance to the influence which members of the order were said to exert.

It is widely accepted that they became Freemasons, having learnt the secrets of the Craft in Palestine.

A short time ago, I had an opportunity to discuss the present situation with an acquaintance uniquely well informed on current affairs. Rather unexpectedly, I asked him whether he considered that Continental Freemasonry (The Grand Orient) had anything to do with the war. He changed colour perceptibly, and then said carefully "I think the Grand Orient can start a war but I don't think it can stop it". I think I can guess what he meant.

British Freemasonry is, of course, quite different, because we are always being told so. A little log rolling perhaps. This man moved into an important job for no obvious reason; that man never seeming to obtain normal promotion. No interference in politics whatever, you know.
Then why the secrecy and the tremendous oaths?

Freemasonry is international and worldwide. Its members comprise Dukes and draymen. Probably ninety-nine per cent of its members (including all the Dukes) have not the least conception of its objects, which its organisation is expressly designed to conceal. Its ritual and legend is purely Judaic. The connection of Jewish (an other) Financiers with it is beyond dispute. Most probably it is the mechanism by which policy selects its administrators, just as Finance is the mechanism by which the administrators recruit their servants and keep then obedient, and there is evidence that its focus was in Germany, and has moved to the United States and Ireland.

The Jews were expelled from England in A.D.1290, and the Knights-Templars in 1312. The Jews, who had financed Cromwell through Manasseh-ben Israel, were re-admitted by him, and it is at this time, circa 1660, that we first hear of English Freemasonry. The Bank of England was founded in 1694, incredibly camouflaged in its authorisation, by "The Tonnage Act".
C.H. Douglas, "Whose Service is Perfect Freedom", 1940.

Causes - Ultimate and Proximate of World Unrest
Adjusted to the purchasing power of the gold sovereign and the wage standards of 1890, we have probably exported at a total loss ie. thrown away both without thanks and at the risk of international complications, not less than Ten Thousand Million Pounds, worth of production in the last sixty years. The amount may easily be much greater; it certainly is not less.
Not one penny's-worth of that production has gone to raise the standard of living of this country. Up to the present, we have spent on this war about twenty-five thousand million pounds, which is rather more than the estimate of the whole capital assets of Great Britain before the war.
In the 1914-1918 phase of the conflict, we probably spent about one quarter as much; but in neither of these cases is it easy to say what was the total capital loss, if the greatest item of all, human wastage, is given a monetary figure, which is no doubt what our dialectical materialists would consider proper.
We have no reasonable doubt that this situation and the state of the world at the present time can be broadly, but with approximate accuracy attributed to:

ULTIMATELY, a compact organisation, almost impossible to identify completely, possibly controlled at the top by something the Churches call Satan. Freemasonry appears to be the Church of this Body.
PROXIMATELY, by two mechanisms, one which we describe as political, which has various disguises, but favours "majority democracy" and the other, financial, of which what may be called the A + B factor results in the opportunity for continuous inflation with spurious currency.
The flat contradictions of the existing British policy are not foolishness, they are, for the first time, open and undisguised efforts to secure the final triumph of the world Domination which has been the covert purpose of every major historical event since the French Revolution, and probably for many centuries before that.
"The Social Creditor", Feb.2, 1946.

Times being what they are, it may be necessary to insist that I have neither intention or desire to apologise for General Franco, if he requires apology. What I do see quite clearly is that, with his associates, he defeated a primary attempt of Judaeo-Freemasonry, the Power that is using tradition to destroy tradition; that he stands as a protagonist, and a not unsuccessful protagonist, of the opposition to Judaeo-Masonic-Communism; that the culture of the British Empire, and its traditional basis, was a primary obstacle to the Masonic World Plan and that, whether we like it or not, our natural ally in the present struggle is "Franco-Spain". And perhaps one of the greatest services rendered by the Canadian Royal Commission on Espionage was to uncover the existence of eg. Englishmen, "who placed loyalty to a world Power above that which they owed to their own country" - a situation with which General Franco had to, and did, deal.
C.H. Douglas in "The Social Creditor", May 15, 1948.

Increasing Separation of ownership from Control - Shareholder at Mercy of Stock Market
It may perhaps be remembered by those who notice such things that one of the usual and effective replies to the complaint of oppression by large corporations, banks, railway and public utility companies, etc., is that the average share-holding in them is of the order of a few hundred pounds. The personal control of the partner or majority stockholders has been replaced by the small shareholder. The argument is, of course, exactly the same as that which measures democracy by the percentage of the population having votes. That is easy to apprehend when your attention is drawn to it. What is not so easy, and requires a good deal of technical knowledge of a highly specialised kind, is to understand the rapid and extensive, and very silent revolution which has been taking place in the legal power of the stockholder, over an undertaking for which (on the idea of the reality of money) he provided the capital.
Since most of this alienation is the work of German Jewish lawyers, commonly called Corporation Counsel, it had up the outbreak of the present hostilities, developed further in Germany and America than in Great Britain. Possibly with the able assistance of Mr.Benjamin Cohen. Jnr. of the USA who has been here for some time, there are signs that we are catching up, and the organisation of the Bank of "England" is clearly devoted to it.
C.H. Douglas, "Programme for the Third World War", 1943.

However that may be, it is patent that the separation of ownership from control, which is a feature of stock dispersal and legal devices such as voting trusts (one of which has just been constituted by Sir Stafford Cripps, Minister of Aircraft Production, in respect of the arbitrary acquisition of Messrs. Short Bros.), proxies and other devices, is being pursued systematically in regard to industrial property, just as it is, under the agitation for "nationalisation" in regard to land and credit. Ibid.

It would take us too far afield to pursue this aspect of the policy into its amazing ramifications. But two results are significant. The first is that the shareholder is at the mercy of the stock market. His connection with what was originally his property is little more than the loose expectation that a group of men, who have nothing to expect from him and little to fear, will consider his interests which they are continually told by the "B", B.C. and the Archbishops, are dubiously moral. Most shareholders would agree that they don't get much consideration and will get less. If his stock is not exchangeable for valuable considerations
(and who controls the Stock Market?) he is expropriated. Ibid.

The second is that he can have no say in the use that is made of "his" property. It becomes, in theory, the tool of a neutral technocracy, but anyone of ordinary common sense knows that it obeys the policy of whoever appoints the management. Let us say, capturing export trade. It is the International Banks who appoint the management. Ibid.

This systematic separation of control from ownership and responsibility began in Germany during the days of Ballin, Rathenau, Bleichroeder, Deutsch and others of the Jewish ring of bankers and industrialists who surrounded the Kaiser. It was transferred to the United States by the Warburgs, Schiffs and Strausses with such lawyers as Felix Frankfurter assisting. The core of the idea is power without responsibility. You cannot effectively punish a corporation or sue a Government Department. Ibid.

It should be noted that this technique was highly developed many years before either Bolshevism, Fascism, the New Deal, or P.E.P. were heard of. Bearing this in mind, we are in a position to follow the technique into governmental systems, and to consider the activities of various contemporary (if temporary) celebrities. Ibid.

RUSSIA - Some Observations
And then, there is Russia. Since the Dreyfus Case, with which Russia has, perhaps, more in common than would appear at first sight, no subject has provided so widespread an opportunity not merely for dogmatic and mutually exclusive statements on matters of fact, but for arguments which seem to close for a considerable time the inquiry as to whether mankind really is a reasoning animal.
C.H. Douglas, "The Brief for the Prosecution" Part 1, Chap. 1
(Chapters including Chap. 1 - from this book appeared serially in the Social Creditor between May and September 1944)

. Even taking the highest figures put forward by those concerned to support the idea that National Socialist Germany is anti-Jewish, the alleged atrocities against continental Jewry do not come within millions of those committed by the Soviet Government in one operation alone - the "collectivisation" of agriculture. But the world rings with the woes of the Chosen, while Russia is idolised by multitudes. Ibid.

Until recently, it was a commonplace of "labour" propaganda that war is a device of the "Capitalist". If you are careful to define your terms, and associate the word "capitalist" with the favourite Socialist ideal," internationalism", there is probably a great deal of truth in the statement. But Russia, the idol of the proletariat, is considered to have demonstrated the success of Socialism by first provoking, through a nonaggression pact with Germany, and then waging, war on an unprecedented scale. Even in this, a population of two hundred millions, embodying traditionally brave soldiers, would in all probability have been decisively and irrevocably defeated by a country, Germany, of eighty millions, unless assisted by Great Britain, a country, of forty-five millions which had withstood Germany single-handed for a year. Ibid.

Money and Social Welfare
The following letter was published in "The Scotsman" of January 15, 1943.
Sire, In welcoming the timely editorial under this title in your issue of January 11, perhaps I may be allowed to comment on two aspects of the case on which there is, I think, widespread confusion of thought.
The first of these is in the use of the word "inflation". Genuine inflation, which consists in an increase, of money units, accompanied by a corresponding or greater general rise of prices, is a fraud on the community of perhaps the most vicious kind of which the financial system is capable. It is a continuous characteristic of the pre-war financial and price system, as any comparison of general prices, in which taxation should be included, with general prices, say, sixty years ago, will show.
That inflation is a feature of the financial system, and not of the issue of adequate, or even excessive, purchasing power, is demonstrated beyond peradventure by the greater stability of the price system in the past three years, as compared with 1914-1917. This has been achieved mainly by the use of compensated prices, inaccurately called subsidies. Absolute price stability could have been achieved if wage stability had also been enforced.

The second misapprehension is that monetary "saving", either of the obvious kind, or via insurance, was desirable under the pre-war system. More than anything over which the ordinary individual had control, "saving" tended to unbalance in favour of excessive production of non-consumable goods, a production system already distorted by credit monopoly. At a time such as the present, when the distortion of the production system to a maximum of destruction, had reached almost its limit, it seems obvious that sound finance involves the issue of non-saleable bonds, as wages, such bonds bearing interest equivalent to the proportion that their capital value bears to the consumable goods being produced. I am, etc January 13, 1943.
C.H. Douglas. The Social Creditor, January 23rd, 1943.

Exports and Imports
The following letter appeared in "The Scotsman" of October 4. Fearnan, by Aberfeldy, Sept. 30, 1944.
The Editor, The Scotsman. Sir, I appreciate the moderation of the letter of your correspondent "Aqua Vitae", but he is evidently unable to get away from the obsession that our problem is a material, rather than, as is the case, a political one. If the USA was a self-supporting community in 1929 (as largely, she was) she was a self-supporting community in 1933. Neither the people, the country, nor the plant underwent any material change. But in 1929, the people of the USA touched the heights of the greatest material prosperity any people ever reached. In 1933, at least a third of the country was on relief, famine and misery were widespread and the country was on the verge of revolution.
The only discernible difference between the conditions during the depression in Great Britain, the allegedly non-self-supporting country, and those obtaining in the USA, the self-supporting community, was that they were far worse in the latter.
There is really no mystery, and not much informed difference of opinion, as to the cause of our continued frustration. It is that we have allowed finance to become a business in itself. I should like to observe that this situation, far from being cured by the "nationalisation" of banking, would be accentuated. The outcome of this is that the system will only work at all as an expansionist ("more exports") system, and that the expansion has to be an acceleration in geometrical progression - hence the "prosperity", in war-time. This has nothing whatever to do with Capitalism, as generally understood, and no administrative change would alter it except for the worse.

If "Aqua Vitae" wishes to get to the root of our political difficulty, he should insist or being informed as to the undisclosed terms, as affecting the control of the Bank of England, which were negotiated by Lord Reading in Washington, as a condition of the entry of the United States into the war in 1917.
I am, etc. The Social Creditor, Oct. 14, 1944. C.H. Douglas.

Money Goods and Prices
The following letter appeared in the "Bournemouth Echo" (Hants.) of September 6, 1950:
To The Editor, "Bournemouth Echo". Sir, As a good deed shining in a naughty world, your leading article (August 30) contrasts much of the editorial comment which ought to, but does not assist its readers in these critical times. Possibly I may be permitted to carry the clarification a short step further.

The situation you describe was the subject of fierce and in many cases unscrupulous controversy during the Armistice years but is now closed. Technically, the point at issue was, "is the orthodox financial system self-liquidating, or not?"
No reputable economist would now contend that it is. In every-day language, no cycle of production can be carried through by accepted accounting and banking methods without creating a debt that can only be liquidated through the creation of a still greater debt. The practical effect of this is that although a unit of production is physically cheaper than ever before, prices, at the best, do not fall, and at the worst rise continually.
In order to keep the system going, continuous inflation is a necessity and continuous inflation is a continuous fraud upon the public differing only in its greater magnitude from the 'coin clipping' visited by the severest penalties in the Middle Ages. At this point it is essential to identify the problem in its political aspect.

The Governments of this country prior to 1945 were not, and did not pretend to be composed of experts. They were advised and often very badly advised by experts but in theory at least reached their decisions by the exercise of their own judgement. But our present Government is radically otherwise. It is a Government trained by the London School of Economics, claims, in propria persona, to understand finance, and knows quite well all that your excellent article would tell it.
It would be unwise to assume that this situation is unwelcome to it, that it does not know what to do to alter it, or that a Conservative Government would be necessarily more amenable to "instruction" than Sir Stafford Cripps. There is little doubt that the difficulty goes to the very roots of our Constitution (if any) and is unlikely to be dealt with effectively except by a drastic reconsideration of many of our popular political beliefs.
Fearnan, Perthsire. C.H. Douglas

Bretton Woods
The following letter appeared in "The Scotsman" for September 21, 1944 under a three-line, double column heading, "Money and Trade.

Bretton Woods Proposals 'Worse than Gold Standard'"
Fearnan, by Aberfeldy, September 19, 1944
Sir, Your correspondent writing over the nom-de-guerre, "Aqua Vitae", in your issue of September 19 should not, I think, be allowed, without protest to present the export theory in the light of a problem peculiar to these islands, or to suggest that our sole industrial asset is our coal.
It is unfortunately the rule to discuss this question in the light of a barter economy. We do not live in a barter economy, we live in a money economy, and your previous correspondent, Mr. W.L. Richardson, was obviously basing his criticism, which I should endorse, on the opinion that the Bretton Woods proposals do nothing to bridge this intrinsic difference.
The insistence on the necessity for increased exports, which, it will be remembered, developed in almost precisely the same terms in 1920, is said to be justified on grounds which fundamentally are separate and unconnected that we must pay for our imports, and that we must have a minimum of imports for the purpose of remaining an industrial power. We are, in fact, presented with a simultaneous equation in which every term is unknown, and it is perhaps not remarkable that we failed conspicuously to solve it in 1920, and do not show very convincing evidence of doing much better in 1945.
It is possible to make some progress by inserting hypothetical values in the terms of our equation.

Let us agree that we require or desire certain imports. Obviously we pay for those imports in the currency of their origin, and we wish to pay as little as possible. We acquire that currency by selling goods in our own currency, and we desire to sell at the highest price so that we can acquire the maximum amount of foreign currency. But the exchange value of our currency depends on what it will buy, ie. the lower our prices the higher our exchange value. We have solved this elementary difficulty by giving away about five thousand millions of capital during the last 50 years.

Let us now insert a second hypothetical value. We wish to remain an industrial Power, which appears to mean full employment at high efficiency and consequently with an increasing output of goods for sale. We are not alone in this. Accepting, for the sake of brevity, the statement that the USA does not require to export because she is self-supporting, it would be difficult to argue that she does not want to remain an industrial Power, and therefore will not compete for markets.
So we have to find another country which is not self-supporting, but does not wish to become an industrial Power. And we have to export higher values for less return. So we get nothing for our harder work and greater re-exported imports, and embark on another cycle of world benevolence, until the next world war provides us with an unlimited market through which we acquire astronomical debts.

I am unable at the moment to recall any occasion on which Lord Keynes has been uniquely correct other than in his description of the gold Standard as "archaic". And the Bretton Woods proposals are considerably worse than the gold standard in that they place the United States Treasury in the remarkable position of being an alternative at will of the world's gold mines and gold stocks.

The fixation of the Finnish war indemnity to Russia in dollars, not roubles or sterling, is evidence of the intention to institute a financial world empire of a nature for which it is difficult to believe that we have fought two world wars.
I am, etc. C.H. Douglas

INDIVIDUALISM
The following letter appeared in "The Scotsman" of September 18, 1943:
Sir, There is, I think, a certain congruity in the appearance in the pages of "The Scotsman" of a discussion on the merits and place of individualism, and there must be a considerable body of readers, not only in these islands but overseas, who would be well satisfied to see the subject pursued to a definite and helpful conclusion.

It is not necessary to invoke the authority of the Christian philosophy (although that is unequivocal on the point) to realise that the relationship of the individual to the group is not arguable. The group exists for the benefit of the individual, in the same sense that the field exists for the benefit of the flower, or the tree for the fruit. Groups of any kind, whether called nations, business-systems, or any other associative label, inevitably decay and disappear if they fail to foster a sufficient number of excellent individuals, using those words in their precise significance.
It is also true that excellence involves exercise - a man does not become a good cricketer by reading books on cricket. But not everyone wants to play cricket, and not every cricketer wants to play seven days a week. If the M.C.C. becomes so all-pervasive that in place of being a group for the encouragement and progress of cricketers who freely choose cricket as their game, it becomes an organisation directed to the abasement of non-cricketers, then it is a field which has not been farmed with proper understanding.
The individualism, which is justifiable and necessary, is not that which insists on making the rules of every game, and at the same time, devises methods of compulsion to provide players.

It is obvious that advantage is being taken of the orgy of waste through which we are passing to stampede us into mere units in an industrial-financial group. The case which the Society of Individualists has to make for itself, is, I think, less concerned with the value of individualism than with the methods by which it proposes to restore to the individual the opportunity of becoming excellent by the exercise of his possibly unique talent rather than by the life-long performance of a mechanical task.

I have read many of the attractive writings of Sir Ernest Benn, who is prominent in the Individualist movement, and they never fail to amuse and delight me. But I notice that Sir Ernest is a stalwart supporter of the orthodox financial system. And there is no more future for the genuine individualist if the pre-war financial system is not radically modified in the interest of the individual than there is for the deluded victims of Karl Marx.
I am, etc. C.H. Douglas September 14, 1943. "The Social Creditor", October 2nd, 1943.

HYDRO-ELECTRIC SCHEMES

The following, which we reproduce because of its general application, appeared in the "Dundee Courier and Advertiser'' of April 21, 1945:
The letter of Mr. F.E. Geddes will render a valuable public service if it awakens a general consciousness that the North of Scotland Hydro-Electric Board is part of a considered scheme to utilise the war psychology for the permanent enslavement not merely of Scotsmen but of the world. It may not have escaped attention that the T.V.A. (Tennessee Valley Authority) is frequently adduced as an example that is to be copied by the board. Physically there is no resemblance whatever. The T.V.A. purports to be a flood control and land reclamation scheme, and it is typical of what can only be described as the cynical disregard of political morality which seems inseparable from the partnership of Socialism and international cartelism which is the force behind it, that the area permanently flooded by the dams greatly exceeds the biggest area ever temporarily flooded before the dams were built.
Nevertheless, 58 per cent, of the capital cost up to 1943 was charged to navigation and flood control in order to make the apparent costs of power generation appear low. There is a loss to the taxpayer of $12,789,000 say £3,200,000, for 1943. The real objective of the T.V.A. is however, quite probably that of the Hydro-Electric Board, and that is to bring an area under complete economic and administrative dictatorship.
The ground has been prepared by skilful propaganda to the effect that the miseries of the Armistice years show that the "old system'' was completely obsolete and must be replaced. In fact, the depression of 1929-34 was an essential part of the propaganda, and the same forces which are now creating world monopolies were implacably and successfully opposed to any action which would have weakened its effect.

The intention of the policy is world-wide, and the New Zealand Socialist-Labour party, the C.C.F. (Co-operative Commonwealth Federation) in Canada, the Australian Labour Party, the American New Dealers, "P.E.P" (The planners) in Great Britain and, in fact, organisations in every country draw their inspiration and support from the same source, which was originally located in Germany.
One of the individuals closely concerned with the inter-war stages of this activity was asked whether there was anything in "this nonsense" that a certain group aspired to the domination of the world. The reply was "Of course there is.
In a very few years we shall have achieved it, and nothing can stop us".

There are 27 objectors, covering most of the genuine interests of the district, to the Tummel-Garry project.
We shall, see what consideration they will receive.

© Published by the Australian League of Rights, P.O. Box 27 Happy Valley, SA 5159