The Relation Between the Economics of C. H. Douglas and Those of Rudolf Steiner
by Owen Barfield (UK)

The debate which was recently broadcast from the London station between Major C. H. Douglas and Professor Dennis Robinson is a mark of the greatly increased interest which the world has begun to take in the economic theories of Major Douglas and in the “Social Credit” movement which is associated with his name. Many members of the Anthroposophical Society in Great Britain are vaguely aware of some sort of relation between the economics of Douglas and those of Rudolf Steiner. Douglas is, for instance, one of the few English writers who have quoted from the Threefold Commonwealth in their works. He has addressed a Group of the Society at the London Headquarters. Moreover, several members of the Anthroposophical Society in Great Britain have been personally interested in Social Credit for many years. It may therefore be a good thing that somebody should try and indicate what the relation is, if any, and such an attempt will be made in the present article. Naturally the writer makes no sort of claim to speak ex cathedra; he speaks merely as a student of both writers who has made certain observations and reached certain conclusions and he is, of course, personally responsible for what he says.

Steiner's Economics Course is built up on his conception of the nature of man himself, in whom there is an essential polarity between Nature on the one hand and Spirit on the others. In this it resembles his book, The Threefold Commonwealth. But whereas the book shows how this essential polarity is striving to work itself out in the whole structure of human society, the Economics Course deals more exclusively with the economic circuit, that is, with the production and exchange of commodities. It is concerned, in the main, with one third part, only, of the whole Threefold Commonwealth.

But the essential polarity, and the trinity which arises out of it, are (as in all true organisms) manifest no less in the part that in the whole of the social structure. And so in the very first lecture of the Course, Dr. Steiner puts forth the exceedingly fruitful conception of the “economic spectrum,” drawing an analogy between nature and the infra-red rays at the one end of the economic process and between Spirit and the ultra-violet rays at the other. The purely economic process lies between the two and is the product of their interaction. In subsequent lectures Steiner described this process in greater detail, showing how human Spirit, operating on Nature, produces goods and commodities and at the same time gives rise to economic values, which are or ought to be destroyed or cancelled as the commodities themselves meet with consumption or decay and so vanish again into Nature. One of the principal methods by which Spirit thus transforms Nature and the method which is most characteristic of an industrial civilisation is the process known as the division of labour. With the division of labour, as its semi-spiritual counterpart, capital comes into being.

Capital may assume the form of real assets, such as machinery, buildings and the like; but it may also be exchanged into the form of money.^[1] Money — materially speaking — is a commodity, but there is something which distinguishes it from all other commodities and that is, the universally accepted fiction that it does not wear out. The tokens of which it is composed wear out, but not (such is the accepted fiction) the face-value. That is deemed to be eternal. Now it is characteristic of a commodity that it can be collected and stored, but on the other hand (and this is equally characteristic) it will not continue for ever to be a commodity. Moth and worm will take care that in due course the commodity relapses into Nature. But an idea, a thing merely ‘deemed,’ though it is exempt from the ravages of physical decay, cannot be stored. For it does not exist in space and time at all. An idea is neither young nor old, neither here nor there; it is merely true or untrue. There is thus something self-contradictory in the very nature of money as it is conceived today. Nature and Spirit, inharmoniously combined, are perpetually striving asunder within it. Now as long as the money is passing freely from hand to hand and operating merely as a medium of exchange; as long as the money is being used as purchase-money — the evil effects of this self-contradiction are constantly being corrected. For on each purchase for consumption there is a destruction of economic values. But as soon as money begins to be stored, that is to say, as soon as it begins to take, by investment, the form of ‘capital,’ the self-contradiction begins to be effective and needs to be consciously controlled.

For out of this self-contradictory element in the nature of money there arises the all-important principle which Steiner has called the tendency of capital to preserve itself. If the rate at which economic values are being created is out of proportion to the rate at which they are being destroyed, great masses of unassimilated capital collect and work havoc in the economic system, by blocking the circulation and exchange of commodities. The result is industrial stagnation — a state of affairs which is, alas, too familiar to require description.

Now an idea such as this of the tendency of capital to preverse itself is fairly easily apprehended as a bare notion. To comprehend it, so that one has a clear idea of its application to the events of every day is a different matter. In the first place, the question arises: What is capital? For answer one cannot do better than turn to the work of Major Douglas. Take, for instance, the example which Douglas gave in his evidence before the recent Macmillan Committee on Finance and Industry, of the way in which capital charges under our present financial system are incorrectly accounted into the prices of commodities. It needs following rther carefully. A has 1,000 pounds and he decides to spend this 1,000 pounds on building a house. He hires 100 workmen to build the house for him and pays them 10 pounds each in wages for the work. (It may be assumed, without affecting the argument, that the whole of the 1,000 pounds goes in nothing but wages.) At the end of this period the situation is as follows. — A has a house and no money. The 100 workmen have 1,000 pounds. The workmen now decide to club together and buy back from A the house which they have built for him. A agrees to sell it for 1,000 pounds. Thus A is now out of the picture and the situation is (for, to simplify the illustration, it is assumed that the workmen had other means of subsistence while they were working at building the house) that the workmen have a house but no money. No money? No purchase-money. Suppose that the workmen form a limited company for the purpose of using the house as a factory. The factory produces goods and puts them on the market. Now what considerations will determine the minimum price which these factory-owners or shareholders, as they now are, will be able to accept for their goods? ^[2] (This minimum price will be what is today called the cost of production.)^[3]

Douglas points out that the 100 factory-owners would not themselves say, either that they had obtained a factory by working for it, or that they had “spent” 1,000 pounds on a factory (and therefore had “no money” left). They would say that they had “invested” 1,000 pounds. There is a world of difference between the meanings of these two words. If I spend 1,000 pounds on having a good time, if, that is, I exchange my 1,000 pounds for consumable goods, I agree at the end that the 1,000 pounds is no longer mine. But if I “invest” 1,000 pounds on buying a factory or if I lend 1,000 pounds to the owner of a factory (which amounts to pretty much the same thing), I expect ten years later to be able to come to the factory and say, ‘Give me my 1,000 pounds back in cash.’ It makes no difference whether I do this by selling the factory or by calling in a loan. Supposing that the factory will wear out in ten years! Then it follows that in the prices which are charged for the goods which the factory makes during that ten years, there must be included, not merely the wages paid to the labourers in the factory and the cost of raw materials, but also the 1,000 pounds which must be saved to pay me out at the end of the ten years.

Here, to begin with, is a very good example of the way in which the tendency of capital to preserve itself affects the ordinary affairs of life. For it affects the prices at which the goods can be sold. Whether justifiably or unjustifiably is not at the moment in point. It is at least clear that if the investors of the 1,000 pounds had been willing to agree that, after the ten years which it took the factory to wear out, their 1,000 pounds capital should no longer exist, then it would not have been necessary to include a book entry of 1,000 pounds in their costs of production, that is, in the minimum price at which they could sell their goods.

Once you have made clear in your mind this fundamental distinction between spending and lending,between purchase for consumption and purchase for investment, you are a long step in the direction of understanding what Steiner has to say about money in his Economics Course. Money spent on consumable goods is money exchanged, but if I lend or invest 1,000 pounds, then, although the very case itself may be paid out by my borrower next week as wages and so pass on from hand to hand, yet there will remain in my possession a kind of shadow or simulacrum of the money. This is my financial capital. This is what Steiner calls ‘Leihgeld,’ loan-money, or, as I prefer to translate it, ‘invested money.’

So much for the nature of capital and its tendency to preserve itself. When we go on to consider the effects of this tendency, whether with Rudolf Steiner or with Major Douglas, we are led to the question: What is meant by the word ‘wages’? In the example of the house and the workmen given above it was said that wages were paid to the men ‘for the work.’ But in fact these money-payments called wages may be considered in three different ways. They may be considered either (1) as the price paid to the vendors of a (supposed) commodity called ‘labour’ or (2) as a distribution as producer to itself as consumer to enable it to consume its own product, or (3) as the price paid to producers for the commodities or commodity-values which they have created.

The first way is the ordinary way of conceiving wages today. In the industrial system, as it has so far developed, labour has come to be regarded as a commodity. The second way is the way in which wages are conceived in the writings of Major Douglas. The very nature of the conception marks the transition of economic theory from a period in which the nations of the world were naturally and more or less correctly conceived of as rival traders to the present period, in which the only real economic unit is the whole world.

[4] The third way of conceiving wages is Rudolf Steiner's way.

To return to the effects produced on prices by the tendency of capital to preserve itself; let us consider these first of all in the light of the first conception of wages. What considerations will determine the minimum price which the shareholders, or factory-owners, will be ale to accept for the goods which their factory turns out, so long as wages are conceived and calculated as if they were the price of a commodity called ‘labour’?

Remember that, out of the original 1,000 pounds the workmen have now no money (that is to say, no purchase-money) left. They will therefore have to borrow the wherewithal to pay their labourers. This minimum price will therefore consist of at least three items:

1. the cost of the labour (wages)

2. the cost of the raw material

3. 1,000 pounds capital to be saved.

This is the result of calculating costs on the basis that wages are the price paid for a commodity called labour. We notice at once that wages are only one out of three items by which the cost (and therefore the minimum selling price) of the goods manufactured is determined. But wages are also, in fact, the principal means by which purchasing power is distributed to would-be consumers. It follows that, unless either (a) the goods produced are sold at less than cost or (b) distribution of purchasing power is made concurrently from some other source or (3) ‘wages’ are calculated on an altogether different basis, then during the period in question an insufficient quantity of purchasing power will have been distributed to enable the community to purchase what it has produced.

This is in effect what Douglas has been saying for fifteen years to an audience, slowly at first but now very rapidly, increasing in numbers. The practice of accounting capital charges into the prices of commodities, taken in conjunction with the fact that wages are the principal means by which purchasing power is distributed to the members of a modern industrial community, these two things together result, he says, and must result in a state of affairs under which there is never enough money in circulation to buy more than a fraction of the goods which the community is equipped to produce.

Thus, one may say that the effect of the first of the three different ways of conceiving wages is — the situation in which we now find ourselves — universal poverty amid universal plenty. The effect of the second way of conceiving wages is, or may be, to enable one to understand this situation and to see where we have gone wrog.

But as is well known, Douglas is not content with merely pointing out what is wrong. He has distinct and positive proposals for putting it right again. He proposes to counteract the preposterous effects of a faulty costing system by providing for both (a) the sale of commodities at less than cost price and (b) the distribution of purchasing power from another source. He still thinks of wages as forming part of the cost of an article (and therefore of its minimum price), but he will take care that the consumer has enough money in his pocket to meet the whole minimum price. And it is particularly interesting to observe how he will do this.

The history of banking is the progressive realisation of the pathetic effort of capital to achieve immunity from the law that all things which are capable of ownership are subject to depreciation, that is to ‘preserve itself.’ From gold, which can be stolen and clipped, to banknotes (whose face-value may be preserved to their owner by proper precautions even after the paper itself has been filched from him or burnt); and from notes to book credits, the changes have worked on imperceptibly until today the huge masses of capital which threaten to choke the world to impotence exists almost entirely in insubstantial and even negative forms. Today the central banks of the world ar the owners of the great bulk of the world's capital. But this capital is not (save to a small extent) manifested in vaults full of gold or stacks of notes. In so far as it is invested, it takes the form of debts, owed by the rest of the community to the banking system; in so far as it is uninvested, it takes the form of the banks' monopoly of the right to credit currency and credit and to distribute these to the community as if they were loans for themselves.

If Douglas's proposals were adopted, this monopoly right to create financial credit would be taken from the banks and vested in the State as representing the community. And the credit, which the State was thus empowered to create would be used — for what? — to enable goods to be sold at less than cost. It would thus be used to cancel the third item which, we have seen, goes to determine the minimum price, that is, the capital charges. In other words his proposals would have the effect of breaking up the huge masses of capital which have been accumulating since the beginning of the industrial era. There would thus be a destruction of capital accompanied by a new creation of purchase-money.

Under our present system individual or private owners of financial capital, that is, of invested money, have the right to demand from the community in exchange for it as equivalent amount of existing purchase-money. The Douglas proposals would substitute for this (in the case of the huge masses of capital accompanied by a creation of purchasing power. This would be done by the political organisation of the State.

Rudolf Steiner also makes provision for the break-up of obstructive masses of capital. But the operation should, he says, be controlled by the ‘economic associations’ rather than by the State. With regard to the creation of purchasing-power, it is sometimes thought that Steiner suggested, as a cut-and-dried reform, the introduction of ‘three kinds of money,’ purchase-money, loan-money and gift-money. This is a misunderstanding. What he actually said was, that money does already take these three forms, according to the purpose for which it is used. Ordinary purchase-money, as soon as it is invested, is actually metamorphosed into quite a different kind of money — into Leihgeld (invested money). Only, said Steiner, our present way of looking at money and thinking of it, is such as to mask these metamorphoses. And he added that the mask must be removed.

Steiner was much more concerned to describe things that are actually happening than to propose any definite measures of reform. This he considered to be the business of others more immediately concerned with the economic life. More than once in the Economics Course after making a suggestion, he qualified it by adding that it was only given as an example of the sort of thing that might be done and that in any given circumstances some quite different measure might turn out to be the best. The task he set himself was to help men to know; once they knew, he had confidence that they would be able to act for themselves.

Thus one suggestion which he made for dealing with this problem of the permanense of capital investment was that money must be made to ‘wear out’ like other commodities. By some process of dating it, money must be so constituted that every day brings it nearer to its demise. But this growing old and consequent loss of value would only apply to money qua invested money. As purchase-money it would retain its full face-value, whatever its date. And money once invested would not be reconvertible into purchase-money. The oldest money of all, money that was nearing its date of expiry, would still be able to be used as gift-money and after this final metamorphosis could be renewed (or corresponding new money created) ty those ‘economic associations’ which are an essential feature of Steiner's sociology and which figure no less prominently in the Economics Course than in The Threefold Commonwealth.

Now, although there is no need to underrate the importance of this definite and practical suggestion, it would in my opinion be a misunderstanding of the Economic Course not to realise that the only thing that is of paramount importance is the principle involved; and the principle is, to find a means of counteracting the tendency of capital to preserve itself. The world has found out the way to build up financial capital; the problem is, to find a way of destroying it — without destroying the human and spiritual values which produced it and which, properly controlled, it will foster in its turn.

Douglas approaches the problem empirically, as an engineer who has turned his attention to sociology.

It happens that in his everyday life he is brought up against the actual financial effects of the tendency of capital to preserve itself, and he sets himself to work out a solution. Steiner reaches down, so to speak, to the problem out of the firmament of his knowledge of the whole nature of man. He is less pre-occupied with the immediate effects of the tendency he describes, regarding it as his task rather to elucidate the tendency itself. He is like a doctor prescribing to the patient what is a healthy diet and a normal human way of living. Whereas Douglas is like a surgeon, ready to perform an operation for appendicitis.

This also comes out very clearly in the attitude of the two writers towards wages and costs of production. Douglas has detected and described the financial flaw in the world's costing system. The purchasing-power which is being distributed at any time, he points out, ought to be equal to the prices of consumable goods on the market at that time. Actually today it is not determined by these prices at all but by the fact that, as ‘wages,’ it forms part of the costs of things still in course of production. Thus there arises a gap between purchasing-power and prices. This gap Douglas would bridge in the way I have attempted to describe.

Steiner, on the other hand, starts by cutting the knot altogether. Labour is not a commodity and therefore wages are not ‘costs’ at all. He knows that to regard them as such must lead, on purely economic grounds, to disaster; for his knowledge is drawn from those depths in the soil of truth at which the roots of ethics and economics are still intertwined. A man must be paid — not the price of his labour as part of the cost of the thing he is still in course of making, but the price of the other things he has already made. He may not be ale to make a complete commodity himself as in the days of the medieval craftsmen; nevertheless at the end of the week or other period he has made a notional part of a commodity, or it may be of many commodities, and that notional part is measurable financially as a value. This is what he should sell to the community, not the labour of his hands which is part of the man and therefore not for sale. Douglas says: pay him a sum equal to the price of the goods on the market, the price itself being determined (as at present by past costs. Steiner says: pay him the very price itself of the commodities he has produced, that price being determined by present values. For a value, once created, no longer has a cost. It only has a price.

It must however be clearly realised that this is only an attempt to contrast the different lines of thought by which the two writers have approached the problem. Thus, although Douglas sets out to bridge the gap between ‘wage-costs’ and prices by increasing purchasing-power, the difference would not be made up to the wage-earner actually in the form of increased wages. It would take the form partly of lowered prices of existing commodities and, partly, of a ‘national dividend’ to be distributed to all alike. He also conceives of wages as likely to form a progressively less important factor in the distribution of purchasing-power and it is significant that in the Scheme for Scotland published last year in the Glascow Evening News provision is made for a decrease in the rate of wages.

It is easy to feel the ethical soundness of Steiner's doctrine. It is not so easy to perceive its economic inevitability or the way in which failure to regard it is at the root of the world's financial distress today. That has been made possible, for me at any rate, by the thinking of Major Douglas. The difference between the two ways of looking at costs and wages is to my mind not more striking than the resemblance. And it is in their treatment of this problem and of the problem of capital depreciation that the relation between the two writers is to be found and understood.

I must conclude with a reminder that the scope of this article is limited to that relation. It does not pretend to be an exposition of the two systems or economics; and indeed any such claim for an article of this length would be absurd.

1. It follows that it is incorrect to say that capital is either of these things. Capital is the intangible something which may become either one of the other. A good example of it is a Trust Fund. The fund continues to exist as a single identifiable unit of capital, though the assets of which it is composed may be perpetually changed by sale and purchase.

2. That is the minimum aggregate price of all the goods which the factory produces and sells. It is too commonly forgotten by those who are fond of invoking the law of supply and demand that there is such a thing as this minimum aggregate price. It is the lower limit beyond which the law of supply and demand is no longer true.

3. Profit is omitted for the sake of simplicity. Or it may be regarded as part of the cost of production.

4. It must not, however, be supposed that this contrast has any relation to the contrast between economic ‘nationalism’ and ‘internationalism’ so frequently drawn during the recent London Conference on Economics. President Roosevelt's conception of wages, for example, is much more in accordance with an economic theory for which the world is the real unit than the pious cant of the usurers who blame him for wrecking their plans at the Conference. But this must not be taken as implying the opinion that his own plan of borrowing to finance production can bring America any lasting benefit.