|Home||Blog||Freedom Potentials||The Cross Roads||Veritas Books|
|OnTarget Archives||Newtimes Survey||Podcast Library||Video Library||PDF Library|
|Actionist Corner||YouTube Video Channel||BitChute Video Channel||Brighteon Video Channel||Social Credit Library|
The Use of Money
By Major C. H. DOUGLAS
I should like to begin the explanation and the address that I am privileged to make to you, by stating what I have no doubt, to many of you, is a truism, and that is, that we are familiar with two kinds of laws. There is natural law of the nature of the conditions which compel a stone to fall when it is dropped from a height, and which, if it falls, let us say, in a vacuum, always falls at the same rate of acceleration under the compulsion of gravity. That is a natural law, and, so far as we know, those laws are compelling laws. We cannot change the laws of that description, and all we can do is adjust ourselves to those laws.
But there is also a second type of law, a law which is what we may call a conventional law. Of course, our legal laws - the laws of our Government - are conventional laws. We have agreed to rule ourselves by those conventions. On a smaller scale, of course, we have the same sort of thing in connection with playing a game. We agree that, in a game we call cricket, if the ball is struck by the batsman and is caught by a fielder before it touches the ground the batsman is out.
We are not obliged to have conventions of that
sort. We could change them if we found that we could improve cricket
by some other convention.
It has been very frequently stated during the
past fifteen years or so that
As a matter of fact, there are no inexorable
economic laws with which I am familiar; they are practically all
Now, the first requisite in any understanding of this position on the basis of what I have just been saying is to recognise that what we refer to as conventional laws are matters of policy. You do not make a conventional law without having some sort of an idea in your mind as to what it is you are trying to do - what end you are endeavouring to serve.
If you make a law that all motor-cars shall drive on the left-hand side of the road, you have in your mind that in that way you will avoid collisions, and you have a policy in your mind in making such a law that you want to avoid collisions of motor-cars.
We have at the present time a thing that we
call an economic system, and I do not believe that we are at all
clear, in many cases, as to what it is we are trying to achieve by
means of that economic system, and by means of the conventions with
which we surround it.
Now that is not an axiom: that is not a thing
that you can take as being true without examining it.
You would destroy as far as possible all your
labour-saving machines; you would cease to use the power which you
have developed from water and otherwise, and you would revert to
handicraft, and in doing the handicraft you would avoid, as far as
possible, the use of any tools which would facilitate that handicraft.
You would do everything as laboriously as possible, and you would
undoubtedly solve the unemployment problem.
That simple idea, as a matter of fact, was the first idea that struck the Russians when they made the Revolution of 1917. The first thing they did was to remove, or in some cases imprison, their scientists and their organisers. They said they did not want them: they said they wanted the population to work, and they got them to work quite easily.
You see, it is quite possible to demand from
the economic system a lot of different things. For instance, in regard
to this question of employment and unemployment; there has been,
I think, an almost absurd confusion on the part of such people as,
let us say, the well-known and very able delver into these matters,
Karl Marx, who complained that the present system provided a parasitic
class who battened on the producers of the wealth of the world.
Now, either unemployment is a privilege - in which case quite obviously you want to try and get as many unemployed as possible - or else it is something requiring pity, in which case any parasitic class is an object of pity and not of contempt or of criticism. You cannot have it both ways.
You must make up your mind whether you want to provide leisure, by an economic system, accompanied by goods and services producing what we call a high standard of living with an increasing amount of leisure, or, conversely, you must admit that what you want to do is to provide employment, in which case your policy is exactly opposite.
The policy which is attached, and the matters which can be attached to a policy to relieve the unemployment problem permanently, must in the very nature of things be a policy which will decrease the unit production of wealth by the individual, and a policy which is intended to produce and deliver goods and services with the minimum amount of trouble to anyone must, quite mathematically, increase the unit production of wealth, and so create what you can, if you like, call an increasing unemployment problem.
Those are the only two alternatives in regard to that, and you must first of all, before being in a position to form any opinion at all upon proposals in regard to the present crisis, make up your mind as to what it is you want.
Now, the second necessity of an understanding of this situation is a sound analysis of the difficulties which stand in the way of getting to where we decide we want to go. That is to say, if we decide - and I am assuming that having put the matter to you in the way I did you will practically all have decided that we do not want to produce for the sake of producing, but that we do want to deliver goods and services - that what we want from the economic system is goods and services to provide a high standard of living - Interjector: I want a job! And then you will be able if you like to provide jobs for yourselves, you will I think - unless I grossly underrate the intelligence of the gentleman who made that remark - agree that if he was provided with what he would refer to as an income of £500 a year, he would be able to find some use for his leisure.
Now, if you do agree with me, for the sake of hypothesis we will say, that the only object of an economic system is to deliver goods and services to the population concerned, with the minimum amount of trouble and friction to anybody, then the next thing to do is to analyse whether that is possible, to what extent it is possible, and what, if anything, interferes with carrying out your plans.
Now, at this point you have to make - not a
mental effort - but an effort of self-demesmerisation.
Can you imagine yourself, if you had sufficient money, going to any shop for any article that you can conceive of and not getting it? Is there any requirement of common use in the world today of which you could tell me that there is a definite physical shortage? If you can, I shall be interested.
I can tell you, conversely, of a long string
of articles which are actually greatly surplus to the actual requirements
of the world at the present time. For instance, to take a very simple
instance, more coffee was wilfully destroyed in Brazil during the
past year than would have provided the whole coffee-drinking population
of the world with all the coffee they wanted.
In almost every direction in which you can turn you will find evidence of overflowing - either actual or potential - and easily realisable physical wealth to such an extent that it is quite impossible for anybody who knows anything about the subject at all to avoid the conclusion that physical plenty and complete freedom from economic trouble associated with bed, board, and clothes, is literally waiting at the door of everyone of us if we realised it. That is the physical fact.
So that it is not to the physical side of the
production process that we have to turn when we want to find out
why it is and what are the difficulties which prevent us from realising
the objective that I suggested we wanted to realise, and that is
sufficient goods and services for everybody with a minimum of trouble
Now, before going on to look at another side
of the problem, I want to examine very briefly what we find in the
present state of affairs which would not correspond with that objective
that I suggested is the correct objective.
What is happening which is not in line with this objective that we have decided we want to reach?
Well, first of all I will just deal with a few points which I think you will recognise as existing at the present time. We have surplus - by which I mean unpurchasable, not necessarily unnecessary - but unpurchasable production. We know that is so, and that it is being destroyed in many cases. We have consequent unemployment as the phrase goes because no further production is for the moment necessary; but that consequent unemployment can be translated into the words "surplus productive capacity."
If we have a large number of unemployed producers, then, quite obviously, we have a surplus productive capacity which is not being drawn upon, so that, in addition to the actual surplus production, we have evidence all over the world of surplus productive capacity. Interjector: Not in Russia! No, not in Russia. That's quite right. Russia is the only poor country in the world.
Now, the third, a symptom which we have at the present time, is consequent poverty, consequent on unemployment according to this phrase. Remember that I translated unemployment in this connection as surplus productive capacity, and we have the curious but quite undeniable result of surplus productive capacity, that we have poverty. It is an extraordinary thing that it is possible to have poverty as the result of surplus productive capacity; but that is exactly what we have got.
Now I will translate poverty again into something
which you will agree is the correct translation.
I think that if you will think that over you will find it quite impossible to deny that translation. The next thing that we have is redundant machinery and plant; that is to say, we have mills and factories and farms and fields, all of which are there and could be made to produce a great deal more than they do produce. That so-called redundant machinery and plant can also again be translated into surplus productive capacity.
Now what is the result of surplus productive
capacity in plant and in agriculture and so forth?
When we say that the production of an article is unremunerative we do not mean to say that nobody wants the article; we simply mean that according to the conventions under which we produce that article, the person who produces it does not get any purchasing power as a result.
Now the next thing, which is of course the same extension of that, is the disappearance of industrial profits as a result of that cut-throat competition. Of course, there is a very strong tendency in these matters to assume that only one section of the population is hit.
It is part of my point of view in regard to these matters that first of all that is not true, and that, secondly, the practical means of rectification of these matters will probably require a united front against certain things which are interfering with us, and that nothing from the practical or the theoretical point of view can be so unwise as to assume that this is a class matter. It is not: it is a matter which affects every man, woman and child in this theatre.
Now, the next and final, and possibly the most immediately terrible result of this situation, is competition for foreign markets, because of a lack of sufficient home markets, and that competition for foreign markets is the primary cause of war.
I want you to think over those things that
I have just been saying and realise that they have one common factor.
Although every one of them has from time to time been regarded as
the disease itself, just as I was suggesting unemployment was regarded
as a disease in itself, from my point of view and the point of view
that I am putting to you tonight, none of them is more than a symptom.
They are all symptoms of one common disease, and that common disease
is lack of something we call purchasing power.
Now then, let us assume - and I believe it is quite impossible to deny - that it is not physical poverty which is afflicting us: it is lack of. purchasing power which is preventing us from getting the physical riches which are waiting to our hands.
What is this thing that I am talking about as purchasing power? Well, of course, in one sense any of you could answer that. What you want for purchasing power is money in your pocket, and that, of course, does not get us very far - an answer like that.
What is the nature of purchasing power, and
what is the nature of this thing-money?
You will see that that definition immediately rules out anything specific of which money has to be made. Money is not, for instance, gold or silver, or any of those things. Those things may be money, but money is in no sense confined to any particular metal.
Now, thinking that over, it ought at once to occur to anybody that if, under certain circumstances, anything will do for money that there ought to be no shortage of money. If money had to be made of gold, and if there was only so much gold in the world as presumably there is - I believe there is only a block of gold about forty feet cubed which is all the existing gold in the world today that has been mined during the past two thousand years - and we cannot do without purchasing power, we should be in a difficult position, obviously.
But when we say that money is anything, no matter
of what it is made nor why people want it, that no one will refuse
for his goods, then we are getting into quite a different region.
Now let me draw your attention to what you
might call the simplest form of effective demand with which you are
probably acquainted, and that is a railway ticket.
Now, supposing that you imagined that the whole
of this productive system which we have been examining and finding
to be so rich, supposing that you imagined it to be all of one kind,
and that kind nothing but transportation: that all the wealth of
the world, instead of being so diverse in the form of motor-cars,
food, houses, and so forth, supposing it were to coalesce into one
thing like transportation. Supposing you found that there was any
amount of transportation; that there were plenty of railways and
plenty of locomotives; plenty of rolling stock and plenty of people
to operate the railways; plenty of fuel and so forth; but for some
reason a different organisation from the railway had obtained control
of the issue of all the tickets which were required to travel on
the railway, and if you were quite sure that there was a great deal
of distress in the world and if everything appeared to be going wrong,
and you were quite clear that it was for lack of transportation facilities
and yet you knew that there were plenty of transportation facilities,
you would naturally say, without very much waste of time:
Now exactly that thing has happened to the present economic system. The whole of the productive system has become completely separated from the ticket system that we call the financial or money system. I am going to go very rapidly over just exactly how that separation has taken place, because it is a good way of fixing it in your minds, and it is very important.
Originally, just as you would expect in regard
to a railway which issues its own tickets, the wealth producers of
the world - a great many thousands of years back - also issued their
own tickets. Wealth in those days was chiefly cattle, and the owners
of cattle punched leather discs representing a head of cattle, and
they could exchange those leather discs for corn, and when the corn-man
wanted to collect the cattle he came up with the leather disc, collected
the cattle, and handed over the disc.
Now the next stage in the proceeding was in
the Middle Ages when, as no doubt many of you know, the goldsmiths
were the custodians of wealth in a portable form. They had the best
strong-rooms. They took care of valuables as well as actual money
though, and they gave receipts for the valuables that they took care
Now that condition was continuous up to a very
short time ago, practically up to the beginning of the European War,
and the convention was that either a bank-note or a cheque on a deposit
- which was simply an order to a goldsmith to pay so much to somebody
else, which is exactly what was done in the old days - when both
of those things, the bank-note or the cheque, were supposedly cashable
at any time in tangible wealth at the bank.
Well, now, there used to be, of course, a lot of bank failures, even in Great Britain, and those banks failed because people suddenly decided, all at once, to draw out the things for which they had orders on the bank in the form of bank-notes or cheques, and when they all tried to draw out at once they found it was not there. That is what happened.
It never was there; it never has been there for at least a hundred years. The bank has never consisted, in the last hundred years, of merely handing out at one end of the counter what was put in at the other. No bank ever paid a dividend in the last hundred years on the process of merely lending that which it took in. There is no possible doubt at all about this thing.
I sometimes wonder why it is that certain protagonists
- certain defenders of the present banking system - go on arguing
about this matter. There is no possible doubt about it. There are
any number of authorities who are all agreed about it, and one of
them is the Encyclopedia Britannica. If you will turn up the article
on "Banking" in the Encyclopedia Britannica you will find this written: "Banks
lend by creating the means of payment." Not merely by lending
the means of payment, but by CREATING the means of payment.
Now, what is it that we have to do to put right the lack of purchasing power, assuming for the moment that we have the power to do it? That is a separate story. But, assuming for the moment that we have the power, what is it that we want to do?
There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself - the money which forms the thing we call "effective demand" - and there is something we call a price opposite to it.
If we have a one-pound note as a certain value dependent on the price against which it is offered, we can generalise that by saying this: that the purchasing power of money is inversely proportional to the price level, by which we mean, of course, that if the average of all things that you want to buy goes down, then the purchasing power of money goes up. That is what we mean by saying that the purchasing power of money is inversely proportional to the price level.
Now, if you have a lack of purchasing power
there are two things that you can do in regard to it. The first and
most obvious thing, but, as so very often happens, not the right
thing to do, in regard to it, is to issue more tickets to make up
the lack between the purchasing power available and the prices of
the goods for same. But if you do that you come up against a difficulty
which is well known, and that is that you get a rise in the prices
of articles against which the money is offered, because there is
nothing to prevent the prices being raised when the sellers find
there is more money about.
Now there is a very obvious disadvantage in merely halving prices arbitrarily: one with which in New Zealand, I have no doubt, you are very familiar. And that is that the unfortunate man who produces the goods either has to dispose of them at a loss or keep them under present conditions That is by no means necessary.
Supposing that you decide that you want to double
the purchasing power: you can, as I say, quite obviously double the
amount of tickets; but supposing you say,
Now, it is constantly being stated that that
is inflation. Of course, these words are bandied about because there
are certain very powerful influences who do not want a change in
the financial system - do not want it rectified. No monopoly has
ever existed in the world such as the monopoly of credit: the monopoly
of those tickets which are producing your effective demand.
Well, now, let me define the thing. There is such a thing as inflation: there was inflation in Germany after the War, and in Russia and elsewhere.
Inflation is an increase in the number of tickets accompanied, mark you, by a corresponding increase in prices so that both price and effective demand are equally raised, and the purchasing power in that case is decreased.
That is true inflation, and simply amounts to
a tax upon those people who already have purchasing power because
their purchasing power, owing to the rise of prices which is produced
by true inflation, will buy less. They are simply taxed to the extent
of the inflation, and that is exactly the thing which the orthodox
economists and the bankers are asking to take place at the present
time when they say that what is required is a rise in prices.
How it is possible for all those people who have attacked the views which I am putting forward tonight as inflation, to have the hardihood to suggest that what is really wanted in the world is inflation, I really do not understand; but that is what they are saying.
Now a rise in purchasing power accompanied by a fall in prices is not inflation - it is an increased purchasing power, which is quite a different thing, and if you do apply credit as we call it - the source from which purchasing power is drawn - to a reduction of prices you cannot produce inflation.
We have had during the past ten or twelve years an absolute demonstration of the fact that it is possible to pay for an article from two sources, thus lowering the price, and not producing inflation. Nobody would suggest that the last few years was a period of inflation, either in Great Britain or even in New Zealand. During that time any number of articles have been sold below cost, and it has been done by the public paying the price of those articles at which they were sold, and the producer, out of his own private reserves, paying the difference and making a loss, and that is a demonstration of paying for an article from two sources and not raising prices.
Now if you can pay for an article from two
sources, one of which is the private reserves of the individual,
you can certainly pay for an article from two sources when the public
credit is there to second it, without raising prices. But, as a matter
of fact, while that constitutes a bridge between the lack of purchasing
power and the goods which are demonstrably there to be purchased,
it does not meet what is one of the increasingly important aspects
of the present situation, and that is this:
We are accustomed to look on the productive and economic system as if it was the same thing that Adam Smith talked about one hundred years ago when individuals or small productive concerns - very small productive concerns, chiefly individuals - produced practically all the wealth of the world and exchanged it with each other, and it was probably fairly true to say at that time that "money was a medium of exchange."
Now from the economic point of view in the modem
world, an increasing number of people have got nothing to exchange.
That increasing number of people are the people that we call the "unemployed."
Their labour is not wanted by the present economic system. It has changed
from being an individualistic producing system to being what you might
The creation of wealth at the present time is
inevitably a co-operative matter. One man, by means of a most ingenious
machine, makes a nut and a bolt. That nut and bolt is no good to
him by itself - he does not live on nuts and bolts. Some other man
has to make some other little bit of machinery, and together with
a hundred or two of them, makes up what we call a motor-car. While
a motorcar is useful, you cannot live on motor-cars.
Now this single pool of wealth is produced
primarily by power and by ingenious kinds of machines. It is not
produced primarily by labour at all, and it requires less and less
labour to produce it, and from the point of view from which I am
looking at the thing, the perfect industrial system will be one which
requires no labour at all.
We have to recognise that there is an increasing
number of people - a number which is bound to increase continuously
up to the point where it forms the major portion of the population
- which will not be required, for any considerable length of time
of their lives, in the economic and productive system at all. That
is one of the facts that you have to face along the lines on which
we are going - and the proper lines too.
. Now you can do that quite easily by something that we know as the dividend system. If you have a dividend at the present time - if you are the owner of some of those very few shares existing in the world, still paying dividends - you are in fact getting a piece of paper which entitles you to a fraction of the production - not of the particular thing in which you have shares - but of the total production of the world.
We have this pool of wealth, and if we extend this dividend system so that all of us who are not employed can have our dividend warrants, and those who are employed can be paid in addition to being employed, then we would have a state of affairs which exactly parallels the physical facts of the case, and nothing else.
I can well realise that there is need of great mental adjustment to agree to proceed along those lines.
We have developed on the physical and productive sides to a stage which we can quite properly call middle twentieth century. We have not developed in our economic thinking processes, which are middle fourteenth century, and we have got to make up a great deal of lost time in a very short space; but the only way to do that is to clear your minds of any doubt whatever as to what it is you are trying to do.
If you will persist in assuming that the economic system is going to be some sort of governmental system - that all sorts of moral questions as to whether a certain man is worthy to have what you call a dividend, or whether it would be demoralising to him to have a dividend or something of that sort - you are simply introducing into what is an arithmetical proposition all sorts of propositions which have nothing to do with arithmetic at all.
Make up your minds what it is you want your
productive and your financial systems to do. Do you want them to
be a governmental system? Do you want to make certain conditions
which will govern a man getting these things, because if you do you
want to dampen down your producing system; you want to cut down your
producing system, and stop your producers from producing wealth,
and your chemists from finding fresh methods of producing wealth.
Stop these people and say,
I think it is very wrong from my point of view, but if you are going to do that sort of thing, be conscious of what you are doing, and do not mix it up with arithmetic - that is the important point.
Now, before closing, let me put to you: what are the difficulties? The difficulties are not at all on the productive side - the problem is not on the productive side at all, nor is it on the administrative side. It has nothing whatever to do, for instance, with the respective merits of administering, let us say, a large productive factory as a nationalised factory or as a private factory - those are questions of administration.
What we do know at the present time, beyond any possibility of doubt, is that whether the administrative system is perfect or not it is producing, not merely all that we can use by our financial system at the present time, but large surpluses, and in my opinion it is nothing less than suicidal to start reorganising an admittedly effective producing system before you have touched upon where the real trouble lies, and that is in the effective demand system, the purchasing power, so that you have to realise that it is neither in the actual processes of production nor in the methods called administration of production, that this trouble lies.
It lies simply and solely in this ticket system
which is summed up in the words, "the monopoly of credit,"
Now I do not want to suggest and I never have
suggested at any time, that bankers are anything less than ordinary
persons of society, so far as 95 per cent, of them are concerned.
I make a reservation of 5 per cent. And I wish to say that none of
those 5 per cent, are in New Zealand, so that no one can say that
I am criticising New Zealand.
There are two ways by which the problem can
be attacked, and one of those ways has to do with the fact - which
I honestly believe - that 95 per cent, of the personnel of the banking
system are just ordinary, every-day hardworking business people like
anybody else. You can make it clear to that 95 per cent, that they
are engaged in a very anti-social business as carried on at the present
time, and you can - and I say this with a full appreciation of the
implications to be put upon it - drive a wedge between the 95 per
cent. and the irreclaimable 5 per cent. (not situated in New Zealand).
I speak with some knowledge of what I am talking
But I would like to say in regard to this second
method that it has a vital bearing on the inadvisability of pressing
too quickly for the nationalisation of banking. I do not say that
something like the nationalisation of banking will not have to come.
I think it probably may have to come. But what I am perfectly certain
of is that if you unite the powers of governments with the powers
of banking before you have changed the banking system, you have got
a problem which is doubly difficult to solve.
So, as I have said before, I do suggest to
those people who are in power in these matters that they have no
earthly chance of retaining this position in the control of forces
which - very largely by negligence on our part - we have allowed
them to usurp, and as they have no chance of retaining it, the sensible
thing is to come down before they are brought down, because they
are going to be brought down whatever the consequence.
There must be some rectification. We know the plan proposed on which the rectification should take place; but the details are not details of one fixed plan which can be clamped down on any country as the only plan which will suit the world. That is not true. Probably a plan for New Zealand would be a different plan from a plan for Australia, but the main principles are absolutely clear at the present time.
The financial system is nothing but a ticket system. The ticket system must be made to reflect the actual truth of the productive system and not attempt to control it. Finance must be made to follow industry and business and not control them, and the actual means by which real wealth is produced must be recognised as being largely descended to us from the labours and the genius and the work of very large numbers of inventors, and so forth, who are now dead, and these inventions are the legacy of civilisation and therefore the product of their legacy is something to which we all have a right, and because that is the chief form of production, it is the factor in production which we all of us have a right to share.
Only in that way can this absurd anomaly - this unbelievable anomaly between poverty and tremendous, either actual or potential, plenty - be solved, and if that anomaly, that paradox between poverty and distress on the one hand and potential plenty on the other, is not quickly solved, then the civilisation to which we have devoted such wonderful care, and brought on to the very edge of a golden age, will go down with those of Greece and Rome.
|© Published by the Australian League of Rights, P.O. Box 27 Happy Valley, SA 5159|