tag:blogger.com,1999:blog-84797077009709485502024-03-05T03:09:11.938-07:00Social CreditA website devoted to advancing the theories and policies of Clifford Hugh DouglasSocredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-8479707700970948550.post-60327062457684542582016-04-16T14:41:00.003-06:002016-04-30T08:35:13.855-06:00Alberta Budget 2016<div style="display: inline; margin-top: 6px;">
<br />
<br />
Why is the Alberta government in a situation where there expenditures are far in excess of their revenues?<br />
<br />
<br />
The fact that the government's revenues do not meet their expenditures has forced the government to run a 10 billion dollar deficit, but why is this happening now? Many will blame excessive government expenditures, but the government did not suddenly add 10 billion in expenditures. Some will blame the price of oil and the sudden drop in oil revenues, and this is true, but is this the "cause" or is this a symptom?<br />
<br />
<br />
Money is created as debt. When the price of oil was over, or near, $100 a barrel, the oil companies were taking on massive amounts of debt in order to build new projects in the Alberta oilsands and elsewhere (of course nobody was complaining when these companies were taking on all this debt, nor were they complaining about the salaries of the oil workers and their bonuses). The fact that the oil companies borrowed money for projects led the banks to create new money (every loan creates a deposit), and this new money was distributed to employees as wages, salaries and dividends. Further, consumers were taking on more debt as they saw their wages rising. In total, private debt was growing (business and consumer debt), and the government was in a situation where it's revenues exceed its expenditures and it was able to pay down its debt.<br />
<br />
<br />
Now the price of oil has plummeted to less than half the price it was over a year ago. This has forced oil companies, and those that service oil companies to not only stop taking on additional debt (there are no more new mega projects being built in the oilsands), but they also are desperately trying to pay off their outstanding debt. This of course reduces the money supply. Now government revenues are less than they once were by a substantial amount,and this forces the government to take on additional debt to keep operating and providing the same services they once did.<br />
<br />
<br />
In other words, the system cannot operate without ever increasing debt, whether that debt is private or public. A professor once told me that when explaining accounting to a class of economics students he told them that a balanced budget is equilibrium (ie. supply equals demand). But as we see, all the budgets in an economy cannot balance simultaneously, so aggregate demand never equals aggregate supply. If the government were to slash its spending in order to now balance it's budget, this would force businesses to either take on more debt, or declare bankruptcy in order to wipe out their debt. So the economy must not be in equilibrium if we have to take on ever increasing debt in order to make it function. The economy must be in a continuous state of disequilibrium.<br />
<br />
<br />
Why?<br />
<br />
<br />
In a letter to William Aberhart, C. H. Douglas wrote:<br />
<br />
<br />
"THE HONOURABLE WILLIAM ABERHART,<br />
<br />
M.L.A., B.A.<br />
<br />
Premier of Alberta, Edmonton, Alberta, Canada.<br />
<br />
Strictly Confidential to Executive Council of<br />
<br />
Alberta<br />
<br />
DEAR MR. ABERHART,<br />
<br />
This seems to be a suitable occasion on which to<br />
<br />
emphasise the proposition that a Balanced Budget<br />
<br />
is quite inconsistent with the use of Social Credit<br />
<br />
[i.e., Real Credit--the ability to deliver goods and<br />
<br />
services “as, when and where required”] in the<br />
<br />
modern world, and is simply a statement in<br />
<br />
accounting figures that the progress of the<br />
<br />
country is stationary, i.e., that it consumes<br />
<br />
exactly what it produces, including capital assets.<br />
<br />
The result of the acceptance of this proposition is<br />
<br />
that all capital appreciation becomes quite<br />
<br />
automatically the property of those who create an<br />
<br />
issue of money [i.e., the banking system] and the<br />
<br />
necessary unbalancing of the Budget is covered<br />
<br />
by Debts.<br />
<br />
C. H. Douglas<br />
<br />
London, England"<br />
<span style="background-color: black;"><span style="color: white; font-family: inherit;"><span style="font-size: 14px; line-height: 19.32px;"><br /></span></span>
<span style="color: white; font-family: inherit;"><span style="font-size: 14px; line-height: 19.32px;">In other words, the banks control the ability to monetize physical capital (machines etc..), and the ability to do so only comes at the price of additional debt to the banks. As we become richer, we become further indebted to the banks for the use of the physical capital we created. That is the essence of servitude, and the cause of poverty in the midst of plenty.</span></span></span></div>
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com4tag:blogger.com,1999:blog-8479707700970948550.post-57293939883907229832015-01-18T15:00:00.001-07:002015-01-18T16:57:42.218-07:00Erroneous Economic AssumptionsThe following is a list of what I believe are erroneous economic assumptions. While the list is not meant to be exhaustive, these assumptions lead to erroneous conclusions.<br />
<br />
<div>
<span class="im"></span><br />
<div>
<span class="im">1) The labour theory of value</span></div>
<span class="im">
</span><span class="im">2) The quantity theory of money</span><br />
<span class="im">
</span><span class="im">3) Say's law</span><br />
<span class="im">
</span><span class="im">4) Neutrality of money</span><br />
<span class="im">
<div>
5) Factors of production are only land, labour and capital</div>
<div>
6) Man's needs and wants are insatiable</div>
<div>
7) There's no such thing as a free lunch</div>
</span><span class="im"><div>
8) Money is a commodity that acts as a medium of exchange</div>
<div>
9) Real costs are opportunity costs</div>
</span><br /></div>
<div>
<div>
<img class="CToWUd" src="https://blogger.googleusercontent.com/img/proxy/AVvXsEjzpPwTIwP-mwY8DSKhdpEhp4hIKadT_cc5BqvkVET8IxOFQBvzGS-7Q0bS_eTxr9sdbacr82lVzOD9GZDPNaendnX-ezpGoT8T8RE09DLMDjiZ-rnepFSamTPXOXgb5opm7s2s5hgeCwveeiQm7jh5-_5AfQBfKeePcbjK=s0-d-e1-ft" /></div>
</div>
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com3tag:blogger.com,1999:blog-8479707700970948550.post-86799060323684255952014-09-06T09:14:00.002-06:002014-09-08T11:50:51.808-06:00A+B: A Mathematical Reply to an ObjectionIn his book <em>Credit-Power and Democracy</em>, C.H. Douglas introduced the A+B theorem as follows:<br />
<br />
<div style="text-align: justify;">
"A factory or other productive organization 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:<br />
<br />
Group A: All payments made to individuals (wages, salaries, and dividends).<br />
Group B: All payments made to other organizations (raw materials, bank charges, and other external costs).<br />
<br />
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+B. The product of any factory may be considered as something which the public ought to be able to buy, although in many cases it is an intermediate product of no use to individuals but only to a subsequent manufacture; but since A will not purchase A+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 will be necessary at a later stage to show that this additional purchasing power is provided by loan credit (bank overdrafts) or export credit." [1]</div>
<div style="text-align: justify;">
<br />
Now, it is often alleged by critics of the theorem that the theorem itself is absurd because there are times when aggregate income is greater than or equal to the price of consumer goods coming onto the market. However, the theorem does not state that total incomes are necessarily less than the price of consumer goods. What the theorem states is that total incomes are necessarily less than total prices generated in the same period of time in all industries.<br />
<br />
<strong>In mathematical notation:</strong><br />
<br />
<strong> 1.</strong> Sum (∑) of total incomes < sum of total prices (for all time t>0 – or at least since the industrial revolution)</div>
<div style="text-align: justify;">
<strong>2.</strong> There are two types of goods, capital goods and consumer goods,</div>
<div style="text-align: justify;">
Therefore two types of prices: capital goods prices and consumer goods prices, and two types of incomes derived from production: incomes derived from the production of capital goods and incomes derived from the production of consumer goods.</div>
<div style="text-align: justify;">
<br />
<strong> 3.</strong> Therefore, A+B theorem can be restated:</div>
<div style="text-align: justify;">
Sum (capital incomes + consumer incomes) < sum (capital prices + consumer prices) (for all t>0).</div>
<div style="text-align: justify;">
<br />
<strong> 4.</strong> Consumer's aggregate income = Sum (capital incomes + consumer incomes).</div>
<div style="text-align: justify;">
<br />
<strong> 5.</strong> Therefore, Consumer income can only be ≥ consumer prices</div>
<div style="text-align: justify;">
iff Sum (capital incomes +consumer incomes) ≥ consumer prices.</div>
<div style="text-align: justify;">
<br />
<strong>6.</strong> Since capital prices in time t, always show up in consumer prices in t+x:</div>
<div style="text-align: justify;">
If Consumer income ≥ consumer prices in time t,</div>
<div style="text-align: justify;">
then</div>
<div style="text-align: justify;">
Sum (capital incomes+consumer incomes) time t+x < sum (consumer prices), unless capital incomes are increased by an amount greater than sum (capital prices in time t).</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
What the theorem demonstrates is that <em>if</em> attempts are made to equate aggregate income with the prices of consumer goods through the production of additional capital goods or services, such attempts will necessarily lead to a point where aggregate income is less than the price of consumer goods at a future point in time. In other words, the gap between income and prices never disappears, but is only masked by the production of additional capital goods and will show up later in an aggrevated form.<br />
<br />
Keynes recognized the problem with regard to this method of bridging the gap when he wrote:</div>
<div style="text-align: justify;">
<br />
"Thus the problem of providing that new capital-investment shall always outrun capital-disinvestment sufficiently to fill the gap between net income and consumption, presents a problem which is increasingly difficult as capital increases. New capital-investment can only take place in excess of current capital-disinvestment if future expenditure on consumption is expected to increase. Each time we secure to-day’s equilibrium by increased investment we are aggravating the difficulty of securing equilibrium to-morrow." [2]</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
1. C.H. Douglas, <em>Credit-Power and Democracy</em> (Melbourne: The Social Credit Press, 1933), 21-23.</div>
<div style="text-align: justify;">
2. J.M. Keynes, <em>The General Theory of Employment, Interest, and Money</em> (New York: Harcourt, Brace & World, Inc., 1964), 105.</div>
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-19072368880042065672014-06-04T07:52:00.002-06:002015-01-18T12:02:47.289-07:00Social Credit Principles and ObjectivesThe following is a short list of principles and objectives that I believe best encompass Social Credit:<br />
<br />
<strong><u>Social Credit Principles</u></strong><br />
<br />
1) The individual is the most important entity in any society.<br />
<div>
</div>
<div>
</div>
<div>
2) Systems should be made for men, not men for systems.</div>
<div>
</div>
<div>
</div>
<div>
3) The universe is Trinitarian in structure, and systems which most accurately reflect this structure are in accordance with natural law.</div>
<div>
</div>
<div>
</div>
<div>
<div>
4) Individual and cooperative enterprise should be the basis of economic organisation. Where state-owned enterprises are necessary or desirable they should conform to the same conditions and rules as privately owned concerns. </div>
<div class="im">
<br />
<br />
5) Freedom is the ability to choose or refuse one thing at a time.<br />
<br />
<br />
6) People sacrifice their individual freedom in order to associate for<br />
economic efficiency.<br />
<br />
<br />
7) The less sacrifice each individual has to make in terms of economic<br />
association, the better off they are.<br />
<br />
<br />
8) Capital and Technology are reducing the need for economic<br />
association by individuals.<br />
<br />
<br />
9) The purpose of production is consumption.<br />
<br />
</div>
10) The real cost of production is consumption over an equivalent period of time.</div>
<div>
<br />
</div>
<div>
11) Capitalized costs represent past consumption. </div>
<div>
</div>
<div>
</div>
<div>
<span style="color: white;">12) Past costs should not exist in the present, as a consequence a form of purchasing power must be distributed to all consumers in order to defray capitalized costs</span>.</div>
<div>
<br />
<div>
<span style="color: black; font-size: medium;"><strong><u></u></strong></span> </div>
<div>
<span style="color: white; font-size: medium;"><strong><u>Social Credit <span class="il">Objectives</span>:</u></strong></span></div>
<div>
<span style="color: white;"></span><br /></div>
<div>
<div>
<div>
<span style="color: white;"><br /></span></div>
<div>
<span style="color: white;">1) The development of a National Credit Authority to create a national balance sheet and calculate aggregate consumption and production statistics.</span></div>
<div>
<span style="color: white;"><br /></span></div>
</div>
<div>
<span style="color: white;"></span><br /></div>
<div>
<span style="color: white;">2) The distribution of a dividend to every individual of the age of consent, the amount to be determined by the national balance sheet.,</span></div>
<div>
<span style="color: white;"><br /></span></div>
<div>
<span style="color: white;"></span><br /></div>
<div>
<span style="color: white;">3) The distribution of a price rebate at the point of retail based upon aggregate consumption and production statistics, the ratio of the rebate to be determined by the ratio of consumption/production.</span></div>
<div>
<span style="color: white;"></span><br /></div>
<div>
<span style="color: white;"></span><br /></div>
<div>
<span style="color: white;">4) The elimination of all taxes on property.</span></div>
</div>
</div>
<div>
<span style="color: white;"> </span></div>
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Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com3tag:blogger.com,1999:blog-8479707700970948550.post-50210322847168911262014-02-23T16:17:00.001-07:002014-02-23T16:50:29.684-07:00<br />
<strong><span style="font-size: large;">Social Credit Economics - by Oliver Heydorn Ph.D</span></strong><br />
<br />
A very comprehensive book on the subject of Social Credit economics. Dr. Heydorn has done an outstanding job combining all of Douglas ideas on the subject of economics in one book. The book can be purchased at amazon via the following link.<br />
<br />
<a href="http://www.amazon.ca/Social-Credit-Economics-Oliver-Heydorn/dp/1493529765">http://www.amazon.ca/Social-Credit-Economics-Oliver-Heydorn/dp/1493529765</a><br />
<br />
<br />
<div style="text-align: center;">
<a href="http://ecx.images-amazon.com/images/I/41Fc6ITYjBL._SL500_.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" class="fullScreen" src="http://ecx.images-amazon.com/images/I/41Fc6ITYjBL._SL500_.jpg" style="height: 500px; margin-top: 39.5px; width: 333px;" /></a></div>
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com4tag:blogger.com,1999:blog-8479707700970948550.post-69327716272828541892013-12-21T08:45:00.002-07:002013-12-21T08:46:46.697-07:00<strong>Chinese Build Record Breaking Bridge</strong><br />
<br />
The following poem is by Joe Thompson, a long time Social Crediter, in response to a new bridge built by China.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz_p8v7bOHrU7-4VEWiOqt61PrjTgl30T-Xrva1ZC1KjetDZxG4HoQZmxeyatcXvrw9efC_6e6C_AYcxhVMVJDhbykrXUwqeTvCuSOMe0g9Z_CQ3Fg7ZMIY4OGN97o_TTwXl4myfVepK1x/s1600/Mail+Attachment.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz_p8v7bOHrU7-4VEWiOqt61PrjTgl30T-Xrva1ZC1KjetDZxG4HoQZmxeyatcXvrw9efC_6e6C_AYcxhVMVJDhbykrXUwqeTvCuSOMe0g9Z_CQ3Fg7ZMIY4OGN97o_TTwXl4myfVepK1x/s320/Mail+Attachment.jpeg" /></a></div>
<br />
Money flows in, and money flows out,<br />
<br />
And all around, and all about,<br />
<br />
One economy strong, and another weak,<br />
<br />
And neither knows just what they seek.<br />
<br />
What makes one great, or seals another's fate,<br />
<br />
Some highly flawed figures that dominate?<br />
<br />
Some money that moves on roll of the dice,<br />
<br />
While still all 'costs' can't come back from 'price'?<br />
<br />
<br />
<br />
Does anyone this question ask,<br />
<br />
Before they start on their new task,<br />
<br />
At making marvels to more impress,<br />
<br />
And creating still a bigger mess?<br />
<br />
"Is that time cut to cross the gorge,<br />
<br />
For a longer day still, at the forge?"<br />
<br />
<br />
<br />
Any sense in this? I cannot see.<br />
<br />
Perhaps some national jealousy,<br />
<br />
To always be biggest, and thereby best,<br />
<br />
And eliminate the 'Day of Rest'?<br />
<br />
While man-made marvels compete in measure,<br />
<br />
How many of them increase our 'leisure'?<br />
<br />
Great national pride may well be nice,<br />
<br />
But with flawed figures, what is the price?<br />
<br />
by Joe Thompson<br />
<br />Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-4498084249840665862013-07-13T15:09:00.003-06:002013-08-26T12:08:14.432-06:00<b>The Meaning of Social Credit</b><br />
By: Socred, B.A., SCMP<br />
<br />
Many people ask, “what is Social Credit?” A full explanation would probably require several volumes of information. Most people are looking for a simple explanation to this question. The simplest explanation can be found by analyzing the two words that comprise the concept – Social and Credit. <br />
<br />
The word Social can be defined as: of or relating to society or its organization. I believe this is the most useful definition of the word social as it pertains to Social Credit. Oftentimes, people assume that Social Credit has something to do with socialism because it contains the word social. This would mean that anything that uses the word social is socialism, and anything that is not socialism is anti-social. Of course, this assumption is absurd, and Social Credit has nothing to do with socialism. The word social in the term Social Credit merely implies that the term relates to society and its organization. It does not imply anything about the ownership of the means of production. In fact, Social Crediters advocate the private ownership of the means of production in most cases, because this method of production is often the most efficient. Social Crediters are concerned only with the most efficient means of production and do not see this as a philosophical issue but a pragmatic one. If other methods of production are more efficient in certain instances, then Social Crediters would advocate these methods, so long as people always had the freedom to contract out of any method of production or association. True economic freedom as it pertains to production is the ability to contract out of associations and does not have anything to do with the ownership of the means of production.<br />
<br />
The second word in Social Credit – credit – derives from the Latin word “credo”, which means to believe, or have faith. As a consequence, we could say that the term Social Credit literally means faithful relations relating to society and its organization, and I believe this is the most accurate definition of the term Social Credit at an abstract level. In today’s world, most money is credit which is created by private commercial banks through loans to businesses and individuals. As C.H. Douglas (the originator of the Social Credit concept) once said, “the essential quality of money is that people have faith in it”. And Jesus said, “Verily I say unto you, If ye have faith, and doubt not, ye shall not only do this which is done to the fig tree, but also if ye shall say unto this mountain, Be thou removed, and be thou cast into the sea; it shall be done.” Today, if we had enough credit we could remove a mountain and put it in the sea. If the essential quality of money is faith in it, then this precludes any physical qualities of money as being essential to it. Throughout its history, money has been composed of cowrie shells, leather discs, precious metals, paper or an electronic ledger entry in a bank account. <br />
<br />
Some people argue that all money should be comprised of gold. These people advocate a social organization that lacks faithful dealings between people in society. Like the golden calf worshippers of old, these people only have faith in gold; not in God or their fellow man. They believe that money’s “value” is dependent on its physical composition. But in reality, one cannot eat or drink gold. What gives money its value is people’s faith in it. If people accept money, whether the money is made of gold, paper, or electronic numbers in a bank account, in exchange for the things we truly do value (food, shelter, clothing, luxury goods etc.), then money serves its fundamental purpose. Money’s physical composition is irrelevant. Money has no value in and of itself: it is only faith that gives it value. Advocates of a gold standard, whether they are aware of it or not, advocate a faithless society (which is oftentimes why you will see “survivalists”, or those people waiting and hoping for the destruction of society, advocating this type of money). The only physical aspect of money that is of any importance is its ease of use. In today’s world, debit and credit cards likely serve this purpose most readily (cash and coin are being used less often as time progresses). Social Crediters know and understand that society can only flourish when there is faith amongst men in God and between themselves. However, there are always forces trying to destroy that faith, or the Social Credit.<br />
<br />
In conclusion, Social Credit can be defined as faithful dealings as they relate to society, or faithful dealings between men. It is the scientific study of these dealings and how that faith can be used to maximize individual well-being. Douglas once wrote, “systems were made for men, and not men for systems, and the interest of man, which is self-development, is above all systems, whether theological, political or economic”. The primary interest of Social Crediters is man’s self-development through faithful dealings between each other. Ultimately, it is the scientific study of individual self-development in economics, politics and theology.<br />
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com21tag:blogger.com,1999:blog-8479707700970948550.post-41990001662552089252012-09-23T10:57:00.003-06:002012-11-02T08:34:38.047-06:00Social Credit is Salvation Through DeflationBy: Socred - B.A., SCMP<br />
<br />
One of the primary criticisms of Social Credit is that it is inflationary. Gary North has written a critique of Social Credit entitled “Salvation Through Inflation”. The purpose of this essay is to demonstrate the claims that Social Credit policies are inflationary are fallacious, and to demonstrate that its policies are in fact the only way to reduce prices given that labour is being replaced by capital in production. Economists define inflation as too much money chasing too few goods. They argue that an increase in the money supply with a relatively fixed amount of goods and services for sale tends to increase the price of those goods and services. This assumption is based upon the quantity theory of money, which is critiqued in another article on this blog.<br />
<br />
Douglas said there were two forces that governed prices: 1) the upper limit of price is governed by supply and demand, or what the good or service will fetch on the open market, and 2) the lower limit of price is governed by the cost of production and the rules of cost accountancy. Economists focus solely on the forces of supply and demand and their effect on prices, but they tend to ignore the rules of accrual accounting and its effect on prices. As such, economists always see rising prices as a result of too much effective demand, which they believe is the result of too much money being created. Their only policy recommendation to eliminate, or reduce, inflation is to reduce the quantity of money being created. The quantity theory of money ignores how money is created by banks as a debt. It also ignores the fact that the creation of money for capital production is prior to said capital being able to produce any consumer goods.<br />
<br />
When physical capital (machines, raw materials, factories etc…) is created it is generally financed through loans from banks. This increases the money supply at the time the capital is being constructed, and this money makes its way to consumers as effective demand through wages, salaries and dividends. Since the capital is being constructed, it is not capable of creating any new consumer goods, so the income disbursed in its creation makes its way to consumer goods and services already on the market. This has a tendency to inflate the price of those goods and services, and this is what economists would call “too much money chasing too few goods”. But is it too much money? The money disbursed via the construction of capital has to be given to consumers, because eventually said income will be part of the cost of that capital. If that money was not disbursed, consumers would not have enough income to pay for the capital as it was expensed at a later point in time. In other words, rising prices at the time capital is being created is not caused by “too much money”: it’s caused by income making its way to consumers prior to the capital being built being able to produce any consumer goods and services. This income is necessary to defray the cost of the capital being created, but it is not used to purchase the consumer goods said capital produces, because consumers have to use it to purchase goods and services at the time the capital is constructed in order to meet the needs of living.<br />
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Once the capital is constructed its costs are generally capitalized and expensed over a period of time using the rules of accrual accounting. Douglas’s A+B theorem divides costs into two categories: 1) A = income = wages, salaries and dividends, and 2) B = payments to other organizations. Over any given time an organization will distribute A in income and charge A+B in prices. This is true for all organizations. Consequently if we sum all of the income disbursed in an economy over a period of time it will always be less than the total prices generated over the same period of time. If this is true, how has the economy not collapsed? It has not collapsed because income in the creation of capital is distributed prior to the capital’s costs entering the market and being charged to the consumer. So long as capital is being created, and debt/money is increasing in order to finance its creation, the economy functions fairly well. As soon as the capital’s costs enter the costs of consumer goods, income is insufficient to defray those costs, unless more capital is being contructed, because the income disbursed to create the capital was used to purchase consumer goods at the time the capital was created.<br />
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As labour is displaced in production by capital, B costs increase relative to A costs. How does this influence prices? Price = A+B, and if B is increasing relative to A, then any attempt to stabilize or increase A (income) has to be met with rising prices. Conversely, any attempt to stabilize prices (A+B) has to be met by falling incomes (A). In other words, even if there’s not “too much money chasing too few goods”, prices will rise so long as the government tries to stabilize or increase incomes. Inflation is systemic given the rules of cost accountancy coupled with the fact that labour is being replaced by capital in production and a policy of full employment is being pursued. This is why the government accepts “limited” inflation: they are afraid of the effects of reducing prices will have on people’s incomes and economic activity.<br />
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Fortunately, there is a solution, and it’s the only mathematically viable solution. The solution is reduce prices at the point of retail with monies with no cost attached to them. If money passes through the productive system, it has to have a cost attached to it, but if the money is given directly to the consumer it does not. Prices can be reduced to the consumer via a price rebate distributed with debt/cost free money given to the consumer. For instance, if the price of the good or service is $100 and the rebate to the consumer is $25, then the price of the good/service has been reduced by $25 to $75. The retailer receives $100 and the consumer pays $75 – the difference is made up via the creation of new debt free money.<br />
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In summary, prices are governed by two limits – supply and demand and the cost of production. The quantity theory of money, and the belief that inflation is only caused by too much money chasing too few goods, focuses solely on supply and demand and assumes that prices are only governed by these factors. However, prices are also governed by costs and the rules of accrual accounting. The fact that labour is being displaced in production, combined with a policy of full employment, increases the costs of production and consquently prices, even though consumers have inadequate incomes to purchase all of production. The only way to eliminate this type of inflation is to give consumers a price rebate at the point of retail. Therefore, not only is Social Credit not inflationary, but its policies are the only viable way to eliminate the real cause of most inflation today which is the displacement of labour in production coupled with full employment policies.<br />
Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com26tag:blogger.com,1999:blog-8479707700970948550.post-72225925235260950302012-01-01T11:43:00.053-07:002012-10-18T14:13:42.063-06:00Debt and Living beyond Our MeansBy: Socred, B.A., SCMP<br />
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It is often said by supposed financial experts that the reason there is so much debt, both public and private, is that we are “living beyond our means”. Their argument is that if we all just “tightened our belts” and consumed a little less, then we would not be in this financial mess. On the surface, this argument seems to make sense. We all know that we have a certain household income and if we spend more than our household income, then we must go into debt in order to do so. If we continue to spend more than we earn, eventually the debt will become too large to pay off and we will have to default on our debts.<br />
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Does this argument hold true for the economy as a whole? If all agents in the economy balanced their budgets, would we be in a better situation? Let’s explore what it really means to “live beyond our means”, and the possibility of balancing all budgets in an economy.<br />
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First we must eliminate money from our analysis, because money is just (or should be) a symbolic representation of the ability to consume and produce. The purpose of any economy is consumption, and this is only limited by our ability to produce. Finance should merely be a mathematical representation of these activities.<br />
Production not meant for consumption is waste. In other words, the purpose of production is not to provide work, but to provide goods and services to consumers with the least amount of effort. This may seem to be common sense, but when we add money back into our analysis, common sense seems to leave most people, including supposed financial experts.<br />
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Now, without a doubt, it is possible for any individual agent to “live beyond their means”. What this means in real terms is that someone consumes more than they produce. However, if one individual consumes more than they produce, another must consume less than they produce (you cannot consume what has not been produced). The second agent is engaging in “savings” in real terms. Of course, the second agent would only consume less than he produced if there were some incentive to do so, and this is why the first must pay back the amount of goods and services “borrowed” from the second with “interest”. However, consumer goods only have a limited shelf life. They depreciate over time. Therefore, savings in this form does not exist in the macro-economy because goods and services cannot be “saved” for any length of time in order to be consumed at a later date. <br />
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The ability to "live beyond our means" seems to make sense from a micro-economic point of view involving individual economic agents, but from a macro-economic point of view it is completely absurd. Is it possible for an entire economy to “live beyond its means”? Momentarily excluding foreign trade - any economy produces a certain amount of goods and services, let’s call that quantity X. Is it possible for all of the agents in that economy to consume X plus a certain amount more (A)? If the economy produces X, is it possible to consume X+A? Clearly this is impossible! You cannot consume something that does not exist. A has not been produced, so you cannot consume it. For the economy as a whole, it is impossible to “live beyond our means”. Consequently, the “financial experts” advice, which applies to individual economic agents, does not apply to the economy as a whole. If we all consumed less, this would mean that more and more production would be waste, because consumer goods have a limited shelf life, and cannot be saved in order to be consumed at a later date.<br />
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Hold on, some will argue, you have exluded foreign trade from your analysis. With foreign trade, it is possible for one country “to live beyond its means” by importing more than it exports in goods and services. So it is possible for individual nations to “live beyond their means”. This is true. However, all countries are attempting to pursue a favorable balance of trade simultaneously. A favorable balance of trade means that a country wants to export more than they import. In real terms, this means that all countries are trying to give more goods and services away to other countries than they receive from those countries in return. From a macro-economic perspective, the country that exports more than it imports engages in “savings”, and the country that imports more than it exports is “living beyond its means”. Nations are individual economic agents in this analysis, and the macro-economy is the world economy. As we discussed previously, this type of savings is not real, because consumer goods have a very limited shelf life. Further, it is impossible for all countries in the world to consume less than they produce without a huge amount of waste. Thus, we need to understand why all countries pursue a favorable balance of trade.<br />
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The main reason why a favorable balance of trade is pursued by all countries is that it leads to economic growth in terms of GDP accounting. China is a prime example of how this policy leads to this type of growth. China had a balance of trade surplus of 14.5 billion dollars in November of 2011, and its economic growth was 9.1% in terms of year over year increases in GDP. Exports represent almost 40% of their GDP, yet the Chinese people themselves have a GDP per capita of less than $6,000 per annum in U.S. dollars. Their balance of trade surplus represents approximately 3% of their GDP. (source: <a href="http://www.tradingeconomics.com/china/indicators">trading economics</a>). In other words, the Chinese live in relative poverty in order to give away 3% of the goods and services they produce so that they can pursue a policy of a favorable balance of trade in order to have economic growth. What causes this seeming paradox? Why would the Chinese give away 3% of their GDP to other nations while their citizens live in poverty?<br />
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This paradox is the result of confusion in regards to the purpose of the economy. The real purpose of the economy should be to provide goods and services to consumers. It does not exist to provide employment. It is true that a certain amount of employment is necessary to provide goods and services, but the less amount of employment required to provide goods and services, the better off we are. This is the whole purpose of science and technology. Advances in technology reduce the amount of labour necessary to produce goods and services. If we adhere to the belief that the economy exists to provide employment, then we will account for a favourable balance of trade as an increase in prosperity because it provides employment to those who are producing the goods and services. This is exactly how GDP accounting accounts for a favourable balance of trade. In other words, the purpose of an economy, according to the way we account for economic prosperity currently (GDP accounting), is to provide employment .<br />
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There is nothing wrong with foreign trade so long as the purpose of that trade is to give one country something in return for something else. However, there is a problem with foreign trade when the objective is to give away more than you receive back. This policy of a favourable balance of trade inevitably leads to a trade war between nations, which often results in a real war. War is the ultimate favorable balance of trade in that a country “dumps” bombs and bullets on another country at no cost to the other country with the intended purpose of not receiving any bombs or bullets in return. In fact, if war was accounted as an “export”, which it truly is, the United States would not be running as large of trade deficits in times of war. This is why the US economy is so dependent on war for its proper functioning. A large amount of propaganda in the United States is aimed at creating enemies so that the country can dump large amounts of exports on the enemy. This activity leads to employment and allows for economic growth.<br />
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These policies are insane in the truest sense of the word because they are all linked to confusion in regards to the true purpose of an economy. This policy has at its basis a philosophy which is non-congruent with reality. All policy derives from philosophy. Work is a by-product of an economic system, not an ends in and of itself. Because money is created as a debt and prices increase faster than incomes, the result is ever increasing debt. This increase in debt does not mean that we are “living beyond our means”, which in macro-economic terms is a complete fallacy. It is due to a misguided philosophy that is wreaking havoc on our world’s economies. There is a statement in the bible that “if any will not work, neither should he eat” (Thessalonians 3:10). This was certainly true at the time and place it was written, but that does not mean that this is a universal truth that holds for all time and all places. Just as Jesus said, “go sell what thou hast, and give it to the poor” (Matthew 19:21), he did not mean that everyone has to sell all they have and give it to the poor. This statement was true for the intended recipient, who valued his material possessions above all else. It was not meant as a universal truth to applicable to everyone. <br />
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Technology is replacing labour in the production. As such, employment is becoming an ever decreasing factor of production. This fact is responsible for an accounting flaw, which in turn makes it impossible to balance all budgets within an economy simultaneously. In a letter to the Social Credit Premier of Alberta, Douglas wrote:<br />
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<em>"This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit (i.e., Real Credit – the ability to deliver goods and services 'as, when and where required') in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create and issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."</em><br />
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In other words, a policy of attempting to balance all budgets in an economy simultaneously implicitly assumes that technological progress is non-existent. It assumes that the economy consumes exactly what it produces, including its capital assets (factories, machinery, etc..). However, we know that capital assets can last for years, so they are not consumed at the same rate as consumer goods. As a result, all capital appreciation (increases in capital minus depreciation of capital) becomes the property of those who issue money (the banking system) due to the fact that they are the only ones who can monetize the use of that capital. Since the banking system only issues money as a debt, capital appreciation and the monetization of its use results in ever increasing debt. This means that as we advance technologically, we are forced into ever increasing debt. It is technological advances and the displacement of labour in production which causes increasing debt loads, not "living beyond our means".<br />
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How do we solve this dilemma?<br />
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Douglas demonstrated in his A+B theorem that prices increase faster than incomes as a result of technological progress and the replacement of labour by capital in production. If we give people the necessary purchasing power to buy back all of production through a compensated price mechanism and a national dividend given to all, then debts will not increase over time. Further, the ability for consumers to obtain purchasing power without employment will end the pursuit of a policy of full employment. This will stop the insane practices of war and a favourable balance of trade in order to make the economy function properly. Increasing debt is not a result of “living beyond our means”, but the result of technological progress and the inability to balance all budgets in an economy simultaneously with this parametric shift. The Anti-Christian philosophy of Salvation through work perceives technology as something that enables us to do more work (and as consequence, producing ever increasing goods and services, and falling further and further into debt). The Christian philosophy of Grace enables technology to become a positive factor for progress because as physical labour is replaced by machines, people's purchasing power can be increased without having to do more work or go into every increasing debt. Only by increasing our purchasing power in accordance with capital appreciation, can technological progress become evidence of God’s grace. God’s grace is imperative to our salvation. <br />
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"The most dangerous man at the present time, said Major Douglas in answer to another question, was the man who wanted to get everyone back to work, for he perverts means into ends. This is leading straight to the next war - which will provide plenty of work for everyone."(<a href="http://www.alor.org/Library/Tragedy%20of%20Human%20Effort.htm">Tragedy of Human Effort</a>)Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com43tag:blogger.com,1999:blog-8479707700970948550.post-5293695941312044372011-01-16T10:22:00.019-07:002014-09-04T09:31:37.705-06:00Quantity Theory of Money and Social CreditBy: Socred - B.A., SCMP<br />
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The quantity theory of money can be simply expressed by the equation: MV=PQ, where M is the quantity of money in the economy, V is that money’s “velocity of circulation”, P is the average price level, and Q is real output. Proponents of the theory generally argue that Q and V are constant, or at least not influenced by the quantity of money. This implies that any change in the quantity of money has a direct relationship with price levels. In other words, increase the money supply and increase price levels (i.e. inflation), or decrease the money supply and decrease price levels (i.e. deflation). The theory implies that the fundamental source of inflation is increases in the quantity of money “in circulation”. The theory assumes that money is an exogenous variable to this equation.<br />
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C. H. Douglas was quite critical of this theory, claiming that, “the velocity of circulation of money is a complete myth”. While econometric models have generally demonstrated a correlation between money and prices in the long run (which is what the theory predicts), there is less of a correlation in the short run, and it should be noted that correlation does not prove causation. Perhaps there is another variable which is causing an increase in the money supply and an increase in inflation over the long run? Before we explore that possibility, let us look at the “velocity of circulation”, what it means, and why Douglas called it a “myth”.<br />
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If we rearrange the quantity theory of money (MV=PQ) we see that V=(PQ)/M, and if we assume that PQ equals nominal GDP (an assumption that implies equilibrium), then the velocity of circulation can be calculated by dividing nominal GDP by the money supply. Does this rearrangement of the equation give us the velocity of circulation? Or is this merely an instance of petitio principii (begging the question)? Leaving aside the assumption of equilibrium, let’s explore this “velocity of circulation” in more detail, and why economists believe that money “circulates”.<br />
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The early quantity theory can be traced back over 200 years to at least as far back as the philosopher David Hume. (Blomqvist, Wonnacott and Wonnacott “Economics First Canadian Edition”, pge. 248). The early theorists believed that the inflation at the time was due to the influx of gold and silver from the New World. They believed that this increase in the money supply accompanied with a relatively fixed quantity of goods available for sale led to a rise in prices. As we can see, this theory holds that money is an exogenous variable, and the quantity of money is determined by forces outside the equation itself (i.e. an influx of gold from the New World). To what extent gold was actually used as money is a discussion beyond the scope of this essay, but even in the 18th century (and even much further in the past) it can be shown that the vast majority of money was actually credit (*see Alfred Mitchell – Inness, “<a href="http://www.ces.org.za/docs/what%20is%20money.htm">What is Money</a>”). <br />
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One of the events which Douglas claimed led to the development of his analysis was a conversation he had with the Accountant-General of Bengal named J.C.E. Branson. Branson used to have long discussions with Douglas about credit, and one of the things he told Douglas was “Silver and gold have nothing to do with the situation. It nearly entirely depends on credit.” (J.W. Hughes “<a href="http://www.social-credit.com/">Major Douglas The Policy of a Philosophy</a>, pge. 34) The idea that money “circulates” goes back to the idea that money is a commodity (such as gold or silver) and goes about circulating through the economy as goods and services are purchased. A good example of the quantity theory is given in The Alberta Post War Reconstruction Committee:<br />
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<em>“A wage-earner A. uses a $10 bill of his income to buy two<br />pairs of shoes from a shoe merchant B., who immediately goes into the<br />adjoining store and spends the $10 to purchase some shirts from C.,<br />C in turn immediately goes across the street to grocer D. and buys<br />some provisions costing $10, grocer D. then takes the $10 bill across<br />to the local garage E., to buy some gasoline and oil.<br /><br />The contention is that the $10 bill provided purchasing<br />power to the extent of $40 during the day by virtue of its "velocity of<br />circulation" in enabling $40 worth of goods to be purchased by consumers.”</em><br />
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The problem with this theory is the neglect of money as credit (or debt). It implicitly assumes that money just “falls from the sky”, and does not examine how money comes into existence as a debt that needs to be repaid. The vast majority of money is credit created by banks through loans to businesses and individuals. This money does not “circulate”, but instead operates in an “accounting cycle”. Ignoring consumer credit momentarily, which is just a mortgage on future incomes, money flows from the bank to businesses and finally to consumers as income. The income is then spent by consumers on goods and services and flows back to the bank via businesses and in the process cancels all the debt created in order to produce the good or service. In other words, money is not a stock that can be simply added up; it is a flow which has direction (either flowing from the bank to the consumer as income, or is recovered from the consumer in the form of prices and taxes and flowing back to the bank and cancelling debt). Money created as consumer debt also operates in an accounting cycle, but does not involve the intermediary of businesses in the first part of the process. Consumer debt is the futile attempt to cancel a debt with a debt. With consumer debt, money flows directly to the consumer, and is recovered by business through the agency of price and then continues to flow back to the bank as it cancels debt. <br />
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If money does not “circulate”, then the whole quantity theory of money is a fallacy. The “velocity” of circulation is merely an example of petitio principii, and is defined within the confines of the equation itself (i.e. GDP/money supply). If the quantity theory of money is a fallacy, then why does there appear to be a direct relationship between money supply and price levels in the long run? This is due to a third factor which influences both. This factor is the increase in overhead charges relative to income as efficiencies in production are realized. Douglas stated in his first article, “<a href="http://douglassocialcredit.com/resources/resources/the_delusion_of_super-production_douglas.pdf">The Delusion of Super – Production</a>”, "<em>it may almost be stated as a law that intensified production means a progressively higher ratio of overhead charges to direct labour costs</em>”. According to Douglas’s A+B theorem, prices equal A (income) plus B (overhead charges). If overhead charges are constantly increasing relative to income, then in order to maintain or increase income, prices must rise. Further, since the vast majority of production is financed through the issuance of new credit (i.e. through loans to businesses), the capitalization of industry proceeds with an increase in the money supply. In other words, the fact that overhead charges are increasing relative to income increases prices and the money supply. A third factor is increasing both the money supply and prices: it’s not the increase in the money supply that is causing inflation, but the increase in overhead charges relative to income that is causing both.<br />
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If the quantity of money is not causing inflation, and if money is actually a flow instead of a stock, we can increase the money supply and reduce prices. This is done by introducing money as a “reverse flow”. A "reverse flow" of money would cancel overhead costs. This would equate purchasing power with prices and reduce prices. By giving consumers credits directly at the point of retail in the form of a price rebate, we can increase the quantity of money and reduce prices to consumers. The reason for doing this is based upon Douglas’s A+B theorem and his demonstration that the economy is not in equilibrium in any permanent fashion. The quantity theory of money implicitly suggests equilibrium and is at odds with the Social Credit analysis. A price rebate given to consumers is necessary in the Social Credit paradigm because the real cost of production is consumption over an equivalent period of time, and in any technologically advanced society, consumption is always less than potential production. The price rebate is designed to bring consumption and production into equilibrium, and reduce prices. The cries that Social Credit policies are inflationary are explicitly, or implicitly, based upon the quantity theory of money. The purpose of this essay is to help expose the quantity theory of money as a fallacy, and help alleviate some people’s concerns over one aspect of Social Credit policy.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-16412129950918353822010-08-21T18:15:00.015-06:002011-09-24T07:34:56.512-06:00Costs and TimeBy: Socred - B.A., SCMP<br /><br />According to the generally accepted accounting principles, when physical capital is purchased, it is recorded as an asset and expensed over time as the capital depreciates. “Generally accepted accounting principles require expenditures to be capitalized when they will benefit more than one accounting period, and when they are significant in amount, and when they can be measured with reasonable objective evidence. (Financial Accounting, Henry Dauderis, pge. 393) With accrual accounting, revenues and expenses are recorded when they are incurred. Because capital depreciates over time, and has a longer life than the time at which it was purchased, physical assets are depreciated via depreciation expenses in order to better match costs with revenues. This defers financial costs to the future in order to “allocate costs over its (capital's) useful life”. <br /> <br />From an economic perspective, there are two ways of measuring costs: 1) financial costs, and 2) real costs. One of the purposes of cost accounting is to attempt to measure the real cost of production in terms of financial costs. Orthodox economics regard real costs as "the alternative opportunities forgone" (Hischleifer, "Price Theory and Applications, pge. 176). These costs are referred to as "opportunity costs", and this is what economists call the real cost of production. In other words, the real cost of producing something is the opportunity lost to produce something else. This theory of costs is unusable at the macro-economic level because it infers that the real cost of production is all the non-existent production that could have occured. This cost would be impossible to measure, because it would include all production which is non-existent. Douglas proposed that the real cost of production is consumption over an equivalent period of time. In other words, if we produce ten apples, and consume eight in the same period of time, the real cost of producing those ten apples was eight - profit was two apples. These two apples can then be exchanged for other goods in a barter economy. However, in the macro-economic sense, profit is pointless, since macro-economics is concerned with aggregates. As Douglas made explicit, the purpose of production is consumption (otherwise production is waste). In other words, real profit in the aggregate is merely waste, because it would be production which is not meant for consumption.<br /><br />Now, the only time that exists is the present. The past used to exist, but it is gone. The future exists as possibility. Time flows from past to present, but consciousness can only exist in the present - in the now. Everything that we are concsious of must exist in the present. While this may seem self-evident, it has important economic implications in regards to costs, and the attempt to allocate financial costs over future time periods.<br /><br />Financial costs are measured in the currency of the nation that is measuring them. For instance, in Canada, we measure costs in dollars. Douglas proposed that the physical currency in which we can measure costs is the “time – energy unit”. The time – energy unit is “potential effort over a definite period of time.” (Economic Democracy, pge. 100) Obviously, as improvements in process reduce the amount of time – energy units used to produce a unit of output, the real cost of production is diminished, because less inputs are used to produce a unit output.<br /><br />However, if physical costs are associated with the time-energy unit of measurement, this means that time is an important factor in measuring physical costs. Since the only time that exists is the present, the only time energy units which available are present units. And since these are a measure of physical costs, the only physical costs that can exist are present costs. Past time energy units have been expensed, and future time energy units do not yet exist. In other words, the only financial costs that should exist are current costs. Past costs no longer exist. <br /><br />If past costs no longer exist, then why are we forced to pay for capital that was built previously? How was the real cost of capital expensed at the time it was built?<br /><br />Currently, we are forced to pay for capital twice. The accountant is mainly concerned with costs and their impact on price, but forgets that the upper limit of price is what an article will fetch on the open market. When capital is built, purchasing power (in the form of wages, salaries, and dividends) is disbursed to individuals who helped construct the capital. These individuals use that purchasing power to purchase current consumer goods coming onto the market. This activity has a tendency to inflate the price of consumer goods as this purchasing power is recouped from retailers who find that the effective demand for their product rising. In this way, the consumer pays for the capital at the time of its construction via the inflation of the price of consumer goods, and once again as the capital is depreciated over time via depreciation expenses. In fact, the inflationary effect of the construction of capital would be far worse if it were not for the negating effect on this process of improvements in efficiency which tends to reduce prices at the same time.<br /><br />Since one dollar of income is only capable of defraying one dollar of cost(*read "The Alberta Postwar Construction Committee" posted on this blog), consumers eventually find that they do not have income necessary to defray these depreciation expenses in the future, because they have already used this income to purchase consumer goods at or near the time they received the income. This creates a gap between incomes and prices, and necessitates the further production of goods and services that the consumer is unable to consume in order to distribute the necessary income to purchase all of the consumer goods coming onto the market at some future point in time. Douglas exposed this gap in his A+B theorem. <br /><br />The solution is not to change the way accountants allocate costs over time, because this is an accurate attempt to match costs with revenues, and is likely the only way many businesses would be able to operate at a profit. The solution entails distributing purchasing power to consumers in such a manner that said purchasing power does not form a part of costs, which is exactly what happens with respect to Douglas’s proposal for a compensated price.<br /><br />The compensated price mechanism cancels costs at retail by reducing prices to consumers. This increases consumers' purchasing power. The mechanism is designed to equate production and consumption, and to allow financial costs to more accurately reflect the real cost of production. In this way, costs that have been capitalized, and really represent past consumption, can be eliminated in the current accounting period.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-3612613436602715212010-03-22T20:50:00.003-06:002010-03-23T05:49:23.275-06:00THE ALBERTA POST-WAR RECONSTRUCTION COMMITTEESUBCOMMITTEE FINANCE (March, 1945)<br /><br /><br />Part II~ THE MONETARY SYSTEM IN UNIVERSAL USE<br /><br />6. VELOCITY OF CIRCULATION<br /><br />It is generally assumed that the purchasing power of money<br />is increased or decreased by its velocity of circulation. However,<br />this theory will not bear examination in the light of the facts regarding<br />the issue and withdrawal of money under the established system.<br /><br />For purposes of analysis the following simple illustration of<br />the velocity of circulation theory will suffice:<br /><br />A wage-earner A. uses a $10 bill of his income to buy two<br />pairs of shoes from a shoe merchant B., who immediately goes into the<br />adjoining store and spends the $10 to purchase some shirts from C.,<br />C in turn immediately goes across the street to grocer D. and buys<br />some provisions costing $10, grocer D. then takes the $10 bill across<br />to the local garage E., to buy some gasoline and oil.<br /><br />The contention is that the $10 bill provided purchasing<br />power to the extent of $40 during the day by virtue of its "velocity of<br />circulation" in enabling $40 worth of goods to be purchased by consumers.<br />On the face of it this would appear to be the case, but on examination<br />it will be found to be a complete fallacy.<br /><br />Because all money issued creates a debt of the corresponding<br />amount at its source of issue, for all practical purposes merchants<br />B., C., D., and E. can be assumed to be operating on credit loans<br />from their banks with some "savings" invested in their stock.<br /><br />The proceeds of every sale they make can be divided into three<br />parts: (1) repayment of a bank loan before a new line of credit can<br />be obtained to replace stock, (2) payment of operating costs and<br />(3) net profit- i.e. personal income for services. Suppose that in<br />each case B.,C., D., and E. work on a 15% net profit. From each<br />purchase amounting to $10 they would be obliged to set aside - say,<br />$8.50 repayment of their bank loans for replacement of stock and overhead<br />costs, and only $1.50 as personal income.This is likewise true of C. and D. Therefore, by spending the $10 both of them created a liability against their future purchasing power.<br /><br />When A. obtained the $10: in wages there was against it a<br />corresponding cost in the prices of goods coming on the market. This<br />liability must be kept in mind.<br /><br />On buying the two pairs of shoes from B., A. surrendered his<br />right to $10 purchasing power and B. acquired the right to $1.50 of<br />this, the balance going for the repayment of his bank loan and cancellation<br />of the money as shown previously. (If he was operating on his<br />own capital it would make no difference, for the $8.50 would have to<br />go to the replacement of working capital with the same result.)<br /><br />If B. does not repay his bank loan, but spends the whole $10,<br />he will have a liability of $8.50 outstading which will constitute<br />a debt against future purchasing power. In other words he will have<br />to sell over $50 worth of goods without getting any portion of it for<br />his own use in order to make good the deficit.<br /><br />Thus while it is true that in the example quoted ,the $10<br />bill resulted in $40 worth of goods reaching consumers, there was<br />created a trail of debts against their future purchasing power amounting<br />to $10 (the liability against the original issue of the money) plus<br />$8.50 (B.'s undischarged liability) plus $8.5O (C.'s undischarged<br />liability) plus $8.50 (D.'s undischarged liability)- making a total<br />of $35.50. Suppose E. now meets his obligations of $8.S0, he retains<br />$1.50 as his net profit--:ie.,as purchasing power.<br /><br />It will be evident that the effect is exactly the same as<br />if A. bought gasoline, etc., from E., and B. and C. and D had obtained<br />goods from each other "on time", pledging their future purchasing<br />power.<br /><br />The so-called "velocity of circulation" did not incredase purchasing power at all.<br />The fallacy in the theory lies in the incorrect assumption that money "circulates",wheras actually it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com6tag:blogger.com,1999:blog-8479707700970948550.post-64197141895581773692010-01-23T11:56:00.018-07:002010-02-04T16:57:14.264-07:00Mr. Hawtrey's GiraffeBy W. L. BARDSLEY <br /><br />THE much-abused but resilient A + B theorem is still a thorn in Mr. Hawtrey's flesh, and he has what he evidently regards as a new and devastating criticism to make, since he makes it twice; once in the introduction to his book, and again in the chapter devoted to Social Credit. The argument is so neatly condensed in the introduction that it will serve well here to open the subject. This is what he says: <br /><br /><em>"The concept of a deficiency of purchasing power, on which the whole fabric of Social Credit is built, means two different things, and not merely different, but contrary. At one stage it means an excess of money over goods and a consequent dilution of purchasing power by a rise of price; at another stage it means an excess of goods over money. The tacit assumption in the mind of the supporter of social credit is that, if the excess of money over goods co-exists with the excess of goods over money, the deficiency of purchasing power is doubled. With this impregnable redoubt in the background the conflicts over the outworks are mere skirmishes. All the arguments of the orthodox economist are put out of court because he has missed this fundamental principle." </em><br /><br />Dear Mr. Hawtrey. That last sentence is meant to be sarcastic, of course, but what a funny thing the subconscious is. Perhaps he had a fleeting memory of having said something three years before which contradicted his new argument. It is a fact that in his debate with Major Douglas at Birmingham he gave a brief outline of the best orthodox account of how goods and services are produced and distributed, while money is created, issued, withdrawn and destroyed, with a description of a period of inflation followed by deflation. It would be tempting to criticise this account, particularly where he begged the whole question which was being debated in one crisp sentence:<br /><br /><em>"Payments by one trader to another cancel out." But we are concerned here only with the concluding sentence: "This account of the relation of the credit system to productive activity differs from that of Major Douglas in that it reaches the conclusion that an excess of demand IS just as likely to occur as a deficiency." </em><br /><br />Careful comparison of this conclusion with the new argument discloses that Mr. Hawtrey has discovered that the A + B theorem does take into account an "excess of demand," but that (oh, horror!) it treats it as a dilution of purchasing power. This Social Credit is even worse than he thought it was. The curious thing is that he admits, as will be seen, "the rise of prices which is caused by the dilution as a decrease or deficiency of buying power. That usage," he says, "is quite defensible, for the rise of prices does diminish the command over goods represented by a given money income." <br /><br />It is as if Mr. Hawtrey, confronted by a giraffe, exclaimed, "There it is, but I don't believe it." <br /><br />Now the curious thing is that Major Douglas actually supplied at Birmingham the clue to the reconciliation of the apparent contradiction that worries Mr. Hawtrey so much. He said: <br /><br /><em>"When Mr. Hawtrey says that it is possible to have an excess of demand, I think what he means is that it is possible to have an excess of demand for consumable goods, in which I agree with him. It is possible to have this excess of demand by making a large quantity of goods which are not intended to be sold to the public and using the purchasing power distributed in making these goods to buy consumable goods." </em><br /><br />After that it was really rather criminal of Mr. Hawtrey to be so slipshod. He should at least have said "an excess of money over consumable goods." The whole passage is sloppily worded in the eyes of a Social Crediter, trained to accuracy of expression (note, for example, how he misuses that word "doubled"), but Mr. Hawtrey is an economist, and moreover could plead that the passage quoted is only in the introduction. That, however, is no excuse for leaving out the word "consumable." Besides, it is also left out in the main argument. Mr. Hawtrey begins his main argument on page 296 by summarising the A + B theorem (quoted in full below*). Summaries of the A + B theorem are frequently misleading, but, as Mr. Hawtrey's argument is not affected, there need be no complaint about this one in its context. He then makes a remark that calls for extended comment before proceeding to his main argument. <br /><br /><em>"The sentence 'A will not purchase A plus B,' has been taken both by critics and by supporters of Major Douglas to mean that there is an inherent deficiency of demand. This interpretation has derived support both from the nature of Major Douglas's remedy, since his subsidy takes the form of the creation of additional purchasing power, and also from some direct pronouncements of his own." </em><br /><br />I should like to make a plea here for the King's English and for commonsense. A theorem is not a parable that it should require interpretation; it is a proposition which can be demonstrated by argument to be correct or incorrect. Mr. Hawtrey is engaged upon the attempt to disprove it, and it is his business to deal with what Major Douglas actually says and not with anybody else's so-called interpretation of it. <br /><br />The sentence "A will not purchase A plus B" means one thing and one thing only.* Mr. Hawtrey, in the last sentence of his chapter, compares some of Major Douglas's calculations to a misprint in the multiplication table, but here we have simple addition and subtraction applied to symbols. Either A will or will not purchase A plus B. If not, then 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. <br /><br />Very seriously indeed I suggest that Mr. Hawtrey read the theorem again carefully, and try to understand exactly what it says. It does not just say there is an inherent deficiency of demand, it says something subtly but vitally different from that. It says that there is an inherent deficiency of demand unless something is done to supplement it. <br /><br />As a protagonist of the orthodox theory that the present financial system is self-liquidating, Mr. Hawtrey has to prove one or the other of two things. He has to prove that the rate of flow of purchasing power to individuals is not A but A plus B, or else that a proportion of the product at least equivalent to B is in fact distributed by a form of purchasing power not comprised in the descriptions grouped under A. In doing so it is not enough for him to make emphatic assertions on the strength of his eminence in the financial world. His theoretical position is that of an eminent professor of Newtonian physics confronted by the challenge of Einstein—orthodox but shaking. But his real position is much worse than that, for he has to defend a theory which is responsible for the existence of a National Debt of £8,000,000,000, with a third of the population unable to spend as much as 6s. a week on food, while measures for limiting the production of food and discouraging the import of food are in full swing for the purpose of protecting prices; to say nothing of other evils. <br /><br />It will be his business to prove that any money apart from A which is used to purchase A + B has not left outstanding any cost which must still be defrayed, and that any cost that has been defrayed is not at the expense of another cost left outstanding. For example, on page 302, Mr. Hawtrey, dealing with the item of cost known as depreciation, says: <br /><em><br />"If it is invested either in the business itself or through the investment market, it is made available directly or indirectly for the production of new capital equipment, which will generate [he, presumably, means 'distribute'] incomes. "Nevertheless investment is a separate act, without which the surplus depreciation allowance would tend to cause a deficiency of purchasing power. And it undoubtedly does sometimes happen that such funds, even if not accumulated in cash, are applied to paying off bank advances." </em><br /><br />In fact it is admitted here that when a trader charges for depreciation in his price and obtains his price from the public, he does so at the expense of an equivalent deficiency of purchasing power to meet the price of all the goods that remain unsold. But the next point made is that the money so obtained may be distributed again in the production of new capital equipment. Quite so, and, so far as it is paid to individuals, it will be available to buy the unsold goods mentioned above. But it is included as a cost in the charge for new capital equipment which can be met only by the creation of new money. The deficiency has merely been transferred from one account to another. <br /><br />Again, on this subject of depreciation he says: <br /><br /><em>"The practice of applying depreciation allowances to the repayment of bank advances is an absorption of cash. But the tendency to cause a deficiency of demand will be counteracted if the banks create equivalent advances in other directions. And this they will seek to do in order to maintain their advances in due proportion to their cash reserves." </em><br /><br />Unfortunately for Mr. Hawtrey, this is a perfect example of the situation described by the A plus B theorem in actual operation. Here, in quantitative terms, is the situation he has described in respect of one only of the items included in Group B in the theorem. <br /><br />The price of a batch of goods is A + B, and B is a depreciation charge. The purchasing power distributed in respect of it (according to Mr. Hawtrey) is A, but the trader gets his price A + B, so that the general pool of purchasing power, which we will call x is now x – B; a proportion of the general pool of goods at least equal to B must be distributed by a form of purchasing power to be described by Mr. Hawtrey. B has been cancelled by the bank and the deficiency remains unless, says Mr. Hawtrey, the banks create equivalent advances in other directions. That is to say, another trader gets a loan and the amount is B, which he uses in his business. He charges it all into his price, so that even if the general pool of purchasing power were thus increased from x - B to x, the price values attached to the general pool of goods have been increased by the same amount B and the original deficiency still remains. Worse, it has been augmented, for when the trader received the loan he used it to create two groups of costs, group A and group B, so that the general pool of pur¬chasing power is still something less than x though more than x - B. So Mr. Hawtrey has his work still to do, and has already made his position more difficult. <br /><br />If he knew it, his position is impossible, for he has yet to face the fact that Major Douglas has shown in his various works the methods, the efficacy of which is steadily decreasing, by which the present lunatic financial system endeavours to provide the new money with which "a proportion of the product at least equal to B must be distributed," but to do so in such a manner that (a) the power to monetise the credit of the people does not pass out of the hands of the money monopoly which has filched it, (b) the monopoly retains control of the lives of individuals by dictating the terms on which they shall obtain the purchasing power which is their license to live (the most stringent condition being the nerve-shattering neces¬sity to compete for paid work in an employment market steadily depleted by technological improvement), and (c) the monopoly can dictate the policy of Governments who have to borrow all their funds from it and then compete with the price system to extract taxes from a pool of money insufficient to meet both, so that Governments can be solvent only when their people are insolvent. <br /><br />From all of which it can be seen that Mr. Hawtrey is defending an irresponsible and tyrannical system of government by money. Which brings me back to the main argument once more. <br /> <br />Mr. Hawtrey's main argument must be stated in his own words: <br /><br /><em>"In the chapter following the enunciation of the A plus B formula he [Major Douglas] deals with the creation of credit. When a banker creates credit, for example, by allowing an overdraft, he enables production to take place. The borrower and those who supply him* get to work, and 'all those concerns 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' (page 33). This is the dilution of purchasing power already described in 'Economic Democracy.' Yet on this very same page the A plus B formula is summed up in the proposition 'that the current flow of wages, salaries and dividends is less, much less, than the current flow of price values of articles produced.' The former proposition asserts that there is an excess of purchasing power over goods, which forces up prices; the latter asserts that there is an excess of goods over purchasing power. How are they to be reconciled?" </em><br /><br />After what has already been said every reader will be itching to point out to Mr. Hawtrey the enormity of his error. With apologies to them and in deference to him I must dot some i' s and cross some t's. Neither of the pro¬positions asserts either of the things he says they assert. The former is very precise and refers to a distribution of purchasing power ahead of production causing a rise in the prices of ultimate commodities. The latter refers to the current flow of wages, etc., being less than the current flow of price values of articles produced. <br /><br />Purchasing power is not quite the same thing as money; it is money in relation to price. One pound is money and it has the power of purchasing five articles priced at four shillings, but only four if their price is raised to five shillings. Take Mr. Hawtrey's phrase, "an excess of goods over purchasing power." That is not what we should say; it is not precise—try it with five articles and a pound; you will find it depends on the price of the articles, and Mr. Hawtrey does not mention the price. What Major Douglas says is that the current flow of wages, etc., is less than that of prices of articles produced. That is precise – try it with five-articles-a-week-at-five-shillings and a-pound-a-week. <br /><br />The two propositions that have to be reconciled for Mr. Hawtrey are not what he says they are. It is very easy for Mr. Hawtrey to be superior and devastating about propositions he has mangled to suit the easy flow of his pen. It would be very easy to score off him by rewriting the propositions in some way which suited me, so I invite the most careful and suspicious scrutiny of what I am about to say by way of reconciling two propositions which are made by Major Douglas. <br /><br />They are two propositions, and they are separate. One is a major and the other a minor proposition. To take the major first, contained in the A + B theorem (quoted in full on page 561), it is contended that there is an inherent deficiency of purchasing power in relation to prices if purchasing power and prices are both regarded as a flow, which is the correct way to regard them, and is how Mr. Hawtrey regards them, as a subsequent quotation will show. <br /><br />If we isolate a given period of time to illustrate the major deficiency we must at least compute the total book values of all consumable goods, and of all capital and intermediate goods produced in a given period of production, against the total of wages, salaries and dividends distributed in respect of production during the same period. <br /><br />Let us suppose that in the period chosen the purchasing power distributed in respect of all production is sufficient to meet the prices (book values) of all finished consumable goods, and that they are all bought and consumed. This, I take it, is the situation which would satisfy Mr. Hawtrey's sense of fitness, and it leaves all the remaining goods unsold, but it also leaves outstanding all their book values, which the public will have to pay in the future, since all costs must be defrayed by the public. Now it may be true that purchasing power has been distributed in the past in respect of all these costs (as a matter of fact Mr. Hawtrey has already demonstrated that it is not true for those allocated costs called depreciation), but it is clearly irrelevant since it has already been withdrawn in previous periods in the purchase of consumable goods. In other words, the public has made the goods and paid for them, but the costs are still outstanding and a proportion of them will be included in the cost of goods produced in the next period, and the remainder in succeeding periods. <br /><br />Since the economic system is a continuous process, successive periods flow into each other, so it must be regarded as a flow, and the A plus B theorem so describes it. The B costs referred to in it are the outstanding costs carried over into any period from previous periods plus any fresh allocated costs and costs in respect of semi-manufactures which the public does not buy. <br /><br />But, says Mr. Hawtrey: <br /><br /><em>"To say that 'the wages and salaries (already insufficient to buy the whole production) tend to be diluted in value until they merely represent the subsistence allowance of the persons concerned' (page 34), does not help; the fact is that confusion has been introduced into the subject by Major Douglas's practice of describing the rise of prices which is caused by the dilution as a decrease or deficiency of purchasing power. That usage is in itself quite defensible, for the rise of prices does diminish the command over goods, represented by a given money income. But unfortunately the same expression, a deficiency of purchasing power, is equally appropriate to the case where there is a deficiency of incomes. In the one case a deficiency of purchasing power means an excess of demand in terms of money over supply at a given price level, in the other it means a deficiency of demand." </em><br /><br />I am puzzled as to the exact shade of meaning intended by the word "unfortunately," but to return to the period already described, let us suppose that there has been an expansion of capital equipment (armaments, for example, or, if guns annoy Mr. Hawtrey, electric power stations or blast furnaces), so that there is distributed purchasing power in excess of available consumable goods at their book prices. This is the minor proposition at which Mr. Hawtrey boggles. Prices rise. That is to say, sellers add a fresh and profitable allocated cost to the previous book value. Purchasing power is diluted so that a pound, instead, say, of buying ten articles at two shillings, can buy only eight at half-a-crown. <br /><br />Apart from the painful repercussions of this in the relations between capital and labour (resulting in rising costs), it is clear that the major deficiency has been aggravated (not doubled, Mr. Hawtrey). But what do the traders do with the extra profit? Briefly they do one of four things. They save it, which deprives some other seller of a market for the time being. Now or later they will part with it, however. They will most probably hastily pay back a pressing bank loan which, as Mr. Hawtrey puts it, is an "absorption of cash." Or they will go out and spend it, which is all right, of course; the price rise has merely transferred the right to consume to them. Or they will invest it in their own or some other business, which distributes part of it (the A part) but creates an equivalent A plus B cost. All these processes, except spending for consumption, aggravate the major deficiency; some more than others. Additionally, the "boom" conditions encourage the installation of new capital equipment, the purchasing power distributed in respect of which will augment the process just described, and the cost of which will be outstanding in the next period. <br /><br />Now the following paragraph constitutes the entire argument that Mr. Hawtrey advances in support of the assertions he has made—based as we have seen on garbled paraphrasing of the opposing argument:<br /><br /><em>"In practice all stages of production are in operation simul¬taneously. Those which cause an excess of demand and those which cause an excess of supply tend to neutralise one another. But if we apply the same description, a deficiency of purchasing power, both to the rise of prices in the one case and to the shortage of money offered in the other, it is fatally easy to be misled into the idea that as each stage of production taken separately tends to cause a 'deficiency' of purchasing power, therefore when they co-exist they must reinforce one another." </em><br /><br />Again, the use of the word "fatally" produces an odd qualm. It reminds me of Huxley's definition of a tragedy as "a theory killed by a fact." That is the classical or deductive standpoint. From the realist or inductive view, if a theory is wrong the discovery of the fact that kills it is a triumph. Fatally, fatally—what does it mean? <br /><br />In any event a period in which purchasing power exceeds the prices of consumable goods, that is to say, a "boom" or inflationary period, does not in the world of hard fact occur simultaneously with a period in which purchasing power is less than the prices of consumable goods—a "depression" or deflationary period. Such periods, as is surely well known, alternate with each other to the glory of Mammon. <br />(To be concluded:) <br /><br />*THE A + B THEOREM <br /><br />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. <br /><br />Group A.—All payments made to individuals (wages, salaries and dividends). <br /><br />Group B.—All payments made to other organisations (raw materials, bank charges, and other external costs). <br /><br />Now the rate of flow of purchasing power to individuals is repre¬sented 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. (Quoted from the Statement of Evidence submitted by Major C. H. Douglas to the <a href="http://www.scribd.com/doc/19207513/CH-Douglas-Evidence-MacMillan-Committee-1930-">Macmillan Committee on Finance and Industry</a>, May, 1930.)Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com5tag:blogger.com,1999:blog-8479707700970948550.post-9115765898609424272009-12-20T08:36:00.005-07:002009-12-20T09:28:53.416-07:00Social Credit and Meta-FeudalismChristopher M. Quigley B.Sc., M.M.I.I., M.A.<br /><br />“Douglas said that we are trying to pass from one type of civilization into another in which the possibilities are such that we cannot imagine.” “The King is dead long live the King” so goes the feudal aristocratic mantra establishing power continuity. Death and birth are a part of reality and amidst the pain of death the love of life must prevail. Currently many say that American society is dying but in fact it is experiencing a transformation. Perhaps it is actually more correct to say that America is going through a paradigm shift. This shift is tantamount to a revolution and the revolution is based on increased awareness, growing consciousness, societal dysfunction and expanding poverty. The other force driving this trend is the emergence of learning networks and the diminished effectiveness of mass broadcasting. Thus average Americans are finally starting to think as sovereigns again. Their thinking had stopped following the disaster of the civil war. This national cessation of practical awareness allowed the then Federal micro-system to usurp the Union macro-system through credit power. As a result today the Federal Government is now macro, and the Union of States micro, but this should change over thenext 50 years.<br /><br />Ideally the elites want the American economy to contract. They desire a constrained and hobbled society which is more demanding, more complex, more controlled, more diverse, more fractured, more local and less efficient. In a word: meta-feudal. To understand a world that is meta-feudal you should watch movies such as “Brazil”, “Roller-Ball” and “Blade Runner”. These worlds are technological but disintegrated and astonishingly unequal. The powers work through fabricated “crises”. The elite set up the current “crisis” through the “originate to distribute” Basel banking agreement of 1998. From this model evolved: the hyper property bubble, the market-fixing credit derivative system, asset laundering off-balance-sheet accounting and the eventual “credit” collapse. This led to the new “improved” banking oligarchy. This club now involves far fewer players than<br />existed heretofore. The cull and consolidation continues but the center remains. However, these elites underestimated the power of the internet to educate and allow their manipulation to be seenfor what it is. Should these powers be allowed to succeed again, as they did in 1930, we will all share the blame because we now know the score. The easiest way to negate this developing usurpation of power is to help others see through the lies and the obfuscation that passes for truth. Ideally the one way to stop the meta-feudal trend in its tracks is to educate yourself about social credit and apply its maxims. To understand Social Credit you need to have some idea about how the economy and money works.<br /><br />Getting a general overview of the economy is simple. It has five main elements:<br />a. food & water<br />b. shelter<br />c. transport<br />d. life-care (health & sanitation)<br />e. security (internal & external)<br />Economic “science”, which is in effect an engineered human mind-set, states that the demand and supply of these elements is equated through the pricing system. The pricing system in a developed society uses a medium of exchange called money. The purpose of this money is to facilitate exchange thus supporting the effective functioning of the economy. Money is not supposed to be an end in itself. It is the responsibility of enlightened moral leadership within a society to ensure that the proper use of money is accomplished. In the West this moral leadership is gone for it has accepted criminality as a standard mode of operation. Criminality is unethical action with lethal consequences with no concern for the greater society. Accordingly, money has ceased to function correctly. As a result people think the economy and its concomitant systems are collapsing, like in the “former USSR.” This is not the case. If we solve the money problem the answer to the economic problem will fall into place. But through ignorance and misguidance this central issue has been hidden from the populace. The solution is wrong because the problem is misdiagnosed. It cannot be admitted to because such a disclosure will mean a demand to the cessation of monopoly ownership of money and credit. There will be no “former USA”, not if the American public finally wakes up, that is. The land, the seas, the food, the water, the houses, the offices, the schools, the factories, the roads, the<br />railways the ports, the hospitals, the police, the prisons, the fire officers and the army are all still there. So what is the problem? Why is the economy failing? Why is there growing poverty? The problem is that the medium of exchange is corrupted and mal-functioning. Simply put: there is not enough purchasing power in the hands of society in general to allow the proper interaction of supply and demand. The pricing mechanism is broken and mal-adapted to a modern technological society. It is time for economics to grow up. The current conceptualizing of “price” will not allow the further development of our civilization because the growth in the use of capital and machines has destroyed the availability of good “money jobs”. Without the “money jobs” there is no “effective purchasing power” available on the demand side of the economic equation to allow the supply side to consummate its potential. This conundrum can be easily solved if sufficient purchasing power is made<br />available to the populace. This is the essence of Social Credit theory. This theory acknowledges that society must face the question at to whether people matter more than capital and machines. There are many possible methods on offer to effectively achieve purchasing power distribution within a private banking system. However, there is no point in fighting over the finer points of this issue until the philosophy and the policy of the theory is accepted and understood. So what is the philosophy of this new economic model?<br /><br />As expounded by Major Douglas in his treatise “Social Credit” the purpose of his policy is to slow and eventually stop the implosion of western civilization caused by credit monopoly and mal-pricing. He felt that monopoly debt was corrupting all relationships; private, public, national, international and institutional. He believed that usury was bringing effective slavery to all western democracies. He<br />sought to offer citizens freedom and sovereignty through the adoption of a new economic model and trust me his theory works. Google it. Research it. Discuss it. Blog it. Read it. Dream it. Believe me it has the power to transform our society. For it is simple: if a society does not own its money and credit it will lose control of that society and this is exactly what has happened to western civilization. It is time to take back this ownership, for the underlying value behind all money is: credere=credit= faith. Faith is free. It belongs to no individual monopolistic group. <br /><br />In the 1930’s Major Clifford Douglas claimed that society was hypnotized and that only a drastic dehypnotization could save it. Like the famous psychologist with his theory X and theory Y on human nature, Douglas believed in grace. He believed in people. He felt that individuals had far more goodness and potential than society was allowing for. He reckoned that if common folk were given enough freedom and leadership they could move society and civilization into a new golden age. An<br />age of extended liberty, discovery, art and culture. The alternative would be booms, busts, overconsumption,under-consumption, excesses, depressions and wars. Eighty years later this is exactly what the world has experienced and is continuing to experience. However, the period between each stage is narrowing and the level of debt is exploding beyond comprehension. To followers of Douglas this situation is understandable because his analysis has been seen to be true, simply based on the<br />observation of the history of the last 100 years. If it looks true, smells true, feels true and thinks true, then it is true.<br /><br />Armed with this knowledge for how long do we allow the folly of present economic “orthodoxy” to continue? To me this situation is akin to an adult perceiving the behaviour of a wild and immature teenager, wondering when wisdom will prevail. To the elites, who must know the truth, this monopoly credit based, boom-bust phenomenon, is obviously allowed to continue because they have control. Their ownership motivates them to disregard consequences provided they are protected<br />through privilege.<br /><br />However, I believe that the truth is too obvious to ignore anymore. The situation can and will be changed. The optimum way to achieve this is through the personal action of understanding and living the new paradigm. Through example the solution will grow from the bottom up. It will not come from the top down. I can see the change of consciousness mentioned in my opening statement within my own environment. Folk are waking up. The philosophy of Major Douglas is showing a synergy with<br />other social thinkers such as Buckminster Fuller, Douglas McGregor, Abraham Maslow, Joseph Schumpeter, Carl Gustav Jung, Prof. Carroll Quigley and E.C. Riegel. The end result is the on-going development of a new modality for “post-silicone” living. The money solution is so obvious it is beginning to be seen as “madness” not to sort it out. The de-hypnotizing is starting. At long last people are rediscovering sovereign thought and moral grace. Thus Social Credit is appealing to those who believe in freedom; to those who hate debt slavery; to those who realise the political system is media theatre; to those who seek to empower their family, their business, their community, their city and their state; to those who wish to rediscover scholarship, education and learning; and to those who wish to rebuild rather than collapse the American western tradition. “The Union is dead long live<br />the Union.”<br /><br />“The organism has a right in natural law to draw sustenance from its environment. We cannot with impunity abstract humanity from the natural world. ….<br /><br />Unfortunately, the present financial system creates an ever greater deficiency of effective and unattached purchasing power giving the illusion, through a distorted financial lens, of actual or physical scarcity in the midst of actual and potential abundance…..<br /><br />Douglas said that we are trying to pass from one type of civilization into another in which the possibilities are such that we cannot begin to imagine. That transition, he believed, would best be facilitated in an environment which provides maximum freedom (immanent sovereignty) for the individual in the context of absolute economic security. The policy of Social Credit is to make possible the emergence of such an environment.”<br /><br />Wallace Klinck<br /><br /><br />Reading Thread:<br />Quotes From: Mr. Wallace (Wally) KlincK<br />Social Credit: Long Term Student, Archivist, Researcher and Writer.<br /><br />“Social Credit”<br />Major Clifford Douglas<br /><br />“Critical Path”<br />Buckminster Fuller<br /><br />“On Management”<br />Abraham Maslow<br /><br />“Theory X & Theory Y”<br />Douglas McGregor<br /><br />“Small Is Beautiful”<br />Joseph Schumpeter<br /><br />“Man and His Symbols”<br />Cark Gustav Jung<br /><br />“The Oscar Iden Lectures”<br />Prof. Carroll Quigley<br /><br />“Flight from Inflation”<br />& “A New Approach to Freedom”<br />E. C. RiegelSocredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com2tag:blogger.com,1999:blog-8479707700970948550.post-16636900099622794262009-09-07T08:20:00.008-06:002009-09-07T12:47:57.726-06:00Douglas - Hawtrey Debate<strong>THE NEW AGE</strong><br /><br />INCORPORATING “CREDIT POWER”<br />A WEEKLY REVIEW OF POLITICS, LITERATURE AND ART<br />No. 2117, NEW SERIES, Vol. LII, No. 23, Thursday, April 6, 1933. <br /><br /><br /><strong>NOTES OF THE WEEK. <br />The Birmingham Debate. </strong><br /><br />For the convenience of our subscribers we are publishing the whole of the Birmingham Debate in the present issue. This has entailed our not only adding four pages, but also holding over the main body of our “Notes,” together with Music, Theatre, Films, and other usual features. We apologise to our contributors, but trust that in the special circumstances they will not feel reproachful. <br /><br /><strong>Free Credit </strong><br /><br />It is important for supporters of Major Douglas to be quite clear about what “free credit” means. Up to a very recent date advocacy of the distribution of “free credit” has been an exclusive characteristic of Social Credit propaganda. For this reason the Douglas rank-and-file – and even Douglas officers – may be disposed to look upon such advocacy in new quarters as a sign of success in their propaganda, and to regard the new advocates as useful allies. But this does not follow at all. Credit is “free” or not “free” in the Social Credit sense according to the conditions of its use when in circulation, and not merely according to the conditions of its injection into circulation by the banks or some other Credit Authority. Briefly, credit can be "given" in form and yet not be “given” in substance. Social Credit demands the gift in substance; and before the General Staff of the Social Credit forces enter into collaboration with the leaders of other “free-credit” forces they must make sure that the basis is one of substance, not of form. <br /><br />A credit is “free” in form when a Credit Authority transfers it to some recipient without requiring him to return it or to pay interest on it. If such is the essence of a “gift” of credit is it different from a loan in perpetuity to that recipient? Certainly not in substance. Then how about form? Apparently neither in that, too, provided that no interest is recovered, and no moral obligation on the part of the recipient to pay interest is recognised. The distinction thus lies in an attitude of mind. A credit is a loan or a gift according to whether the recipient is supposed to be under a moral obligation to return it or is supposed to have the moral right not to do so. Against this background the true significance of Interest is seen. A rate of interest implies an agreement to pay it; and that agreement implies an obligation to return the credit. An interest-rate is a visible symbol of a moral obligation on the part of the recipient to the authority issuing the credit. Fundamentally, Interest is like the seal on a legal document; it is the little red wafer on which the recipient of a credit swears himself a borrower, and swears his acceptance of the moral responsibility conventionally laid upon him as such. Thus, he might say: “I swear to regard this credit as the property of the lender, and to regard it as some thing which it is my duty to return to the lender.” The rate of interest has no more significance than the size of a wafer on a legal document. It is the footprint of an oath. <br /><br /><br /><br /><strong>THE BIRMINGHAM DEBATE.<br /><br />Debate between Mr. R. G. Hawtrey and Major C. H. Douglas on Social Credit at the Central Hall, Birmingham, on Wednesday, March 22, 1933</strong>. <br /><br />I. – Diagrams. <br /><br />Put in by Major Douglas to illustrate the scope and nature of the Social Credit Analysis. <br /><br />  <br /><strong>II. – Opening Statement and Reply.<br /><br /><br />MR. HAWTREY’S STATEMENT. </strong><br /><br /> I have two preliminary remarks to make. The first is that it is a great pleasure to me to have this opportunity of meeting the Birmingham Social Credit Group, and particularly also of meeting Major Douglas personally. The second is that, as I am a Government official, I ought to explain that what I have to say this evening represents my own personal views, and is not to be associated in any way with my official position. <br /><br />Before setting out to criticise the doctrines of Major Douglas, I should like to say that on certain matters I am in entire accord with him. Among these I would especially mention his view that the demand for commodities arises from incomes and that incomes arise out of production. Further, I agree with him that banks create money, and that trade depression rises from faults of the banking system in the discharge of that vital function. <br /><br />But I do not want, on the present occasion, to dwell on these points of agreement. Rather I want to proceed without delay to examine the questions in regard to which he and I part company. <br /><br />The foundation of Major Douglas’s theory of social credit is his view that in the economic system, as it at present works, there is an inherent shortage of demand; that the total of incomes necessarily falls short of the total of goods to be sold, valued at remunerative prices. <br /><br />That is so, he would say, because, in order to be remunerative, prices have to include certain other items in addition to the incomes generated. Since demand emanates only from incomes, these other items inevitably introduce a discrepancy. The excess of the value of goods over demand has to be distributed by some other form of purchasing power, that is to say, by credit. <br /><br />The incomes or “payments made to individuals” comprised in costs include wages, salaries, and dividends. The other items, or “payments made to other organisations,” include raw materials, repayment of bank loans and other non-personal costs. <br /><br />With raw materials he groups intermediate products under the general heading semi-manufactures. The products of one manufacturer may be the materials of another. A tanner buys hides and sells leather; a boot-maker buys leather and sells boots, and a retailer buys boots and sells them to consumers. Hides and leather alike are comprised under the heading “semi-manufactures.” The hides are paid for by the tanner; and their price is included in the price paid to him for the leather. The price of the leather, which thus includes the value of the hides, is then included in the price paid by the retailer to the manufacturer for the boots. “Where any payment in money appears twice or more in series production.” Major Douglas explains, “then the ultimate price of the product is increased by that amount multiplied by the number of times of its appearance, without any equivalent increase of purchasing power.” Monopoly of Credit, p. 30.<br /> <br />Here I find myself differing from Major Douglas. Apparently he would say that the price of boots includes the price of the leather twice, and the price of the hides three times. I should say, on the contrary, that it includes each only once. <br /><br />The retailer receives the retail value of the boots from his customers and pays the wholesale value to the manufacturer, retaining the difference to cover the wages and salaries of his employees, his rent, and his own profit. The manufacturer receives the wholesale value of the boots from the retailer, and pays the value of the leather to the tanner, retain ing the difference for profit, wages, and salaries. The tanner similarly retains the difference between the value of the leather and that of the hides and other materials he uses. Thus the whole of the difference between the original materials bought by the tanner and the boots sold by the retailer is accounted for by disbursements of wages, salaries, rent, interest, and profits, that is to say, payments to individuals by way of incomes. <br /><br />But the hides in turn are bought from farmers, and the sums received for them form part of the incomes of the farmers, their workmen, and their landlords. There will be some outgoings for feeding stuffs, etc. but these will be paid to yet other producers. In fact, all the payments for semi-manu factures or materials are ultimately devoted towards providing the incomes of those engaged in producing or handling them. <br /><br />Now it may be objected that this analysis would be perfectly valid if production did not take time, but that by the time the boots appear on the market the incomes derived by the farmers from the hides, by the tanners from the leather and by the manufacturers from the boots are ancient history. These people do not wait for the retail sales, but are paid at the moment of sale with money created by the banks, and then when the final sale to the consumers takes place, the money advanced by the banks has to be paid off. That part of the proceeds of sale is simply destroyed. For just as a bank advance creates money, so the repayment of an advance extinguishes money. <br /><br />If we suppose the production and sale of the boots, in all the successive stages, to form an isolated operation, then at the beginning there will be an excess of purchasing power and no goods to buy, and at the end an excess of goods and a shortage of pur chasing power. Castaways thrown on an uninhabited island, with no salvage to help them, would be faced with the same kind of mal-adjustment. At first they would have to subsist on the products of unassisted nature, and would receive no other reward for their labour. If they devoted their efforts to making the island productive, the time would come with which their preparatory work would bear fruit, and thereafter they would receive the improved and increased output thereby made possible. If at last they were rescued, and left the island, the products then in course of production would find no buyers, and that part of the fruit of their early efforts and privations would be wasted.<br /><br />But the economic activity of a civilized community is continuous. Accumulation of the essential capital equipment goes back to the immemorial past, and there is no question of winding it up and liquidating it. At any moment all the various stages of production and all the various forms of economic activity are in progress simultaneously. In order that the goods produced in any interval of time may be sold, what is needed is that the incomes occurring in that same interval of time should be sufficient to buy the goods at remunerative prices. Incomes arise out of production; they are paid to people for services rendered by themselves or their property towards the productive process, and these services are the source of the value of the goods produced. Now a part of the value of the goods produced during the interval will be derived from incomes that accrued before the beginning of the interval. But on the other hand a part of the value representing the incomes accruing during the interval is embodied in goods still unsold or unfinished at the end of the interval. The goods in process or in stock at any time constitute the working capital of the community, and, if there is no change in this working capital, there need be no inequality between the incomes occurring during the interval and the goods placed on sale.<br /><br />So much for working capital. What of fixed capital? Industry starts at the beginning of the interval with a certain equipment of fixed capital, plant, tools, etc., and the cost of the goods produced with the assistance of this equipment must contain a contribution towards its maintenance and depreciation.<br /><br />Major Douglas has laid special stress on depreciation as a constituent of cost which does not appear in the form of incomes. But here he is mistaken. Depreciation is a provision which the prudent manufacturer makes out of his gross profit against the time when his plant will have to be replaced, either because it is worn out, or because greater efficiency can be secured by plant of an improved type. If we imagine him to accumulate this provision during an interval of time in the form of a cash balance, and if we suppose that no replacements have actually to be carried out during the interval, there will be a shortage of demand. So much of the proceeds of sale will have failed to reappear in the form of income.<br /><br />But if we view industry as a whole, we find once again that economic operations are continuous. In any interval of time there will always be some plant to be replaced in some concern, and the production of the new plant will generate incomes in just the same way as the production of new consumable goods.<br /><br />Moreover, if the replacements do not exactly keep pace with the accumulation of money to pay for them, the money accumulated need not be in the form of idle cash. So much as is not required is likely to be invested either in the businesses themselves or in marketable securities. That applies equally to the provision that the prudent mine-owner makes against the exhaustion of the mine. Here “replacement” is not, strictly speaking, possible at all. The minerals taken from the mine have gone forever. Indeed, insofar as the value of the minerals exceeds the cost of working, this may be regarded as a genuine case in which payments for materials are not applied to pay incomes. The mine-owner’s property is being depleted. <br /><br />But he is not likely to hold such part of his receipts as represents capital in the form of idle cash. Like the manufacturer disposing of a surplus on his depreciation account, he will invest it.<br /><br />And more generally we may say that anything which counts as a capital asset in the hands of the seller is bought to be used in production, the seller is likely to invest the proceeds of sale. And though at one time he may withhold them or a part of them from investment, he may at another draw upon balances or borrow from a bank for investment. All money coming from such sources forms, along with savings out of income, the fund available through the investment market for capital outlay.<br /><br />And that brings me to the question of new capital outlay, including, besides the establishment of new enterprises, any extensions or improvements which do more than replace the plant which is being discarded. Capital equipment enters into cost, in the form of maintenance, depreciation and interest, when it has been completed and is being used. To reckon it as an item of cost also when it is being constructed is to count it twice over.<br /><br />Nevertheless, for Major Douglas’s purposes it is necessary to consider how provision is originally made for it. Insofar as capital outlay is met out of income, that is to say, by means of saving, the demand available for consumable commodities is diminished by the amount saved. But then the money spent on the construction of new capital, no less than that spent on the production of consumable commodities, generates incomes. There is no failure of equilibrium here. Incomes are devoted partly to consumption and partly to investment, and they are derived partly from the production of consumable goods and partly from the production of capital goods. There may be some dislocations through a change in the proportion spent respectively on consumption and investment, but that is a different thing from a shortage of incomes as a whole.<br /><br />But capital outlay is not invariably financed by savings out of income. Major Douglas even goes so far as to say, “It is doubtful whether more than an insignificant proportion of financing is done in this way, the greater part coming from new credits supplied by banks and insurance companies in return for debentures.” That insurance companies play a large part in investment is undoubtedly true. But life insurance is no more than a channel for saving, adapted to the requirements of those who are dependent on incomes. The premiums received are savings, which are invested by the insurance companies pending the maturity of the policies.<br /><br />And I think Major Douglas has misconceived the functions of the banks. At any time, it is true, a considerable proportion of the assets of the banks represent fixed capital. They hold long-term investments (mainly government securities) on their own account, they make advances, both to stalk jobbers and to other customers, to enable them to buy and hold stocks and shares, they make advances to manufacturers and traders for improvements and extensions of plant, and they make advances to private customers to buy houses. In all these ways they provide funds for purposes of investment. But their advances are for the most part repaid quickly. Even those made for improvements of plant or for buying houses are usually required to be repaid within two or three years. The actual amount of resources supplied by the banks for the purposes of investment over any interval of time is no more than the excess of new advances over repayments, and amount of savings.<br /><br />But when Major Douglas refers to capital outlay financed by bank credit, I do not think he has in mind the use of a net increment of bank credit to supplement savings. His argument is rather that the manufacturer incurs capital outlay which has ultimately to be met out of profits, the bank advance being no more than a transitory expedient, and that the price of the product has to be raised to provide sufficient margin to cover the outlay, that is to say, to repay the bank advance. Even though new capital outlay is not strictly a part of the cost of production, nevertheless the latest improvements in plant available to an industry may be so essential that every producer in the industry is compelled to install them. They are necessary as ordinary replacements, and yet they may cost far more in capital outlay than the plant they are displacing. The situation is not unlike that of a trade in which the available stocks of the finished product are short, and the traders make good the shortage by charging a high price to the consumer. The high price which is imposed to slow down sales at the same time yields an extra profit to the traders and so supplies the resources to meet the cost of accumulating the additional stocks. The additional stocks are part of their capital, and the extra profit is part of their income, so that they may be regarded as providing capital by saving out of income. Yet this is, in a way, a fiction, for the need of the new capital has itself led to an increase of price and consequently of profit to pay for it.<br /><br />In this way the cost of new capital may occasionally appear as an item in selling price. But, even if it does, no deficiency of demand is caused. The production of the new capital itself, whether it be plant or stocks of commodities, generates incomes equal to its costs. Production, for the time being, exceeds consumption, and the difference is appropriated by the traders in virtue of their extra profit. That extra profit is a clear addition to the aggregate of incomes.<br /><br />Incomes are the source of demand. But it cannot be assumed that the amount of demand in any interval of time must be equal to the aggregate of incomes. The expenditure of the individual is not exactly equal to his income; he may leave part of his receipts unspent in his cash balance, or he may draw on his cash balance (or overdraw) for expenditure in excess of his receipts.<br /><br />For the total expenditure out of all incomes, including expenditure on investment or the purchase of securities, I use the expression “consumers’ outlay.” When people in their capacity as consumers, draw upon their balances, this is expenditure out of past income, and when they overdraw I regard it as an anticipation of future income. In either case I include it in consumers outlay. On the other hand, when advances or overdrafts are granted to a trader to meet his expenditure on buying or producing commodities, that is not in anticipation of expenditure out of income and is not part of the consumers’ outlay<br /><br />I should explain that I use the term “trader” in a wide sense, to include anyone who incurs costs on producing or buying goods or services with a view to sale. A trader may be engaged on production or transport or on dealing in goods or securities or on any other economic activity. His characteristic is that he incurs costs and it follows that his income takes the form of profit, an excess of the proceeds of sale over costs.<br /><br />The only forms of economic activity that are not in the hands of traders are those in which no costs are incurred, that is to say, those in which the producer renders a service directly to the consumer, in return for wage, salary, or fee. The services rendered by a servant in return for his or her wages are an example. The whole of what she receives is income, and her income and her employer’s outlay on her services are equal and simultaneous. The trader on the other hand, is an intermediary, receiving money from the sale of this product, and paying money to other traders and to those whom he employs or whose capital he uses. He also draws out the profit that constitutes his own income. His receipts and disbursements are not necessarily equal to one another.<br /><br />If we consider all the traders in the community as a single group, we find that the group receives the proceeds of goods, services, and security sold to consumers, and pays the incomes of all those who participate, by their services or by the use of their property, in the work of production and other economic activity carried on by the traders. The profits which constitute the incomes of the traders are included on the side of the payments, while the traders, when they spend these incomes, are reckoned among the consumers.<br /><br />Payments by one trader to another all cancel out, and do not figure either in the receipts or in the payments of the group at all.<br /><br />Foreign trade introduces a complication, but does not materially modify the general principle. Exports, visible and invisible, like all other forms of economic activity, generate incomes. Some traders receive payments from abroad, for exports, while others make payments abroad for imports, and the result is to provide goods, services, and securities to meet the demand corresponding to the incomes generated by the export business.<br /><br />Now the payments made by the group of traders being in respect of services rendered toward production and other economic activities, will be increased or diminished according as the traders accelerate or retard production. If they accelerate production, they must pay out more in respect of the greater productive activity. There will result an excess of the traders’ disbursements over their receipts, an excess which may be described as a “release of cash”. The cash released goes to pay additional incomes, and then reappears as additional demand. The additional demand evokes a still greater productive activity and a further release of cash.<br /><br />When the traders retard production, there occurs an excess of their receipts over the disbursements or an absorption of cash. There is a shrinkage of incomes, of demand, of sales, and then a still greater shrinkage of production.<br /><br />In the case of a release of cash the expansion of demand cannot be met indefinitely by an increase of production. As production approaches capacity, the effect will be felt more and more in a rise of prices. This is a familiar phenomenon of inflation.<br /><br />In the contrary case of an absorption of cash that contraction of demand is felt partly in the reduction of prices, but, insofar as prices resist reduction, it is felt in the decline of output and consequent unemployment. This is deflation.<br /><br />The release and absorption of cash play an important part in the regulation of credit. What is commonly called an expansion of credit is really a device for inducing a release of cash, while a contraction of credit is a device for inducing an absorption of cash. The release of cash maybe affected either with money drawn from existing balances or with money lent by the banks. Similarly an absorption of cash may mean either the accumulation of idle money or the repayment of bank advances. The majority of traders avoid holding idle balances, and borrow just so much from their bankers as their varying needs for working capital require from time to time.<br /><br />These traders cannot increase their activity unless they can borrow. The bankers, by increasing their charges, and possibly refusing loans can deter the traders from releasing cash and practically prevent an increase in activity. By reducing their charges and showing themselves willing to lend, they can induce an increase of activities. In the latter case, they may start a vicious circle of inflation involving a cumulative rise in prices; in the former a vicious circle of deflation involving a cumulative fall of prices and an ever-growing burden of unemployment.<br /><br />An absorption of cash may be regarded as a step towards that liquidation of industry which was illustrated from the rescue of the castaways. It means that traders are seeking to sell more than they buy or produce. The various causes which may occasion a deficiency of purchasing power, such as the accumulation of savings or depreciation funds in cash instead of investments, or substitution of cash for goods in working capital, are really particular cases of the absorption of cash. The real significance of the power of the banks to create or extinguish money is that it enables them to bring about the release or absorption of cash. If the net result of all the different causes at work is an absorption of cash, then there is deficiency of purchasing power; if the net result is a release of cash, then there is an excess of purchasing power.<br /><br />This account of the relation of the credit system to productive activity differs from that of Major Douglas in that it reaches the conclusion that an excessive demand is just as likely to occur as a deficiency. According to Major Douglas's theory there is a persistent and inherent tendency to a deficiency of demand. He has many hard things to say of bankers, but, if his theory is right, the deficiency of demand is not due to any fault of theirs; it is inherent in the system they are working. They stave off the tendency from time to time by an expansion of credit, but, he would say, it must inevitably recur unless the credit system itself is radically reformed.<br /><br />How would he reform it? I understand him to recommend the provision of credit free of the obligation of repayment that attaches to credit created by a bank. The proposal, in the tentative form in which he discussed it with the McMillan Committee, provided for crediting the purchasers of goods at retail with a proportion, say, one fourth, of the price charged by the retailer. Thus anyone who bought a car for £100 would receive a credit for £25, which he could pay into his banking account. The credit would be payable by the state in paper money.<br /><br />If the money spent on goods sold at retail amounts to £150,000,000 a month, then consumers would be able to buy one third more for the same money. If they spent as much as before, sales would be increased in that proportion and traders would receive £50,000,000 a month more than before. Goods to that additional value having been sold from stocks, the stocks must be replenished, and orders would be given to producers equivalent to one third increase in output.<br /><br />Suppose, as is probable enough in the present circumstances, the output can be increased by one third without overstraining capacity. The result will be an increase in the consumer’s income by one third. More people will be employed, and profits will be higher. We need not suppose that all the additional incomes will be immediately spent or invested. If we assume that £20,000,000 a month is added to consumers, balances, then the consumers’ outlay will be increased to £180,000,000 pounds a month. This will then be reinforced by consumers’ credits to the amount of one third or £60,000,000’, raising the total sales to £240,000,000 a month.<br /><br />Where is this process to stop? When industry is employed up to capacity, the additional demand can no longer be supplied by additional output, and it will begin to force up prices.<br /><br />It may be contended that under modern conditions productive capacity is so great and so elastic that it would never in practice be reached. But that is true of only a limited class of products, those to which mass production is applicable. When demand expands, one industry after another will reach capacity. The existence of a group of mass production industries, which can expand output almost indefinitely without any increase of cost price, will not prevent the rise of prices in all the others. And demand for the products of the former group will reach satiety at a time when it is still pushing up prices in the latter.<br /><br />In fact, the proposed consumers’ credits are nonetheless inflationary because they are applied to the reduction of prices. Inflation consists in an undue expansion of purchasing power, that is to say, of income. The rise of prices is a consequence, which may be alleviated by subsidies like the bread subsidy of 1919 period but that does not rectify the underlying disequilibrium. <br /><br />This is, of course, no more than to appeal over again to the conclusion already arrived at, that there is not, in fact, the chronic deficiency of purchasing power in which Major Douglas believes. But we can now see it from a different point of view. If the new money created through consumers’ credits and paid to traders does not return in the form of additional incomes, what happens to it? It must be retained by the traders. It cannot be extinguished, because ex hypothesi it is not issued by way of loan, but by way of free credit.<br /><br />But why should the traders hold any more idle money than they did before? Perhaps Major Douglas would say that the money must be applied for payment of those constituents of cost which do not generate incomes. If we grant, for the sake of argument, that such constituents of cost exist, the money comes into the hands of those who provide them. Will they hold it idle? There is no new fact to affect their behavior. They are paid for what they sell, but under the existing credit system they will likewise have been paid.<br /><br />Thus, even if Major Douglas were right, there would be nothing to impede the circulation of the new money created, and therefore nothing to prevent it from generating new incomes.<br /><br />Now a time like the present there is everything to be said for a device for generating new incomes and new purchasing power. The world is undoubtedly suffering from a deficiency of purchasing power. Major Douglas’s plan may rank with many others as one for inducing inflation. But, so regarded, it is no more than a temporary measure. When industry become once again remunerative and fully employed the consumers’ credits must stop. Otherwise there will be an unlimited expansion of incomes and rising prices. When Major Douglas appeared before the McMillan Committee, Prof. Gregory described his plan as one “to give all the population plenty of money,” and he assented. Professor Gregory then asked “up to what limit?” and Major Douglas replied: “Up to the combined limit imposed by the capacity of the industrial system to deliver goods and services conditioned by the willingness of the people to work for the time required.”<br /><br />This seems to imply a limit imposed by the capacity of the plant and the supply of labor, and it might be inferred that the deficiency of demand on which measure Douglas lays so much emphasis is only intermittent, and is remediable, and that, once the consumers’ credits have attained their object of making industry remunerative and fully employed, they can be dropped. But I do not think that would be reconcilable with what Major Douglas has said and written elsewhere.<br /><br />Closely associated with Major Douglas’s theory of the deficiency of purchasing power is his view that credit is something belonging to the community. That is the ground on which he defends the grant of free credits instead of repayable bank advances. Bank credit, it is said, is founded on real credit, that is to say, on the capacity to produce and deliver goods and services as, when, and where required, and that capacity has been created by the community. Individual effort has only been fruitful in virtue of its environment.<br /><br />This argument proves too much and too little – too much, because it touches private control of capital or profit just as much as private control of credit; too little because, however much the community may have contributed to the basis of credit, the question of control is one of practical expediency rather than of abstract right.<br /><br />The question of expediency is one which I do not propose to examine in detail. If we do not accept Major Douglas’s argument that the grant of free credit is essential to rectify chronic deficiency of demand, the question of the nationalization of banking falls to be discussed on familiar lines.<br /><br />One other matter I must refer to. Major Douglas advocates the creation of credits in favor of consumers, credits which he compares to dividends paid by the community in respect of its accumulated wealth or productive capacity. Consumers’ credits are by no means peculiar to him, and they are, I think, generally advocated as calculated to augment demand more directly and more immediately than credits granted to producers. In reality there is no such difference. When a producer borrows from a bank, it is never with a view to holding the money borrowed idle. He applies it without delay to paying the costs of production, and, and in so doing, he transforms it into income in the hands of consumers. Traders borrow, it is true, to pay the cost of buying goods already in existence from the stocks of other traders. But in general, when they do so the sellers pay off credits as fast as the buyers obtain them, and there is no net creation of credit at all.<br /><br />Moreover, when consumers receive credits and buy goods from traders, it is always possible that the goods may be supplied from stock and may not be replaced.<br /><br />Nevertheless, when, as at present, business is so stagnant and pessimism so predominant that it is difficult to induce traders to borrow at all, there is something to be said for taking exceptional measures to place new purchasing power in the hands of consumers. Whether any such measures can be devised which are really practicable and are not open to objections that outweigh their advantages, I need not stop to argue. It is enough to say that emergency measures of this kind, which are not even appropriate to all trade depressions, but only to those of exceptional intensity, are far removed from the plan recommended by Major Douglas.<br /><br /><strong>(End of Mr. Hawtrey’s opening Statement.)<br /><br /><br />MAJOR DOUGLAS’S REPLY.</strong><br /><br /> In replying to the able attack by Mr. Hawtrey upon certain aspects of my views, I am conscious of being in possession of certain advantages and subject to certain handicaps. Amongst the advantages I think I may fairly rank the fact that the theories which I have put forward do, in fact, explain the present position, which has become to be known as the “economic paradox” – a world which is overflowing with real wealth and yet has large numbers of its population upon the verge of poverty. Not only is this the case, but the actual concrete measures, more especially in regard to taxation, which orthodox financiers advocate through their political representatives, are reducing still more of the population to a condition and material poverty and economic impotency. The ordinary citizen cannot buy, and the manufacturer cannot produce, not for physical reasons, but for reasons which, by common consent, are purely financial.<br /><br />Further than that, the remedies which are put forward from official and orthodox sources seem to me to be a complete admission of my case. Both in this country and in America the spending on public works of large sums of money derived from loans created by banks is considered to be the only feasible method of meeting the situation to which I have just referred. Looked at from the financial point of view, this simply means the distribution of considerable amounts of purchasing power through the agency of wages and salaries, in respect of the production of things which are not expected to be bought by the public, at any rate in the ordinary sense of the word, and the purchasing power so distributed bridges that deficit and the amount necessary to purchase the goods which are produced through more ordinary channels of manufacture. This proposal seems to me to admit at once that the amount of purchasing power distributed through the ordinary processes of manufacture is not sufficient to buy the goods for sale, and that this purchasing power must be augmented from other sources which do not put fresh goods for sale upon the market. I may say at once that my objection to this proposal is that it can only be implemented by the creation of still further enormous debts to the banks, thus riveting the control of the banking system still more firmly on the shoulders of the population already suffering severely from this cause.<br /><br />The main handicap under which I suffer in replying to Mr. Hawtrey is that the difficulties of appreciating the true facts of the present situation is not so much intellectual as psychological. I am here tonight not so much in the role of an expositor as that of a de-mesmeriser and exorcist. The existing financial system is the living embodiment of the kind of faith which the schoolboy described as “believing what ain’t so.” It is, in fact, Black Magic. We use in everyday conversation all kinds of little phrases skillfully designed to suggest illusive interpretations of what actually goes on in the financial system, such as, for instance, that Mr. Jones is making money very fast. If Mr. Jones is a banker this may be literally true, but if Mr. Jones is anything else but a banker either it cannot possibly be true, or else if it does happen to be true, Mr. Jones will very rapidly find himself in jail as a counterfeiter. When we say that Mr. Brown is worth £100,000, or Mr. Robinson has been left £200,000 we suggest that at any moment either of these gentlemen is in a position to draw a check for approximately those sums. Once again, without the intervention of the financial system itself, and notably the banker, both of these statements are probably incorrect. What we mean is that it is possible that someone will give these sums for the property left to Mr. Robinson, or in the possession of Mr. Brown. It is quite possible that either Mr. Brown or Mr. Robinson may be very seriously concerned as to how he is going to get ten pounds to pay his next week’s hotel bill. All these misdescriptions intensify the confusion in the mind of the average individual between what we call “price values” and purchasing power, and it is of primary importance to keep the difference between actual purchasing power and price values very clearly in your minds.<br /><br />In order to emphasize his difference I should like you, first of all, to consider this diagram, Figure 1. At the top we see the bank, the money manufacturer, the only institution which, as such, actually manufactures money and destroys it. Mr. Hawtrey and I are in complete agreement about this, and in fact, I refer to Mr. Hawtrey’s lucid exposition of the technique of the process when I don’t want to explain it myself. On the left we have the goods manufacturer, whose function in the financial system, as apart from the physical production system, is that of a distributor of purchasing power, created by the banks, and an allocator of costs which include, but do not wholly consist, of money distributed by him. At the bottom we have the citizen in his dual capacity of earner and spender, and on the right we have the retailer who distributes goods but collects money, and returns it to the banks, whence it starts out upon a fresh cycle. I have shown the manufacturer and the retailer connected by a line to indicate that they are under a single proprietorship, so that the money collected by the retailer can be paid directly into the bank instead of going through the manufacturer’s book again.<br /><br />Now if we assume the deposits in banks to be constant, i.e., no inflation or deflation, and that the economic process is a continuous flow, a point rightly insisted upon by Mr. Hawtrey, three things must be happening. Firstly, the manufacturer must be distributing money to the citizen at a constant rate, secondly, the citizen must be spending it at a constant rate, which is equal to that at which the manufacturer is distributing it, and thirdly, the retailer must be paying it back to the bank at a constant rate equal to the rate involved in the two preceding transactions. Please note particularly that this is absolutely all that is required. It is not necessary to this process that all the goods which the manufacturer manufactures shall pass over either to the retailer or to the citizen. If the manufacturer makes 100 units of goods for 100 pounds, and the retailer sells 50 units of goods for 100 pounds, the conditions of the system as shown are satisfied. Before proceeding further, I should like to emphasize that the satisfaction of the kind of the condition described in the diagram is the basis of the existing financial system. It may be described either as the principle of the balanced budget, that is to say, that all outgoing shall be balanced by incoming, or it may alternatively be described as the postulate of the manufacturer, that all his costs, whether distributed or allocated, shall be recovered in prices. These two things are the same in intent. <br /><br />Let us now return to the manufacturer. He has no power of making money in the literal sense, but he has the prerogative of allocating costs. At this point please note that his allocation of cost can fall into three main headings at any moment. Firstly, 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 what he calls “profit,” and thirdly, the sum which represents the claim for debt, including semi- manufactures. I do not wish to go at the moment into the exact division of the allocated costs into profit and recovery of debt, or the justification for these divisions. I merely wish to establish that every manufacturer can and does both distribute costs in the form of wages and salaries and allocate costs which are not distributed as wages and salaries. These latter costs can only be distributed after he had sold all his goods, and collected both the distributed and allocated costs, and he does not distribute enough before they are sold to buy them. There is only one additional distribution to the public – dividends. He would obviously have to distribute simultaneously through the agency of dividends, etc., the average amount of the allocated charges, and apart from semi-manufactures, this average in Great Britain is probably between 125 and 150 per cent. and in the United States between to 250 and 300 per cent. It is only necessary to realize that the equilibrium to which Mr. Hawtrey refers would require the steady distribution by every single producing concern, probably not excluding farming, of dividends at the rate of 125 per cent. on turnover, or probably 500 per cent. per annum, to realize how far his contention is from representing the case. It is probable that the average dividend on industry does not exceed 2 per cent. It may not be out of place to remark that the increase in overhead charges in relation to direct charges is a direct measure of industrial progress. In Figure 1 the distributed costs are shown as A and the allocated costs are shown as B. When a product is transferred to the retailer its price is A + B, and as you will see from the diagram, the only distributed purchasing power is that represented by A, and since A will not purchase A + B, a portion of the product is obviously unsaleable.<br /><br />In this form the financial system is too flagrantly unworkable. We know it is worked after a fashion, and we have to seek an explanation as to what would make it work. I do not think that this is at all difficult. If you turn to the diagram Figure 2, you will see that I have added another factory working on exactly the same principle. The wages and salaries distributed by this second factory also go to the citizen in his capacity as earner and, of course, they increase his purchasing power. More money flows through the hands of the retailer, and more goods are sold, simply to the extent of the A payments made by No. 2 number two factory. Part of this money goes, as before, to provide wages and salaries for a new cycle of production, and part of it to cancel the allocated cost of Factory No. 1. and thence back again to the bank. You will notice, of course, that none of the products of Factory No. 2 have been bought. The wages and salaries distributed by Factory No. 2 have merely gone to purchase the previously unsaleable products of Factory No. 1. The product of Factory No. 2 must therefore be something which is not bought by the citizen, it must be either exported and paid for outside the country, or it must be paid for by adding still another factory onto the chain and charging its expense to capital, thus creating additional debt. This is the explanation of the facts with which we are all familiar as a fact, that the existing financial system works comparatively well in a period of continuous expansion or where the product is continuously destroyed, as during a war. But that each of these boom periods creates a mass of debt which makes a still more serious slump inevitable is beyond dispute.<br /><br />There is a great deal more to be said on this subject, and I have elaborated it considerably in my reply to Professor Copeland, of Melbourne, and Professor Robbins, of the University of London. The whole of Mr. Hawtrey’s attack upon my views rests, I think, on a denial of the general proposition, which I do most distinctly make, that there is an inherent defect in the financial system as it is worked at the present time, which persistently tends toward a deficiency of effective demand as compared with the total prices of the goods produced. When Mr. Hawtrey says that it is possible to have an excess of demand, I think what he means is that it is possible to have an excess of demand for consumable goods, in which I agree with him. It is possible to have this excessive demand by making a large quantity of goods which are not intended to be sold to the public and using the purchasing power distributed in making these goods to buy consumable goods. That happens in wartime. I do not regard it as being a sane system that before you can buy a cabbage it is absolutely necessary to make machine gun, whether or not you want a machine gun. I should further claim that, for reasons which will be quite apparent to anyone who will examine the diagram to which I referred, and the arguments which accompany them, that the inherent defect is a cumulative defect, and that every temporary rectification along the lines which, apparently, are the only lines to which our financial authorities would agree, makes the subsequent crisis both more inevitable, more profound, and more certain to come at an even shorter interval than that of the preceding crisis.<br /><br />Now it is perfectly true that the soundness of the remedy which I propose rests on the fact or otherwise of this deficiency. If there is no shortage of purchasing power as compared with prices, it is quite certain that we do not want or require to provide more purchasing power, and conversely if there is a shortage of purchasing powers compared with prices we do want to provide more purchasing power. My contention is that with the normal production of capital equipment which is required for its own sake, as distinct from a mere device to distribute purchasing power, the amount of purchasing power available to buy consumer goods is far inferior to the price attached to those consumer goods by the normal process of manufacture. As one might say, the industrial process provides 100 penny buns but only fifty pennies with which to buy them. The remedy is clear, and that is to sell the 100 buns for fifty pennies, that is to say one half-penny each instead of one penny, and to make up the capital charges at the point at which they are allocated by issuing to the allocator of capital charges the other 50 pennies. This is, of course, a very crude description of the process, which has been much elaborated elsewhere, but in fact that is what it comes to. To say that this is inflation, is to my mind completely to misconceive the meaning of the word “inflation.”<br /><br />Turning now to Mr. Hawtrey’s specific comments, he says (column 1, page 268) [page 2, column 2 above] that apparently I say that the price of the boots includes the price of the leather twice and the price of the hide three times. This is far from my meaning. What I do say is that by the passage of one unit of purchasing power through the costing system repeatedly, several units of price values can be created without creating fresh purchasing power. The full explanation of this process is given in my evidence before the <a href="http://www.scribd.com/doc/19207513/CH-Douglas-Evidence-MacMillan-Committee-1930-">MacMillan Committee</a>, sections 4498 – 4501. As this is vital to an understanding of the situation, I will repeat these replies here.<br /><br />“Suppose first that I have £1000, and I pay that £1000 pounds away for the purpose of having a house built. We will imagine that the whole of the £1000 goes in nothing but wages, which does not in any way affect the argument, and we will also suppose that by doing work on something else the workmen could live and save all that they earned by house building. Suppose now that the workmen who built the house, who collectively would have my £1000, decided to buy the house, and I agree to sell the house for £1000. Notice that no question of profit rises. The workmen now have the house, and I have my £1000 back again. In other words, the workmen have obtained the house merely by working for it. But these workmen would express it by saying that they had paid £1000 for the house. I am now out of the transaction altogether, and we will suppose I and my money removed to another planet, or we can suppose that I tore up the money which was returned to me (which is the equivalent of the repayment of a bank loan). Suppose now that the workmen decide to use the house to make and sell shoes. If they carry on the business on orthodox business lines the cost of the shoes will consist of at least three items: (i) wages, (ii) raw materials, (iii) rent of factory, i.e., house. We will suppose for the moment that they get their raw materials for nothing, and that the “Rent” of the house is nothing but an appropriation of money of such amount that when the house eventually falls down they will have got back their £1000. It is technically called “depreciation.” Since the public gets the shoes, clearly they ought to pay “depreciation.” Notice, therefore, that neither interest, i.e., “usury” nor dividends, nor land monopoly are imported into the question. But the simple and vital fact remains that the wages paid during the production of the shoes are less than the price of the shoes by an amount large or small, which is added to the cost of the shoes before the shoes are sold, representing, at least, “depreciation.” This amount, which is added to the cost of the shoes, represents overhead charges in their simplest form, and in many modern productions overhead charges are between 200 and 300 per cent. of the direct cost of the product. It is not profit. Suppose in the instance given above that having sold my house to the workmen I had used the £1000 to build another house, with which I had repeated the identical process. Once again I should have got the same £1000 back again; once again the workmen would have got into possession of the house, merely by working for it; once again they would have created an overhead charge on anything they manufactured in the house of £1000; and although there would only be £1000 of money in existence in respect of the production of the houses there would be £2000 of prices created in respect of the two houses which would have to be recovered in the price of something sold to the public, and the amount of money and purchasing power would be exactly what it was before the houses were built.<br /><br />In col. 1, p. 269, [page 3, column 1 above] beginning at the words: “The accumulation of the essential capital equipment” and ending at “the goods placed on sale,” 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. Mr. Hawtrey objects to certain of my comments on depreciation, and I think he confuses depreciation with maintenance. Maintenance, if properly carried out, means that there is no depreciation, which is the situation covered by the building of the second house in the illustration. There may be obsolescence, to which he refers by implication when he says that it may have to be replaced by plant of greater efficiency. This means appreciation, and the difference between net obsolescence and appreciation is net increase in capital value. I think much the same confusion is evident in Mr. Hawtrey’s remarks that when anything is brought into use in production, the seller is likely to invest the proceeds of the sale. There is nothing in this which increases the amount of purchasing power available. He then says that the capital equipment enters into cost in the form of maintenance, depreciation and interest when it has been completed and is being used. To reckon it as an item of cost also when it has been constructed is to count it twice over. It seems to me to be obvious that if the purchasing power distributed during its construction was used in buying consumable goods, then the purchaser of consumer goods paid for the capital equipment at the time that it was constructed, as in the case shown in Figure 2.<br /><br />In column 1, page 271 [page 4, column 1 above], Mr. Hawtrey seems to recognize this, but says “that if it does no deficiency of demand is caused.” “The production of new capital itself, whether it be plant or stocks of commodities, generates incomes equal to its cost.” This is, of course, not the case, since the allocation of costs in excess of sums distributed as purchasing power takes place in the factories in which the capital goods are produced in exactly the same way as in any other factory. In column 1, opposite, Mr. Hawtrey says that “Foreign trade introduces a complication, but does not materially modify the general principle.” I should disagree with Mr. Hawtrey here. The exports of actual goods takes those goods out of the home market in return for paper tickets, in the form of bills of exchange or otherwise, which augment the purchasing power in the country to the same extent that actual wealth has been taken out of the country. In this way export counts twice in redressing the balance between prices of goods for sale, and purchasing power. That is why export trade is so important to the financial system as it is at the present time. But the physical meaning of the transaction is that goods are given away for nothing. We are all familiar with the idea that exports are paid for by imports, but if that were true, it is an extraordinary thing that we put tariffs on to keep imports out. In column 1 of page 273 [page 4, column 1 above] Mr. Hawtrey makes a remark which I regard as of primary importance. He says, “If his theory (that is, mine) is right, the deficiency of demand is not due to any fault of bankers but is inherent in the system they are working.” I absolutely agree. It is the inherent defect in the system which renders the monopoly of credit, that is to say, the power of creating fresh purchasing power, of such tremendous importance, and my chief complaint against the bankers, such as it is, is that in showing such determination both to maintain the system and to stifle public criticism of it, they assume responsibility for an defective system. The final criticisms of Mr. Hawtrey’s paper are directed to the more abstract questions of the true ownership of public credit, and administration of industry. These subjects are of quite fundamental importance, but to deal with them adequately seems to me to be outside the possible scope of the present debate. I can assure Mr. Hawtrey that there is nothing that would give me greater pleasure than to debate these subjects with him at considerable length, and if at any time he finds that his engagements permit him to do this, I trust that he will allow me that opportunity.<br /><br /><strong>(End of Major Douglas’s opening Reply.) <br /><br /><br />MR. HAWTREY’S CLOSING STATEMENT</strong><br /><br />[Here followed the interval for discussion, at the end of which the Chairman called upon Mr. Hawtrey.] <br /><br /><strong>MR. HAWTREY: </strong>Mr. Chairman, Ladies, and Gentlemen, I am very grateful in the first place to Major Douglas and also to the various speakers for the very interesting and thorough commentary on my opening remarks.<br /><br />It would perhaps be almost too much to try to answer everything, even to answer everything in Major Douglas’s excellent and interesting paper, but I will deal with what I regard as the most important points.<br /><br />Major Douglas opened by referring to the economic paradox, poverty in the midst of plenty. That is a point on which I think he and I are at one in that we should both attribute the paradox to a shortage of purchasing power. The difference between us, as I pointed out in my opening paper, is that whereas he regards the deficiency in purchasing power as inherent and persistent, I regard it as intermittent. I believe it alternates with an excess of purchasing power, and that if it is not quite correct to say that the excess or deficiency is in each case wholly caused by the banking system, I would, at any rate, say that it is within the power of the banking system to correct either excess or deficiency in time, and therefore to avoid a recurrence of trade depression, not only of trade depression such as we are experiencing at the present time, but of the milder trade depressions, which were a familiar feature in the nineteenth century economic system, and earlier still.<br /><br />Now you will remember that in my paper I argued that Major Douglas was mistaken in finding items of cost which do not represent incomes. I dealt separately with the question of raw materials and semi-manufactures on the one hand, and with various capital items, such as maintenance, depreciation and extensions on the other hand.<br /><br />With regard to raw materials and semi-manufactures, Major Douglas says that I was mistaken in supposing that he meant – to take the example I quoted – that hides appear three times and leather twice in the cost price of boots to the consumer. He says that he does not mean that they appear more than once in the price to the consumer, but that they occur in the price values, which includes, I think, the price charged by one trader to another.<br /><br /><strong>MAJOR DOUGLAS:</strong> The fact of one unit of purchasing power recurring a number of times to the costing system produces an additional price value each time it passes through, so that you have an additional price value.<br /><br /><strong>MR. HAWTREY:</strong> I am still quite in the dark as to whether the value of the hides appears three times and the value of the leather twice in the price at which the boots are sold to the consumer. I cannot see any other interpretation possible of what Major Douglas says.<br /><br /><strong>MAJOR DOUGLAS:</strong> I should like to clear that up. There is a very real difference. I can very easily appreciate the difficulty of appreciating the difference.<br /><br />I do not say that the price of the hides appears two or three times in a pair of boots. What I do say is that you can make three or four pairs of boots by the existing process without distributing more purchasing power than is necessary to buy one pair of boots. That is not the same thing as saying the price of the hides appears three or four times in one pair of boots. I say you can produce three or four pairs of boots, having only the purchasing power available to buy one pair of boots.<br /><br /><strong>MR. HAWTREY:</strong> With all respect I venture to say it is exactly the same thing whether the price of the hides appears three times over in the price of four pairs of boots or in the price of one pair of boots. If it is a fact that the boots have to be sold at such a price that four pairs of boots include the recurrent value of the hides – (Interruption).<br /><br /><strong>THE CHAIRMAN:</strong> Ladies and gentlemen, it will be of great assistance to the clarifying of the difficult points on which we are engaged if you will give your quiet attention to what is happening on the platform. It is quite impossible to carry on a discussion on the level which we are attempting here if you are not going to give your serious and quiet attention. I must ask you to exercise considerable restraint. I would prefer you to keep perfectly silent while this discussion is taking place and imagine you are listening to a broadcast discussion. Will you please allow the discussion to go on without any interruption either by laughter or by comment so far as you possibly can.<br /><br /><strong>MAJOR DOUGLAS:</strong> The point, very subtle point, I am trying to make is this. The whole of the objection to the present state of affairs as I see it is that it inevitably makes more things than can be bought. That is the point I wish to make; that by a process by which a given amount of purchasing power which ex-hypothesi is controlled up at the bank, so far as the normal system is concerned, there is a constant circulation of purchasing power starting with the bank, going through the producer, through the retailer, and back again. Now for the sake of this argument, and this is, of course the normal way of looking at these things, the point is that the amount of goods which can be bought at, let us say, a given price level is solely conditioned by the volume of this stream (diag. 1), or if you like to put it more correctly, the cross-sectional area of the stream, and that cross-sectional area, if you imagine it to be kept constant, will automatically require the production of a surplus of unsold goods. That is the point.<br /><br /><strong>MR. HAWTREY:</strong> I am very grateful to Major Douglas for his further explanation, but I must confess that it seems to me to be simply begging the question, because my argument was that every item that does appear in the cost of the goods sold to the consumer can be identified with incomes paid out. You will remember that for the moment, I am now discussing Major Douglas’s point with regard to raw materials and semi-manufactures. So far as those classes of goods are concerned there can be no discrepancy caused between the selling value of the goods produced and the incomes that arise in the course of their production unless some such phenomenon as a duplication of the value of the materials in the price of a final product is involved. If there is no duplication and if each item appears once and once only, the hides appear once only and the cost of the operation supplied by the tanner to the hides appears once only, and the manufacturing operations applied by the bootmaker to the leather appear once only, and so on, if this is the case then there is no discrepancy arising from raw materials and semi-manufactures. Of course Major Douglas’s illustration and his diagram are based on the assumption that there was such a discrepancy, but he has completely failed to put his finger on the source of it.<br /><br />Well, now, there remains the other side of my argument –- that relating to the maintenance, depreciation, renewal and extension of fixed capital. There are a number of points that Major Douglas made in relation to that.<br /><br />In the first place he said that my argument was based on a confusion between maintenance and depreciation, and he went on to explain that if there is adequate maintenance no replacement is necessary. I do not think that is correct, because, however perfect maintenance of plant is, there would obviously be certain types of plant that would not last forever. A time comes at which the wear of parts or some other form of deterioration is such that replacement costs less than continued maintenance. Depreciation, in the sense in which I used it, is a very real item of cost, and it takes a concrete form in the actual construction of the new plant to replace that which has to be scrapped. Major Douglas recognizes that obsolescence is also to be allowed for. He spoke of obsolescence as if it necessarily led to the substitution of more costly for less costly plant. That is not necessarily so. I did refer in my paper to the contingency where it is so, but you may quite possibly scrap a more costly plant in favor of a less costly, which has been invented since the old plant was first installed. I think that perhaps the best way in which I can reply to Major Douglas’s arguments in regard to depreciation would be by reference to his own example of the house. He supposes that a house is built at a cost of £1000 and that it becomes the property of the workmen who actually constructed it. And he supposes that it is building used for industrial purposes and that the depreciation of the house is charged in the price at which the goods produced are sold to the consumer. But he left out the replacement of the house altogether. He supposes that during the manufacturing process the depreciation money is accumulated in the form of money and not spent. Now that is the case I did refer to my paper. I pointed out that when depreciation is accumulated in the form of money, of final cash balances, that fat causes a deficiency of purchasing power. Likewise I pointed out that when savings are accumulated in the form of idle money there is a deficiency. There is a deficiency when goods are sold out of working capital, and the proceeds are held idle. All these are contingencies which would by themselves produce a deficiency of purchasing power. But I pointed out that the question of whether on balance there is a deficiency of purchasing power depends on all such items pooled together. You cannot say that a particular individual who is accumulating idle cash is causing a deficiency of purchasing power when his neighbor is releasing cash, so that the demand emanating from the two together is exactly equal to their incomes. As I explained before, I regard the functions of the bankers shares in regulating credit as being fundamentally directed to inducing what I call the release or absorption of cash in the first case causing an excess and in the latter a deficiency of purchasing power. Major Douglas also referred to my argument that, when money saved out of income is applied to the construction of new fixed capital, incomes are generated to the construction of the capital goods, and no disequilibrium is caused. Of course as I pointed out, if people save and hold the money idle that, so far as it goes, tends to cause a deficiency of purchasing power; but if instead of holding the money idle they spend it on the construction of new capital goods to which they become the owners – they may be direct owners or they may be shareholders or bondholders with rights of participating in the capital enterprise – when they spend their money in that way there is no loss of equilibrium because their purchase of capital goods is demand in exactly the same degree and in the same sense as their purchase of consumable goods would be. When you buy shares in a new capital enterprise you are passing on your money to the producers of capital goods represented by those shares, just as when you are buying a hat you are passing on your money to the producer of the hat, so that insofar as that money that is saved is invested in new capital goods there is no deficiency of purchasing power caused.<br /><br />Major Douglas suggested that when people are engaged in constructing capital goods and use incomes they derive from that process to buy consumption goods there is in some sense a sterilization of purchasing power, but there he is, I think, completely mistaken. This process by which people exchange their services through the medium of their incomes for capital goods is exactly analogous to that exchange of their services through the medium of their incomes for consumption goods. Therefore you will see that the different types of outlay that are connected with fixed capital all generate incomes in just the same way as the outlay on consumption goods. There is in fact no point at which there is a shortage.<br /><br />Now, in what I have just been saying I have, of course, made no reference to the time element, but that in no way invalidates what I have been saying because, as I explained in my paper the only condition for equilibrium between demand and supply is that incomes available to be spent within an interval of time should be covered to the goods produced for sale within the same interval. It does not matter how far those incomes are connected with the production of those particular goods, or with the goods which are coming in on sale later, or how far the incomes that are occurring during the interval are applied to the purchase of goods produced before. Provided that within the interval you get a balance between goods and incomes, there is no excess or deficiency of purchasing power. An excess or deficiency may be caused by the release of cash or the absorption of cash, and the banking system may be responsible for that release of cash or absorption of cash. I may remind you that in my paper I use the expression “release of cash” for the case where the payments out by traders to the people whose incomes they pay exceed their receipts. On the other hand the absorption of cash means an excess of the traders’ receipts over their other disbursements. That excess of receipts over disbursements means that we are laying up the proceeds of sale of goods, and preventing all those proceeds of sale from becoming incomes, and there you do get a deficiency of purchasing power.<br /><br />There are one or two smaller points which I think I ought to mention, I am afraid when I said that “incomes arise out of production,” Major Douglas misunderstood me. I mentioned that as one of the matters in regard to which he and I are in agreement. I do not for a moment mean to imply dissent from the statement that he makes, that, or in order that the incomes may be generated by production, the banks, under our existing system, must supply the necessary money. At the same time I expressed agreement with him on the former point, I also said I agreed with him in thinking that the banks create money. I think that he is mistaken in supposing that there is any real difference between us there.<br /><br />Then I must refer to his statement that equilibrium would require dividends at the rate of 125 per cent. Of course, when he makes that calculation he is once again, I should say, begging the question. If he was right that there were all these allocated costs which did not materialize into incomes then some calculations of that kind would be in point. It is not exactly consistent with the 25 per cent consumers’ credit that he advocated before the Macmillan Committee. On the other hand you will remember the 300 per cent indicated by Mr. Orage in one of Major Douglas’s earlier books; that consumers’ credits were to be three times what the consumer spent out of his own pocket. But all these calculations, of course, represent nothing more than the calculation of the A + B theorem on the assumption that is correct. Apart from the arithmetical calculation in that case I want also to refer to what Major Douglas says with regard to “dividends.” He points out that it is only certain items, wages and salaries that actually accrue before the goods are sold; that everything else, the other constituents of cost, do not become available until then. I think that when he says that, he is doing less then justice to his friends the bankers. <br /><br />Their function is to make available the incomes at an earlier stage than the final sale of the product. It is through their intervention that it is possible to pay wages and salaries in advance of the sale. And, moreover, it is not in all cases that the bankers have to intervene for the purpose; in some cases the necessary funds are provided by the permanent capital of the concern. All the complications arising from the succession of these items of cost in time are covered by the general formula which I used further back as to the incomes accruing, and the goods placed on sale within an interval. I am afraid I am going on too long, but I ought just to refer to one or two questions put, and some interesting speeches made from the body of the hall.<br /><br />First of all there was the point several speakers referred to with regard to my statements that control not only of banking but of capital and profits was a question of expediency, rather than of abstract right. It seems to me that some of the speakers have not quite understood what I said. For instance, Mr. Hickling asked whether it was expedient to continue the existing economic system when 3,000,000 men are unemployed. But surely that is a question not of abstract right but expediency. The question is whether it is expedient that we should all have all the appalling incidents of trade depression. It is inexpedient. But it is no use saying that the remedy for unemployment is to be decided by the question of whether capital equipment and the profit earning capacity of the country are the property of individuals, or the property of the community. It may be in itself a ground for nationalizing all those enterprises, but it throws no light on the question of how to get rid of unemployment. I adhere completely to what I say, that the question of the control of all those functions is one to be decided on grounds of expediency.<br /><br />Another speaker said that we produce to live; that we produce for the purpose of a healthy and satisfactory existence. That is a matter of expediency. You may say that a man has an abstract right to a healthy and satisfying existence, but I can see no reason why he should have such a right unless it is “expedient” that he should have a healthy and satisfactory existence.<br /><br />There was another speaker who referred to the profits of banking, and he induced the Scotch banking system is an example of how to conduct such a business on sound lines. Apparently everyone here thought it perfectly monstrous for banks to make 10 per cent. profit. Now, as a matter of fact, I think there is very little reason to suppose that the big profits made by banks (not only 10 per cent. profits but the much bigger profits that many banks make) are really any higher than the profits made by many industrial and commercial concerns are; and in many cases you have not the means of calculating what the profits of industrial or commercial concerns are; and in many others, where the profits are known, the extent to which the capital is watered and is not realized. I think it is a complete mistake to hold up the bank so to obloquy because they make a profit which is, after all, not exorbitant if you set against it the very substantial number of banks which have gone under altogether in the past. It may be there is much to be said about the nationalization of banking on the ground, for example, that banks tend to become a quasi-monopoly. I deliberately left that on one side in my paper. I did not want to pursue the point.<br /><br /><strong>THE CHAIRMAN: </strong> Ladies and gentlemen, I will now call upon Major Douglas to wind up the debate.<br /><br /><br /><strong>MAJOR DOUGLAS’S CLOSING STATEMENT.</strong><br /><br /><strong>MAJOR DOUGLAS:</strong> Mr. Chairman, Mr. Hawtrey, Ladies and Gentlemen – If everyone in this hall has enjoyed listening to Mr. Hawtrey as much as I have, I feel quite sure that you have all enjoyed yourselves very much. I think it has been most interesting and illuminating to all of us. Now the first point that Mr. Hawtrey raised was where did the source of this discrepancy arise? I will deal with that in one minute. I should like to deal with what is practically his last point first, because it makes it easier to deal with the first point.<br /><br />It is perfectly obvious that the whole of this question really depends on the question of fact. If you string out those factories (diagram 2) indefinitely, to represent all the factories in this country, is it a fact that all of those making a profit at any moment can be found to be allocating charges which they do not distribute? It is most unquestionably a fact. That is the way in which every factory is run. The question of what is the actual percentage of those allocated charges which are being collected simultaneously in every factory so that the price values of the goods which are being produced in that factory are in every case of a profit-making concern in excess of the sum which is being distributed in wages and salaries, is a question of fact. That is the case in every factory. Now the question of the figure is a question of opinion, but I think it must be very obvious that whatever the figure is, it must be represented by that percentage of dividend, because there is no other way, excluding exports, of distributing purchasing power that I am aware of, except wages, salaries, and dividends. I include in “dividends” such things as interest, and things of that sort.<br /><br />The average rate of distribution on turnover must be the same as the allocated charges or else those allocated charges cannot be met. That seems to me to be quite self- evident. The question of the actual figures as to whether every factory, in order to satisfy this condition, ought to pay 100 per cent. or 125 per cent. is a question of figures. There are a great many complications coming into that, and I have dealt with them elsewhere, but as to the fact, it seems to me absolutely unassailable.<br /><br /><strong>MR. HAWTREY: </strong> I think it possibly might help if I put a question. My question is: Who are the recipients of these allocated charges; and, secondly, when you put your finger on the recipients can you be sure that they are not intermediaries passing on the money in the form of salaries and wages?<br /><br /><strong>MAJOR DOUGLAS:</strong> There can be no recipients of the allocated charges unless they are collected from the public first. That is the whole point. The allocated charges simply represent a claim upon the public which can only be met by the distribution of purchasing power at some source which is not in wages or salaries. If you have a distribution of purchasing power from additional sources equal to the amount of allocated charges, then the goods which are represented by those allocated charges could be bought. The allocated charges, as charges, are not received by anybody, they are simply tickets hung on the goods, and in order to buy these goods you must have something representing, not merely wages and salaries, but something which I can only describe as dividends equivalent to the amount of the allocated charges. <br /><br /><strong>MR. HAWTREY:</strong> I am grateful to Major Douglas, but he has not in the least met my point. It is quite a mistake to suppose that any producer is required to include in his costs some bookkeeping entry that never materializes at all. If he has got to include the provision for depreciation, for example, in his costs it is because he has got to spend something sometime. He has got to replace his worn-out plant. The depreciation is not in respect of what he has spent, it is in respect of replacement in the future. So far as what he has spent is concerned, what he has to spend is interest and maintenance. If you take the case of something that maintenance will keep efficient for ever so that no provision has to be made for replacement, why then he makes no bookkeeping entry for depreciation at all, or if he does, it is a nominal entry and one which he knows has no other function except as a small additional saving or payments to reserve for the financial strengthening of his business. The only case in which he need make any charge in the price of the goods he sells on account of depreciation is a case in which he is faced with the prospect of having to spend money on capital replacement, and when he spends the money all he has put in the depreciation account has to pass out in the form of other incomes to the people whose services contribute to produce new capital. Here you have, I think, what is the root of the matter. Major Douglas believes these are entirely fictitious items of cost. I contend they are not fictitious. They materialize, because they turn into costs in the usual sense. They are incomes, paid for services rendered. That is the real solution, and that applies to all items of cost. The complication that arises is when the items of cost are distributed through time. I dealt at considerable length with that, and I think it is a satisfactory solution.<br /><br /><strong>MAJOR DOUGLAS:</strong> I will put a question of fact to Mr. Hawtrey. Will he show me any factory in which the sum of the wages and salaries and dividends spread over – we won’t bother about the dividends being distributed at the end of the year – in which the sum of the wages, salaries and dividends is equal to the price that is produced in the same period of time? It is impossible to show me such a thing. If you will string out those factories into any number of factors you will find that every one of them is allocating charges which can only be recovered through price, and collectively they can only be recovered through price by the prior distribution of the total amount of the sums allocated. If it is true, and it is true certainly in a number of cases, that the allocated charges are, let us say, 600 per cent. or something of that sort, that is, perhaps an exceptionally high figure, as in stamping plant, but it does occur. If you are going to get that 600 per cent. out of the public you have to get it by distributing it first of all, otherwise it becomes a debt against industry. We come now, and I think I can make my point clear, to his first point, and that is the source of the discrepancy to begin with.<br /><br />The source of the discrepancy to begin with is in the process of investment. Supposing there was none of this discrepancy to begin with, that is to say, if we start from zero, if you have a certain amount of money which has been distributed through the process of creating costs, and quite indisputably the goods having the price values representing the amount of the money saved can not be sold again or bought. I think you have admitted that.<br /><br /><strong>Mr. HAWTREY: </strong>I am sorry to interrupt again. No, I say that if money is saved in an interval of time, then it is not held in the form of idle money, but is applied to investment, that is to say, on outlay of new capital goods, there is no disturbance of equilibrium whatever.<br /><br /><strong>MAJOR DOUGLAS: </strong>That is the whole point. I want to split that statement up into succeeding stages. Let us say as a physical fact that in the city of Birmingham £100 in wages are distributed this week and that £50 of those are saved. The goods which were produced during this week would have at least £100 of cost in them without going into the question of allocating cost at tall. Quite obviously, if you save £50, that £50 of goods which are represented by the savings cannot be bought at the moment. Now then, supposing you apply that £50, not to buying those consumable goods, but to create some more capital goods, and making those capital goods and £50 will undoubtedly go out again into the consumer's market, as you yourself explained, and the consumers’ goods, the original consumers’ goods, can now be bought. The deficiency has been restored, but you have capital goods to the extent of £50 against which there is no distribution of purchasing power as described by that process (Applause.) <br /><br />Now those capital goods are regarded by the people who own them – and have paid out for them – saved the money, the actual purchasing power, and have paid out that purchasing power for the construction of those goods – they regard them as the equivalent of that £50, and eventually that £50 has to be recovered from the public, either in the form of interest, or depreciation or other things. My point is that £50 does not exist in purchasing purchasing power.<br /><br /><strong>MR. HAWTREY:</strong> My first comment on that illustration is that the £100 being paid in wages would include so much wages as are being paid at that time for the construction of capital goods. It may be that, to start with –- assume it only – the whole £100 are being spent on wages arising out of the production of consumption goods. On that assumption, suppose that the wage earners started saving half of their receipts, so that the demand for consumption goods shrinks by half, and there is an entirely new demand of £50 for capital goods. That is the illustration, I think.<br /><br /><strong>MAJOR DOUGLAS:</strong> May I protest against the use of the word “shrinks”? You have already made the consumable goods, otherwise the purchasing power would not have come into the hands of the public to be saved.<br /> <br /> <strong>MR. HAWTREY:</strong> The production of consumable goods is going on concurrently, and the particular moment comes at which, although the production of consumable goods is proceeding at a rate of £100 per week, half the demand for them suddenly vanishes owing to the fact that the wage earners are beginning to save half of their incomes. Well, at that moment, there arises a demand for capital goods of the value of £50. That demand has to be fulfilled somehow or other by the diversion of productive power into the production of capital goods. Of course, it may be that the industry is underemployed, and that you will give new employment in the production of capital goods and throw part of the workmen producing consumption goods out of employment, or, alternatively, it may be that industry is fully employed, and that people hitherto employed in making consumption goods have to be diverted to the production of capital goods. But whichever happens, there is no loss of equilibrium between demand and supply as a whole. This is a particular case of the contingency I referred to in my paper where there is a change in the proportion of demand applied to consumption goods and capital goods, respectively, but there is no shortage or excess of demand as a whole. I think, if I understood Major Douglas’s illustration rightly, that meets his point. You change to a new state of equilibrium where £50 of consumption goods and £50 of capital goods are balanced by equal demand for each category. The process of change will undoubtedly involve dislocation. Everybody is quite aware that sudden economic changes of any kind involve a certain amount of loss and distress. That is not the point. There is no shortage of demand as a whole.<br /><br /><strong>MAJOR DOUGLAS: </strong> I am afraid that the only way in which people would save £50 would be that they should have already got it through the process of production. Therefore they must have made something which they saved by refraining from buying. When they allow that £50 to be used again to produce something else, the original £50 of price values which they did not buy still remains, and new price values by the use of the £50 again were added to them. That, I am afraid, is how I must leave that. The same question really comes up in connection with Mr. Hawtrey’s second point, and that was that I did not allow for the depreciation in the example of the house. That is just exactly what I did do. That is why I brought in the second house. When the first house was built, you remember the money was returned to the original provider of it, and in the first illustration he was supposed to have torn it up, so that there was the house of the value of £1000 but no money. Now the people who used that house for making boots and shoes charged, in one form or another, that £1000 into the price of the shoes, because, they said, they had paid £1000 for it. Now, if, instead of tearing that £1000 up – which, as I said, is the equivalent of returning it to the Bank – they had built another £1000 house, and the workmen had bought it again in the same way, they would have carried out exactly the process which is involved in replacing something which you are depreciating by a financial process, and you would have used the £1000 again to build a second house which was to replace the first house. But that would not get over the fact that with £1000 of actual purchasing power you have produced two houses, each valued at £1000 pounds, and the value of both these houses has to be recovered in the price at which the goods are sold.<br /><br /><strong>MR. HAWTREY:</strong> As you now explain your illustration, you are supposing that the workmen charge for depreciation for the use of the first house, but when the time comes to build a second house, the first house does not require to be replaced. Therefore, the depreciation fund does not have to be used to build a second house. It is only necessary to charge depreciation on the first house with a view to replacement when necessary, and the assumption is that the house is not replaced. But if it were replaced, then, what I said earlier on would apply, that is to say, that the charge for depreciation represents a charge which materializes in the payment of incomes in the form of wages salaries and dividends, and so forth, when replacement actually occurs.<br /><br /><strong>MAJOR DOUGLAS: </strong> Well, I think I can only repeat the explanation, so that I will leave it at that. I have myself no doubt, and I feel sure that if Mr. Hawtrey reads that explanation over he will agree later that it is possible to have a repeated production of price values by using the same money over and over again.<br /><br />Now the question of the effect of overheads I dealt with before. I entirely agree with Mr. Hawtrey – as I agree with him on so many points, and I feel sure ultimately we shall probably agree on most points – that the whole question is a question as to whether incomes in a given period of time equal the price values which are produced in the same interval of time. I should myself – subject to going into the details on all the points Mr. Hawtrey raised, say that in his illustration of how he made the incomes equal to price values, he brought in a great many factors which do not occur in the same interval of time, and the whole essence of that is the question as to whether they do occur in the same interval of time. If they do not occur in the same interval of time then it has to be proved that they occur as a plus sign at one point, and as a minus sign at the other, and that, so far as I know, is impossible from the actual facts of industry. Now I think those are the only points raised by Mr. Hawtrey.<br /><br />A question from the body of the hall was, whether the general ideas I have put forward would work with industry organized at present on titular private ownership. Would they work under those conditions? The answer is quite certainly. No question of change of administration is necessary. I entirely agree with Mr. Hawtrey in the sense he meant it himself, that the administration of industry, which may or may not involve the titular ownership, is entirely a question of expediency and that has nothing to do with the question of the distribution of the product. The question of the administration of industry is quite a different one from the distribution of the product, and the distribution of the product is, in my opinion, entirely wrapped up with this question of credit. Then someone asked whether I had any views on the control of France. That really comes into the realm of detailed schemes, and the only detailed scheme which I have so far put forward is the one which is known as the scheme for Scotland. That is available to anyone who is interested, and you will see that a number of points are brought up in that which do not appear to have anything to do with this credit question, but which do bear on the question of the ownership of land and the administration of land. But I think that they are too elaborate and outside the scope of tonight’s proceedings to be dealt with now, and I would refer that particular inquirer to that particular scheme for the answer to that question. It is, as a matter of fact, being published in a well-known weekly review this week. It has been published, of course, before. One inquirer asked how would this process be shown in the budget. That enables me to raise a point which has not really been touched upon very much tonight, and which is really at the real core of the whole of this matter. I think Mr. Hawtrey and a good many speakers in the hall – not all of them – have assumed that the industrial system is what it was, let us say, at the time of the Scottish banks. The very core of this situation is that the industrial system is not in that condition, that more and more the industrial process is simply a process of power production, and these allocated costs, of which we have heard so much tonight, are really, if you like to look at them that way, the payment of the machine, and the whole question of accounting has to bear in mind that the productive process is very largely a power process. Now that has a very vital bearing on the question of accounting, this credit process that we have been dealing with, in the National Budget. The National Budget proceeds on this idea. They all know perfectly well – this is quite a think, beyond dispute – that we are told that the first vital point is to balance the budget. That is the process by which is shown there (Diagram I) of balancing the budget. Now my contention is that in the first place it is not in the least necessary to balance the budget, and in the second place that balancing the budget is not a true reflection of the state of things that is taking place; that actual capital values in this country, in the true sense of the word, are even at the present time increasing steadily, and that if financial restrictions were taken off they could be increased very much faster; therefore that you ought to write up the capital values of the country every year, which would mean that you would pay out from the outgoing side of the credit system – whether you consider it allocated in the Bank of England or anywhere else – you would pay out more than you take in. That paying out would represent the increase of capital production, and the taking in would represent the actual consumption. It is, of course, quite vital and quite fundamental to my views (and to the whole suggestion that you should sell below cost, for instance) that looked at from the true point view consumption is always much less than production. Under these circumstances you ought to write up your capital costs by the amount of production, and write them down by the amount of depreciation and consumption generally, and that process would be reflected in the Budget. One speaker inquired why I take no notice of the velocity of circulation. The velocity of the circulation of money in the ordinary sense of the phrase, is – if I may put it that way – a complete myth. No additional purchasing power at all is created by the velocity of the circulation of money. The rate of transfer from hand-to-hand, as you might say, of goods is increased, of course, by the rate of spending, but no more costs can be canceled by one unit of purchasing power than one unit of cost. Every time a unit of purchasing power passes through the costing system it creates a cost, and when it comes back again to the same costing system by the buying and transfer of the unit of production to the consuming system it may be cancelled, but that process is quite irrespective of what is called the velocity of money, so the categorical answer is that I do not take any account of the velocity of money in that sense. That, I think, really concludes the answers to questions. (Applause.)<br /><br /><strong>THE CHAIRMAN: </strong> Ladies and gentlemen, it has been our pleasure and privilege to listen to a debate on a level which, I am sure you will agree with me, is higher than anything we could possibly hope to hear at any public meeting. The speakers have dealt with each other with a frankness and clearness which I think we can say is exemplary, and there are due from us our most sincere and hearty thanks. On your behalf, ladies and gentlemen, I beg to tender to Mr. Hawtrey and Major Douglas the most sincere thanks of all of us present here for this most interesting, enlightening, and illuminating debate. I hope that the repercussions of this debate will go far. We know that Social Credit is spreading, not only in this country, but in Canada, in Australia, in the United States, and elsewhere. It has brought to many thinking people a new faith and a new hope that the power of man will ultimately succeed in breaking through the chaotic conditions which now prevail, and bring order, peace, goodwill, and progress to the life of men in the future. We thank the speakers for enabling us to see more light on this subject and again on your behalf I beg to tender to them your thanks. (Applause.) <br /><br />Both Mr. Hawtrey and Major Douglas acknowledged the vote of thanks.<br /><br />=========================================Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com5tag:blogger.com,1999:blog-8479707700970948550.post-83314883972779312892009-03-01T15:16:00.000-07:002009-03-01T15:17:21.466-07:00Social Credit<br /><br />Christopher M. Quigley<br />B.Sc., M.M.I.I. Grad., M.A.<br /><br /><br />"Banking and credit are too important a business<br /> for citizens and politicians to be ignorant of. Upon its fair and <br />equitable administration rests the very existence and future of our society".<br /><br /><br />Every society has its orthodoxy. But there comes a time when the "accepted view" no longer functions. When this occurs it is time for change. The movement of stars told Galileo that the earth centred Universe was wrong. The relative inner stability of two moving trains told Einstein that Newton and Euclid were wrong. The current Sub-Prime credit crisis is an indication that the orthodox concept of banking and credit is wrong. <br /><br /> This is not the first time that the failings of the accepted "credit concept" were identified as being erroneous in an increasingly technologically efficient world. The great depression of 1929 also gave the same signal. However instead of dealing with the cause only the symptoms were addressed. Accordingly, another world war ensued and through "sticking plaster" policy modifications we bungled on for another 80 years. Now, once again, the dormant "error" has become virulent and threatens the whole. The disease within the economic body was diagnosed successfully in the early 1900's and a solution was prescribed but ignored. The same remedy will work today but its successful application requires a "Copernican" change in economic conceptional modalities. The world was not ready then. Is it ready now? The cure is called: "Social Credit". <br /><br />Due to developments in technology and technique the age old problems of production and scarcity have been all but solved, the issue now is one of distribution. Money creates effective demand and orthodox banking and accounting rules makes money scarce. This state of affairs if allowed to continue will result in:<br /><br />1. Surplus production due to efficiencies<br /><br />2. Consequent unemployment and under-employment resulting in effective demand destruction<br /><br />3. Poverty due to lack of purchasing power<br /><br />4. Redundant industrial machinery<br /><br />5. Consequent cut-throat competition<br /><br />6. Disappearance of industrial profits<br /><br />7. Consequent business bankruptcy and depression<br /><br />8. Aggressive competition for foreign markets<br /><br />9. Consequent international friction and war<br /><br />In order to prevent the above constantly recurring, as in 1929 and now with the sub-prime crisis, it is necessary to change our orthodox view of economics. WE MUST MOVE FROM AN OUT-DATED MINDSET. This does not require a revolution in society it simply requires a revolution in our consciousness. However the elite who control the ownership of the "orthodox" credit myth will not allow acceptance of this alternative knowledge because to do so will weaken their system of management and domination. However truth is an amazing thing. Slowly but surely, like a seed whose hibernation is over, the practicality and human goodness of the concept of Social Credit is germinating. But it needs aware and dedicated followers to nurture this growth. MONEY MUST NOT BE REGARDED AS A COMMODITY. IT IS IN ESSENCE A MEANS OF DISTRIBUTION OF SOCIAL PRODUCTIVE CAPACITY. AS A RAILWAY TICKET IS TO A TRAIN NETWORK THE DOLLAR BILL IS TO THE ECONOMIC SYSTEM. THE OBJECTIVE IS NOT TO OWN ALL THE TICKETS BUT TO HAVE A RAILWAY SYSTEM THAT SERVES THE FUNCTION OF MOVING PEOPLE AND GOODS. Through our ignorance of banking and credit, politicians have allowed an elite professional group corner the market for "railway tickets" and thus control the "transport network". <br /><br />For the current economic crisis to be finally resolved the realisation must sink in that BANKING IS NOT SIMPLY AN AVERAGE BUSINESS LIKE ANY OTHER. On the contrary, upon its fair and equitable administration rests the very existence and future of our society. Banking and credit are too important a "business" for citizens and politicians to be ignorant of. To deal with this matter we must, to use the words of President Obama: "up our game" or perish.<br /><br />The word credit comes from the Latin word "CREDERE", meaning "TO BELIEVE". The essential quality of money, therefore, is the belief that one can get what one wants when one possesses it; THUS MONEY IS A SOCIAL CONTRACT BASED ON TRUST AND MUTUAL BENEFIT. Since credit is a function of money it follows, axiomatically, that CREDIT IS A SOCIAL CONTRACT ALSO. A society cannot allow a particular grouping to have a monopoly on the functioning of this social contract because ultimately this group could end up monopolising all contracts. If you own the contracts you will end up owning society.<br /><br />The central problem which Social Credit addresses is the negative consequences resulting from the increasing use of capital in manufacture and distribution. This drive towards capital intensification brings efficiency but it decreases the requirement for labour. With the loss, or through the down-grading, of "jobs", the trend is for higher unemployment and/or under-employment. With under-employment there is less purchasing power in the economy thus the true potential capacity of modernity cannot be attained because there is no effective demand, since desire without money is meaningless in our system.<br /><br />Social Credit strives to solve this spiral of lower employment, lower wages, recession and depression by increasing effective demand in the system by generating societal purchasing power. Purchasing capability is increased through a social dividend and the adjustment of prices. It also proposes that the ownership of credit reside with the society rather than with a monopoly group. Thus excess reserves owned by credit institutions, over a certain minimum to allow their sustained and stable operation, are systematically issued to society. Social Credit believes in banking but does not accept monopoly ownership of credit and legal tender. The objective of such policies are as follows:<br /><br /><br />1. Money is no longer a commodity controlled by banks<br /><br />2. Credit is no longer a social contract controlled by banks<br /><br />3. Boom and bust credit cycles are negated<br /><br />4. Increased stable purchasing power allows for effective distribution of goods and services.<br /> This stability allows better long term decisions to be made by entrepreneurs about the economy. <br /><br />5. Increased demand for goods and services boosts an economy centred on smaller community based businesses.<br /><br />6. Corporatism diminishes<br /><br />7. Unemployment and under-employment are seen as opportunities for freedom to develop since citizens are able to function in the economic system through receipt of social dividends. Due to a change in the "zeitgeist" time is no longer equated to work in order to obtain legal tender.<br /><br />8. Speculation diminishes due to the non availability of "commodity" credit and a real economy, rather than a gambling economy, flourishes.<br /><br />9. Government down-sizes due to the diminished availability of monetised debt.<br /><br />Many folk have attacked these objectives as idealist or socialist. They are wrong. In fairness these objectives are based more on community than the commune. But that is the point. Social Credit strives to reaffirm the supremacy of human association rather than abstract institutionalism. Capitalism, under our current banking arrangements, and communism /socialism are all "Cesarist" theories of society; they end in monopoly ownership of everything. This monopoly results in the "state" or "core political group" being master of the individual. As a result community dies and corporatism thrives. The philosophy of Social Credit is the exact opposite. It believes in the individual and it aspires to provide the individual with as much freedom as possible. It acknowledges that the STATE SHOULD EXIST TO SERVE THE INDIVIDUAL ; NOT THE OTHER WAY ROUND. Social Credit therefore rejects the dialectic materialism of capitalism/communism/socialism; and accepts grace.<br /><br />As this sub-prime crises festers and invades the social, economic and political body I hope that more and more like minded people will become focused, educated and aware. There is no more important goal in life than actively participating in the growth and development of one's spirit, one's family, one's community and one's nation. "Banking and credit are too important a business for citizens and politicians to be ignorant of. To deal with this matter we must, to repeat, up our game or perish". <br /><br /><br />References:<br /><br />"Economic Democracy"<br />Major C. H. Douglas<br />Bloomfield books<br /><br />"Aladdin's Lamp: The Wealth of the American People"<br />Gorham Munson<br />Creative Age Press: New York<br /><br />New Zealand Government's <br />Monetary Committee<br />Notes of Evidence and Correspondence<br />Wellington, 24th. February 1934Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-56961040148755234752009-01-07T06:04:00.001-07:002009-01-07T06:05:44.220-07:00Hegelian Materialism and TranscendenceChristopher M. Quigley<br />B.SC., M.I.I.I. Grad., M.A.<br /><br /><br /><br />James Joyce often stated that history was a nightmare from which he sought to escape. Hegel was the first philosopher to fully incorporate time (history) into his system and thereby he produced the mental framework for advancing socialism and ultimately communism. Under his system of thought the only "time" is human time and its ultimate end product is a closed society where individuality is lost and "time" stops. Thus a nightmare of the "ever bureaucratic present" is replacing the nightmare of "history" around the globe.<br /><br />Hegel in his masterwork "Phenomenology of Spirit" propounded that the only time that matters is human time, all else (i.e. nature) is space. This human time develops through a "dialectic" process of thesis, antithesis and synthesis. For Hegel reality was all about a struggle for recognition and the story of history is the story of this struggle. Hegelian conflict produces masters and slaves. Masters order society; slaves build society. History is the story of this human action. While Hegel accepted the existence of spirit he rejected the existence of any God, he was a total materialist. Alexander Kojeve explains it as follows:<br /><br />"Hegel knew that this knowledge cost him dearly. He speaks of a period of total depression that he lived through between the twenty-fifth and thirtieth years of his life. A "hypochondria" that was so severe as to paralyse all his powers, and that came precisely from the fact that he could not accept the necessary abandonment of individuality- that is, actually, of humanity- which the idea of absolute knowledge demanded. But, finally, he surmounted this "hypochondria" and becoming a wise man by that final acceptance of death. He published a few years later the first part of the "System of Science" entitled "Science of the Phenomenology of the Spirit", in which he definitely reconciled himself with all that is and has been, by declaring that THERE WILL NEVER BE ANYTHING NEW ON THE EARTH........ Thus the phenomenology ends with a radical denial of all transcendence."<br /><br /><br />The end result of this philosophy was a rejection of the divine and a replacement of the role of God by the State. This became the philosophical bedrock for the rise of Socialism and Communism. This mentality accepted that Man was alone and must rely on his own devices to survive and prosper. To quote Hegel:<br /><br />"Man is negating action, which transforms given being and, by transforming it, transforms itself. Man IS what he IS only to the extent that he BECOMES what he is; HIS TRUE BEING IS BECOMING, TIME, HISTORY; and he becomes, he is history only in and by action that negates the given, THE ACTION OF FIGHTING AND OF WORK........."<br /><br />"........For dialectical understanding is nothing other than the historical or temporal understanding of the real. Dialectic reveals the trinitary structure of being. In other words, in and by its dialectic the real reveals itself...as a present situated between the past and the future, THAT IS, AS A CREATIVE MOMENT, OR ELSE, AGAIN AS A RESULT WHICH IS A PROJECT AND A PROJECT WHICH IS A RESULT-<br />A RESULT WHICH IS BORN OF A PROJECT AND A PROJECT ENGENDERED BY A RESULT, IN A WORD, THE REAL REVEALS ITSELF IN ITS DIALECTICAL TRUTH AS A SYNTHESIS......."<br /><br />"........Only the present thus determined by the future and past is a human or historical present......."<br /><br /><br />Thus in summary, for Hegel, the "dialectical process" or the "concept" of reality is man in the present, focused on future action, determined by his experience of past events. THUS THE FORMULA IS: PRESENT-FUTURE-PAST.<br /><br />We know this to be the correct interpretation because further on Hegel says;<br /><br />"THEREFORE BY REALIZING ITSELF, THE TIME IN WHICH THE FUTURE TAKES PRIMACY ENGENDERS HISTORY."<br /><br /><br />For my part one can only truly understand the modern march toward global socialism and communism when one understands Hegel. In almost every society today we see five and ten year "economic & social plans". Human beings have become subservient to a FUTURE rather than the PRESENT. In other words the world lives in a suspended state of future orientation. "Nobody is here everybody is there". When one understands the nature of the Hegelian system one can readily comprehend why its teachings were so influential on Marx, Engels and Lenin. Anybody can be made to do anything in the expectation of the future "Utopia". Unfortunately what Marx and Lenin knew, which they did not inform their followers, was that Hegelianism is a closed philosophy, which produces a static society, which has no allowance for individuality. Static societies eventually stop "time" and opportunity is limited due to "statism". This is exactly what is happening all over the world today. Material future orientation is making the whole world "the same" and "time" ( i.e. human time) appears to be the same also. (E. G. the New Year, Easter, Halloween, Thanksgiving and Christmas all blend into one similar event throughout the globe and nothing is "special" anymore because the local human "magic", the mystery and romance have gone and nobody really understands why).<br /><br /><br />To prevent a monolithic world sameness overtaking every society and destroying individuality folks need to understand the underlying Hegelian materialism surrounding modern culture. You cannot overcome what you do not understand. <br />Human culture is more than "a plan". The present does matter. Individuality is paramount. Freedom is essential to true peace and happiness. Creativity and individuality, fundamental benchmarks of western culture, need to become heroic ideals again. The socialist Emperor must be seen to have no clothes. TIME HAS NOT STOPPED BECAUSE "GOD IS DEAD"; as Hegel proposed. "God" is alive and is a human knowledge of truth, which accepts that there is transcendence. Human beings<br />evolved from nature. Therefore Hegel is wrong when he asserts that nature is "space" because the development of human consciousness enabled human beings to move beyond " nature" and transform it, therefore human consciousness is "transcendence" made manifest. This "transcendence" means that the future is not certain as socialists and communists assert, but is free and open and subject to potentials and possibilities as yet unknown. Consciousness proves Hegel false because we now know the following: THAT WHICH WAS NEED NOT NECESSARILY BE, THERE IS FREE WILL.<br /><br /><br />Thus in essence the spiritual crisis in World events is a crisis in human philosophy. The sophists are alive and kicking and are running the show. Social progressive materialists, of the Hegelian type, are communists in humanist clothing. Freedom and individuality and transcendent creativity need to be championed against statisim, totalitarianism and bureaucratic control. Many would say that this is overstatement but Hegelianism is definitely active and influential. For example, Alexander Kojeve one of the greatest pupils of Hegelian philosopy, was invited to give up lecturing and become one of the architects of the greatest experiments in World socialism, he graciously accepted. He went to Brussels and joined the economic board planning the European Economic Union (now the European Union). Need we say more?<br /><br /><br />If such socialist "planning" is allowed to flourish unchallenged eventually Europe, America, Asia and India will be crushed under Global institutionalism. The role of individual freedom will be replaced with political opportunism. Western culture needs a reawakening of the essence of the human spirit, which were its hallmark. This spirit once died in the dark ages but miraculously it experienced a rebirth. Do we have the courage, the insight and the philosophical awareness to nurture a new renaissance?<br /><br /><br /><br /><br />Reference:<br /><br />Introduction To The Reading Of Hegel<br /><br />Lectures On The Phenomenology Of Spirit<br />Assembled By Raymond Queneau<br />Cornell University PressSocredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com2tag:blogger.com,1999:blog-8479707700970948550.post-80871226140531788292008-12-05T17:31:00.017-07:002011-09-24T07:35:30.339-06:00Economic SabotageBy: Socred - B.A., SCMP<br /><br />Douglas's ideas on economic sabotage are essential in understanding his belief that the current economic system is producing nowhere near capacity, and that the price of goods for sale could be reduced significantly. Often, economists will criticize Douglas's theories by pointing out that there is not this pool of unused capacity that Douglas claimed. Some Social Crediters have even stated that Douglas's comments about the unused capacity in the economy were merely specific to a period of severe depression. The purpose of this essay is to show that the unused capacity is being used up through the superflous production of products that nobody needs or desires, and is part of what Douglas coined "economic sabotage".<br /><br />The concept of economic sabotage is essential to understanding Social Credit, and Douglas commented on it in his first article to appear in the New Age:<br /><br /><strong>"The economic effect of charging all the waste in industry to the consumer so curtails his purchasing power that an increasing percentage of the product of industry must be exported. The effect of this on the worker is that he has to do many times the amount of work which should be necessary to keep him in the highest standard of living, as a result of an artificial inducement to produce things he does not want, which he cannot buy, and which are of no use to the attainment of his internal standard of well-being." (C.H. Douglas, "<a href="http://douglassocialcredit.com/resources/resources/a_mechanical_view_%20of_economics.pdf">A Mechanical View of Economics</a>") </strong><br /><br />Douglas defined wealth as personal well-being. And if the purpose of production is consumption, then the only purpose of production is to increase our well-being. Goods and services which do not enhance our well-being are merely a waste. However; as Douglas states, all waste in industry must be charged to the consumer, since the consumer ultimately pays for everything. The fact that the consumer has to pay for all waste in industry diminishes his purchasing power in relation to the things he does need or desire. Consequently; there is a great deal of unused capacity in the economic system which is being wasted on producing things that the consumer does not need or desire but simply exists in order to distribute income. We have been hypnotized into believing that you must produce a chia pet in order to eat a steak, but in reality, what you need to produce in order to eat a steak is steak, and the production of the chia pet actually diverts resources away from the production of steak. The fact that people claim that Douglas overstated his price rebate is due to this hypnotic effect.<br /><br />As Douglas stated in "Credit-Power and Democracy":<br /><br /><strong>"The enormous increase of sabotage of all descriptions which is the outstanding feature of contemporary industry is due to the blind effort to equate purchasing-power to production without altering the principles of price-fixing" (C.H. Douglas, "<a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit Power and Democracy</a>" pge 18)</strong><br /><br />Only through price fixing via a price rebate can the increasing sabotage in industry be curtailed. This is due to the fact that a price rebate mechanism allows the consumer to control industry. No longer would it be necessary to produce all sorts of wasteful products which nobody wants or needs, and industry's efforts can be adjusted to producing the things that increase the consumers well-being. Instead of production for the sake of distributing income, or for its own sake, we would have production for the sake of increasing our true wealth. The enormous scale of this industrial sabotage is hard to understand, because we have been hypnotized into believing that all production is necessary, but this is only true if consumers controlled production. <br /><br />There can be no better elaboration on the scale of economic sabotage in our current economic system than in Douglas's book "Economic Democracy", so it is reproduced below:<br /><br /><strong>"But it may be advisable to glance at some of the proximate causes operating to reduce the return for effort ; and to realise the origin of most of the specific instances, it must be borne in mind that the existing economic system distributes goods and services through the same agency which induces goods and services, i.e., payment for work in progress. In other words, if production stops, distribution stops, and, as a consequence, a clear incentive exists to produce useless or superfluous articles in order that useful commodities already existing may be distributed. This perfectly simple reason is the explanation of the increasing necessity of what has come to be called economic sabotage ; the colossal waste of effort which goes on in every walk of life quite unobserved by the majority of people because they are so familiar with it ; a waste which yet so over-taxed the ingenuity of society to extend it that the climax of war only occurred in the moment when a culminating exhibition of organised sabotage was necessary to preserve the system from spontaneous combustion. <br /><br />The simplest form of this process is that of " making work " ; the elaboration of every action in life so as to involve the maximum quantity and the minimum efficiency in human effort. The much- maligned household plumber who evolves an elaborate organisation and etiquette probably requiring two assistants and half a day, in order to " wipe " a damaged water pipe, which could, by methods with which he is perfectly familiar, be satisfactorily repaired by a boy in one-third the time ; the machinist insisting on a lengthy apprenticeship to an unskilled process of industry, such as the operation of an automatic machine tool, are simple instances of this. A little higher up the scale of complexity comes the manufacturer who produces a new model of his particular speciality, with the object, express or subconscious, of rendering the old model obsolete before it is worn out. We then begin to touch the immense region of artificial demand created by advertisement ; a demand, in many cases, as purely hypnotic in origin as the request of the mesmerised subject for a draught of kerosine. All these are instances which could be multiplied and elaborated to any extent necessary to prove the point. In another class comes the stupendous waste of effort involved in the intricacies of finance and book-keeping ; much of which, although necessary to the competitive system, is quite useless in increasing the amenities of life ; there is the burden of armaments and the waste of materials and equipment involved in them even in peace time ; the ever-growing bureaucracy largely concerned in elaborating safeguards for a radically defective social system ; and, finally, but by no means least, the cumulative export of the product of labour, largely and increasingly paid for by the raw material which forms the vehicle for the export of further labour. <br /><br />All these and many other forms of avoidable waste take their rise in the obsession of wealth defined in terms of money ; an obsession which even the steady fall in the purchasing power of the unit of currency seems powerless to dispel ; an obsession which obscures the whole object and meaning of scientific progress and places the worker and the honest man in a permanently disadvantageous position in comparison with the financier and the rogue. It is probable that the device of money is a necessary device in our present civilisation ; but the establishment of a stable ratio between the use value of effort and its money value is a problem which demands a very early solution, and must clearly result in the abolition of any incentive to the capitalisation of any form of waste.<br /><br /> The tawdry " ornament," the jerry-built house, the slow and uncomfortable train service, the unwholesome sweetmeat, are the direct and logical consummation of an economic system which rewards variety, quite irrespective of quality, and proclaims in the clearest possible manner that it is much better to " do " your neighbour than to do sound and lasting work. The capitalistic wage system based on the current methods of finance, so far from offering maximum distribution, is decreasingly capable of meeting any requirement of society fully. Its very existence depends on a constant increase in the variety of product, the stimulation of desire, and in keeping the articles desired in short supply." ( C.H. Douglas, "<a href="http://www.archive.org/details/econdemocracy00dougiala">Economic Democracy</a>" pge 74-78)</strong><br /><br />As Douglas states, we must abolish any incetive to the capitalization of waste. Social Crediters envision a new society, where wasted effort is no longer rewarded. It is waste, or economic sabotage, that accounts for the vast difference in current financial prices and those proposed by a Social Credit rebate system. Economists are so blind to the forms of waste that exist in our economy that they cannot see the vast pool of unused capacity that could be diverted to the production of goods and services that actually increase our well-being. Further, the beneficial effects of this policy to our environment would be immense.<br /><br />The fact that so much sabotage exists in our current economic system is due to the fact that we make scarcity a value. Orthodox economics is the "science" of scarcity, or the "allocation of scarce resources", whereas, Social Credit is the science of abundance, or the distribution of abundant resources. It is primarily due to the fact that our current economic arrangement in terms of prices rewards scarcity that businesses actually pursue it as a policy. The object of business is to deliver the minimum amount of product for the maximum price. A smart businessman seeks to control prices through monopoly control of the industry in which he is engaged. While markets which exhibit attributes of perfect competition do exist (especially in commodity markets), the whole purpose of advertising and packaging is to differentiate product enough to give a business some degree of monopoly control over prices (i.e. "monopolistic competition). Douglas noted this fact in his testimony before the Select Standing Committee on Banking and Commerce.<br /><br /><strong>"Well, to return to what I was saying. Modern business is practically based on the creation of a scarcity of value. The whole efforts of general business communities are to be able to control prices to such an extent that you get the maximum price for the minimum delivery. Taking it collectively that is the basis of the whole thing, and is, according to the rules of the game, perfectly legitimate. Your object in business at the present time is to make money. It is not to deliver goods. The delivery of goods is incidental to the making of money, and if you can deliver fewer goods for more money then that is sound business, and the banker is a sound business man." (<a href="http://douglassocialcredit.com/resources/resources/major_douglas-testimony_ottawa_1923.pdf">C.H. Douglas, testimony before the Select Standing Committee on Banking and Commerce</a>)</strong><br /><br />Businesses produce in order to earn a profit, and if it is profitable for them to increasingly engage in economic sabotage, they will continue to do so. However; through the price rebate mechanism, businesses will find it profitable to increase the distribution of goods and services that people desire, and they will increasingly engage in these activities. Douglas didn't claim that the price rebate could be as high as 75% because he was an dreamer; he was an engineer, and a pragmatist. Douglas saw the immense waste in industry which most of us fail to see because he was able to dehypnotize himself of what he called the "black magic" of finance. Remove this waste which is charged to the consumer, and prices could be reduced significantly. The first step in this process is to understand that money is not a commodity which is scarce, but merely a ticketing system which enables the efficient distribution of production.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com2tag:blogger.com,1999:blog-8479707700970948550.post-71542431090172645482008-07-13T16:21:00.007-06:002011-09-24T07:36:19.717-06:00Social Credit and ExistentialismBy: Socred - B.A., SCMP<br /><br />The opening to the Social Crediter states that this journal is for “Political and Economic Realism”. The purpose of this essay is to demonstrate that the philosophy of Social Credit is not Realism, where truth is defined as conformity of thought with being. But that Social Credit is for “Political and Economic Existentialism”, where truth is “an objective uncertainty held fast in an appropriation-process of the most passionate inwardness”(Soren Kierkegaard, Concluding Unscientific Postscript pge. 182). It is my view that Social Crediters adopted the philosophy of Realism in opposition to the philosophy of Idealism, thereby erroneously believing that they had overcome abstractionist thought. However; as Kierkegaard said, "let ideality and reality be in conflict forever and a day - as long as there is no consciousness, no interest, no consciousness that has an interest in this struggle, there is no doubt - but let them be reconciled, and doubt can continue just as actively." (Soren Kierkegaard, <a href="http://www.religion-online.org/showbook.asp?title=2512">Philosophical Fragments</a>) Ideality and reality will never be reconciled in human consciousness where the possibility of doubt exists. In reality, realism does not negate abstractionist thought, but is merely another form of it. <br /><br /><br />"All progress in the world, and in some ways the world has unquestionably made progress, has been achieved by the recognition of the TRUTH, and the reason that so little progress has been made in the solution of social problems is, to my mind, because in this sphere alone truth has been ignored or denied." (Speech by Major C.H. Douglas at "The New Age" Dinner, March 18, 1933.) But what is the truth? If the truth is defined as conformity of thought with being, then the truth becomes an approximation-process that can never be completed in time. This is due to the fact that “all understanding comes after the fact”. (Soren Kierkegaard, Concluding Unscientific Postscript pge 108) However; the individual is always in the process of becoming and as such is always incomplete. For the existing individual, there can be no finality. With this in mind, “then it will be evident that the idea of a persistent striving is the only view of life that does not carry with it an inevitable disillusionment. (Soren Kierkegaard, Concluding Unscientific Postscript pge 110) The idea that truth is conformity of thought with being must inevitably bring disillusionment as we are forever waiting for “the truth to be revealed”. The TRUTH that Douglas refers to cannot be defined by philosophical Realism, but must be something else, since Douglas, and Social Crediters, would not want us to be disillusioned.<br /><br />Douglas said that;“Systems were made for men, and not men for systems, and the interest of man which is self development, is above all systems, whether theological, political or economic.”(C.H. Douglas “<a href="http://www.archive.org/details/econdemocracy00dougiala">Economic Democracy</a>” pge 18). In my opinion, this statement is the essence of Social Credit philosophy and contradicts the tenets of Realism, because “the systemic Idea is the identity of subject and object, the unity of thought and being. Existence, on the other hand, is their separation. It does not by any means follow that existence is thoughtless; but it has brought about, and brings about, a separation between subject and object, thought and being. (Soren Kierkegaard, Concluding Unscientific Postscript pge 112) If Social Credit is for Realism, and the idea that the truth is conformity of thought with being, or subject and object, then men must be made for systems, since the essence of the systemic Idea is conformity of thought with being. In other words, we must either accept the idea that the philosophy of Social Credit is Realism, and reject that systems were made for men, or we must reject the philosophy of Realism, and look for the truth somewhere else. "An existential system cannot be formulated. Does this mean that no such system exists? By no means; nor is this implied in our assertion. Reality itself is a system - for God; but it cannot be a system for any existing spirit. System and finality correspond to one another, but existence is precisely the opposite of finality." (Soren Kierkegaard, Concluding Unscientific Postscript pge 107) Realism, and the finality of the correspondence between thought and being exists for God, but cannot exist for us spirits who exists in time, and are always in the process of becoming.<br /><br />What is it to exist as a spirit? "Spirit is creative initiative." (Why I am a Social Crediter, Bryan Monahan pge. 9), and further, "spirit is inwardness, inwardness is subjectivity, subjectivity is essentially passion, and in its maximum an infinite, personal, passionate interest in one's eternal happiness." (Concluding Unscientific Postscript pge 33) Therefore, spirit is not a form of objective knowledge which is essentially dispassionate, but is the ultimate form of passion for one's own eternal happiness. Man is essentially creative, and his creativity is a result of his passions. All systems seek to control man's passions, to destroy his creative nature, so that he may fit into the system. "It is, you see, a "live" problem, a spiritual problem, which is a conclusion that we Social Crediters have to some extent avoided, for the reason that, as a class, we possess that trained cast of mind that is intensely apprehensive of emotional excess." (Social Credit and the Christian Ethic Norman F. Webb) In other words, it is an "existential" problem, and a spiritual problem, which is something that the objective mind finds repulsive. This is not to say there is no value in scientific or "objective" knowledge. "No, all honor to the pursuits of science, and all honor to everyone who assists in driving the cattle away from the sacred precincts of scholarship. But the ethical is and remains the highest task for every human being. One may ask even of the devotee of science that he should acquire an ethical understanding of himself before he devotes himself to scholarship, and that he should continue to understand himself ethically while immersed in his labours; because the ethical is the very breath of the eternal, and constitutes even in solitude the reconciling fellowship with all men." (Soren Kierkegaard, Concluding Unscientific Postscript pge 136) The scientist is not dispassionate about his work (one would hope!), even if he must not let his passions interfere with his observations or judgement. The doctor seeks a cure for cancer because he is passionate about saving lives! Douglas made observations in regards to economics and the monetary system because he wanted to better mankind! It is first and foremost an ethical decision which brings doctors to seek a cure for cancer, or brings Douglas to seek a better understanding of the monetary system.<br /><br />The ethical decision is made by individuals through free will, and our ability to choose between good and evil. As Douglas said, "freedom is the ability to choose or refuse one thing at a time". Ethical man is constantly in the process of choosing between good and evil as he exists in time. Socialists believe that man is essentially evil, and will choose evil unless bound by the "laws" of an imposed system. This belief is also expressed in the theology of Puritanism. "Puritanism, as I said, is of the devil, clothing the very deepest and darkest passion of the human mind--the impulse to dominate over one's fellow mortals--in a moral disguise" Social Credit and the Christian Ethic Norman F. Webb) Social Crediters believe that man is essentially good, and given the freedom and subsequent responsibility to choose between good and evil, man will generally choose to do good. As Douglas said, it is " the object of Christ, to permit the emergence of self-governing, self-conscious individuals, exercising free will, and choosing good because it is good." (C.H. Douglas <a href="http://www.alor.org/Library/Realistic%20Position%20of%20the%20Church%20of%20England.htm#1a">The Realistic Position of the Church of England</a>) In order to maximize the good decisions that responsible individuals will make, we must allow them freedom to exercise their will, and make them responsible for the decisions that they make. Economic and political systems must first serve the individual, for the individual must never exist to serve the system. "The fundamental idea underlying Social Credit is that the community exists for the sake of the individual; that the development of industrial organization is for the sake of freeing the individual to the maximum practical extent from occupying his time in working in order to exist." (Bryan Monahan, “Why I am a Social Crediter”) It is individuals who comprise the community, and if they are making choices which are good for themselves, then generally these choices will be good for the community at large. If the existing individual is the vehicle through which good and evil comes into the world, we must seek the truth in the individual, and not in the objective correspondence between idea and being which exists only in God.<br /><br />What is the truth? This question could not even be asked if it were not for the possible existence of untruth. It is human consciousness that brings the question of truth into existence because the essence of knowledge is doubt. However; doubt itself cannot lead to the truth, but only the question of the truth. Descartes' doubt led him to conclude "I think therefore I am", but this in an inversion of reality and the essence of idealism, for in reality "I am therefore I think". Truth is not to be found in doubt, but in existence itself. "For since it is a fact that the nearest the human mind and language can get to a statement of Truth is a paradox -- "For whosoever will save his life, shall lose it," and many others -- it is quite probable that the approach to a practical problem, even our very actions themselves, may require to be in a sense paradoxical in order to be sound. (Social Credit and the Christian Ethic Norman F. Webb) Because humans can never be the conformity of thought with being, any statement of Truth must appear to be a paradox, because the truth is not objectively known, but subjectively lived. "Inwardness in an existing subject culminates in passion; corresponding to passion in the subject the truth becomes a paradox; and the fact that the truth becomes a paradox is rooted precisely in its having a relationship to an existing subject." ( Soren Kierkegaard, Concluding Unscientific Postscript pge 178) The truth is that man is an ethical being who exists in time, meaning that the conformity between thought and being can never be resolved within him; however, through free will he is forced to choose between good and evil in a passionate embrace through faith that Truth is a paradox. The ultimate form of this paradox is that God, the eternal, existed in time in the persona of Jesus Christ. The doctrine of Incarnation is what presents itself as an absurdity to the Greeks and an offense to the Jews. “It is not too much to say that one of the root ideas through which Christianity comes into conflict with the conceptions of the Old Testament and the ideals of the pre-Christians era, is in respect of this dethronement of abstractionism.” (C.H. Douglas, <a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit </a>pge 22) The dethronement of abstractionism is not found in the conformity of thought with being, which is the essence of the systemic Idea, but in existence itself which holds that the truth is "an objective uncertainty held fast in an appropriation-process of the most passionate inwardness, the highest truth attainable for an existing individual." ( Soren Kierkegaard, Concluding Unscientific Postscript pge 182)<br /><br />Realism, or the idea that truth is the conformity of thought with being, is, ironically, unrealistic because it can only be realized by God. Existentialism, which concludes that conformity of thought and being can never be realized for an existing individual, is more realistic than the philosophy of Realism. Social Credit, in order to protect itself from rationalization of the system, and to uphold the belief than systems were made for men, must reject the philosophy of realism, and accept the philosophy of existentialism, because "an existential system cannot be formulated"( Soren Kierkegaard, Concluding Unscientific Postscript pge 107). Idealism, which seeks the conformity of reality with thought, and realism, which seeks the conformity of thought with reality are in essence two sides of the same coin, and both are the essence of the systemic Ideal. I believe that existentialism, which rejects all systemic thought, and begins with the questions of what it is to exist as a human consciousness in time is in actuality the beginning point for a Social Credit philosophy, because in essence it represents the ideals of the society Social Credit seeks to create which is that systems were made for man.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com10tag:blogger.com,1999:blog-8479707700970948550.post-47197685098430134462008-04-29T19:42:00.007-06:002008-12-27T07:45:01.213-07:00Synopsis of Social CreditThe following is a collaborative effort between Wally Klinck and myself.<br /><br /><strong>Introduction</strong><br /><br />The term Social Credit, as a formal name, originated from the writings of the British engineer and originator of the Social Credit movement, Clifford Hugh Douglas (1879-1952), who wrote a book by that name in 1924. Douglas, a civil engineer who had pursued his higher education at Cambridge University, had published previously, most notably in the British intellectual journal The New Age whose editor, Alfred Orage, became converted to Douglas’s ideas and, subsequently devoted The New Age and latterly The New English Weekly, after a ten year sojourn in the United States, to promulgation of those ideas until his death on the eve of his BBC speech on Social Credit, November 5, 1934, in the “Poverty in Plenty” Series. Douglas’s first book Economic Democracy was published in 1920, shortly after his article “The Delusion of Super-Production” appeared in 1918 in the English Review. Among Douglas’s other early works were The Control and Distribution of Production, Credit-Power and Democracy and Warning Democracy and The Monopoly of Credit. Of considerable interest is the Evidence that he presented to the Canadian House of Commons Select Committee on Banking and Commerce in 1923, to the <a href="http://www.cooperativeindividualism.org/douglas-c-h_exchange-with-keynes-1930.html">British Parliamentary Macmillan Committee on Finance and Industry in 1930</a>, which included exchanges with economist J. M. Keynes, and to the Agricultural Committee of the Alberta Legislature in 1934 during the term of the United Farmers of Alberta Government in that Canadian Province. <br /><br />Douglas’s prolific writings spawned a worldwide movement, most prominent in the British Commonwealth but with beachheads in Europe and activities in the United States where Orage, during his sojourn there, promoted Douglas’s ideas. In the United States, the New Democracy group was headed by the American author Gorham Munson who contributed a major book on Social Credit titled Aladdin’s Lamp: The Wealth of the American People (New York: Creative Age Press, 1945.). While Canada and New Zealand had electoral successes with “Social Credit” political parties, the movement in England and Australia was primarily devoted to pressuring existing parties to implement Social Credit: this function was performed especially by Douglas’s <a href="http://douglassocialcredit.com/">Social Credit Secretariat </a>in England and the <a href="http://www.alor.org/">Commonwealth Leagues of Rights </a>especially in Australia. Douglas continued writing and contributing to the Secretariat’s journals, initially Social Credit and shortly thereafter The Social Crediter (which continues to be published by the Secretariat) for the remainder of his lifetime, concentrating more on political and philosophical issues in his later years.<br /><br /><strong>Political History </strong><br /><br />In the early years of the movement in the UK there was strong pressure from trade unionists for the Labour Party to consider adopting ‘social credit’ ideals and policies. The Labour leadership proved hostile, however, essentially because its doctrines of Fabian socialism, with its hierarchical view of state-socialism, economic growth and full employment, were incompatible with such ideas as National Dividends and an end to wage/salary slavery. Certain British Labour economists expended considerable effort in an effort to discredit Social Credit. One of the leading Fabians is said to have declared that they didn’t care whether Douglas was technically correct or not—they simply did not like his policy! <br /><br />In 1935 the first “Social Credit” government was elected in Alberta, Canada under the leadership of William Aberhart. “<a href="http://en.wikipedia.org/wiki/William_Aberhart">Bible Bill</a>”, as he was also known, was a high school mathematics teacher and radio evangelist who was given a book on Social Credit, titled The Meaning of Social Credit, written by the English author and actor Maurice Colborne, and decided Douglas’s theories were exactly what Alberta needed to escape the depression. Douglas, having counseled the previous United Farmers of Alberta Provincial Government was sought as an advisor to Aberhart, but withdrew shortly after due to disagreements, or misunderstandings, in policy and strategy. Under the pressures of dealing with the extreme conditions of the Great Depression and being unable to understand Douglas’s advice Aberhart sought the assistance of a representative of orthodox finance to put the Provinces finances in order. The difficult and strained correspondece between Aberhart and Douglas was published by Douglas in his book The Alberta Experiment (London: Eyre and Spottiswoode, 1937). <br /><br />The Premier wanted to balance the provincial budget, and Douglas stated that the concept of a balanced budget was completely inconsistent with the use of Social Credit, because of the arithmetic impossibility, under the existing rules of financial cost accountancy, of balancing all budgets within an economy simultaneously. (“<a href="http://www.capitalownership.org/lib/DouglasFallacyBalBudget.pdf">The Fallacy of a Balanced Budget</a>,” The New English Weekly, July 28, 1932, pp. 346-7) In a letter to Aberhart, Douglas stated, "This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit [i.e., Real Credit—the ability to deliver goods and services “as, when and where required”] in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create an issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts." <br /><br />Two other expert Social Credit technical advisors, L. Denis Byrne and George F. Powell, were sent from the United Kingdom by Douglas, but all attempts to pass Social Credit legislation were ruled ultra vires by the Supreme Court of Canada and Privy Council in London. In desperation, William Aberhart attempted to implement the monetary theories of <a href="http://en.wikipedia.org/wiki/Silvio_Gesell">Silvio Gesell</a> by issuing a form of scrip known as "prosperity certificates", which depreciated in value the longer they were held. Douglas, however, was not impressed by Gesell's theories and openly criticized them. "Gesell's theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster. Disappearing money is the heaviest form of continuous taxation ever devised. The theory behind this idea of Gesell's was that what is required is to stimulate trade - that you have to get people frantically buying goods - a perfectly sound idea so long as the objective of life is merely trading." (" <a href="http://www.alor.org/Library/Approachtoreality.htm#1a">The Approach To Reality</a>") <br /><br />The Alberta Social Credit Party, under <a href="http://en.wikipedia.org/wiki/Ernest_Manning">Ernest Manning </a>who succeeded Aberhart after his untimely death, slowly departed from its roots and became popularly identified as a right wing populist movement. Meanwhile, Douglas published in the Secretariat’s journal “An Act for the Better Management of the Credit of Alberta” (The Social Crediter, February 8, 1947). Subsequently, in the same journal, he wrote a critical analysis of what went wrong with Social Credit in Alberta (“Social Credit in Alberta”, August 28/September 4-11, 1948) in which he said, “The Manning administration is no more a Social Credit administration than the British government is Labor”. Social Credit also formed governments in British Columbia, Canada, but again the party had little in common with Douglas and his theories. Social Credit Parties also enjoyed some national electoral successes in Canada, with support from Western Canada and more notably from Quebec. Social Credit parties also had some electoral successes in New Zealand.<br /><br /><strong>Political Theory</strong><br /><br />Douglas opposed the formation of Social Credit Parties, because he felt that a group of elected amateurs should never direct a group of competent experts in technical matters. ( “<a href="http://www.alor.org/Library/Approachtoreality.htm#1a">The Approach to Reality</a>,” Address at Westminster, March 7, 1936.) The goal of politicians should be to pressure the experts to get the policy results desired by the populace, but the experts are ultimately responsible for achieving those results. “The proper function of Parliament, I may perhaps be allowed to repeat, is to force all activities of a public nature to be carried on so that the individuals who comprise the public may derive the maximum benefit from them. Once the idea is grasped, the criminal absurdity of the party system becomes evident.” ("<a href="http://www.alor.org/Library/Tragedyofhumaneffort.htm#1a">The Tragedy of Human Effort</a>,” Address at Central Hall, Liverpool, October 30, 1936.) Therefore, Social Credit supported by effective public demand could be implemented by any political party, and once implemented, achieving a realistic integration of means and ends, party politics would cease to exist. Douglas defined democracy as the “will of the people”, not rule by the majority. It is the right of the individual to choose freely one thing at a time, and to contract out of unsatisfactory associations. Traditional ballot-box democracy is incompatible with Social Credit, and Douglas advocated what he called the “responsible vote”, where anonymity in the voting process no longer existed. "The individual voter must be made individually responsible, not collectively taxable, for his vote." ("<a href="http://www.alor.org/Library/RealisticConstitutionalism.htm#1a">Realistic Consitutionalism</a>") <br /><br /><br />The establishment of the supremacy of common law is essential to ensuring the rights of individuals are protected from an all powerful parliament. Douglas believed that the constitution was an organism, not an organization. He also believed that the effectiveness of the British government was structurally determined by its application of the Christian concept known as Trinitarianism. "In some form or other, sovereignty in the British Isles for the last two thousand years has been Trinitarian. Whether we look on this Trinitarianism under the names of King, Lords and Commons or as Policy, Sanctions and Administration, the Trinity-in-Unity has existed, and our national success has been greatest when the balance (never perfect) has been approached. ("<a href="http://www.alor.org/Library/RealisticConstitutionalism.htm#1a">Realistic Constitutionalism</a>") <br /><br /><strong>Economic Theory</strong><br /><br />Douglas disagreed with classical economists such as Adam Smith and David Ricardo who divided the factors of production into land, labour and capital. He also disagreed with Marx who claimed that labour created all wealth. Douglas believed the “cultural inheritance of society” was the primary factor in production. Our cultural inheritance is defined as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization. Consequently, we do not have to keep “reinventing the wheel”. “We are merely the administrators of that cultural inheritance, and to that extent the cultural inheritance is the property of all of us, without exception.” (“<a href="http://www.alor.org/Library/MonopolisticIdea.htm#1a">The Monopolistic Idea</a>,” Address at the Melbourne Town Hall, Australia, January 22, 1934.) <br /><br />Douglas also criticized classical economics because it was based upon a barter economy; whereas, the modern economy is a monetary one. To the orthodox economist, money is a medium of exchange. This may have once been the case when the majority of wealth was produced by individuals who exchanged it with each other, but in the modern economy, where production is split up into multiple processes, wealth is produced by people working in association with each other. For instance, any automobile worker does not produce any wealth by himself ; the wealth that is produced (i.e., the automobile) is only produced in conjunction with other auto workers, the producers of roads, gasoline, insurance etc. Therefore, wealth is a pool upon which people can draw, and the efficiency gained by individuals co-operating in the productive process in known as the “unearned increment of association”—historic accumulations of which constitute what Douglas called the Cultural Heritage. The means of drawing upon this pool are the tickets distributed by the banking system. <br /><br />Money originally came from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word “pecuniary” comes from the Latin “pecus,” meaning cattle. Today, the productive system and the distributive/monetary system are two separate entities. Douglas was one of the first to understand that loans create deposits, and he gave a short mathematical proof of this in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank makes a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin “credere”, meaning 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.” (C.H. Douglas, “Engineering, Money and Prices,” Paper read at the Institution of Mechanical Engineers, April 22, 1927, reprinted in <a href="http://www.alor.org/Library/Warning%20Democracy.htm#1a">Warning Democracy</a>, 1935, p. 15) <br /><br />Money should not be regarded as a commodity but rather as a ticket, a means of distribution of production (“<a href="http://www.alor.org/Library/TheUseofMoney.htm#1a">The Use of Money</a>,” Address in St. James’ Theatre, Christchurch, New Zealand, February 13, 1934, p. 11, 13.) “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.” (“<a href="http://www.alor.org/Library/TheUseofMoney.htm#1a">The Use of Money</a>,” op cit., p. 15) Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization money should become increasingly an instrument of distribution.<br /><br />Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. Douglas criticized the banking system on two counts: 1) for being a form of government which has been centralizing its power for centuries, and 2) for claiming ownership to the money they create. The latter he claimed was equivalent to claiming ownership of the nation. (“<a href="http://www.alor.org/Library/Dictatorshipbytaxation.htm#1a">Dictatorship by Taxation</a>,” An Address delivered in the Ulster Hall, Belfast, November 24, 1936.) Money, Douglas claimed, was merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when, and where they are required. <br /><br />The first article to appear in the New Age, edited by A.R. Orage, titled “A Mechanical View of Economics” appeared in January, 1919. In this article, we get a glimpse of Douglas’s concerns in regards to the methods by which economic activity is measured when he says, “It is not the purpose of this short article to depreciate the services of accountants; in fact, under the existing conditions probably no body of men has done more to crystallize the data on which we carry on the business of the world; but the utter confusion of thought which has undoubtedly arisen from the calm assumption of the book-keeper and the accountant that he and he alone was in a position to assign positive or negative values to the quantities represented by his figures is one of the outstanding curiosities of the industrial system; and the attempt to mold the activities of a great empire on such a basis is surely the final condemnation of an out-worn method." <br /><br />Just over a year later, in his book <a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit-Power and Democracy </a>(1920), we see Douglas's critique of accounting methodology as it pertains to income and prices in his famous “A+B theorem”. This was not a theory but a theorem. Quoting from the fourth, Australian Edition of 1933:<br /><br />"A factory or other productive organization 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:<br />Group A - All payments made to individuals (wages, salaries, and dividends).<br />Group B - All payments made to other organizations (raw materials, bank charges, and other external costs).<br /><br />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+B. The product of any factory may be considered as something which the public ought to be able to buy, although in many cases it is an intermediate product of no use to individuals but only to a subsequent manufacture; but since A will not purchase A+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 will be necessary at a later stage to show that this additional purchasing power is provided by loan credit (bank overdrafts) or export credit.”. (C.H. Douglas, Credit-Power and Democracy, Aust. Edition, 1933, pp. 22-23)<br /><br />The theorem itself demonstrates that total prices rise faster than total incomes when regarded as a flow. Douglas proposed to eliminate this problem by giving “debt-free” credits to consumers in the form of a price rebate and a dividend, called formally a Compensated Price and a National (or Consumer) Dividend. A National Credit Office would be charged with the task of calculating the size of the rebate and dividend by determining a national balance sheet, and keeping track of aggregate production and consumption statistics. The price rebate is based upon the observation that the real cost of production is the mean rate of consumption over the mean rate of production for an equivalent period of time. The physical cost of producing something is the materials and capital that were consumed in its production, plus that amount of Labor consumed during its production. This total consumption represents the physical cost of production. Since less inputs are consumed to produce a unit of output as technology advances, and total production increases relative to total consumption over time, the real cost of production is falling over time; hence, prices should be falling with the progression of time. <br /><br />The price rebate (Compensated Price) is designed to realize this fact. The Dividend is based upon the fact that Labor is being displaced in the productive process due to increases in productivity. Since Labor is being replaced in the productive process, people should be free to consume while enjoying an increasing amount of leisure as machines displace them. The Dividend would give people this freedom. Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas <a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit Power and Democracy</a>, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the <a href="http://en.wikipedia.org/wiki/Phillips_curve">Phillips Curve</a>), unless prices are reduced from debt- free monies that do not derive from the productive system.<br /><br />The cause of these “B” payments, or overhead charges, is described by Douglas in his pamphlet entitled, "The New and The Old Economics" when he says, “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 cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included.” The cyclic rate of circulation of money measures the amount of time that it takes for a loan to go through the productive system and to come back to the bank. This can be calculated by determining the amount of clearings through the bank in a year divided by the average amount of deposits held at the banks (which varies very little). This number will give you the amount of times money must turnover in order to produce these clearing house figures. Douglas estimated the cyclic rate of circulation of money to be approximately three weeks. As Douglas said in his testimony before the Alberta Agricultural Committee of the Alberta Legislature in 1934, “Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale.” (p. 90) <br /><br />We see the major consequence of the problem that Douglas identified is exponentially increasing debt. Other less noticeable consequences are that society is either forced to engage in production that the consumer does not want, or production he cannot purchase. The latter represents a “favorable balance of trade”, meaning a country exports more than it imports. The former represents excessive capital production and/or military buildup. The problem with pursuing a favorable balance of trade is that not every country can pursue this objective at the same time, since it is necessary for a country to import more than it exports if another exports more than it imports. The long-term consequence of this policy is a trade war, ultimately resulting in real war. Hence, the Social Credit admonition, as expressed by the Social Credit Party of Great Britain and Northern Ireland, led by John Hargrave, that “He who calls for Full-Employment calls for War!” Excessive capital production is only a temporary fix because the cost of the capital ultimately shows up in the cost of consumer goods, or taxes, which only goes to further exacerbate the gap between income and prices at a later date. Military buildup necessitates either it’s use, or stockpiling of weapons leading to inventory accumulation.<br /><br /><strong>Philosophy</strong><br /><br />Douglas warned against viewing Social Credit solely as a scheme of monetary reform. He described Social Credit as a policy of a philosophy. He coined this philosophy “practical Christianity.” Douglas believed there was a Canon which ran through the universe, and Jesus Christ was the Incarnation of this Canon. However, he also felt that Christianity remained ineffective so long as it remained transcendental. Religion, which derives from the Latin word relegare, meaning to “bind back”, was supposed to be a binding back to reality. Christianity was only effective to the extent that it was rooted in existence. Although Douglas defined Social Credit as a philosophy with Christian roots, he did not envision a Christian theocracy. Social Credit society recognizes the fact that the relationship between man and God is unique. Therefore, it is essential to allow man the greatest possible freedom in order to pursue this relationship. If people are given the economic security and leisure achievable in the context of a Social Credit dispensation, most would end their service to mammon and use their free time pursuing spiritual, intellectual, or cultural goals leading to self-development. Douglas did not believe that religion should be thrust upon anyone through force of law or external compulsion. He emphasized that all policy derives from its respective philosophy and that “. . . Society is primarily metaphysical, and must have regard to the organic relationships of its prototype.”<br /><br />Douglas said that Social Crediters wants to build a new civilization based upon absolute economic security for the individual—where “. . . they shall sit every man [individual] under his [her] vine and under his [her] fig tree; and none shall make them afraid.” (Micah iv, 4 quoted on the cover of the Douglas Quarterly Review, The Fig Tree, New Series. 1954-55.) In keeping with this goal, Douglas was opposed to all forms of taxation on real property. This set Social Credit at variance from the land-taxing recommendations of the Henry George School.<br /><br />Douglas opposed what he termed “<a href="http://douglassocialcredit.com/resources/resources/the_pyramid_of_power_by_c_h_douglas.pdf">the pyramid of power</a>.” Totalitarianism reflects this pyramid and is the antithesis of Social Credit. It turns the government into an end instead of a means, and the individual into a means instead of an end—Demon est deus inversus—“the devil is God upside down.” Social Credit is designed to give the individual the maximum freedom allowable given the need for association in economic, political and social matters. Liberty in politics is dependent on the metaphysical concept of free will, for what use is the purpose of liberty if man is not free to choose? Social Credit rejects dialectical materialistic philosophy. Douglas divided philosophy into two schools of thought that he labeled the "classical school" and the "modern school", which are broadly represented by philosophies of Aristotle and Bacon respectively. Douglas was critical of both schools of thought, but believed that "the truth lies in appreciation of the fact that neither conception is useful without the other". (C.H. Douglas: <a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>. ISBN 0-087968-107-1, p. 6) Social Credit philosophy is best summed by Douglas when he said, “Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic.” (Economic Democracy, Fourth Revised and. Enlarged Edition, 1934, p 18.) <br /><br /><strong>Critics to A+B and Rebuttal</strong><br /><br />Critics to the theorem argue there is no difference between A and B payments, and Social Credit policies are inflationary. These criticisms are based upon the quantity theory of money, which states that the quantity of money multiplied by its velocity of circulation equals total purchasing power. Following is a brief explanation of the quantity theory of money:<br />"MV=PQ: <br /><br />where <br /><br />M=quantity of money in the hands of the public<br /><br />P=average level of prices<br /><br />Q=quantity of output (that is real national product or real national income).<br /><br />Thus, PQ = national product, measured in nominal (dollar) terms<br /><br />And V = income velocity of money, that is, the average number of times that the money stock (M) is spent to buy final output during a year. Specifically, V is defined as being equal to PQ/M<br /><br />Suppose that the money stock is $20 billion. Assume that, in the course of a year, the average dollar bill and the average chequing deposit are spent twelve times to purchase final goods and services. In other words, V is 12. Then, total spending for final output is $20 billion times 12, or $240 billion. In turn, this total spending (MV) equals the total quantity of goods and services (Q) times the average price (P) at which they were sold.<br /><br />But how can the same dollar be used over and over to purchase final goods? Very simply. When you purchase groceries at the store, the $50 you pay does not disappear. Rather, it goes into the cash register of the store. From there, it is used to pay the farmer for fresh vegetables, the canning factory for canned goods, or the clerk's wages. The farmer or the clerk or the employee of the canning factory will in turn use the money to purchase goods. Once more, the same money is used for final purchases. The same dollar bill can circulate round and round." (Blomqvist, Wonnacott and Wonnacott, "Economics First Canadian Edition" ISBN: 0-07-54815-X: p. 247-248) <br /><br />It was written in a committee report to the Alberta government in regards to the quantity theory of money: “The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ (“<a href="http://www.geocities.com/socredus/compendium/alberta-march-1945.txt">The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance</a>") Because all money is created as a debt that needs to be repaid, money does not circulate, but instead operates in an accounting cycle. If a retailer receives money from a customer for its product, the total sum of this money is neither profit, nor income. A retailer has debts to repay, or it must replace working capital. These sums are subtracted from revenues when determining profits. Neither is the profit entirely income; taxes must be paid, and a portion may be re-invested back into the business. Therefore, of the money received from the customer, the retailer may find that only a very small percentage is actually distributed as income that can then be spent on goods or services, the rest is either used to repay debts, replace working capital, or re-invested back into the firm. The fallacy is that the same dollar bill can "circulate round and round"; in reality, money is created as a debt that needs to be repaid. Every loan creates a deposit, and every repayment of a loan destroys a deposit. Therefore; money does not "circulate round and round" but is created and destroyed through the creation of loans and their repayment.<br /><br />Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale. <br /><br />Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee when he said, "What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (p. 90)<br /><br />Incomes are paid out to workers during a multi-stage program of production, and according to the convention of accepted orthodox rules of accountancy, said incomes, are part of the financial cost and price of the final product when it is ready for use at the point of retail sale. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. In the real world earned incomes are largely, and necessarily, spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future –goods which must include the sum of incomes paid out during their period of manufacture in their price . Because the cyclic rate of circulation of money takes less time than the cancellation of the costs that the money created, orthodox economics can only allow access to the final products of industry by the mechanism of increasing consumer debt that constitutes a mortgage against future incomes. This does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, supply does not create enough demand to liquidate all the costs of production: Social Credit denies the validity of "Says Law" in economics.<br /><br /><strong>Literary Figures in Social Credit</strong><br /><br />As lack of finance has been a constant impediment to the development of the arts and literature, the concept of economic democracy through Social Credit had immediate appeal in literary circles. Names associated with Social Credit include Charlie Chaplin, William Carlos Williams, Ezra Pound, T.S. Eliot, Herbert Read, Aldous Huxley, Storm Jameson, Eimar O’Duffy, Sybil Thorndyke, Bonamy DobrÈe and the American publisher James Laughlin . In 1933 Eimar O’Duffy published Asses in Clover, a science fiction fantasy exploration of social credit themes. His social credit economics book Life and Money: Being a Critical Examination of the Principles and Practice of Orthodox Economics with A Practical Scheme to End the Muddle it has made of our Civilisation, was endorsed by Douglas. <br /><br /><strong>Summary</strong><br /><br />In Social Credit terminology, the words “Economic Democracy” do not mean worker control of industry. They mean conditions of consumer sovereignty wherein the consumer establishes the policy of production through exercise of his money-vote, fully provided with adequate purchasing power. The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. Each citizen is to have a beneficial, not direct, inheritance in the communal capital—conferred by complete and dynamic access to the fruits of industry assured by the National Dividend and Compensated Price.Social Credit is distributive and its policy is to disperse power to individuals. “The only safe place for power is in many hands.”Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com3tag:blogger.com,1999:blog-8479707700970948550.post-36366986356373039622007-10-07T19:10:00.008-06:002011-09-24T07:36:52.627-06:00Douglas's A+B TheoremBy: Socred - B.A., SCMP<br /><br />Douglas’s A+B theorem is probably the most simple, yet most controversial, of all of Douglas's ideas. Oftentimes, too much emphasis has been placed on this theory amongst Social Crediters themselves, but the theory itself is essential for understanding Douglas’ monetary policies. The theorem is a truism; however, the controversy lies in the nature of the “B payments” which Douglas identified. The theorem is stated by Douglas as follows:<br /><br /><em><strong>“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation 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.” (C.H. Douglas, “The Monopoly of Credit”)</strong></em><br /><br />Douglas was an engineer, and a cost accountant.. As a scientist, he started with an observation, and formed a hypothesis. This is different than many orthodox economists who form a hypothesis, and then try to make the facts fit their theory. Douglas’ A+B theory is a simple statement of fact, and the accounts of any business will verify this fact. The confusion amongst orthodox economists lies in the nature of the B payments, and what causes them.<br /><br />The critics of the theory generally fall into two categories by arguing: 1) B payments are really income, so there is no differentiation between A and B payments or 2) B payments are either past, or future, income. Let’s address both these criticisms individually.<br /><br />The first criticism, which states that B payments are income, implicitly assumes the quantity theory of money. According to this theory, all money received by firms is income and can be used to purchase other goods and services. The theorem states that the quantity of transactions, multiplied by the quantity of money, equals total purchasing power. On the surface, this theory seems to make sense, but upon further investigation, it is not a reflection of reality. In reality, firms have costs that must be repaid. These costs can ultimately be traced back to bank debt because all money originates as debt. If a company receives $10 for its product, and assuming accumulated costs of $8.50 to acquire and sell this product, then only $1.50 is actually profit to the company, and potential income. The $8.50 must be used to cancel debts, or replace working capital. All of the $10 received by the company is not income. The fallacy was pointed out in "The Alberta Post-War Reconstruction Committee Report".<br /><br /><em><strong>“The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ ( “<a href="http://www.geocities.com/socredus/compendium/alberta-march-1945.txt">The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance</a>")</strong></em><br /><br />The truth is that money does not “circulate” but instead operates in an accounting cycle, and B payments are monies on their way back to the bank, thus completing the cycle. Therefore, B payments do not exist as income to anyone. Income, by contrast, is flowing from the bank, and reaches individuals through the media of wages, salaries, and dividends. The argument that B payments are income is a complete fallacy based on the erroneous assumption that the circulation of money increases its purchasing power.<br /><br />The second criticism, which has more credibility, will be seen to be a complete fallacy when the concept of time is introduced. Although not all B payments represent previous, or future, income (something we will touch on later), it is true that a proportion of the B payments are represented by past and future incomes. However; income and prices must be regarded as flows, and as Douglas stated:<br /><br /><em><strong>“The mill will never grind with water that has passed, and unless it can be shown, as it certainly cannot be shown, that all these sums distributed in respect of the production of intermediate products are actually saved up, not in the form of securities, but in the form of actual purchasing power, we are obliged to assume what I believe to be true, that the rate of flow of purchasing power derived from the normal and theoretical operation of the existing price system is always less than that of the generation of prices within the same period of time.” (C.H. Douglas, “The Monopoly of Credit”)</strong></em><br /><br />It is obvious that future incomes cannot be used as present incomes (excluding momentarily credit from an extraneous source, which is a mortgage on future incomes). These future incomes are profits (interest on loans representing bank profit), which become future incomes via dividends paid to individuals. The fact that profits partially cause the gap between income and prices forms the supposed justification for the socialist argument against profits. However, nobody will do something unless it in some sense of the word profits him. Also, profits only represent a portion of the gap between income and prices. Douglas did not seek to eliminate profits, instead he wanted to compensate for the gap between income and prices which profits helped create.<br /><br /><br /><em><strong>"The essential point to notice, however, is not the profit, but that he cannot and will not produce unless his expenses on the average are not more than covered. These expenses may be of various descriptions, but they can all be resolved ultimately into labour charges of some sort (a fact which incidentally is responsible for the fallacy that labour, by which is meant the labour of the present population of the world, produces all wealth). Consider what this means. All past labour, represented by money charges, goes into cost and so into price. But a great part of the product of his labour -that part which represents consumption and depreciation - has become useless, and disappeared." (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</strong></em><br /><br />Past income used for consumption represents a substantial portion of the gap between income and prices. The belief that incomes disbursed in the past for capital production are all saved up in order to defray the costs associated with those incomes as they make their way into the cost of future consumer goods is a complete fallacy. People tend to spend their income on consumer goods in a relatively expeditious fashion. This money is collected from the consumers by businesses through the agency of prices. The upper limit of prices being governed by the laws of supply and demand, or what the item will fetch. This income, recollected by businesses, forms a part of their profit, assuming they can sell their product above cost. These profits can be distributed as income in the form of dividends, but is most often re-invested back into the company, and therefore, do not exist as income to anyone.<br /><br /><em><strong>“Consider the nature of these B payments. They are repayments collected from the public of purchasing power in respect of production not yet delivered to the public. If the wage earners in process ‘I’ use their current month’s, i.e. May’s, wages to buy their share of one current month’s production of consumable goods, they are using money distributed in respect of production which will not appear as consumable goods till October. They are in fact involuntarily reinvesting their money in industry, with the results previously explained” (C.H. Douglas, “The Monopoly of Credit”)</strong></em><br /><br />Therefore, it can be seen that the criticisms of the A+B theorem are based on the fallacy known as the quantity theory of money, or they fail to take into account the effect of time on income and prices (i.e. they are static). Incomes and prices are flows, and any analysis into their nature must account for the dimension of time. Since prices include all payments made to individuals as income (A), as well as all overhead charges (B), we must understand what causes these overhead charges in order to understand why prices rise faster than incomes when regarded as a flow.<br /><br /><em><strong>"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 cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included." (C.H. Douglas, "The New and The Old Economics")</strong></em><br /><br />The cyclic rate of purchasing power of money can be calculated by calculating the average amount of deposits held by depositors in banks relative to the amount of clearings through the banks, minus the amount of "Butcher-Baker" transactions. Douglas referred to any transaction that broke a chain of repayments as a "Butcher-Baker" transaction. When a butcher receives money for his product from his customer, he must repay debts owed to the slaughterhouse for the meat, who in turn must pay debts owed to the farmer, who pays debts to the banker (all money originating from the bank as a debt). If the butcher buys bread from the baker with the money he has received from his customer, then he has broken the chain of debt to the slaughterhouse, farmer, and ultimately the banker; and therefore, these transactions leave a trail of debt, and must be deducted when calculating the cyclic rate of purchasing power, because the monetary cycle has not been completed. Douglas calculated the average cyclic rate of purchasing power to be approximately two and a half weeks in Britain ("The Old and the New Economics”). Therefore; any cost anterior to three weeks, must form a part of the gap between income and prices. Douglas spoke of this fact when questioned before the Alberta Agricultural Commission.<br /><br /><em><strong>"Well, that question of course is outside what I was speaking of this morning, but I have no objection whatever to answering it shortly. The best way of understanding what the speaker has referred to as the "A plus B" theory is to look at the matter in this way: The purchasing power of the general community is practically 98 per cent, I think, taken over all products, bank money. The actual deposits in banks under what are sometimes called "normal times" (I don't know what normal times are, but they are frequently referred to so we will assume that there are normal times) the deposits remained fairly constant. For instance, in Great Britain since the war they have reached around between 16 and 18 hundred millions of pounds. Now there is quite obviously a circulation of those deposits through the agency of costs. They are distributed for wages and so forth and they come back to the same source through the agency of price. That is the way the existing financial system works.<br /><br />Now all business in the world at the present time is carried on on the theory of the balanced budget, including governmental business. Therefore, you must have a right, or period of cycle through which this money which starts from the banks goes out through cost and comes back again to the banks through the agency of price; there must be a time that that cycle takes. Now we have as a matter of fact means of calculating that time, and in Great Britain the average is somewhere in the neighbourhood of around about three weeks. Now, so long as a charge is incurred and liquidated inside that period of three weeks it can be liquidated by that cycle of the flow of purchasing power, starting from the banks, going out through costs and coming back again through prices. So long as the whole transaction of costs and prices is involved in a period of about three weeks, there is no difficulty involved in the prices and the costs being equal, but any item of cost which is outside that period of three weeks we will say cannot be liquidated by that stream of credit which is constantly in circulation at a period rate, we will say of three weeks.<br /><br />Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale. It is frequently said, "Your theory must be absurd because we know that there are periods in which purchasing power is in excess of the price of the goods for sale, for instance at the end of a war." What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (C.H. Douglas, "Douglas System of Social Credit", evidence taken by the Agricultural Committee of the Alberta Legislature 1934)</strong> </em> <br /><br />If money disbursed for production makes its way to the bank before its cost can be extinguished in the price of the consumer goods it creates, then there is a corresponding gap between income and prices. If income is reinvested back into the productive system, then each time it is re-invested, it creates a new cost without creating new purchasing power (we have already seen that money does not circulate, but cycles, so money is only capable of cancelling one cost). The income I receive in terms of wages or salaries has been debited to the cost of some good or service. If I invest my income, then I expect to receive my investment back, with a rate of return. The only way the company I invested in can give me my money back with a rate of return is by charging the consumer through prices. Therefore; my income has created two costs: 1) the cost associated with the good or service that I helped provide, and 2) the cost associated with the investment that must be returned to me. However, my income can only cancel one of those costs. There is now a new cost created, without the creation of new purchasing power. <br /><br /><em><strong>"But we also find that apart from this question of the distribution of purchasing power there is not enough purchasing power distributed to buy the goods which are for sale if the production of these goods has been financed by ordinary methods. There are many contributory causes to this situation, but it is probable that the main cause is due to the reappearance in prices of the same sum of money several times, a state of affairs which is rendered possible by the splitting up of production into a large number of processes." (C.H. Douglas, "<a href="http://www.alor.org/Library/Moneyand%20the%20PriceSystem.htm#1a">Money and the Price System</a>")</strong></em><br /><br />The reappearance in prices of the same sum of money several times creates a gap between purchasing power and prices. The re-investment of savings causes the reappearance in prices of the same sum of money, and the more production is split up into a large number of processes, the greater the probability that income disbursed in capital production will be reinvested. Douglas listed five causes of the gap between prices and purchasing power in "The New and The Old Economics":<br /><br /><em><strong>"Categorically, there are at least the following five causes of a deficiency of purchasing power as compared with collective prices of goods for sale: - <br />1. Money profits collected from the public (interest is profit on an intangible)<br />2. Savings, i.e., mere abstentation from buying<br />3. Investment of savings in new works, which create a new cost without fresh purchasing power<br />4. Difference in 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 frm a previous wage cycle are of the same nature.<br />5. Deflation, i.e. sale of securities by banks and recall of loans" (C.H. Douglas, "The New and The Old Economics")</strong></em><br /><br />We have already discussed at length reasons 1, 3, and 4. Reasons 2 and 5 are pretty much self-explanatory, both being a reduction in A, and not the creation of B costs. Add to all this the fact that overhead charges are growing in relation to income (i.e. B is increasing relative to A), due to the fact that capital is replacing the need for labour in the productive process, and it is apparent that the gap between income and prices is ever increasing, and this problem is ever worsening.<br /><br /><em><strong>"At the moment the point to be borne in mind is that B is the financial representation of the lever of capital, and is constantly increasing in comparison with A. So that, in order to keep A and the goods purchase with A at a constant value, A+B must expand with every improvement of process..." (C.H. Douglas, "<a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit-Power and Democracy</a>")</strong></em><br /><br />What does this mean? If A+B must expand with every improvement of process in order to keep A, and the goods purchased with A ,at a constant value, and if A+B represent prices, then prices must expand with every improvement in process. This is why certain periods of time, when people have enough income to purchase most goods coming onto the market, are met with rising prices (i.e. inflation). Inflation is generally not caused by too much income chasing too few goods, but is caused by the ever increasing expansion of overhead costs via advancing technological processes. This means that inflation is inherent in our economic system, unless credit from an extraneous source is used to decrease, or stabilize, prices.<br /><br /><em><strong>"Now any attempt, by current financial methods, to reduce prices (or even to stabilize them, as the phrase goes) is a mathematical absurdity unless the cost of this stabilization, or lowering of prices, is met from some extraneous source. Or to put the matter another way, the margin of profit which makes it possible for a producer to go on producing, disappears unless the financial cost, and consequently the price of production, is allowed to rise steadily in relation to direct labour cost." (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/socialcredit.htm">Social Credit</a>")</strong></em>Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com21tag:blogger.com,1999:blog-8479707700970948550.post-86932050068746154822007-05-20T08:42:00.003-06:002011-09-24T07:37:21.209-06:00Industry, Income and PricesBy: Socred - B.A., SCMP<br /><br />The monetary system and the productive system are two distinct factors in an economy. Therefore; we must inquire how the money system and the productive system are linked? What is the purpose of a productive system? And how does the productive system satisfy our needs? <br /><br /><em><strong>"It must be borne steadily in mind in considering this question that the object of industry is not work for its own sake; the industrial system exists firstly because society has need of goods and services." (C.H. Douglas, "<a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit-Power and Democracy</a>")</strong></em><br /><br />The goal of the productive system is to create goods and services. The production of goods is the transformation of matter, and its movement to where it is demanded. Services enhance the value we attribute to goods. Work is merely a bye-product of this system. Therefore, the purpose of the industrial system is not to provide work; although, some work is necessary to provide the goods and services that we desire. The amount of labour required for production is constantly decreasing through advances in technology. Man organizes himself for productive purposes because we are capable of producing far more when we work together than if we were to attempt to produce individually. The increased output achieved by working together is known as the increment of association. This increment is dependent on available physical capital (raw materials, machines, buildings etc. ), technology and processes; most of which were built, invented, and developed, by people who are long since dead. The invention of the wheel, or the harnessing of fire, have both brought great benefit to mankind, but the people who developed these technologies are long since gone. These technologies, or processes, belong to every man by birthright, and form a part of our cultural heritage. Production is mostly a function of our cultural heritage. Direct labour is constantly becoming a less important factor in production.<br /><br /><em><strong>"The modern producer-not so much of course, the agricultural producer, although to some extent that is true by the use of harvesters, and gang plows and many other things, application of transportation and so forth--but taken over the whole world, the actual producer so called is more and more the delegate of the general community, delegated as you might say, to press the keys of an enormous productive machine which is over-whelmingly effective as a result of inherited knowledge and technique. You can prove that to yourselves if you consider the effectiveness as producers of ten men, let us say in Detroit, and ten men on a desert island. What ten men on a desert island can do, is what they can do as producers; what ten men can produce in a year in the way of wealth in Detroit is due to their value as producers plus their application of the heritage of civilization, and I suppose ten men in Detroit could probably produce ten thousand times as much real wealth in a year as the same ten men on a desert island. The difference between that productivity is due not to their own virtues but to their inheritance of this technique of civilization." (C.H. Douglas, Testimony before the Alberta Agricultural Commission)</strong></em><br /><br />The cultural inheritance of the technique of civilization is primarily responsible for the wealth that we are capable of producing today. The current generation of men who "press the keys" of this enormous productive machine add very little to its productivity, and as Douglas said, if someone is sceptical of this fact, they should compare the productivity of ten men on a deserted island who do not have access to the cultural heritage, as opposed to ten men in Detroit who do. Of course, the machine would not produce at all without those who "press the keys", but the productivity of those who press the keys is mostly a function of our cultural heritage. <br /><br /><em><strong>"The industrial machine is a lever, continuously being lengthened by progress, which enables the burden of Atlas to be lifted with ever-increasing ease. As the number of men required to work the lever decreases, so the number set free to lengthen it increases." ( C.H. Douglas, "<a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit-Power and Democracy</a>")</strong></em><br /><br />The industrial machine acts as a lever, which allows man to free himself from the burden of Adam, by substituting solar power for human power. Progress, or advances in technology, decrease the amount of labour it takes to produce goods or services. As the amount of men freed from production increases, via advances in technology, so the amount of men available to devise technology that is labour saving, is increased. As an example, the productivity of farmers has increased dramatically since the advent of the industrial revolution, and this has led to a drastic decrease in the amount of people engaged in agricultural production.<br /><br /><br /><em><strong>"A factory or other productive organization 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" ( C.H. Douglas, "<a href="http://www.archive.org/details/creditpowerdemoc00douguoft">Credit-Power and Democracy</a>")</strong></em><br /><br />Companies have a dual role in the economy, because the modern economy is dependent on money for the distribution of goods and services. Firms not only create goods and services, but distribute incomes, at the same time creating price values. Income is distributed when a company pays wages and salaries to its employees, or distributes dividends to its owners, and that income is "repaid" when a consumer pays a price, thus acquiring a good or service in exchange for his money. We are now in a position to apprehend the accounting cycle of money. Money is created by banks through loans or overdrafts to businesses (excluding for the moment consumer debt), it is then distributed as income to workers, and owners, through the media of wages, salaries and dividends. It is eventually taken back in the form prices or taxes in exchange for a good or service,making its way back to the bank where the loan is repaid and, consequently, the money destroyed. Money operates in accounting cycle: it does not circulate. It is either creating costs or cancelling them. It has direction: it is either flowing from the bank and being distributed as income, or it is taken back as prices and flowing back to the bank (taxes being the government equivalent of prices) . <br /><br /><em><strong>"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." (C.H. Douglas, "<a href="http://www.archive.org/details/econdemocracy00dougiala">Economic Democracy</a>")</strong></em><br /><br />Companies will not produce for any length of time below cost. Profit is the incentive to produce. Obviously, any price below cost results in a negative profit and a disincentive to produce. Retailers may sell some items below cost (known as "loss leaders") in the hope that they can sell other products above cost in order to compensate for that loss, but no company can produce below the total cost of production for any length of time. Hence; cost is the lower limit of price. The upper limit of price is what people are willing to pay, and the more they are willing to pay, the more profit. Often, firms will engage in "economic sabotage", or the artificial restriction of output, in order to sell at a higher price; thus maximizing their profit. This restriction is made easier when there is differentiation between products. For example, an individual farmer has no affect on the price of wheat by restricting his output, because wheat is a homogeneous product. Consequently; the price of wheat is often at or below the cost of production. However; a Mazzerati can be sold well above the cost of production by merely limiting the amount of Mazzeratis produced: creating an artificial scarcity. If effective demand is well above the ability of all producers to supply consumer goods, then the price of all goods will eventually rise regardless of the ability to create artificial scarcity. This situation is also known as inflation.<br /><br /><em><strong>"The essential point to notice, however, is not the profit, but that he cannot and will not produce unless his expenses on the average are not more than covered. These expenses may be of various descriptions, but they can all be resolved ultimately into labour charges of some sort (a fact which incidentally is responsible for the fallacy that labour, by which is meant the labour of the present population of the world, produces all wealth). Consider what this means. All past labour, represented by money charges, goes into cost and so into price. But a great part of the product of his labour -that part which represents consumption and depreciation - has become useless, and disappeared." (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</strong></em><br /><br />All costs go into price, and represent the lower limit of price. And all costs can ultimately be resolved into labour charges of some sort. However; the portion of the labour that represents past consumption and depreciation is no longer income. The problem is clear: cost forms the lower limit of price, and all costs go into prices: these prices are paid by incomes, but the portion of cost represented by consumption and depreciation does not exist as income. Therefore, total incomes are less than total costs. If every firm sold their product at cost (i.e. without profit), total incomes would be incapable of purchasing all the products that are produced. This fundamental flaw would have been exposed a long time ago if it were not for an intervening factor - credit from an extraneous source. An obvious extraneous source of credit is consumer credit, which is really a mortgage on future incomes, and only goes to exacerbate the problem as future incomes are decreased by an equivalent amount. However; the gap is mainly hidden by capital production and exportation of product. There are two types of goods: 1) Consumer goods, and 2) Capital goods. Consumer goods are purchased by consumers and their cost is defrayed upon purchase. Capital goods are purchased by businesses in order to produce consumer goods. Capital goods are raw materials, buildings, equipment etc., and their cost is not defrayed upon purchase, but transferred, and the cost ultimately ends up in the cost of a consumer good, where it is eventually defrayed upon purchase by a consumer. <br /><br /><em><strong>"In consequence, the production which is stimulated - the production which we are asked to increase - is that which is required by the industrial machine, intermediate products or semi-manufactures, not that required by humanity." (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</strong></em><br /><br />The cost of capital production showing up in the cost of consumer goods is delayed, because it takes time for a capital good to make its way through productive system in order to be consumed. This fact allows the income from capital production to cover the gap between income and prices on consumer goods. In fact, massive amounts of capital production can lead to inflation in prices of consumer goods, if the effective demand created through capital production is in excess of this gap. Alberta is experiencing this situation currently, as capital production in heavy oil upgraders is dispersing massive amounts of income leading to the inflation of prices - especially for consumer goods whose supply increases slowly (i.e. housing). However; the cost of these capital projects eventually make their way into the cost of a consumer goods (i.e. the cost of the upgraders will eventually be included in the cost of gasoline), and if the money disbursed as income for these capital goods is used on current consumption (which it most likely the case), then it will not be available to meet the price of the consumer good created at a future date. By attempting to close the gap between income and prices of consumer goods through capital production, we are exacerbating the problem, as the gap between income and prices of consumer goods only widens at a future date. When there is a lack of capital production (i.e. investment), firms find their margins decreasing, and we experience a business "slump".<br /><br /><em><strong>"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." (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</strong></em><br /><br />Regardless of how many consumer goods are in existence, we are unable to purchase them unless we engage in capital production (i.e. there has to be sufficient investment to cover the gap between prices and income), or we engage in a policy of a "favorable balance of trade" (i.e. exports exceed imports) with other nations, disposing of production (i.e. doing more work than is necessary) in order to close the gap between income and prices . The more we engage in capital production, the more we are forced to seek a favorable balance of trade with other nations. This is a vicious cycle, because if we don't engage in excess capital production, or dispose of production by sending it to another country, companies find their margins decreasing, which in turn leads to layoffs, and a recession. However; it is impossible to keep following this path, because increasing investment ultimately leads to inflation as capital production makes its way into the cost of consumer goods, and all industrialized countries are seeking to continuously export their surplus production to foreign nations, which leads to ever increasing third world debt, and friction between industrialized nations, ultimately leading to war. Capitalism is plagued by periods of heavy investment, followed by rising prices, increasing interest rates in order to control prices, decreasing profit margins to businesses, unemployment, and finally a recession. In fact, some people have come to believe that this is a naturally occurring phenomenon like the rising of the sun or the law of gravity: what goes up must come down.<br /><br /><em><strong>"By an accounting method of analysis, the conclusion is reached that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources. In other words, recurring periods of business depression are shown to be the result of present financial and business policies." (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</strong></em><br /><br />Business cycles are simply caused by financial and business policy, and unless there is a change in our policy towards incomes and prices, this will be a recurring problem with our economic system. Attempts to close the gap between income and prices by increasing income through investment simply results in inflation: attempts to close the gap by giving surplus production to foreign nations leads to the struggle for markets, resulting in third world debt, friction between industrialized nations, and ultimately war. Attempts to reduce prices by restricting credit through increasing interest rates is also doomed to failure, because the upper limit of price is governed by the law of supply and demand, but the lower limit is governed by cost of production. It is the rising cost of production that is the primary culprit for inflation, not too much income. If effective demand is insufficient to cover the cost of production, plus the profit margin just large enough to provide incentive to produce, businesses will simply stop producing. This policy leads to bankruptcies and economic hardship.<br /><br /><em><strong>"Now any attempt, by current financial methods, to reduce prices (or even to stabilise them, as the phrase goes) is a mathematical absurdity unless the cost of this stabilisation, or lowering of prices, is met from some extraneous source. Or to put the matter another way, the margin of profit which makes it possible for a producer to go on producing, disappears unless the financial cost, and consequently the price of production, is allowed to rise steadily in relation to direct labour cost." (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</strong></em><br /><br />Central Banks attempts to arrest inflation through the use of interest rates to restrict the supply of money is futile, since it does not deal with the root cause of inflation, making the cure worse than the disease. The artificial restriction of credit causes margins to decrease leading to decreased production, which explains the common fallacy that there is a natural trade-off between inflation and decreased production. In reality, there is no trade-off. Prices can decrease, and production can increase, if part of the cost of production is defrayed with money that did not come from the productive system. Every debt created in the aid of production creates an equivalent cost, because the debt must be repaid. Debt is recovered in prices. <br /><br /><em><strong>"the consumer cannot possibly obtain the advantage of improved process in the form of correspondingly lower prices, nor can he expect stable prices under stationary processes of production, nor can he obtain any control over the programme of production, unless he is provided with a supply of purchasing-power which is not included in the price of the goods produced. If the producer or distributor sells at a loss, this loss forms such a supply of purchasing-power to the consumer; but if the producer and distributor are not to sell at a loss, this supply of purchasing-power must be derived from some other source. There is only one source from which it can be derived, and that is the same source which enables a bank to lend more money than it originally received. That is to say, the general credit." (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</strong></em><br /><br />Mankind will never have control over production, or stable prices, unless we are provided with a steady supply of purchasing power not included in the cost of goods sold. This purchasing power must be created debt free, and given to individuals in such a way that it's not derived from work, for all debt servicing charges, and labour costs, go into the cost of goods sold, and consequently, into price. In this way, improvement in processes, which decrease the real cost of production (i.e. the amount of energy used), will also reduce the financial cost of production, resulting in falling prices. By providing debt free credit to consumers in reduction of prices, and by virtue of a dividend not associated with work, not only will prices fall, but consumers will finally have control over production, and no longer will the productive system have control over mankind.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com3tag:blogger.com,1999:blog-8479707700970948550.post-27211805900089899262007-04-29T19:31:00.004-06:002011-09-24T07:37:55.697-06:00Money and BankingBy: Socred - B.A., SCMP<br /><br />If the public is unfamiliar with the techniques of money and banking, then they will never understand how the current monetary system governs them. Further,if a monetary system governs individuals, then we have a system controlling men, and since men are above all systems, it is essential that we, as individuals, control the monetary system. In order to control a system, we must understand its techniques. Before trying to understand the techniques of money creation, we must first ask ourselves what is money, and what is its purpose? <br /><br /><strong><em>"It is absolutely vital to realize that the essential part of money is the belief that through its agency you can satisfy your demands. (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</em></strong><br /><br />Money is essentially effective demand. We place our money down in the faith that another will depart with a good or service in exchange for it. It allows us to carry on trade without barter. Money makes it possible for men to associate together in a manner which is beneficial to everyone. Therefore; money is essential to our economy. But, our demands can only be satisfied if money delivers goods and services. Therefore; the basis for the quantity of money, or the limit to our demand, is the ability of the productive system to deliver goods and services when and where they are needed. What does this mean? For one, it means that the basis upon which the quantity of money is determined has nothing to do with any of the physical properties of money itself.<br /><br /><strong><em>"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 acceptablility 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 "credere," 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 the most general use. The cheque, no doubt, owes its popularity to this latter attribute." (C.H. Douglas, "<a href="http://www.alor.org/Library/Warning%20Democracy.htm#1a">Warning Democracy</a>")</em></strong><br /><br />Money's value does not derive from its composition, but by the capacity of the economy to produce goods and services. This automatically rules out gold as an appropriate determination for the quantity of money. There is no real resemblance between the quantity of gold in existence, and the economy's ability to produce. Reality must reign supreme lest an abstraction have precedence over it, and money is an abstraction. Money should be a measure of wealth, and should never control our creation of it. Whatever is physically possible is financially possible. <br /><br /><strong><em>"Money is nothing whatever but a ticket system which has nothing whatever to do with all these abstract descriptions of it such as a medium of exchange, or a storehouse of values or any of these other things. It is a ticket system and nothing else." (C.H. Douglas, Testimony before the Alberta Agricultural Commission)</em></strong><br /><br />Douglas compared money to a ticketing system, because it is a means of distributing production. The only real limit to the amount of railway tickets issued is the number of seats on the train. The number of railway tickets should never be a limit on the number of people who board the train, for the latter is an inversion of reality. In other words, money should never be a limiting factor on production: production should be a limiting factor on money.<br /><br /><strong><em>"There is also a nebulous idea involved, I think, to the effect that the man who grows, e.g. a ton of potatoes, also grows the purchasing-power of a ton of potatoes. The facts are far otherwise, as no doubt large numbers of potato-growers could testify. Given a fixed amount of legal tender, and assuming legal tender to be the only purchasing-power, no amount of production would increase it. Probably a minimum of nine-tenths of the immediately available purchasing-power in the world arises out of bank loans or their equivalent in bills discounted. These loans and the purchasing-power which they create have no automatic relation to either production or consumption. " (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</em></strong><br /><br />Many people have a vague conception that the production system somehow manufactures money, and in so doing, create enough money to liquidate all costs of production. This idea is perpetuated by the belief that firms "make money" when they earn a profit. Of course, if companies literally "made money", they would be engaged in counterfeiting. The truth is money is not created by production, but is created by the banking system. Central banks are responsible for creating cash, and commercial banks create the majority of the assets used as money. The amount of cash in existence is determined by people's desire to hold cash. As Douglas states above, probably 90% of the money supply is created by commercial banks in the forms of loans to businesses and individuals. This money is called bank credit. Below are some quotes about banks and their ability to create money:<br /><br /><strong><em>"In the normal course of their operations, banks create money" (<a href="http://economics.uwo.ca/faculty/blomqvist/">Blomqvist</a>, <a href="http://economics.uwo.ca/faculty/wonnacott/">Wonnacott</a>, and <a href="http://www.bsos.umd.edu/econ/efaculty/profiles/wonnacott.html">Wonnacott</a>, "Economics First Canadian Edition"</em>pge. 201)</strong><br /><br /><strong><em>"The actual process of money creation takes place primarily in banks." (Federal Reserve, "<a href="http://landru.i-link-2.net/monques/mmm2.html">Modern Money Mechanics</a>")</em></strong><br /><br /><strong><em>"Commercial banks and other financial institutions provide the greater part of assets used as money through loans made to individuals and businesses. In that sense, financial institutions are creating money. " (Bank of Canada, "<a href="http://www.bankofcanada.ca/en/backgrounders/bg-m2.html">Bank in Brief</a>")</em></strong><br /><br /><strong><em>"The process by which banks create money is so simple that the mind is repelled." (<a href="http://cepa.newschool.edu/het/profiles/galbraith.htm">John Kenneth Galbraith</a>)</em></strong><br /><br />This idea may be novel to some, so it is important to understand exactly how banks create deposits. The process is known as deposit expansion. Many mistakenly believe that banks loan deposits. They believe that when they deposit their money in a bank, the bank somehow loans all, or part, of their deposit to another. This would only be true if a bank debited the depositor's account when they made a loan. Sceptics should ask themselves if they have ever had their bank account debited by any bank because the bank loaned their deposit to someone else. In reality, banks do not loan deposits but create them. Or, as Mr. McKenna, Chairman of the Midland bank, said, "every bank loan and every purchase of securities by a bank creates a deposit, and the withdrawal of every bank loan, and the sale of securities by a bank, destroys a deposit (AGM Midland Bank, January 25, 1924.) The process is explained by the Federal Reserve below assuming that the Fed's open market operations create $10,000 in cash reserves:<br /><br /><br /><strong><em>"How the Multiple Expansion Process Works<br />If the process ended here, there would be no "multiple" expansion, i.e., deposits and bank reserves would have changed by the same amount. However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and investments. Unused or excess reserves earn no interest. Under current regulations, the reserve requirement against most transaction accounts is 10 percent.(5) Assuming, for simplicity, a uniform 10 percent reserve requirement against all transaction deposits, and further assuming that all banks attempt to remain fully invested, we can now trace the process of expansion in deposits which can take place on the basis of the additional reserves provided by the Federal Reserve System's purchase of U. S. government securities.<br /><br />The expansion process may or may not begin with Bank A, depending on what the dealer does with the money received from the sale of securities. If the dealer immediately writes checks for $10,000 and all of them are deposited in other banks, Bank A loses both deposits and reserves and shows no net change as a result of the System's open market purchase. However, other banks have received them. Most likely, a part of the initial deposit will remain with Bank A, and a part will be shifted to other banks as the dealer's checks clear.<br /><br />It does not really matter where this money is at any given time. The important fact is that these deposits do not disappear. They are in some deposit accounts at all times. All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested. See illustration 2.<br /><br />If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. See illustration 3.<br /><br /><br />Expansion - Stage 1<br />3.Expansion takes place only if the banks that hold these excess reserves (Stage 1 banks) increase their loans or investments. Loans are made by crediting the borrower's account, i.e., by creating additional deposit money. back<br />STAGE 1 BANKS<br /><br /><br />Assets Liabilities <br />Loans....... +9,000 Borrower deposits.... +9,000<br /><br />This is the beginning of the deposit expansion process. In the first stage of the process, total loans and deposits of the banks rise by an amount equal to the excess reserves existing before any loans were made (90 percent of the initial deposit increase).<a href="http://landru.i-link-2.net/monques/mmm2.html"> At the end of Stage 1, deposits have risen a total of $19,000 (the initial $10,000 provided by the Federal Reserve's action plus the $9,000 in deposits created by Stage 1 banks). </a>See illustration 4. However, only $900 (10 percent of $9000) of excess reserves have been absorbed by the additional deposit growth at Stage 1 banks. See illustration 5.<br /><br />The lending banks, however, do not expect to retain the deposits they create through their loan operations. Borrowers write checks that probably will be deposited in other banks. As these checks move through the collection process, the Federal Reserve Banks debit the reserve accounts of the paying banks (Stage 1 banks) and credit those of the receiving banks. See illustration 6.<br /><br />Whether Stage 1 banks actually do lose the deposits to other banks or whether any or all of the borrowers' checks are redeposited in these same banks makes no difference in the expansion process. If the lending banks expect to lose these deposits - and an equal amount of reserves - as the borrowers' checks are paid, they will not lend more than their excess reserves. Like the original $10,000 deposit, the loan-credited deposits may be transferred to other banks, but they remain somewhere in the banking system. Whichever banks receive them also acquire equal amounts of reserves, of which all but 10 percent will be "excess."<br /><br /><a href="http://landru.i-link-2.net/monques/mmm2.html">Assuming that the banks holding the $9,000 of deposits created in Stage 1 in turn make loans equal to their excess reserves, then loans and deposits will rise by a further $8,100 in the second stage of expansion. This process can continue until deposits have risen to the point where all the reserves provided by the initial purchase of government securities by the Federal Reserve System are just sufficient to satisfy reserve requirements against the newly created deposits.(See pages10 and 11.)</a><br /><br />The individual bank, of course, is not concerned as to the stages of expansion in which it may be participating. Inflows and outflows of deposits occur continuously. Any deposit received is new money, regardless of its ultimate source. But if bank policy is to make loans and investments equal to whatever reserves are in excess of legal requirements, the expansion process will be carried on." (<a href="http://landru.i-link-2.net/monques/mmm2.html">Modern Money Mechanics</a>, U.S. Federal Reserve)</em></strong><br /><br />Any individual bank is not concerned with what stage in the process of deposit expansion they exist when making loans, because the inflows and outflows of deposits occur continuously. The important point to note is that bank loans create deposits/money. The loan is an asset to the bank because the borrower owes the bank the amount of the loan, plus interest. The deposit is a liability to the bank because the bank must now be able to supply cash for the deposit upon demand. Commercial banks cannot create cash, but have to borrow it from the Central Bank, so there is a limit to how much money, or how many deposits, a commercial bank can create, and that limit is based upon the ratio of reserves to deposits. As to the banking system as a whole, including Central Banks, there is absolutely no limit to the amount of money, or credit, that can be created. Cash is an asset to the bank, and along with its securities, forms the banks reserves. In most nations, the government mandates, through law, the amount of reserves a bank must keep in ratio to its deposits. In Canada, changes to the Bank Act in 1992 did away with any legal obligation of Chartered Banks to hold reserves in ratio to their deposits. However; all banks keep a certain amount of reserves in ratio to their deposits for liquidity purposes. When banks are unable to meet their clients' demand for cash, this is known as a "bank run". Because of the possibility of bank runs, the Canadian Deposit Insurance Corporation, and the Federal Deposit Insurance Corporation in the United States, insure deposits up to a certain limit. In order to understand how banks obtained the power to create money, we must understand the history of fractional reserve banking.<br /><br /><strong><em>"It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.<br /><br />Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.<br /><br />Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money." (<a href="http://landru.i-link-2.net/monques/mmm2.html">Modern Money Mechanics</a>, U.S. Federal Reserve)</em></strong><br /><br />The goldsmiths realized they could issue more notes than the amount of gold coin they had on deposit, because only a portion of the notes they had outstanding would be redeemed for gold coins at any point in time. This is also true with cash today. The banks realize that only a portion of the money that people have on deposit with the bank will be redeemed for cash at any point in time, so they create more deposits than they have cash. This works so long as everyone does not demand cash for their deposit. <br /><br />We see from above that the productive system, and the banking system, are two distinct factors in the economy. The productive system is responsible for producing goods and services, and the banking system is responsible for creating the money necessary to act as effective demand to mobilize those goods and services. The banking system is the distributive system, and far from money originating from the productive system, like the scent from a rose; money originates from a completely separate system; as such, there is often no correspondence between these two systems. <strong>Therefore, " it is necessary to transform the basis of the credit-system entirely away from currency on which it now rests, to useful productive capacity." (C.H. Douglas, "<a href="http://www.archive.org/details/controldistribut00douguoft">The Control and Distribution of Production</a>")</strong><br /><br />Money's role is to distribute the goods and services that people demand. It's an order system. Since there is no limit to the ability of banks to create money, the only limitation that should be imposed on the amount of money in existence should be the ability of the economy to deliver goods and services when and where they are required - i.e. the real credit of the community. Our ability to produce is based on the physical assets of our nation. Money's role is the monetization of those assets in order that they can be mobilized for production. Douglas created a hypothetical balance sheet for Great Britain in the "Monopoly of Credit", which is reproduced below:<br /><br /> <strong>Great Britain Limited<br /><br />Assets:</strong><br /><br />(Population. Education Morale) i.e. Human potential<br /><br />Policy<br /><br />Organization<br /><br />Natural Resources<br /><br />Developed Power<br /><br />Plant (Railways, Buildings, Tools, etc.)<br /><br />Public Services<br /><br />Goodwill (Tradition, reputation etc.)<br /><br />Work in Progress<br /><br />Consumable Goods<br /><br /><strong>Liabilities:</strong><br /><br />National Debt<br /><br />Bankers (Potential creators of effective demand)<br /><br />Insurance Companies (Mortgage and Bondholders)<br /><br />Cash at Call<br /><br />Taxation for Public Services<br /><br />Notice that cash is a liability, so the amount of credit created by the current banking system is based on a liability, not on the assets of the nation. However; the amount of credit created should be based on the real credit of the community, which is reflected in the nation's assets. <br /><br /><strong><em>"We know quite well that the core of this problem is in the disparity between the real wealth available and the monetization of that wealth; that it is within the power of monetization of real wealth that this power of credit lies." (C.H. Douglas, Testimony before the Alberta Agricultural Commission)</em></strong><br /><br />The power of credit creation, or the monetization or wealth, has been appropriated by a monopoly of credit - the banking system - which is a body of unelected people responsible solely to their shareholders, and who have been centralizing their power since the creation of the Bank of England in 1694. This centralization process continued with the creation of Central banks around the world including the Federal Reserve Bank in 1913, the Bank of Canada in 1934, and culminating with supranational banks like the IMF and World Bank, which were created in 1944. Not only is the basis of our current money system fundamentally flawed because it is not based on the real credit of the community, but the system itself has become a form of government which has been centralizing its power to the point of being above any national power. Therefore; the real government is not the one that is elected by ballot box every few years, but is a centralized body of unelected officials which dictate monetary policy from organizations which are beyond any national law.Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com2tag:blogger.com,1999:blog-8479707700970948550.post-10754919231508630452007-04-21T19:38:00.003-06:002011-09-24T07:38:24.812-06:00Systems and Social CreditBy: Socred - B.A., SCMP<br /><br /><a href="http://www.socialcredit.com/subpages_history/douglas.htm">C.H. Douglas </a>claims that the self-development of man is above all systems. Therefore; any economic, political, or theological system which does not allow individuals the freedom to express themselves in a manner leading to self-development is tyrannical. Douglas believed that there exists three alternative polices for an economic system:<br /><br /><strong><em>"In regard to (a) the policy of the world economic system amounts to a philosophy of life. There are really only three alternative policies in respect to a world economic organisation: The first is that the end in itself for which man exists. The second is that while not an end in itself, it is the most powerful means of constraining the individual to do things he does not want to do; e.g., it is system of government. This implies a fixed ideal of what the world ought to be. And the third is that the economic activity is simply a functional activity of men and women in the world; that the end of man, while unknown, is something towards which most rapid progress is made by the free expansion of individuality, and that, therefore, economic organisation is most efficient when it most easily and rapidly supplies economic wants without encroaching on other functional activities." (C.H. Douglas, "<a href="http://www.alor.org/Library/Warning%20Democracy.htm#1a">Warning Democracy</a>") </em></strong><br /><br />Since Douglas did not see economic systems as an end in themselves, but only as a means to meeting the end of individual self-development, the first policy is not consistent with Social Credit. The second alternative posits a policy of the way the world ought to be, but again, Douglas claimed that, "so far as the word 'ought' has any meaning, it postulates the existence of a force so far undemonstrated", and therefore, we must conclude that an economic system as a form of government is not what Douglas had in mind. Social Credit economics is positive, and contrasts with any economic theories which are normative. Consequently; it is the third policy that Douglas extrapolates which is consistent with Social Credit. This implies that our needs and wants are best satisfied when an economic system allows the free expansion of individual activity. <br /><br /><strong><em>"That is to say, we must build up from the individual, not down from the state." (C.H. Douglas, "<a href="http://www.archive.org/details/econdemocracy00dougiala">Economic Democracy</a>")</em></strong><br /><br />The antithesis of Social Credit policy is the exaltation of the state, together with the financial methods in which it is maintained, over the individual. This policy is fundamentally anti-Christian. When John F. Kennedy said, "And so, my fellow Americans: ask not what your country can do for you - ask what you can do for your country", this was not only contrary to Social Credit policy, it is contrary to his statement in the same speech in which he said, "the rights of man come not from the generosity of the state, but from the hand of God". Individual rights come from God, not the abstraction known as the state. Therefore; it is the state that should be asking what it can do for us. John F. Kennedy's famous quote is fundamentally anti-Christian. <br /><br /><strong><em>"The modern theory, if it can be called modern, of the totalitarian state, for instance, to the effect that the state is everything and the individual nothing, is a departure from those principles, and is a revamping of the theory of the later Roman Empire, which theory, together with the financial methods by which it was maintained, led to Rome's downfall, not by the conquest of stronger Empires, but by its own internal dissensions. It is a theory involving complete inversion of fact, and is, incidentally, fundamentally anti-Christian, in that it exalts the mechanism of government into an end rather than a means, and leads to the assumption that individuals exist for the purpose of allowing officials to exercise power over them." (C.H. Douglas, "<a href="http://www.alor.org/Library/Tragedyofhumaneffort.htm#1a">Tragedy of Human Effort</a>")</em></strong><br /><br />The exaltation of the state over the individual is an inversion of fact, because the state is merely an abstract representation of the individuals which comprise it. The individual is the basic building block from which all systems derive. Any political, economic, or theological system which represses the free expression of individuality is doomed to failure. We see this with examples such as the later Roman Empire, to the dominance of the Catholic Church in the Middle Ages, to the Soviet Union. Individuals will ultimately break free from any system which seeks to dominate them. This is a good lesson to the West in terms of its foreign policy towards the non-democratic states in the Middle East. These theocracies try to repress individual expression, and these states are doomed to failure via their own internal dissension. It is a mistake to unite them against a common enemy other than the theological system which is imposed upon them. The western world should to be a beacon of light for others to follow, not a force of darkness for others to hate. Unfortunately; a hidden form of government has led to our own fight against a system imposed upon us from above.<br /><br /><strong><em>"When a monetary system dictates your actions, then you are governed by money, and you have the most subtle, dangerous and undesirable form of government that the perverted mind of man - if it is the mind of man - has ever conceived." (C.H. Douglas, "<a href="http://www.alor.org/Library/Approachtoreality.htm#1a">Approach to Reality</a>") </em></strong><br /><br />Money is the most subtle form of government, because people don't realize that they are being governed by a monetary system. There are few people who comprehend how money is created, let alone, how it is used to govern them. If the public is ignorant as to the techniques of money and banking, they will never realize how the monetary system governs them. The current monetary system is dangerous, because as Douglas said, "money is an abstraction", and an abstraction should never have authority over the extant. This is an inversion of reality, and as an old saying goes, "Demon est deus in versus - the devil is God upside down " The world is being ruled by a monetary system which deprives man of the ability to achieve self-development, because it does not accurately represent the reality of the economic conditions upon which it should be based. <br /><br /><strong><em>"Considered as a means of making people work (an aim which is common both to the Capitalist and Socialist Party politics) the existing financial system, as a system, is probably nearly perfect. Its banking system, methods of taxation and accountancy counter every development of applied science, organisation, and machinery, so that the individual, instead of obtaining the benefit of these advances in the form of a higher civilisation and greater leisure, is merely enabled to do more work." (C.H. Douglas, "<a href="http://www.alor.org/Library/Warning%20Democracy.htm#1a">Warning Democracy</a>")</em></strong><br /><br />Technology, improvement in processes, and increases in the amount of physical capital are constantly reducing the amount of hours necessary to produce goods and services. This means that we can continue to produce the same amount with less labour; we can produce more with the same amount of labour, or any combination of the two. This fact has significantly increased in importance since the beginning of the industrial revolution, which resulted in the replacement of human energy with solar energy. The current economic system fails to reflect this fact. The invention of technologies such as the computer, which should have freed us from many hours of work, has simply been a tool enabling us to do more work. This is because the existing financial system, whether governed by a political party from the "left" or the "right", is ultimately governed by a policy of full employment. This policy is an inversion of the facts, and as a result, is both anti-Christian and tyrannical.<br /><br /><strong><em>"In regard to the objective of policy, as applied to human affairs, I can say nothing to you which has not been better said by the great teachers of humanity, One of whom said "I came that you might have life and have it more abundantly." So far as I am aware, no great teacher of humanity has ever announced that he came that we might have better trade or more employment, and I am wholly and irrevocably convinced that while we exalt a purely materialistic means into an end, we are doomed to destruction. (C.H. Douglas, "<a href="http://www.alor.org/Library/Tragedyofhumaneffort.htm#1a">Tragedy of Human Effort</a>").</em></strong><br /><br />Douglas believes that most men, left to their own devices, would choose a less materialistic, and more spiritualistic existence. It is only through the efforts of anti-Christian forces that a materialistic end to man is sought. Given the freedom to choose between a materialistic existence based upon work for its own sake, or a spiritual one based upon leisure, Douglas believes that most men will choose the latter. Leisure is often confused with the concept of "loafing". The Greeks understood that leisure differed from rest. Leisure is the freedom to pursue activities that lead to self-development. The statement that "idle hands are the work of the devil" is a perversion of means and ends, and the most established form of anti-Christian propaganda today: often championed by so called "Christians" themselves. As Soren Kierkegaard said, "Far from idleness being the root of all evil, it is rather the only true good."Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com0tag:blogger.com,1999:blog-8479707700970948550.post-87635041536466164112007-04-14T09:54:00.002-06:002011-09-24T07:39:04.212-06:00Metaphysics of Social CreditBy: Socred - B.A., SCMP
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<br />The term philosophy is derived from the Greek words "philo" - to love - and "soph" - knowledge. Literally, philosophy is the love of knowledge. <a href="http://www.socialcredit.com/subpages_history/douglas.htm">C.H. Douglas </a>claims that the policy of Social Credit derives from its philosophy. He refers to this philosophy as "Practical Christianity". In order to understand the meaning of this term, we must distinguish it from other philosophies, and other forms of Christianity.
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<br /><strong><em>"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, largely discredited, and thus doubtfully on a par with many other sets of opinions, and having neither more nor less claim to consideration." (C.H. Douglas, "<a href="http://www.alor.org/Library/RealisticpositionoftheChurchofEngland.htm#1a">Realistic Position of the Church of England</a>").
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<br />In order for Christianity to be seriously considered, it must represent something which is inherent in the very essence of the universe; otherwise, it is merely opinion, and does not differ from any other opinion with regard to the nature of being. Why does Douglas feel that Christianity represents a system which is the very essence of the Universe? What concept, which is unique to Christianity, separates it from other religions and philosophies?
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<br /><strong><em>"It is not too much to say that one of the root ideas through which Christianity comes into conflict with the conceptions of the Old Testament and the ideals of the pre-Christian era, is in respect of this dethronement of abstractionism. That is the issue which is posed by the Doctrine of the Incarnation. " (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</em>
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<br />The Doctrine of Incarnation denies that God is some abstract being beyond human comprehension. The Doctrine of Incarnation teaches us that God existed in time in the persona of Jesus Christ. Jesus said, "I and my Father are one" (John 10:30), and further "though you do not believe Me, believe the works, that you may know and understand that the Father is in Me, and I in the Father." (John 10:38). A philosophy based upon reality must be rooted in existence. If God existed in time in the form of Jesus Christ, then we have a concrete building block from which to test the validity of Christianity: Jesus's word. "In the beginning was the Word, and the Word was with God, and the Word was God" (John 1:1), and "The Word became flesh and made his dwelling among us. We have seen his glory, the glory of the One and Only, who came from the Father full of grace and truth" (John 1:14) The Doctrine of Incarnation is the belief that God is the Word, and Jesus Christ is the Word made flesh.
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<br />Douglas's conception of Christianity is fundamentally Trinitarian. And it is Jesus's Word which is the very "warp and woof" of the Universe. It is also essential to distinguish between what Douglas termed "practical Christianity", and other forms of Christianity. What exactly does Douglas mean by practical? In order to understand this term, it is necessary to understand Douglas' differentiation between two schools of thought - the classical and the modern.
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<br /></em><strong>"The classical system is the embodiment of an attractive and artistic ideal or conception of the nature of society, and the conditions under which society lives, moves, and has its being. It is above, outside, possibly in advance of, facts. The modern school, of which inductive natural science, based upon the experimental ascertainment of fact, is the backbone, has not essentially to do with ideals at all. It is realistic; its first postulate is that forces act in a similar manner when placed in a similar relation to each other. It refuses to admit, as a fact, anything which cannot be demonstrated, and as a theory, anything which does not fit the facts. For example, the classical ideal contends that men "ought" to be good, brave and virtuous. The modern, that it does not understand the meaning of goodness, that bravery and virtue are not capable of exact definition, and, that so far as the word "ought" has any meaning, it postulates the existence of a force so far undemonstrated." (C.H. Douglas, "<a href="http://www.mondopolitico.com/library/socialcredit/toc.htm">Social Credit</a>")</em>
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<br />We see that Douglas believes the classical conception of nature, or the Universe, is "above, outside, possibly in advance of, facts"; whereas, the modern conception is "based upon the experimental ascertainment of fact". It is this modern school of thought which Douglas deems to be best for understanding the universe. So, in order for Christianity to be practical, it must abandon the Aristotelean conception of the universe, and replace it with a conception based on modern inductive science. However; Douglas was careful to differentiate between a Christian conception of the Universe developed with the aid of modern inductive science, and a materialistic conception of the universe.
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<br /><strong><em>"The tendency to argue from the particular to the general is a special case of the sequence from materialism to collectivism. If the universe is reduced to molecules, ultimately we can dispense with a catalogue and a dictionary; all things are the same thing, and all words are just sounds - molecules in motion." (C.H. Douglas, <a href="http://www.alor.org/Library/BrieffortheProsecution.htm#1a">Perthshire 1945</a>)
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<br />Materialism is the foundation of collectivism, and some believe the very foundation of the universe itself. Ultimately, materialism fails to recognize the unique characteristics of each individual, because it reduces everything to "molecules in motion". Being that we can all be reduced to "molecules in motion", it follows that all human beings must be equal. Equality means to lack quality. With this in mind, there are probably very few human beings who would proclaim to be "equal". But the power of persuasion is pervasive, and we are fed a steady diet of dialectical materialism from the time we enter our public school system. The science classroom has become the pulpit for materialism. What are the long term consequences of this phenomenon?
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<br /><strong><em>"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 thermodynamic principle of entropy - the tendency of energy to deteriorate from a potential to a latent and unavailable state - to "run down." (C.H Douglas, "<a href="http://www.alor.org/Library/BrieffortheProsecution.htm#1a">Brief for the Prosecution</a>")</strong>
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<br /></em>Many complain that this current generation is apathetic; more concerned with the level attained in some video game than what is actually going on in the world. However; if we feed them a steady diet of dialectical materialism, is it any wonder why they tend to follow this philosophy to its logical conclusion? What is there to strive for if everyone lacks quality? If I'm equal to all other human beings, what difference do I make? If I do not have free will, what is the purpose of liberty, and what is the meaning of responsibility?
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<br /></em>In order to answer these questions, we must begin with a set of axioms, or what I consider to be "self-evident" truths. Some may disagree with these axioms, and as Douglas said, we must then "agree to disagree". These truths will form the basis for a philosophy. I believe, and I believe that Douglas believed, that these "self-evident" truths are the basic metaphysical foundations of both the Universe and of Social Credit.
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<br />These self evident truths are 1) man has free will, and within the boundaries set by Universal laws, man has the ability to choose, and 2) time flows from past to future.
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<br />These truths are not proven by reason, but form the basic axioms upon which reason can be applied.
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<br /><strong><em>"Reason," as I understand it, is nearly synonymous with logic, of which mathematics is a special example. It is a pure mechanism, just as a slide rule is a mechanism, and as such, is deterministic. You put into the mechanism practically anything you please, and you get out something which was inherent in what you put in, but nothing further.
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<br />If I say that (a+b)2 =a2+2ab+b2, I can apply that very useful piece of information to a number of concrete problems, but they must, on each occasion, concern similar objects. It is no use saying that the square of a apples plus b oranges gives you some information about bananas. It does not.
<br />The whole validity of the Christian Church rests upon the acceptance of certain premises. Those premises are not provable by reason, or they would not be premises. But they are provable or disprovable by experience, and to my mind, quite a surprising number of the Christian premises will stand that test." (C.H. Douglas, "<a href="http://www.alor.org/Library/RealisticpositionoftheChurchofEngland.htm#1a">Realistic Position of the Church of England</a>").</strong>
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<br />Therefore; axioms cannot be proven by reason, but by application of experience. Experience tells us that we have the freedom to choose, and that time exists. Some people erroneously believe that reason itself is the basis upon which a metaphysics can be constructed. This is a complete misapplication of reason, and is abstractionism in its most absolute form. Therefore; this belief, along with any other belief in deterministic philosophy or theology, is the antithesis of Social Credit. Deterministic philosophy ultimately leads to human entropy, and this is exactly what anti-Christian forces desire.
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<br /><strong><em>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. " (C.H. Douglas, "<a href="http://www.alor.org/Library/RealisticpositionoftheChurchofEngland.htm#1a">The Realistic Position of the Church of England</a>" )</strong>
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<br /></em>Douglas said, "freedom is the ability to choose one thing at a time". This implies that freedom, choice and time are all interconnected. But how are they interconnected? Jean Paul Sartre said that "consciousness is freedom, and freedom is a nothingness in the heart of being" (<a href="http://en.wikipedia.org/wiki/Being_and_Nothingness">Being and Nothingness</a>). Therefore; freedom and time are connected through human consciousness. Douglas does not explicitly talk about consciousness, but he does allude to it when he speaks about the connection between the physical sciences and theology.
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<br /><strong><em>"The Church as such, does not appear to be properly much concerned with physical science, and the incursions of Bishop Barnes would seem to confirm that view. But one subject of mathematical science does come clearly within its province - that of Time. I am sitting by my desk. It ,is five o'clock. I get up. The fact that I was sitting by my desk at five o'clock, is now what we call a memory. But, humanly speaking, I know that my desk will be there in five minutes, that is to say, at five minutes past five, so it is difficult to believe that both the desk, and five minutes past five, are not together in existence now." (C.H. Douglas, "<a href="http://www.alor.org/Library/RealisticpositionoftheChurchofEngland.htm#1a">The Realistic Position of the Church of England</a>")
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<br />Douglas understands that the past and the future exist together now through memory and foreknowledge. Since consciousness is what relates these concepts, it is important to understand the nature of consciousness, and its involvement with time.
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<br /><strong><em>"Immediacy is reality; language is ideality, consciousness is a contradiction. The moment I make a statement about reality, contradiction is present, for what I say is ideality." (Soren Kierkegaard, "<a href="http://www.religion-online.org/showbook.asp?title=2512">Philosophical Fragments</a>")
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<br />If consciousness is both freedom and a contradiction, then freedom is a contradiction. This is exactly what we should expect to discover, since reason is deterministic. Contradiction forms the basis of movement. Movement is the antithesis of entropy, and movement, or change, forms the basis of time. It is from consciousness that freedom, movement and time derive. Consciousness brings the future and the past together by bringing together the necessary and the contingent.
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<br />What type of policy derives from these axioms? Since human consciousness is unique to each individual, policy must always exalt the freedom of individuals in order to be consistent with Christ's Word: the very essence of the Universe. The ultimate foundation of Social Credit policy is best summed up by Douglas himself when he said,
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<br /><strong><em>"Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic." (C.H. Douglas, "Economic Democracy")
<br /></em></strong>Socredhttp://www.blogger.com/profile/03930579002329295431noreply@blogger.com2