V.—REAL AND FINANCIAL CREDIT

THE evidences that our present economic system is doomed and is tottering to its fall are so apparent and so numerous that only the blind and the ignorant would attempt to deny it.  A system that defeats its main object and increases human suffering in proportion as it becomes more and more efficient, one to which the gift of goods or the payment of an indemnity by a foreign nation appears as a national disaster, is evidently founded upon some egregious fallacies.  How much longer its victims will submit to the evils and injustice it has inflicted it is difficult to say.  It may last another few months or a number of years, but that its end is rapidly approaching is beyond question.

Whatever the motives of the Government and its advisers may have been, their policy of currency and credit contraction, which Mr. Austen Chamberlain announced a year or so ago, has done more to hasten its downfall than all the Socialist and Bolshevist propaganda of the past few years.  This policy is mainly responsible for throwing out of employment over 1,000,000 operatives and inflicting losses upon the British public during the past year of at least £2,500,000,000 !  During the same period, according to the Manufacturers’ Record, of Baltimore (a widely read American trade journal), the same policy of deflation pursued by the United States bankers has resulted in the discharge of 3,500,000 workmen and the loss of 25,000,000,000 dollars—a sum much in excess of the whole cost of the war incurred by the American Government !

ORTHODOX POLITICAL ECONOMY.

In all countries we find the same conditions of general unrest, dissatisfaction, and desire for better conditions, due to the failure of their economic methods to achieve the desired ends.  Orthodox political economy has broken down and has had to acknowledge its failure.  And as all our statesmen and governing officials, professors, and writers on finance know little or nothing outside the orthodox books, they are all equally at sea and powerless to save humanity.  All industrial nations are experiencing the same difficulties, for the reason that all are modelled on the same general principles.

These principles have created what may be termed the pyramidal form of economic control.  At the apex sits Finance, securely entrenched, dictating to Industry its commands—commands which on the whole are impossible of fulfilment.  Industry is ordered to breathe into the inanimate the breath of life and make it a living soul, to make fruitful a thing which, as Aristotle told us ages ago, is by its very nature essentially barren.  Finance hands over to Industry a sum of money, and says, “ Take this and increase it.  Make it grow.  You cannot labour, you cannot produce, you cannot even trade without it, thanks to the world’s money laws.  Here is £1,000,000,000.  I lend it you on condition that you return me for its use one-twentieth part of it every year, and the whole of it in addition to the interest whenever I choose to call in the loan !”

If Industry had ever possessed one fraction of the intelligence proportional to its physical strength it would long since have made reply in some such terms as these :—“ I am incapable of performing miracles.  I cannot put your money in the ground and make it blossom and bring forth harvests of coins or bank notes.  If you give me seeds or plants containing the germ of life, I can plant them and raise crops and return you far more plants and seeds than those you gave me.  But when you lend me £1,000,000,000 and ask me to pay you £50,000,000 per annum, I can only do this for a period of 20 years.  By that time I shall have returned all you gave me, and as you alone control the issue, and since I have no power of getting more without your consent and help, you are asking me to do the impossible !  Further, this credit, which you alone control, on what is it really based ?  Evidently upon my work and upon my achievements.  But for me and my energies, where would you be ?  The credit of which special laws have given you control is the credit of the whole nation, and due to its productive capacity.  You have done nothing to create or increase it.  All you do is to build on and profit by my labours.  Yet you presume to dictate to me, to limit my power, to embarrass and torture me with your foolish restrictions, and cause endless friction, contention, and disorganization between my associates, capital and labour !”

INDUSTRY A “BOND SLAVE.”

To which Finance—were it frank and honest—would reply, “Quite so !  You are my bond slave.  National laws have made you and all nations wholly subject to my despotism.  You can never escape the bondage of debt whilst the principle of usury lives.  The best and wisest of men, from Confucius to John Ruskin, have been preaching this gospel—but with little or no effect !  I have no fear that mankind will ever awaken to the truth !”

The most important question for the existing generation is—What sort of system is to take the place of the old and decaying one ?  Are we to exchange it—bad as it is and has been—for a worse ?  For let us admit that with all its fallacies, follies, and injustices, there are and have been systems far worse—Bolshevism, for example, and the Socialism of the German Jew, Karl Marx.  There is some danger that much more vigorous efforts will yet be made to establish one or other of these systems in this and other countries than any yet attempted.  Unless another and better system is provided by the more intelligent classes it is quite certain that something of a far worse character may be established by the ignorant masses.  The pity of it all is that our present system, shorn of its fallacies, its financial restrictions and credit monopoly, and improved in one or two other features, might have developed into a scheme as efficient and as conducive to human welfare as it is possible to conceive.  Eliminate those evils which are almost entirely confined to the financial side, and our industrial, and consequently most of our international and social troubles, will disappear.

Now it is towards the accomplishment of this end and to save civilization from bankruptcy that Major C.H. Douglas and his colleague have evidently directed their efforts in the two books previously mentioned — “ Economic Democracy ” and “ Credit Power and Democracy.”  It was, I understand, whilst engaged in costings for the Government during the war that Major Douglas, a member of the Royal Air Force, became convinced that the present economic system was inherently defective and could not survive the extraordinary strains imposed upon it by the war, and particularly by the supreme folly of our war debt.  Apart from the intrinsic merit of these works, to me the most interesting feature connected with them is the fact that their authors arrive at the same general conclusion that I and one or two other investigators have done, although we have all reached it by different routes.  This conclusion is, that the root cause of the world’s economic evils is the irrational and fraudulent financial systems which the monetary and banking laws of all nations have established.

THE USURY PRINCIPLE.

A quarter of a century ago I pointed out, in my first monetary work, that the usury principle necessarily caused a general break-down of the industrial system every few years, because the claims of usury were impossible of fulfilment.  I showed that, taking industry as a whole, it could no more settle the claims of the banks when called upon to do so within any short period than the banks could settle the claims of their depositors in gold within a similar time.  The creation of legal tender and bank credit does not keep pace with the growth of the interest charges, taxes, and other debts which have to be paid in legal currency, after providing for the ordinary financial needs of trade !  Industry being always in debt to Finance is always within sight of bankruptcy, and any extraordinary event, whether natural, political, or financial, which creates general alarm is sufficient to start a panic resulting in gerneral liquidation and bankruptcy, followed by a period of industrial depression !  This was and is still in my judgment the real explanation of those decennial crises which Professor Jevons attributed to sunspots and other writers to natural and equally irrelevant causes.  I showed that although money is the life of trade, our restricted money supplies encompassed its death.

Major Douglas found, by a system of costings, that the purchasing power distributed to the public by the industrial system in all countries could not possibly enable them to purchase more than a small proportion of the goods made, even if these were offered at the minimum price of bare costs.  The chief reason of this is that credit is only issued on the usury principle, and therefore only those engaged in operations which appear profitable—i.e., enabling the borrower to return the sum loaned plus interest charges—can secure bank overdrafts.  Hence every borrower is compelled to seek some profitable employment, to stimulate production, to adopt new inventions, &c. This necessitates the constant employment of armies of men engaged solely in constructing new plants, processes, tools, &c.  And the cost and upkeep of all this additional capital, although it furnishes little in the way of additional purchasing power to the public, is actually incorporated in the prices of the ultimate goods offered for sale and for the manufacture of which the extra capital was created.  In short, the public is made to pay for every addition to the productive plant and machinery through the system of costings which is added to the prices of the ultimate goods sold.  Hence by increasing our productive facilities we are decreasing the public power to purchase goods and are thus diminishing our markets.  The system is therefore inherently suicidal !

OBJECT OF INDUSTRY.

Major Douglas sets out with the statement that the object of a nation’s industrial system is to produce goods for the benefit of the people comprising that nation, and not to provide employment for workmen nor to “ make money ” for any particular class.  Employment may be a necessary condition for producing goods, but it is merely a means and not the end.  Further, the distribution of goods ought not to be based merely upon a system of rewards for labour done.  For this spells starvation to those whose labour is no longer needed.  Our industrial system is the result of the inventions and discoveries, the experiences, the efforts and labours of past generations.  About 95 per cent. of all production is the result of tools and processes which form the cultural inheritance of the community—not as workers, but as a community.  Every person born into such a community should, by right of birth, be entitled to a share in this great legacy.  Major Douglas proposes that the wage system shall be gradually replaced by the dividend system.  He divides credit into two classes, viz., real (productive) credit and financial (money) credit.  Real credit is the correct estimate of ability to deliver goods as, when, and where required.  Financial credit is the correct estimate of ability to deliver money as, when, and where required.  Real credit is concerned with the supply of goods, whilst financial credit is based upon money (legal tender).

The real credit of Great Britain can be increased almost indefinitely and is already so enormous that at no time—not even during the war—has it ever been employed to its full capacity.  Yet although financial credit is based upon money and demands only money in return for its use, it depends ultimately upon the productive credit of the nation both for its existence and for its growth.  This growth, however, is purely arbitrary and depends upon the sanction of the bankers and financiers who have acquired a monopoly of the use of the nation’s financial credit.  Indeed, this monopoly is so flagrant and so powerful that the rate at which money may be loaned to the public (to whom it rightfully belongs) is actually dictated week by week by half-a-dozen men representing a private trading company called the Bank of England—over whose deliberations and actions the Government and the public have no more control than over those of any private business concern in Great Britain !  Production, and therefore employment, are made dependent upon industry’s ability to satisfy the arbitrary demands of the numerically insignificant class who hold this control, and as there is no law by which these credit controllers can be compelled to issue credit or assist trade, both labour and capital are entirely at their mercy.

C. H. Douglas

Credit Power and Democracy  (excerpts)