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Douglas's three propositions
— What are Douglas's three
propositions? Douglas publicly set forth these three
propositions on three occasions: at Swanwick, in 1924; before the
MacMillan Committee, in May 1930; and in a lecture given at Caxton Hall,
London, in October 1930. And he reproduced them in some of his writings,
among others, in The
Monopoly of Credit. The first of these propositions relates to
the financing of consumption, by an adjustment between the purchasing
power and prices: The cash credits of the population of
any country shall at any moment be collectively equal to the collective
cash prices for consumable goods for sale in that country, and such cash
credits shall be cancelled or depreciated only on the purchase or
depreciation of goods for consumption. Douglas did not change anything in the
terms of this proposition: they were the same in 1930 as in 1924. In this proposition, to mention the means
of payment, in specie or script money, in the consumers' hands, Douglas
uses the term "cash credits", while, when he speaks about the
financing of production, he simply says "credits". The difference between the two is that the
money in the consumers' hands is theirs: for them it is purchasing power
that they use as they so please in getting products of their own
choosing. While the credits to production are advances that the producer
must pay back when his products have been sold. — What is the goal of this first
proposition set forth by Douglas? The goal of this proposition is to achieve
what can be called the perfect purchasing power, by establishing an
equilibrium between the prices to be paid by the buyers and the money in
the buyers' hands. Social Credit makes a distinction between
the cost price and the price to be paid by the buyer (cash price). The
buyer would not have to pay the full cost price, but only this price
reduced to a level corresponding to the means of payment (cash credits)
in the population's hands. The cost price must always be recovered by
the producer if he wishes to remain in business. But the price to be
paid must be at the level of the purchasing power in the consumers'
hands, if one wants production to reach its end, which is consumption. — How can this twofold condition be
carried out? By a price-adjustment mechanism. An
adjustment, and not a fixing of prices: the setting-up of cost prices is
a matter for the producers themselves; it is they who know what
production costs them in expenses. The proposed adjustment would consist of a
coefficient that would be applied to all retail prices. This coefficient
would be periodically calculated (every three or six months, for
example), according to the ratio between total consumption and total
production during a given period. If, for example, during this given period,
total production was $40 billion, and total consumption was $30 billion,
one can conclude that, whatever the accounting cost prices may be, in
reality, the production of $40 billion has cost the country $30 billion.
Therefore, $30 billion is the real cost of the total production of $40
billion. And if the producers must recover $40 billion, the consumers,
for their part, must pay only $30 billion. The lacking $10 billion must
be provided to the producers through another source, not through the
buyers. It is up to the monetary mechanism to see to it. In this case, a 3/4 coefficient will be
applied to all retail prices: the cost prices will be multiplied by this
coefficient, by 3/4 or 0.75. The buyer will therefore pay only 75
percent of the cost price. In other words, a general discount of 25
percent (the opposite of a sales tax) will be decreed on all retail
prices for the length of the new term. At the end of each term, the
general discount rate is thus calculated according to the state of
consumption in relation with the state of production of the given
period. Thus one gets closer to the perfect purchasing power as much as
possible. This operation is sometimes called a compensated
price or a compensated
discount, because the money the seller does not get from the
buyer, because of this discount, is given to him afterwards by the
National Credit Office. This compensation allows the seller to recover
his full cost price. No one loses out. Everybody gains by the selling of
goods made easier towards needs. — Why do you say that this is
achieving the perfect purchasing power? Because it sets at 1 (one) the ratio
between the means of payment and the prices. In the example given above,
this ratio was 3/4: one could only pay for 3/4 of the production. After
the price-adjustment operation, the ratio becomes 1: one can now pay for
the whole production. It allows production to reach its end: production
is made to be consumed. We say it achieves the perfect purchasing
power also because it does justice to the population, in making it pay
only the "just price", the real cost of its production. It is
Douglas who knew how to give the words “just price” a definition
looked for in vain by the sociologists of several centuries. He thus
formulated it: “The real cost of production is the consumption it has
required.” This is a truth that seems to be totally ignored in the
textbooks on economics. As to the methods of the mechanism of the
adjustment of prices, they can vary, but they must carry out this
perfection, and do it with a minimum of operations. Moreover, this would
be much less complicated than, for example, the rebate calculations to
each cooperator in a consumer cooperative. And with infinitely superior
results. — And what is Douglas's second
proposition? Douglas's second proposition relates to the
financing of production. It was expressed as follows, by its author, at
Swanwick, and before the MacMillan Committee: The credits required to finance
production shall be supplied not from savings, but be new credits
relating to new production. At Caxton Hall, in October 1930, Douglas
thus changed the end of his statement: “new credits relating to
production.” He does not say “new production”, but
only “production”. Obviously both are synonymous. As production is
made, it is a new production. A new production to keep up the production
flow where the consumer shops. Some have wrongly interpreted this
proposition as applying only to an increase in the volume of production,
which is most certainly not the case according to the context of the
three propositions. Douglas adds: And these credits shall be recalled only
in ratio of general depreciation to general appreciation, general
enrichment. Why finance production this way, with new
credits, and not with savings? Because savings come from money that has
been distributed in relation with a realized production. Now all this
money has gone into the cost price of the realized production. If this
money is not used to buy production, the gap between the means of
payment and prices will increase. One can put forward that the savings used
to finance a new production flow, through investments or otherwise,
comes back into circulation as purchasing power. It is true, but it is
as expenses made by the producer, therefore creating a new price. Now,
the same amount of money cannot serve to pay, at the same time, the
corresponding price of the former production and the corresponding price
of the new production. Each time saved money thus comes back to
the consumers, it is by creating a new price, without having paid a
former price left without corresponding purchasing power when this money
becomes savings. Let us clarify this point by an example: Here is a worker who draws a monthly wage
of $300. On this amount, he draws out $50.00 to buy shares in an
enterprise that is building a new factory. The $300 in wages is most certainly listed
in the prices of the goods for which the worker worked; but in front of
this price of $300, there is only $250 left in purchasing power. The building of the factory will put back
the $50 as purchasing power through the wages distributed to the
construction workers. But the goods which will come out of the new
factory will have to include the $50 in their prices. The $50, which has
become again purchasing power, will most certainly not be able to pay,
at the same time, the $50 price of the former production and the $50
price of the new production. This does not mean that the saver is doing
the wrong thing by investing his money in the expansion of production.
He is perfectly free to do what he pleases with a money that belongs to
him. But the subtraction to the global purchasing power, made by
savings, must be compensated in some way through an equivalent amount of
money coming into the consumers' hands (through the social dividend, for
example, or through an increase in the compensated discount). Once this
is done, the effect on the purchasing power will be the same as if the
production had been financed directly through new credits, since these
new credits replace the savings diverted from the purchasing power. The present system does not make this
compensation. It insists on financing through savings, without worrying
about the cut made into the purchasing power. It is not the only cause,
but one of the causes, of the gap between the consumers' means of
payment and the prices of goods. — And what about Douglas's third
financial proposition? The third proposition introduces a new
element into the purchasing power: the distribution of a dividend to
all, employed or not in production. It is therefore a component factor
of the purchasing power, which leaves no individual without a means of
payment. It is the recognition of the right of all
to a share in production, as co-capitalists, coheirs of the biggest
modern production factor: the acquired progress, enlarged and
transmitted from one generation to the next. Also as co-owners of the
natural resources, a free gift from God. It is also the way to maintain a flow of
purchasing power in relation with the flow of production, even though
production would more and more do without the need of employees.
Therefore, it would be the solution to the biggest present headache,
which makes economists knock their heads against the wall, and which
dumbfounds governments in front of their unsuccessful full-employment
policy. The pursuit of full employment is nonsense, difficult to justify
on the part of intelligent beings, while progress inexorably applies
itself to releasing workmen, to making the need of employees more and
more useless. Here is how Douglas expresses himself: The distribution of cash to individuals
shall be progressively less dependent upon employment. That is to say
that the dividend shall progressively displace the wage and salary. Progressively — as Douglas expressed it
elsewhere — as productivity increases per man-hour. This is perfectly
in keeping with the participation respectively taken by work and
progress in the production flow. Progress — a collective good — becomes
more and more important as a production factor, and human labour, less
and less. This reality must be reflected in the distribution of incomes,
through dividends to all, on the one hand, and through reward for
employment, on the other hand. We will go back over this question further
on in dealing with the periodical dividend to each citizen. — But is this not proposing to turn
everything upside down in the methods of financing production and in the
method of the distribution of the claims on production? It is, above all, and much more simply, a
change in philosophy, in the conception of the role of the economic and
financial systems, bringing them back to their proper ends served by
appropriate means. It is time the ends and the means returned to their
proper place. It is time perversion gave way to rectification. — But all this seems to imply that
money, or financial credit, can come like this, forthwith, to finance
production and consumption! Certainly. The monetary system is
essentially an accounting system. Are the accountants short of figures
to count, add, subtract, multiply, divide, make rules of three, express
percentages? Moreover, the facts are there, to show that
money is a matter of figures: figures that monopolizers of the system
can cause to appear or disappear according to their decisions, without
any other concrete items than a book, a pen, and a few drops of ink. In a lecture given at Westminster, March 7,
1936, C .H. Douglas said to his audience —
a Social Credit audience: “We,
Social Crediters, say that the monetary system at present does not
reflect facts. The opposition says it does. Well,
I put it to your common-sense. How was it that a world which was
apparently almost feverishly prosperous in 1929 — or alleged to be so,
judged by orthodox standards — and certainly capable of producing
tremendous quantities of goods and services and distributing a
considerable proportion of them, could be so impoverished by 1930, and
so changed fundamentally that conditions were reversed and the world was
wretchedly poor? Is it reasonable to suppose that between a single date
in October, 1929, and a few months later, the world would change from a
rich one to a poor one? Of course it is not.” Douglas made this remark three and a half
years before World War II broke out. Once it was declared, everybody
could ask themselves a question of the same nature as Douglas's, but in
a reverse sense: How
is it that after a ten-year money scarcity, all of a sudden they found
overnight all the money that was needed for a war that lasted six years
and which cost billions? The same answer applies to both cases: The
monetary system is only a question of accounting, and requires only
figures bearing a legal seal. Therefore, if money lacks in front of
great possibilities of producing to satisfy normal human needs, and if
money becomes plentiful when the producers and the means of production
are requisitioned for battlefields and the production of war engines, it
is because the present monetary system imposes decisions, instead of
faithfully reflecting the facts resulting from free acts carried out by
free producers and free consumers. Douglas's
three propositions 1.
The cash credits of the population of any country shall at any moment be
collectively equal to the collective cash prices for consumable goods
for sale in that country, and such cash credits shall be cancelled on
the purchase of goods for consumption. 2.
The credits required to finance production shall be supplied not from
savings, but be new credits relating to new production, and shall be
recalled only in ratio of general depreciation to general appreciation. 3.
The distribution of cash to individuals shall be progressively less dependent
upon employment. That is to say that the dividend shall progressively displace
the wage and salary. Louis
Even
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