[Douglas 1923 second day of testimony Part 3]

By Mr. W. F. Maclean: 
Q. And perhaps a little apology?— 
A. It is an apology, if you like to put it that way, and 
bears the name of the Canadian Bankers' 
Association. No question of misrepresentation can 
arise about it, and they state specifically that money 
not only is but ought to be a commodity, and they 
also, by issuing that statement and by the claims 
that they make in it, say they are the proper people 
to carry on business in this industry. In addition to 
that, they attribute certain virtues to a gold standard 
and they make certain statements in regard to the 
gold standard. Now, the answers to the questions 
which were submitted to me yesterday, to my mind 
were intended to make clear these two main points 
that I have brought before you. There were many 
other answers on subsidiary points, all of which 
buttress the argument that was put forward, and 
these you can examine for yourselves in detail; but 
the two main points which we wished to make are 
these: we say that to regard money as a commodity 
is proof of a radical misunderstanding of the proper 
function of money, and remember, that we have got 
to the point where we agree that there are 
difficulties in the world, and we agree, at any rate 
for the sake of hypothesis, that these difficulties 
reside in the financial system, and we say that to 
regard money as a commodity is proof of a radical 
misunderstanding of the proper function of money. 
Now, I should like to be allowed to expand that a 
little for a moment, not to the extent it can be 
expanded, but to go back to an illustration which 
came up yesterday and which I think is perhaps a 
fair analogy. Supposing you had a railway and you 
had a ticket office in a city, and the object of the 
ticket office—as may be the case in regard to 
limited trains—was only to issue tickets, so as to 
allocate a proper number of passengers to each 
train. Supposing somebody got in between the ticket 
office and the train and began to carry on a trade in 
tickets, using the tickets themselves as the currency 
in which they traded in tickets, that is to say that 
they began to play a game in which they tried to get 
two or three tickets for one ticket, and so forth, to 
concentrate the holding of those tickets in the hands 
of one person. You will see that all possibility of the 
original idea of those tickets which went to make a 
nexus or connection between a certain number of 
people and a certain number of places, that the 
possible idea of carrying out that scheme would be 
completely defeated by this trade in tickets which 
went on between the consumer, that is to say, the 
person who wanted the place on the train, and the 
people who issued the tickets. You could not 
possibly get the passenger over from the ticket 
office to the train and find that he had got the right 
accommodation if in between there was a game 
going on by which two or three tickets got 
concentrated in place of one ticket. That is an exact 
analogy of the position which occurs when you treat 
money as a commodity. You are carrying on a trade 
in tickets, using the tickets themselves as the means 
of the trade; and it is impossible, for that reason 
alone, if for no other reason that there can be any 
relation between the effective demands of the 
people and the productive capacity of the 
productive system, if you have some manipulation 
of these effective demands going on between the 
consumer and the producer. That is what we say. 
Now then, in addition to that, they say that there are 
certain virtues attributable to a gold standard. We 
have put in as evidence, figures supplied by the 
Federal Reserve Board and also other arguments to 
show that their own statements are directly 
contradicted by figures apart from anything else, 
and that therefore they do not appear to know what 
happens actually in regard to the gold standard, not 
at any rate, taking their case as they put it forward. 
Now the position taken up by the orthodox banker 
in regard to the banking system—and again I repeat 
it is the system and not the banker, I am attacking—
the position taken is that there is nothing wrong 
with the financial system, that it might possibly be 
polished at the corners and that sort of thing, but the 
main principles of it are sound, and further than 
that, that they should be allowed to carry on for a 
further period of years everywhere, and I suppose 
particularly in Canada, but the same argument 
applies, that there is nothing wrong with the system. 
Now, the suggestion that we make since as we see it 
the financial system is demonstrably at fault, and as 
we see that the expansions of the existing financial 
system made by the people who do operate it, do 
not in fact correspond with facts, quite apart from 
any question of theory, it would appear that they do 
not themselves understand how the system as it is at 
present does in fact operate, they do not seem to be 
in possession of the actual information as to what 
happens at the moment, or at any rate they do not 
seem to be able to read that information, and 
alternatively they do not know how it ought to work 
satisfactorily. They say that certain things are 
satisfactory when results are patently and generally 
condemned, and they say that is a satisfactory 
working, and they have no suggestion as to how it 
ought to work satisfactorilly. The object of the 
whole of that argument is to bring us to the point 
that at any rate from our point of view there is 
ground either for some considerable delay while the 
facts are further investigated, or else somebody 
should explain what is the fallacy which is involved 
in the statements that we are making, because 
unless those statements are logically disproved it 
seems to me that they must stand, and that, 
gentlemen, is the position to which you are brought 
as we saw it last night. I am now open for any 
further questions. 

Mr. W. F. MACLEAN: Has the witness a concrete 
proposition? 

Mr. RYCKMAN: When is the witness going to 
give us this substitute plan? 

The CHAIRMAN: I was going to suggest that 
Major Douglas should proceed to elaborate an 
alternative scheme to put in place of that which now 
prevails; I think that would be more satisfactory to 
the committee and in the end to himself. 

The WITNESS: Mr. Chairman and gentlemen: the 
point that I think wants to be made clear before I 
proceed is, that if you are all satisfied with the 
statement that the present financial system is 
broadly speaking perfect, there is of course no 
ground for putting forward any alternative. If a man 
is going to assert that he is not sick, it is obviously 
foolish to offer him a remedy. Therefore, as you are 
good enough to ask me to put forward an alternative 
I must assume that you agree that perhaps we are in 
the body politic a little sick, and on that assumption 
I will proceed to put before you not a concrete 
scheme, because I do not believe that anything 
could be more useless at this stage of the 
proceedings than to put before you a concrete 
scheme— 

By Mr. W. F. Maclean: 
Q. That is what we are charged with, to find a 
concrete statement in connection with the revision 
of the Bank Act?— 
A. I have not been examining, with your 
permission, the concrete details of what I consider 
to be the scheme before you at the present time. The 
scheme before you at the present time is that, we 
will say, of the Canadian Bankers' Association; it is 
just as much a scheme as any other scheme. You are 
considering that, and that is the scheme which is 
before you, and I have not been examining that in 
detail; I have simply been endeavouring to point out 
to you where I think it is based on fundamentally 
unsound principles, and therefore I should like to 
put side by side with that certain principles simply 
for your consideration. Any scheme that might 
follow at any very much future time we will say 
would, as I see it, in order to be effective, have to 
build up on those principles. The principle which 
you have got to embody in any change to meet the 
criticisms at any rate that I have been making, such 
a scheme must embody greater purchasing power to 
the individual on the whole than he has at the 
present time. The object of the industrial system, the 
object of the whole productive and trade system 
including its banks, its fields, its farms, its 
manufactures, and so forth, is simply and solely to 
deliver goods and services to the individual; that is 
its only sane justification for existence. If it does not 
deliver those goods and services to the individual, it 
fails of its object, and it fails of its object at the 
present time, because the individual has not got the 
effective demand by which he can get those goods 
and services; it fails not because the productive side 
of it cannot produce them, but it is because the 
consuming side of it cannot get them by means of 
something which we call effective demand; and in 
order to give the individual effective demand over 
and above that which he has at the present time in 
relation to the same body of production, we have to 
establish a different ratio between the money issued 
over a given period and the money taken back over 
a given period through the medium of prices. You 
can never get any grip at all on this subject until you 
realize that purchasing power, by which I mean 
money credits, and so forth, wages, salaries, and all 
those sort of things, and prices are simply the two 
ends of one thing, that out through the medium of 
wages and salaries and dividends and so forth is 
flowing a stream of what we call purchasing power, 
what can be called purchasing power, and back 
again is flowing another stream in the reverse 
direction through the medium of what we call 
prices; and it is perfectly clear I think, that if you 
alter the ratio of those two streams you alter the 
effective purchasing power on the part of the 
consumer; so that any possible scheme which is 
going to deal radically with this proposition and this 
situation as you find it must deal with purchasing 
power and prices at one and the same time. Now, 
there are certain good sound practical objections to 
what we call fixed prices. A good many 
experiments have been tried in fixing prices, and 
there are many ways of getting round fixation of 
prices. In addition to that they have what I 
personally regard as an insuperable objection, that 
they put everybody dealing in a commodity on one 
flat level, and they do away with the undoubted 
benefits which do appertain to competition. There 
are certain undoubted disadvantages which 
appertain to competition at the present time, such as 
wastefulness, and so forth in many cases, but there 
are certain very great advantages which appertain to 
competition, and those are affected by fixed prices. 
So that it is not quite simply a question of fixing 
prices. But you have as a matter of fact always in 
the credit system as it is operated at the present day, 
a stream of fresh credits coming out, but we know 
perfectly well that it is always possible to create 
credit, given certain premises, and if you find that 
your industrial and economic system is blocked 
from the fact that the consumer has not got 
sufficient effective demand you can apply that 
stream of credits to remove that block, and you can 
apply it by reducing prices through the aid of those 
credits, and making up the difference between the 
price of an article as it would be at the present time, 
and the price of an article which is necessary to get 
it sold. You can make up that difference in price by 
applying credits to it. It has been done, it has been 
done and most effectively done in Austria. I should 
like to be allowed to read an extract from a book by 
Col. Repington called "After the War". You 
perhaps know that Col. Repington was sent round 
Europe by Lord Burnham to look into conditions, 
and this is the statement made on April 11th, 1921: 

"I am much impressed by studying the Austrian 
papers. They seem detached and indifferent about 
foreign affairs, but are full of accounts of all sorts of 
new or extended industries springing up, and I 
counted twenty-three pages of commercial 
advertisements in Sunday's Neue Freie Presse. I 
read or hear of every kind of old industry being 
extended and of some new one opened. New 
machinery is being employed, and on the farms 
prize stock are being bought and farm buildings 
improved by the rich peasants who throve on the 
war. From Upper and Lower Austria, Styria and the 
Tyrol, it is all the same story of new developments, 
and what is really going on is an endeavour to make 
the new Austria less dependent on her neighbours 
and less forced to buy abroad in markets made 
fearfully dear by the exchange." 

On page 145 of the same book it says: 

"I find that two-thirds of the Austrian deficit is due 
to food subsidies, chiefly bread. A loaf of 1,260 
grammes is now sold for nine kronen, but costs 
sixty kronen to the State. Even a Rothschild is paid 
therefore fifty-one kronen by the State for every 
loaf he eats." 

Those two statements are contemporaneous. During 
that period—of course you will no doubt be 
shocked at the idea of quoting Austria as a desirable 
thing, but I simply want to make one point out of 
this—during the period in which this application of 
state credits in that case to a reduction of prices was 
in operation, the first description of Austria applies, 
that every farm was putting in new stuff, buying 
prize stock and so forth. What was happening was 
that there were huge budget deficits, but that did not 
affect the fact that everybody in the country was 
prosperous. Since that time Austria has returned to 
greater financial soundness as measured by usual 
standards; there is a complete wave of economic 
stress covering Austria at the present time, and 
everybody is either down and out or just about 
getting down and out, but the budget is approaching 
nearer to financial soundness, which I feel sure 
must be a great consolation to the people who are 
down and out. Well, that is the principle which in 
my opinion has to be included in any attempt to deal 
with this situation, and that is—I do not mean the 
Austrian method—but the principle that you have 
got to alter the relation between prices and 
purchasing power. Now, I should like to outline just 
one sort of specimen method by which the thing 
could be done, not in any sense submitting it as a 
finished scheme— 

By Mr. Clark: 
Q. Where did Austria get the wherewithal to do 
that?— 
A. If you will tell me where the banks get the 
wherewithal to loan more money than they have got 
I will answer you that question. It comes out of the 
same source. 
Q. Could it go on forever?— 
A. Under certain conditions, yes, assuming that the 
real credit of the country was expanding. The 
principle can be applied indefinitely; that is the 
short answer to that. 

By Mr. Stevens: 
Q. Would the witness please before he leaves 
Austria, just to make that illustration clear, tell me 
this, Col. Repington's article I understand is dated 
April, 1921?— 
A. This is the date, April 11th, 1921. I read this 
thing myself about a year ago, and remembered it, 
and thought it might be useful here, and got the 
book out of the Parliamentary Library; so that if you 
want the book it is there. 
Q. No, what I am getting at is the fact that that 
which he was referring to is what was occurring in 
April, 1921?— 
A. That is the case. 
Q. And the Austrian deficit was made up by new 
issues of Austrian notes, that is true, is it not?— 
A. Not notes, no, simply book entries. 
Q. The Austrian currency was inflated I think just at 
that time, and immediately following that time. 
During the year 1921 Austrian currency fell in value 
to almost a vanishing point—that is correct, is it 
not?— 
A. That has nothing to do with— 
Q. I am not saying it has, but it is a fact, is it not?— 
A. I daresay, I have not got the figures in my head, 
but I should be perfectly willing to admit it. It was 
very low at that time. 
Q. Then the point applies there as applied yesterday 
in my question regarding Germany, there was a 
wave of activity and prosperity in Austria during 
that time, during that period of inflation?— 
A. Yes. 
Q. I think that also is a recognized fact?— 
A. Yes. 
Q. Now, then, we come to a period, the exact date I 
cannot recall, but you can very well find it by 
reference to the library, perhaps I might say about a 
little over a year ago, about December, 1921, when 
there commenced an effort, a joint effort on the part 
of the stronger nations of Europe to re-establish 
Austria's credit, culminating as it did a few months 
ago in that large advance—is that not a correct 
statement of fact?— 
A. That is a statement of fact without doubt, yes. 
You understand we are talking about financial 
credit? 
Q. Exactly, but I am just trying to make a series of 
statements of fact in the sequence of events 
regarding Austria?— 
A. Yes. 
Q. The reason that joint effort was made by the 
various allied nations in Europe was because 
Austria's system up to that time was acknowledged 
by all to be absolutely incapable of restoring Austria 
to a normal condition or anything approaching a 
normal condition?— A. I should reply to that 
simply that up to the time this alleged remedy was 
applied, Austria was extremely personally and 
individually prosperous, as evidenced by what I am 
saying. The application of this desirable remedy to 
this condition in which she found herself has been 
to reduce Austria to a state of economic disaster, 
though possibly greater financial soundness. 
Q. I would like to get this point clear before the 
Committee. I think it is very important?— 
A. It is. 
Q. Following this process which you have referred 
to, and including what you referred to as food 
subsidies?— 
A. Yes, they are not really subsidies; they are 
simply named as subsidies. 
Q. I know, but we must name these activities with 
something and that is as good a name as we can use, 
I suppose. Austria went through a period of 
artificial activity. I use the word "artificial" because 
I think you will agree that it was artificial?— 
A. No, I would not agree. 
Q. Then let us say "activity" and leave the adjective 
out?— 
A. Yes. 
Q. Industrial activity and agricultural activity?— 
A. Yes. 
Q. At the same time Austria put on very drastic 
prohibitive tariffs, almost embargoes against 
importations. That is true, too, is it not?— 
A. I believe that is also true, yes. 
Q. Then we come to a point about a year and four or 
five months ago, in 1921, when Austria admitted 
she was in a position where she was helpless and 
hopeless?— 
A. Her financiers admit it. 
Q. Well she could not buy outside. As a nation 
among nations she was in a hopeless position?— 
A. I do not think so. That is not the information I 
have. Austria up to the time when the drastic 
increase of taxation, and what we can refer to as the 
food subsidies—which were not food subsidies, but 
the application of credits to the reduction of prices, 
which is what they were—up to the time those 
things were removed, Austria was doing very well. 
Q. Very good then, that is putting it in a little 
different way. What induced the Austrian 
authorities to abandon that process under which she 
was doing well?— 
A. Outside political influence. 
Q. Well of course that is an assertion that I do not 
think is borne out by the actual evidence?— 
A. I think so. 

By Mr. W. F. Maclean: 
Q. Political influence within the State?— 
A. I hear someone ask what credit she was given. 
She was given very little credit because the course 
she was pursuing was the most powerful menace to 
the system, which I can only refer to as international 
finance, that could possibly exist, and that menace 
was so dangerous to the system that Austria had to 
be dealt with, and therefore she was ostracised, so 
to speak. 

By Mr. Stevens: 
Q. It is difficult for us to agree on that Mr. Douglas, 
but the fact is that Austria did cease or abandon that 
particular process, didn't she?— 
A Yes. 
Q. Now will you follow me in this or would you 
mind enlightening myself and the Committee on 
this. Czecho-Slovakia did not follow the same 
method as Austria followed?— 
A. No. 
Q. Czecho-Slovakia preferred to suffer for the time 
being?— 
A. Yes. 
Q. And is she not in better shape than the other 
countries which followed the Austrian process?— 
A. Czecho-Slovakia, according to the last 
information I have—which is probably six months 
old—up to that time she was in a dreadful state. 
Q. But she is in a better state than the other?— 
A. Certainly not six months ago. Her 
unemployment figures, certainly, if that is a 
criterion? 
Q. No, I agree with you there.— 
A. They were five or six times those of Austria. 
Q. The same as I agree with you that England's 
unemployment condition is worse than 
Germany's.— 
A. Yes. 
Q. But I don't think you would ask me to agree that 
Germany or Austria is in a better condition as a 
nation, as a whole, than England or Czecho-
Slovakia?— 
A. I should be inclined to agree, as matter of fact, 
but I should give a different reason probably. 
Q. But as a matter of fact?— 
A. As a matter of fact. 
Q. What I am trying to get at is facts, because I 
think we need these facts in order to get a correct 
understanding of these conditions?— 
A. Quite. 
Q. Let us get back to Austria again then and come 
to the point where we divided. Austria abandoned 
her previous method, this method of subsidies, 
embargoes and such like.— 
A. Let us say that they stopped. 
Q. Then Austria, by the assistance of outside credit, 
given to her by other nations, is now seeking, and 
has been for the last year, with I think considerable 
success, as far as the reports convey, to establish or 
re-establish herself in the world markets, among the 
nations of the world. Is not that correct?— 
A. Well I should comment on your statement in this 
way, that Austria has been removed during the 
period 
1921 to 1923 from the position of a country which 
was in control of its own economic affairs, and was 
during the period up to 1921 highly successful 
internally, although admittedly not having an 
external credit for reasons that can easily be 
understood, and she has gone through a period of 
great tribulation, and is now perhaps slightly 
approaching but has by no means reached the 
position that she was in, internally, in 
1921, and is entirely dependent on outside 
influences. 
Q. Then let us take it this way; that any nation or 
community, or let us leave nation out of it for the 
moment, and say any organized community that 
will follow a process such as Austria followed, and 
Germany, to which we referred yesterday must 
come to some time when they will have to abandon 
that process?— 
A. Oh no. 
Q. Or else face chaos and disaster?— 
A. Oh no, I disagree absolutely with that. 
Q. Yesterday you agreed to that as far as Germany 
was concerned?— 
A. No, what I said was that if she followed the exact 
procedure of those countries, there must come a 
limit, yes; but I should put against that, that it is by 
no means necessary to sacrifice the advantages 
which were gained by that procedure in order to 
retain continuous stability. 

By Mr. W. F. Maclean: 
Q. Before you leave that, can you tell us what were 
these things that checked Austria? Practically you 
say some outside intimidation changed the current 
of affairs?— 
A. I think it was the threat of absolute 
dismemberment and handing over to Italy. It was 
definitely suggested that Italy should take over 
Austria as a sort of colony. 
Q. Who did this intimidation?— 
A. The League of Nations. 

The CHAIRMAN: Mr. Maclean, this Committee 
can only have these facts established by authority of 
some kind, and Major Douglas says he does not 
know. 

MAJOR DOUGLAS: I am only giving an opinion 
in regard to these things. 

The CHAIRMAN: You said it was not even an 
opinion. 
MAJOR DOUGLAS: No, it is hardly that. I am not 
covering that ground. 

Mr. STEVENS: I think we ought to stick as far as 
possible, to actual facts. 

The CHAIRMAN: We know from documents 
issued by the League of Nations that upon the 
request of Austria certain European nations, and I 
think the United States, loaned a certain amount of 
gold. We can get that in the library beyond a doubt. 

MAJOR DOUGLAS: I think I had better come back 
within my proper province. I am getting outside it. 

By Mr. Speakman: 
Q. May I ask one question before the witness leaves 
that subject? It strikes me as very interesting and 
important, from what has been stated by the witness 
to Mr. Stevens: it looks as though the prosperity of 
the individual and the prosperity of the nation were 
in inverse ratio. That is that during the period while 
the nation was going to chaos, the individuals in the 
nation were highly prosperous, and as the nation 
approached a more stable condition, the individuals 
within the nation became less prosperous, and even 
at the present time there is more suffering in a 
nation such as England, which is on a more stable 
basis, than in a nation like Germany, which is not. I 
would like that explained to me because it looks 
rather peculiar if it is true.— 
A. I can only congratulate the questioner on his 
acumen in seeing that point. That is exactly the 
position. 

By Mr. Irvine: 
Q. Mr. Chairman, before you leave this point there 
are two questions I would like to ask. The first is, is 
it a fact that one of the terms of the loan to Austria 
was that she limit the supply of her issue of 
money?— 
A. I think I must answer this without prejudice, as a 
result of the ruling of the Chairman. 

The CHAIRMAN: No, that is all right. 

The WITNESS: I believe that that was so. 

By Mr. Irvine: 
Q. If the real credit of Austria had been impaired by 
what she had previously been doing, is it reasonable 
to suppose that other nations would have rushed to 
her with loads of gold?— 
A. Of my own opinion, I should suggest not. 

By Mr. Clark: 
Q. Mr. Chairman, the witness has stated, as I 
understand him, that nations which extend credit in 
the way that Austria did, and go into debt to an 
unlimited extent, there the individuals prosper as 
has been stated. Now the question I asked was, 
where is the nation going to get this unlimited 
credit? It must go into debt to do it; where does it 
borrow the money or the credit. The witness 
answered me that if I could explain how the banks 
are able to loan more money than they have he 
would be able to answer the question; but it seems 
to me that it is just a fog. I would like the witness to 
answer it in a concrete practical way. In the first 
place I don't know how he bases his assertion that 
the Canadian banks loan more money than they 
have. The minister of Finance has put in our 
possession a statement which shows that they do 
not, that the banks are in possession of tremendous 
sums of money which they never put out, in excess 
of what they loan. Really I think it is due this 
Committee to give us some concrete detailed 
explanation of that.— 
A. In regard to that last question, the whole subject 
of whether banks do or do not create fresh 
purchasing power by their operations has been gone 
into at very great length. If you really wish me to go 
into it, it is a fairly elaborate argument, and I shall 
be prepared to do it, but it will take some time. I can 
assure you that it is established as a fact that banks 
do create fresh purchasing powers by their 
operations; purchasing powers which they actually 
create, which did not come into existence from 
outside. That is established, I think beyond any 
question or discussion, and has for instance been 
stated categorically and admitted categorically by 
the Honourable Mr. McKenna as Chairman of the 
London Joint City and Midland Bank at the last 
annual meeting. It is a long argument and if you say 
that I am to go through it, I will go through it. 

By Mr. W. F. MacLean: 
Q. Is it the ledger entry?— 
A. It is a sort of ledger entry business. 

Mr. IRVINE: I would like to suggest that the 
witness give us an illustration of how the bank 
operates and how the credit is built up. 

The CHAIRMAN: I think every member of the 
Committee understands that. 

Mr. IRVINE: If the members are satisfied I am. 

By Mr. Hughes: 
Q. Mr. Chairman, I want to ask one or two 
questions so that I may understand as I go along. If I 
understand Major Douglas's theories at all, they 
come to this: that if I for instance wanted to buy 
something necessary or useful, I would pay the 
owner of that something less than the present price 
and the national credit would pay the difference.— 
A. That is the way that it would appear to you as the 
user of the system. 
Q. And is that correct?— 
A. It would appear to you that way; that is correct, 
so far as a statement of the action you would take, 
yes. The theory which is behind that is not included 
in your statement obviously. What it boils down to 
is, that you pay less than you pay at present. 
Q. You pay less and someone else pays the 
difference?— 
A. Yes. 
Q. And who would be that somebody else?— 
A. The somebody else might be either the existing 
banks or it might be the State or it might be new 
banks or it might be a local credit organization or 
half a dozen other things. That is only a question of 
what you might call organization or administration. 
Q. Of details?— 
A. Entirely a question of details. The fact is that 
there is a source existing; we know exactly how to 
make up the difference between the price which we 
pay and the present price. 
Q. There is someone then who is going to pay the 
difference?— 
A. Quite so. 
Q. Well now what would be the proportion that that 
somebody would pay and that I would pay?— 
A. The proportion that you would pay would be the 
proportion that the total consumption of the 
community bore to the total estimated possible 
production over the same period of time. 

Mr. HUGHES: I am as badly off now as ever. 

WITNESS: Well, I think we are getting ahead a bit 
too fast. 

The CHAIRMAN: I think Mr. Hughes has read Mr. 
Douglas's book and is, as Mr. Douglas says, getting 
ahead a little too fast. 

By Mr. Hughes: 
Q. No, I thought I saw what Mr. Douglas was 
coming to. If I remember correctly he stated that in 
the case of Austria a loaf of bread that some time 
ago cost 60 kronen?— 
A. Yes, 60 kronen. 
Q. Could now be purchased for ten kronen?— 
A. Yes, right. 
Q. And that somebody, the State, supplied the 50 
kronen, the difference?— 
A. Quite. That is what actually happened. 

By Mr. Stevens: 
Q. You do not surely assert that?— 
A. That is exactly what did happen, as a fact. 
Q. You do not surely assert that the reduction in the 
cost of living which now obtains in Austria from 
what it cost two years ago, is wholly the result of 
subsidies by the Crown?— 
A. No, that is not the statement. 
Q. Or credit subsidies?— 
A. That is not the statement. The statement is that in 
1921—I think the speaker was just quoting from 
what I read here—the actual cost of baking and 
delivering the loaf of bread was 60 kronen, and the 
actual purchaser of the loaf of bread only paid 10 
kronen. 
Q. At that juncture?— 
A. Yes, and the other 50 kronen was paid to the 
baker for someone else, by the State. 

By Mr. Hughes: 
Q. By the State?— 
A. In that case it was by the State. That is only a 
fact. 

The CHAIRMAN: By the issuance of paper money. 

By Mr. Hughes: 
Q. Let us come to Canada and see if we can apply 
that here.— 
A. One minute, sir, that is not my proposition. I am 
not suggesting to you that you should do anything 
like that as it was done in Austria. I am simply 
telling you that that took place in Austria. 

By the Chairman: 
Q. Did Austria assist in any way, except by the 
issuance of paper money?— 
A. Yes. Owing to the fact that the cost of the loaf 
was only ten kronen in place of 60 kronen, the 
actual amount of paper money, of currency, 
required for that transaction was less than it was 
before. 
Q. But the State had to assist someone, the 
producer?— 
A. Yes, it assisted. If you imagine the baker having 
an account at a bank and passing in his account for 
the delivery of loaves, together with ten kronen per 
loaf it simply had written up in the account of that 
baker some money. 
Q. Do you know as a matter of fact that that was the 
method of the operation, I mean from personal 
experience and knowledge?— 
A. No. 
Q. Then I was going to ask you, when you speak of 
credit operations in Austria, do you mean that as 
being exactly the same as we understand and what 
you know to be a credit operation in a Canadian 
bank or an English bank? 

The WITNESS: May I have that question again? 

By the Chairman: 
Q. What you call a credit operation or what we call 
a credit operation in Canadian banks is the result of 
an arrangement by which, for consideration, a bank 
gives a credit to a customer?— 
A. Quite so. 
Q. In Austria was the credit operation carried out in 
the same way in recent years, or was it an unlimited 
issue of paper money being handed out? — 
A. I should say the operation was substantially 
similar to the creation of a credit in the ways and 
means account in the Bank of England by one of the 
great spending departments of Great Britain. I do 
not know how you do it here. 

By Mr. Hughes: 
Q. I understand the witness, however, to say, that 
this system, adopted by Austria, is not his 
system?— 
A. Well, it was obviously Austria's system. I am not 
going to say where the idea originated, but it was 
Austria's system anyway. 
Q. I understood you to say it was a sound system. 
Am I correct in that?— 
A. I did not criticize it at all, one way or another. I 
simply said that thing happened and that at the time 
that thing happened, certain conditions obtained in 
Austria. That is as far as I am prepared to go. 
Q. Is that system you would wish to see introduced 
in Canada similar to the system you have stated?— 
A. Not necessarily, but there were certain principles 
of that, reduction of price below cost, which I 
considered to be essential. 
Q. This would be increased with that principle. 
Take myself for instance, I would get the things I 
needed, the useful necessary things of life for less 
than the prevailing price.— 
A. For less than you would be able to get them, let 
us say, at the present time. 
Q. Less than I would be able to get them at the 
present time?— 
A. Undoubtedly. 
Q. And that somebody would pay the difference?— 
A. If you like to put it that way. 
Q. Who would make up to the owner the 
difference?— 
A. That, as I am trying to emphasize, is entirely a 
question of detail. It is just as much a question of 
detail as, in a sense, whether you have national or 
private banks, or whether you have national or 
private railways or anything of that sort. It is the 
transportation that matters. 
Q. Then either the national credit in Canada, 
represented by Mr. Fielding, or the banks, would 
pay the difference?— 
A. If you like to put it that way. 
Q. I am quite sure the banks would refuse.— 
A. Might I just—as I feel that that was a shot that 
went home—. 
Q. It is not intended for that. I wanted to get at 
the— 
A. I should like to examine that, because I see no 
reason why the banks should refuse, none whatever. 
At least, I do not see any reason which could be put 
on the table why the banks should refuse. I can see 
how the thing can be done, and I can explain to you, 
given time, how the thing can be done so that the 
banks do not lose by it. There is no question of loss 
by the banks. Q. The banks could do that without 
losing?— 
A. The banks could do that without losing, 
certainly. 

The CHAIRMAN: The witness is willing to go on 
and elucidate that point, and I think you had better 
let him do it. 

The WITNESS: I was going to put before you, 
when this series of questions arose, and I think we 
had got to the stage where I was proposing to put 
before you a skeleton of the scheme. I will say that 
is not a scheme which we can take and plank on any 
public exactly as it stands, but I think it will explain 
to you the sort of thing that can be done. Supposing 
that you arranged with a large number of 
departmental stores that they should sell the whole 
of the products that they dealt in at cost, plus 10 per 
cent on turnover, not 10 per cent on their capital, or 
anything of that sort, yet 10 per cent is not vital—
one, two, three, four, five, six, seven, eight or nine 
per cent, it makes no difference, plus an agreed 
percentage on turnover. In consideration of their 
agreeing to put the costs on the table in proper form, 
at proper periods of time, you would authorize them 
to issue with each sale—the sale would take place 
in the ordinary way—the ordinary amount of 
money, the ordinary price, et cetera. You might 
authorize the departmental stores to issue vouchers 
to a percentage of the purchase cost, and such a 
percentage might be given which would meet the 
provisions that I shall come to later on. These 
discount vouchers might be turned in to the private 
accounts of the ordinary purchaser at any bank and 
the bank would treat these discount vouchers as a 
credit. 

By an Hon. Member: 
Q. Why? 

The CHAIRMAN: Let the witness proceed, please. 

The WITNESS: They would write up the private 
account of the amount of the person concerned by 
the amount of these discount vouchers. Now, they 
would get, at a certain period of time, over any 
given period of time, three months, or six months, 
anything you like—that is only a very general sort 
of proposition—they would get a credit from the 
Government to make up the amount of these credits 
which had been applied to private accounts. That 
would be a transfer of the collective credit of the 
country to the private account of the individuals of 
the country. Now the credit of a country is 
something of which the country or the officials of 
the country stand in beneficial trusteeship for the 
individuals included in that country, and if it is a 
beneficial thing to transfer that public credit to a 
private account, then that seems to me to be a 
perfectly legitimate operation. The result of that 
would be that you would have these stores that we 
are discussing—they would be in a position to 
under-sell by a very considerable amount—it might 
amount to any considerable amount, perhaps more 
than fifty per cent; they would be able to under-sell 
anybody who would not agree to the provisions 
which might be made for the working of this 
system, such as the keeping of proper costs and 
things of that sort. It would not mean that two or 
three stores would sell the same article at a flat rate, 
because it would be a discount, a credit discount of 
percentage on cost, and the costs of these various 
stores would vary so that you would still have 
exactly the same competition that you have at the 
present time, but you would simply lower the range 
of prices. The whole validity or the whole sanity of 
anything of that sort, of any proposal of that sort, 
rests on whether you agree that public credit is only 
held in trust for the individuals of the community. If 
you agree that it is so and if you agree that at the 
present time you cannot get goods over from the 
producer and the distributor to the consumer 
because there is not sufficient effective demand, 
you must unquestionably provide the effective 
demand, and you are using public credit for the 
general individual benefit. 

By Mr. W. F. Maclean: 
Q. Is that not what the United States Government 
did with their 4,000 female clerks at Washington in 
providing decent accommodation and proper meals 
at cost price during the war, all of which was repaid, 
but it was on the basis of the demand more than for 
this accommodation and it was given to them.— 
A. I am not familiar with that particular instance, 
and I cannot answer. What I would like to make 
clear is the difference between that proposition and 
a subsidy. A subsidy is money which is collected by 
taxation and applied to a particular purpose, the 
reduction of prices or anything of that sort. It is 
taking money from one part of the process and 
putting it on the other. This money for this process 
is not collected by tax. It is derived by a creation of 
credit, and the fact is that there is a possibility for 
the creation of this credit. That possibility and the 
mechanism are in existence at the present time, and 
is the monopoly of the banks to a large extent. 
Q. Unless it is taken by the Government?— 
A. Unless it is taken by the Government. 

By the Chairman: 
Q. Can you help to make that clear to us by an 
illustration of say a $100 or a $1,000 purchase?— 
A. My rough proposal? 
Q. Yes. That might make it clear.— 
A. Let us imagine a man is buying an automobile. 
The automobile is valued at about $2,000 as an 
ordinary price. Say it is a $2,000 automobile. He 
goes to an ordinary recognized dealer, who has the 
automobile that he wants, and he pays $2,000 for 
the automobile. That finishes the transaction as far 
as the agent is concerned. It is carried on at the basis 
that it is at the present time, but because the agent, 
with the assistance of the people behind him, the 
manufacturer, et cetera, agrees to accept an agreed 
percentage on turnover only, which is in addition to 
the cost price of the automobile, which of course is 
always available—because of that he is empowered 
to issue a certificate that an automobile, valued at 
$2,000, has been sold to a private individual and he 
has got the money. We want you to issue a voucher 
representing a discount of, let us simply take a 
figure, 25 per cent. Twenty-five per cent of $2,000 
is $500. That is simply a piece of paper. It shows a 
discount on this sale of $500. He takes that discount 
paper the next time he goes to the bank, for any 
other reason—and it is not really necessary it should 
be a bank—and he turns it in just like a cheque, and 
the bank receives it just like a cheque and credits his 
account with $500. It has not affected the currency 
in any way at all. It is simply a book transaction, 
one way or another. At the end of an agreed period 
of time the bank submits to the individual the 
certificate that it has credited to this particular 
purchaser of the automobile, together, of course, 
with many others. It has credited him with $500 on 
the basis of this discount voucher. The Government 
sends the credit in any form which may be agreed, 
again, it only being a book entry to a bank, allowing 
them to write up their credits by the amount of this 
$500. That is in effect a transfer of national credit, 
public collective credit, to a private account. The 
transaction is then finished. The consumer has got 
his automobile; the manufacturer has sold an 
automobile that he would not have sold before. No 
effect is made on the currency and everybody is 
happy. 

By the Chairman: 
Q. What could the Government give, unless it 
would be currency?— 
A. It does not give anything. 

By Mr. Good: 
Q. I would like Major Douglas to follow that up and 
give us some indication of the probable effect on 
prices, on production and consumption. I am very 
much interested at this stage, and I think a great 
many others are, to have some expression of 
opinion as to what would be the probable effects on 
prices generally, on production and consumption, 
on international trade.— 
A. Well of course, it would be agreed that that 
question covers a very wide area, but the first part 
of the question would be, what is the effect on 
prices. The first effect on prices is that you get a 
$2,000 automobile for $1,500. That is the first 
direct result. 

Mr. HUGHES: That is quite apparent. 

By the Chairman: 
Q. Make it clear. I may be stupid about this. There 
must come a settlement day sometime between the 
bank and the Government?— 
A. We have had that. 
Q. We have had it, but I did not get it. Refine that, 
just a little bit, and tell me what the Government 
does to enable the bank to have $500 more credit.— 
A. It does the same thing that in the first place a 
bank does when it transfers from its loan account a 
sum to the credit of a person, an individual person, 
which he might draw as an overdraft. 
Q. But Major, if I were borrowing a million dollars 
from a Canadian bank and I gave them two million 
dollars worth of Victory Bonds, notes, as collateral, 
that is something behind the loan, because it is 
quickly realizable, convertible into gold notes or 
anything. In this case apparently you put up nothing 
at all? — 
A. There is the greatest possible thing that you can 
possibly have under the circumstances, and that is 
the national credit. 
Q. Make that a little plainer. I just want to 
understand what your scheme is. 

Mr. IRVINE: Could he answer the question put by 
Mr. Good and take up credit a little later? 

The WITNESS: The first part of Mr. Good's 
question referred to what would be the effect on 
prices. As I was saying, the effect is you get your 
$2,000 automobile for $1,500. That has altered the 
ratio between the amount of purchasing power 
distributed and the price taken back . You will see 
where that impinges on the first part of the 
discussion. The anterior result would be that the 
automobile manufacturer could quite clearly sell 
more automobiles. Given the same sort of 
automobile this company has got, you can sell more 
of them at $1,500 than you can at $2,000. That 
increases the productive demand. I am sticking 
strictly to the question of prices at the moment. He 
makes more automobiles, and his actual costs 
decrease. The result of that is to, after a short time, 
decrease the original sum that he had to charge for 
the automobiles of $2,000 and to bring the price 
down still further. That goes on for some time until 
the equilibrium is reached where his overhead 
charges and his wage charges begin to increase, and 
he cannot bring his costs down any more, but the 
effect of the process is to cause the actual cost of 
producing an automobile to decrease. We are only 
dealing for the moment with this specific case of the 
automobile. I have no doubt Mr. Good would say 
"what is the effect on other things." The effect on 
the prices of other things is rather complex for the 
moment, but it frees $500 which would have been 
spent on an automobile to be spent on something 
else, and for the moment we are assuming that the 
something else is not subject to this process. The 
result of that is to increase the demand for this 
something else, and for the moment because the 
demand is increased it is probable that the price 
would go up. It would not go up very far before 
somebody would suggest that as it had been 
possible to bring down the price of automobiles in 
that way, it would be possible to apply the same 
process to the thing which had risen in price; and I 
think the logical conclusion would be that the 
system would extend. That is broadly the process 
that I see in regard to prices. Now, the second part 
of your question— 

By Mr. Good: 
Q. Would you pardon me just before you leave that; 
what is to prevent a continuous increase in prices 
such as we find when we have this free printing of 
what is called fiat money, you know what I mean by 
the question?— 
A. Yes. 
Q. What is to prevent that?— 
A. Because the rise of prices which occurs in 
connection with the printing of what is referred to 
as fiat money, takes place in accordance with the 
assumption that the price of an article is what it will 
fetch, and if there is more money in the market in 
relation to the same amount of goods, and people 
want the goods, then it is clear that the articles will 
fetch more money, and that is what causes the rise 
of prices in connection with what is called fiat 
money. That takes as an axiom that you have a rise 
of prices in connection with the increased supply of 
money, but if you apply the increased supply of 
money, if you like to put it that way, to the 
reduction of prices, that is a condition of affairs 
which cannot possibly take place, because the 
application of the money does not take place unless 
you get the fall of prices. It is impossible, if I say I 
will let you have $5 towards an article which costs 
$20 if you charge $15 for it then you do not get the 
$5 unless you charge $15 instead of $20; and the 
provisions which can be made to ensure that that 
takes place are perfectly obvious, by means of such 
a thing as the discount voucher or something of that 
sort; so that the rise of prices cannot possibly take 
place. 
Q. Just before you pass to the second question, there 
must be a limit to this process, there must be some 
limiting point, is there not?— 
A. Yes, there is this limiting point which I am afraid 
aroused a little amusement but I must go over it 
again. We have been discussing for about two days, 
and I have been trying to emphasize the fact there is 
no production problem, that the productive system 
is straining to produce far more than it is producing 
at the present time. The reason it does not produce 
more than it does at the present time is not because 
people do not want it, but because they cannot buy 
it. If the productive process can produce more than 
it is doing, and people can physically consume more 
than they are doing, what they want is an increase 
of purchasing power to equate those two. The 
increase of purchasing power which is required to 
equate those two, that is to say—I will make it still 
simpler--to increase the purchasing power which is 
required to draw on this unused capability of 
production and delivery is represented by this 
discount. If there is no unused capacity to produce 
and deliver there cannot be a discount. The 
justification for that discount is unless you have a 
reduction of prices people cannot draw upon that 
unused capacity to produce and deliver. That is the 
justification, and that is the basis on which that 
discount rests. Now, then, you say must there not 
come some end to this process? The answer to that 
of course is purely hypothetical, that is, can the 
people consume as much as a production system 
can possibly deliver? I can only give you my 
personal opinion about that, because nobody has 
tried it except perhaps during the war. All I can say 
is I do not believe for a single instant that the 
possibilities of consumption can ever reach the 
possibilities of production. 

By Mr. W. F. Maclean: 
Q. Was that the line on which Austria was moving 
when she was interrupted?— 
A. Only very tentatively I think. 

By Mr. Kellner: 
Q. Major Douglas, before leaving that automobile 
proposition, suppose you went to your agent and 
bought your automobile to-day, and there was 
collusion between them, what would there be to 
prevent the agent going back and selling you that 
same car to-morrow, and each one of you would get 
your credit slip for $500?— 
A. The answer to that is merely the sort of thing you 
are always coming up against in organizing any sort 
of a system. You have a system of numbered credit 
vouchers, let us say—I am making this up in my 
head at the moment—you would have a system of 
discount vouchers which would bear the same 
number as the automobile engine and the chassis 
number, let us say, and then you would simply issue 
that particular discount voucher with that 
automobile. 

By Mr. Cahill: 
Q. Suppose it were a calf, how would you mark 
it?— 
A. I suppose you would have to brand the calf. 

By Mr. Good: 
Q. May I ask another question: supposing it is 
practically impossible in any particular industry 
such as farming as it is carried on in Canada to keep 
cost accounting, how would the theory be applied to 
such an industry to determine say the prices of farm 
produce?— 
A. Well, I propose to answer that question, but I 
should like to say that that is an illustration of the 
sound grounds that I think I take when I say I am 
not putting forward a detailed scheme. That is why 
it is clearly and obviously necessary to spend a 
great deal of time in actually investigating the 
difficulties which have to be met in regard to a thing 
of that sort. No doubt a thing of that sort might be a 
difficulty, but I can see there are plenty of ways of 
getting over it, that you can establish a cost system. 
It was done in England during the war for 
agricultural produce, quite satisfactorily; it worked 
very well, but for some reason it was knocked on 
the head and has gone out of use. But there was 
during the period of food control a very admirable 
cost system in use in England, and the actual cost of 
production of agricultural produce was ascertained 
very carefully, and that would, I think, be the thing 
that would have to be done here probably. But there 
are ways round it in any case. 
Q. May I ask another question, dealing with 
something that was taken up yesterday or the day 
before; do you regard it as true that banks under the 
present system can control or affect prices? It has 
been denied by at least one very prominent banker 
that the banks can or do affect prices? 

The CHAIRMAN: Why not let the Committee 
centre their questions upon the matter we have been 
discussing and let your question stand for the 
present? 

Mr. GOOD: Very well. 

The CHAIRMAN: Does anybody wish to ask Major 
Douglas any questions? 

By Sir Henry Drayton: 
Q. What do you do in your cost fixing when you 
have different bases of cost? We had cost fixing and 
we found we had to drop it because the cost to one 
man was entirely different from the cost to another; 
what do you do there? For example, in farming we 
have one set of costs in one province and another 
set of costs somewhere else. We found, for 
example, in milling that one overhead would enable 
the smaller mills just to get along and would enable 
the larger mills to make altogether too large a profit; 
how do you treat costs there?— 
A. The proposition, the very intensive proposition 
which I am putting before you at the moment, 
involves the application of a fixed discount to a 
variable cost. 
Q. In the same trades?— 
A. Yes. So that in that case you see you would have 
people in the same trade selling their products at a 
generally lower level, but still at a variant price; so 
that naturally what would happen would be that the 
man who produced cheapest you would allow him a 
profit on turnover— 
Q. There again the prices are just the same, 
although you produce an agricultural article more 
cheaply in one province than the other the prices are 
practically the same, they sell at a common 
market?— 
A. In this case they would not be. A statement of 
cost is undoubtedly in some form or other an 
essential in such a proposition; and whatever the 
cost is you have the agreed percentage, commission 
or profit, or however you like to put it, on turnover 
for the last dealer in the thing, and you apply to that 
final price a flat discount which applies to all sets of 
costs of that kind, probably to all sets of costs of all 
kinds. Let us say that is 25 per cent, let us say the 
unit cost of an article is $100 in one case, and $150 
in another, and applying the discount of 25 per cent 
you get the selling price of the first man as $75, and 
the selling price of the second man, $112.50—25 
per cent off $150. The two prices vary just as they 
vary at the present time. What happens as the result 
of that is, of course, up to the limit of capacity you 
buy the product of the cheapest man, which is of 
course what you should do, but his capacity 
probably comes to an end, and you are forced back 
on the products of the second man. 

Mr. GOOD: There would be a rush order to that 
party. 

By Sir Henry Drayton: 
Q. Let us see again, supposing we take something 
where the prices are the same, you have a large 
flour mill with a low basis of cost, and a small flour 
mill with a higher basis of cost, they both sell at the 
same price?— 
A. But they would not in this case. At the present 
time they make a protective ring to the disadvantage 
of the consumer. 
Q. It is generally fixed at the price of the most 
expensive?— 
A. Yes, and that is to the disadvantage of the 
consumer. What we are trying to do is to get a 
position in which more consumers can get the 
article, and we enable all these people to get the 
same amount of turnover that they got before 
probably; but their prices differ. 

By the Chairman: 
Q. If this $500 credit slip is not a convertible 
document of value, then the automobile is being 
sold below cost, is it not?— 
A. The cost looked at from that point of view is 
simply an issue of purchasing power, that is all it is; 
it is simply an issue of a certain number of tokens 
which enable him to draw supplies from the general 
production. Those tokens as tokens need not 
necessarily have cost anything anyway, and the 
object you have in view is to get the goods over 
from the producer to the consumer. It is the basis of 
the whole of this argument, that you do not succeed 
in doing that at the present time, and this is a 
suggestion as to how you could get them over. The 
actual fact that you get over more tokens through 
the productive process than you do through prices 
does not really matter at all, it is only a ticket 
system, the present thing is only a ticket system, but 
we have been so hypnotized with the idea that there 
is something real about money that it is very 
difficult to learn that it is only a ticket system. 

[End of Part 3]