SOCIAL CREDIT PRINCIPLES

Notes for an address delivered at Swanwick, November 1924.

C. H. DOUGLAS.

The financial system, in its control over production, 
stands to the works or factory system of the world, 
considered as an economic unit, in the same relation 
as the planning department of a modern factory does 
to that factory.

The distribution side of the financial system 
exercises a function not dissimilar to that of the 
progress department of a factory.

No discussion of the financial system can serve any 
useful purpose, which does not recognise:

(a) That a works system must have a definite 
objective.

(b) That when that objective has been decided upon it 
is a technical matter to fit methods of human 
psychology and physical facts, so that that objective 
will be most easily obtained.

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 it is 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 a 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.

You cannot spend too much time in making these issues 
clear to your minds, because until they are clear you 
are not in a position to offer an opinion on any 
economic proposal whatever.

In regard to (b) certain factors require to be taken 
into consideration.

(1) That money has no reality in itself. That in 
itself it is either gold, silver, copper, paper, 
cowry shells, or broken tea cups. The thing, which 
makes it money, no matter of what it is made, is 
purely psychological, and consequently there is no 
limit to the amount of money except a psychological 
limit.

(2) That economic production is simply a conversion 
of one thing into another, and is primarily a matter 
of energy. It seems highly probable that both energy 
and production are only limited by our knowledge of 
how to apply them.

(3) That in the present world unrest two entirely 
separate factors are confused. The cry for the 
democratisation of industry obtains at least 90 per 
cent of its force from the desire for the 
democratisation of the proceeds of industry, which 
is, of course, a totally different thing. This 
confusion is assisted by the objective fact that the 
chief controllers of industry get rich out of their 
control.

I do not, myself, believe in the democratic control 
of industry any more than I should believe in the 
democratic control of a cricket team, while actually 
playing, and I believe that the idea that the average 
individual demands a share in the administrative 
control of industry is a pure myth.

The present world financial system is a Government 
based on the theory that men should be made to work, 
and this theory is considerably intermixed with the 
even stronger contention that the end of man is work. 
I want you to realise that this is a statement of 
fact, not a theory. More than 95 per cent of the 
purchasing power actually expended in consumption is 
wages and salaries.

It will therefore be seen that there are two 
standpoints from which to examine its mechanism. The 
first considered as a method of achieving its 
political end of universal work, and the second as a 
means of achieving some other political end - for 
instance, the third alternative aalready mentioned.

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. 
Every other factor in the situation is ultimately 
sacrificed to this end of providing him with work, 
and at this moment the world in general, and Europe 
in particular, is undoubtedly settling down to a 
policy of intensive production for export, which must 
quite inevitably result in a world cataclysm, urged 
thereto by what is known as the Unemployment Problem.

To blame the present financial system for failing to 
provide employment is most unfair; if left alone it 
will continue to provide employment in the face of 
all scientific progress, even at the cost of a 
universal world war, in which not only all possible 
production would be destroyed, but such remnants of 
the world's population as are left will probably be 
reduced to the meager production of the Middle Ages.

Considered as a mechanism for distributing goods, 
however, the existing financial system is radically 
defective. In the first place, it does not provide 
enough purchasing power to buy the goods which are 
produced.

I do not wish to enter at any great length into the 
analysis of why this is so, because it is always a 
matter of some heated controversy.  I have, however, 
no hesitation whatever in asserting not only that it 
is so, but that the fact that it is so is the central 
fact of the existing economic system, and that unless 
it is dealt with no other reforms are of any use 
whatever.

And the second feature of equal importance is that 
considerably less than the available number of 
individuals, working with modern tools and processes, 
can produce everything that the total population of 
the world, as individuals, can use and consume, and 
that this situation is progressive, that is to say, 
that year by year a smaller number of individuals can 
usefully be employed in economic production.

To summarise the matter, the principles which must 
govern any reform of the financial system, which will 
at one and the same time avoid catastrophe, and re-
orientate world economic policy along the lines of 
the third alternative, are three in number:

1. That 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. That the credits required to finance production 
shall be supplied, not from savings, but be new 
credits relating to new production.

3. That the distribution of cash credits to 
individuals shall be progressively less dependent 
upon employment. That is to say that the dividend 
shall progressively displace the wage and salary.

I may conclude by a few remarks on the position of 
the banks, in respect of this situation. It is 
becoming fairly well understood that the banks have 
the control of the issue of purchasing power to a 
very large extent in their hands. The complaint, 
which is leveled at the banks, is generally that they 
pay too large a dividend. Now curiously enough, in my 
opinion, almost the only thing which is not open to 
destructive criticism about the banks is their 
dividend. 

Their dividend goes to shareholders and is purchasing 
power, but their enormous concealed profits, a small 
portion of which goes in immensely redundant bank 
premises, etc., do not provide purchasing power for 
anyone, and merely aggrandise banks as banks.

But the essential point in the position of banks, 
which is so hard to explain, and which is grasped by 
so very few people, is that their true assets are not 
represented by anything actual at all, but are 
represented by the difference between a society 
functioning under centralised and restricted credit 
and a free society unfettered by financial 
restrictions.

To bring that perhaps somewhat vague generalisation 
into a more concrete form, the true assets of banks 
collectively consist of the difference between the 
total amount of legal tender, or Government money, 
which exists, and the total amount of bank credit 
money, not only which does exist, but which might 
exist, and which is kept out of existence by the fiat 
of the banking executive.
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