The New Start Journal

    Vol 2. Issue 6

    July 2021

    Odoo text and image block

    An Editor’s Progress.

    By A. R. Orage.

    PART III.— The Impossibilty Of Reform.

    If men were intelligent would they not say that the most important thing practically in life is money?   This is not, of course, to rank money above health or virtue or happiness; but only as the supreme value among material means; and it is naturally first among means since it is convertible into any or all of them.   Nevertheless, as much as men love and realise the value of money, not more than one person in a million – and this is even a generous estimate – either knows or cares where money actually comes from, how it is actually made, what it is actually composed of, or what forces actually regulate its circulation and amount.   Nearly every Labour, Socialist, social and international dispute during the last few centuries has been about money; yet scarcely a soul in any class or community is concerned to know what money is. Professors and bankers are given credit for understanding the mysteries of the subject, though it is quite certain that their ignorance is only greater than that of the general public; in short, their ignorance has been specially cultivated.   And, in any case, to leave to interested persons the sole discretionary control of a matter so universally vital as money is to gamble our lives on dangerous odds.

    One of the first things to which Douglas drew attention was the difference between real and financial credit.   Place a wet towel round your head and consider the following: A community has all the actual means necessary to production – land, raw materials, factories, machinery, power, skill, organisation, and labour.   A year or two ago this self-same plant was turning out goods at an enormous rate; and there is no obvious reason why it should not have continued.   Yet today the whole of the plant is virtually idle, including, or course, the labour which is now said to be “unemployed.”   What has happened to stop the wheels?  Plainly not a breakdown of the productive system, since tomorrow it could be set in motion again without the smallest difficulty.  All that has happened, as we know, is that “orders” have ceased to come in; in other words, demand has ceased.   But why has demand ceased? Certainly it is not because the products in question are no longer actually needed. Demand has been satiated, perhaps, but not real need or appetite.  No, the truth is that need has ceased to have money in its pocket, with the result that it is no longer what is called effective demand.   But why, again, has it no money?   Why is money at one time plentiful and at another time scarce?  Productive capacity certainly does not jump up and down every month.  On the contrary, the world’s productive capacity steadily and rapidly increases practically daily.   The productive capacity of any modern industrial community is hundreds of times today what it was a century or fifty years ago; and with every new invention it increases.   Emphatically, then, it is not the case that the variations of money circulation are due to variations of productive capacity.  They not only  move independently of the latter, but are scarcely related to production at all.  The production of goods depends, it is obvious, on the factors named; but the production of money depends on factors over which the production of goods has little or no control.   This discrepancy between goods and money, between productivity and currency, is the difference between real credit and financial credit. Real credit rests on real factors – materials, power, and labour; financial credit rests, in the ultimate, upon one thing and one thing only – gold.

    It is an astonishing phenomenon that is presented to the mind as it realises the place and power of this metallic element in modern life.   We see very little of it in circulation; yet secretly it controls the quantity in circulation of every other form of purchasing-power.  Move a hundred millions of gold from England to America or America to England and the effect on both countries will be starling.  The importing country will experience an immediate increase in the circulation of every other form of currency; while in the exporting country, every other form of money will at once begin to diminish in quantity.  Prices in both countries will be equally affected, but in opposite directions.   Various other phenomena of universal importance are accounted for by the vicissitudes of this strange metal; but the only thing that for the moment concerns us is its control by factors outside the directly productive system.   In a word, if the ownership of the means of direct production is in the hands of capitalists, the real control still lies with money whose ultimate ownership is vested in the financial and not in the productive system.

    Major Douglas, however, was anything but one of the usual money-cranks.  Heavens, after thirty years of public life I think I recognise a crank at sight!   He had no such absurd notion as demonetising gold or denouncing the financiers, or nationalising banks.   His constructive proposals, when they came to be clearly formulated, concerned mainly the only practically important question asked by every consumer – the question of price; and beyond a change in our present price-fixing system, there is in his proposals nothing remotely revolutionary.   For the rest, everything would go on as now.   There would be no expropriation of anybody, no new taxes, no change of management in industry, no new political party; no change, in fact, in the status or privileges of any of the existing factors of industry.   Absolutely nothing else would be changed but prices.

    But what a change would be there!   Major Douglas’s calm assumption is that from tomorrow morning, as the shops open, the prices of all retail articles could be marked down by at least a half and thereafter progressively reduced, say, every quarter – and not only without bankrupting anybody, but at an increasing profit to everybody without exception.   Absolutely nobody need suffer that everybody should be gratified. All that would happen to anybody is that the purchasing power of whatever money they have would be doubled tomorrow, and thereafter continuously increased.

    Not to put too great a strain upon credulity or suspense, I may explain here that the principle of the proposal is perfectly simple; and it consists in this – that prices ought to fall as our communal powers of production increase.   Let me illustrate:   Imagine a theatre whose seating capacity doubles every year – ought not the prices to be halved every year?   If that is not natural for a single theatre, imagine that every theatre automatically grew in capacity – would it not appear strange if at the same time its prices of admission rose?   Yet the latter is precisely what takes place in industry today.   As fast as a nation’s productive capacity increases, its prices rise, with the absurd consequence that the wealthier the nation is in resources the more difficult is it for its members to utilise them.   Major Douglas’s proposal was simply to regulate price by productivity; by relation, that is, to supply.   Since price is, strictly speaking, only the regulator between supply and demand, its reference to supply is perfectly logical.   And if it is more than true that our present potential supply is twice our present demand, it stands to reason that halving existing retail prices would begin to equalise matters by doubling effective demand.

    My first reaction to the astonishing proposal to “sell goods under cost” – and not merely as a temporary expedient but permanently and progressively – convinces me, as I look back upon it, of the utter impracticability of the suggestion.   Not only its first shock must be fatal in the majority of cases to any further interest in the “crank,” who would propose it; but the time and thought and labour necessary to understand and appreciate it are beyond the command of more than a very few.   In short, I am as much convinced that the suggestion will never be put into practice, as a result of reason, as I am that reason would, nevertheless, dictate that it should be.   The world has not free brain enough to comprehend the simple cure for all its economic ills.

    I certainly worked hard enough to satisfy any possible doubt I may have entertained. For three years, in the closest working association with Major Douglas, THE NEW AGE week by week laboured to expound, explain, simplify, and illustrate the theses upon which the practical scheme rests.   There was organised a Credit Reform League with branches all over the country. Major Douglas gave up his profession of engineer during these years to be at the service of the cause.   We saw everybody we could, and did our best to see everybody we should. The national situation from the conclusion of peace was plainly going from bad to worse.   In short, if there ever was a time when a novel, non-revolutionary, simple, and effective scheme of reform might hope to command a reasonable hearing, the period following the peace was that time for England.   To say that we had no success would be untrue.   The idea is more alive than ever in England at this moment.   But for any practical result, search might be made with a microscope without result.

    The conclusion my mind inevitably reached after these experiences was that reform in any drastic sense is impossible.   Douglas, to the best of my consideration, has got to the very bottom of economics.   There are literally no more insoluble or even doubtful problems in the whole range of economics; and this, needless to say, includes the daughter “science” of politics.   Everything is as clear as daylight in the light cast by Douglas’s analysis of the nature and role of finance.  At the same time, his analysis did not leave the situation hopeless theoretically; it was only hopeless practically.  The Douglas positive proposals were as impeccable as his analysis; only they could not be carried into effect owing to the stupidity of the community that needed them.  What was I to do?   I was again at an impasse.   The first arose on account of the combination of interests against us; but the second was worse, since the combination against us was unconscious and irremediable.   There was nothing to be done but to die with THE NEW AGE, or to hand it over to a fresher soul.   After fifteen years of editorship I sold out and left England.