In our last two issues we dealt with these aspects of our economy:
We noted how mankind, starting in the distant past without tools, grubbed but a bare existence. Then he invented tools and machines, and passed them down, until today we are heirs to the accumulated knowledge and great power-driven productive machines developed by past generations. We have moved from the age of drudgery and scarcity, to the threshold of undreamed of abundance and leisure.
We noted how our productive machine in wartime supplied our war machine and consumer requirements at the same time; how during normal years of peace it poured mountains of ‘unsaleable surpluses' into every store and warehouse. Never in history was there such a productive machine.
But the distributive system (the money system) failed to keep pace with the productive machine. People did not, in the process of production in this power age, get enough purchasing power to enable them to buy back the full product of industry. The result was 'unsaleable surpluses' (more underconsumption than overproduction), consequent slowing down of industry and reduction in employment and purchasing power, accompanied by a mad scramble by all nations for export markets in which to dispose of their goods which their own people did not have money to buy in the home market.
This condition was powerful inductive proof of the truth of C. H. Douglas' contention that industry, in the process of production, during any given period of time does not distribute sufficient purchasing power to buy the whole of that production.
"The second consequence of the proposition that costs exceed purchasing-power is the existence of an expanding debt. Our proposition is quite general; it applies to any given economic area. We have seen that a surplus of exports over imports solves the problem for a particular area, but only at the expense of compounding the problem in another area; some nations become creditor nations, but others become debtors; and we should expect to find that the total of general indebtedness exceeds credits, and exceeds them more and more as time goes on.
"This is, in fact, exactly what we do find. But not only do we find this increasing international indebtedness, but we find that every industrial nation has an internal debt which exceeds the total amount of its currency. This constant rise in debt has been stated by the Technocracy Group to be at the rate of the fourth power of time, one hundred years being taken as the unit. It is, and can only be, the reflection in time of the cumulative gap between purchasing power and prices."
The steady growth of debt is a fact which anyone can verify for himself. During the years preceding World War II, fantastic increases were recorded in private, municipal and provincial debt, as home owners lost their properties, farmers their farms, and merchants their businesses.
The frustrating consequences of the debt system of public finance are evident in the following figures on Britain's national debt:
March, 1914..... £ 650,000,000
March, 1919..... £ 7,435,000,000
March, 1938..... £ 8,026,000,000
But since World War I Britain had paid on her national debt the sum of £5,679,000,000.
So that, although having paid off, in interest and principal, nearly £6,000,000,000
on a debt of..... 7,435,000,000
she still owed... 8,026,000,000
Senator Byrd (Dem. Va.), speaking in the US Senate, July 29, 1953, revealed:
That the debt limitation usually imposed upon cities and towns in the US, and in many other countries, is 18 percent of assessed value of real estate.
That the total assessed value of real estate in the US is 143 billion dollars, while the US federal debt alone is 272 billion.
That the interest on the US federal debt is more than 8 billion dollars a year — approximately the amount of the federal deficit the last fiscal year.
That the US is in reality borrowing to pay interest, thereby incurring the added burden of compound interest. In 25 years at this rate the US will spend 200 billion dollars for interest alone, and this, compounded, will about equal the present debt.
Incidentally, in spite of oppressive taxes and interest payments, the US federal debt is actually increasing about 3 percent annually – from less than 3 billion in Wilson's time to 272 billion today.
The wreaking course of debt finance stands out in bold relief in the estimates of the Baxter International Research Bureau, which show the total US debt (public and private) to be approximately ONE TRILLION and 24 billion dollars – or, $24,300.00 for every family in the nation... and rapidly climbing.
The over-all pattern is the same in Canada. An article in the Toronto Globe and Mail (Dec. 21, 1954, said in part:
"Canadian consumers are more heavily in debt than they have ever been before. They are more heavily in debt per head ($122 compared to $52 in 1948, for instance). They are more heavily in debt in relation to their income (11 per cent compared to 6.1 per cent in 1948). And they are continuing to incur debts with almost one-third of everything they buy."
The article gives these figures on private debt in Canada: "Canadian consumers (on June 30/54) were $1.86 billion in debt...” with every man, woman and child owing an average of:
on charge accounts................. $ 30
on instalment plans................. $ 18
to finance companies.............. $ 33
to banks and loan companies.. $ 41
This means that an average of $122 per man, woman and child, or (based on a family of 4) about $500 a family of NEXT month's or NEXT year's anticipated income, has already been spent to finance the consumption of LAST month's or LAST year's production.
This, in itself, is another powerful confirmation of Douglas' proposition that purchasing power distributed in the process of production is insufficient to buy the production.
When we add to the foregoing picture, the debts of business, municipalities, provincial and federal governments, we begin to comprehend the colossal debt and staggering interest burden oppressing the Canadian economy and people today.
At the outbreak of war in 1939 we found the owners of property, business and farms, burdened down with debt and interest and losing their assets to the financial institutions; and we found municipal and provincial governments going bankrupt and imposing heavier and heavier taxation in an attempt to meet interest payments on their debt. And we found the federal (national) debt of Canada approximately 3 billion dollars.
During the war years the federal government, through the sale of bonds, borrowed billions of dollars from the banks, and pumped this out into circulation through payment to the armed forces, war contracts, and so on. This large-scale spending (of borrowed money) for war, coupled with wholesale destruction of a large portion of our production, brought us 'prosperity'. People had jobs and income. The result was that individuals began to clear up their private debts.
And municipalities and provinces, due to increased revenues arising from increased economic activities, found themselves with more income. At the same time, due to less unemployment and relief costs, and due to the fact that during the war years the municipalities and provinces could not get the materials to do much construction work, they found themselves with expenditures down. And thus were these governments able to start paying off their debts. But — and here is the joker — all at the expense of the national debt, which rose from 3 to 17 billion during the six war years.
The revenues which the municipalities and provinces were using to pay off their debts, were revenues resulting from the increasing debt which the federal government was contracting.
So that we Canadians did not really discharge our debts after all. We merely transferred them from private, municipal and provincial levels, to the national level. But we still owe this debt, according to the present rules of the game; it still stands against our real wealth; and we still pay the tax-bill to meet the interest charges.
The simple truth of the matter, which cannot escape any impartial examiner, is that the sum total of our debt, private and public, is progressively mounting.
This is confirmation of C. H. Douglas' finding that the present economic system is not self-liquidating.
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