Last month, in our "Cultural Heritage" article, has reviewed mankind's struggle towards Abundance and Leisure, from the distant past when he started without so much as a crude axe or spade and had to labour long hours to grub a bare existance in an age of scarcity, to the present day when, with a relatively small expenditure of human energy, he is able to produce a great quantity of every conceivable type of goods.
This evolution, accelerated in recent times under the impact of the industrial revolution, and now entering the unexplored possibilities of the atomic age, has completely transformed the Western world from the age of scarcity to the age of abundance. This abundance, being the result of the accumulated knowledge and capital passed on and added to from generation to generation, is the product of no one class or group. All individuals living in this year of 1955 surely have some right to share in the fruits of this Cultural Heritage.
With this brief background in mind, we now turn to an examination of economics.
Economics are not so complex and complicated, as fundamental principles, as to be beyond the understanding of our citizens. Many in the past have shunned an examination of economics because they believed this subject to be so deep and mysterious than only those with an alphabet after their names could comprehend it. But while our failure to examine basic principles and demand remedial action (other than war and destruction) for the paradox of poverty in the midst of plenty may have worked to the advantage of those financial circles interested in extending their control over peoples through depression and war, it has had disastrous consequences upon the whole of Christian civilization.
Economics, stripped right down to essentials, simply has to do with the Production and Distribution of goods and services. This, of course, involves many factors: our forests, streams, fields and mines; our machinery, harnessed solar energy, factories and skilled workmen; our distributive and transport facilities, and other resources. These factors all enter into the production and distribution of goods and services.
We need waste little time considering our natural resources. Our fields, forests, streams and minerals in Canada and America defy the imagination. And they are yet only scratched. In addition to our immense resources long known, this decade brings us vast and rich discoveries of uranium, extensive development of hydro, and the oil begins to flow from huge oil reserves in the West and ore from the rich deposits in northern Quebec.
We have more grain than we can consume, more dairy products and meat than we can eat, more timber than we require – more of practically everything which we need for a magnificent standard of living for every Canadian family.
Even before World War II, with our productive potential only a fraction of what it is today, there was no shortage of goods. The shops and factories were glutted. Nor was there any shortage of transport facilities. We had the railroads, the freight trains, the trucks, the ships — and millions of unemployed eager to operate them.
We had the goods, and we had the means of transporting them as and where needed. And we had millions of men, women and children in dire need of these goods. Yet production had to rot while our people went without.
WHY? Not because there were no goods, but because there were no dollars. But dollars, and finance, have to do with that part of our economy known as Distribution. All the evidence proves, and our own common sense tells us, that it is this end of our economy which requires some adjustment if we are to avoid another financial depression amidst physical abundance, and put at the service of our people the abundance which today is all about us.
The purpose of our productive machine is not to create employment, which is in fact nothing more than a by-product of production. The purpose of industry is to produce goods — and the more production per unit of manpower, the greater the efficiency. No sane person, viewing the past quarter-century, would deny that industry has fulfilled its purpose. It has produced more goods than consumers had purchasing power to buy. It produced mountains of 'unsaleable' surpluses. It supplied our war machine and consumer requirements at the same time. Never was there such a productive machine in history. And, given orders, its potential could far outstrip today's output.
The basis of Major C. H. Douglas' financial proposals is the proposition 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. This proposition, once grasped, is obviously of unparalleled importance, as it puts the finger on the flaw in our financial system which results in trade stagnation, slumps, depressions, and ultimately wars.
To put the proposition simply, let us say that for one year Mankind produces nothing but bread, and that the cost price of the bread works out at one million dollars. The assertion is that Mankind's income is something less than one million dollars — let us say, quite arbitrarily, half a million dollars. "Then we say that there is a gap between Mankind's purchasing power, and the cost of the production which he has to buy. In technical terms we say that income cannot liquidate the cost; and, since the income, or purchasing-power, and the bread derive from the same process — the making of bread — we say that the process is not 'self-liquidating'*
At this point we are not concerned whether the proposition be true or false, but simply in making clear the sense in which our terms are used. Now, the bread stands for all production --- shoes, automobiles, houses, toothpicks – and purchasing power in respect of this production is the money paid out as wages and salaries in the course of it. The proposition is that the total money paid out and constituting purchasing power — i.e., ability to buy the production — is always less than the cost price of the whole of production as assessed by standard methods of accounting...
The student of higher mathematics may confirm Douglas' proposition by the method known as deductive proof. We shall not delve into that here.
The other type of proof is known as "inductive proof". That is to say, without concerning ourselves with the logical proof of the proposition, we can accept it as provisionally true, and see how it applies in practice. This is exactly the method known as "the scientific method", employed in the natural sciences. The scientist forms what he calls an "hypothesis" – a provisional explanation of a certain course of events; he says that if the hypothesis is true, it should be possible to predict certain events, and if the prediction proves in practice correct, the hypothesis is confirmed – not proved, but strengthened. Every such confirmation strengthens the hypothesis. On the other hand, a single instance where the hypothesis proves incorrect rules it out. Short of this, the inductive proof approaches certainty the greater the number of instances where it is confirmed. A favourite example is the inductive proof that the sun will rise tomorrow. The certainty most people feel about this is derived inductively from the number of instances where it has been confirmed, without its ever having failed.
Let us waste no time in economic theorizing. Let us rather put to the test Douglas' proposition that under the present "financial rules", the industrial system is not self-liquidating.
"The first consequence of the proposition that costs exceed purchasing power should be that there accumulates a surplus of goods unsaleable within the area which produced them, and the obvious thing to do then is to sell them outside that area."*
Observe, in confirmation, the ruling axiom of orthodox economics, that we must have a "favourable balance of trade." A "favourable trade balance", in this sense, is one where our exports exceed our imports — where we send more of our goods (real wealth) out of our country than we bring back in repayment.
Orthodox economists often attempt to deceive the public into believing this "unsaleable surplus" which fills up the shelves of our shops, and gluts the market if not disposed of, is "overproduction". They referred to it thus during the depression years. But how could we claim to have overproduction, while at the same time millions were in want ? It was rather a case of underconsumption. Goods were plentiful; shops and factories were bulging with production; workers were being laid off work until that which they had already produced was bought. But, side by side with these mountains of goods were millions of people in need of these very goods. And, we ask, why were the people not buying the goods which filled the shops ? They were not buying them for one reason: they did not have enough money or purchasing power. Purchasing power in the peoples pockets was inadequate to buy back the community's production.
This is powerful confirmation of the truth of Douglas proposition that industry, in the course of production, does not distribute enough purchasing power to enable the workers to buy back their full production.
Think back a few years. Is it not a fact that our periods of prosperity were always experienced in association with a booming export trade, and depression accompanied by a decline in that export trade ? And even the United States, which is practically self-sufficient — i.e., produces nearly everything she requires — enjoys prosperity only during periods of tremendous export trade and "favourable" trade balances.
This, of course, is precisely what should happen if it is true that costs of production, as Douglas claims, exceed purchasing power.
What is really happening with a 'favourable balance' of trade is that we are suffering a loss of physical, real wealth, as we send out of the country more than we receive back. In the end, the only way in which other countries can pay us for our exports is by sending their goods to us. So that when we insist on exporting more than we bring back in repayment, we are in reality giving away the "balance". And we are just out the materials and labour and money involved in producing that "balance". We foot the bill for the "favourable balance", which someone else consumes.
The very fact that all countries are trying to export more than they import, and thus get rid of an otherwise "unsaleable surplus", is further confirmation of Douglas' claim that purchasing power distributed in the process of production is insufficient to buy the production.
In subsequent issues we shall deal further with the inductive proofs which confirm the truth of Douglas' proposition, and outline the remedial proposals advanced by him.
* AN INTRODUCTION TO SOCIAL CREDIT by Dr. Bryan W. Monahan
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