DOUGLAS CREDIT SCHEME ANALYSED

Evening Star, Issue 20981, 21 December 1931, Page 3

DOUGLAS CREDIT SCHEME ANALYSED

' No. IV. THE PRICE FACTOR (Continued.) [By Lloyd Ross.] The fundamental reason why the Price Factor will fail is that it cannot take into account the nuinbor of times the credit is used. It may be used onlj' once in a day; it may bo used a hundred times. No one can say. No one can control it. And every time it passes on it lias the same effect as if you had created a now credit. Let it go merrily on, while we watch something else.

Remember, wo got on our £SOO n further credit of £250. This £250 can go merrily on being used and passed on, just in the same way as a bank note, for by this time by being'drawn out of the bank it has become a bank note. So our £250 goes on. But remember that we passed on the £SOO, and every time it functioned in a sale a discount was given, and so there would bo a discount on every, time our £SOO was passed on, and every one of these £250 could themselves be passed on, making; more sales and in their turn creating more discounts. Every £SOO we passed on made discount every time it made a purchase, and no one could tell how many times it would bo used. Every one of these separate £250 created from every £SOO could itself be passed on, creating more discounts. Now every £SOO every time it was used evoked £250. and every £250 evoked from every £SOO that was used might be used in its turn as often as you could, by this time, find anything to buy, and create in its turn other discounts of £125. And all this from the ,salo of one motor car. As probably \tho first day the credits were applied they would bo granted on all things sold that day, then every one of these would produce the same astronomical results as the motor car. If you like to add up all the amounts created or that might be created in the one day, you will find that the gap between consumption and productivity might have been closed by one day’s sales. But the Price Factor applies for a period. By that time the goods would have been used up, prices would have soared to the skies and the Douglas advocates be dangling from the lamp posts. The fundamental criticism hero—by itself it is enough to make the whole Douglas system absurd—is that no allowance can bo made for the number of times the credit would bo used. 1 suppose the Douglas advocate would argue that somewhere there would bo cancellation. But where? And as each person who received a credit had given value for, this could not be done with out injustice. The system might work only if the increased credit granted on a commodity were used only when the commodity itself changed hands—but this is impossible to' regulate. What are the provisions for cancellation, and where would they bo applied in the automobile example P 1 cannot find out.

Many may admit this criticism, and say all they want is to issue credit to (a) carry off the goods potentially available’; (b) keep a price level stable or adjust it to carry off goods. _ (a) This is impossible, because there is no mpthod but ration cards preventing the currency from being used in relation to any commodity, whatever its surplus capacity, (b) Is quite orthodox economies, although few would agree that' merely by moving the price level could the problem of unemployment be solved. But the self-adjust-ing, fool-proof automatic Price Factor, disappears as a means, and we merely issue cfodit or currency as it is needed, watching the,general price level. We cannot anticipate the velocity of money. Douglas supporters can call •this Douglas, although it was being discussed long before the war, but they had tetter not let the Major himself Ijear them. Lot us take a homely illustration of all this. Suppose a train with a seating accommodation for 100 people. Eighty are seated; twenty are clamouring at the ticket box. There are no more tickets available. The twenty have to remain behind. The train continues half empty. How absurd not to have printed twenty more tickets! The illustration is popular with Douglas suppoi’ters. How absurd that people should -be starving when merely by creating more tickets the goods could be made available to satisfy their wants! The manager of railways finds that it is possible to carry five millions more passengers over a year. Wo issue five million more tickets. What will ho the result if the receivers decide to usq their tickets on Monday next? The trains will not be able to cope with the traffic. We see, therefore, that merely printing tickets based‘ou possible travelling for a year will work only if every day the number of people who want to use them that day will be equal to the space available for that day. One day there will bo a bigger gap than on other days, and somehow the five millions have to sort themselves out over a year. One method of doing it would bo for those who badly 7 want to travel on a crowded day to give an increased number /of tickets to those who would be not so keen and whoso business could wait. People -would stand in a queue bn the first fine Sunday or holiday in order to get the limited accommodation for that day; many of them would have to go home again with their tickets, which would not be available for that day. Next Sunday might be wet, so that few would want to travel, and then the tickets would bo saved for the next fine day 7, when the trains would bo more crowded still. Perhaps many would save up their tickets, for Christmas, so that the trains night bo running only half-filled during the year followed by a rush at Christmas, resulting in some of the tickets, still being saved. The next difficulty is that people take a train for a particular destination, just as purchasing power is used on particular articles. Our railway estimate of five million more passengers may bo based on carrying over a year four million to a part of the country that few want to visit. However, we issue five millions; the people want to go to Christchurch, again there is overcrowding, again people are loft behind, tickets are not used, and some trains are running half empty. “ Tickets ”is eneral. ' The destination is particular, he printing of tickets would work only f the people would use them exactly in relation to the surplus capacity on each ■ailway lino. The people, however, acting individually, would not know this, and only after much wasted energy, standing ki queues, shuffling tickets, giving more of one kind in exchange for a special place, and so on, would it work out in practice if it ever did. Our governing authority would therefore have to issue tickets according to the excess capacity of cadi particular line. Even then if one million tickets were issued to a place that no one wanted to visit there would still bo capacity unfulfilled. Wo have seen, therefore, that the tickets distributed could, be used to

cover the surplus capacity for each particular day, and only as they fitted in with the different gaps of the different linos, and that this could not be achieved merely by printing tickets, llationing is necessary; more tickets would bo given sometimes, and at each railway station there would be an exchange mart for tickets. Imagine the increased disorder if the tickets could bo handed on, as the Douglas credits can! Our manager could not possibly anticipate how many times the tickets would be used. The excess capacity is five millions. Ail want to use the tickets on Monday. All to Wellington. All are passed on to someone else. Complete breakdown of the-railway system—and of the Douglas system. Asked some such question at a meeting in London, Major Douglas replied ; “All would not want to go.” So finally the system depends on the people not wanting to use the tickets they have been given. The important point is that very probably the way the people want to use the tickets will bear no relation to the way the tickets could be used. This illustration shows that, although the railway .system has an excess carrying capacity, merely to increase the tickets up to this capacity will cause chaos. So in our economic system, however great may be the possibilities of production over actual consumption, the mere increase of purchasing [lower will not solve the problem. All the Douglas schemes are open to the same objections: that they will result in inflation because the money or credits or tickets will be increased more rapidly than the goods coining on to the market, and that this inflation will be uncontrolled because of the influence of the velocity of money. The deficiency of purchasing power cannot bo made up in this way, because the use of the credits will cause prices to rise, and because there is nothing to stpp many more credits being created than the deficiency itself. It is impossible to base currency on commodities. Tho application of tho Just Price does not need these difficulties, because the creation of purchasing [lower is not necessarily related to the surplus productivity of particular industries, because the creation of'a credit sots that credit free to circulate m excess of any general surplus production, and because it rests on a complete misunderstanding of the causes of price fluctuation. I submit this criticism as an attempt to show some of tho weaknesses of the Douglas system, in the hope that read side by side with Social Credit literature they will clarify and stimulate. Only one aspect of the system has been discussed, and it would be interesting to <!eal as fully with the Douglas conception of credit, tho A 15 theorem and so on. Douglas supporters have complained that, ihorc has been no attempt to criticise their theories. However inadequate, this is an attempt to meet their request.