THE DOUGLAS THEORY

Otago Daily Times, Issue 21578, 25 February 1932, Page 12

THE DOUGLAS THEORY

, TO THE EDITOR. Sir —Mr C. H. Chapman’s contributions on the Douglas theory are important because he realises, that the theory cannot be defended by, vagtie quotations from Douglas or by abuse of economists. In reply to a question as to what would pre-; vent the increased credits being used in speculation, he replied that there would be the same guarantee as to-day. When I showed him that there was no guarantee and that speculation sometimes produced unemployment and distress, he set out to outline methods of avoiding speculation. I agree that the “ present system does not prevent Hatry disasters, alternate booms and depressions, bogus companies, etc., but I must remind Mr Chapman that in an earlier letter he did not realise tpat there was any great problem in some of those things. There are two aspects ot every industrial system; (1) the financing of industrial growth and (2) the financing of consumption. 1. As far as I can gather from Mr Chapman’s scheme for financing growth, we have a department of the State, called the Central Credit Authority, which, with the help of a State statistician issues credit. Now since the C.C.A. has the monopoly of issuing: credit, it must first gather in from individuals their rights and must prevent any organisation or indivilual from issuing credit. It must estimate the amount of credit available, and then apportion it among individuals and industries. What does Mr Chapman mean by telling ns that "they work on a mathematical ratio, independent of political control,” when in fact the authorities would not merely have to estimate very carefully the amount available, but decide between A industry and B industry, between A manufacturer and B manufacturer and so on, every day leading to decisions which it is unreal lor Mr Chapman to call "impersonal”? A process less mathematical and more personal cannot be imagined. The C.C.A. would not issue credit to gambling institutions, says Mr Chapman, but that itself is a very personal decision and cannot be decided by a formula, and that is the type of question which the controllers of the C.C.A. would regularly have to decide. Of course, the C.C.A. would need statistical inquiries to discover the amount of credit available, just as the Government adopts to-day to find its income, but no one would think of declaring that the dividing up of the Budget among different services could be settled merely by “ impersonal issue 'on certain lines.” .. How will the Domdas arithmetical formula help the C.C.A. when A, B, and C comes before it each demanding credit to produce silk,

and E.F.G. want seperate credit for boot factories, and so on for every one ot the individuals who want to produce or continue to produce every one of the thousands of commodities we use? Would it be possible to do these things without interfering further with the property rights of manufacturers? The C.C.A. would have to decide the proper distribution only after a thorough investigation into the needs of society and in a way that would give tremendous power and responsibility to the State authority. Did not Mr Chapman once suggest that nationalisation of banking could come only'with the use of the armed force, and can he find any difference between his scheme and nationalisation of banking? Mr Chapman says that as far as he knows the U.S.S.R. does not run on Douglas lines. Perhaps not, but all the vital and necessary elements in Mr Chapman’s scheme are incorporated in the Soviet system, and they call it Communism or Socialism. The important thing is that when Mr Chapman gave a scheme it contained nothing automatic or impersonal, but something institutional and very personal; it contained very little Douglas and very much Socialism. That is why' I can see Mr Neilson rejoicing at Mr Chapman’s scheme, but what is Major Douglas going to say? The State comes in at every step in the Chapman plan, whereas Douglas says “that the only possible method by which the highest civilisation can be reached is to make it impossible for either the State or any body to apply economic, pressure to any individual ” (“ Control and Dis-; tribution of Production ”). Does not the giving of power to an institution to refuse credit to individuals mean the exercise of economic'pressure? The Chapman scheme sets up one authority to issue credit, whereas in "Economic- Democracy” Douglas says: “Since the analysis of existing conditions which we_ have undertaken shows that any centralised administrative organisation is certain to be captured by some interest antagonistic to the individual, it seems evident that it is in the direction of decentralisation of control that we must look for such alteration in the social structure as would be self-protective against 'capture for interested purposes.” But how can you control the issue of credit so as to avoid its waste or maladjustment except by a central authority? And since the amount of credit is limited and we have to choose between the different claimants, how can this be done without centralisation, How does Mr Chapman reconcile his schema with the statement by Rhys that, the Douglas proposals once started, there would be no governmental interference? If Mr Chapman gets frightened at the powerful institution he has set up in the name of Douglas he will find the best arguments against it in the writings of Major Douglas. Now, I am not arguing that the Chapman plan is impossible; T am contending that when Mr Chapman started with a particular question, which he called crude, such as the distribution of credit to avoid all our economic ills, he was led to set up an institution which interfered with property rights, which exercised great powers over individuals, and which would have taken exactly the same form if Douglas had never been born.

2. The particular Douglas idea is in the method of distributing purchasing power to consumers. I have tried to show in articles why this means uncontrolled inflation, and so will refer only to a few particular points. Mr Chapman asks why the unemployed should spend their new credits on gambling, but this attempt to confuse the issue will fail because (a) the purchasing power is to be a discount on sales, and therefore to be given to all purchasers, and so the unequal distribution of wealth will remain; (b) with even the limited purchasing power available to-day much goes in wasteful expenditure (it is estimated that 86 per cent, of the credit 'issued during the American boom went to speculation) ; (c) Mr Hattersley, a Douglas supporter, recognises the same danger ot the too “sudden realisation of freedom or wealth ” leading to “ the natural abuses of reaction.” The point is raised by me not for moral reasons, but «ifi indicating the importance of controlling the direction of purchasing power, if speculation and many maladjustments in our economic life are to be avoided.

A Douglas fallacy is to regard purchasing power as something definite, when it can be used in dozens of alternative directions. It is argued that if proi.mtion is 10 units and consumption only eight units, then two units ot purchasing power are to be distributed to make up the balance. Now, since purchasing power can only be distributed through enireney that can he passed on, how is it possible to know beforehand how many times the currency will be used, and hence how much currency or credit to be released? As.l believe that that question is fundamental to the discussion I hope it will be answered. Moreover, the

difference between the consumption and production of a community is in fact made up of articles or potential articles —IOO tons of coal, 10 wireless sets, 1000 yards of cotton, etc., etc. Avoiding the preliminary problem of price, will Mr Chapman tell us what would happen if the purchasing power released by this general excess is concentrated to a great amount on the wireless sets? Since the price factor is based on a general excess and the purchasing power released is general, what can prevent the currency from being used to buy articles that are only slightly under-consumed? If, because you have an excess of coal, you release purchasing power which its holders want to use on wireless or electricity and do so use it, are you any nearer solving the coal problem? If your credit authority sees that coal is still under-consumed and that there is great potential production of coal, and so goes on releasing credit, which is still not used on coal, what will happen to the prices of other things? How can your action be automatic when faced with such problems? How can you estimate the price factor when you do not know beforehand whether the people want the goods which are to be turned out? The Douglas supporters argue that, merely because an industry is showing signs of unemployment and under-consumption, therefore credits can be issued_ on the basis of this potential production, but there is no certainty than when you issue the credit it will be used on industries that are working under-capacity. Even if you released credit up to the amount of the under-capacity in coal today there is no guarantee that any more than a small amount would be spent on coal. The only solution would be to issue a note that was to be used only on the purchase of coal! I admit that my interest is in the application of Douglas, because a discussion of the theory would be more difficult in a newspaper, and because I feel that the naive dogmatism of Douglas supporters has been due to a failure to think out the problems of application, and because I hope that the inevitable divisions among Douglas supporters, which will begin as soon as attempts are made to apply the theories, will destroy once and for all the notion that any impersonal arithmetical adjustment can solve our problems.—l am. etc., Lloyd Ross. University of Otago, February 22.