WHAT |S THE TRUTH?

Waikato Times, Volume 114, Issue 19053, 18 September 1933, Page 9

WHAT |S THE TRUTH?

(To the Editor.) Sir, —Between the two extremes of opinion on our most Interesting and Important subject of present-day financial systems—between those “economists" of bygone times who are terribly upset at the thought of a currency note without an undertaking (?) to redeem In gold, and those advocates of the new era whose proposition is that “A" cannot purchase “A plus B"; between these two schools I dare to venture —a searcher for the truth. But llrst let me say that I am entirely unbiassed. My opinions are my own thoughts, and perhaps based on a fundamental error of hypothesis; if so, I should appreciate being led back to the road of light and clear thinking. And now to business. In the llrst place, to pretend that a superabundance of consumable goods in a community without any available means of purchasing them is a natural stale of civilised society—lo pretend this is not ridiculous; it is mere craziness. Major Douglas gives as its cause his fundamental theorem, which condensed is in effect “that in any given period tlie purchasing power released by any given industry is insuUleicnt to purchase the whole of the product of industry”; or. In its common form, “A” cannot purchase “A” plus “13. ’ Now, Sir, even 1 am not prepared to say that “A” can purchase “A” plus “13." i will give Euclid his due— Ihe whole is necessarily greater Ilian its part! AY hat I do intend lo query, however, is the existence of “B.'

Let us examine what Major Douglas Includes as “B" costs, or what he terms “non-personal" costs. "B” costs—all payments made to other organisations (raw materials, plant, repayments of bank Joans); in short, “all payments made to individuals (wages, salaries, and dividends) are “A" payments (why “interest" is omitted surpasses me), and all payments other than these are “B" costs. Now, Sir, any elementary bookkeeper can prove that the purchase of plant and the repayment of a loan are capital expenditure, and do not figure at all in the calculation of financial cost. They, therefore, cannot appear as part of the amount that is recovered when the goods are sold. Certainly “depreciation of plant" will appear, but I will deal with this cost later. Now as to “raw materials," and this I regard as the essence ol' the whole matter. And 1 beg to make this statement: “Every single commodify consumed by the community had its origin either in the land, the sea or the air.” In either case the principle involved is the same—it was a gift of Nature; it cost nothing, but if was necessary to expend labour (an “A” cost) to create utility in it.

I do not mean to infer, in the case of a mine, for example, Hint, the depreciation in its value caused by Ihe extraction of ore does not enter into tiie cost, and therefore into the selling price of the ore sold—at least, insofar as accountancy practice is concerned —hut even this is not a true cost; if is a return of capital, for when Ihe whole of the ore is extracted there will be nothing to return to the owners to replace the

capital sunk. What 1 am attempting to stress Is that if a farmer owns a piece of land and raises a product on it with the assistance of the natural elements (air, sun and water), the total cost of that product to him will he costs of manure, labour paid, Interest paid (if he has a mortgage) and depreciation of plant; and I maintain that the whole of tliesb are "A" costs. That is, they are purchasing power transferred elsewhere. The two items likely to cause controversy are naturally "eost of manure” and “depreciation of plant.” As lo the former, it is easily disposed of. Its principle of cost was exactly the same as. in the 'case of the farmer’s product. In other words, any value in it attributable to Nature does not enter into its cost, which is who.ly composed of “A” costs, or, in other words, is represented by previously distributed purchasing power! Now as to “depreciation of plant. What happens to that portion of the selling price which remains in the farmer’s hands for the purpose of renewing plant at the end of its working life? if lie lias a deposit at the bank it will be increased by that part of the selling price of I lie farmer’s product which appears in his costs as “depreciation,” and is in lacfc “reserved purchasing power.” Now if the farmer lias then to renew his plant, (and whether lie, lias to renew it lhen or not for ten years the principle involved is the same) this ‘reserved purchasing power” will necessarily be utilised in obtaining the new plant. Put in a different way: If we assume that the manufacturer of the

plant buys all his raw materials from the farmer, and the farmer renews the whole of the value of his plant each year, which means that .the whole value of that plant enters into his costs each year, then it is apparent that so much of the cost of the plant as is represented by the cost of the raxv materials suppliod by the farmer also appears in the selling price obtained by the farmer. The balance of the cost of the plant is “A” cost released by the manufacturer. If there is still any doubt as to this fact let us suppose that tiie farmer and manufacturer were the same person: it becomes then quite evident that the whole of the costs do become purchasing power. And now I would ask any students or Douglas Credit to give their opinions as to the above reasoning. The fact that they arc students at least proves that they are honestly endeavouring to solve tiie problem and that they are at least prepared to think about the question. if Douglas’s A plus B theorem is correct, tDon 1 must admit that he is adopting the right method of bringing about adjustment, but if this-theory is wrong the consequences of his policy must only cause Inflation and ils attendant harm.

1 do not propose to further trespass on your space at the moment, apart from briefly mentioning what I consider to be the cause of this “poverty amidst plenty” civilised and enlightened (?) condition of the world. It is simply this: “Too much rc-invest-meut of purchasing power into channels of further production, and consequently too little in the consump-

tion of the goods produced. In othel; words, there is a maldistribution of saving and spending, which In itself has arisen because capital has received back too much of the product of labour and labour insufficient to consume the product. What capital has received has been re-invested again and again In further production, in piling up masses and masses of goods, for which the human masse* have no purchasing power. Profits and wages have' been out of propor-« tlon. Even high wages would bring about the same result if a portion was saved and re-Jnvested in further production, as profits have been. It Is all a question of securing a propetf, balance.” I realise that my argument ha* leanings towards socialistic tendencies, but I reiterate that lam unbiassed, of a new generation which seeks “the truth”; and he who is prepared to work for it, no matter, what political party he may belong to, will get my vote, which, I might add* will be my very first.—l am, etc., ARGOLD. Hamilton, September 14, 1933. , ,