THE BUBBLE BURSTS.

Waikato Times, Volume 114, Issue 19100, 10 November 1933, Page 5

THE BUBBLE BURSTS.

DOUGLAS CREDIT SYSTEM. FOUNDED ON A FALLACY. NUMEROUS FALSE THEORIES. (By “Argoid"—All Rights Reserved.) (Concluded.) Having decided that there was a lack of purchasing power Douglas had then to invent a cause for it — which he did: the famous A and B theorem, so plausible on its face — “ A ” could certainly not equal “A” plus “ B " —and yet so fantastic in its inferences. It was an attempt to explain a difference which in fact did not actually exist, and was doomed on that account to be a mark for a worldwide criticism and a subject for superfluous debate. From an erroneous supposition that “ purchasing power ” was not distributed, has grown a mountain of words and theories disguising In 'their abundance and depth of expression, the fundamental which has been entirely overlooked —the reason Why consumable commodities remain unsold. Books and books have been written, and dozens of literary pamphlets, world-known economists have debated on the subject, perhaps carrying on a long-drawn and useless controversy for (heir own ends, giving statistics and formulas, and weltering in a mass of llgiires, conferences and discussions and commissions—and all the time, the obvious, fundamental and single fact, has remained calmly and peacefully undisturbed. The reason for “ slumps,” in fact the reason for what is practically poverty for most, even in a boom, is the same. It arises from a misdistribution 'of the wealth of the world—the receipt by some of much more purchasing power than they can actually themselves use in taking consumable commodities off the market. They have therefore the alternatives of hoarding it — which some -do—or re-investing it in further production—both of which leave the original commodities unsold.

A Simple Example. In portraying without a shadow of a doubt that the above is the truth, I will give a simple example. Assume that there is purchasing power created (advanced by the banks, if you prefer) of £12,000 in the bands of A, a boot manufacturer, and £6OOO (in notes) in the hands of B, an investor, who hoards it in the meantime., A, in manufacturing boots, ‘expends costs which the vcommunity receives of £12,000. He adds to his cost (say) 50 per cent, for profit, and sells during the year, say, two-thirds of his stock. Stock sold —two-thirds of £12,000 equals £BOOO. Stock unsold and on hand £4OOO (at cost), In selling that £BOOO of stock for £12,000, A receives back the whole of what he has previously distributed as costs. Now there is on hand at cost £4OOO of unsold boots. B has in his possession £6OOO which would enable him to buy the £4OOO boots. If he did this, A would then have the whole £IB,OOO of purchasing power in his possession and no goods would remain unsold. Assuming, however, that B decides to invest it in making further boot plant and for that purpose begins to mine ore, lie would then distribute £6OOO of costs to the community and the position would arise that (at cost) there would he £4OOO of Iroots—“ consumable goods " —on hand and £6OOO of iron ore on hand. This latter is what Douglasiles have regarded as “ capital goods,” but actually there is not the slightest difference, as the iron ore is also consumable by the next process of industry. There is also £6OOO purchasing power in the ’hands of the community, received in mining the ore, and £12,000 purchasing power in the hands of manufacturer “A" or his transferees —still a total of £IB,OOO, _ and ample to purchase the whole ot the stock in existence, both boots and iron ore, and either can be bought at t’he desire of the holders. If further production of boot plant is carried on, however, while the original boots remain unsold, there is necessarily a gradual accumulation of hoot stock. With of course a greater effective consuming power for boots on the part of the community, occasioned by increased population and/or increased wants, it will be necessary for the bank to issue further credit to- enable increased production. Actually. A would naturally begin his new period of manufacture producing more boots and distributing more costs which would return to him as more hoots were sold. What then becomes of the contention that credit issue should be based on production. and more credit is required to be Issued for a further period of production? A surely has all the credit he needs for further production, has he not?

The only possibility I can conceive is if the bank actually calls in Its purchasing power and does not reissuc—a state of affairs which would under normal conditions he disastrous as .far as the bank was concerned, emii; then would there be a shortage. The “ cancellation of bank credit ’’ was In any case only one of five fundamentals of the A plus B theorem, whereas if it were actually true that ttie bank continuously contracts crcflit. “ cancellation of bank credit ’’ should have been the one and only fundamental.

German Mark Over Aga|n.

Where, therefore, is the necessity ror a further credit issue? Such an issue could only have disastrous effects —the effects of unnecessary inflation! The German mark over again.

it is thus perfectly clear to me, and I trust I have made it clear to ail (it was with this intention that I have used language as simple as possible) that the Douglas fallacy orig-. Inated in an assumption that was false, and from an original false fact have grown a multitude of fatso t henries.

If this short discourse is to have the pffeet that I think il will, let no sneers lie cast al Douglasiles—they were all individuals with honest intentions- —how lo remedy the conditions prevailing in lliis mad world of ours. They have, however, hern led on in the wrong Icaek. and il remains for them now lo take the right direclion. The> have a world-wide organisation which can do invaluable work Inwards the remedying of this present hopeless civilisation.

Perhaps there are even still some who will not concede that I am right —it is certainly not pleasant to have the ground torn from beneath one s feet. Even “ liuia " has accused me of being too young to question some of the world’s greatest economists why should I not if they themselves disagree? There was an undercurrent of disagreement existing amongst leaders of Douglas Credit even in this little district of the Waikato, and that fact itself should have led them to question themselves. Repeatedly I was asked what Dom glas literature, what “ new ” economics books I had read, how dared I to criticise without being informed. All that it was necessary for me to be informed of, was the way to reason correctly, a qualification to which I believed I had some claims. If the Douglas leaders could not prove the truth of the simplest fundamentals of their code to my satisfaction, Of what use was it my enveloping myself in a maze, a perfect sea of theory which was so full of “wordy" rhetoric and oratory that people who have not understood a word of. it, have foolishly misled themselves into believing its truth. I had kept myself singularly free from becoming intricately involved in deep economic thought—the lightness of my economic readings either “ pro ” Or " con " was indeed remarkable. I was therefore in the happy position of being able to approach the subject with an entirely open mind, which had Douglasites been able to do, being reasonable thinkers, they could not' have come to any conclusion other than the one at which 1 arrived.

The Cause and Remedy. Perhaps, after all, all my theory is wrong and can be dismissed in a few words. Well, I shall he glad lo receive them I should indeed be vainglorious if I advanced my theory as being original economists have known it for years—but why has not the matter been remedied. Surely only for the reason that they have had some deeper interest in mystifying the world. There are also dozens of writers in this world of ours who have in the past and present decades discerned the cause, and mooted the remedy. To a great extent, however, their remedies have been too drastic to merit the consideration of the capitalist world, jealous of its useless wealth, and yet all powerful in its possession of that wealth. Well, it is necessary that a compromise must be made, or surely the very might of capitalism will wreck itself —in the light of a new understanding in the minds of the populace. Otherwise, I can conceive as a final outcome of capitalistic stupidity only a mighty world-wide revolution in which the capitalist will lose his all. The writing is on the wall —let him take heed! Perhaps this small effort ..of mine may bring further of our noted economists to write more books, and publish further voluminous works — hut to my mind these are all uncessary. The cause, is man-made and can be man-remedied. It requires one sentence only to show the cause, and from the cause the way to the remedy is obvious. The cause is “ the receipt by thousands of individuals of purchasing power, enormously beyond their individual consuming powers, with the consequences of their further reinvesting it for the production of further consumable commodities, while goods previously produced remain unsold.” Some system lo re-distri-bute the bulk of that invested wealth to the people who produced it, and so enajile them to consume their own production, is the only solution to a conlented civilisation. A contented civilisation would soon put an end to all "hOt-heads" of war talk, who are at present insisting on patriotism and “duty- to one’s country." when the only duty is towards God and one’s fellow creatures, no matter what be their nationality, race, or colour. In any case, were war profiteers made to distribute their ghoulish plunder, bow much incentive should they then possess to encourage Hie manhood of this or any other country to slay itself in that terrible and criminal belief that it was doing onlj its “fluty" —its duty to furnish the fat profiteer with another hank roll, an/ to vifliet pain and death and worse on other fellow beings, and misery, starvation, suffering and heart anguish on countless millions of women and children, born and to be be horn I What a world!