Re: P. W. Martin   	  william-@lycos.com May 21, 2003 
10:44 PDT 

Earlier I supplied excerpts from the hitherto obscure P. W. 
Martin's "Keynesian" 1928 book, *Unemployment and 
Purchasing Power*. That book is so similar to Keynes' 1936 
"General Theory" that I suggested Martin could be a 
pseudonym for Keynes. 

His earlier 1924 *The Flaw in the Price System* is very 
"Douglasist." 

Here are excerpts. Douglas is not specifically mentioned by 
name in the body of the text but is referenced in a footnote 
regarding H. L. Gantt, a name that should be familiar to social 
crediters. 
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p.24 Such an example, necessarily simplified to the point of 
absurdity, is not likely to convey much. A general statement 
may perhaps be rather more enlightening. Industry, in the 
making of goods, distributes purchasing power-wages, salaries, 
dividends, rent, etc. to the community. This purchasing power 
is used by the community to buy these goods. Provided that 
industry distributes in wages, dividends, etc., as much as it 
charges in prices, and provided that these wages and dividends 
are all used to pay these prices, obviously everything that is 
made will be bought. But if part of this purchasing power is 
used not to buy goods but to induce the Production of more 
goods, it is obvious, that more goods will be produced than 
there is purchasing power available to buy them. 

p.35 It is of course perfectly easy to be sceptical towards the 
conclusions reached in this chapter. "Purchasing power can't 
disappear; everything paid away by one person necessarily 
becomes purchasing power in the hands of some one else" is 
perhaps the commonest argument of all. There are numerous 
others. "Money is of no essential importance; everything is in 
reality an exchange of goods against goods; therefore money 
should be kept out of all economic reasoning." "You can't 
separate industry from the community; the community is 
industry." "It's no use seeking for esoteric causes of industrial 
fluctuation; it's well known that it's due to this, that or the 
other." It is possible to reply to these arguments; but not of 
much use. 

p.36-38 For those who feel more at home with abstract 
reasoning a statement of the general theorem, of which this is a 
particular example, is appended to this chapter. 

[For a more general statement of how the flaw in the price 
system operates it is still necessary to work with a hypothetical 
community differing in certain specific respects from a modern 
industrial state. In this hypothetical community the chief 
assumptions made are: (1) that there is no external trade; (2) 
that industry is completely integrated under one management; 
(3) that the quantity of money in circulation remains 
unchanged; (4) that except for fluctuations caused by the flaw, 
industry runs smoothly. These assumptions are dealt with in 
later chapters, and necessary allowances made for their effect 
on the operation of the flaw. 

The members of this community are paid wages and dividends 
in return for services rendered in producing goods; and they 
use these wages and dividends to buy these goods. By wages is 
meant all forms of remuneration of labour by hand or brain; by 
dividends, all forms of remuneration of the services of capital, 
real and financial. Wages and dividends together thus form the 
whole of the purchasing power coming into the hands of the 
community. By goods is meant all finished goods (including 
"finished" services), both producers and consumers, offered for 
sale to the community. 

It is evident that all these goods can, and will, be bought so 
long as two essential conditions are fulfilled. In the first place, 
wages and dividends distributed in the course of making and 
selling goods must not be less than the price charged for these 
goods; if they are less, obviously the community will not be 
able to buy all the goods made. In the second place, the 
community must use all these wages and dividends to buy 
goods, otherwise, while having the necessary purchasing 
power, it will nevertheless not be able to buy all that is made. 

Whenever industry adds to working capital these conditions are 
not fulfilled. Working capital, operating capital, floating 
capital, circulating capital, are names variously given to the 
liquid capital necessary to meet current expenses of production. 
Since industry is here considered as a single unit, these current 
expenses are confined to the payment of wages. Any increase 
in wage payments-- increase in working force, increase in wage 
rates, increase in extra time worked--obviously necessitates an 
increase in working capital. 

Working capital can be increased in two ways--by retaining 
part of the profits made on sales, or by borrowing from the 
community either directly or through a bank. Either of these 
actions upsets the essential equilibrium between the flow of 
prices on the one hand and the flow of wages and dividends 
with which these prices are to be paid on the other. 

Thus, whenever industry, instead of distributing in dividends 
all the profit it has made, keeps back some of it in order to 
increase its working capital, the first condition is not observed-
-the purchasing power distributed in the prroduction and sale of 
goods is less than the prices charged for these goods. 
Whenever the community uses wages and dividends to increase 
the working capital of industry, the second condition is not 
observed--the purchasing power distributed is not all spent in 
buying goods. The immediate effect, therefore, of adding to 
working capital in either of these two ways is to cause the 
purchasing power available to buy goods to be to that extent 
less than the total price of goods produced; with the 
consequence that goods to that value remain unsold, at least for 
the moment. It remains to be seen whether they can be 
profitably disposed of at some later stage. 

Industry uses its working capital thus increased to induce 
production, i.e. it pays this working capital away to the 
different members of the community. They, in their turn, use it 
to buy goods. Obviously, the amount distributed in respect of 
the production and sale of these goods must all be recovered in 
the prices of these goods--otherwise industry is on the road to 
bankruptcy. Hence, if all the fresh production is to be bought, 
there cannot possibly be any surplus purchasing power left 
over to buy the goods previously left unbought. The same 
reasoning holds good for any number of successive turnovers: 
for production to be worth while, it is always necessary to 
recover in the prices of goods all that has been paid away in 
producing them. The only possible conclusion to be drawn, 
therefore, is that, as a result of additions to working capital, 
industry cannot sell all it has produced at prices making 
production worth while. 

The same contention can be presented from another aspect as 
follows. So long as the circulating medium of exchange is put 
to its two uses of (1) inducing production (i.e. paying wages 
and dividends), and (2) buying the production thus induced, 
alternately, industry can sell all it makes. But it must be 
alternately. When part of the community's purchasing power is 
used not to buy goods but to add to working capital, this 
necessary alternation is not being observed: purchasing power 
is being used twice running for the same purpose. The 
circulating medium has shortcircuited, as it were. Money which 
should have been used to purchase goods is being used, for the 
second time in succession, to induce further production. As an 
inevitable consequence, more production will be induced than 
there is purchasing power available with which to buy it.] 

p.73 Some estimates of the preventable waste which goes on in 
industry, giving as it were the reverse side of the, picture, are 
worth quoting. The Committee on the Elimination of Waste in 
Industry appointed by Mr. Herbert Hoover, in its report Waste 
in Industry6 attempted to compute the relative efficiency of the 
average undertaking in six major industries in the United 
States. A theoretical total of a hundred points was taken to 
represent all possible waste. The number of points assayed 
against the average of all plants studied amounted 
approximately to 50 per cent: Mr. Stuart Chase, consulting 
accountant of the Labour Bureau, Inc., in a recently published 
brochure, The Challenge of Waste,7 submits as a "crude 
illustrative estimate" that the ratio of waste in industry amounts 
to 70 per cent. The late H. L. Gantt, the well-known industrial 
engineer, referring to industry in the United States, estimated 
that in June, 1918, a time of great industrial activity, 

"Only about fifty per cent. of our industrial machines are 
actually operating during the time they are expected to operate; 
and on the whole the machines during the time they are being 
operated are producing only about fifty per cent. of what they 
are expected to produce. This brings our production results 
down to about one fourth of what they might be if our 
machines were run all the time at their highest capacity."8 

Mr. Gantt is elsewhere quoted as saying that in 1919 the 
efficiency of industry in the United States was only about 5 per 
cent. of what it could be.9 
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(9) C. H. Douglas, *Credit-Power and Democracy*, 
1920, p.16. 
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