C. H. Douglas, *Credit-Power and Democracy,* published 
1920.

Chapter X:

There is another and somewhat more specious objection
raised to the statement that the just price of an
article for individual consumption is less than the
cost price by the ratio of consumption-credit to
production-credit; and that is a statement that
production only very slightly exceeds consumption.

It will be realised that this is a very specious
statement, if we accept it for the moment as being
true, and consider exactly what is implied.  When a
Blue book, or other mine of statistical and generally
perverted information, asserts that the imports and
exports of a country are thus and such, it intends to
convey the impression that the aggregate price-
values, as shown on bills of lading, reach the
figures given.  That is to say, the "balance of
trade" of any country, either as reflected in its
exchange or by any other _*commercial*_test, is
simply a matter of sales-management--you have only to
make grand-pianos a necessary of life, corner grand-
pianos, restrict the sale, and, presto! half a dozen
grand-pianos will balance the import of all the wheat
and wool that Australia and the Argentine can send
us.

The same thing is true of values produced and
consumed.  The community, while producing, as one of
its functions, both capital goods and ultimate
products or consumption goods, only consumes, as a
collection of individuals, the latter.  But
individuals in the aggregate must pay both for
capital production and ultimate products, whether
consumed or not, under the present financial system,
for the very simple reason they _*are*_ paid for, and
there is no one else to pay for them.  Also, as we
know quite well that practically every business firm
"turns over" the money employed in its business at
least once, and generally several times a year, and
that each complete aggregate "turn-over" means,
broadly, that all costs incurred have been recovered
from the public, we either have to believe that not
only are the whole of the ultimate products covered
by the period of turnover, consumed in that time, but
also the whole of the machinery, buildings, small
tools, etc, which is plainly ridiculous.  It is, of
course, obvious, after a little consideration, that
what happens is that the consumption-values--i.e.,
prices _*retrieved from*_ the consumer--contain all
costs--i.e., credit _*issued to*_ the consumer in the
form of wages and salaries; and therefore _*must*_
financially approximate to the money value of
production.

Now, because "production" is at present the chief
agency through which is circulated the purchasing-
power necessary for distribution, there is an
immensely strong incentive to sabotage--the waste of
work on the side both of the Capitalist and of
Labour--and for this reason the consumption of the
world is most unquestionably far higher than it ought
to be.  But even taking this into consideration, it
must be obvious that the _*credit-value of
production--the amount by which the work of a
community during a given period of time increases the
correct estimate of the capacity of that community,
with its plant, culture, and labour, to deliver goods
and services*_--is enormously in advance of the
actual consumption.  Every single telephone
instrument installed, every improvement in transport,
every new process for producing nitratic fertilisers,
only to indicate the principle by a few trivial
examples, clearly increases this real credit at
compound interest.

Financial credit, even now, is issued roughly against
all forms of real credit.  _*The only sane limit to
the issue of credit for use as purchasing-power is
the limit imposed by the ability to deliver the goods
for which it forms an effective demand, providing
that the community agrees to their manufacture.*_

Consequently, if as the result of six months' work
the capacity to deliver goods and services has been
increased per unit of time, it would appear to be
simply common sense, with the foregoing premise, to
distribute the means which make it possible to draw
on this potential production, without forced export.

When the Capitalist system takes back from the public
the whole of the costs incurred in production, it
takes back the whole of the financial credit, and the
purchasing-power covering the period of activity in
respect of which that credit was distributed, whereas
the _*real*_ credit of that period includes the
overwhelmingly important unearned increment of
association during that period.  To take the most
elementary of examples: if we consider a factory,
engaged only on one article, during the second six
months of its first year of existence, it will
probably increase its output very considerably beyond
that possible in the first six months.

If, however, of the financial credit, or purchasing-
power, which we distribute during the first six
months we only take back in prices that portion
represented by the ratio of actual consumption to
potential production, we can, *if we desire,* produce
up to the limit of our capacity during the second six
months in the assurance an effective demand awaits
us.

It is vitally necessary to be clear as to the
difference between what actually takes place under an
economic system based, essentially, on currency, and
the position which would result from the modification
to the financial system which we are discussing;
which would be based, essentially, on the economic
capacity of society to achieve its desires.  Where
metallic gold is the ultimate basis of value, and
therefore the ultimate currency, and all credit-
issues are made on the assumed necessity of some
theoretical or empirical relationship between the
amount of gold in the banks and the total credit-
issues, and we assume that there is an average period
over which credits operate, and that credits are the
means of financing production, then total credits,
multiplied by average time, are a measure of the
*rate* of production.  It has been pointed out by Mr.
Arthur Kitson, and others, that since this credit
structure is based on gold, which bears no
conceivable relation in quantity to any human
requirement for goods and services, gold production
excercises a totally disproportionate effect on the
mechanism of prices and credit.  But the difficulty
goes much deeper than that.  Not only does the gold
basis of the present financial system shift, but the
ratio of the credits erected on it also shifts--
sometimes violently.  This is, of course, due to the
vital fact that _*the public even under a gold basis
of credit could utterly destroy the whole credit
structure by demanding gold in payment of their
cheques on the banks,*_ because the basis of present
cash credits is that they are convertible into
currency on demand, and there is, of course, not a
tithe of the gold necessary to cash them. 
Engineered, no doubt, to a large extent by the
enemies of this country, that is what nearly happened
in August, 1914 (and would always happen under
similar conditions), with the result that in order to
the defeat the maneuver, the financial system was
shifted from a gold to a paper credit basis in a few
weeks' time, never, let us hope, to return to so
fertile a source of misery.

But, although the gold basis has gone, the simulacrum
of it still lingers in the shape of a credit system
based on an unregulated paper currency, with the
result that a sort of Druid's dance of credit-issue,
rising prices, currency stringency, currency issue,
more credit based on more currency, goes on, the only
possible redeeming feature of which is to take the
whole cycle right away from the fetish of gold. 
Apart from this one point, everyone suffers except
those whose business it is, in the most literal sense
of the words, to make money.  So much for the
conditions brought about by a financial system which
attempts to base its _*credits*_ on the _*currency,*_
and yet allows its prices to rise with both.  The
alternative shifts the credit basis still farther.

We have already seen that the only possible basis of
_*real*_ credit is a belief, amounting to knowledge,
in the correctness of the credit-estimate of a
society, with all its resources, to deliver goods and
services at a certain rate.  If we make this basis
our _*financial*_ basis, then the credit-structure
erected on it can only be destroyed by social
suicide--the refusal of the community to function. 
Now, one of the components of the capacity of a
society to _*deliver*_ goods and services _*is the
existence of an effective demand*_ for those goods
and services.  It is not the very slightest use,
under existing conditions, that there are thousands
of most excellent houses vacant in this country, when
the cost of living in them totally exceeds the
effective financial demands of the individuals who
would like to live in them.  The houses are there,
and the people are there, but the delivery does not
take place.  _*The business of a modern and effective
financial system is to issue credit to the consumer,
up to the limit of the productive capacity of the
producer, so that either the consumer's real demand
is satiated, or the producers' capacity is exhausted,
whichever happens first.*_

This can obviously be done by making issues of
purchasing-power to cover the whole estimated
productive capacity, and taking it back to the extent
that this capacity is diminished from any cause
whatever, a state of affairs which rapidly results in
making everyone "rich" in the current sense of the
term; which it should be clearly borne in mind, does
not at all mean that an individual's real consumption
is large--very often quite the contrary--but that the
individual in question has the mechanism at hand by
which to obtain what he does want.

It is, of course, generally argued that there is not
enough wealth to go round, and all sorts of absurd
and misleading statistics have been evolved to prove
that if all the accumulated wealth of the nation were
evenly divided up, the average wealth per head would
only amount to a very sum, say 50 pounds.  The right
understanding of exactly where this fallacy arises is
probably one of the shortest cuts to an understanding
of the whole position, which involves a recognition
of the difference between _*claims*_ on capital, and
_*administrative ownership*_ of capital.

Financial wealth can only be placed on a solid basis
by selling something to the public--it is, for
instance, no use owning a factory only suitable for
the manufacture of high-explosive shells if the
public taste for high-explosive shells has completely
departed.

But further than that, even if the public wants
nothing but high-explosive shells in the largest
quantities (which, from the behaviour of its
"representatives," seems highly probable), it would
be necessary that an effective demand--that is to
say, a demand backed by "money"--should be
forthcoming from the public.  Now, _*the value of our
hypothetical shell factory would vary from zero when
there is no effective demand to infinity when there
is no demand for anything else, and no other means of
supply.*_  That is to say, to drop the metaphor, the
capital value of the plant of civilisation is as much
dependent for its value on the existence of an
effective demand of its product as it is on its
capacity to meet that demand.  If this is grasped, it
will be clear that the distribution of the _*credit-
capital,*_ the power to draw on the resources of
_*real capital*_ (the leverage of civilisation on the
work of society) increases the value of capital by
the ratio which the new output bears on the old
output, a proposition which clearly has nothing to do
with the administration of the plant itself.  The
only way, therefore, to get that increased production
of the things which individuals really want, which as
defined everyone may agree is desirable, is to get
increased effective demand, which, as we have seen,
we do not get under the present financial and price
system by any general increase in manufacturing.
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