C.H. Douglas and the A+B Theorem
Purchasing Power and Prices
The simplest method of obtaining a physical conception of the situation is to regard the money system and the price system as a double-entry system of book-keeping. Every article which is produced has a price attached to it, and somewhere on the opposite side of the account there should be a sum of money capable of moving each and every article out of the production system into the consuming system. Since money is the mechanism by which the consumer gives orders; no money, no order; no order, no delivery; and ultimately, no delivery, no production.
Having this conception firmly fixed in your minds, you will see at once that if the total amount of money available on one side of the account is less than the total amount of prices on the other side of the account there must be something remaining unsold always.
---- Warning Democracy p. 31.
The ‘Orthodox’ Theory of Purchasing Power
On the assumption that the delivery of goods and services is the objective of the industrial system, it is obvious that the rate of flow of purchasing power should be equal to the rate of generation of prices. The existing financial arrangements make a crude effort to approximate this condition by issuing purchasing power to manufacturing organizations in the form of loans, which in turn the manufacturing organizations distribute in wages and salaries against future production.
In other words, the existing financial system increasingly mortgages the future in order to sell the goods existing at present, the most recent and most obvious form of this practice being the installment system of purchase.
- - - Monopoly of Credit I25-6.
The orthodox theory assumes that the money, equivalent to the price of every article which is produced, is in the pocket, or the bank pigeon-hole of somebody in the world.
In other words it assumes that the collective sum of the wages, salaries and dividends distributed in respect of the articles for sale at any given moment, which represents collective price, is available as purchasing power at one and the same moment. Certain persons have more money in their pockets or bank pigeon-holes than they wish to spend on consumable goods. They do not spend it, they save it, as the phrase goes. By this abstinence from spending, they form a fund which enables capital goods, i.e. tools, plant, factories, to be paid for, and therefore produced, and because of the process by which these are paid for the capital goods thus produced become the property of those persons who have thus saved.
- - Social Credit 83-84.
And its Fallacy
Now the first point to be grasped in regard to this argument as a whole is that, even supposing at any given moment it were true, one week afterwards it could no longer be true. If on a given day, there was extant in the world sufficient money to buy all the goods in the world at the prices it had cost to produce those goods, and any portion of that money were applied to form the payment for the production of new goods, then that money so applied forms the costs of the new goods, and immediately there is a disparity between the total costs, which are the minimum total prices of goods, and the amount of money in the world which would, ex-hypothesi, be exactly the same as before.
This would be true even if no one ‘saved’ any further quantity of money. The persons who had saved the money would not have saved the goods which the original money represented, they would merely have transferred their claims from the original goods in existence to new goods, and could only ‘get their money back’ by the sale of those goods; nor would there be any mechanism in existence by which the old goods could be bought. That surely must be self-evident.
But the process does not stop there. From the investor’s or ‘saver’s’ point of view, his only object in putting his money into capital goods is to get an increased amount of money back, and . . . he can only get this money back from the public in the form of prices. The condition then is, that there are more goods in the world at each successive interval of time, because of the financial saving, and its application to fresh production, while the interest, depreciation, and obsolescence, on this financial saving has to be carried forward into the prices of production during a succeeding period.
- - - Social Credit 84-85.
That the national income equals the sum of the price-values of the national production… would be true if all wages, salaries and dividends charged to production were used, at the instant they were earned, to buy the production in respect of which they are earned. But they are not so used, and on this gap between production and delivery, which the complexity of modern co-operative production is widening, a mass of credit purchasing power is erected which never appears as income at all. If A ordered a house off B; and B, having built it, lived in it for ten years and then insisted on charging his rent to A in a lump sum addition to the price, A would probably complain; but when B puts his overhead charges, the rent of his control of production, into the price of bricks for A’s garage, A seems to regard it as an act of God, or alternatively, of the king’s enemies.
Possibly he is right in both cases, but that does not alter the fact that A is being asked to pay, in prices, for something——-viz. a period of use-value, past, and therefore destroyed and non-existent—of which the effective purchasing power never was distributed either as wages, salaries, or dividends-—i.e. income—-therefore income will not buy it.
What may remain is the credit-value of this period of use, its assistance to future production, which may form a solid basis for a distribution of purchasing power possibly much in excess of the use-value charged in prices; but A gets none of this.
We admit the elusiveness of the argument; it is one of those conceptions which, like the differential coefficient in mathematics, to which it has a strong family resemblance, comes suddenly rather than by intellectual explanation.
- - - Control and Distribution of Production 114-16.
Tendency of Present Flow of Purchasing Power to Decrease
All large-scale business is settled on a credit basis. In the case of commodities in general retail demand, the price tends to rise above the cost limit, because the sums distributed in advance of the completion of large works become effective in the retail market, while the large works, when completed, are paid for by an expansion of credit. This process involves a continuous inflation of currency, a rise in prices, and a consequent dilution in purchasing power.
The reason that the decrease in the consumer’s purchasing power has not been so great as would be suggested by these considerations is, of course, largely due to intrinsic cheapening of processes which would, if not defeated by this dilution of the consumer’s purchasing power, have brought down prices faster than they have risen.
- - - Economic Democracy 62.
The book value of the world’s stocks is always greater than the apparent financial ability to liquidate them, because these book values already include mobilized credits. The creation of subsidiary financial media, in the form of further bank credits, becomes necessary, and results in the piling up of a system of figures, which the accountant calls capital, but which are in fact merely a function of prices. The effect of this is, of course, to decrease progressively the purchasing power of money, or in other words to concentrate the lien on the services of others, which money gives, in the hands of those whose rate of increase is most rapid. Intrinsic improvements in manufacturing methods operate to delay this concentration in respect of industry, but the process is logically inevitable, and, as we see, is proceeding with ever-increasing rapidity; and we may fairly conclude that the profit-making system as a whole, and as now operated, is inherently centralising in character.
- - - Economic Democracy 29-30.
A New Source of Purchasing Power Essential
To put the matter in a form of words which will be useful in our further consideration of the subject, the consumer cannot possibly obtain the advantage of improved process in the form of correspondingly lower prices, nor can he expect stable prices under stationary processes of production, nor can he obtain any control over the programme of production, unless he is provided with a supply of purchasing power which is not included in the price of the goods produced.
- - - Social Credit 99.
From this disparity between purchasing power and goods available arises almost every material economic ill from which the world suffers today, including in that category the imminent risk of devastating wars. The so-called unemployment problem is not a problem at all, but a direct result of scientific methods applied to industry; becoming an economic and political menace of the first order because unemployment carries with it a failure in economic distribution. The multiplication of the category of criminal offences, from cocaine-running to ‘long-firm’ frauds, can be directly and solely traced to a deficiency of purchasing power and the vital necessity to expand it, honestly if possible, but to expand it anyway.
- - - Warning Democracy 103.
The only sane limit to the issue of credit for use as purchasing power is the limit imposed by ability to deliver the goods for which it forms an effective demand, providing that the community agrees to their manufacture.
- - - Credit Power and Democracy I02.