douglas - economic democracy

7/29/2019 Douglas - Economic Democracy

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THE UNIVERSITY LIBRARYfTmpTovl UNIVERSITY OF CALIFORNIA, SAN DIEGOumJtlSvr. f LA JOUA, CALIFORNIACAUFOR.^IASAN DIEGOVII


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ECONOMIC DEMOCRACY


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ECONOMICDEMOCRACYBYMAJOR C. H. DOUGLAS

LONDONCECIL PALMEROAKLEY HOUSE, BLOOMSBURY STREET, W.C. 1


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TO My wifewithout whose understandingthis book could not have

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CONTENTS

PAGECHAPTER ONE 1CHAPTER TWO 7CHAPTER THREE - - - - 19CHAPTER FOUR 37CHAPTER FIVE 57CHAPTER SIX 73CHAPTER SEVEN 79CHAPTER EIGHT 93CHAPTER NINE 119CHAPTER TEN 129CHAPTER ELEVEN - - - - 141CHAPTER TWELVE 149


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FIRSTEDITION19 2COPYRIGHT


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PREFACEWritten for the most part under the pressure ofWar conditions, this book is an attempt to dis-entangle from a mass of superficial features suchas Profiteering, and alleged scarcity of commodities,a sufficient portion of the skeleton of the Structurewe call Society as will serve to suggest sound reasonsfor the decay with which it is now attacked ; andafterwards to indicate the probable direction ofsound and vital reconstruction.My apologies and sympathy are offered to thereader in respect of the severe concentration whichits tabloid treatment of technical methods demands ;but I have some grounds for supposing that thematter it contains has aroused sufficient interestto excuse its presentation in this form.

I am indebted to my friend Mr. A. R. Orage,the Editor of The New Age (in which review, togetherwith the remainder of the book, it first appeared)for the use of the block which forms the frontispiece.

C. H. DOUGLAS.Heath End, Basingstoke.

November, 1919.


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FBINTXD BT BEN JOHNSON AND CO., LTD., TOBK AND LONDOH


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Economic Democracy

CHAPTER ONETHERE has been a very strong tend-ency, fortunately not now so strong

as it was, to regard fidelity to oneset of opinions as being something of whichto be proud, and consistency in the super-ficial sense as a test of character.The Scottish political constituent who

always voted for a Liberal because he wastoo Conservative to change, has his counter-part in every sphere of human activity, andmost particularly so in that of economics,where the tracing back to first principlesof the dogmas used for everyday purposesrequires, in addition to some little aptitudeand research, a laborious effort of thoughtand logic very foreign to our normal methods.

It thus comes about that modificationin the creed of the orthodox is both difficultand conducive to exasperation ; since


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Economic Democracy

because the form is commonly mistakenfor the substance it is not clearly seen whya statement which has embodied a soundprinciple, may in course of time become adangerous hindrance to progress.Of such a character are many of our habitsof thought and speech to-day. Because

from the commercial policy of the nineteenthcentury has quite clearly sprung greatadvance in the domain of science and themastery of material nature, the commer-cialist, quite honestly in many cases, wouldhave us turn the land into a counting houseand drain the sea to make a factory. Onthe other hand the Social Reformer, obsessedas well he might be, with the poverty anddegradation which shoulder the very doorsof the rich, is apt to turn his eyes backto the days antecedent to the IndustrialRevolution note, or assume, that the con-ditions he deplores did not exist then, atany rate, in so desperate a degree ; andcondemn all business as abominable.At various well-defined epochs in the

history of civilisation there has occurred


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Economic Democracy

such a clash of apparently irreconcilableideas as has at this time most definitelycome upon us. Now, as then, from everyquarter come the unmistakable signs ofcrumbling institutions and discreditedformulae, while the wide-spread nature ofthe general unrest, together with theimmense range of pretext alleged for it, isa clear indication that a general re-arrange-ment is imminent.As a result of the conditions produced

by the European War, the play of forces,usually only visible to expert observers,has become apparent to many who previouslyregarded none of these things. The veryefforts made to conceal the existence ofsprings of action other than those publiclyadmitted, has riveted the attention of anawakened proletariat as no amount of pos-itive propaganda would have done. A moreor less conscious effort to refer the resultsof the working of the social and politicalsystem to the Bar of individual requirementhas, on the whole, quite definitely resultedin a verdict for the prosecution ; and there


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Economic Democracy

is little doubt that sentence will be pro-nounced and enforced.Before proceeding to the consideration

of the remedies proposed, it may be wellto emphasise the more salient features ofthe indictment, and in doing this it is ofthe first consequence to make very sure ofthe code against which the alleged offenceshave been committed. And here we aredriven right back to first principles to anattempt to define the purposes, consciousor unconscious, which govern humanityin its ceaseless struggle with environment.To cover the whole of the ground is, of

course, impossible. The infinite combi-nations into which the drive of evolutioncan assemble the will, emotions and desires,are probably outside the scope of any formof words not too symbolical for everydayuse.

But of the many attempts which havebeen made it is quite possible that thedefinition embodied in the majestic wordsof the American Declaration of Independ-ence, " the inalienable right of man to life,


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Economic Democracy

liberty and the pursuit of happiness " isstill unexcelled, although the promise ofits birth is yet far from complete justifica-tion ; and if words mean anything at all,these words are an assertion of the supre-macy of the individual considered collectively,over any external interest. Now, whatdoes this mean ? First of all, it does notmean anarchy, nor does it mean exactlywhat is commonly called individualism,which generally resolves itself into a claimto force the individuality of others tosubordinate itself to the will-to-power ofthe self-styled individualist. And mostemphatically it does not mean collectivismin any of the forms made familiar to us bythe Fabians and others.

It is suggested that the primary requisiteis to obtain in the re-adjustment of theeconomic and political structure such controlof initiative that by its exercise everyindividual can avail himself of the benefitsof science and mechanism ; that by theiraid he is placed in such a position of advan-tage, that in common with his fellows he


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6 Economic Democracy

can choose, with increasing freedom andcomplete independence, whether he willor will not assist in any project which maybe placed before him.The basis of independence of this character

is most definitely economic ; it is simplyhypocrisy, conscious " or unconscious, todiscuss freedom of any description whichdoes not secure to the individual, that inreturn for effort exercised as a right, notas a concession, an average economic equiva-lent of the effort made shall be forthcoming.

It seems clear that only by a recognitionof this necessity can the foundations ofsociety be so laid that no superstructurebuilt upon them can fail, as the super-structure of capitalistic society is mostunquestionably failing, because the pedi-ments which should sustain it are honey-combed with decay.

Systems were made for men, and notmen for systems, and the interest of manwhich is self-development, is above allsystems, whether theological, political oreconomic.


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Economic DemocracyCHAPTER TWO

ACCEPTING this statement as abasis of constructive effort, it seemsclear that all forms, whether of

government, industry or society must existcontingently to the furtherance of theprinciples contained in it. If a State systemcan be shown to be inimical to themitmust go ; if social customs hamper theircontinuous expansionthey must be modi-fied ; if unbridled industrialism checks theirgrowth, then industrialism must be reinedin. That is to say, we must build up fromthe individual, not down from the State.

It is necessary to be very clear in thusdefining the scope of our inquiry since theexaltation of the State into an authorityfrom which there is no appeal, the exploita-tion of a public opinion which at the presenttime is frequently manufactured forinterested purposes, and other attempts toshift the centre of gravity of the main issues ;

B


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8 Economic Democracythese are all features of one of the poUcieswhich it is our purpose to analyse. If,therefore, any condition can be shown to beoppressive to the individual, no appeal toits desirability in the interests of externalorganisation can be considered in extenua-tion ; and while co-operation is the noteof the coming age, our premises requirethat it must be the co-operation of reasonedassent, not regimentation in the interestsof any system, however superficiallyattractive.

There is no doubt whatever that a man-gled and misapplied Darwinism has been oneof the most potent factors in the socialdevelopment of the past sixty years ; fromthe date of the publication of " The Originof Species " the theory of the " survivalof the fittest " has always been put forwardas an omnibus answer to any individualhardship ; and although such books asMr. Benjamin Kidd's " Science of Power "have pretty well exposed the reasons whythe individual, efficient in his own interestand consequently well-fitted to survive.


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may and will possess characteristics whichcompletely unfit him for positions of powerin the community, we may begin ourinquiry by noticing that one of the mostserious causes of the prevalent dissatisfactionand disquietude is the obvious survival,success and rise to positions of great power,of individuals to whom the term '* fittest *'could only be applied in the very narrowestsense. And in admitting the justice ofthe criticism, it is not of course necessaryto question the soundness of Darwin'stheory. Such an admission is simplyevidence that the particular environmentin which the " fittest " are admittedlysurviving and succeeding is unsatisfactory ;that in consequence those best fitted forit are not representative of the ideal existentin the mind of the critic, and that environ-ment cannot be left to the unaided law ofDarwinian evolution, in view of its effecton other than material issues.To what extent the rapid development ofsystematic organisation is connected withthe statement of the law of biological


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evolution would be an interesting specu-lation ; but the second great factor in thechanges which have been taking place duringthe final years of the epoch just closing isundoubtedly the marshalling of effort inconformity with well-defined principles,the enunciation of which has largely pro-ceeded from Germany, although theirsource may very possibly be extra-national ;and while these principles have been acceptedand developed in varying degree by thegoverning classes of all countries, the dubioushonour of applying them with rigid logicand a stern disregard of by-products, belongswithout question, to the land of their birth.They may be summarised as a claim forthe complete subjection of the individualto an objective which is externally imposedon him ; which it is not necessary or evendesirable that he should understand in full ;and the forging of a social, industrial andpolitical organisation which will concentratecontrol of policy while making effectiverevolt completely impossible, and leaving itsoriginators in possession of supreme power.


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Economic Democracy 11

This demand to subordinate individualityto the need of some external organisation,the exaltation of the State into an authorityfrom which there is no appeal (as if theState had a concrete existence apart fromwhich those who operate its functions),the exploitation of " public opinion '*manipulated by a Press owned and controlledfrom the apex of power, are all featuresof a centralising policy commended to theindividual by a claim that the interest ofthe community is thereby advanced, andits results in Germany have been nothingless than appalling. The external character-istics of a nation with a population of65 millions have been completely alteredin two generations, so that from the homeof idealism typified by Schiller, Goethe,and Heine, it has become notorious forbestiality and inhumanity only offset by aslavish discipline. Its statistics of childsuicide during the years preceding the warexceeded by many hundreds per cent, thoseof any other country in the world, and wererising rapidly. Insanity and nervous break-


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down were becoming by far the gravestproblem of the German medical profession.Its commercial morality was devoid of allhonour, and the external influence ofPrussian ideals on the world has undoubtedlybeen to intensify the struggle for existencealong lines which quite inevitably cul-minated in the greatest war of all history.The comparative rapidity with which

the processes matured was no doubt aidedby an essential servility characteristic ofthe Teutonic race, and the attempt toembody these principles in Anglo-Saxoncommunities has not proceeded either sofast or so far ; but every indication pointsto the imminence of a determined effortto transfer and adopt the policy of central,or, more correctly, pyramid, control fromthe nation it has ruined to others, so farmore fortunate.Thus far we have examined the psycho-

logical aspect of control exercised throughpower. Let us turn for a moment to itsmaterial side. Inequalities of circumstanceconfront us at every turn. The vicious


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circles of unemployment, degradation andunemployability, the disparity between thereward of the successful stock-jobber andthe same man turned private soldier, en-during unbelievable discomfort for eighteen-pence per day, the gardener turned piece-worker, earning three times the pay of theskilled mechanic, are instances at randomof the erratic working of the so-called lawof supply and demand.

In the sphere of politics it is clear thatall settled principle other than the con-solidation of power, has been abandoned,and mere expediency has taken its place.The attitude of statesman and officials tothe people in whose interests they aresupposed to hold office, is one of scarcelyveiled antagonism, only tempered by thefear of unpleasant consequences. In theState services, the easy supremacy of patron-age over merit, and vested interest overeither, has kindled widespread resentment,levelled not less at the inevitable result,than at the personal injustice involved.In its relations with labour, the State is


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hardly more happy. In the interim reportof the Commission on Industrial Unrest,the following statement occurs :

" There is no doubt that one causeof labour unrest is that workmen havecome to regard the promises andpledges of Parliament and GovernmentDepartments with suspicion and dis-trust."

In industry itself, the perennial strugglebetween the forces of Capital and Labour,on questions of wages and hours of work,is daily becoming complicated by the intro-duction of fresh issues such as welfare,status and discipline, and it is universallyrecognised that the periodic strikes whichconvulse one trade after another, havecommon roots far deeper than the immediatematter of contention. In the very ranks ofTrade Unionism, whose organisation hasbecome centralised in opposition to con-centrated capital, cleavage is evident inthe acrimonious squabbles between theskilled and the unskilled, the rank and fileand the Trade Union official.


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Although the diversion of the forces ofindustry to munition work of, in theeconomic sense, an unreproductive characterhas created an almost unlimited outlet formanufactures of nearly every kind, it isnot forgotten that before the war the com-petition for markets was of the fiercestcharacter and that the whole world wasapparently overproducing ; in spite of thepatent contradiction offered by the existenceof a large element of the population continu-ally on the verge of starvation (SnowdenSocialism and Syndicalism), and a greatmajority whose only interest in great groupsof the luxury trades was that of the wage-earner.The ever-rising cost of living has brought

home to large numbers of the salariedclasses problems which had previously.affected only the wage-earner. It isrealised that " labour-saving " machineryhas only enabled the worker to do morework ; and that the ever-increasing com-plexity of production, paralleled by therising price of the necessaries of life, is a


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sieve through which out and for ever outgo all ideas, scruples and principles whichwould hamper the individual in the scramblefor an increasingly precarious existence.We see, then, that there is cause for dis-satisfaction with not only the materialresults of the economic and political systems,but that they result in an environmentwhich is hostile to moral progress andintellectual expansion ; and it will benoticed in this enumeration of social evils,which is only so wide as is necessary tosuggest principles, that emphasis is laid onwhat may be called abstract defects and mis-carriages of justice, as well as on the materialmisery and distress which accompany them.The reason for this is that the twin evil(common more or less to all existing organ-ised Society) of servility is poverty, as hasbeen clearly recognised by all shades ofopinion amongst the exponents of Revo-lutionary Socialism. Poverty is in itselfa transient phenomenon, but servility (notnecessarily, of course, of manner) is adefinite component of a system having


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clearly greater than can be provided by anyother form of association. For this reasonthe advantage accruing from the use of itfor the attainment of one concrete objective,such as, let us say, the coherent designof a National railway or electric supplysystem (just so long as these objects areprotected from use as instruments ofpersonal and economic power) is quiteincontrovertible ; but every particle ofavailable evidence goes to show that it istotally unsuitable as a system of administra-tion for the purposes of governing theconditions under which whole people livetheir lives ; that it is in opposition to everyreal interest of the individual when so used,and for this reason it is vital to devisemethods bv which technical co-ordinationcan be combined with individual freedom.To crystallise the matter into a phrase ;

in respect of any undertaking, centralisationis the way to do it, but is neither the correctmethod of deciding what to do or ofselecting the individual who is to do it.


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Economic Democracy

CHAPTER THREE ^WE are thus led to inquire intoenvironment with a view to theidentification, if possible, ofconditions to which can be charged thedevelopment of servility on the one hand,and the discouragement of possibly moredesirable characteristics on the other, andin this inquiry it is necessary to avoid thereal danger of mistaking effects for causes ;and, further, to beware of seeing onlyone phenomenon when we are really con-fronted with several.

For instance, that from the misuse of thepower of capital many of the more glaringdefects of society proceed is certain, butin claiming that in itself the private ad-ministration of industry is the whole sourceof these evils, the Socialist is almost cer-tainly claiming too much, confounding the


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20 Economic Democracysympton with the disease, and taking noaccount of certain essential facts. It ismost important to differentiate in thismatter, between private enterprise utiHsingcapital, and the abuse of it.The private administration of capital

has had a credit as well as a debit side to itsaccount ; without private enterprise backedby capital, scientific progress, and thepossibilities of material betterment based onit, would never have achieved the rapiddevelopment of the past hundred years ;and still more important at this time, onlythe control of capital, which on the one handhas degraded propaganda into one of theBlack Arts, has, on the other, made possiblesuch crusades against an ill-informed ormisled public opinion as, for instance, theanti-slavery Campaign of the early nine-teenth century, or the parallel activitiesof the anti-sweating league at the presentday. The very agitation carried on againstcapitalism itself would be impossible withoutthe freedom of action given by the privatecontrol of considerable funds.


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The capitalistic system in the form inwhich we know it has served its purpose,and may be replaced with advantage ; butin any social system proposed, the firstnecessity is to provide some bulwark againsta despotism which might exceed that ofthe Trust, bad as the latter has become. Inour anxiety to make a world safe for de-mocracy it is a matter of real urgency thatwe do not tip out the baby with the bathwater, and, by discarding too soon whatis clearly an agency which can be made tooperate both ways, make democracy evenmore unsafe for the individual than it isat present.The danger which at the moment

threatens individual liberty far more thanany extension of individual enterprise isthe Servile State ; the erection of an irre-sistible and impersonal organisation throughwhich the ambition of able men, animatedconsciously or unconsciously by the lustof domination, may operate to the enslave-ment of their fellows. Under such a sys-tem the ordinary citizen might, and probably


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would, be far worse off than under privateenterprise freed from the domination offinance and regulated in the light of modernthought. The consideration of any returnto isolated industrial undertakings is quiteacademic, since there is not the faintestprobability of its occurrence, but that stageof development had undoubtedly certainvaluable features which it would be well topreserve and revive. The large profit-making limited company which distributesits profits over a wide area is already rapidlydisplacing the family business and, as willbe seen, it is not alone in the profit-makingaspect of its activities that its worst featureslie.

In attacking capitalism, collective Social-ism has largely failed to recognise that thereal enemy is the will-to-power, the positivecomplement to servility, of which Prussian-ism, with its theories of the supreme stateand the unimportance of the individual(both of which are the absolute negationof private enterprise) is only the fine flower ;and that nationalisation of all the means of


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livelihood, without the provision of muchmore effective safeguards than have so farbeen publicly evolved, leaves the individualwithout any appeal from its only possibleemployer and so substitutes a worse, be-cause more powerful, tjiranny for thatwhich it would destroy.

It is a most astonishing fact that the ex-perience of hundreds of thousands of menand women in such departments as thePost Office, where real discontent is probablymore general, and the material and psycho-logical justification for it more obvious, thanin any of the more modern industrialestablishments, has not been sufficient toimpress the public with the futility of merenationalisation. This is not in any sensea disparagement of the excellent qualities otlarge numbers of Government officials ;it is merely an attempt to indicate theremarkable facility with which well-inten-tioned people will allow themselves to behypnotised by a phrase. It is notoriousthat the State Socialists of Germany,commonly known as the Majority Party,

c


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were of the greatest possible assistance toJunkerdom in carrying out its plans for aPrussian world hegemony ; while in ourown country the bureaucrat and the Fabianhave, on the whole, not failed to understandeach other ; and the explanation is simplythat both, either consciously or unconscious-ly, assume that there is no psychologicalproblem involved in the control of industryjust as the Syndicalist is, with more justifica-tion, apt to stress the psychological to theexclusion of the technical aspect.

Because the control of capital has givenpower, the effect of the operation of the will-to-power has been to accumulate capitalin a few groups, possibly composed of largenumbers of shareholders, but frequentlydirected by one man ; and this process isquite clearly a stage in the transition fromdecentralised to centralised power. Thiscentralisation of the power of capital andcredit is going on before our eyes, bothdirectly in the form of money trusts andbank amalgamations, and indirectly in theconfederation of the producing industries


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representing the capital power of machinery.It has its counterpart in every sphere ofactivity : the coalescing of small businessesinto larger, of shops into huge stores, ofvillages into towns, of nations into leagues,and in every case is commended to the reasonby the plea of economic necessity andefficiency. But behind this lies alwaysthe will-to-power, which operates equallythrough politics, finance or industry, andalways towards centralisation. If this pointof view be admitted, it seems perfectly clearthat to the individual it will make very littledifference what name is given to centralisa-tion. Nationalisation without decentralisedcontrol of policy will quite effectively instalthe trust magnate of the next generationin the chair of the bureaucrat, with the addedadvantage to him that he will have noshareholders' meeting.One of the more obvious effects of the

concentration of credit-capital in a fewhands, which simply means the centralisa-tion of directive power, is its contributionto the illusion of the fiercely competitive


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nature of international trade. Althoughas we shall see, in considering the economicsof the increasing employment of machineryfor productive purposes, this phenomenonhas been confounded with one to whichit is only indirectly connected, it may beconvenient at this time to point out onemethod by which this illusion is produced,and it is probably not possible to do soin better words than those used by Mr. J.A. Hobson in his " Democracy After theWar":

Where the product of industry and commerce is so dividedthat wages are low while profits, interest, and rent are relativelyhigh, the small purchasing power of the masses sets a limiton the home market for most staple commodities. Thestaple manufacturers, therefore, working with modern mechan-ical methods, that continually increase the pace of output,are in every country compelled to look more and more toexport trade, and to hustle and compete for markets in thebackward countries of the world. . . . Just as the homemarket was restricted by a distribution of wealth which leftthe mass of people with inadequate power to purchase andconsume, while the minority who had the purchasing powereither wanted to use it in other ways or to save it and applyit to an increased production which still further congestedthe home markets, so likewise with the world markets. . . .Closely linked with this practical limitation of the expansionof markets for goods is the limitation of profitable fields ofinvestment. The limitation of home markets implies acorresponding limitation in the investment of fresh capitalin the trades supplying these markets.


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Because capitalism per se is largely theinstrument through which the will-to-poweroperates in the economic sphere, someexamination of its methods is necessary.The accumulation of financial wealththrough the making of profit is merely oneof the uses or abuses of money, but it is inthis sense that capitalism is associated toa very great extent in the popular mindwith the processes of manufacture, produc-tion and distribution, and it is in this sensethat the word is here employed. Thecapitalistic system is based fundamentallyon the financial perversion of the law ofsupply and demand, which involves aclaim that there exists an intrinsic relationbetween need or requirement, and legiti-mate price or exchange value ; a state-ment which is becoming increasingly dis-credited, and is negatived in the limitationof monopoly values, by common consent,in respect of public utility companies,such as lighting, water and transportationundertakings.

Proceeding from an economic system


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based on this assumed relation, however,the capitalistic producer only parts with hisproduct for a sum in excess of that repre-senting its cost to him, receiving paymentthrough the agency of money in its variousforms of cash and financial credit, which,so far as they are convertible, have beendefined as any medium which has reachedsuch a degree of acceptability that no matterwhat it is made of, and no matter whypeople want it, no one will refuse it inexchange for his product. (ProfessorWalker, ** Money, Trade and Industry,"p. 6).

So long as this definition holds good,it is obvious that the possession of money,or financial credit convertible into money,establishes an absolute lien on the servicesof others in direct proportion to the fractionof the whole stock controlled, and furtherthat the whole stock of financial wealth,inclusive of credit, in the world should,by the definition, be sufficient to balancethe aggregate book price of the world'smaterial assets and prospective production ;


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and generally it is assumed that the banksregulate the figures of wealth by the creationof credits broadly representing the mobili-sation value of these assets either in esseor in posse, such value being for financialpurposes the transfer or selling price andbearing no relation to the usage value of thearticle so appraised.

But for reasons which will be evident inconsidering the costing of production at alater stage of our inquiry, the book valueof the world's stocks is always greater thanthe apparent financial ability to liquidatethem, because these book values alreadyinclude mobilised credits ; the creation ofsubsidiary financial media, in the form offurther bank credits, becomes necessary,and results in the piling up of a system onfigures which the accountant calls capital,but which are in fact merely a function ofprices. The effect of this is, of course,to decrease progressively the purchasingpower of money, or, in other words, toconcentrate the lien on the services ofothers, which money gives, in the hands of


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those whose rate of increase is most rapid.Intrinsic improvements in manufacturingmethods operate to delay this concentrationin respect of industry, but the process islogically inevitable, and, as we see, is pro-ceeding with ever-increasing rapidity ; andwe may fairly conclude that the profit-making system as a whole, and as now oper-ated, is inherently centralising in character.With this concentration of financial

power and consequent control, however,there is proceeding in industry anotherdevelopment, apparently contradictory inits results, but of the greatest importance inthe consideration of the subject as a whole.During the period of transition betweenindividual ownership and company or trustmanagement, and under the stress of com-petition for markets, it became of vitalimportance to cut down the selling price ofcommodities, not so much intrinsically asin comparison with competitors ; and asa means to this end, standardisation andquantity-production in large factories are ofthe utmost importance, carrying with them


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specialisation of processes, the substitution,wherever possible, of automatic and semi-automatic machinery for skilled workman-ship, and the incorporation of the workerinto a machine-like system of which everypart is expected to function as systematicallyas a detail of the machine which he mayoperate. The objective has, to a consider-able extent, been attained^the scientificmanagement systems in factories (an out-standing instance of this policy) based onthe researches of efficiency engineers suchas Mr. F. W. Taylor and Mr. FrankGilbreth, have resulted in a rate of pro-duction per unit of labour, hundreds or eventhousands per cent, higher than existedbefore their introduction.As a bait for the worker these methods

have commonly been accompanied by sys-tems of payment-by-results, such as thepremium-bonus system in its various formsas adapted by Halsey, Rowan, Weir, etc.,round which has raged fierce controversysince in the very nature of things, beingbased on the consideration of profit, they


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.32 Economic Democracy

were unable to take into account the opera-tion of broad economic principles. It isno part of the argument with which we areconcerned to discuss such systems in detail,but any unprejudiced and sufficientlytechnical consideration of them will carrythe conviction that while the immediateeffect of their introduction was undoubtedlyto raise earnings and so apparently to delaythe concentration of wealth, it was correctlyrecognised by the worker that his realwage tended to bear much the same ratio,or even to fall, in comparison with the costof living, since the purchasing power ofmoney in terms of food, clothes, and housingfell faster than his wages rose.As the mechanical efficiency of production

rose, therefore, discontent and industrialstrife became accentuated, and an unstableequilibrium was only maintained by theoperation of such factors as have becomeknown under the names of " ca'canny,"restriction of output, etc., and before thewar the operation of piece-work systemsin large industrial engineering works almost


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invariably resulted in the establishment of alocal ratio between time rates and piece-work earnings, generally ranging between1.25 and 1.5 to 1. It is not necessaryto discuss the ethics of such an arrangementit is merely necessary to note that thesettled policy of Labour, acting presumablyon the best advice it could get in its owninterests, was to exercise a control overproduction by fixing its own standard of out-put irrespective of time. The situationcreated by the demand for munitions of allkinds during the war has, of course, pro-foundly modified this attitude, with theresult that a temporary very large increasein real earnings undoubtedly took place in1915 and 1916, taking the form of a rapiddistribution of stored commodities ; butit is quite questionable whether this levelis even approximately maintained, and withthe cessation of the wholesale sabotage ofwar, it will unquestionably fall as economicdistribution through the wages system be-comes ineffective ; apart from actualscarcity.


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34 Economic DemocracyQuite apart, therefore, from all questions

of payment, there has grown up a spirit ofrevolt against a life spent in the performanceof one mechanical operation devoid ofinterest, requiring little skill, and havingfew prospects of advancement other than bythe problematical acquisition of sufficientmoney to escape from it.The very efficiency with which factory

operations have been sectionalised has re-sulted in a complete divorcement betweenthe worker and the finished product, whichis in itself conducive to the feeling that heis part of a machine in the final output ofwhich he is not interested. His foremanand departmental heads are, from the large-ness of the undertakings, almost inevitablyout of human touch with him, while all thewell-known phenomena of bureaucraticmethods contribute to maintain a constantstate of irritation and dissatisfaction ; andin all these things is the nucleus of acentrifugal movement of formidable force.Nor is this feature confined to industriallife.. The connection between militarism


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and capitalism as vehicles for the expressionof the will-to-power has frequently been *pointed out. By the device of universalliability to military service a general threathas been made operative which wouldappear, ultima ratio regis, to set the sealon the ability of authority to dictate theterms on which the existence of the in-dividual can continue. But it is doubtfulwhether there ever was a time when thisthreat was held more lightly, and the dis-regard of consequences so widespread. Itis not suggested that conscription eithermilitary or industrial is regarded withcomplacency ; the exact opposite is, ofcourse, the truth. But just for the reasonthat the whole conception of a militaristworld is instinctively recognised as ananachronism, so, just to that extent, is thedetermination to defeat at any cost schemesinvolving compulsion, strengthened in theminds of a population normally acquiescent.


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Economic Democracy

CHAPTER FOURWE are, therefore, faced with anapparent dilemma, a world-widemovement towards centralised

control, backed by strong arguments as tothe increased efficiency and consequenteconomic necessity of organisation of thischaracter (and these arguments receivesupport from quarters as widely separatedas, say, Lord Milner and Mr. Sidney Webb),and, on the other hand, a deepening distrustof such measures bred by personal experienceand observation of their effect on theindividual. A powerful minority of thecommunity, determined to maintain itsposition relative to the majority, assuresthe world that there is no alternativebetween a pyramid of power based on toilof ever-increasing monotony, and someform of famine and disaster ; while a


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growing and ever more dissatisfied majoritystrives to throw off the hypnotic influence

_ of training and to grapple with the fallacywhich it feels must exist somewhere.Now let it be said at once that there isno evasion of this dilemma possible by theintroduction of questions of personalitya bad system is still a bad system no matterwhat changes are made in personnel. Thepower of personality is susceptible of thesame definition as any other form of power,it is the rate of doing work ; and the rate atwhich a given personality can change anorganisation depends on two things ; themagnitude of the change desired, and thesize of the organisation. As it is hopedto make clear, the effect of a single organi-sation of this pyramidal character appliedto the complex purpose of civilisation pro-duces a definite type of individual, of whichthe Prussian is one instance. Pyramidalorganisation is a structure designed toconcentrate power, and success in such anorganisation sooner or later becomes aquestion of the subordination of all other


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considerations to its attainment and reten-tion. For this reason the very quaHtieswhich make for personal success in centralcontrol are those which make it mostunlikely that success and the attainment ofa position of authority will result in anystrong effort to change the operations ofthe organisation in any external interest,and the progress to power of an individualunder such conditions must result eitherin a complete acceptance of the situation ashe finds it, or a conscious or unconscioussycophancy quite deadly to the preservationof any originality of thought and action.

It cannot be too heavily stressed at thistime that similar forms of organisation, nomatter how dissimilar their name, favourthe emergence of like characteristics, quiteirrespective of the ideals of the founders,and it is to the principles underlying thedesign of the structure, and not to its nameor the personalities originally operating it,that we may look for information on itseventual performance.

In considering the objectionable features


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which have arisen from modern industrialand political systems in the light of thiscentralising tendency, it is instructive toturn for a moment to the examination ofthe differences which have developed inthem with respect to those they havedisplaced, and without covering afresh theground which has been sufficiently welltraversed by the exponents of NationalGuilds, Syndicalism and other systems ofindustrial self-government, it may be wellto point out that the industrial revolutionof the late eighteenth and*early nineteenthcenturies was largely marked in principleby the separation of the workman from theownership of his tools and the control ofhis business policy.

All craft was handicraft ; the equipmentof a tradesman was of the simplest ; theselling price of the product was practicallymaterial cost plus direct labour cost ; directlabour cost was indistinguishable from profit,and practically the whole of it was availablefor the purchase of further material, andthe product of other men's industry.


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So far as our knowledge goes, and thetheory of industry would confirm such anassumption, there was within the craftguilds no involuntary poverty or unemploy-ment at all comparable to that with whichwe are too familiar, and, at any rate, withinthe circle of their influence the standardof material comfort rose directly in pro-portion to the total production, while atthe same time the craftsman maintaineda pride in his work and considerableindependence.With the advent of machinery came the

intervention of the financier into industry ;willing to provide the able craftsman withthe means to extend the exercise of hisskill on payment for his services. Thedevelopment from this stage, though thesmall workshop run on borrowed moneyby the enterprising man who both workedhimself and directed the work of others,to the larger factory in which the functionof the craftsman ceased to be exercised bythe employer, who retained only the direc-tion and management ; to the large limited


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liability company or Trust, in which thecraftsman, the management, and thedirection of policy, became still furtherseparated, has been logical and rapid, andthis development carries with it changesof a fundamental character.

Behind all effort lies the active or passiveacquiescence of the human will, and thiscan only be obtained by the provision ofan objective. By the separation of largeclasses into mere agents of a function, ithas been possible to obtain the more or lesscomplete co-operation of large numbers ofindividuals in aims of which they werecompletely ignorant, and of which had theybeen able to appreciate them in theirentirety, they would have completely dis-approved, while at the same time Educationand Ecclesiasticism have combined to fosterthe idea, that so long as the orders of asuperior were obeyed, no responsiblity restedon the individual.

It is not, of course, suggested thatcommercial policy has been deliberatelyand uniformly dictated by unworthy motives


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far from it ; nor is it unlikely that hadthe processes of production and distributionbeen separated from any control over indivi-dual activity along other lines, its develop-ment might have been in the best interestsof the community ; but since it has beenaccompanied by a growing subjection ofthe individual to the machine of industrial-ism, it is quite unquestionable that the wholeprocess of centralising power and policyand alleged responsibility in the brains ofa few men whose deliberations are notopen to discussion ; whose interests, largelyfinancial, are quite clearly in many respectsopposed to those of the individuals theycontrol, and whose critics can be victimised ;is without a single redeeming feature, andis rendered inherently vicious by the con-ditions which operate during the selectiveprocess. When it is further consideredthat these positions of power fall to menwhose very habit of mind, however kindlyand broad in view it may be and often isin other directions, must quite inevitablyforce them to consider the individual as


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mere material for a policycannon-fodderwhether of politics or industrythe gravityof the issue should be apparent.Along with this development has gone a

parallel change in the status of the individual.The apprentice, the journeyman and themaster were all of one social class ; theapprentice or journeyman dined at hismaster's table and married his own or someother master's daughter ; the standard oflife therefore without, of course, beingidentical, was comparable as between variousgrades. The implication of this was con-siderableit involved a common standardto which everyday difficulties could bereferred. A consideration of these facts,and a comparison of the conditions producedby them with those existing in our industrialdistricts in more recent years, has ledreformers of the type of William Morrisand John Ruskin to idealise this periodand to place to the debit of machinery andquantity-production all the miseries andugliness visible in the Midlands and themanufacturing North. This attitude seems


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Economic Democracy 45mistaken, and here again we are met bya confusion between cause and effect :there is absolutely no virtue in taking tenhours to produce by hand a necessary whicha machine will produce in ten seconds,thereby releasing a human being to thatextent for other aims, but it is essentialthat the individual should he released ; thatfreedom for other pursuits than the meremaintenance of life should thereby beachieved.How, then, are we to deal with thisdilemma ? It cannot seriously be contendedthat the advancement gained as a result ofthe application of material science to therequirements of society should be abandoned,and that men should abjure the use ofan5rthing more complicated than a hammerand chisel or a spinning wheel. But whileprogress in the replacement of manualeffort by machinery seems both naturaland beneficial, it is equally clear that thespiritual and intellectual revolt against theconditions which have grown up alongsidethis material progress is fundamental and


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widespread, and will not be satisfied byany mere betterment movement. Thewhole policy of Governments and industrial-ists alike in respect of this conflict of interesthas been one of grudging compromise,partly as the result of the natural tendencyof humanity to " laissez faire " methodsand partly no doubt from a settled con-viction that nothing but compromise waspossible ; that the existing order is basedon natural law, and is not amenable to anyradical modification, and that all critics areeither cranks and dreamers, or else aresolely actuated by a desire for the sweetsof office. It is most important to recognisethat there are two distinct problems involvedin this dilemma : one technical, the otherpsychological, and it is just because thepsychological aspect of industry has beenconfused with and subordinated to thetechnical aspect that we are confronted withso grave a situation at this time. Thereis little reason to doubt that we are rapidlyattaining command of the means for thesolution of any reasonable requirement of


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a purely technical nature, and it may bewell therefore to consider briefly the usualmethods which the modern industrialsystem has developed to deal with theorganisation of large numbers of individualsto the end that their combined effort mayresult in commercial success.

Very broadly the main difference liesbetween what may be defined as the militaryand the functional systems of control, orsome combination of the two, and theseinvolve an interesting difference of con-ception.As we have seen, the development of

industrial activity has been very largely apractical application of the economic pro-position in regard to the division of labour ;the *' military " organisation conceives alarge business or a Government Departmentas an aggregation of human units to carryout on a large scale that which one immenselyable and versatile man could do on a smallscale, and, broadly considered, the perfectorganisation of this character would bederived by dissecting the various attributes


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of the perfect one-man business, makingeach of them a Department, and staffingthem with men who, in the aggregate,represented nothing but an expansion ofthat attribute. Fortunately, the perfectorganisation of this character has yet toappear, but the effect of the endeavour toachieve it has quite definitely left its markon civilisationit is easy to distinguishthe soldier and the civil servant, or eventhe infantryman and the bombardier, andthe development due to the unbalancedexercise of one set only of perhaps manyabilities resident in the human unit, is avery definite factor in the existing discontentand one which, if perpetuated, could onlybe increased by wider education.A little consideration will at once suggestthat this type of organisation carried outto its furthest limits is pyramid control inits simplest form, and it is clear that suc-cessive grades or ranks decreasing regularlyin the number of units composing eachgrade, until supreme power and compositefunction is reached and concentrated at


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the apex, are definitely characteristic of it.The next step is to spHt the functions

of the higher ranks so that each unit thereinbecomes the head of a separate Httle pyramid,each of which as a whole furnishes the unitcomposing a larger pyramid ; in everycase, however, eventually concentralisingpower and responsibility in one man,representing the power of finance and ofcontrol over the necessaries of life.

Several points are to be noticed in theconditions produced by such an arrange-ment : Firstly, there is fundamental in-equality of opportunity. The more anyorganisation, whether of society as a wholeor any of the various aspects of it, approachesthis form the more certain is it that therecannot possibly be any relation betweenmerit and rewardit is, for instance, absurdto assume that there is only one possiblehead, for each railway company. Govern-ment Department, or great industrial under-taking. There is no doubt whatever thatthe intrigue which is a commonplace insuch undertakings has its roots almost


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entirely in this cause, and contributes in nosmall degree to their notorious inefficiency.

Another objection which becomes in-creasingly important as the concentrationproceeds is the divorce between power anddetail knowledge. This difficulty is recog-nised in the appointment of official andunofficial intelligence departments which,of course, are in themselves the source offurther abuses.

Having these points to some extent inmind, American industry has developedwhat is most unquestionably a veryimportant modification of principlethatof functional control in place of individualcontrol ; that is to say, the individual isonly controlled from one source in regardto one functionsay time-keeping. Inrespect of such matters as technical methodshe deals with an entirely different authority,and with still another in respect of pay.The real objection to this is the effect on

the source of specialised authority of sonarrow a function as is demanded by muchso-called scientific management, but there


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is very little doubt that the underlying ideadoes contain the germ of an industrialsystem which would be in the highest degreeefficient if its psychological difficulties couldbe removed, and it is significant that thisform of organisation produces its owntype of personality.

It will be seen, therefore, that we havein the industrial field a double problemto solve : while retaining the benefits ofmechanism for productive purposes, toobtain effective distribution of the resultsand to restore personal initiative.The proposition which is being urged

from orthodox capitalistic quarters as ameans of dealing with this situation is alittle ingenuous. It consists of an intensi-fication policy by which, in some mysteriousway, all the unpleasant features, by beingexaggerated, are to disappear, and it isusually summed up at the moment in thephrase, *' We must produce more." A fairstatement of this demand for unlimitedand intensified manufacturing would nodoubt be something after this fashion :


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52 Economic Democracy1. We must pay for the war and for

betterment schemes.2. This means high taxes.3. Taxes must come from profits and

earnings, which are parts of one whole.4. High earnings, high profits, and low

labour costs, and low selling and com-petitive costs, can only be combined ifincreased output is obtained.

5. High earnings will mean wider markets.Now this is a very specious argument ;a large number of people, whose instinctswarn them that there is a fallacy somewhere,have not felt themselves able to offer anyeffective criticism of it, since some practicalknowledge of technique is involved. Thelabour attitude has either been a simplenon-possumus, or a re-statement of theevils of capitalistic profit-making, togetherwith sufficiently pungent inquiry into thequalifications of the holders of the majorportion of the securities representingGovernment indebtedness, and their titleto rank as the winners of the war, and thechief beneficiaries of the peace. All this


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is quite to the point, but it is not even thechief economic objection to such a policy.

First of all, let it be admitted that aconsiderable amount of manufacturing willhave to be done, firstly, to reinstate thedevastated areas, and afterwards to meetthe accumulated demand, and these togetherwill provide an outlet for a very largequantity of manufactured goods. Thesegoods will not, of course, be furnished fornothing, and the money to pay for them willin the main be supplied by loans, which tobegin with, clearly mean more taxes forsomeone where the work done is on publicaccount. But, says the super-producer, thismoney will be distributed in wages, salariesand profits, which will enable the wholepopulation (at any rate of this country,where we propose to do our manufacturingso long as labour and other conditions arefavourable) to buy more goods, or, con-versely, save more money, and eventuallyenjoy more leisure and freedom.

Let us give to this statement the attentionit deserves, because on it hangs the fate


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of a whole economic system. If it is trueas it stands, then the whole system whichstands behind it, the fight for markets, thecartels, trusts, and combines, and the othermachinery of competitive trade, are justifiedat any rate by national self-interest. Inorder then to make this analysis it is unavoid-able that we should enter into some detailwith regard to the accountancy of manu-facturing ; not forgetting that the unequaldistribution of wealth is an initial restrictionon the free sale of commodities, and thatin consequence what we are aiming at inorder to meet the final contention of theargument, is not an expansion of figures,but an equalisation of real purchasingpower.Now, purchasing power is the amount

of goods of the description desired which canbe bought with the sum of money available,and it is clearly a function of price. It isa widely spread delusion that price is simplya question of supply and demand, whereas,of course, only the upper limit of price isthus governed, the lower limit, which under


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free competition would be the ruling limit,being fixed by cost plus the minimumprofit which will provide a financial induce-ment to produce. It is important to bearthis in mind, because it is frequentlyassumed that a mere glut of goods willbring down prices quite irrespective ofany intrinsic economy involved in largescale production. Unless these goods areall absorbed, the result may be exactlyopposite, since deterioration must go intosucceeding costs. Cost is the accumulationof past spendings over an indefinite period,whereas cash price requires a purchasingpower eflfective at the moment of purchase.Where competition is restricted by Trusts,

price is cost plus whatever profit the Trustconsiders it politic to charge.


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Economic Democracy

CHAPTER FIVELOOKED at from this standpoint it

is fairly clear that the kernel ofthe problem is factory cost, since

it is quite possible to conceive of a limitedcompany in which the shares were allheld by the employees, either equally orin varying proportions, according to theirgrade, and the selling costs were internalthat is to say, all advertising was done bythe firm itself, and the cost of its salesmen,etc., was either negligible, or confined totheir salaries. We should then have thecomplete profit-sharing enterprise in itsultimate aspect, and the argument againstCapitalism in its usual form would not arise.

Such an undertaking would, let us assume,make a complicated engineering product,requiring expensive plant and machinery,and would absorb considerable quantitiesof power and light, lubricants, etc., much of


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which would be wasted ; and would in-evitably produce a certain amount of scrapthe value of which would be less than thematerial in the form in which it entered theworks. The machinery would wear out, andwould have to be replaced and maintained,and generally it is clear that for each unitof production there would be three maindivisions of factory cost, the " staple " rawmaterial, the wages and salaries, and a sumrepresenting a proportion of the cost ofupkeep on the whole of the plant, whichmight easily equal 200 per cent, of the wagesand salaries. As the plant became moreautomatic by improvements in process,the ratio which these plant costs bore tothe cost of labour and salaries would increase.The factory cost of the total production,therefore, would be the addition of thesethree items : staple material, labour andsalaries, and plant cost, and with theaddition of selling charges and profit, thiswould be the selling price.As a result of the operations of the

undertaking, the wealth of the world would


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thus be apparently increased by the differ-ence between the value of all the materialentering the factory, and the total sumrepresented by the selling price of theproduct. But it is clear that the totalamount distributed in wages, salaries andprofit or dividends, would be less by aconsiderable sum (representing purchaseson factory account) than the total sellingprice of the product, and if this is true inone factory it must be true in all. Con-sequently, the total amount of money liber-ated by manufacturing processes of thisnature is clearly less than the total sellingprice of the product. This difference isdue to the fact that while the final price tothe consumer of any manufactured articleis steadily growing with the time requiredfor manufacture, during the same time themoney distributed by the manufacturingprocess is being returned to the capitalistthrough purchases for immediate con-sumption.A concrete example will make this clear.A steel bolt and nut weighing ten pounds


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might require in the blank about elevenand a half pounds of material representing,say, 3s. 6d. The nett selling price of thescrap recovered would probably be aboutone penny. The wages value of the totalman-hours expended on the conversionfrom the blank to the finished nut and boltmight be 5s., and the average plant charge150 per cent, on the direct time charge,i.e.^ 7s. 6d. The factory cost would,therefore, be 15s. lid., of which 7s. 6d.,or just under one-half, would be plantcharge. Of this plant charge probably75 per cent., or about 5s. 7d., is representedby the sum of items which are either after-wards wiped off for depreciation and con-sequently not distributed at all at that time,or are distributed in payments outside theorganisation, which payments clearly mustbe subsequent to any valuation of the articlesfor which they are paid, and so do notaffect the argument. Without proceedingto add selling charges and profit it mustbe clear that a charge of 15s. lid. on theworld's purchasing power has been created,


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of which only 6s. lOd. is distributed inrespect of the specific article under con-sideration, and that if the effective demandexists at all in a form suitable for the liquida-tion of this charge, it must reside in thebanks.

But we know that the total increase inthe personal cash accounts in the banks innormal times is under 3 per cent, of thewages, salaries and dividends distributed,consequently it is not to these accounts thatwe must look for effective demand. Thereare two sources remaining ; loan-credit,that is to say, purchasing power created bythe banks on principles which are directedsolely to the production of a positive fin-ancial result ; and foreign or export demand.Now loan-credit is never available to theconsumer as such, because consumptionas such has no commercial value. Inconsequence loan-credit has become thegreat stimulus either to manufacture or toany financial or commercial operation whichwill result in a profit, that is to say, aninflation of figures.*


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An additional factor also comes intoplay at this point. All large scale businessis settled on a credit basis. In the case ofcommodities in general retail demand, theprice tends to rise above the cost limit,because the sums distributed in advanceof the completion of large works becomeeffective in the retail market, while the largeworks, when completed, are paid for by anexpansion ot credit. This process in-volves a continuous inflation of currency, arise in prices, and a consequent dilution inpurchasing power.The reason that the decrease in the

consumer's purchasing power has not beenso great as would be suggested by theseconsiderations is, of course, largely due tointrinsic cheapening ot processes whichwould, if not defeated by this dilution ofthe consumer's purchasing power, havebrought down prices faster than they haverisen.There are thus two processes at work ;

an intrinsic cheapening of the productby better methods, and an artificial decrease


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in purchasing power due to what is in effectthe charging of the cost of all waste andinefficiency to the consumer. And it isclear that under this system the greaterthe volume of production the larger willbe the absolute value of the waste which theconsumer has to pay for, whether he willor no, because as the bank credits arecreated at the instance of the manufacturer,and repaid out of prices, each article pro-duced dilutes, by the ratio of its book priceto all the credits outstanding, the absolutepurchasing power of the money held by anyindividual.

These facts are quite unaffected by theperfectly sound argument that increasedproduction means decreased cost per piece,since it is the total production price whichhas to be liquidated.

Already there is not very much left ofthe argument for the innate desirabilityof unlimited, unspecified and intensifiedmanufacturing under the existing economicsystem, but more trouble yet is ahead of it.While the ratio of plant charges to total


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wages and salaries cost is less than 1 : 1over the whole range of commodities, ageneral rise in direct rates of pay may meana rise (but not a proportionate rise) in thepurchasing power of those who obtaintheir remuneration in this way. Butwhen by the increased application ofmechanical methods the average overheadcharge passes the ratio of one to one (whichit rapidly will, and should do on this basisof calculation) every general increase inrates of pay of " direct " labour may meanan actual decrease in real pay, because theconsumer is only interested in ultimateproducts and overhead charges do notrepresent ultimate products in existence.The whole argument which represents a

manufactured article as an access of wealthto the country and to everyone concerned,no matter what its description and utility^so long as by any method it can be sold andwages distributed in respect of it, will,therefore, be seen to be a dangerous fallacybased on an entirely wrong conception,,which is epitomised in the use of the word


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Economic Democracy 65" production," and fostered by ignoranceof financial processes. Manufacturing ofany kind whatever, even agriculture in alimited sense, is the conversion of onething into another, which process is onlyadvantageous to the extent that it sub-serves a definite requirement of humanevolution. In any case, it shares with allother conversions the characteristic of havingonly a fractional efficiency, and the waste ofeffort involved, although being continuallyreduced by improvements of method, stillcan only be paid for in one way, by efforton the part of somebody.

If this effort is useful effort" usefulin the sense that a definite, healthy and sanehuman requirement is servedthe wealthand standard of living of the communitymay thereby be enhanced. If the effortis aimless or destructive, the money attachedto it does not alter the result.The financial process just discussed there-

fore clearly attaches a concrete moneyvalue to an abstract quality not proven, andas this money value must be represented


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somewhere by equivalent purchasing powerin the broadest sense, misdirected effortwhich appears in cost forms a continuousand increasing diluent to the purchasingvalue of effort in general.Now it has already been emphasisedthat, at the moment, economic questionsare of paramount importance, because theeconomic system is the great weapon ofthe will-to-power. It will be obviousthat if the economic problem could be re-duced to a position of minor importancein other words, if the productive power ofmachinery could be made effective in re-ducing to a very small fraction of the totalman-hours available, the man-hours re-quired for adapting the world's naturalresources to the highest requirements ofhumanitythe " deflation " of the problemwould, to a very considerable extent, beaccomplished. The technical means areto our hands ; the good will is by no meanslacking and the opportunity is now with us.But it should be clearly recognised thatwaste is not less waste because a money


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Economic Democracy 67value is attached to it, and that the machineryof remuneration must be modified pro-foundly since the sum of the wages, salariesand dividends, distributed in respect ofthe world's production will buy an ever-decreasing fraction of it.

It is one of the most curious phenomenaof the existing economic system that alarge portion of the world's energy, bothintellectual and physical, is directed to theartificial stimulation of the desire for luxuriesby advertisement and otherwise, in orderthat the remainder may be absorbed inwhat is frequently toilsome, disagreeableand brutalising work ; to the end that adevice for the distribution of purchasingpower may be maintained in existence.The irony of the situation is the greatersince the perfecting of the organisationto carry on this vicious circle, carries with itas we have just seen, a complete negationof all real progress.The common factor of the whole situa-

tion lies in the simple facts that at anygiven period the material requirements of


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the individual are quite definitely limitedthat any attempt to expand them arti-ficially is an interference with the plaintrend of evolution, which is to subordinatematerial to mental and psychological neces-sity ; and that the impulse behind unbridledindustrialism is not progressive but re-actionary, because its objective is an obsoletefinancial control which forms one of themost effective instruments of the will-to-power, whereas the correct objectives ofindustry are two-fold ; the removal ofmaterial limitations, and the satisfactionof the creative impulse.

It is for this reason that while, as we see,the effect of the concrete sum distributedas profit is over-rated in the attacks madeon the Capitalistic system, and is of smalland diminishing importance as comparedwith the delusive accounting system whichaccompanies it, and which acts to reduceconsistently the purchasing power of effort,it is, nevertheless, of prime importance asfurnishing the immediate " inducement toproduce," which is a false inducement


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in that it claims as " wealth " what may justas probably be waste.

If by wealth we mean the original meaningattached to the word : i.e.^ " well-being,"the value in well-being to be attached toproduction depends entirely on its use forthe promotion of well-being (unless a caseis made out for the moral value of factorylife), and bears no relation whatever to thevalue obtained by cost accounting.

Further, if the interaction between pro-duction for profit and the creation of creditby the finance and banking houses is under-stood, it will be seen that the root of theevil accruing from the system is in the con-stant filching of purchasing power from theindividual in favour of the financier, ratherthan in the mere profit itself.

Having in view the importance of theissues involved, it may be desirable tosummarise the conclusions to be derivedfrom a study of the methods by which theprice of production is based on cost underthe existing economic arrangements. Theyare as follows :


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70 Economic Democracy1. Price cannot normally be less than

cost plus profit.2. Cost includes all expenditure on pro-

duct.3. Therefore, cost involves all expendi-

ture on consumption (food, clothes, housing,etc.), paid for out of wages, salary or divi-dends as well as all expenditure on factoryaccount, also representing previous con-sumption.

4. Since it includes this expenditure,the portion of the cost represented by thisexpenditure has already been paid by therecipients of wages, salaries and dividends.

5. These represent the communitytherefore, the only distribution of realpurchasing power in respect of productionover a unit period of time is the surpluswages, salaries and dividends available afterall subsistence, expenditure and cost ofmaterials consumed has been deducted.The surplus production, however, includesall this expenditure in cost, and, conse-quently, in price.

6. The only effective demand of the


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consumer, therefore, is a few per cent,of the price value of commodities, and iscash credit. The remainder of the Homeeffective demand is loan credit, which iscontrolled by the banker, the financier, andthe industrialist, in the interest of produc-tion with a financial objective, not in theinterest of the ultimate consumer.

It will be necessary to grasp the signifi-cance of these considerations, which canhardly be over-rated in its effect on thebreak-up of the existing economic system,in order to appreciate the result of a changein the control of credit and the methodof price fixing, with which it is proposedto deal at a later stage.


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Economic Democracy

CHAPTER SIX

ITwill be readily understood that the

difficulties which are seen to be inherentin the policy of super-production are

only an accentuation of those with whichwe were only too familiar prior to theoutbreak of war, and it may be contendedand, in fact, it frequently is stated, that evenwith the unemployment statistics at theirminimum point and the Nation at itsmaximum activity in Industry, there isstill not enough product to go round. Re-cently, for instance. Professor Bowley hasestimated that the total surplus income ofthe United Kingdom in excess of ,^160 perannum is only ^250,000,000, which wouldmean, if distributed to 10,000,000 headsof families, j25 per annum per family,assuming that this distribution did notreduce the production of wealth.The figures themselves have been

criticised ; but, in any case, the whole


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argument is completely fallacious, becauseit takes no account whatever of loan credit,which is by far the most important factorin the distribution of production, as wehave already seen. What it does show isthat the purchasing power of effort isquite insignificant in comparison with itsproductive power.

But it may be advisable to glance at someof the proximate causes operating to reducethe return for effort ; and to realise theorigin of most of the specific instances,it must be borne in mind that the existingeconomic system distributes goods and servicesthrough the same agency which induces goodsand services, i.e.y payment for work inprogress. In other words, if productionstops, distribution stops, and, as a conse-quence, a clear incentive exists to produceuseless or superfluous articles in orderthat useful commodities already existingmay be distributed.

This perfectly simple reason is the ex-planation of the increasing necessity ofwhat has come to be called economic sabot-


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age ; the colossal waste of effort whichgoes on in every walk of life quite unob-served by the majority of people becausethey are so familiar with it ; a waste whichyet so over-taxed the ingenuity of societyto extend it that the climax of war onlyoccurred in the moment when a culminatingexhibition of organised sabotage was neces-sary to preserve the system from spontaneouscombustion.The simplest form of this process isthat of ** making work " ; the elaboration

of every action in life so as to involve themaximum quantity and the minimumefficiency in human effort. The much-maligned household plumber who evolvesan elaborate organisation and etiquette pro-bably requiring two assistants and half aday, in order to '* wipe " a damaged waterpipe, which could, by methods with whichhe is perfectly familiar, be satisfactorilyrepaired by a boy in one-third the time ;the machinist insisting on a lengthy appren-ticeship to an unskilled process of industry,such as the operation of an automatic


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machine tool, are simple instances of this.A Httle higher up the scale of complexitycomes the manufacturer who produces anew model of his particular speciality,with the object, express or subconscious,of rendering the old model obsolete beforeit is worn out. We then begin to touchthe immense region of artificial demandcreated by advertisement ; a demand, inmany cases, as purely hypnotic in originas the request of the mesmerised subjectfor a draught of kerosine. All these areinstances which could be multiplied andelaborated to any extent necessary to provethe point.

In another class comes the stupendouswaste of effort involved in the intricacies offinance and book-keeping ; much of which,although necessary to the competitive sys-tem, is quite useless in increasing theamenities of life ; there is the burden ofarmaments and the waste of materials andequipment involved in them even in peacetime ; the ever-growing bureaucracy largelyconcerned in elaborating safeguards for a


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radically defective social system ; and,finally, but by no means least, the cumula-tive export of the product of labour, largelyand increasingly paid for by the raw materialwhich forms the vehicle for the export offurther labour.All these and many other forms of avoid-able waste take their rise in the obsessionof wealth defined in tferms of moneyan obsession which even the steady fall inthe purchasing power of the unit of currencyseems powerless to dispel ; an obsessionwhich obscures the whole object andmeaning of scientific progress and placesthe worker and the honest man in a per-manently disadvantageous position in com-parison with the financier and the rogue.It is probable that the device of money is anecessary device in our present civilisation ;but the establishment of a stable ratiobetween the use value of effort and itsmoney value is a problem which demandsa very early solution, and must clearlyresult in the abolition of any incentive tothe capitalisation of any form of waste.


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78 Economic DemocracyThe tawdry " ornament," the jerry-built

house, the slow and uncomfortable trainservice, the unwholesome sweetmeat, arethe direct and logical consummation of aneconomic system which rewards variety,quite irrespective of quality, and proclaimsin the clearest possible manner that it ismuch better to " do " your neighbour thanto do sound and lasting work.The capitalistic wage system based on

the current methods of finance, so far fromoffering maximum distribution, is de-creasingly capable of meeting any require-ment of society fully. Its very existencedepends on a constant increase in thevariety of product, the stimulation of desire,and in keeping the articles desired in shortsupply.


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Economic Democracy

CHAPTER SEVENIF the preceding endeavour to marshalinto some sort of coherent pattern the

facts of the general economic and socialsituation as it exists at present has beento any extent successful, it will be evidentthat the real antagonism which is at theroot of the upheaval with which we are facedis one which appears under different formsin every aspect of human life. It is theagelong struggle between freedom andauthority, between external compulsion andinternal initiative, in which all the commandof resources, information, religious dogma,educational system, political opportunityand even, apparently, economic necessity,is ranged on the side of authority ; andultimate authority is now exercised throughfinance. This antagonism does, however,appear at the present time to have reacheda stage in which a definite victory for one


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80 Economic Democracyside, or the other is inevitableit seemsperfectly certain that either a pyramidalorganisation, having at its apex supremepower, and at its base complete subjection,will crystallise out of the centralising processwhich is evident in the realms of financeand industry, equally with that of politics,or else a more complete decentralisationof initiative than this civilisation has everknown will be substituted for externalauthority. The issue transcends in im-portance all others : the development ofthe human race will be radically differentas it is decided one way or another, but asfar as it is possible to judge, the generaladvantage of the individual will lie with theretention of a measure of co-ordinationin all mechanical organisation, combinedwith the evolution of progressively decen-tralised initiative, largely by the displace-ment of the power of centralised finance.The implication of this is a challenge,

which will become more definite as timegoes on, to external authority as to its rightto adjudicate on the absolute value, expressed


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in terms of commodities, of various forms ofactivity. Even now, the practical difficultyof estimating the relation between materialreward and individual effort is becomingalmost insuperable, even in the cases wherean honest effort is made to arrive at somesolution. The various movements for thegrant of a minimum living wage, the de-mand for the recognition of the " right towork " (i.e.^ to draw pay) are all symptomsof the breakdown of the financial " law "of supply and demand in its applicationto economic problems.

Still another significant feature of theinadequacy of the economic structure is theincrease of voluntary unpaid effort and thelarge amount of energy devoted to games.There is absolutely no concrete differencebetween work and play unless it be in favourof the formerno one would contend thatit is inherently more interesting or pleasur-able, to endeavour to place a small ball inan inadequate hole with inappropriate in-struments, than to assist in the constructionof a Quebec Bridge, or the harnessing of


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92 Economic DemocracyNiagara. But for one object men willtravel long distances at their own expense,while for the other they require payment andconsiderable incentive to remain at work.The whole difference is, of course,

psychological ; in the one case there isabsolute freedom of choice, not of condi-tions, but as to whether those conditions areacceptable ; there is some voice in control,and there is an avoidance of monotonyby the comparatively short period of thegame, followed by occupation of an entirelydifferent order. But the efficiency of theperformance as compared with the efficiencyof the average factory worker is simplyincomparableany factory which couldinduce for six months the united andenthusiastic concentration of, say, anamateur football team would produce quiteastonishing results.Now, it may be emphasised here at once,that there is absolutely no future for in-

efficiency as a cult ; the whole promise of abrighter, probably a very bright, futurefor the world lies in doing the best possible


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things in the best possible way. Inindustrial affairs the principle of the maxi-mum efficiency of effort per unit of timeis so patently unassailable that its enuncia-tion would hardly be necessary, but that theproposition carries with it a very differentconception of efficiency than the narrow" business " meaning commonly attachedto the word, and in consequence it is thefashion amongst the less progressive ele-ments of society to attack any demand forimproved conditions as simply an attemptto substitute sloth and incapacity for energyand capability. While, therefore, a re-adjustment of system and, above all, acomplete reconsideration of objective isnecessary, it is probable that the basis ofsuch changes must be economic, tvith politicaland financial systems auxiliary rather thandefinitive, and it is certain that a revision ofeconomic policy, to be stable, must resultin higher economic efficiency, even thoughthe very aim of that higher efficiency isto reduce economic problems to a verysubordinate position. And the higher


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psychological efficiency of voluntary effortis clearly a step to this end.We have just seen that merely increasedproduction under existing conditions willnot achieve any economic stability becausethere are at least two quite irreconcilablecriteria governing the scope of the opera-tions proposed. There is, on the onehand, the adjustment of manufacturing ofall sorts to the opportunity of sale (not byany means always profitable sale) and thisis a purely artificial and yet all-powerfulconsideration under present financial sys-tems, and constitutes the effective demand.And there is, on the other hand, the

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douglas - economic democracy

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