HI
[UNIVERSITY Of
CALIFORNIA I
SAN 01 EGO I
THE UNIVERSITY LIBRARY
UNIVERSITY OF CALIFORNIA, SAN DIEGO
LA JOLLA, CALIFORNIA
ECONOMIC DEMOCRACY
ECONOMIC
DEMOCRACY
BY
MAJOR C. H. DOUGLAS
LONDON
CECIL PALMER
OAKLEY HOUSE, BLOOMSBURY STREET, W.C. 1
I
s
I
i
s
TO MY WIFE
without whose understanding
this book could not have
been written.
CONTENTS
PAGE
CHAPTER ONE - 1
CHAPTER TWO 7
CHAPTER THREE 19
CHAPTER FOUR - - 37
CHAPTER FIVE - 57
CHAPTER SIX - - 73
CHAPTER SEVEN- 79
CHAPTER EIGHT - - 93
CHAPTER NINE - 119
CHAPTER TEN - - 129
CHAPTER ELEVEN - 141
CHAPTER TWELVE 149
FIRST
EDITION
1920
COPY
RIGHT
PREFACE
WRITTEN for the most part under the pressure of
War conditions, this book is an attempt to dis-
entangle from a mass of superficial features such
as Profiteering, and alleged scarcity of commodities,
a sufficient portion of the skeleton of the Structure
we call Society as will serve to suggest sound reasons
for the decay with which it is now attacked ; and
afterwards to indicate the probable direction of
sound and vital reconstruction.
My apologies and sympathy are offered to the
reader in respect of the severe concentration which
its tabloid treatment of technical methods demands ;
but I have some grounds for supposing that the
matter it contains has aroused sufficient interest
to 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, together
with 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.
PBINTD BY BEN JOHNSON AND CO., LTD., YOBK AND LONDOM
Economic Democracy
CHAPTER ONE
THERE has been a very strong tend-
ency, fortunately not now so strong
as it was, to regard fidelity to one
set of opinions as being something of which
to 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 was
too Conservative to change, has his counter-
part in every sphere of human activity, and
most particularly so in that of economics,
where the tracing back to first principles
of the dogmas used for everyday purposes
requires, in addition to some little aptitude
and research, a laborious effort of thought
and logic very foreign to our normal methods.
It thus comes about that modification
in the creed of the orthodox is both difficult
and conducive to exasperation ; since
Economic Democracy
because the form is commonly mistaken
for the substance it is not clearly seen why
a statement which has embodied a sound
principle, may in course of time become a
dangerous hindrance to progress.
Of such a character are many of our habits
of thought and speech to-day. Because
from the commercial policy of the nineteenth
century has quite clearly sprung great
advance in the domain of science and the
mastery of material nature, the commer-
cialist, quite honestly in many cases, would
have us turn the land into a counting house
and drain the sea to make a factory. On
the other hand the Social Reformer, obsessed
as well he might be, with the poverty and
degradation which shoulder the very doors
of the rich, is apt to turn his eyes back
to the days antecedent to the Industrial
Revolution note, or assume, that the con-
ditions he deplores did not exist then, at
any rate, in so desperate a degree ; and
condemn all business as abominable.
At various well-defined epochs in the
history of civilisation there has occurred
Economic Democracy
such a clash of apparently irreconcilable
ideas as has at this time most definitely
come upon us. Now, as then, from every
quarter come the unmistakable signs of
crumbling institutions and discredited
formulae, while the wide-spread nature of
the general unrest, together with the
immense range of pretext alleged for it, is
a 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 previously
regarded none of these things. The very
efforts made to conceal the existence of
springs of action other than those publicly
admitted, has riveted the attention of an
awakened proletariat as no amount of pos-
itive propaganda would have done. A more
or less conscious effort to refer the results
of the working of the social and political
system to the Bar of individual requirement
has, on the whole, quite definitely resulted
in a verdict for the prosecution ; and there
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 well
to emphasise the more salient features of
the indictment, and in doing this it is of
the first consequence to make very sure of
the code against which the alleged offences
have been committed. And here we are
driven right back to first principles to an
attempt to define the purposes, conscious
or unconscious, which govern humanity
in 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 evolution
can assemble the will, emotions and desires,
are probably outside the scope of any form
of words not too symbolical for everyday
use.
But of the many attempts which have
been made it is quite possible that the
definition embodied in the majestic words
of the American Declaration of Independ-
ence, " the inalienable right of man to life,
Economic Democracy
liberty and the pursuit of happiness " is
still unexcelled, although the promise of
its 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, what
does this mean ? First of all, it does not
mean anarchy, nor does it mean exactly
what is commonly called individualism,
which generally resolves itself into a claim
to force the individuality of others to
subordinate itself to the will-to-power of
the self-styled individualist. And most
emphatically it does not mean collectivism
in any of the forms made familiar to us by
the Fabians and others.
It is suggested that the primary requisite
is to obtain in the re-adjustment of the
economic and political structure such control
of initiative that by its exercise every
individual can avail himself of the benefits
of science and mechanism ; that by their
aid he is placed in such a position of advan-
tage, that in common with his fellows he
Economic Democracy
can choose, with increasing freedom and
complete independence, whether he will
or will not assist in any project which may
be placed before him.
The basis of independence of this character
is most definitely economic ; it is simply
hypocrisy, conscious ~ or unconscious, to
discuss freedom of any description which
does not secure to the individual, that in
return for effort exercised as a right, not
as a concession, an average economic equiva-
lent of the effort made shall be forthcoming.
It seems clear that only by a recognition
of this necessity can the foundations of
society be so laid that no superstructure
built upon them can fail, as the super-
structure of capitalistic society is most
unquestionably failing, because the pedi-
ments which should sustain it are honey-
combed with decay.
Systems were . made for men, and not
men for systems, and the interest of man
which is self-development, is above all
systems, whether theological, political or
economic.
Economic Democracy
CHAPTER TWO
ACCEPTING this statement as a
basis of constructive effort, it seems
clear that all forms, whether of
government, industry or society must exist
contingently to the furtherance of the
principles contained in it. If a State system
can be shown to be inimical to them it
must go ; if social customs hamper their
continuous expansion they must be modi-
fied ; if unbridled industrialism checks their
growth, then industrialism must be reined
in. That is to say, we must build up from
the individual, not down from the State.
It is necessary to be very clear in thus
defining the scope of our inquiry since the
exaltation of the State into an authority
from which there is no appeal, the exploita-
tion of a public opinion which at the present
time is frequently manufactured for
interested purposes, and other attempts to
shift the centre of gravity of the main issues ;
8 Economic Democracy
these are all features of one of the policies
which it is our purpose to analyse. If,
therefore, any condition can be shown to be
oppressive to the individual, no appeal to
its desirability in the interests of external
organisation can be considered in extenua-
tion ; and while co-operation is the note
of the coming age, our premises require
that it must be the co-operation of reasoned
assent, not regimentation in the interests
of any system, however superficially
attractive.
There is no doubt whatever that a man-
gled and misapplied Darwinism has been one
of the most potent factors in the social
development of the past sixty years ; from
the date of the publication of " The Origin
of Species " the theory of the " survival
of the fittest " has always been put forward
as an omnibus answer to any individual
hardship ; and although such books as
Mr. Benjamin Kidd's " Science of Power "
have pretty well exposed the reasons why
the individual, efficient in his own interest
and consequently well-fitted to survive,
Economic Democracy
may and will possess characteristics which
completely unfit him for positions of power
in the community, we may begin our
inquiry by noticing that one of the most
serious causes of the prevalent dissatisfaction
and 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 narrowest
sense. And in admitting the justice of
the criticism, it is not of course necessary
to question the soundness of Darwin's
theory. Such an admission is simply
evidence that the particular environment
in which the " fittest " are admittedly
surviving and succeeding is unsatisfactory ;
that in consequence those best fitted for
it are not representative of the ideal existent
in the mind of the critic, and that environ-
ment cannot be left to the unaided law of
Darwinian evolution, in view of its effect
on other than material issues.
To what extent the rapid development of
systematic organisation is connected with
the statement of the law of biological
10 Economic Democracy
evolution would be an interesting specu-
lation ; but the second great factor in the
changes which have been taking place during
the final years of the epoch just closing is
undoubtedly the marshalling of effort in
conformity with well-defined principles,
the enunciation of which has largely pro-
ceeded from Germany, although their
source may very possibly be extra-national ;
and while these principles have been accepted
and developed in varying degree by the
governing classes of all countries, the dubious
honour of applying them with rigid logic
and a stern disregard of by-products, belongs
without question, to the land of their birth.
They may be summarised as a claim for
the complete subjection of the individual
to an objective which is externally imposed
on him ; which it is not necessary or even
desirable that he should understand in full ;
and the forging of a social, industrial and
political organisation which will concentrate
control of policy while making effective
revolt completely impossible, and leaving its
originators in possession of supreme power.
Economic Democracy 11
This demand to subordinate individuality
to the need of some external organisation,
the exaltation of the State into an authority
from which there is no appeal (as if the
State had a concrete existence apart from
which those who operate its functions),
the exploitation of " public opinion "
manipulated by a Press owned and controlled
from the apex of power, are all features
of a centralising policy commended to the
individual by a claim that the interest of
the community is thereby advanced, and
its results in Germany have been nothing
less than appalling. The external character-
istics of a nation with a population of
65 millions have been completely altered
in two generations, so that from the home
of idealism typified by Schiller, Goethe,
and Heine, it has become notorious for
bestiality and inhumanity only offset by a
slavish discipline. Its statistics of child
suicide during the years preceding the war
exceeded by many hundreds per cent, those
of any other country in the world, and were
rising rapidly. Insanity and nervous break-
12 Economic Democracy
down were becoming by far the gravest
problem of the German medical profession.
Its commercial morality was devoid of all
honour, and the external influence of
Prussian ideals on the world has undoubtedly
been to intensify the struggle for existence
along lines which quite inevitably cul-
minated in the greatest war of all history.
The comparative rapidity with which
the processes matured was no doubt aided
by an essential servility characteristic of
the Teutonic race, and the attempt to
embody these principles in Anglo-Saxon
communities has not proceeded either so
fast or so far ; but every indication points
to the imminence of a determined effort
to transfer and adopt the policy of central,
or, more correctly, pyramid, control from
the nation it has ruined to others, so far
more fortunate.
Thus far we have examined the psycho-
logical aspect of control exercised through
power. Let us turn for a moment to its
material side. Inequalities of circumstance
confront us at every turn. The vicious
Economic Democracy 13
circles of unemployment, degradation and
unemployability, the disparity between the
reward of the successful stock-jobber and
the 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 the
skilled mechanic, are instances at random
of the erratic working of the so-called law
of supply and demand.
In the sphere of politics it is clear that
all 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 to
the people in whose interests they are
supposed to hold office, is one of scarcely
veiled antagonism, only tempered by the
fear of unpleasant consequences. In the
State services, the easy supremacy of patron-
age over merit, and vested interest over
either, 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
14 Economic Democracy
hardly more happy. In the interim report
of the Commission on Industrial Unrest,
the following statement occurs :
" There is no doubt that one cause
of labour unrest is that workmen have
come to regard the promises and
pledges of Parliament and Government
Departments with suspicion and dis-
trust."
In industry itself, the perennial struggle
between 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 universally
recognised that the periodic strikes which
convulse one trade after another, have
common roots far deeper than the immediate
matter of contention. In the very ranks of
Trade Unionism, whose organisation has
become centralised in opposition to con-
centrated capital, cleavage is evident in
the acrimonious squabbles between the
skilled and the unskilled, the rank and file
and the Trade Union official.
Economic Democracy 15
Although the diversion of the forces of
industry to munition work of, in the
economic sense, an unreproductive character
has created an almost unlimited outlet for
manufactures of nearly every kind, it is
not forgotten that before the war the com-
petition for markets was of the fiercest
character and that the whole world was
apparently overproducing ; in spite of the
patent contradiction offered by the existence
of a large element of the population continu-
ally on the verge of starvation (Snowden
Socialism and Syndicalism), and a great
majority whose only interest in great groups
of the luxury trades was that of the wage-
earner.
The ever-rising cost of living has brought
home to large numbers of the salaried
classes problems which had previously
.affected only the wage-earner. It is
realised that " labour-saving " machinery
has only enabled the worker to do more
work ; and that the ever-increasing com-
plexity of production, paralleled by the
rising price of the necessaries of life, is a
16 Economic Democracy
sieve through which out and for ever out
go all ideas, scruples and principles which
would hamper the individual in the scramble
for an increasingly precarious existence.
We see, then, that there is cause for dis-
satisfaction with not .only the material
results of the economic and political systems,
but that they result in an environment
which is hostile to moral progress and
intellectual expansion ; and it will be
noticed in this enumeration of social evils,
which is only so wide as is necessary to
suggest principles, that emphasis is laid on
what may be called abstract defects and mis-
carriages of justice, as well as on the material
misery 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 has
been clearly recognised by all shades of
opinion amongst the exponents of Revo-
lutionary Socialism. Poverty is in itself
a transient phenomenon, but servility (not
necessarily, of course, of manner) is a
definite component of a system having
Economic Democracy 17
centralised control of policy as its apex ; and
while the development of self-respect is
universally recognised to be an antecedent
condition to any real improvement in
environment, it is not so generally under-
stood that a world-wide system is thereby
challenged. In referring the existent systems
to the standard we have agreed to accept,
however, it seems clear that the stimulation
of independence of thought and action is a
primary requirement, and to the extent to
which these qualities are repressed, social
and economic conditions stand condemned
as undesirable.
Now it may be emphasised that a central-
ised or pyramid form of control may be,
and is in certain conditions, the ideal
organisation for the attainment of one
specific and material end. The only
effective force by which any objective can
be attained is in the last analysis the human
will, and if an organisation of this character
can keep the will of all its component
members focussed on the objective to be
attained, the collective power available is
18 Economic Democracy
clearly greater than can be provided by any
other form of association. For this reason
the advantage accruing from the use of it
for the attainment of one concrete objective,
such as, let us say, the coherent design
of a National railway or electric supply
system (just so long as these objects are
protected from use as instruments of
personal and economic power) is quite
incontrovertible ; but every particle of
available evidence goes to show that it is
totally unsuitable as a system of administra-
tion for the purposes of governing the
conditions under which whole people live
their lives ; that it is in opposition to every
real interest of the individual when so used,
and for this reason it is vital to devise
methods bv which technical co-ordination
tt
can be combined with individual freedom.
To crystallise the matter into a phrase ;
in respect of any undertaking, centralisation
is the way to do it, but is neither the correct
method of deciding what to do or of
selecting the individual who is to do it.
Economic Democracy
CHAPTER THREE
WE are thus led to inquire into
environment with a view to the
identification, if possible, of
conditions to which can be charged the
development of servility on the one hand,
and the discouragement of possibly more
desirable characteristics on the other, and
in this inquiry it is necessary to avoid the
real danger of mistaking effects for causes ;
and, further, to beware of seeing only
one phenomenon when we are really con-
fronted with several.
For instance, that from the misuse of the
power of capital many of the more glaring
defects of society proceed is certain, but
in claiming that in itself the private ad-
ministration of industry is the whole source
of these evils, the Socialist is almost cer-
tainly claiming too much, confounding the
20 Economic Democracy
sympton with the disease, and taking no
account of certain essential facts. It is
most important to differentiate in this
matter, between private enterprise utilising
capital, and the abuse of it.
The private administration of capital
has had a credit as well as a debit side to its
account ; without private enterprise backed
by capital, scientific progress, and the
possibilities of material betterment based on
it, would never have achieved the rapid
development of the past hundred years ;
and still more important at this time, only
the control of capital, which on the one hand
has degraded propaganda into one of the
Black Arts, has, on the other, made possible
such crusades against an ill-informed or
misled public opinion as, for instance, the
anti- slavery Campaign of the early nine-
teenth century, or the parallel activities
of the anti-sweating league at the present
day. The very agitation carried on against
capitalism itself would be impossible without
the freedom of action given by the private
control of considerable funds.
Economic Democracy 21
The capitalistic system in the form in
which we know it has served its purpose,
and may be replaced with advantage ; but
in any social system proposed, the first
necessity is to provide some bulwark against
a despotism which might exceed that of
the Trust, bad as the latter has become. In
our anxiety to make a world safe for de-
mocracy it is a matter of real urgency that
we do not tip out the baby with the bath
water, and, by discarding too soon what
is clearly an agency which can be made to
operate both ways, make democracy even
more unsafe for the individual than it is
at present.
The danger which at the moment
threatens individual liberty far more than
any extension of individual enterprise is
the Servile State ; the erection of an irre-
sistible and impersonal organisation through
which the ambition of able men, animated
consciously or unconsciously by the lust
of domination, may operate to the enslave-
ment of their fellows. Under such a sys-
tem the ordinary citizen might, and probably
22 Economic Democracy
would, be far worse off than under private
enterprise freed from the domination of
finance and regulated in the light of modern
thought. The consideration of any return
to isolated industrial undertakings is quite
academic, since there is not the faintest
probability of its occurrence, but that stage
of development had undoubtedly certain
valuable features which it would be well to
preserve and revive. The large profit-
making limited company which distributes
its profits over a wide area is already rapidly
displacing the family business and, as will
be seen, it is not alone in the profit-making
aspect of its activities that its worst features
lie.
In attacking capitalism, collective Social-
ism has largely failed to recognise that the
real enemy is the will-to-power, the positive
complement to servility, of which Prussian-
ism, with its theories, of the supreme state
and the unimportance of the individual
(both of which are the absolute negation
of private enterprise) is only the fine flower ;
and that nationalisation of all the means of
Economic Democracy 23
livelihood, without the provision of much
more effective safeguards than have so far
been publicly evolved, leaves the individual
without any appeal from its only possible
employer and so substitutes a worse, be-
cause more powerful, tyranny for that
which it would destroy.
It is a most astonishing fact that the ex-
perience of hundreds of thousands of men
and women in such departments as the
Post Office, where real discontent is probably
more general, and the material and psycho-
logical justification for it more obvious, than
in any of the more modern industrial
establishments, has not been sufficient to
impress the public with the futility of mere
nationalisation. This is not in any sense
a disparagement of the excellent qualities of
large numbers of Government officials ;
it is merely an attempt to indicate the
remarkable facility with which well-inten-
tioned people will allow themselves to be
hypnotised by a phrase. It is notorious
that the State Socialists of Germany,
commonly known as the Majority Party,
24 Economic Democracy
were of the greatest possible assistance to
Junkerdom in carrying out its plans for a
Prussian world hegemony ; while in our
own country the bureaucrat and the Fabian
have, on the whole, not failed to understand
each other ; and the explanation is simply
that both, either consciously or unconscious-
ly, assume that there is no psychological
problem involved in the control of industry
just as the Syndicalist is, with more justifica-
tion, apt to stress the psychological to the
exclusion of the technical aspect.
Because the control of capital has given
power, the effect of the operation of the will-
to-power has been to accumulate capital
in a few groups, possibly composed of large
numbers of shareholders, but frequently
directed by one man ; and this process is
quite clearly a stage in the transition from
decentralised to centralised power. This
centralisation of the power of capital and
credit is going on before our eyes, both
directly in the form of money trusts and
bank amalgamations, and indirectly in the
confederation of the producing industries
Economic Democracy 25
representing the capital power of machinery.
It has its counterpart in every sphere of
activity : the coalescing of small businesses
into larger, of shops into huge stores, of
villages into towns, of nations into leagues,
and in every case is commended to the reason
by the plea of economic necessity and
efficiency. But behind this lies always
the will-to-power, which operates equally
through politics, finance or industry, and
always towards centralisation. If this point
of view be admitted, it seems perfectly clear
that to the individual it will make very little
difference what name is given to centralisa-
tion. Nationalisation without decentralised
control of policy will quite effectively instal
the trust magnate of the next generation
in the chair of the bureaucrat, with the added
advantage to him that he will have no
shareholders' meeting.
One of the more obvious effects of the
concentration of credit-capital in a few
hands, which simply means the centralisa-
tion of directive power, is its contribution
to the illusion of the fiercely competitive
26 Economic Democracy
nature of international trade. Although
as we shall see, in considering the economics
of the increasing employment of machinery
for productive purposes, this phenomenon
has* been confounded with one to which
it is only indirectly connected, it may be
convenient at this time to point out one
method by which this illusion is produced,
and it is probably not possible to do so
in better words than those used by Mr. J.
A. Hobson in his " Democracy After the
War":
Where the product of industry and commerce is so divided
that wages are low while profits, interest, and rent are relatively
high, the small purchasing power of the masses sets a limit
on the home market for most staple commodities. The
staple 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 to
export trade, and to hustle and compete for markets in the
backward countries of the world. . . . Just as the home
market was restricted by a distribution of wealth which left
the mass of people with inadequate power to purchase and
consume, while the minority who had the purchasing power
either wanted to use it in other ways or to save it and apply
it to an increased production which still further congested
the home markets, so likewise with the world markets. . .
Closely linked with this practical limitation of the expansion
of markets for goods is the limitation of profitable fields of
investment. The limitation of home markets implies a
corresponding limitation in the investment of fresh capital
in the trades supplying these markets.
Economic Democracy 27
Because capitalism per se is largely the
instrument through which the will-to-power
operates in the economic sphere, some
examination of its methods is necessary.
The accumulation of financial wealth
through the making of profit is merely one
of the uses or abuses of money, but it is in
this sense that capitalism is associated to
a very great extent in the popular mind
with the processes of manufacture, produc-
tion and distribution, and it is in this sense
that the word is here employed. The
capitalistic system is based fundamentally
on the financial perversion of the law of
supply and demand, which involves a
claim that there exists an intrinsic relation
between need or requirement, and legiti-
mate price or exchange value ; a state-
ment which is becoming increasingly dis-
credited, and is negatived in the limitation
of monopoly values, by common consent,
in respect of public utility companies,
such as lighting, water and transportation
undertakings.
Proceeding from an economic system
28 Economic Democracy
based on this assumed relation, however,
the capitalistic producer only parts with his
product for a sum in excess of that repre-
senting its cost to him, receiving payment
through the agency of money in its various
forms of cash and financial credit, which,
so far as they are convertible, have been
defined as any medium which has reached
such a degree of acceptability that no matter
what it is made of, and no matter why
people want it, no one will refuse it in
exchange for his product. (Professor
Walker, " 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 services
of others in direct proportion to the fraction
of the whole stock controlled, and further
that the whole stock of financial wealth,
inclusive of credit, in the world should,
by the definition, be sufficient to balance
the aggregate book price of the world's
material assets and prospective production ;
Economic Democracy 29
and generally it is assumed that the banks
regulate the figures of wealth by the creation
of credits broadly representing the mobili-
sation value of these assets either in esse
or in posse, such value being for financial
purposes the transfer or selling price and
bearing no relation to the usage value of the
article so appraised.
But for reasons which will be evident in
considering the costing of production at a
later stage of our inquiry, 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 mobilised 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 on
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
30 Economic Democracy
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 pro-
ceeding with ever-increasing rapidity ; and
we 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 another
development, apparently contradictory in
its results, but of the greatest importance in
the consideration of the subject as a whole.
During the period of transition between
individual ownership and company or trust
management, and under the stress of com-
petition for markets, it became of vital
importance to cut down the selling price of
commodities, not so much intrinsically as
in comparison with competitors ; and as
a means to this end, standardisation and
quantity-production in large factories are of
the utmost importance, carrying with them
Economic Democracy 31
specialisation of processes, the substitution,
wherever possible, of automatic and semi-
automatic machinery for skilled workman-
ship, and the incorporation of the worker
into a machine-like system of which every
part is expected to function as systematically
as a detail of the machine which he may
operate. The objective has, to a consider-
able extent, been attained the scientific
management systems in factories (an out-
standing instance of this policy) based on
the researches of efficiency engineers such
as Mr. F. W. Taylor and Mr. Frank
Gilbreth, have resulted in a rate of pro-
duction per unit of labour, hundreds or even
thousands per cent, higher than existed
before their introduction.
As a bait for the worker these methods
have commonly been accompanied by sys-
tems of payment-by-results, such as the
premium-bonus system in its various forms
as adapted by Halsey, Rowan, Weir, etc.,
round which has raged fierce controversy
since in the very nature of things, being
based on the consideration of profit, they
32 Economic Democracy
were unable to take into account the opera-
tion of broad economic principles. It is
no part of the argument with which we are
concerned to discuss such systems in detail,
but any unprejudiced and sufficiently
technical consideration of them will carry
the conviction that while the immediate
effect of their introduction was undoubtedly
to raise earnings and so apparently to delay
the concentration of wealth, it was correctly
recognised by the worker that his real
wage tended to bear much the same ratio,
or even to fall, in comparison with the cost
of living, since the purchasing power of
money in terms of food, clothes, and housing
fell faster than his wages rose.
As the mechanical efficiency of production
rose, therefore, discontent and industrial
strife became accentuated, and an unstable
equilibrium was only maintained by the
operation of such factors as have become
known under the names of " ca'canny,"
restriction of output, etc., and before the
war the operation of piece-work systems
in large industrial engineering works almost
Economic Democracy 33
invariably resulted in the establishment of a
local ratio between time rates and piece-
work earnings, generally ranging between
1.25 and 1.5 to 1. It is not necessary
to discuss the ethics of such an arrangement ;
it is merely necessary to note that the
settled policy of Labour, acting presumably
on the best advice it could get in its own
interests, was to exercise a control over
production by fixing its own standard of out-
put irrespective of time. The situation
created by the demand for munitions of all
kinds during the war has, of course, pro-
foundly modified this attitude, with the
result that a temporary very large increase
in real earnings undoubtedly took place in
1915 and 1916, taking the form of a rapid
distribution of stored commodities ; but
it is quite questionable whether this level
is even approximately maintained, and with
the cessation of the wholesale sabotage of
war, it will unquestionably fall as economic
distribution through the wages system be-
comes ineffective ; apart from actual
scarcity.
34 Economic Democracy
Quite apart, therefore, from all questions
of payment, there has grown up a spirit of
revolt against a life spent in the performance
of one mechanical operation devoid of
interest, requiring little skill, and having
few prospects of advancement other than by
the problematical acquisition of sufficient
money to escape from it.
The very efficiency with which factory
operations have been sectionalised has re-
sulted in a complete divorcement between
the worker and the finished product, which
is in itself conducive to the feeling that he
is part of a machine in the final output of
which he is not interested. His foreman
and departmental heads are, from the large-
ness of the undertakings, almost inevitably
out of human touch with him, while all the
well-known phenomena of bureaucratic
methods contribute to maintain a constant
state of irritation and dissatisfaction ; and
in all these things is the nucleus of a
centrifugal movement of formidable force.
Nor is this feature confined to industrial
life. The connection between militarism
Economic Democracy 35
and capitalism as vehicles for the expression
of the will-to-power has frequently been
pointed out. By the device of universal
liability to military service a general threat
has been made operative which would
appear, ultima ratio regis, to set the seal
on the ability of authority to dictate the
terms on which the existence of the in-
dividual can continue. But it is doubtful
whether there ever was a time when this
threat was held more lightly, and the dis-
regard of consequences so widespread. It
is not suggested that conscription either
military or industrial is regarded with
complacency ; the exact opposite is, of
course, the truth. But just for the reason
that the whole conception of a militarist
world is instinctively recognised as an
anachronism, so, just to that extent, is the
determination to defeat at any cost schemes
involving compulsion, strengthened in the
minds of a population normally acquiescent.
Economic Democracy
CHAPTER FOUR
WE are, therefore, faced with an
apparent dilemma, a world-wide
movement towards centralised
control, backed by strong arguments as to
the increased efficiency and consequent
economic necessity of organisation of this
character (and these arguments receive
support from quarters as widely separated
as, say, Lord Milner and Mr. Sidney Webb),
and, on the other hand, a deepening distrust
of such measures bred by personal experience
and observation of their effect on the
individual. A powerful minority of the
community, determined to maintain its
position relative to the majority, assures
the world that there is no alternative
between a pyramid of power based on toil
of ever-increasing monotony, and some
form of famine and disaster ; while a
38 Economic Democracy
growing and ever more dissatisfied majority
strives to throw off the hypnotic influence
of training and to grapple with the fallacy
which it feels must exist somewhere.
Now let it be said at once that there is
no evasion of this dilemma possible by the
introduction of questions of personality
a bad system is still a bad system no matter
what changes are made in personnel. The
power of personality is susceptible of the
same definition as any other form of power,
it is the rate of doing work ; and the rate at
which a given personality catt change an
organisation depends on two things ; the
magnitude of the change desired, and the
size of the organisation. As it is hoped
to make clear, the effect of a single organi-
sation of this pyramidal character applied
to the complex purpose of civilisation pro-
duces a definite type of individual, of which
the Prussian is one instance. Pyramidal
organisation is a structure designed to
concentrate power, and success in such an
organisation sooner or later becomes a
question of the subordination of all other
Economic Democracy 39
considerations to its attainment and reten-
tion. For this reason the very qualities
which make for personal success in central
control are those which make it most
unlikely that success and the attainment of
a position of authority will result in any
strong effort to change the operations of
the organisation in any external interest,
and the progress to power of an individual
under such conditions must result either
in a complete acceptance of the situation as
he finds it, or a conscious or unconscious
sycophancy quite deadly to the preservation
of any originality of thought and action.
It cannot be too heavily stressed at this
time that similar forms of organisation, no
matter how dissimilar their name, favour
the emergence of like characteristics, quite
irrespective of the ideals of the founders,
and it is to the principles underlying the
design of the structure, and not to its name
or the personalities originally operating it,
that we may look for information on its
eventual performance.
In considering the objectionable features
40 Economic Democracy
which have arisen from modern industrial
and political systems in the light of this
centralising tendency, it is instructive to
turn for a moment to the examination of
the differences which have developed in
them with respect to those they have
displaced, and without covering afresh the
ground which has been sufficiently well
traversed by the exponents of National
Guilds, Syndicalism and other systems of
industrial self-government, it may be well
to point out that the industrial revolution
of the late eighteenth and*early nineteenth
centuries was largely marked in principle
by the separation of the workman from the
ownership of his tools and the control of
his business policy.
All craft was handicraft ; the equipment
of a tradesman was of the simplest ; the
selling price of the product was practically
material cost plus direct labour cost ; direct
labour cost was indistinguishable from profit,
and practically the whole of it was available
for the purchase of further material, and
the product of other men's industry.
Economic Democracy 41
So far as our knowledge goes, and the
theory of industry would confirm such an
assumption, there was within the craft
guilds no involuntary poverty or unemploy-
ment at all comparable to that with which
we are too familiar, and, at any rate, within
the circle of their influence the standard
of material comfort rose directly in pro-
portion to the total production, while at
the same time the craftsman maintained
a pride in his work and considerable
independence.
With the advent of machinery came the
intervention of the financier into industry ;
willing to provide the able craftsman with
the means to extend the exercise of his
skill on payment for his services. The
development from this stage, though the
small workshop run on borrowed money
by the enterprising man who both worked
himself and directed the work of others,
to the larger factory in which the function
of the craftsman ceased to be exercised by
the employer, who retained only the direc-
tion and management ; to the large limited
42 Economic Democracy
liability company or Trust, in which the
craftsman, the management, and the
direction of policy, became still further
separated, has been logical and rapid, and
this development carries with it changes
of a fundamental character.
Behind all effort lies the active or passive
acquiescence of the human will, and this
can only be obtained by the provision of
an objective. By the separation of large
classes into mere agents of a function, it
has been possible to obtain the more or less
complete co-operation of large numbers of
individuals in aims of which they were
completely ignorant, and of which had they
been able to appreciate them in their
entirety, they would have completely dis-
approved, while at the same time Education
and Ecclesiasticism have combined to foster
the idea, that so long as the orders of a
superior were obeyed, no responsiblity rested
on the individual.
It is not, of course, suggested that
commercial policy has been deliberately
and uniformly dictated by unworthy motives
Economic Democracy 43
far from it ; nor is it unlikely that had
the processes of production and distribution
been separated from any control over indivi-
dual activity along other lines, its develop-
ment might have been in the best interests
of the community ; but since it has been
accompanied by a growing subjection of
the individual to the machine of industrial-
ism, it is quite unquestionable that the whole
process of centralising power and policy
and alleged responsibility in the brains of
a few men whose deliberations are not
open to discussion ; whose interests, largely
financial, are quite clearly in many respects
opposed to those of the individuals they
control, and whose critics can be victimised ;
is without a single redeeming feature, and
is rendered inherently vicious by the con-
ditions which operate during the selective
process. When it is further considered
that these positions of power fall to men
whose very habit of mind, however kindly
and broad in view it may be and often is
in other directions, must quite inevitably
force them to consider the individual as
44 Economic Democracy
mere material for a policy cannon-fodder
whether of politics or industry the gravity
of 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 the
master were all of one social class ; the
apprentice or journeyman dined at his
master's table and married his own or some
other master's daughter ; the standard of
life therefore without, of course, being
identical, was comparable as between various
grades. The implication of this was con-
siderable it involved a common standard
to which everyday difficulties could be
referred. A consideration of these facts,
and a comparison of the conditions produced
by them with those existing in our industrial
districts in more recent years, has led
reformers of the type of William Morris
and John Ruskin to idealise this period
and to place to the debit of machinery and
quantity-production all the miseries and
ugliness visible in the Midlands and the
manufacturing North. This attitude seems
Economic Democracy 45
mistaken, and here again we are met by
a confusion between cause and effect :
there is absolutely no virtue in taking ten
hours to produce by hand a necessary which
a machine will produce in ten seconds,
thereby releasing a human being to that
extent for other aims, but it is essential
that the individual should be released ; that
freedom for other pursuits than the mere
maintenance of life should thereby be
achieved.
How, then, are we to deal with this
dilemma ? It cannot seriously be contended
that the advancement gained as a result of
the application of material science to the
requirements of society should be abandoned,
and that men should abjure the use of
anything more complicated than a hammer
and chisel or a spinning wheel. But while
progress in the replacement of manual
effort by machinery seems both natural
and beneficial, it is equally clear that the
spiritual and intellectual revolt against the
conditions which have grown up alongside
this material progress is fundamental and
46 Economic Democracy
widespread, and will not be satisfied by
any mere betterment movement. The
whole policy of Governments and industrial-
ists alike in respect of this conflict of interest
has been one of grudging compromise,
partly as the result of the natural tendency
of humanity to " laissez faire " methods
and partly no doubt from a settled con-
viction that nothing but compromise was
possible ; that the existing order is based
on natural law, and is not amenable to any
radical modification, and that all critics are
either cranks and dreamers, or else are
solely actuated by a desire for the sweets
of office. It is most important to recognise
that there are two distinct problems involved
in this dilemma : one technical, the other
psychological, and it is just because the
psychological aspect of industry has been
confused with and subordinated to the
technical aspect that we are confronted with
so grave a situation at this time. There
is little reason to doubt that we are rapidly
attaining command of the means for the
solution of any reasonable requirement of
Economic Democracy 47
a purely technical nature, and it may be
well therefore to consider briefly the usual
methods which the modern industrial
system has developed to deal with the
organisation of large numbers of individuals
to the end that their combined effort may
result in commercial success.
Very broadly the main difference lies
between what may be defined as the military
and the functional systems of control, or
some combination of the two, and these
involve an interesting difference of con-
ception.
As we have seen, the development of
industrial activity has been very largely a
practical application of the economic pro-
position in regard to the division of labour ;
the " military " organisation conceives a
large business or a Government Department
as an aggregation of human units to carry
out on a large scale that which one immensely
able and versatile man could do on a small
scale, and, broadly considered, the perfect
organisation of this character would be
derived by dissecting the various attributes
48 Economic Democracy
of the perfect one-man business, making
each of them a Department, and staffing
them with men who, in the aggregate,
represented nothing but an expansion of
that attribute. Fortunately, the perfect
organisation of this character has yet to
appear, but the effect of the endeavour to
achieve it has quite definitely left its mark
on civilisation it is easy to distinguish
the soldier and the civil servant, or even
the infantryman and the bombardier, and
the development due to the unbalanced
exercise of one set only of perhaps many
abilities resident in the human unit, is a
very definite factor in the existing discontent
and one which, if perpetuated, could only
be increased by wider education.
A little consideration will at once suggest
that this type of organisation carried out
to its furthest limits is pyramid control in
its simplest form, and it is clear that suc-
cessive grades or ranks decreasing regularly
in the number of units composing each
grade, until supreme power and composite
function is reached and concentrated at
Economic Democracy 49
the apex, are definitely characteristic of it.
The next step is to split the functions
of the higher ranks so that each unit therein
becomes the head of a separate little pyramid,
each of which as a whole furnishes the unit
composing a larger pyramid ; in every
case, however, eventually concentralising
power and responsibility in one man,
representing the power of finance and of
control over the necessaries of life.
Several points are to be noticed in the
conditions produced by such an arrange-
ment : Firstly, there is fundamental in-
equality of opportunity. The more any
organisation, whether of society as a whole
or any of the various aspects of it, approaches
this form the more certain is it that there
cannot possibly be any relation between
merit and reward it is, for instance, absurd
to assume that there is only one possible
head, for each railway company, Govern-
ment Department, or great industrial under-
taking. There is no doubt whatever that
the intrigue which is a commonplace in
such undertakings has its roots almost
50 Economic Democracy
entirely in this cause, and contributes in no
small degree to their notorious inefficiency.
Another objection which becomes in-
creasingly important as the concentration
proceeds is the divorce between power and
detail knowledge. This difficulty is recog-
nised in the appointment of official and
unofficial intelligence departments which,
of course, are in themselves the source of
further abuses.
Having these points to some extent in
mind, American industry has developed
what is most unquestionably a very
important modification of principle that
of functional control in place of individual
control ; that is to say, the individual is
only controlled from one source in regard
to one function say time-keeping. In
respect of such matters as technical methods
he 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 so
narrow a function as is demanded by much
so-called scientific management, but there
Economic Democracy 51
is very little doubt that the underlying idea
does contain the germ of an industrial
system which would be in the highest degree
efficient if its psychological difficulties could
be removed, and it is significant that this
form of organisation produces its own
type of personality.
It will be seen, therefore, that we have
in the industrial field a double problem
to solve : while retaining the benefits of
mechanism for productive purposes, to
obtain effective distribution of the results
and to restore personal initiative.
The proposition which is being urged
from orthodox capitalistic quarters as a
means of dealing with this situation is a
little ingenuous. It consists of an intensi-
fication policy by which, in some mysterious
way, all the unpleasant features, by being
exaggerated, are to disappear, and it is
usually summed up at the moment in the
phrase, " We must produce more." A fair
statement of this demand for unlimited
and intensified manufacturing would no
doubt be something after this fashion :
52 Economic Democracy
1. 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 if
increased output is obtained.
5. High earnings will mean wider markets.
Now this is a very specious argument ;
a large number of people, whose instincts
warn them that there is a fallacy somewhere,
have not felt themselves able to offer any
effective criticism of it, since some practical
knowledge of technique is involved. The
labour attitude has either been a simple
non-possumus, or a re-statement of the
evils of capitalistic profit-making, together
with sufficiently pungent inquiry into the
qualifications of the holders of the major
portion of the securities representing
Government indebtedness, and their title
to rank as the winners of the war, and the
chief beneficiaries of the peace. All this
Economic Democracy 53
is quite to the point, but it is not even the
chief economic objection to such a policy.
First of all, let it be admitted that a
considerable amount of manufacturing will
have to be done, firstly, to reinstate the
devastated areas, and afterwards to meet
the accumulated demand, and these together
will provide an outlet for a very large
quantity of manufactured goods. These
goods will not, of course, be furnished for
nothing, and the money to pay for them will
in the main be supplied by loans, which to
begin with, clearly mean more taxes for
someone where the work done is on public
account. But, says the super-producer, this
money will be distributed in wages, salaries
and profits, which will enable the whole
population (at any rate of this country,
where we propose to do our manufacturing
so long as labour and other conditions are
favourable) to buy more goods, or, con-
versely, save more money, and eventually
enjoy more leisure and freedom.
Let us give to this statement the attention
it deserves, because on it hangs the fate
54 Economic Democracy
of a whole economic system. If it is true
as it stands, then the whole system which
stands behind it, the fight for markets, the
cartels, trusts, and combines, and the other
machinery of competitive trade, are justified
at any rate by national self-interest. In
order then to make this analysis it is unavoid-
able that we should enter into some detail
with regard to the accountancy of manu-
facturing ; not forgetting that the unequal
distribution of wealth is an initial restriction
on the free sale of commodities, and that
in consequence what we are aiming at in
order to meet the final contention of the
argument, is not an expansion of figures,
but an equalisation of real purchasing
power.
Now, purchasing power is the amount
of goods of the description desired which can
be bought with the sum of money available,
and it is clearly a function of price. It is
a widely spread delusion that price is simply
a question of supply and demand, whereas,
of course, only the upper limit of price is
thus governed, the lower limit, which under
Economic Democracy 55
free competition would be the ruling limit,
being fixed by cost plus the minimum
profit which will provide a financial induce-
ment to produce. It is important to bear
this in mind, because it is frequently
assumed that a mere glut of goods will
bring down prices quite irrespective of
any intrinsic economy involved in large
scale production. Unless these goods are
all absorbed, the result may be exactly
opposite, since deterioration must go into
succeeding costs. Cost is the accumulation
of past spendings over an indefinite period,
whereas cash price requires a purchasing
power effective at the moment of purchase.
Where competition is restricted by Trusts,
price is cost plus whatever profit the Trust
considers it politic to charge.
Economic Democracy
CHAPTER FIVE
LOOKED at from this standpoint it
is fairly clear that the kernel of
the problem is factory cost, since
it is quite possible to conceive of a limited
company in which the shares were all
held by the employees, either equally or
in varying proportions, according to their
grade, and the selling costs were internal
that is to say, all advertising was done by
the firm itself, and the cost of its salesmen,
etc.. was either negligible, or confined to
their salaries. We should then have the
complete profit-sharing enterprise in its
ultimate aspect, and the argument against
Capitalism 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 quantities
of power and light, lubricants, etc., much of
58 Economic Democracy
which would be wasted ; and would in-
evitably produce a certain amount of scrap
the value of which would be less than the
material in the form in which it entered the
works. The machinery would wear out, and
would have to be replaced and maintained,
and generally it is clear that for each unit
of production there would be three main
divisions of factory cost, the " staple " raw
material, the wages and salaries, and a sum
representing a proportion of the cost of
upkeep on the whole of the plant, which
might easily equal 200 per cent, of the wages
and salaries. As the plant became more
automatic by improvements in process,
the ratio which these plant costs bore to
the cost of labour and salaries would increase.
The factory cost of the total production,
therefore, would be the addition of these
three items : staple material, labour and
salaries, and plant cost, and with the
addition of selling charges and profit, this
would be the selling price.
As a result of the operations of the
undertaking, the wealth of the world would
Economic Democracy 59
thus be apparently increased by the differ-
ence between the value of all the material
entering the factory, and the total sum
represented by the selling price of the
product. But it is clear that the total
amount distributed in wages, salaries and
profit or dividends, would be less by a
considerable sum (representing purchases
on factory account) than the total selling
price of the product, and if this is true in
one factory it must be true in all. Con-
sequently, the total amount of money liber-
ated by manufacturing processes of this
nature is clearly less than the total selling
price of the product. This difference is
due to the fact that while the final price to
the consumer of any manufactured article
is steadily growing with the time required
for manufacture, during the same time the
money distributed by the manufacturing
process is being returned to the capitalist
through purchases for immediate con-
sumption.
A concrete example will make this clear.
A steel bolt and nut weighing ten pounds
60 Economic Democracy
might require in the blank about eleven
and a half pounds of material representing,
say, 3s. 6d. The nett selling price of the
scrap recovered would probably be about
one penny. The wages value of the total
man-hours expended on the conversion
from the blank to the finished nut and bolt
might be 5s., and the average plant charge
150 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 plant
charge. Of this plant charge probably
75 per cent., or about 5s. 7d., is represented
by 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 the
organisation, which payments clearly must
be subsequent to any valuation of the articles
for which they are paid, and so do not
affect the argument. Without proceeding
to add selling charges and profit it must
be clear that a charge of 15s. lid. on the
world's purchasing power has been created,
Economic Democracy 61
of which only 6s. lOd. is distributed in
respect of the specific article under con-
sideration, and that if the effective demand
exists at all in a form suitable for the liquida-
tion of this charge, it must reside in the
banks.
But we know that the total increase in
the personal cash accounts in the banks in
normal times is under 3 per cent, of the
wages, salaries and dividends distributed,
consequently it is not to these accounts that
we must look for effective demand. There
are two sources remaining ; loan-credit,
that is to say, purchasing power created by
the banks on principles which are directed
solely to the production of a positive fin-
ancial result ; and foreign or export demand.
Now loan-credit is never available to the
consumer as such, because consumption
as such has no commercial value. In
consequence loan-credit has become the
great stimulus either to manufacture or to
any financial or commercial operation which
will result in a profit, that is to say, an
inflation of figures.
62 Economic Democracy
An additional factor also comes into
play at this point. 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 ot credit. This process in-
volves 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 ot processes which
would, if not defeated by this dilution of
the consumer's purchasing power, have
brought down prices faster than they have
risen.
There are thus two processes at work ;
an intrinsic cheapening of the product
by better methods, and an artificial decrease
Economic Democracy 63
in purchasing power due to what is in effect
the charging of the cost of all waste and
inefficiency to the consumer. And it is
clear that under this system the greater
the volume of production the larger will
be the absolute value of the waste which the
consumer has to pay for, whether he will
or no, because as the bank credits are
created at the instance of the manufacturer,
and repaid out of prices, each article pro-
duced dilutes, by the ratio of its book price
to all the credits outstanding, the absolute
purchasing power of the money held by any
individual.
These facts are quite unaffected by the
perfectly sound argument that increased
production means decreased cost per piece,
since it is the total production price which
has to be liquidated.
Already there is not very much left of
the argument for the innate desirability
of unlimited, unspecified and intensified
manufacturing under the existing economic
system, but more trouble yet is ahead of it.
While the ratio of plant charges to total
64 Economic Democracy
wages and salaries cost is less than 1 : 1
over the whole range of commodities, a
general rise in direct rates of pay may mean
a rise (but not a proportionate rise) in the
purchasing power of those who obtain
their remuneration in this way. But
when by the increased application of
mechanical methods the average overhead
charge passes the ratio of one to one (which
it rapidly will, and should do on this basis
of calculation) every general increase in
rates of pay of " direct " labour may mean
an actual decrease in real pay, because the
consumer is only interested in ultimate
products and overhead charges do not
represent ultimate products in existence.
The whole argument which represents a
manufactured article as an access of wealth
to the country and to everyone concerned,
no matter what its description and utility,
so long as by any method it can be sold and
wages distributed in respect of it, will,
therefore, be seen to be a dangerous fallacy
based on an entirely wrong conception,,
which is epitomised in the use of the word
Economic Democracy 65
!< production," and fostered by ignorance
of financial processes. Manufacturing of
any kind whatever, even agriculture in a
limited sense, is the conversion of one
thing into another, which process is only
advantageous to the extent that it sub-
serves a definite requirement of human
evolution. In any case, it shares with all
other conversions the characteristic of having
only a fractional efficiency, and the waste of
effort involved, although being continually
reduced by improvements of method, still
can only be paid for in one way, by effort
on the part of somebody.
If this effort is useful effort " useful "
in the sense that a definite, healthy and sane
human requirement is served the wealth
and standard of living of the community
may thereby be enhanced. If the effort
is aimless or destructive, the money attached
to it does not alter the result.
The financial process just discussed there-
fore clearly attaches a concrete money
value to an abstract quality not proven, and
as this money value must be represented
66 Economic Democracy
somewhere by equivalent purchasing power
in the broadest sense, misdirected effort
which appears in cost forms a continuous
and increasing diluent to the purchasing
value of effort in general.
Now it has already been emphasised
that, at the moment, economic questions
are of paramount importance, because the
economic system is the great weapon of
the will-to-power. It will be obvious
that if the economic problem could be re-
duced to a position of minor importance
in other words, if the productive power of
machinery could be made effective in re-
ducing to a very small fraction of the total
man-hours available, the man-hours re-
quired for adapting the world's natural
resources to the highest requirements of
humanity the " deflation " of the problem
would, to a very considerable extent, be
accomplished. The technical means are
to our hands ; the good will is by no means
lacking and the opportunity is now with us.
But it should be clearly recognised that
waste is not less waste because a money
Economic Democracy 67
value is attached to it, and that the machinery
of remuneration must be modified pro-
foundly since the sum of the wages, salaries
and dividends, distributed in respect of
the world's production will buy an ever-
decreasing fraction of it.
It is one of the most curious phenomena
of the existing economic system that a
large portion of the world's energy, both
intellectual and physical, is directed to the
artificial stimulation of the desire for luxuries
by advertisement and otherwise, in order
that the remainder may be absorbed in
what is frequently toilsome, disagreeable
and brutalising work ; to the end that a
device for the distribution of purchasing
power may be maintained in existence.
The irony of the situation is the greater
since the perfecting of the organisation
to carry on this vicious circle, carries with it
as we have just seen, a complete negation
of all real progress.
The common factor of the whole situa-
tion lies in the simple facts that at any
given period the material requirements of
68 Economic Democracy
the individual are quite definitely limited
that any attempt to expand them arti-
ficially is an interference with the plain
trend of evolution, which is to subordinate
material to mental and psychological neces-
sity ; and that the impulse behind unbridled
industrialism is not progressive but re-
actionary, because its objective is an obsolete
financial control which forms one of the
most effective instruments of the will-to-
power, whereas the correct objectives of
industry are two-fold ; the removal of
material limitations, and the satisfaction
of the creative impulse.
It is for this reason that while, as we see,
the effect of the concrete sum distributed
as profit is over-rated in the attacks made
on the Capitalistic system, and is of small
and diminishing importance as compared
with the delusive accounting system which
accompanies it, and which acts to reduce
consistently the purchasing power of effort,
it is, nevertheless, of prime importance as
furnishing the immediate " inducement to
produce," which is a false inducement
Economic Democracy 69
in that it claims as " wealth " what may just
as probably be waste.
If by wealth we mean the original meaning
attached to the word : i.e., " well-being,"
the value in well-being to be attached to
production depends entirely on its use for
the promotion of well-being (unless a case
is made out for the moral value of factory
life), and bears no relation whatever to the
value obtained by cost accounting.
Further, if the interaction between pro-
duction for profit and the creation of credit
by the finance and banking houses is under-
stood, it will be seen that the root of the
evil accruing from the system is in the con-
stant filching of purchasing power from the
individual in favour of the financier, rather
than in the mere profit itself.
Having in view the importance of the
issues involved, it may be desirable to
summarise the conclusions to be derived
from a study of the methods by which the
price of production is based on cost under
the existing economic arrangements. They
are as follows :
70 Economic Democracy
1. 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 factory
account, also representing previous con-
sumption.
4. Since it includes this expenditure,
the portion of the cost represented by this
expenditure has already been paid by the
recipients of wages, salaries and dividends.
5. These represent the community ;
therefore, the only distribution of real
purchasing power in respect of production
over a unit period of time is the surplus
wages, salaries and dividends available after
all subsistence, expenditure and cost of
materials consumed has been deducted.
The surplus production, however, includes
all this expenditure in cost, and, conse-
quently, in price.
6. The only effective demand of the
Economic Democracy 71
consumer, therefore, is a few per cent,
of the price value of commodities, and is
cash credit. The remainder of the Home
effective demand is loan credit, which is
controlled by the banker, the financier, and
the industrialist, in the interest of produc-
tion with a financial objective, not in the
interest of the ultimate consumer.
It will be necessary to grasp the signifi-
cance of these considerations, which can
hardly be over-rated in its effect on the
break-up of the existing economic system,
in order to appreciate the result of a change
in the control of credit and the method
of price fixing, with which it is proposed
to deal at a later stage.
Economic Democracy
CHAPTER SIX
IT will be readily understood that the
difficulties which are seen to be inherent
in the policy of super-production are
only an accentuation of those with which
we were only too familiar prior to the
outbreak of war, and it may be contended
and, in fact, it frequently is stated, that even
with the unemployment statistics at their
minimum point and the Nation at its
maximum activity in Industry, there is
still not enough product to go round. Re-
cently, for instance, Professor Bowley has
estimated that the total surplus income of
the United Kingdom in excess of 160 per
annum is only 250,000,000, which would
mean, if distributed to 10,000,000 heads
of families, 25 per annum per family,
assuming that this distribution did not
reduce the production of wealth.
The figures themselves have been
criticised ; but, in any case, the whole
74 Economic Democracy
argument is completely fallacious, because
it takes no account whatever of loan credit,
which is by far the most important factor
in the distribution of production, as we
have already seen. What it does show is
that the purchasing power of effort is
quite insignificant in comparison with its
productive power.
But it may be advisable to glance at some
of the proximate causes operating to reduce
the return for effort ; and to realise the
origin of most of the specific instances,
it must be borne in mind that the existing
economic system distributes goods and services
through the same agency which induces goods
and services, i.e., payment for work in
progress. In other words, if production
stops, distribution stops, and, as a conse-
quence, a clear incentive exists to produce
useless or superfluous articles in order
that useful commodities already existing
may be distributed.
This perfectly simple reason is the ex-
planation of the increasing necessity of
what has come to be called economic sabot-
Economic Democracy 75
age ; the colossal waste of effort which
goes on in every walk of life quite unob-
served by the majority of people because
they are so familiar with it ; a waste which
yet so over-taxed the ingenuity of society
to extend it that the climax of war only
occurred in the moment when a culminating
exhibition of organised sabotage was neces-
sary to preserve the system from spontaneous
combustion.
The simplest form of this process is
that of " making work " ; the elaboration
of every action in life so as to involve the
maximum quantity and the minimum
efficiency in human effort. The much-
maligned household plumber who evolves
an elaborate organisation and etiquette pro-
bably requiring two assistants and half a
day, in order to " wipe " a damaged water
pipe, which could, by methods with which
he is perfectly familiar, be satisfactorily
repaired 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
76 Economic Democracy
machine tool, are simple instances of this.
A little higher up the scale of complexity
comes the manufacturer who produces a
new model of his particular speciality,
with the object, express or subconscious,
of rendering the old model obsolete before
it is worn out. We then begin to touch
the immense region of artificial demand
created by advertisement ; a demand, in
many cases, as purely hypnotic in origin
as the request of the mesmerised subject
for a draught of kerosine. All these are
instances which could be multiplied and
elaborated to any extent necessary to prove
the point.
In another class comes the stupendous
waste of effort involved in the intricacies of
finance and book-keeping ; much of which,
although necessary to the competitive sys-
tem, is quite useless in increasing the
amenities of life ; there is the burden of
armaments and the waste of materials and
equipment involved in them even in peace
time ; the ever-growing bureaucracy largely
concerned in elaborating safeguards for a
Economic Democracy 77
radically defective social system ; and,
finally, but by no means least, the cumula-
tive export of the product of labour, largely
and increasingly paid for by the raw material
which forms the vehicle for the export of
further labour.
All these and many other forms of avoid-
able waste take their rise in the obsession
of wealth defined in terms of money ;
an obsession which even the steady fall in
the purchasing power of the unit of currency
seems powerless to dispel ; an obsession
which obscures the whole object and
meaning of scientific progress and places
the 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 a
necessary device in our present civilisation ;
but the establishment of a stable ratio
between the use value of effort and its
money value is a problem which demands
a very early solution, and must clearly
result in the abolition of any incentive to
the capitalisation of any form of waste.
78 Economic Democracy
The tawdry " ornament," the jerry-built
house, the slow and uncomfortable train
service, the unwholesome sweetmeat, are
the direct and logical consummation of an
economic system which rewards variety,
quite irrespective of quality, and proclaims
in the clearest possible manner that it is
much better to " do " your neighbour than
to do sound and lasting work.
The capitalistic wage system based on
the current methods of finance, so far from
offering maximum distribution, is de-
creasingly capable of meeting any require-
ment of society fully. Its very existence
depends on a constant increase in the
variety of product, the stimulation of desire,
and in keeping the articles desired in short
supply.
Economic Democracy
CHAPTER SEVEN
IF the preceding endeavour to marshal
into some sort of coherent pattern the
facts of the general economic and social
situation as it exists at present has been
to any extent successful, it will be evident
that the real antagonism which is at the
root of the upheaval with which we are faced
is one which appears under different forms
in every aspect of human life. It is the
agelong struggle between freedom and
authority, between external compulsion and
internal initiative, in which all the command
of resources, information, religious dogma,
educational system, political opportunity
and even, apparently, economic necessity,
is ranged on the side of authority ; and
ultimate authority is now exercised through
finance. This antagonism does, however,
appear at the present time to have reached
a stage in which a definite victory for one
80 Economic Democracy
side, or the other is inevitable it seems
perfectly certain that either a pyramidal
organisation, having at its apex supreme
power, and at its base complete subjection,
will crystallise out of the centralising process
which is evident in the realms of finance
and industry, equally with that of politics,
or else a more complete decentralisation
of initiative than this civilisation has ever
known will be substituted for external
authority. The issue transcends in im-
portance all others : the development of
the human race will be radically different
as it is decided one way or another, but as
far as it is possible to judge, the general
advantage of the individual will lie with the
retention of a measure of co-ordination
in all mechanical organisation, combined
with 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 time
goes on, to external authority as to its right
to adjudicate on the absolute value, expressed
Economic Democracy 81
in terms of commodities, of various forms of
activity. Even now, the practical difficulty
of estimating the relation between material
reward and individual effort is becoming
almost insuperable, even in the cases where
an honest effort is made to arrive at some
solution. The various movements for the
grant of a minimum living wage, the de-
mand for the recognition of the " right to
work " (i.e., to draw pay) are all symptoms
of the breakdown of the financial " law "
of supply and demand in its application
to economic problems.
Still another significant feature of the
inadequacy of the economic structure is the
increase of voluntary unpaid effort and the
large amount of energy devoted to games.
There is absolutely no concrete difference
between work and play unless it be in favour
of the former no one would contend that
it is inherently more interesting or pleasur-
able, to endeavour to place a small ball in
an inadequate hole with inappropriate in-
struments, than to assist in the construction
of a Quebec Bridge, or the harnessing of
82 Economic Democracy
Niagara. But for one object men will
travel long distances at their own expense,
while for the other they require payment and
considerable incentive to remain at work.
The whole difference is, of course,
psychological ; in the one case there is
absolute freedom of choice, not of condi-
tions, but as to whether those conditions are
acceptable ; there is some voice in control,
and there is an avoidance of monotony
by the comparatively short period of the
game, followed by occupation of an entirely
different order. But the efficiency of the
performance as compared with the efficiency
of the average factory worker is simply
incomparable any factory which could
induce for six months the united and
enthusiastic concentration of, say, an
amateur football team would produce quite
astonishing 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 a
brighter, probably a very bright, future
for the world lies in doing the best possible
Economic Democracy 83
things in the best possible way. In
industrial affairs the principle of the maxi-
mum efficiency of effort per unit of time
is so patently unassailable that its enuncia-
tion would hardly be necessary, but that the
proposition carries with it a very different
conception of efficiency than the narrow
' business " meaning commonly attached
to the word, and in consequence it is the
fashion amongst the less progressive ele-
ments of society to attack any demand for
improved conditions as simply an attempt
to substitute sloth and incapacity for energy
and capability. While, therefore, a re-
adjustment of system and, above all, a
complete reconsideration of objective is
necessary, it is probable that the basis of
such changes must be economic, tvith political
and financial systems auxiliary rather than
definitive, and it is certain that a revision of
economic policy, to be stable, must result
in higher economic efficiency, even though
the very aim of that higher efficiency is
to reduce economic problems to a very
subordinate position. And the higher
84 Economic Democracy
psychological efficiency of voluntary effort
is clearly a step to this end.
We have just seen that merely increased
production under existing conditions will
not achieve any economic stability because
there are at least two quite irreconcilable
criteria governing the scope of the opera-
tions proposed. There is, on the one
hand, the adjustment of manufacturing of
all sorts to the opportunity of sale (not by
any means always profitable sale) and this
is a purely artificial and yet all-powerful
consideration under present financial sys-
tems, and constitutes the effective demand.
And there is, on the other hand, the
growing real demand, first for food, clothing
and shelter and then for participation in
the wider life which modern progress has
made possible, such demand being quite
irrespective of capacity to pay in money.
And the reconciliation of these two interests
means the defeat of the will-to-power
by the will-to-freedom, and in this re-
conciliation is involved a modification of
economic distribution.
Economic Democracy 85
Now if there is any sanity left in the
world at all, it should be obvious that the
real demand is the proper objective of
production, and that it must be met from
the bottom upwards, that is to say, there
must be first a production of necessaries
sufficient to meet universal requirements ;
and, secondly, an economic system must
be devised to ensure their practically auto-
matic and universal distribution ; this
having been achieved it may be followed to
whatever extent may prove desirable by the
manufacture of articles having a more
limited range of usefulness. All financial
questions are quite beside the point ; if
finance cannot meet this simple proposition
then finance fails, and will be replaced. It
has been estimated that two hours per
week of the time of every fit adult between
the ages of 18 and 45 would provide for a
uniformly high standard of physical welfare
under existing conditions, and without en-
dorsing the exact figures it is perfectly
certain that distribution and not manu-
facture is the real economic problem and
86 Economic Democracy
is at present quite intolerably unsatisfactory.
There is no need to assume that the whole
machinery of business as we know it must
be scrapped ; in fact, the machinery of
business, as machinery, is highly efficient ;
but it must undoubtedly be adjusted so that
no selfish desire for domination can make
it possible for any interest to hold up dis-
tribution on purely artificial grounds.
Since the analysis of existing conditions
which we have undertaken shows that any
centralised administrative organisation is
certain to be captured by some interest
antagonistic to the individual, it seems
evident that it is in the direction of decen-
tralisation of control that we must look
for such alteration in the social structure
as would be self-protective against capture
for interested purposes.
As we have already seen, alongside the
concentration of political and industrial
power a powerful decentralising force is
already beginning to show itself in various
forms. In considering the manifestation
of this force it will be observed that at the
Economic Democracy 87
moment it is seeking expression through
organisation in new forms, but for the
present operating with old sources of energy,
chiefly negative in character, such as the
strike. To be effective, however, against
positive centralisation, positive decentralisa-
tion will have to come decentralised
economic power is necessary.
Among the more important of these
forms is the shop steward or rank-and-
file movement in industry, and the work-
men's councils in politics, both purely
decentralising in tendency, quite apart from
any special policy for the furtherance of
which they may be used. The appre-
hension with which the movements are
regarded by the reactionary capitalist is
based far more on a recognition of the diffi-
culties such a scheme of organisation offers
to successful corruption and capture than
to any regard for the specific items in the
policy it may for the moment represent ;
most of which have been previously parried
with ease when presented through dele-
gated Trade Union leaders, whose position
88 Economic Democracy
of authority have been perforce achieved
by exactly the methods best understood
by those with whom they have to deal.
As the Shop Steward movement is the
most definite industrial recognition from
the Labour side, of the necessity for de-
centralisation, some examination of the
general scheme is of interest. The actual
details of the organisation vary from place
to place, trade to trade, and even day to
day ; but the essence of the idea consists
in the adoption of a decentralised unit of
production such as the '" shop " or de-
partment, and the substitution of actual
workers in considerable numbers, for the
paid Trade Union official as the nucleoli
of both industrial and political power
(although the political power is not exercised
through Parliamentary channels).
The shop steward is generally " indus-
trial " rather than " craft " in interest ;
that is to say, he represents a body of men
who produce an article, rather than a section
who perform one class of operation for
widely different ends ; but there is nothing
Economic Democracy 89
inherently antagonistic as between the two
conceptions of function, Industrial Union-
ism being largely a militant device. He is
quite limited in his sphere of action, but
initiates general discussion on the basis
of first-hand information, and forms a link
between the decentralised industrial unit
and other units which may be concerned.
The practical effect of the arrangement is
that the spokesmen are never out of touch
with those for whom they speak, since the
normal occupation and remuneration of
representatives is similar to that of those
they represent ; and should any cleavage
occur, a change of representative can be
easily secured. The official concerned
has, in theory, no executive authority what-
ever, nor can he take any action not sup-
ported by his co-workers, *'.., the direction
of policy is from the bottom upwards in-
stead of the top downwards. The individ-
ual shop stewards are banded together
in a shop stewards' committee, which has
again only just as much authority as the
individual workers care to delegate to it.
90 Economic Democracy
It is, of course, obvious that the per-
manent success of any arrangement of this
character depends on a common recognition
amongst the individuals affected by the
organization, of certain principles as " con-
firming standards of reference." In short,
it would be impossible to administer
a complicated manufacturing concern on
any such principles unless the general
body of employees had a general apprecia-
tion of the fundamental necessities of the
business, inclusive of direction and technical
design.
In other words, and in a more general
sense all political arrangements of this or
any other description simply provide a
mechanism for the administration of an
agreed system they are not, and cannot
in their very nature be that system in itself.
Where, of course, it is clear that there is a
confusion of function is, that the shop
steward claims control not only of the con-
ditions of production, but eventually of the
terms of distribution. This confusion
is quite inevitable at present, but is not
Economic Democracy 91
necessarily permanent, and is obviously
undesirable. It is based on the fallacy that
labour, as such, produces all wealth, whereas
the simple fact is that production is 95 per
cent, a matter of tools and process, which
tools and process form the cultural inheri-
tance of the community not as workers,
but as a community, and as such the com-
munity is most clearly the proper though far
from being the legal, administrator of it.
Economic Democracy
CHAPTER EIGHT
ADMITTING, then, that any decen-
tralised scheme of society must
first justify itself economically, it
is necessary to grapple with, at any rate, the
main features of the radical reconstruction
necessary before any attempt can be made
to forecast the political aspect.
The starting point is clearly a reasonably
uniform and plentiful distribution of simple
necessaries ; food, clothes, housing, etc.
Now the actual production of these
articles presents no difficulties .whatever.
Notwithstanding the diversion of the major
portion of the world's energy for four years
to purposes of destruction, the actual
economic want in the world has been almost
entirely artificial, i.e., has been confined
either to countries effectively blockaded,
or else lacking the mechanical facjlities for
effective distribution. In fact, it is most
significant that while useful (in a peace
94 Economic Democracy
sense) production has been enormously
reduced in Great Britain during the war,
the standard of comfort has been more
uniformly high than ever before.
The explanation of this is simple : The
payments made in wages have increased,
prices and the production of luxuries have
been partly controlled, and sabotage has
disposed of useless product, and so kept
up wage distribution.
The practical problem, then, is to make
it certain that commodities are produced
under satisfactory conditions, and equally
certain that they are distributed according
to necessity, and the organisation for these
purposes may well determine the social
structure, inasmuch as a complete success
would be the most powerful incentive to
the adoption of similar methods in less
fundamental directions.
Profiting by the deduction made from
the examination already made of the results
of various types of organisation, it may be
repeated that the best results would seem
probable from a co-ordinated organisation
Economic Democracy 95
for purposes of technique with the greatest
decentralisation of initiative in the use of
the facilities so provided.
Now it should be clearly grasped at the
outset that at least two main problems are
involved in the question at issue, which
may be broadly defined as that of the
producer and the consumer ; and not only
are these entirely separate, but, rightly
considered, they are on completely different
planes of existence.
The problem of the consumer is essentially
material ; he is concerned with quality,
variety, price, supply ; he is concerned
with product.
On the contrary, the producer is almost
entirely concerned with psychological issues ;
fatigue, interest, welfare, hours of labour,
all of which, qua producer pure and simple,
are broadly summed up in the word " con-
tentment."
The consumer is interested in distri-
bution ; the producer is concerned with
effort. While the producer and the con-
sumer are frequently combined in the same
96 Economic Democracy
person, a recognition of these distinctions
will make it easier to define the powers,
which should belong to each.
It is particularly necessary to emphasise
this distinction since the existing structure
of industry based on finance takes it for
granted that the possession of large quantities
of goods, or their equivalent purchasing
power in money, is a good and sufficient
reason for the exercise of a preponderating
voice in the conditions and processes of
production.
We say, and it is only now that it is
faintly contested, that he who pays the
piper calls the tune. The idea that it is
the hearer who is primarily concerned in
the tune, the piper primarily in the instru-
ment, and the payment a mere convenience
as between the two parties, is so novel to
large numbers of unthinking persons, that
it is only natural to expect violent opposition
to the world-wide efforts being made to
reconstitute society on these very principles.
Bearing these distinctions in mind it will
be recognised that there are two separate
Economic Democracy 97
lines along which to attack the situation
presented by the dissatisfaction of the
worker with his conditions of work, and the
not less serious discontent of the consumer
with the machinery of distribution ; and
these may be called medisevalism and ultra-
modernism.
Mediaevalism seems to claim that all
mechanical progress is unsound and
inherently delusive ; that mankind is by
his very constitution compelled, under
penalty of decadence, to support himself
by unaided skill of hand and eye. In
support of its contentions it points to the
Golden Age of the fourteenth century in
England, for example, when real want was
comparatively unknown, and green woods
stood and clear rivers ran where the slag-
heaps and chemical works of Widnes or
Wednesbury now offend the eye and pollute
the air. When arts and crafts made industry
almost a sacrament, and faulty execution a
social and even a legal offence ; when the
medium of exchange was the Just Price, and
the idea of buying in the cheapest and
98 Economic Democracy
selling in the dearest market, if it existed,
was classed with usury and punished by
heavy penalties.
While appreciating the temptation to
compare the two periods to the very great
disadvantage of the present, it does not
seem possible to agree with the conclusion
of the Mediaevalist that we are in a cul-de-
sac from which the only exit is backwards ;
and it is proposed to make an endeavour
to show that there is a way through, and
that we may in time regain the best of the
advantages on which the Mediaevalist rightly
sets such store, retaining in addition a
command over environment, which he would
be the first to recognise as a real advance ;
a solution which may be described as Ultra-
Modernist.
In order to do this, certain somewhat
abstract assumptions are necessary, and
it has been the object of the preceding
pages to present as far as possible the data
on which these assumptions are made.
They are as follows :
(1) The existing difficulties are the
Economic Democracy 99
immediate result of a social structure
framed to concentrate personal power
over other persons, a structure which
must take the form of a pyramid.
Economics is the material key to this
modern riddle of the sphinx because
power over food, clothes, and housing
is ultimately power over life.
(2) So long as the structure of Society
persists personality simply reacts against
it. Personality has nothing to do with
the effect of the structure ; it merely
governs the response of the individual
to conditions he cannot control except
by altering the structure.
(3) It follows that general improve-
ment of conditions based on personality
is a confusion of ideas. Changed per-
sonality will only become effective
through changed social structure.
(4) The pyramidal structure of Society
gives environment the maximum control
over individuality. The correct objec-
tive of any change is to give individuality
maximum control over environment.
100 Economic Democracy
If these premises are accepted it seems
clear that the first and probably most
important step is to give the individual
control of the necessaries of life on the
cheapest terms possible. What are these
terms ? What is the fundamental currency
in which the individual does in the last
analysis liquidate his debts ? A little con-
sideration must make it clear that there
can be only one reply ; that the individual
only possesses inalienable property of the
one description ; potential effort over a
definite period of time. If this be admitted,
and it is inconceivable that anyone would
seriously deny it, it follows that the real
unit of the world's currency is effort into
time what we may call the time-energy
unit. t
Now, time is an easily measurable factor,
and although we cannot measure human
potential, because we have at present no
standard, it is, nevertheless, true that for
a given process the number of human time-
energy units required for a given output is
quite definite, and therefore, the cheapest
Economic Democracy 101
terms on which the individual can liquidate
his debt to nature in respect of food, clothes,
and shelter, is clearly dependent on process ;
and by getting free of this debt with the
minimum expenditure of time- energy units
of which his individual supply varies, but
is, nevertheless, quite definite at any given
time, he clearly is so much the richer in
the most real sense in that he can control
the use to be made of his remaining stock.
But, and it is vital to the whole argument,
improved process must be made the servant
of this objective, that is to say, a process
which is improved must, by the operation
of a suitable economic system decrease the
time-energy units demanded from the com-
munity, or to put the matter another way
all improvements in process should be made
to pay a dividend to the community. (It
will be noted that an admission of the
theorem is a complete condemnation of
payment by results as commonly under-
stood ; that is to say, an arrangement of
remuneration designed to foster an increasing
use of time-energy units.) The primary
102 Economic Democracy
necessaries of life as above defined, i.e., food,
clothes and shelter, have an important
characteristic which differentiates them from
what we may call conveniences and luxuries ;
they are quite approximately constant in
quantity per head of the population ; in
other words, the average human being
requires as a groundwork for his daily life
a definite number of heat units in the form
of suitable food, a definite minimum quantity
of clothing and a definite minimum space in
which to sleep and work, and the variation
between the minimum and the maximum
quantity of each that he can utilise with
advantage to himself is not, broadly speaking,
very great.
This fact renders it perfectly feasible
(it has already very largely been accom-
plished) to estimate the absolute pro-
duction of foodstuffs required by the world's
population ; the time-energy units required
at the present stage of mechanical and
scientific development to produce those
foodstuffs ; and the time-energy units
approximately available. Accuracy in these
Economic Democracy 103
estimates is unnecessary, since there is
not the very smallest doubt that the margins
are so large that it is only the failure
of " effective demand " under existing
circumstances which has prevented
over-production. The most superficial
consideration of the earnings of agriculture
before the war must make this obvious.
There is good ground for stating that
the subsistence basis of the civilised world
stated thus in time-energy units represents
a few minutes' work per day for all adults
between the ages of 18 and 40.
Exactly the same principle is applicable
to the provision of clothing and housing,
and the " maintenance rate " in respect
of these staple commodities as distinct
from the " exploitation effort " necessary
to put the world on a satisfactory basis does
not again exceed a few minutes per day per
head on the assumption that the fullest
use is made of natural sources of energy,
and that all the human effort specifically
connected with the system of production
for profit is eliminated. The exact figures
104 Economic Democracy
are beside the point, but something over
three hours' work per head per day is ample
for the purpose of meeting consumption
and depreciation of all the factors of modern
life under normal conditions and proper
direction.
Now, such a line of policy is clearly based
on co-ordination of design, but it evolves
under certain conditions radical decentrali-
sation of initiative.
These conditions are firstly definite pro-
ductions of ultimate products to a programme,
and consequent limitation of output to
that programme ; and, secondly, the pro-
vision of an incentive to produce which
shall ensure the distribution of the article
produced. The basis of the first condition
has just been indicated briefly ; the pro-
vision of an incentive requires more extended
analysis.
There is a disposition on the part of
certain idealistic people, and, in particular,
in quarters obsessed by the magic of the
State idea, to decry the necessity of any
organised incentive in industry at all. They
Economic Democracy 105
seem to suggest either that the problem is
merely one of designing a huge machine of
such irresistible power that no incentive is
necessary because no resistance is possible,
or, alternatively, that the mere creative
impulse ought to be sufficient to induce
every individual to give of his best without
any thought of personal benefit. In regard
to the former idea, it may be said that quite
apart from its fundamental objection it is
quite impracticable ; and in regard to the
latter that it is not yet, nor for a very con-
siderable time, likely to be practicable to
satisfy the creative impulse through the
same channels as those used for the economic
business of the world.
Under existing conditions there is much
necessary work to be done which cannot
fail to be largely of a routine nature, and
the provision of an incentive external to
the performance of the immediate task
seems both practically and morally sound.
First of all, some consideration of the
defects of existing incentives is necessary
in order to meet the difficulties so exposed.
106 Economic Democracy
Broadly, remuneration, or the system by
which the amenities of civilisation are
placed at the disposal of the individual,
is of three varieties ; payment by financial
manipulation (profit), payment by time
(salaries and time- rate wages), and payment
by results (piecework in all its forms), and
it should be noticed that only the first
of these combines possession of the amenities
with opportunities for their fullest use.
Payment by financial manipulation,
whether through the agency of profit (other
than that earned by personal endeavour),
stock manipulation or otherwise, is quite
definitely anti-social. It operates to neu-
tralise all progress towards real efficiency
by diluting the medium of exchange, and
by this process it will quite certainly bring
about the downfall of the social order to
which it belongs, largely through the
operation of the factory economic system
already discussed.
Payment by time fails for two practical
reasons ; it is based on the operation of
the fallacy that the value of a thing bears
Economic Democracy 107
any relation to the demand for it, and the
assumption that money has a fixed value.
Because of the first reason it clearly penalises
genuine initiative (because there is no
demand for the unknown), and because
of the second, it fosters aggression. The
policy of Trade Unions in regard to time
rates of pay has simply been successful
to the extent that it has used its organised
power for aggressive action ; and while
such a policy may be sound and justifiable
under existing conditions it clearly offers
no promise of social peace.
Payment by results or piecework may be
considered as the final effort of an outworn
system to justify itself. Superficially, it
seems fair and reasonable in almost any
of its many forms ; actually, it operates to
increase the individual time-energy units
expended, while decreasing, through diluted
currency the exchange value of each time-
energy unit, and crediting to the banker
and the financier nearly the whole value of
increased efficiency. If this contention is
questioned, a reference to the much greater
108 Economic Democracy
purchasing power of labour in the Middle
Ages admitted in such books as " The Six
Hour Day "* must surely confirm it.
In actual practice piecework neither does
nor can take into consideration that, just
as there is no limit to progress either of
method or dexterity, so is there no funda-
mental relation between money and value
as at present understood.
Consequently, all piecework systems
produce in varying degree one of three
conditions, either
(1) Large classes of workers earn
continuously increasing sums of money
which bear no ratio to equally meri-
torious efforts on other bases of payment.
If any effort is made to unify the basis
on a large scale the purchasing power
of money becomes completely unstable,
or (2) A piece rate is " nursed " to avoid
any urgent incentive to change of method
as an excuse for cutting the rate and
earnings, with the result that output
* " The Six Hour Day and other Industrial Problems."
Lord Lever hulme.
Economic Democracy 109
is restricted to a locally agreed basis,
having no relation to either real or
effective demand.
or (3) The price will be cut periodically
by dubious management, a constant
state of friction engendered, and the
whole affair surrounded with an atmos-
phere of suspicion.
These results are logical, and to blame
any special interest for any of them is beside
the point. The use-value of the product,
short time, unemployment, to say nothing
of the elemental facts of industrial psychol-
ogy and economics, are not considered at
all in such systems ; with the result that
the victims make, so far as Trade Unions on
the one hand and Employers' Federations
on the other, can assist them, their own
arrangements for protection against the
more dire consequences of crude forms of
scientific management, or lukewarm service.
We have now arrived at this position ;
we desire to produce a definite programme
of necessaries with a minimum expenditure
of time-energy units. We agree that the
110 Economic Democracy
substitution of human effort by natural
forces through the agency of machinery
is the clear path to this end ; and we require
to co-relate to this a system which will
arrange for the equitable distribution of
the whole product while, at the same time,
providing the most powerful incentive t6
efficiency possible.
The general answer to this problem may
be stated in the four following propositions,
which represent an effort to arrive at the
Just Price :
(1) Natural resources are common
property, and the means for their ex-
ploitation should also be common
property.
(2) The payment to be made to the
worker, no matter what the unit adopted,
is the sum necessary to enable him to
buy a definite share of ultimate products
irrespective of the time taken to produce
them.
(3) The payment to be made to the
improver of process, including direction,
is to be based on the rate of decrease
Economic Democracy 111
of human time-energy units resulting
from the improvement, and is to take
the form of an extension of facilities for
further improvement in the same or
other processes.
(4) Labour is not exchangeable ;
product is.
No attempt will be made to prove these
propositions since their validity rests on
equity.
It should be noted particularly that none
of these points has any relation to systems
of administration, although a recognition
of them would radically affect the dis-
tribution of personnel in any system
of administration.
While the distribution of the product
of industry is fundamentally involved, and
the inducements to vary the articles produced
are clearly modified to a degree which would
profoundly alter the industrial situation,
no extension of bureaucracy in the accepted
sense is implied or induced.
It may be argued that these principles
are not susceptible of immediate embodi-
112 Economic Democracy
ment ; but it is, nevertheless, well to bear
in mind the imminence of an economic
breakdown (as a direct result of the inflation
of currency by the capitalisation of negative
values) already discussed, and the proba-
bility that a new economic system, having
as its basis the principles of the law of the
conservation of energy, will replace it.
It may be said in regard to proposition
(1) that it involves a confiscation of plant,
which is clearly an injustice to the present
owners. But is it ?
A reference to the accounting process
already described will make it clear that
the community has already bought and paid
for many times over the whole of the plant
used for manufacturing processes , the purchase
price being included in the selling price of
the articles produced, and representing,
in the ultimate, effort of some sort, but
immediately, a rise in the cost of living.
If the community can use the plant it is
clearly entitled to it, quite apart from the
fact that under proper conditions there is
no reason why every reasonable requirement
Economic Democracy 113
of its present owners should not be met
under the changed conditions.
Before allowing the methods of com-
promise (which may or may not be desirable
in the practicable evolution of a better
conception of the community based on
these propositions) to obscure the objective,
a purely idealistic interpretation of them
may be worth consideration, as a basis from
which to deduce a practical policy.
Let us imagine the theories of rent and
wages to be swept away and discredited,
the existing industrial plant to be the
property of the community and to be
operating with technical efficiency. We
are in possession of a census of the material
requirements of the community, and are
producing to a programme either based
on those requirements or on the indirect
achievement of them by the processes of
barter with similar communities.
Since no extension or alteration of this
programme is possible without affecting
the whole community, the administration
of real capital, i .., the power to draw on the
114 Economic Democracy
collective potential capacity to do work, is
clearly subject to the control of its real
owners through the agency of credit.
Let us imagine this collective credit
organisation, which might preferably not
be the State, to be provided with the
necessary organisation to fit it to pass upon,
and if desirable to sanction, any private
enterprise deemed to be in the interest of
the community represented, the necessary
capitalisation being secured by the general
credit. It is clear that such an arrangement
involves an appraisal of values both in
respect to persons and materials, but it
does not necessarily involve any control
of policy whatever in respect of the internal
administration of any undertaking once
originated.
Under these conditions the community
can be regarded as a single undertaking
(decentralised as to administration to any
extent necessary) and every individual
comprised within it is in the position of an
equal Bondholder entitled to an equal
share of product. The distribution of the
Economic Democracy 115
product is simply a problem of the arbitrary
adjustment of prices to fit the dimensions of
a periodical order to pay, issued to each
bondholder, and it will be found that such
prices will normally be less than cost, as
measured by existing methods.
Let this annual order to pay be inalien-
able but carrying the assumption that a
definite percentage of the individual's stock
of time-energy units is freely placed at the
disposal of the community. Let these time-
energy units be graded so that the lowest
grade represents the poorest capacity multi-
plied by the time-factor, and let all adults
on entering productive industry be so
graded, and let the least attractive work
be done by the agency of these time-energy
units. Let an improvement of grade be
based on the proposal by the individual
of methods, processes, or organisation, re-
sulting in a diminution of the total time-
energy units required for the programme
of production, and the success of the
proposals. (It will be noticed that the
strongest incentive to right judgment as
116 Economic Democracy
regards facilities for trial exists here.) Let
the possession of a definite " grade " of
time-energy units be the absolute quali-
fication for each class of employment ;
that is to say, proved ability to render
special service will be the qualification
for facilities to render service, but will
not affect the division of product.
Now, it will be noticed that we have
under these conditions absolute equity both
personal and social. All improvement in
process is to the general benefit, while,
at the same time, the psychological reward
of specific ability is exactly that which
common experience shows to be the most
perfectly satisfactory. No questions of
material remuneration enter into the prob-
lem of administration at all ; and increased
complexity of manufactured product is
either bought by increased efficiency or
longer working hours ; while simplicity
of life provides greater opportunities for
the use of the product and other activities.
A system not dissimilar from the existing
Shop Steward system, but with its members
Economic Democracy 117
acting in the role of Citizens and not as
Artisans, might control policy absolutely,
*.., increase or decrease programmes of
production and efficiency, etc., without
interfering or having any possible incentive
to interfere in direction or function.
Economic incentive to competition other
than in efficiency would disappear com-
pletely, and with it the primary cause of
war.
Economic Democracy
CHAPTER NINE
WHILE a much higher development
not only of civic sense but of
material progress is necessary
to any realisation of a scheme of society
based on anything approximating to the
foregoing sketch, it is quite probable that
eventually such an arrangement might be
the only solution having inherent stability.
But a transition period is highly desirable,
and as the present structure is susceptible
of change by metabolism, it may be well
to consider one of the numerous expedients
available to that end.
Since an immediate levelling up of real
purchasing power is absolutely essential
if industry is to be kept going at all, the first
point on which to be perfectly clear is that
increasing wages on the grand scale is
simply childish. Given a minimum per-
centage of profit and a fixed process, under
the existing economic system the real wage,
120 Economic Democracy
in the sense of a proportion of product,
is steadily decreasing ; and nothing will
alter that fact except change of process
(temporarily) and change of economic sys-
tem (permanently). Even taxation of
profits is quite incapable of providing any
real remedy, because, as we have seen,
the sum of the wages, salaries and dividends
distributed in respect of the world's pro-
duction, even if evenly distributed, would
not buy it, since the price includes non-
existent values. There is no doubt what-
ever that the first step towards dealing with
the problem is the recognition of the fact
that what is commonly called credit by the
banker is administered by him primarily
for the purpose of private profit, whereas
it is most definitely communal property.
In its essence it is the estimated value of
the only real capital it is the estimate of
the potential capacity under a given set of
conditions, including plant, etc., of a Society
to do work. The banking system has
been allowed to become the administrator
of this credit and its financial derivatives
Economic Democracy 121
with the result that the creative energy of
mankind has been subjected to fetters
which have no relation whatever to the real
demands of existence, and the allocation
of tasks has been placed in unsuitable hands.
Now it cannot be too clearly emphasised
that real credit is a measure of the reserve of
energy belonging to a community and in con-
sequence drafts on this reserve should be
accounted for by a financial system which
reflects that fact.
If this be borne in mind, together with
the conception of " Production " as a con-
version, absorbing energy, it will be seen
that the individual should receive something
representing the diminution of the com-
munal credit-capital in respect of each unit
of converted material.
It remains to consider how these abstract
propositions can be given concrete form.
So far as this country is concerned, the
instrument which comes most easily to the
hand to deal with the matter is the National
Debt, which for practical purposes may be
considered to be the War Debt in all its
122 Economic Democracy
forms, although it should be clearly under-
stood that all appropriations of credit can
be considered as equally concerned.
Some consideration of the real nature of
the debt is necessary in order to under-
stand the basis of this proposal.
The 8,000,000,000 in round numbers
which have been subscribed for war
purposes represents as to its major por-
tion (apart from about 1,500,000,000
re-lent) services which have been ren-
dered and paid for, and in particular,
the sums paid for munitions of all kinds,
payment of troops and sums distributed
in pensions and other doles. Now,
the services have been rendered and the
munitions expended, consequently, the
loan represents a lien with interest on
the future activities of the community,
in favour of the holders of the loan, that
is to say, the community guarantees the
holders to work for them without pay-
ment, for an indefinite period in return
for services rendered by the subscribers
to the Loan. What are those services ?
Economic Democracy 123
Disregarding holdings under 1,000 and
re-investment of pre-war assets, the great
bulk of the loan represents purchases by
large industrial and financial undertakings
who obtained the money to buy by means
of the creation and appropriation of credits
at the expense of the community, through
the agency of industrial accounting and bank
finance.
It is not necessary to elaborate this con-
tention at any great length because it is
quite obviously true. Eventually, to have
any meaning, the loan must be paid off in
purchasing power over goods not yet pro-
duced, and is, therefore, simply a portion
of the estimated capacity of the nation to
do work which has been hypothecated.
Whatever may be said of subscriptions
out of wages and salaries, therefore, there
is not the slightest question that in so far
as the loan represents the capitalisation
of the processes already described, its owners
have no right in equity to it it simply
represents communal credit transferred to
private account.
124 Economic Democracy
To put the matter another way : For
every shell made and afterwards fired and
destroyed, for every aeroplane built and
crashed, for all the stores lost, stolen or
spoilt, the Capitalist has an entry in his
books which he calls wealth, and on which
he proposes to draw interest at 5 per cent.,
whereas that entry represents loss not gain,
debt not credit, to the community, and,
consequently, is only realisable by regarding
the interest of the Capitalist as directly
opposite to that of the community. Now,
it must be perfectly obvious to anyone who
seriously considers the matter that the State
should lend, not borrow, and that in this
respect, as in others, the Capitalist usurps
the function of the State.
But, however the matter be considered,
the National Debt as it stands is simply
a statement that an indefinite amount of
goods and services (indefinite because of
the variable purchasing power of money)
are to be rendered in the future to the
holders of the loan, i.e., it is clearly a dis-
tributing agent.
Economic Democracy 125
Now, instead of the levy on capital, which
is widely discussed, let it be recognised
that credit is a communal, not a bankers'
possession ; let the loan be redistributed
by the same methods suggested in respect
of a capital levy so that no holding of over
1,000 is permitted ; to the end that,
say, 8,000,000 heads of families are credited
with 50 per annum of additional purchasing
power.
And further, let all production be costed
on a uniform system open to inspection,
the factory "cost being easily ascertained
by making all payments through a credit
agency ; the manner of procedure to this end
is described hereafter. Let all payments
for materials and plant be made through
the Credit Agency and let plant increases
be a running addition to the existing
National Debt, and let the yearly increase
in the debt be equally distributed after
proper depreciation. Let the selling price
of the product be adjusted in reference
to the effective demand by means of a
depreciation rate fixed on the principle
126 Economic Democracy
described subsequently, and let all manu-
facturing and agriculture be done, with
broad limits, to a programme. Payment for
industrial service rendered should be made
somewhat on the following lines :
Let it be assumed that a given production
centre has a curve of efficiency varying with
output, which is a correct statement for a
given process worked at normal intensity.
The centre would be rated as responsible
for a programme over a given time such that
this efficiency would be a maximum when
considered with reference to, say, a standard
six-hour day. On this rating it is clear
that the amount of money available for
distribution in respect of labour and staff
charges can be estimated by methods
familiar to every manufacturer.
Now let this sum be allocated in any
suitable proportion between the various
grades of effort involved in the undertaking,
and let a considerable bonus together with
a recognised claim to promotion be assured
to any individual who by the suggestion
of improved methods or otherwise, can for
Economic Democracy 127
the specified programme, reduce the hours
worked by the factory or department in
which he is engaged.
Now, consider the effect of these measures:
Firstly, there is an immediate fall in prices
which is cumulative, and, consequently,
a rise in the purchasing power of money.
Secondly, there is a widening of effective
demand of all kinds by the wider basis of
financial distribution. There is a sufficient
incentive to produce, but there is communal
control of undesirable production through
the agency of credit ; and there is incentive
to efficiency. There is the mechanism
by which the most suitable technical ability
would be employed where it would be most
useful, while the separation of a sufficient
portion of the machinery of economic
distribution from the processes of pro-
duction would restore individual initiative,
and, under proper conditions, minimise the
effects of bureaucracy.
This rapid survey of the possibilities of a
modified economic system will, therefore,
probably justify a somewhat more detailed
128 Economic Democracy
examination of certain features of the pro-
posed structure, and clearly the control
and use of credit is of primary importance.
It should be particularly noted at this point,
however, that every suggestion made in
this connection has in view the maximum
expansion of personal control of initiative
and the minimising and final elimination
of economic domination, either personal
or through the agency of the State.
Economic Democracy
CHAPTER TEN
IN considering the inadequacy of a mere
extension of manufacturing production
unaccompanied by a modification of the
distributing system, it was seen that in
any manufacturing process there enters
into the cost, and re-appears in the price,
a charge for certain items which are really
rendered useless, but which form a step
towards the final product. These items
may be conveniently grouped under the
heading of semi-manufactures when con-
sidered in relation to a more complex
product, although in many cases they may
in themselves, for other purposes, represent
a final product. For instance, electric
power, if used for lighting, is a final
product, and ministers directly to a human
need, but the same energy, if used to drive
a cotton mill, is in the sense in which the
term is here used, a semi-manufacture.
130 Economic Democracy
Now, it should be obvious that a semi-
manufacture in this sense is of no use to a
consumer if it is used as an ultimate
product it ceases to come under the heading
of a semi-manufacture.
Therefore, a semi-manufacture must be
an asset to be acounted into an estimate of
the potential capacity to produce ultimate
products (which is the whole object of
manufacture from a human point of view),
and with certain reservations represents
an increase of credit-capital but not of
wealth. This conception is of the most
fundamental importance.
If we concede its validity, a transfer of
value in respect of semi-manufactures as
between one undertaking and another is
measured by a transfer of real credit, and
like a financial credit transfer is most
suitably dealt with through the agency of a
Clearing-house.
Let us imagine such a Clearing-house
to exist and endeavour to analyse its opera-
tions in respect to Messrs. Jones and Com-
pany who tan leather, Messrs. Brown and
Economic Democracy 131
Company who make boots, and Messrs.
Robinson who sell them, and let us imagine
that all these undertakings are run on the
basis of a commission or profit on all
labour and salary costs, an arrangement
which is, however, quite immaterial to the
main issue.
Messrs. Jones receives raw hides of the
datum value of 100 which require semi-
manufactures value 500 to turn out as
leather, together with the expenditure of
500 in wages and salaries. Messrs.
Jones order the hides and the semi-manu-
factures by the usual methods from any
source which seems to them desirable, and
on receipt of the invoices, turn these into
the Clearing-house, which issues a cheque
in favour of Messrs. Jones for the total
amount 600 ; by means of which Messrs.
Jones deal with their accounts for supplies.
The Clearing-house writes up its capital
account by this sum, and by all sums issued
by it. The out-of-pocket cost to Messrs.
Jones of their finished product is, therefore,
500. Let us allow them 10 per cent.
132 Economic Democracy
profit on this, and the cost, plus profit,
at the factor} 7 under these conditions is
550, and a sum of 600 is owing to the
Clearing-house.
Messrs. Brown who require these hides
for boot-making, order them from Messrs.
Jones, and other supplies from elsewhere
amounting to 500, and similarly transmit
Messrs. Jones' invoices (which include the
sums paid by the Clearing-house) with the
rest to the Clearing-house, which issues
a cheque for 1,650 to Messrs. Brown,
who pay Messrs. Jones ; who, in turn,
retain 550 and pay back 600 to the
Clearing-house. Messrs. Jones are now
disposed of. They have made their own
arrangements in respect of quantity of
labour, etc., and have made a profit of 10
per cent, on the cost of this labour.
Messrs. Brown now make the leather
into boots, expending a further 500 in
salaries and wages, and making 10 per cent,
profit on this. They receive an order from
Messrs. Robinson for these boots : and
Messrs. Robinson's own out-of-pocket cost,
Economic Democracy 133
with their commission, is 300 paid by a
cheque from the Clearing-house for 2,200
+ 30 , 2 > 200 of which g es to Messrs.
Brown, who pay off their debt of 1,650
and retain the remainder.
Now let us notice that the purchasing
power released externally in these tran-
sactions is that represented by wages,
salaries and a commission on them, and that
no goods have been yet released to con-
sumers against this purchasing power.
These sums thus distributed will be largely
expended by the recipients in various forms
of consumption, and it is only their joint
surplus which will assist in providing an
effective demand for Messrs. Robinson's
stock. The price of this stock then requires
adjustment.
Let us now introduce into the transactions
a document we may call a retail clearing
invoice, which might form in its description
of the goods a duplicate of the bill paid
by the purchaser of an article for the
purpose of ultimate consumption ; and let
it be understood that a properly executed
134 Economic Democracy
retail clearing invoice is accepted by the
Clearing-house as evidence of the transfer
of goods to an actual consumer. It will be
seen that by the process previously explained
we have distributed the means of purchase
and are left in a position to fix the price
without reference to the individual interests
of Messrs. Brown, Jones or Robinson,
as so far the cost is charged to capital
account. The question is what should the
price be ? The answer to this is a state-
ment of the average depreciation of the
capital assets of the community, stated in
terms of money released over an equal period
of time, and the correct price is the money
value of this depreciation in terms of the
cost of the article. In other words, the
Just Price of an article, which is the price
at which it can be effectively distributed in
the community producing, bears the same
ratio to the cost of production that the total
consumption and depreciation of the com-
munity bears to the total production.
Let us now apply this to our example
of such a staple as the supply of boots.
Economic Democracy 135
Let us assume that in a given credit area
the sum involved in the delivery of boots to
the user per month amounts to 2,500,
that is to say, the cost figures of the retail
invoices turned into the Clearing-house
per month total that sum. This means
that services have been rendered and re-
munerated by the payment over an inde-
finite period of the token value of 2,500,
and the product of these services distri-
buted in one month. But the token value
has a general purchasing power, conse-
quently, it should be set against a general
value. The general value is equal to the
general rate of depreciation, or if it be
preferred, consumption of the whole of the
goods which can be bought with the token
value. Let us assume this to be 40 per
cent., that is to say, let us imagine that of
the total work of the community for one
month 60 per cent, remains for use during
a subsequent period. Then the selling
price of a pair of boots would be equal to
40 per cent, of 2,500 divided by the total
number of pairs of boots distributed (not
136 Economic Democracy
pairs produced) ; or would be I of com-
mercial cost. Messrs. Robinson, therefore,
in respect of 2,500 of retail invoices
turned in by them (which would include
their own labour and commission) would be
credited with 60 per cent* of that sum against
the cheque originally sent them (out of
which they paid Messrs. Brown) recovering
the remaining 40 per cent, from the actual
purchasers of the boots, and re-imbursing
the Clearing-house ; who after balancing
Messrs. Robinson's account would write
down their own credits by that amount.
This would leave the credit-capital of the
community that is to say, the financial
estimate of potential capacity to deliver
goods written up by 60 per cent, of
2,500, which is an accounting reflection
of the actual situation.
From this point of view, all semi-manu-
factures become simply a form of tool power,
and are subject to the same treatment as
manufacturing plant ; they are a form of
capital assets to be depreciated and written
down from time to time. There is abso-
Economic Democracy 137
lutely no difference in principle between
the treatment in this manner of a tool
which wears out in five years' time and a
unit of energy which is dissipated in a few
minutes in driving the tool.
We arrive, then, at a conception of credit
employment, by which all semi-manufac-
turers are treated as additions to com-
munal capital account ; subject to writing
down as they are actually consumed as
ultimate products. In order to be effective
the writing down must take the form of a
cancellation of credit-capital, a process
which is done quite simply and automatically
by the application to the capital account
of retail clearing invoices in the manner
roughly outlined, or by any other device
which is based on the dynamic conception
of industry.
Exactly the same treatment is applicable
to the installation of fresh tools, buildings,
etc., although for convenience, no doubt,
separate accounts for such assets would
be desirable, since the writing down would
be done at somewhat longer intervals.
138 Economic Democracy
We have now clearly arrived at a point
where there is a direct relation between
effective demand and prices, as distinct
from the relation between costs and prices.
Let us now imagine a single adjustable
tax applied to all production, of such mag-
nitude as to bring prices from those fixed
by the foregoing method to the suitable
international exchange level. In existing
circumstances, without affecting present
prices, such a tax would pay the interest
on the War Loan many times over. Let
such a tax be applied to this purpose, the
War Loan being distributed in the manner
described and possibly increased by addi-
tions from Clearing-house transfers. It
is clear that a rise in external prices would be
met by an increased distribution, while
a greater internal efficiency would have a
similar result. Such an arrangement
would make it possible to effect, in fact,
would certainly induce, a transition from
a purely competitive world system to one
exhibiting in concrete form the demand for
co-operation without regimentation, which,
Economic Democracy 139
beyond all question, underlies the so-called
proletarian revolt.
It may, perhaps, at this juncture, be
desirable to emphasise the obvious, to the
extent of pointing out that no financial
system by itself affects concrete facts ;
that the object of measures of the character
indicated is the provision of the right
incentive to effort and the removal of any
possible incentive to waste ; and only
to the extent that these are achieved is
the economic emancipation of the individual
brought nearer to reality. Had the prin-
ciples underlying these suggestions been
generally understood and accepted during
the war, we should have experienced a
steady decrease of purchasing power by
every individual, which would have en-
abled us to resume the general improvement
in social conditions at its close, without that
misunderstanding of facts which now
threatens catastrophe. The depreciation
rate would, in a manner quite similar
to that with which we are familiar in the
case of the Bank rate, have been raised at
140 Economic Democracy
suitable intervals to represent the excess
of destruction over production ; the neces-
sity of increased effort would have been
brought home to every individual by de-
creased distribution in respect of National
Capital assets, and the general atmosphere
of distrust and recrimination, from which we
suffer as a result of confusion of thought >
would probably not have arisen.
Economic Democracy
CHAPTER ELEVEN
THE awful tragedy of waste and
misery through which the world
has passed during the years 1914-
1919 has brought about a widespread de-
termination that the best efforts of which
mankind is capable are not too much to
devote to the construction of a fabric of
society within which a repetition of the
disaster would be, if not impossible, un-
likely ; and the major focus of this deter-
mination has found a vehicle in the project
commonly known as the League of Nations.
The immense appeal which the phrase
has made to the popular and honest mind
has made it dangerous to fail in rendering
lip service to it ; but it is fairly certain
that under cover of the same form of words
one of the most gigantic and momentous
struggles in history is waged for the em-
142 Economic Democracy
bodiment of either of the opposing policies
already discussed.
The success of an attempt to impose an
economic and political system on the world
by means of armed force would mean the
culmination of the policy of centralised
control, and the certainty that all the evils,
which increasing centralisation of adminis-
trative power has shown to be inherent in a
power basis of society, would reach in that
event their final triumphant climax.
But there is no final and inevitable relation
between the project of international unity
and the policy of centralised control. Just
as in the microcosm of the industrial organi-
sation there is no difficulty in conceiving
a condition of individual control of policy
in the common interest, so in the larger
world of international interest the character
and effect of a League of Free Peoples is
entirely dependent on the structure by
which those interests which individuals
have in common can be made effective in
action.
Now, unless the earlier portions of this
Economic Democracy 143
book have been written in vain, it has been
shown that the basis of power in the world
to-day is economic, and that the economic
system with which we are familiar is ex-
pressly designed to concentrate power. It
follows inevitably from a consideration of
this proposition that a League of Nations
involving centralised military force is en-
tirely interdependent upon the final survival
of the Capitalistic system in the form in
which we know it, and conversely that the
fall of this system would involve a totally
different international organisation. A
superficial survey of the position would
no doubt suggest that the triumph of central
control was certain ; that the power of the
machine was never so great ; and that,
whether by the aid of the machine-gun or
mere economic elimination, the scattered
opponents to the united and coherent focus
of financial and military power would within
a measurable period be reduced to complete
impotence and would finally disappear.
But a closer examination of the details
tends to modify that view, and to confirm
144 Economic Democracy
the statement already made that a pyramidal
administrative organisation, though the
strongest against external pressure, is of all
forms the most vulnerable to disruption
from within.
We have already seen that a feature of
the industrial economic organisation at
present is the illusion of international com-
petition, arising out of the failure of internal
effective demand as an instrument by means
of which production is distributed. This
failure involves the necessity of an in-
creasing export of manufactured goods to
undeveloped countries, and this forced ex-
port, which -is common to all highly de-
veloped capitalistic States, has to be paid
for almost entirely by the raw material of
further exports. Now, it is fairly clear
that under a system of centralised control
of finance such as that we are now consider-
ing, this forced competitive export becomes
impossible ; while at the same time the
share of product consumed inside the
League becomes increasingly dependent on a
frenzied acceleration of the process.
Economic Democracy 145
The increasing use of mechanical appli-
ances, with its capitalisation of overhead
charges into prices, renders the distribution
of purchasing power, through the medium
of wages in particular, more and more
ineffective ; and as a result individual dis-
content becomes daily a more formidable
menace to the system. It must be evident
therefore that an economic system involving
forced extrusion of product from the
community producing, as an integral com-
ponent of the machinery for the distribution
of purchasing power, is entirely incompatible
with any effective League of Nations, be-
cause the logical and inevitable end of
economic competition is war. Conversely,
an effective League of Free Peoples postu-
lates the abolition of the competitive basis
of society, and by the installation of the co-
operative commonwealth in its place makes
of war not only a crime, but a blunder.
Under such a modification of world
policy, inter-change of commodities would
take place with immeasurably greater free-
dom than at present, but on principles
146 Economic Democracy
exactly opposite to those which now govern
Trade. The manufacturing community
now struggles for the privilege of con-
verting raw material into manufactured
goods for export to less developed countries.
Non-competitive industry would largely
leave the trading initiative to the supplier
of raw material. Since any material re-
ceived in payment of exported goods would
find a distributed effective demand waiting
for it, imports would tend to consist of a
much larger proportion of ultimate products
for immediate consumption than is now the
case ; thus forcing on the more primitive
countries the necessity of exerting native
initiative in the provision of distinctive
production.
Again, International legislation in regard
to labour conditions under a competitive
system must always fail at the point at which
it ceases to be merely negative, because
it has ultimately to consider employment as
an agency of distribution, and rightly con-
sidered distribution should be a function
of work accomplished, not of work in pro-
Economic Democracy 147
gress, i.e., employment. As a consequence,
this most important field of constructive
effort resolves itself into a battleground of
opposing interests, both of which are merely
concerned with an effort to get something
for nothing. The inevitable compromise
can be in no sense a settlement of such
questions, any more than the succession of
strikes for higher pay and shorter hours,
which are based on exactly the same con-
ceptioo, can possibly result in themselves in
a stable industrial equilibrium.
Examples of the same class of difficulty
might be multiplied indefinitely, but enough
has probably been said to indicate the dis-
ruptive nature of the forces at work. To
state whether or not the general confusion
and misdirection of opinion will make a
period of power control inevitable, in order
to unite public opinion against it, would be
to venture into a form of prophecy for
which there is no present justification ;
but it is safe to say, that whether after the
lapse of a few months, or of a very few years,
the conception of a world governed by the
148 Economic Democracy
concentrated power of compulsion of any
description whatever, will be finally dis-
credited and the instruments of its policy
reduced to impotence.
Economic Democracy
CHAPTER TWELVE
AS a result of the survey of the wide
field of unrest and the attempt
to analyse, and as far as possible
to simplify, the common elements which
are its prime movers, it appears probable
that the concentration of economic power
through the agency of the capitalistic sys-
tem of price fixing, and the control of
finance and credit, is of all causes by far
the most immediately important and there-
fore that the distribution of economic
power back to the individual is a fundamental
postulate of any radical improvement.
While this, it would seem, is indisputable,
it must not be assumed that by the attain-
ment of individual economic independence,
the social problems which are so menacing,
would immediately disappear. The re-
proach is frequently levelled at those who
150 Economic Democracy
insist on the economic basis of society that
in them materialism is rampant, and in con-
sequence the bearing of sentiment on these
matters is overlooked, and the immense
and decisive influence on events which
is exerted by such factors is very apt to be
ignored. There is a germ of truth in this ;
but if such critics will consider the origin
of popular sentiment, the influence of
economic power will be seen to predominate
in this matter also, whether considered
merely as the tool of a policy, or as an
isolated phenomenon.
It is claimed, and more particularly by
those who utilise it, that " public opinion "
is the decisive power in public affairs.
Assuming that in some sense this may be
true, it becomes of interest to consider the
nature of this public opinion and the basis
from which it proceeds, and it will be
agreed that the chief factors are education
and propaganda.
Now, the bearing of economic power on
education hardly requires emphasis. In
England, the Public School tradition, with
Economic Democracy 151
all its admirable features, is nevertheless
an open and unashamed claim to special
privilege based on purchasing power and on
nothing else ; and with a sufficient number
of exceptions, its product is pre-eminently
efficient in its own interest, as distinct
from that of the community. It is one of
the most hopeful and cheering features of
the present day that this defect is in-
creasingly deplored by all the best ele-
ments comprised within the system ; and
the danger of reaction in the future is to
that extent reduced.
But by far the most important instrument
used in the moulding of public opinion is
that of organised propaganda either through
the Public Press, the orator, the picture,
moving or otherwise, or the making of
speeches ; and in all these the mobilising
capacity of economic power is without
doubt immensely if not preponderatingly
important.
When it is considered that the expression
of opinion inimical to " vested interests "
has in the majority of cases to be done at
152 Economic Democracy
the cost of financial loss and in the face of
tremendous difficulty, while a platform can
always be found or provided for advocates
of an extension of economic privilege,
the fundamental necessity of dealing first
with the economic basis of society must
surely be, and in fact now is, recognised,
and this having been established in con-
formity with a considered policy the powers
of education and propaganda will be free
from the improper influences which operate
to distort their immense capacity for
good.
The policy suggested in the foregoing
pages is essentially and consciously aimed
at pointing the way, in so far as it is possible
at this time, to a society based on the un-
fettered freedom of the individual to co-
operate in a state of affairs in which com-
munity of interest and individual interest
are merely different aspects of the same
thing. It is believed that the material
basis of such a society involves the adminis-
tration of credit by a decentralised local
authority ; the placing of the control of
Economic Democracy 153
process entirely in the hands of the organised
producer (and this in the broadest sense of
the evolution of goods and services) and
the fixing of prices on the broad principles
of use value, by the community as a whole
operating by the most flexible representation
possible.
On such a basis, the control of the sources
of information in the interests of any small
section of the community becomes an
anomaly without a specific meaning ; and
the prostitution of the Press and of
similar organs of publicity would no doubt
within a measurable time disappear because
it would lack objective. But there would
still remain the task of eradicating the
hypnotic influence of a persistent presenta-
tion of distorted information, at any rate
so far as this generation of humanity is
concerned, and it seems clear that a radical
and democratic basis of Publicity control is
an integral factor in the production of the
better society on which the Plain People
have quite certainly determined.
Thus out of threatened chaos might the
154 Economic Democracy
Dawn break ; a Dawn which at the best
must show the ravages of storm,
but which holds clear for all
to see the promise of
a better Day.
156 Cecil Palmer
The Meaning of National
Guilds
By
MAURICE B. RECKITT & C. E. BECHHOFER
Demy 8vo., Cloth, 7/6 net, postage 6d. extra.
This book is a systematic attempt to explain and
co-ordinate the various suggestions and proposals
which have been recently made in many quarters
for the reconstruction of the Nation's industry
on Guild lines. It seeks to present this solution,
not only in opposition to current schemes for the
"Reconstruction" of Capitalism, but as the sole
alternative to the evolution of industrial slavery.
" . . . It is thorough ; it is stimu-
latingly controversial." New Age.
The Meaning of the World
Revolution
By H. HAMILTON FYFE
Cr. 8vo. Stiff Boards. 3/6 net, by post 3/10.
Also in Cloth, 5/- net.
"He is eager that the spirit of revolt
against the divine right of kings, castes,
and priest-craft should be kept alive and
that an intense abhorrence of the mean-
nesses of competitive industrialism and
bureaucratic war-making should not be
left to anti-social eccentrics, but should
be proclaimed by plain men who know
our modern world widely and well."
The Times.
Cecil Palmer 157
A BOOK FOR PROPAGANDA
FIFTY POINTS ABOUT CAPITALISM
By SIR LEO CHIOZZA MONEY. With cover Cartoon
by WILL DYSON, of The Daily Herald. 6d. net.
" An excellent piece of constructive criticism."
G. D. H. Cole in The Daily Herald.
WHAT'S WRONG WITH THE MIDDLE
CLASSES ?
By R. DIMSDALE STOCKER. Paper cover, 6d.
net. Stiff boards, I/- net. This books affords the
Middle Class an insight into its own history.
FROM WARFARE TO WELFARE.
Essays in Social Reconstruction. By R. DIMSDALE
STOCKER. Crown 8vo. 5/- net., Cloth.
" Elucidates existing tendencies, and offers sugges-
tions for the reconstruction of society. It is a thought-
ful, stimulating book on the most important subject
of the moment." Bookman.
i
THE GREAT UNBORN
By EDWIN PUGH. Crown 8vo. 2/6 net. The book
that was banned.
SEXUAL ETHICS
By PROFESSOR AUGUST FOREL, M.D., PH.D.,
LL.D. Demy 8vo. 3/6 net. Forel's masterpiece.
THE CRIMES OF ENGLAND
(Second Edition). By G. K. CHESTERTON. Crown
8vo. 3/6 net cloth, 1/6 net paper.
" The finest piece of English prose yet written."
Times.
158 Cecil Palmer
DRESSING GOWNS AND GLUE
By CAPTAIN L. DE G. SIEVEKING, D.S.C. Illus-
trations by JOHN NASH. Introduction to the verses
by G. K. CHESTERTON ; Introduction to the drawing*
by MAX BEERBOHM ; the whole edited by PAUL NASH.
Second Edition. Boards, 2/6 net.
" There is not quite enough of this book that
is its only flaw." The Times.
" The best half-crown's worth on the market."
New Witness.
A BED OF ROSES
By W. L. GEORGE. Sixteenth Impression. Crown
8vo. 3/6 net. Selling in thousands W. L. George's
famous novel.
NIETZSCHE THE THINKER
By W. M. SALTER. Demy 8vo., Cloth. 540 pages,
15/- net. This exact, attractive, and comprehensive
book, the result of thorough reading and study, should
take its place as the definite work in English on Nietzsche .
THE GIRL AND THE FAUN
By EDEN PHILLPOTTS. Illustrated by FRANK
BRANGWYN, R.A. Cloth, 7/6 net. Edition de Luxe,
with additional Illustrations by FRANK BRANGWYN, R.A.,
3 3s. Od. net.
THE NEW SPIRIT IN DRAMA AND ART
By HUNTLY CARTER. Crown 4to. With five
coloured Plates and seventy other Illustrations. 25/- net.
THE PATH OF THE MODERN RUSSIAN
STAGE
By ALEXANDER BAKSHY. Demy 8vo. Cloth,
7/6 net. With twelve Pholeo Illustrations.
THE THEATRE OF MAX REINHARDT
By HUNTLY CARTER. Demy 8vo. Cloth, 10/6
net. Illustrated. A book welcome to all students,
and lovers of the modern stage.
Complete Catalogue on Application.
A 000 847 582 4
