LIBRARY
UNIVERSITY OF
CALIFORNIA
SAN DIEGO
ECONOMIC
DEMOCRACY
BY
C. H. DOUGLAS
Major, Royal Air Force (Reserve), M. Inst. Mecb. E.,
M. Inst. E. E.
NEW YORK
HARCOURT, BRACE AND HOWE
1920
COPYRIGHT, 1920, BY
HARCOURT, BRACE AND HOWE, INC.
THE QUINN ft BOOEN COMPANY
RAHWAV. N J.
TO MY WIFE
urithout whose understanding
this book could not have
been written.
PREFACE
WRITTEN for the most part under the pressure of
War conditions, this book is an attempt to disentangle
from a mass of superficial features such as Profiteer-
ing, and alleged scarcity of commodities, a sufficient
portion of the skeleton of the Structure we call So-
ciety 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 mat-
ter it contains has aroused sufficient interest to excuse
its presentation in this form.
I am indebted to my friend Mr. A. B. 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.
CONTENTS
CHAPTER I
PAGE
Over-rated value of consistency Spirit, not form, im-
portant Socialism, the reaction from commercialism
- War, the rivaler Meaning of American Declara-
tion of Independence Freedom, not system, the
goal 1
CHAPTER II
How catch-phrases betray Abuse of Darwinian theory
Result in Germany The rise of centralized control
Signs of its failure and revolt against it Servility
necessary to it Advantages of technical centraliza-
tion 7
CHAPTER IH
Danger of loose thinking Socialists too sweeping
Credit side of capitalism The Servile State The
real enemy Nationalization no cure Capitalism
and centralism Discrediting of Jevonian Eco-
nomics Definition of Money Modern money comes
from credit creations Reaction in industry Scien-
tific management Piece-work systems and their rela-
tion to money values " Ca'canny " Financial cen-
tralization and militarism 19
CHAPTER IV
Personality not the ruling factor in centralism Over-
rides personality Lessons of history The cult of
Mediaevalism Its fallacy Industrial organization
The argument for super-production Its critical im-
portance Staking out the ground of argument . . 36
CHAPTER V
Factory cost the heart of the problem Profit-sharing
The rate of distribution of money The rate of in-
viii CONTENTS
PAGE
crease of prices Example Where the real purchas-
ing power lies Loan-credit and cash-credit The
leak in the dollar Wealth and " weal "-being
Profiteering not the prime objection to existing sys-
tem Summary of analysis of production economics 54
CHAPTER VI
Fallacious arguments based on income-returns Import-
ance of loan-credit How it differs from pay and
wages Why starvation may exist amidst plenty
Economic sabotage Examples The mirage of fi-
nance Why it can never deliver the goods ... 68
CHAPTER VII
The final struggle approaching The issue Inadequacy
of commodity-reward for service Social symptoms
Business system not to blame Real and effective
demand .Productive system technically adequate
Decentralized control The Shop Steward System
A means, not an end A labor fallacy ... 74
CHAPTER VIII
Economic reconstruction the first necessity Poverty
largely artificial Why war has increased apparent
prosperity Function and control Medievalism and
Ultra-modernism The idea of the Just Price Sum-
mary of Analysis of Social Structure The objective
of change The time-energy unit Process, the key to
progress Production to a program The conditions
of economic emancipation The incentive to effort
Existing methods Financial manipulation Time-
work Piece-work The basis of the Just Price Ad-
ministration not germane to the idea The com-
munity already owns the plant A theoretical solu-
tion Definition of capital The Credit Center The
separation of function .86
CHAPTER IX
Necessity of dealing with Society as it is More purchas-
ing power wanted Futility of general wage in-
creases And of excess profits taxation Vital im-
portance of loan-credit Definition of real credit
Credit derives from the community Should be ac-
counted for to the community The nature of the
CONTENTS ix
PAGB
War Debt The State a creditor, not a debtor How
to realize it Time-saving as an incentive Results
of projected policy Freedom 110
CHAPTER X
The relation of semi-manufactures to credit The Clear-
ing-house How to " clear " overhead charges Exact
statement of the Just Price How to meet the War
Debt The dawn of real co-operation . . . .119
CHAPTER XI
The League of Nations Its form dependent on economic
system Ultimate defeat of Centralist Policy certain
How a League of Free Peoples can come . . 130
CHAPTER XII
Concentrated economic power must be dissipated The
economic basis of sentiment Education and propa-
ganda Democratic control of the Press The roots
of Economic Democracy The End .... 137
VALUES
PRICES AND PURCHASING POWER
(See Chapter V.)
The vertical columns represent the wages, salaries, and divi-
dends distributed to all the persons affected, either as share-
holders or employes, by the consecutive factory stages in the
passage of an article from the condition of " raw material,"
in the bottom left hand corner, to that of an " ultimate
product," in the top right hand corner.
The portion of the diagonal column lying to the left of
any vertical column represents the total payments made out-
side the factory concerned.
The cross-hatched portion of the vertical columns represents
approximately the personal and normal expenditure of the
individuals in receipt of purchasing power through the sources
indicated, and the small white vertical columns show their cash
savings. It will be seen that aggregate prices increase much
faster than aggregate personal savings, causing the forced
export of manufactured articles and continuous expansion of
financial credits.
ECONOMIC DEMOCRACY
CHAPTER I
Over-rated value of consistency Spirit, not form, important
Socialism, the reaction from commercialism War, the
revealer Meaning of American Declaration of Inde-
pendence Freedom, not System, the Goal.
THERE has been a very strong tendency,
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 con-
sistency in the superficial sense as a test of
character.
The Scottish political constituent who always
voted for a Liberal because he was too Con-
servative to change, has his counterpart in
every sphere of human activity, and most par-
ticularly so in that of economics, where the
tracing back to first principles of the dogmas
used for everyday purposes requires, in addi-
tion to some little aptitude and research, a
laborious effort of thought and logic very for-
eign to our normal methods.
i
2 ECONOMIC DEMOCRACY
It thus comes about that modification in the
creed of the orthodox is both difficult and con-
ducive to exasperation; since because the form
is commonly mistaken for the substance it is not
clearly seen why a statement which has em-
bodied a sound principle, may in course of
time become a dangerous hindrance to prog-
ress.
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 commercialist, 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 Re-
former, 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
Eevolution ; note, or assume, that the conditions
he deplores did not exist then, at any rate, in
so desperate a degree; and condemn all busi-
ness as abominable.
3
At various well-defined epochs in the history
of civilization there has occurred 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 widespread nature of the
general unrest, together with the immense
range of pretext alleged for it, is a clear indi-
cation that a general rearrangement is im-
minent.
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 positive 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 re-
quirement has, on the whole, quite definitely
resulted in a verdict for the prosecution; and
4 ECONOMIC DEMOCRACY
there 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 emphasize
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 offenses have been committed. And
here we are driven right back to first principles
to an attempt to define the purposes, con-
scious or unconscious, which govern humanity
in its ceaseless struggle with environment.
To cover the whole of the ground is, of
course, impossible. The infinite combinations
into which the drive of evolution can assemble
the will, emotions and desires, are probably out-
side 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 em-
bodied in the majestic words of the American
Declaration of Independence, ''the inalienable
right of man to life, liberty and the pursuit of
happiness," is still unexcelled, although the
promise of its birth is yet far from complete
ECONOMIC DEMOCRACY 5
justification; and if words mean anything at
all, these words are an assertion of the suprem-
acy 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 em-
phatically 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 readjustment 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 mechan-
ism; that by their aid he is placed in such a
position of advantage, that in common with his
fellows he can choose, with increasing freedom
and independence, whether he will or will not
assist in any project which may be placed be-
fore him.
The basis of independence of this character
6 ECONOMIC DEMOCRACY
is most definitely economic ; it is simply hypoc^
risy, conscious or unconscious, to discuss free-
dom of any description which does not secure
to the individual, that in return for effort exer-
cised as a right, not as a concession, an average
economic equivalent of the effort made shall be
forthcoming. As we shall see, this means a
great deal more than the right to work; it
means the right to work for the right end in
the right way.
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 superstructure of capitalistic
society is most unquestionably failing, because
the pediments which should sustain it are
honeycombed 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.
CHAPTER II
How catch-phrases betray Abuse of Darwinian theory
Result in Germany The rise of centralized control
Signs of its failure and revolt against it Servility neces-
sary to it Advantages of technical centralization.
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 further-
ance 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
modified; 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 de-
fining the scope of our inquiry since the exalta-
tion of the State into an authority from which
there is no appeal, the exploitation of a public
opinion which at the present time is frequently
manufactured for interested purposes, and
7
8 ECONOMIC DEMOCRACY
other attempts to shift the center of gravity of
the main issues these are all features of one
of the policies which it is our purpose to
analyze. If, therefore, any condition can be
shown to be oppressive to the individual, no
appeal to its desirability in the interests of ex-
ternal organization can be considered in ex-
tenuation ; 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 mangled
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 publi-
cation of ' ' The Origin of Species ' ' the theory of
the " survival of the fittest" has always been
put forward as an omnibus answer to any in-
dividual hardship; and although such books as
Mr. Benjamin Kidd's "Science of Power" have
pretty well exposed the reasons why the indi-
vidual, efficient in his own interest and conse-
quently well-fitted to survive, may and will pos-
sess characteristics which completely unfit him
ECONOMIC DEMOCRACY 9
for positions of power in the community, we
may begin our inquiry by noticing that one of
the most serious causes of the prevalent dis-
satisfaction and disquietude is the obvious sur-
vival, success and rise to positions of great
power, of individuals to whom the term "fit-
test" could only be applied in the very nar-
rowest 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 un-
satisfactory ; that in consequence those best
fitted for it are not representative of the ideal
existent in the mind of the critic, and that en-
vironment 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 sys-
tematic organization is connected with the
statement of the law of biological evolution
would be an interesting speculation; but the
second great factor in the changes which have
been taking place during the final years of the
10 ECONOMIC DEMOCRACY
epoch just closing is undoubtedly the marshal-
ing of effort in conformity with well-defined
principles, the enunciation of which has largely
proceeded from Germany, although their source
may very possibly be extra-national ; and while
these principles have been accepted and devel-
oped in varying degree by the governing classes
of all countries, the dubious honor 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 summarized
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 organization which will concentrate
control of policy while making effective revolt
completely impossible, and leaving its origi-
nators in possession of supreme power.
This demand to subordinate individuality to
the need of some external organization, the
exaltation of the State into an authority from
which there is no appeal (as if the State had
a concrete existence apart from those who
ECONOMIC DEMOCRACY 11
operate its functions), the exploitation of "pub-
lic opinion" manipulated by a Press owned and
controlled from the apex of power, are all fea-
tures of a centralizing 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' ap-
palling. The external characteristics of a na-
tion 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 slav-
ish 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 breakdown were becom-
ing by far the gravest problem of the German
medical profession. Its commercial morality
was devoid of all honor, and the external in-
fluence of Prussian ideals on the world has un-
doubtedly been to intensify the struggle for
existence along lines which quite inevitably cul-
minated in the greatest war of all history.
12 ECONOMIC DEMOCRACY
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 prin-
ciples in Anglo-Saxon communities has not pro-
ceeded either so fast or so far ; but every indi-
cation points to the imminence of a determined
effort to transfer and adopt the policy of cen-
tral, or, more correctly, pyramid, control f-om
the nation it has ruined to others, so far more
fortunate.
Thus far we have examined the psychological
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 circles of unemploy-
ment, degradation and unemployability, the dis-
parity between the reward of the successful
stock-jobber and the same man turned private
soldier, enduring unbelievable discomfort for a
dollar per day, the gardener turned piece-
worker, earning three times the pay of the
skilled mechanic, are instances at random of the
piratic working of the so-called law of supply
ur-d . enianrl.
ECONOMIC DEMOCRACY 13
In the sphere of politics it is clear that all
settled principle other than the consolidation
of power, has been abandoned, and mere ex-
pediency has taken its place. The attitude of
statesmen and officials to the people in whose
interests they are supposed to hold office, is
one of scarcely veiled antagonism, only tem-
pered by the fear of unpleasant consequences.
In the State services, the easy suprem-
acy of patronage over merit, and vested in-
terest over either, has kindled widespread
resentment, leveled not less at the inevita-
ble result than at the personal injustice
involved.
In its relations with labor, the State is hardly
more happy. In the interim report of the
British Commission on Industrial Unrest, the
following statement occurs :
"There is no doubt that one cause of
labor unrest is that workmen have come to
regard the promises and pledges of Parlia-
ment and Government Departments with
suspicion and distrust."
In industry itself, the perennial struggle be-
tween the forces of Capital and Labor, on ques-
14 ECONOMIC DEMOCRACY
tions of wages and hours of work, is daily
becoming complicated by the introduction of
fresh issues such as welfare, status and disci-
pline, and it is universally recognized 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 organization
has become centralized in opposition to concen-
trated capital, cleavage is evident in the acri-
monious squabbles between the skilled and the
unskilled, the rank and file and the Trade Union
official.
Although the diversion of the forces of in-
dustry 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 competition 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 continually on
the verge of starvation (Snowden, "Social-
ism and Syndicalism"), and a great majority
ECONOMIC DEMOCRACY 15
whose only interest in great groups of the
so-called 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 realized that " labor-
saving'* machinery has only enabled the
worker to do more work; and that the ever-
increasing complexity of production, paralleled
by the rising price of the necessaries of life, is a
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 dissatis-
faction 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
16 ECONOMIC DEMOCRACY
misery and distress which accompany them.
The reason for this is that the twin evil (com-
mon more or less to all existing organized So-
ciety) of servility is poverty, as has been
clearly recognized by all shades of opinion
amongst the exponents of Revolutionary So-
cialism. Poverty is in itself a transient phe-
nomenon, but servility (not necessarily, of
course, of manner) is a definite component of a
system having centralized control of policy as
its apex, and while the development of self-
respect is universally recognized to be an ante-
cedent condition to any real improvement in
environment, it is not so generally understood
that a world-wide system is thereby challenged.
In referring the existent systems to the stand-
ard 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 emphasized that a centralized
or pyramid form of control may be, and is in
certain conditions, the ideal organization for
ECONOMIC DEMOCRACY 17
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 organization of this character
can keep the will of all its component members
focused on the objective to be attained, the
collective power available is 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 incon-
trovertible ; but every particle of available evi-
dence goes to show that it is totally unsuitable
as a system of administration for the purposes
of governing the conditions under which whole
peoples 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 by which technical co-ordination can
be combined with individual freedom.
To crystallize the matter into a paragraph,
18 ECONOMIC DEMOCRACY
in respect of any undertaking, centralization is
the way to do it, but is neither the correct
method of deciding what to do nor the question
of who is to do it.
CHAPTER III
Danger of loose thinking Socialists too sweeping Credit side
of Capitalism The Servile State The real enemy
Nationalization no cure Capitalism and Centralism
Discrediting of Jevonian Economics Definition of
Money Modern money comes from credit creations
Reaction in industry Scientific management Piece-
work systems and their relation to money values
" Ca'canny " Financial centralization and militarism.
WE are thus led to inquire into environ-
ment 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 desir-
able 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 confronted with several.
For instance, that from the misuse of the
power of capital many of the more glaring de-
fects of society proceed is certain, but in claim-
ing that in itself the private administration of
industry is the whole source of these evils, the
19
20 ECONOMIC DEMOCRACY
Socialist is almost certainly claiming too much,
confounding the symptom with the disease, and
taking no account of certain essential facts. It
is most important to differentiate in this mat-
ter, between private enterprise utilizing 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 ma-
terial betterment based on it, would never have
achieved the rapid development of the past hun-
dred 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 nineteenth 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
givon 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 sys-
tem 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 democracy 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 irresistible and impersonal or-
ganization through which the ambition of able
men, animated consciously or unconsciously by
the lust of domination, may operate to the en-
slavement of their fellows. Under such a sys-
tem the ordinary citizen might, and probably
would, be far worse off than under private
enterprise freed from the domination of finance
and regulated in the light of modern thought.
22 ECONOMIC DEMOCRACY
The consideration of any return to isolated in-
dustrial undertakings is quite academic, since
there is not the faintest probability of its oc-
currence, 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 dis-
tributes 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 Socialism
has largely failed to recognize that the real
enemy is the will-to-power, the positive comple-
ment to servility, of which Prussianism, with
its theories of the supreme state and the unim-
portance of the individual (both of which are
the absolute negation of private enterprise), is
only the fine flower ; and that nationalization of
all the means of livelihood, without the pro-
vision of much more effective safeguards than
have so far been publicly evolved, leaves the in-
dividual without any appeal from its only pos-
sible employer and so substitutes a worse, be-
ECONOMIC DEMOCRACY 23
cause more powerful, tyranny for that which it
would destroy.
It is a most astonishing fact that the experi-
ence 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 psychological 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 nationalization. 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-intentioned people will
allow themselves to be hypnotized by a phrase.
It is notorious that the State Socialists of Ger-
many, commonly known as the Majority Party,
were of the greatest possible assistance to
Junkerdom in carrying out its plans for a
Prussian world hegemony; while in England
the bureaucrat and the Fabian have, on the
whole, not failed to understand each other ; and
the explanation is simply that both, either con-
sciously or unconsciously, assume that there is
24 ECONOMIC DEMOCRACY
no psychological problem involved in the con-
trol of industry just as the Syndicalist is, with
more justification, apt to stress the psychologi-
cal 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 num-
bers of shareholders, but frequently directed by
one man; and this process is quite clearly a
stage in the transition from decentralized to
centralized power. This centralization 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
representing the capital power of machinery.
It has its counterpart in every sphere of ac-
tivity: 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 oper-
ates equally through politics, finance or in-
ECONOMIC DEMOCRACY 25
dustry, and always towards centralization. If
this point of view be admitted, it seems per-
fectly clear that to the individual it will make
very little difference what name is given to cen-
tralization. Nationalization without decentral-
ized control of policy will quite effectively in-
stal the trust magnate of the next generation in
the chair of the bureaucrat, with the added ad-
vantage to him, that he will have no share-
holders' meeting.
One of the more obvious effects of the con-
centration of credit-capital in a few hands,
which simply means the centralization of direc-
tive power, is its contribution to the illusion of
the fiercely competitive nature of international
trade. Although as we shall see, in considering
the economics of the increasing employment of
machinery for productive purposes, this phe-
nomenon 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":
26 ECONOMIC DEMOCRACY
" Where the product of industry and
commerce is so divided that wages are low
while profits, interest, and rent are rela-
tively 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 mechanical methods, that contin-
ually 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 coun-
tries 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 con-
sume, while the minority who had the pur-
chasing 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 limi-
tation of profitable fields of investment.
ECONOMIC DEMOCRACY 27
The limitation of home markets implies a
corresponding limitation in the investment
of fresh capital in the trades supplying
these markets. "
Because capitalism per se is largely the in-
strument through which the will-to-power
operates in the economic sphere, some examina-
tion of its methods is necessary. The accumu-
lation 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, pro-
duction and distribution, and it is in this sense
that the word is here employed. The capital-
istic 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 re-
quirement, and legitimate price or exchange
value; a statement in Jevonian Political Econ-
omy which is becoming increasingly dis-
credited, and is negatived in the limitation of
monopoly values, by common consent, in re-
28 ECONOMIC DEMOCRACY
spect of public utility companies, such as light-
ing, water and transportation undertakings.
Proceeding from an economic system based
on this assumed relation, however, the capital-
istic producer only parts with his product for a
sum in excess of that representing 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 finan-
cial 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 pro-
ECONOMIC DEMOCRACY 29
duction; and generally it is assumed that the
banks regulate the figures of wealth by the
creation of credits broadly representing the
mobilization value of these assets either in esse
or in posse, such value being for financial pur-
poses 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 con-
sidering the costing of production at a later
stage of our inquiry, the book value of the
world's stocks is always greater than the ap-
parent financial ability to liquidate them, be-
cause these book values already include mobil-
ized credits ; the creation of subsidiary financial
media, in the form of further bank credits, be-
comes 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 purchas-
ing power of money, or, in other words, to con-
centrate the lien on the services of others, which
money gives, in the hands of those whose rate
of increase is most rapid. Intrinsic improve-
30 ECONOMIC DEMOCRACY
ments in manufacturing methods operate to de-
lay this concentration in respect of industry,
but the process is logically inevitable, and, as
we see, is proceeding with ever-increasing
rapidity; and we may fairly conclude that the
profit-making system as a whole, and as now
operated, is inherently centralizing in char-
acter.
With this concentration of financial power
and consequent control, however, there is pro-
ceeding in industry another development, ap-
parently 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 competition 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, standardization and quantity-pro-
duction in large factories are of the utmost im-
portance, carrying with them specialization of
processes, the substitution, wherever possible,
of automatic and semi-automatic machinery for
ECONOMIC DEMOCRACY 31
skilled workmanship, and the incorporation of
the worker into a machine-like system of which
every part is expected to function as systemati-
cally as a detail of the machine which he may
operate. The objective has, to a considerable
extent, been attained the scientific manage-
ment systems in factories (an outstanding in-
stance of this policy), based on the researches
of efficiency engineers such as Mr. P. W. Taylor
and Mr. Frank Gilbreth, have resulted in a
rate of production per unit of labor, 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 systems of
payment-by-results, such as the premium-bonus
system in its various forms as adapted by Hal-
sey, Rowan, Weir, etc., round which has raged
fierce controversy since in the very nature of
things, being based on the consideration of
profit, they were unable to take into account the
operation of broad economic principles. It is
no part of the argument with which we are con-
cerned to discuss such systems in detail, but any
unprejudiced and sufficiently technical consid-
32 ECONOMIC DEMOCRACY
eration of them will carry the conviction that
while the immediate effect of their introduction
was undoubtedly to raise earnings and so ap-
parently to delay the concentration of wealth,
it was correctly recognized 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 equi-
librium was only maintained by the operation
of such factors as have become known under
the names of "ca'canny," restriction of out-
put, etc., and before the war the operation of
piece-work systems in large industrial engi-
neering works almost invariably resulted in
the establishment of a local ratio between time
rates and piece-work earnings, generally rang-
ing between 1.25 and 1.5 to 1. It is not neces-
sary to discuss the ethics of such an arrange-
ment; it is merely necessary to note that the
settled policy of Labor, acting presumably on
ECONOMIC DEMOCRACY 33
the best advice it could get in its own interests,
was to exercise a control over production \>y
fixing its own standard of output irrespective of
time. The situation created by the demand for
munitions of all kinds during the war has, of
course, profoundly 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 distribu-
tion of stored commodities ; but it is quite ques-
tionable whether this level is even approxi-
mately maintained, 1 and with the cessation of
the wholesale sabotage of war, it will unques-
tionably fall as economic distribution through
the wages system becomes ineffective; apart
from actual scarcity.
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, re-
quiring little skill, and having few prospects of
advancement other than by the problematical
acquisition of sufficient money to escape from it.
iThis was written in 1918; and events have demonstrated
its correctness.
34 ECONOMIC DEMOCRACY
The very efficiency with which factory opera-
tions have been sectionalized has resulted 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 largeness of the undertakings, almost inevi-
tably out of human touch with him, while all the
well-known phenomena of bureaucratic methods
contribute to maintain a constant state of irrita-
tion and dissatisfaction ; and in all these things
is the nucleus of a centrifugal movement of for-
midable force. Nor is this feature confined to
industrial life. The connection between mili-
tarism and capitalism as vehicles for the ex-
pression 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, ul-
tima ratio regis, to set the seal on the ability
of authority to dictate the terms on which the
existence of the individual can continue. But
it is doubtful whether there ever was a time
when this threat was held more lightly, and
ECONOMIC DEMOCRACY 35
the disregard of consequences so widespread.
It is not suggested that conscription either mili-
tary or industrial is regarded with compla-
cency; the exact opposite is, of course, the
truth. But just for the reason that the whole
conception of a militarist world is instinctively
recognized as an anachronism, so, just to that
extent, is the determination to defeat at any
cost schemes involving compulsion strength-
ened in the minds of a population normally
acquiescent.
CHAPTER IV
Personality not the ruling factor in centralism Over-rides
personality Lessons of History The cult of Mediaeval-
ism Its fallacy Industrial organization The argument
for super-production Its critical importance Staking
out the ground of argument.
" \ 7E are, therefore, faced with an apparent
V V dilemma, a world-wide movement to-
wards centralized control, backed by strong
arguments as to the increased efficiency and
consequent economic necessity of organization
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 ob-
servation of their effect on the individual. A
powerful minority of the community, deter-
mined 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 growing
36
ECONOMIC DEMOCRACY 37
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 intro-
duction of questions of personality a bad sys-
tem 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 per-
sonality can change an organization depends
on two things : the magnitude of the change de-
sired, and the size of the organization. As it is
hoped to make clear, the effect of a single or-
ganization of this pyramidal character applied
to the complex purpose of civilization produces
a definite type of individual, of which the Prus-
sian is one instance. Pyramidal organization
is a structure designed to concentrate power,
and success in such an organization sooner or
later becomes a question of the subordination of
all other considerations to its attainment and
retention. For this reason the very qualities
38 ECONOMIC DEMOCRACY
which make for personal success in central con-
trol 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 organization 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 organization, no matter
how dissimilar their name, favor 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
which have arisen from modern industrial and
political systems in the light of this centralizing
tendency, it is instructive to turn for a moment
ECONOMIC DEMOCRACY 39
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 in-
dustrial 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 separa-
tion 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 labor cost ; direct labor 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.
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 unemployment at all comparable to
that with which we are too familiar, and, at any
40 ECONOMIC DEMOCRACY
rate, within the circle of their influence the
standard of material comfort rose directly in
proportion 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 in-
tervention of the financier into industry; will-
ing 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, through 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 lia-
bility company or Trust, in which the crafts-
man, 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 objec-
ECONOMIC DEMOCRACY 41
tive. 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 ignornnt, 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 responsibility rested on the
individual.
It is not, of course, suggested that commer-
cial policy has been deliberately and uniformly
dictated by unworthy motives far from it;
nor is it unlikely that had the processes of pro-
duction and distribution been separated from
any control over individual activity along other
lines, its development 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 industrialism,
it is quite unquestionable that the whole process
of centralizing power and policy and alleged re-
sponsibility in the brains of a few men whose
42 ECONOMIC DEMOCRACY
deliberations are not open to discussion ; whose
interests, largely financial, are quite clearly in
many respects opposed to those of the individ-
uals they control, and whose critics can be vic-
timized; 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 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 daugh-
ter; the standard of life therefore, without, of
course, being identical, was comparable as be-
tween various grades. The implication of this
was considerable it involved a common stand-
ECONOMIC DEMOCRACY 43
ard to which everyday difficulties could be re-
ferred. 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 RusMn to
idealize 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 of England. This
attitude seems 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 re-
leased; 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 ad-
vancement gained as a result of the application
of material science to the requirements of so-
ciety should be abandoned, and that men should
44 ECONOMIC DEMOCRACY
abjure the use of anything more complicated
than a hammer and chisel or a spinning wheel.
But while progress in the replacement of man-
ual 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 widespread, and
will not be satisfied by any mere betterment
movement. The whole policy of Governments
and industrialists alike in respect of this con-
flict of interest has been one of grudging com-
promise, partly as the result of the natural
tendency of humanity to "laissez faire"
methods and partly no doubt from a settled
conviction 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 recognize that there are two dis-
tinct problems involved in this dilemma: one
technical, the other psychological, and it is just
because the psychological aspect of industry
ECONOMIC DEMOCRACY 45
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 a purely technical
nature, and it may be well therefore to consider
briefly the usual methods which the modern in-
dustrial system has developed to deal with the
organization 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 combina-
tion of the two, and these involve an interesting
difference of conception.
As we have seen, the development of indus-
trial activity has been very largely a practical
application of the economic proposition in re-
gard to the division of labor; the " military"
organization 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
46 ECONOMIC DEMOCRACY
could do on a small scale, and, broadly consid-
ered, the perfect organization of this character
would be derived by dissecting the various at-
tributes of the perfect one-man business, mak-
ing each of them a Department, and staffing
them with men who in the aggregate repre-
sented nothing but an expansion of that at-
tribute. Fortunately, the perfect organization
of this character has yet to appear, but the
effect of the endeavor to achieve it has quite
definitely left its mark on civilization it is
easy to distinguish the soldier and the civil
servant, or even the infantryman and the bom-
bardier, and the development due to the un-
balanced 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 organization carried out to its
furthest limits is pyramid control in its sim-
plest form, and it is clear that successive grades
or ranks decreasing regularly in the number of
units composing each grade, until supreme
ECONOMIC DEMOCRACY 47
power and composite function is reached and
concentrated at the apex, are definitely char-
acteristic 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, even-
tually concentralizing power and responsibil-
ity in one man, representing the power of
finance and of control over the necessaries of
life.
Several points are to be noticed in the condi-
tions produced by such an arrangement:
Firstly, there is fundamental inequality of
opportunity. The more any organization,
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 com-
pany, Government Department, or great indus-
trial undertaking. There is no doubt what-
ever that the intrigue which is a commonplace
48 ECONOMIC DEMOCRACY
in such undertakings has its roots almost en-
tirely in this cause, and contributes in no small
degree to their notorious inefficiency.
Another objection which becomes increas-
ingly important as the concentration proceeds
is the divorce between power and detail knowl-
edge. This difficulty is recognized in the ap-
pointment 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 individ-
ual 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 specialized authority of so narrow a
function as is demanded by much so-called
scientific management, but there is very little
doubt that the underlying idea does contain the
ECONOMIC DEMOCRACY 49
germ of an industrial system which would be in
the highest degree efficient if its psychological
difficulties could be removed, and it is signifi-
cant that this form of organization 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 distri-
bution 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 intensification policy by which,
in some mysterious way, all the unpleasant fea-
tures, 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 in-
tensified manufacturing would no doubt be
something after this fashion :
1. We must pay for the war and for better-
ment schemes.
2. This means high taxes.
50 ECONOMIC DEMOCRACY
3. Taxes must come from profits and earn-
ings, which are parts of one whole.
4. High earnings, high profits, and low labor
costs, and low selling and competitive costs, can
only be combined if increased output is ob-
tained.
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 labor attitude
has either been a simple non-possumus, or a
restatement of the evils of capitalistic profit-
making, together with sufficiently pungent in-
quiry 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 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 consider-
ECONOMIC DEMOCRACY 61
able amount of manufacturing will have to be
done, firstly, to reinstate the devastated areas,
and afterwards to meet the accumulated de-
mand, 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
some one, where the work done is on public ac-
count. 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 labor and
other conditions are favorable, to buy more
goods, or, conversely, 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 of a
whole economic system. If it is true as it
stands, then the whole system which stands be-
hind it, the fight for markets, the cartels, trusts,
and combines, and the other machinery of com-
petitive trade, are justified at any rate by na-
52 ECONOMIC DEMOCRACY
tional self-interest. In order then to make this
analysis it is unavoidable that we should enter
into some detail with regard to the accountancy
of manufacturing; not forgetting that the un-
equal distribution of wealth is an initial re-
striction on the free sale of commodities, and
that in consequence what we are aiming at, in
order to meet the final contention of the argu-
ment, is not an expansion of figures, but an
equalization of real purchasing power.
Now, purchasing power is the amount of
goods of tine 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, the
upper limit of price only is thus governed, the
lower limit, which under free competition would
be the ruling limit, being fixed by cost plus the
minimum profit which will provide a financial
inducement 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 in-
volved in large scale production. Unless these
ECONOMIC DEMOCRACY 53
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.
CHAPTER V
Factory cost" the heart of the problem Profit sharing The
rate of distribution of money The rate of increase of
prices Example Where the real purchasing power lies
Loan-credit and cash-credit The leak in the dollar
Wealth and " weal "-being Profiteering not the prime
objection to existing system Summary of analysis of
Production Economics.
EOKED at from this standpoint it is fairly
clear that the kernel of the problem is
factory cost, since it is quite possible to con-
ceive 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-shar-
ing 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, re-
64
ECONOMIC DEMOCRACY 55
quiring expensive plant and machinery, and
would absorb considerable quantities of power
and light, lubricants, etc., much of which would
be wasted ; and would inevitably produce a cer-
tain 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 im-
provements in process, the ratio which these
plant costs bore to the cost of labor and salaries
would increase. The factory cost of the total
production, therefore, would be the addition of
these three items: staple material, labor 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 under-
56 ECONOMIC DEMOCRACY
taking the wealth of the world would thus be
apparently increased by the difference between
the value of all the material entering the fac-
tory, and the total sum represented by the sell-
ing 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 con-
siderable sum (representing purchases on fac-
tory account) than the total selling price of the
product, and if this is true in one factory it
must be true in all. Consequently, the rate at
which money is liberated by manufacturing
processes of this nature is clearly less than the
rate at which the total selling price of the prod-
uct increases. 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 manu-
facturing process is being returned to the capi-
talist through purchases for immediate con-
sumption.
A concrete example will make this clear. A
steel bolt and nut weighing ten pounds might
require in the blank about eleven and a half
ECONOMIC DEMOCRACY 57
pounds of material representing, say, 85 cents.
The net selling price of the scrap recovered
would probably be about 2 cents. The wages
value of the total man-hours expended on the
conversion from the blank to the finished nut
and bolt might be $1.25, and the average plant
charge 150 per cent, on the direct time charge,
i.e., $1.87. The factory cost would, therefore,
be $3.95, of which $1.87, or just under one-half,
would be plant charge. Of this plant charge
probably 75 per cent., or about $1.40, is repre-
sented by the sum of items which are either
afterwards wiped off for depreciation and con-
sequently not distributed at all at that time,
or are distributed in payments outside the or-
ganization, 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 $3.95 on the world's purchasing power has
been created, of which only $1.70 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
58 ECONOMIC DEMOCRACY
liquidation 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 effec-
tive demand. There are two sources remain-
ing: loan-credit, that is to say, purchasing
power created by the banks on principles which
are directed solely to the production of a posi-
tive financial result; and foreign or export de-
mand. 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 commer-
cial operation which will result in a profit, that
is to say, an inflation of figures.
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 dis-
tributed in advance of the completion of large
ECONOMIC DEMOCRACY 59
works become effective in the retail market,
while the large works, when completed, are paid
for by an expansion of credit. This process in-
volves a continuous inflation of currency, a rise
in prices, and a consequent dilution in purchas-
ing power.
The reason that the decrease in the con-
sumer's purchasing power has not been so
great as would be suggested by these considera-
tions is, of course, largely due to intrinsic
cheapening of processes which would, if not de-
feated by this dilution of the consumer's pur-
chasing 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 in purchas-
ing 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 sys-
tem 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
60 ECONOMIC DEMOCRACY
repaid out of prices each article produced
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 per-
fectly sound argument that increased produc-
tion 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 un-
limited, unspecified and intensified manufactur-
ing under the existing economic system, but
more trouble yet is ahead of it. While the ratio
of plant charges to total wages and salaries cost
is less than 1 : 1 over the whole range of com-
modities, 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"
ECONOMIC DEMOCRACY 61
labor may mean an actual decrease in real pay,
because the consumer is only interested in ulti-
mate products and overhead charges do not
represent ultimate products in existence.
The whole argument which represents a
manufactured article, no matter what its de-
scription and utility, as an access of wealth to
the country and to every one concerned so long
as by any method it can be sold and wages dis-
tributed in respect of it, will, therefore, be seen
to be a dangerous fallacy based on an entirely
wrong conception, which is epitomized in the
use of the word "production," and fostered by
ignorance of financial processes. Manufactur-
ing 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 subserves a definite require-
ment of human evolution. In any case, it
shares with all other conversions the character-
istic of having only a fractional efficiency, and
the waste of effort involved, although being con-
tinually reduced by improvements of method,
still can only be paid for in one way, by effort
on the part of somebody.
62 ECONOMIC DEMOCRACY
If this effort is useful effort "useful" in the
sense that a definite, healthy and sane human
requirement is served the wealth and stand-
ard of living of the community may thereby be
enhanced. If the effort is aimless or destruc-
tive, the money attached to it does not alter the
result.
The financial process just discussed therefore
clearly attaches a concrete money value to an
abstract quality not proven, and as this money
value must be represented 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.
A careful consideration of these factors will
lead to the conclusion that loan-credit is the
form of effective demand most suitable for
stimulating semi-manufactures, plant, inter-
mediate products, etc., and that "cash "-credit
is required for ultimate products for real per-
sonal consumption. We have already seen that
the cash-credits provided by the whole of the
money distributed by the industrial system, so
far as it concerns the wage-earner, are only suf-
ECONOMIC DEMOCRACY 63
ficient to provide a small surplus over the cost
of the present standard of living, and that only
by conditions of employment which the workers
repudiate, and rightly repudiate.
The core of this problem is the fact that
money, which is distributed m respect of ar-
ticles which do not come into the buying range
of the persons to whom the money is distrib-
uted, is not real money it is simply inflation of
currency so far as those persons are concerned.
The public does not buy machinery, industrial
buildings, etc., for personal consumption at all.
But it pays the price of them without acquiring
control, since they form an overhead cost added
to the price of ultimate products. Hence it will
be seen that the machinery of remuneration
must be modified profoundly, 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, and can never
control it.
It is one of the most curious phenomena of
the existing economic system that a large por-
tion of the world's energy, both intellectual and
physical, is directed to the artificial stimulation
64 ECONOMIC DEMOCRACY
of the desire for luxuries by advertisement and
otherwise, in order that the remainder may be
absorbed in what is frequently toilsome, dis-
agreeable and brutalizing 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 organization 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 situation lies
in the simple facts that at any given period the
material requirements of the individual are
quite definitely limited that any attempt to
expand them artificially is an interference with
the plain trend of evolution, which is to subordi-
nate material to mental and psychological
necessity; and that the impulse behind un-
bridled 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.
ECONOMIC DEMOCRACY 65
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 Capi-
talistic system, and is of small and diminishing
importance as compared with the delusive ac-
counting system which accompanies it, and
which acts to reduce consistently the purchas-
ing power of effort, it is, nevertheless, of prime
importance as furnishing the immediate "in-
ducement to produce," which is a false induce-
ment 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 rela-
tion whatever to the value obtained by cost
accounting.
Further, if the interaction between produc-
tion for profit and the creation of credit by the
finance and banking houses is understood, it
will be seen that the root of the evil accruing
from the system is in the constant filching of
66 ECONOMIC DEMOCRACY
purchasing power from the individual in favor
of the financier, rather than in the mere profit
itself.
Having in view the importance of the issues
involved, it may be desirable to summarize 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 ar-
rangements. They are as follows :
1. Price cannot normally be less than cost
plus profit.
2. Cost includes all expenditure on product.
3. Therefore, cost involves all expenditure
on consumption (food, clothes, housing, etc.),
paid for out of wages, salary or dividends, as
well as all expenditure on factory account, also
representing previous consumption.
4. Since it includes this expenditure, the
portion of the cost represented by this expendi-
ture has already been paid by the recipients of
wages, salaries and dividends.
5. These represent the community; there-
fore, the only distribution of real purchasing
power in respect of production over a unit
period of time is the surplus wages, salaries
ECONOMIC DEMOCRACY 67
and dividends available after all subsistence,
expenditure and cost of materials consumed has
been deducted. The surplus production, how-
ever, includes all this expenditure in cost, and,
consequently, in price.
6. The only effective demand of the con-
sumer, 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 production with a financial objective, not in
the interest of the ultimate consumer.
It will be necessary to grasp the significance
of these considerations, which can hardly be
over-rated in its effect on the break-up of the
existing economic system, in order to appre-
ciate 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.
CHAPTER VI
Fallacious arguments based on income-returns Importance
of loan-credit How it differs from pay and wages Why
starvation may exist amidst plenty Economic sabotage
Examples The mirage of finance Why it can never
deliver the goods.
IT will be readily understood that the diffi-
culties which are seen to be inherent in the
policy of super-production are only an accen-
tuation 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 statis-
tics at their minimum point and the Nation at
its maximum activity in Industry, there is still
not enough product to go round. Eecently, for
instance, Professor Bowley has estimated that
the total British income in excess of $800 per
head per annum is only $1,250,000,000, which
would mean, if distributed to 10,000,000 heads
of families, $125 per annum per family, assum-
ing that this distribution did not reduce the
production of wealth.
68
ECONOMIC DEMOCRACY 69
The figures themselves have been criticized;
but, in any case, the whole argument is com-
pletely 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 ef-
fort 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 realize the origin of
most of the specific instances, it must be borne
in mind that the existing economic system dis-
tributes 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 consequence, a clear incentive exists to pro-
duce useless or superfluous articles, in order
that useful commodities already existing may
be distributed.
This perfectly simple reason is the explana-
tion of the increasing necessity of what has
come to be called economic sabotage ; the colos-
70 ECONOMIC DEMOCRACY
sal waste of effort which goes on in every walk
of life quite unobserved 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 ex-
hibition of organized sabotage was necessary to
preserve the system from spontaneous com-
bustion.
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 organization and eti-
quette, probably requiring two assistants, and
half a day, in order to "wipe" a damaged
water pipe, which could, by methods with which
he is perfect familiar, be satisfactorily repaired
by a boy in one-third the time; the machinist
insisting on a lengthy apprenticeship to an un-
skilled process of industry, such as the opera-
tion of an automatic machine tool, are simple
instances of this. A little higher up the scale of
complexity comes the manufacturer who pro-
ECONOMIC DEMOCRACY 71
duces a new model of his particular specialty,
with the object, express or subconscious, of
rendering the old model obsolete before it is
worn out. We then begin to touch the immense
regions of artificial demand created by adver-
tisement; a demand, in many cases, as purely
hypnotic in origin as the request of the mes-
merized subject for a draught of kerosene. 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 system, 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 radically defective social system ; and, finally,
but by no means least, the cumulative export of
the product of labor, largely and increasingly
paid for by the raw material which forms the
vehicle for the export of further labor.
72 ECONOMIC DEMOCRACY
All these, and many other forms of avoidable
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; which obscures the whole object and
meaning of scientific progress, and places the
worker and the honest man in a permanently
disadvantageous position in comparison with
the financier and the rogue. It is probable that
the device of money is a necessary device in our
present civilization; 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 capitaliza-
tion of any form of waste.
The tawdry " ornament,'* the jerry-built
house, the slow and uncomfortable train serv-
ice, the unwholesome sweetmeat, are the direct
and logical result 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 neighbor
than to do sound and lasting work.
ECONOMIC DEMOCRACY 73
The capitalistic wage system based on the
current methods of finance, so far from offering
maximum distribution, is decreasingly capable
of meeting any requirement of society fully.
Its very existence depends on a constant in-
crease in the variety or product, the stimulation
of desire, and in keeping the articles desired in
short supply.
CHAPTER VII
The final struggle approaching The issue Inadequacy of
commodity-reward for service Social symptoms Busi-
ness system not to blame Real and effective demand
Productive system technically adequate Decentralized
control The Shop Steward system A means, not an
end A labor fallacy.
IF the preceding endeavor 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 suc-
cessful, it will be evident that the real antago-
nism 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 in-
ternal initiative, in which all the command of
resources, information, religious dogma, edu-
cational system, political opportunity and even,
apparently, economic necessity, is ranged on the
side of authority; an ultimate authority which
is now chiefly exercised through finance. This
antagonism does, however, appear at the pres-
74
ECONOMIC DEMOCRACY 75
ent time to have reached a stage in which a
definite victory for one side or the other is
inevitable it seems perfectly certain that
either a pyramidal organization, having at its
apex supreme power, and at its base complete
subjection, will crystallize out of the centraliz-
ing process which is evident in the realms of
finance and industry, equally with that of poli-
tics, or else a more complete decentralization
of initiative than this civilization has ever
known, will be substituted for external author-
ity. The issue transcends in importance 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 organization, combined with the
evolution of progressively decentralized initia-
tive, largely by the displacement of the power
of centralized finance.
The implication of this is a challenge (which
will become more definite as time goes on) to
extant authority, as to its right to adjudicate on
the absolute value, expressed in terms of com-
76 ECONOMIC DEMOCRACY
modities, of various forms of activity. Even
now, the practical difficulty of estimating the
relation between material reward and individ-
ual effort is becoming almost insuperable, even
in the cases where an honest effort is made to
arrive at some solution. The various move-
ments for the grant of a minimum living wage,
the demand 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 inade-
quacy of the economic structure is the increase
of voluntary unpaid effort and the large amount
of energy devoted to games. There is abso-
lutely no concrete difference between work and
play unless it be in favor of the former no one
would contend that it is inherently more inter-
esting or pleasurable to endeavor to place a
small ball in an inadequate hole with inappro-
priate instruments, than to assist in the con-
struction of a Quebec Bridge, or the harnessing
of Niagara. But for one object men will travel
long distances at their own expense, while for
ECONOMIC DEMOCRACY 77
the other they require payment and consider-
able incentive to remain at work.
The whole difference is, of course, psycho-
logical ; in the one case there is absolute freedom
of choice, not of conditions, 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 per-
formance, as compared with the efficiency of
the average factory worker, is simply incom-
parable any factory which could induce for six
months the united and enthusiastic concentra-
tion of, say, an amateur football team, would
produce quite astonishing results.
Now, it may be emphasized here at once, that
there is absolutely no future for inefficiency as
a cult; the whole promise of a brighter, prob-
ably a very bright, future for the world, lies in
doing the best possible things in the best pos-
sible way. In industrial affairs, the principle
of the maximum efficiency of effort per unit of
time is so patently unassailable, that its enun-
ciation would hardly be necessary, but that the
78 ECONOMIC DEMOCRACY
proposition carries with it a very different con-
ception of efficiency than the narrow "busi-
ness" meaning commonly attached to the word,
and in consequence it is the fashion amongst
the less progressive elements of society to at-
tack any demand for improved conditions as
simply an attempt to substitute sloth and in-
capacity for energy and capability. While,
therefore, a readjustment of system and, above
all, a complete reconsideration of objective is
necessary, it is probable that the basis of such
changes must be economic, with political and
financial systems auxiliary rather than defini-
tive, and it is certain that a revision of eco-
nomic 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 psychological efficiency of voluntary
effort is clearly a step to this end.
We have just seen that merely increased pro-
duction under existing conditions will not
achieve any economic stability, because there
are at least two quite irreconcilable criteria
governing the scope of the operations proposed.
ECONOMIC DEMOCRACY 79
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
systems, 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 recon-
ciliation is involved a modification of economic
distribution.
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 neces-
saries sufficient to meet universal require-
ments ; and, secondly, an economic system must
be devised to insure their practically automatic
and universal distribution; this having been
80 ECONOMIC DEMOCRACY
achieved it may be followed to whatever extent
may prove desirable by the manufacture of
articles having a more limited range of useful-
ness. All financial questions are quite beside
the point; if finance cannot meet this simple
proposition then finance fails, and will be re-
placed. 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 uni-
formly high standard of physical welfare under
existing conditions, and without endorsing the
exact figures, it is perfectly certain that dis-
tribution, and not manufacture, is the real eco-
nomic problem, and is at present quite intoler-
ably unsatisfactory. There is no need to as-
sume that the whole machinery of business as
we know it must be scrapped ; in fact, the ma-
chinery of business, as machinery, is highly ef-
ficient ; but it must undoubtedly be adjusted so
that no selfish desire for domination can make
it possible for any interest to hold up distribu-
tion on purely artificial grounds. Since the
analysis of existing conditions which we have
undertaken, shows that any centralized admin-
istrative organization is certain to be captured
ECONOMIC DEMOCRACY 81
by some interest antagonistic to the individual,
it seems evident that it is in the direction of
decentralization of control that we must look
for such alteration in the social structure as
would be self -protective against capture for in-
terested purposes.
As we have already seen, alongside the con-
centration of political and industrial power a
powerful decentralizing force is already begin-
ning to show itself in various forms. In con-
sidering the manifestation of this force it will
be observed that at the moment it is seek-
ing expression through organization 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 centralization, positive decen-
tralization will have to come decentralized
economic power is necessary.
Among the more important of these forms
is the shop steward or rank-and-file movement
in industry, and the workmen 's councils in poli-
tics, both purely decentralizing in tendency,
quite apart from any special policy for the
furtherance of which they may be used. The
82 ECONOMIC DEMOCRACY
apprehension with which the movements are re-
garded by the reactionary capitalist is based
far more on a recognition of the difficulties such
a scheme of organization 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 delegated Trade Union leaders, whose
positions of authority have been perforce
achieved by exactly the methods best under-
stood by those with whom they have to
deal.
As the Shop Steward movement is the most
definite industrial recognition, from the Labor
side, of the necessity for decentralization, some
examination of the general scheme is of inter-
est. The actual details of the organization 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 decentralized unit of pro-
duction such as the "shop" or department, and
the substitution of actual workers in consider-
able numbers, for the paid Trade Union official
as the nucleoli of both industrial and political
ECONOMIC DEMOCRACY 83
power (although the political power is not exer-
cised through Parliamentary channels).
The shop steward is generally " industrial"
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 inherently antagonistic as be-
tween the two conceptions of function, Indus-
trial Unionism being largely a militant device.
He is quite limited in his sphere of executive
action, but initiates discussion on the basis of
first-hand information, and forms a link be-
tween the decentralized industrial unit and
other units which may be concerned. The prac-
tical 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 whatever, nor
can he take any action not supported by his co-
workers, i.e., the direction of policy is from the
84 ECONOMIC DEMOCRACY
bottom upwards instead of the top downwards.
The individual shop stewards are banded to-
gether in a shop stewards' committee, which
has again only just as much authority as the
individual workers care to delegate to it.
It is, of course, obvious that the permanent
success of any arrangement of this character
depends on a common recognition, amongst the
individuals affected by the organization, of cer-
tain principles as " confirming standards of
reference." In other words, it would be im-
possible to administer a complicated manufac-
turing concern on any such principles, unless
the general body of employees had a general
appreciation of the fundamental necessities of
the business, inclusive of direction and techni-
cal 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
ECONOMIC DEMOCRACY 85
claims control, not only of the conditions of
production, but eventually of the terms of dis-
tribution. This confusion is quite inevitable at
present, but is not necessarily permanent, and
is obviously undesirable. It is based on the
fallacy that labor, 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 inheritance
of the community, not as workers, but as a com-
munity, and as such the community is most
clearly the proper, though far from being the
legal, administrator of it.
CHAPTER VIII
Economic reconstruction the first necessity Poverty largely
artificial Why war has increased apparent prosperity
Function and control Medievalism and Ultra-modernism
The idea of the Just Price Summary of Analysis of
Social Structure The objective of change The time-
energy unit Process, the key to progress Production to
a program The conditions of economic emancipation
The incentive to effort Existing methods Financial
manipulation Time-work Piece-work The basis of the
Just Price Administration not germane to the idea
The community already owns the plant A theoretical
solution Definition of capital The credit center The
separation of function.
A)MITTING, then, that any decentralized
scheme of society must first justify it-
self economically, it is necessary to grapple
with, at any rate, the main features of the radi-
cal economic reconstruction necessary, before
any attempt can be made to forecast the politi-
cal aspect.
The starting point is clearly a reason-
ably uniform and plentiful distribution of
simple necessaries: food, clothes, housing,
etc.
Now, the actual production of these articles
presents no difficulties whatever. Notwith-
86
ECONOMIC DEMOCRACY 87
standing 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 fa-
cilities for effective distribution. In fact, it is
most significant, that while useful (in a peace
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 pay-
ments 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 distribu-
tion.
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 organization for -these purposes may
well determine the social structure, inasmuch
as a complete success would be the most power-
88 ECONOMIC DEMOCRACY
ful 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 organization, it may be re-
peated that the best results would seem prob-
able from a co-ordinated organization for
purposes of technique, with the greatest decen-
tralization of initiative in the use of the facili-
ties so provided.
Now, it should be clearly grasped at the out-
set that at least two main problems are in-
volved in the question at issue, which may be
broadly defined as that of the producer, and the
consumer ; and not only are these entirely sepa-
rate, but, rightly considered, they are on com-
pletely different planes of existence.
The problem of the consumer is essentially
material; he is concerned with quality, va-
riety, price, supply; he is concerned with
product.
On the contrary, the producer is almost en-
tirely concerned with psychological issues:
fatigue, interest, welfare, hours of labor, all of
which, qua producer pure and simple, are
ECONOMIC DEMOCRACY 89
broadly summed up in the word "content-
ment."
The consumer is interested in distribution;
the producer is concerned with effort. While
the producer and the consumer are frequently
combined in the same person, a recognition of
these distinctions will make it easier to define
the powers which should belong to each.
It is particularly necessary to emphasize this
distinction, since the existing structure of in-
dustry, 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 pri-
marily in the instrument, and the payment a
mere convenience as between the two parties,
is so novel to large numbers of unthinking per-
sons, that it is only natural to expect violent
opposition to the world- wide efforts being made
90 ECONOMIC DEMOCRACY
to reconstitute society on these very principles.
Bearing these distinctions in mind, it will
be recognized that there are two separate lines
along which to attack the situation presented
by the dissatisfaction of the worker with his
conditions of work, and the not less serious dis-
content of the consumer with the machinery of
distribution, and these may be called mediaeval-
ism and ultra-modernism.
Medigevalism seems to claim that all me-
chanical progress is unsound and inherently de-
lusive ; that mankind is by his very constitution
compelled, under penalty of decadence, to sup-
port himself by unaided skill of hand and eye.
In support of its contentions, it points to the
Golden Age of the fourteenth century in Eng-
land, for example, when real want was com-
paratively 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
offense; when the medium of exchange was
the Just Price, and the idea of buying in the
ECONOMIC DEMOCRACY 91
cheapest and selling in the dearest market, if it
existed, was classed with usury and punished
by heavy penalties.
While appreciating the temptation to com-
pare the two periods, to the very great disad-
vantage of the present, it does not seem pos-
sible to agree with the conclusion of the Me-
dievalist that we are in a cul-de-sac from which
the only exit is backwards; and it is proposed
to make an endeavor to show that there is a
way through, and that we may in time regain
the best of the advantages on which the
Medievalist rightly sets such store, retaining
in addition a command over environment, which
he would be the first to recognize as a real ad-
vance; 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 im-
mediate result of a social structure framed
to concentrate personal power over other
92 ECONOMIC DEMOCRACY
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 simply governs
the response of the individual to conditions
he cannot control, except by altering the
structure.
(3) It follows that general improvement
of conditions based on personality is a
confusion of ideas. Changed personality
will only become effective through changed
social structure.
(4) The pyramidal structure of Society
gives environment the maximum control
over individuality. The correct objective
of any change is to give individuality max-
imum control over environment.
If these premises are accepted it seems clear
that the first and probably most important step
is to give the individual control of the neces-
ECONOMIC DEMOCRACY 93
saries of life on the cheapest terms possible.
What are these terms? What is the funda-
mental currency in which the individual does
in the last analysis liquidate his debts ? A little
consideration must make it clear that there
can be only one reply; that the individual only
possesses inalienable property of the one de-
scription ; potential effort over a definite period
ol time. If this be admitted, and it is incon-
ceivable that any one would seriously deny it,
it follows that the real unit of the world's cur-
rency is effort into time what we may call the
time- energy unit.
Now, time is an easily measurable factor,
and although we cannot measure human poten-
tial, because we have at present no standard,
it is nevertheless true that, for a given process,
the number of human time-energy units re-
quired for a given output is quite definite, and
therefore, the cheapest terms on which the in-
dividual 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 sup-
94 ECONOMIC DEMOCRACY
ply 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 community, or to put the
matter another way, all improvements in proc-
ess should be made to pay a dividend to the
community. (It will be noted that an admis-
sion of the theorem is a complete condemnation
of payment by results, as commonly under-
stood; that is to say, an arrangement of re-
muneration designed to foster an increasing
use of time-energy units.) The primary neces-
saries 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
ECONOMIC DEMOCRACY 95
daily life a definite number of heat units in the
form of suitable food, a definite minimum quan-
tity of clothing and a definite minimum space
in which to sleep and work, and the variation
between the minimum and the maximum quan-
tity of each that he can utilize with advantage
to himself is not, broadly speaking, very
great.
This fact renders it perfectly feasible (it has
already very largely been accomplished) to
estimate the absolute production of foodstuffs
required by the world's population; the time-
energy units required at the present stage of
mechanical and scientific development to pro-
duce those foodstuffs; and the time-energy
units approximately available. Accuracy in
these estimates is unnecessary, since there is
not the very smallest doubt that the margins
are so large that it is only the failure of "ef-
fective 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
96 ECONOMIC DEMOCRACY
subsistence basis of the civilized 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 satis-
factory basis, does not again exceed a few min-
utes per day per head, on the assumption that
the fullest use is made of natural sources of
energy, and that all the human effort specifi-
cally connected with the system of production
for profit is eliminated. The exact figures are
beside the point, but something over three
hours' work per head per day is ample for the
purpose of meeting consumption and deprecia-
tion of all the factors of modern life under nor-
mal 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 decentralization of
initiative.
These conditions are, firstly, definite pro-
ECONOMIC DEMOCRACY 97
ductions of ultimate products to a program,
and consequent limitation of output to that pro-
gram; and, secondly, the provision of an in-
centive to produce, which shall insure the dis-
tribution of the article produced. The basis of
the first condition has just been indicated
briefly; the provision 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 de-
cry the necessity of any organized incentive in
industry at all. They 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 crea-
tive 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 im-
practicable ; and in regard to the latter that it
is not yet, nor for a very considerable time
likely to be, practicable to satisfy the creative
98 ECONOMIC DEMOCRACY
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 pro-
vision of an incentive external to the perform-
ance of the immediate task seems both prac-
tically and morally sound.
First of all, sonie consideration of the defects
of existing incentives is necessary in order to
meet the difficulties so exposed.
Broadly, remuneration, or the system by
which the amenities of civilization 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 (piece-
work 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 endeavor), stock manipula-
tion or otherwise, is quite definitely anti-social.
ECONOMIC DEMOCRACY 99
It operates to neutralize all progress towards
real efficiency, by diluting the medium of ex-
change, and by this process it will quite cer-
tainly bring about the downfall of the social
order to which it belongs, largely through the
operation of the factory economic system al-
ready discussed.
Payment by time fails for two practical
reasons : it is based on the operation of the fal-
lacy that the value of a thing bears any relation
to the demand for it, and the assumption that
money has a fixed value. Because of the first
reason it clearly penalizes 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 organized power for
aggressive action ; and while such a policy may
be sound and justifiable under existing condi-
tions, it clearly offers no promise of social
peace.
Payment by results or piece-work may be
considered as the final effort of an outworn
system to justify itself. Superficially, it seems
100 ECONOMIC DEMOCRACY
fair and reasonable in almost any of its many
forms ; actually it operates to increase the indi-
vidual time-energy units expended while de-
creasing, through diluted currency, the ex-
change 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 purchasing power of labor in
the Middle Ages, admitted in such books
as "The Six-Hour Day," 1 must surely con-
firm it.
In actual practice, piece-work 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 fundamental rela-
tion between money and value as at present
understood.
Consequently, all piece-work systems pro-
duce in varying degree one of three conditions,
either
(1) Large classes of workers earn con-
tinuously increasing sums of money which
i " The Six-Hour Day and other Industrial Problems."
Lord Leverhulme.
ECONOMIC DEMOCRACY 101
bear no ratio to equally meritorious 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 earn-
ings, with the result that output is re-
stricted 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 atmosphere of sus-
picion.
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 ele-
mental facts of industrial psychology and eco-
nomics, are not considered at all in such sys-
tems ; with the result that the victims make, so
far as Trade Unions on the one hand, and Em-
ployers ' Federations on the other, can assist
102 ECONOMIC DEMOCRACY
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 program of neces-
saries with a minimum expenditure of time-
energy units. We agree that the 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 distribu-
tion of the whole product while, at the same
time, providing the most powerful incentive to
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 exploita-
tion 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
ECONOMIC DEMOCRACY 103
a definite share of ultimate products, irre-
spective of the time taken to produce
them.
(3) The payment to be made to the im-
prover of process, including direction, is
to be based on the rate of decrease 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 proc-
esses.
(4) Labor is not exchangeable; prod-
uct 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 ad-
ministration, although a recognition of them
would radically affect the distribution of per-
sonnel in any system of administration.
While the distribution of the product of in-
dustry is fundamentally involved, and the in-
ducements to vary the articles produced are
clearly modified to a degree which would pro-
104 ECONOMIC DEMOCRACY
f oundly alter the industrial situation, no exten-
sion of bureaucracy in the accepted sense is im-
plied or induced.
It may he argued that these principles are
not susceptible of immediate embodiment; but
it is, nevertheless, well to bear in mind the im-
minence of an economic breakdown (as a direct
result of the inflation of currency by the capi-
talization of negative values) already dis-
cussed, and the probability that a new economic
system, having as its basis the principles of the
law of the conservation of energy, will re-
place 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 I
A reference to the accounting process al-
ready described will make it clear that the com-
munity 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
ECONOMIC DEMOCRACY 105
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 re-
quirement of its present owners should not be
met under the changed conditions.
Before allowing the methods of compromise,
which may or may not be desirable in the prac-
ticable evolution of a better conception of the
community, based on these propositions, to
obscure the objective, a purely idealistic inter-
pretation 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 com-
munity and to be operating with technical ef-
ficiency. We are in possession of a census of
the material requirements of the community,
and are producing to a program 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 pro-
106 ECONOMIC DEMOCRACY
gram is possible without affecting the whole
community, the administration of real capital,
i.e., the power to draw on the collective poten-
tial 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 organi-
zation, which might preferably not be the State,
to be provided with the necessary organization
to fit it to pass upon, and if desirable to sanc-
tion, any private enterprise deemed to be in
the interest of the community represented, the
necessary capitalization being secured by the
general credit. It is clear that such an arrange-
ment involves an appraisal of values both in
respect to persons and materials, but it does not
necessarily involve any control of policy what-
ever in respect of the internal administration
of any undertaking once originated.
Under these conditions the community can be
regarded as a single undertaking (decentral-
ized as to administration to any extent neces-
sary) and every individual comprised within
it is in the position of an equal Bondholder en-
titled to an equal share of product. The dis-
ECONOMIC DEMOCRACY 107
tribution of the 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 we shall see that such
prices will normally be less than cost, as meas-
ured by existing methods.
Let this annual order to pay be inalienable,
but carrying the assumption that a definite per-
centage 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 multiplied by the time-factor,
and let all adults on entering productive in-
dustry 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 organization resulting in
a diminution of the total time-energy units re-
quired for the program of production, and the
success of the proposals. (It will be noticed
that the strongest incentive to right judgment
as regards facilities for trial exists here.) Let
the possession of a definite ''grade" of time-
108 ECONOMIC DEMOCRACY
energy units be the absolute qualification 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 ques-
tions of material remuneration enter into the
problem of administration at all ; and increased
complexity of manufactured product is either
bought by increased efficiency or longer work-
ing 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 acting in the role of Citizens,
and not as Artisans, might control policy abso-
lutely, i.e., increase or decrease programs of
production and efficiency, etc., without interfer-
ing, or having any possible incentive to inter-
ECONOMIC DEMOCRACY 109
fere, in direction or function. Economic in-
centive to competition other than in efficiency
would disappear completely, and with it the
primary cause of war.
CHAPTER IX
Necessity of dealing with Society as it is More purchasing
power wanted Futility of general wage increases And
of excess profits taxation Vital importance of loan-
credit Definition of real credit Credit derives from the
community Should be accounted for to the community
The nature of the War Debt The State a creditor, not a
debtor How to realize it Time-saving as an incentive
Results of projected policy Freedom.
WHILE a much higher development, not
only of civic sense, but of material
progress, is necessary to a realization of a
scheme of society based on anything approxi-
mating to the foregoing sketch, it is quite prob-
able 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 con-
sider one of the numerous expedients avail-
able to that end.
Since an immediate leveling up of real pur-
chasing power is absolutely essential if indus-
try is to be kept going at all, the first point on
which to be perfectly clear is that increasing
no
ECONOMIC DEMOCRACY 111
wages on the grand scale is simply childish.
Given a minimum percentage of profit, and a
fixed process, under the existing economic sys-
tem the real wage, 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 system
(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 production, even if evenly dis-
tributed, would not buy it, since the price in-
cludes non-existent values. There is no doubt
whatever 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 u/nder
a given set of conditions, including plant, etc.,
of a Society to do work. The banking system
has been allowed to become the administrator
112 ECONOMIC DEMOCRACY
of this credit and its financial derivatives, with
the result that the creative energy of mankind
has been subjected to fetters which have no
relation whatever to the real demands of exist-
ence, and the allocation of tasks has been placed
in unsuitable hands.
Now, it cannot be too clearly emphasized that
real credit is a measure of the effective reserve
of energy belonging to a community, and, in con-
sequence, drafts on this reserve should be ac-
counted for by a financial system which reflects
that fact.
If this be borne in mind, together with the
conception of "Production" as a conversion ab-
sorbing energy, it will be seen that the individ-
ual should receive something representing the
diminution of the communal 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 Great Britain is concerned, the in-
strument 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 forms, although
ECONOMIC DEMOCRACY 113
it should be clearly understood that all appro-
priations of credit can be considered as equally
concerned.
Some consideration of the real nature of the
debt is necessary in order to understand the
basis of this proposal.
The $40,000,000,000 in round numbers which
has been subscribed for war purposes repre-
sents as to its major portion (apart from about
$7,500,000,000 re-lent) services which have been
rendered 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 ren-
dered and the munitions expended, conse-
quently the loan represents a lien with interest
on the future activities of the community, in
favor of the holders of the loan, that is to say,
the community guarantees the holders to work
for them without payment, for an indefinite
period, in return for services rendered by the
subscribers to the Loan. What are those
services?
Disregarding holdings under $5,000 and re-
investment of pre-war assets, the great bulk
114- ECONOMIC DEMOCRACY
of the loan represents purchases by large in-
dustrial and financial undertakings who ob-
tained the money to buy by means of the crea-
tion and appropriation of credits at the expense
of the community through the agency of indus-
trial accounting and bank finance.
It is not necessary to elaborate this conten-
tion at any great length because it is quite ob-
viously true. Eventually, to have any meaning,
the loan must be paid off in purchasing power
over goods not yet produced, and is, therefore,
simply a portion of the estimated capacity of
the nation to do work which has been hypothe-
cated.
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 capitalization of the processes
already described, its owners have no right in
equity to it it simply represents communal
credit transferred to private account.
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
ECONOMIC DEMOCRACY 115
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, debit not credit, to the community,
and, consequently, is only realizable by regard-
ing the interest of the Capitalist as directly op-
posite to that of the community. Now, it must
be perfectly obvious to any one 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 state-
ment that an indefinite amount of goods and
services (indefinite because of the variable pur-
chasing power of money) are to be rendered in
the future to the holders of the loan, i.e., it is
clearly a distributing agent.
Now, instead of the levy on capital, which is
widely discussed, let it be recognized 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 $5,000 is permitted; to the end
116 ECONOMIC DEMOCRACY
that, say, 8,000,000 heads of families are cred-
ited with $250 per annum of additional purchas-
ing 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 center; the manner
of procedure to this end is described hereafter.
Let all payments for materials and plant be
made through the Credit Center 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 prod-
uct be adjusted in reference to the effective de-
mand, by means of a depreciation rate fixed on
the principle described subsequently, and let all
manufacturing and agriculture be done, with
broad limits, to a program. Payment for in-
dustrial service rendered should be made some-
what on the following lines :
Let it be assumed that a given production
center has a curve of efficiency, varying with
output, which is a correct statement for a given
process worked at normal intensity. The
ECONOMIC DEMOCRACY 117
center would be rated as responsible for a pro-
gram, 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 labor
and staff charges can be estimated by methods
familiar to every manufacturer.
Now, let this sum be allocated in any suit-
able proportion between the various grades of
effort involved in the undertaking, and let a
considerable bonus, together with a recognized
claim to promotion, be assured to any individ-
ual who, by the suggestion of improved
methods or otherwise, can, for the specified
program, reduce the hours worked by the fac-
tory 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 distribu-
tion. There is a sufficient incentive to produce,
but there is communal control of undesirable
118 ECONOMIC DEMOCRACY
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 distribu-
tion from the processes of production would
restore individual initiative, and, under proper
conditions, minimize the effects of bureaucracy.
This rapid survey of the possibilities of a
modified economic system will, therefore, prob-
ably justify a somewhat more detailed examina-
tion of certain features of the proposed struc-
ture, and clearly the control and use of credit
is of primary importance. It should be par-
ticularly noted at this point, however, that
every suggestion made in this connection has
in view the maximum expansion in the personal
control of initiative and the minimizing, and
final elimination, of economic domination,
either personal or through the agency of the
State.
CHAPTER X
The relation of semi-manufactures to credit The Clearing-
house How to " clear " overhead charges Exact state-
ment of the Just Price How to meet the War Debt
The dawn of real co-operation.
IN considering the inadequacy of a mere ex-
tension of manufacturing production, unac-
companied 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 considered
in relation to a more complex product, although
in many cases they may in themselves, for other
purposes, represent a final product. For in-
stance, 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.
119
120 ECONOMIC DEMOCRACY
Now, it should be obvious that a semi-manu-
facture, in this sense, is of no use to a con-
sumer 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 counted 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 reser-
vations, represents an increase of credit-capi-
tal, 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 endeavor to analyze its operations in
respect to Messrs. Jones and Company who tan
leather, Messrs. Brown and Company who
make boots, and Messrs. Eobinson who sell
them, and let us imagine that all these under-
ECONOMIC DEMOCRACY 121
takings are run on the basis of a commission or
profit on all labor and salary costs, an arrange-
ment which is, however, quite immaterial to the
main issue.
Messrs. Jones receive raw hides of the
datum value of $500 which require semi-manu-
factures, value $2,500, to turn out as leather,
together with the expenditure of $2,500 in
wages and salaries. Messrs. Jones order the
hides and the semi-manufactures 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
check in favor of Messrs. Jones for the total
amount, $3,000; by means of which Messrs.
Jones deal with their accounts for supplies.
The Clearing-house writes up its capital ac-
count by this sum, and by all sums issued by it.
The out-of-pocket cost to Messrs. Jones of their
finished product is, therefore, $2,500. Let us
allow them 10 per cent, profit on this, and the
cost, plus profit, at the factory under these con-
ditions is $2,750, and a sum of $3,000 is owing
to the Clearing-house.
Messrs. Brown, who require these hides for
122 ECONOMIC DEMOCRACY
boot-making, order them from Messrs. Jones,
and other supplies from elsewhere amounting
to $2,500, 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 check for $8,250 to
Messrs. Brown, who pay Messrs. Jones; who,
in turn, retain $2,750 and pay back $-3,000 to
the Clearing-house. Messrs. Jones are now dis-
posed of. They have made their own arrange-
ments in respect of quantity of labor, etc., and
have made a profit of 10 per cent, on the cost
of this labor.
Messrs. Brown now make the leather into
boots, expending a further $2,500 in salaries
and wages, and making 10 per cent, profit on
this. They receive an order from Messrs.
Robinson for these boots: and Messrs. Robin-
son's own out-of-pocket cost, with their com-
mission, is $1,500, paid by a check from the
Clearing-house for $11,000 + $1,500, $11,000 of
which goes to Messrs. Brown, who pay off their
debt of $8,250 and retain the remainder.
Now, let us notice that the purchasing power
released externally in these transactions is that
ECONOMIC DEMOCRACY 123
represented by wages, salaries and a commis-
sion on them, and that no goods have been, so
far, released to consumers against this pur-
chasing 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 provid-
ing 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 in-
voice, 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 ulti-
mate consumption ; and let it be understood that
a properly executed 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 ex-
plained, we have distributed the means of pur-
chase, 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
124 ECONOMIC DEMOCRACY
question is what should the price be? The
answer to this is a statement of the average de-
preciation of the capital assets of the commu-
nity, stated, m 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 consump-
tion and depreciation of the community bears
to the total capital production.
Let us now apply this to our example of such
a staple as the supply of boots. Let us assume
that in a given credit area the sum involved in
the delivery of boots to the user per month
amounts to $12,500, that is to say, the cost fig-
ures of the retail invoices turned into the Clear-
ing-house per month total that sum. This
means that services have been rendered and re-
munerated by the payment over an indefinite
period of the token value of $12,500, and the
product of these services distributed in one
month. But the token value has a general pur-
ECONOMIC DEMOCRACY 125
chasing power, consequently 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 $12,500
divided by the total number of pairs of boots
distributed (not pairs produced) ; or would be
two-fifths of commercial cost. Messrs. Robin-
son, therefore, in respect of $12,500 of retail
invoices turned in by them (which would in-
clude their own labor and commission) would
be credited with 60 per cent, of that sum against
the check originally sent them (out of which
they paid Messrs. Brown), recovering the re-
maining 40 per cent, from the actual purchasers
of the boots, and reimbursing the Clearing-
house; who, after balancing Messrs. Robinson's
account, would write down their own credits by
that amount. This would leave the credit-capi-
126 ECONOMIC DEMOCRACY
tal of the community that is to say, the finan-
cial estimate of potential capacity to deliver
goods written up by 60 per cent, of $12,500,
which is an accounting reflection of the actual
situation.
From this point of view, all semi-manufac-
tures become simply a form of tool power, and
are subject to the same treatment as manu-
facturing plant; they are a form of capital
assets to be depreciated and written down from
time to time. There is absolutely no difference
in principle between the treatment in this man-
ner 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 em-
ployment, by which all semi-manufactures are
treated as additions to communal capital ac-
count; subject to writing down as they are ac-
tually 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 auto-
matically by the application to the capital ac-
count of retail clearing invoices in the manner
ECONOMIC DEMOCRACY 127
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 some-
what longer intervals.
We have now clearly arrived at a point where
there is a direct relation between effective de-
mand and prices, as distinct from the relation
between costs and prices. Let us now imagine
a single adjustable tax applied to all produc-
tion, of such magnitude as to bring prices from
those fixed by the foregoing method to the suit-
able 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 ap-
plied to this purpose, the War Loan being dis-
tributed in the manner described and possibly
increased by additions from Clearing-house
transfers. It is clear that a rise in external
prices would be met by an increased distribu-
tion, while a greater internal efficiency would
128 ECONOMIC DEMOCRACY
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, beyond all ques-
tion, underlies the so-called proletarian revolt.
It may, perhaps, at this juncture, be desir-
able to emphasize the obvious, to the extent of
pointing out that no financial system by itself
affects concrete facts; that the object of meas-
ures 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 eco-
nomic emancipation of the individual brought
nearer to reality. Had the principles under-
lying these suggestions been generally under-
stood and accepted during the war, we should
have experienced a steady decrease of purchas-
ing power by every individual, which would
have enabled us to resume the general improve-
ment in social conditions at its close, without
that misunderstanding of facts which now
threatens catastrophe. The depreciation rate
ECONOMIC DEMOCRACY 129
would, in a manner quite similar to that with
which we are familiar in the case of the Bank
rate, have been raised at suitable intervals to
represent the excess of destruction over pro-
duction ; the necessity of increased effort would
have been brought home to every individual by
decreased 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.
CHAPTER XI
The League of Nations Its form dependent on economic
system "-Ultimate defeat of Centralist Policy certain
How a League of Free Peoples can come.
THE awful tragedy of waste and misery
through which the world has passed dur-
ing the years 1914-19 has brought about a
widespread determination that the best efforts
of which mankind is capable are not too much
to devote to the construction of a fabric of so-
ciety within which a repetition of the disaster
would be, if not impossible, unlikely; and the
major focus of this determination 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 gi-
gantic and momentous struggles in history is
waged for the embodiment of either of the op-
posing policies already discussed.
130
ECONOMIC DEMOCRACY 131
The success of an attempt to impose an eco-
nomic and political system on the world by
means of armed force would mean the culmina-
tion of the policy of centralized control, and the
certainty that all the evils, which increasing
centralization of administrative power has
shown to be inherent in a power basis of so-
ciety, would reach in that event their final tri-
umphant climax.
But there is no final and inevitable relation
between the project of international unity and
the policy of centralized control. Just as in the
microcosm of the industrial organization there
is no difficulty in conceiving a condition of in-
dividual control of policy in the common inter-
est, so in the larger world of international in-
terest the character and effect of a League of
Free Peoples is entirely dependent on the struc-
ture by which those interests, which individuals
have in common, can be made effective in
action.
Now, unless the earlier portions of this 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
132 ECONOMIC DEMOCRACY
which we are familiar is expressly designed to
concentrate power. It follows inevitably from
a consideration of this proposition, that a
League of Nations involving centralized mili-
tary force is entirely 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 organization. A super-
ficial 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 elimina-
tion, 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 dis-
appear.
But a closer examination of the details tends
to modify that view, and to confirm the state-
ment already made, that a pyramidal adminis-
trative organization, though the strongest
against external pressure, is of all forms the
most vulnerable to disruption from within.
ECONOMIC DEMOCRACY 133
We have already seen that a feature of the
industrial economic organization at present is
the illusion of international competition, aris-
ing out of the failure of internal effective de-
mand as an instrument by means of which pro-
duction is distributed. This failure involves
the necessity of an increasing export of manu-
factured goods to undeveloped countries, and
this forced export, which is common to all
highly developed 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 centralized control of finance
such as that we are now considering, this forced
competitive export becomes impossible; while
at the same time the share of product consumed
inside the League becomes increasingly de-
pendent on a frenzied acceleration of the
process.
The increasing use of mechanical appliances,
with its capitalization of overhead charges into
prices, renders the distribution of purchasing
power, through the medium of wages in par-
ticular, more and more ineffective; and as a
result individual discontent becomes daily a
134 ECONOMIC DEMOCRACY
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
component of the machinery for the distribu-
tion of purchasing power, is entirely incom-
patible with any effective League of Nations,
because the logical and inevitable end of eco-
nomic competition is war. Conversely, an ef-
fective League of Free Peoples postulates the
abolition of the competitive basis of society,
and, by the installation of the co-operative com-
monwealth in its place, makes of war not only
a crime, but a blunder.
Under such a modification of world policy,
interchange of commodities would take place
with immeasurably greater freedom than at
present, but on principles exactly opposite to
those which now govern Trade. The manufac-
turing community now struggles for the privi-
lege of converting raw material into manufac-
tured goods for export to less developed coun-
tries. Non-competitive industry would largely
leave the trading initiative to the supplier of
raw material. Since any material received in
ECONOMIC DEMOCRACY 135
payment of exported goods would find a dis-
tributed effective demand waiting for it, im-
ports 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
labor 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 dis-
tribution, and, rightly considered, distribution
should be a function of work accomplished, not
of work in progress, i.e., employment. As a
consequence, this most important field of con-
structive effort resolves itself into a battle-
ground of opposing interests, both of which are
merely concerned with an effort to get some-
thing for nothing. The inevitable compromise
can be in no sense a settlement of such ques-
tions, any more than the succession of strikes
for higher pay and shorter hours, which are
based on exactly the same conception, can pos-
136 ECONOMIC DEMOCRACY
sibly 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 disruptive
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 justifi-
cation ; but it is safe to say, that whether after
the lapse of a few months, or a very few years,
the conception of a world governed by the con-
centrated power of compulsion of any descrip-
tion whatever will be finally discredited and
the instruments of its policy reduced to im-
potence.
CHAPTER XH
Concentrated economic power must be dissipated The eco-
nomic basis of sentiment Education and propaganda
Democratic control of the Press The roots of Economic
Democracy The End.
AS a result of the survey of the wide field
./jL of unrest and the attempt to analyze, and
as far as possible to simplify, the common ele-
ments which are its prime movers, it appears
probable that the concentration of economic
power through the agency of the capitalistic
system of price fixing, and the control of finance
and credit, is of all causes by far the most im-
mediately important; and therefore, that the
distribution of economic power back to the in-
dividual is a fundamental postulate of any radi-
cal improvement. While this, it would seem, is
indisputable, it must not be assumed that by
the attainment of individual economic independ-
ence, the social problems which are so menac-
ing would immediately disappear. The re-
proach is frequently leveled at those who
insist on the economic basis of society, that in
137
138 ECONOMIC DEMOCRACY
them materialism is rampant, and in conse-
quence the bearing of sentiment on these mat-
ters is overlooked, and the immense and de-
cisive 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 con-
sidered merely as the tool of a policy, or as an
isolated phenomenon.
It is claimed, and more particularly by those
who utilize it, that " public opinion" is the de-
cisive 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 edu-
cation hardly requires emphasis. In England
the Public School tradition, and in America to
a less, but appreciable, extent the College sys-
tem, with all their admirable features, are
nevertheless an open and unashamed claim to
ECONOMIC DEMOCRACY 139
special privilege, based on purchasing power
and on nothing else ; and with a sufficient num-
ber of exceptions, their product is pre-emi-
nently efficient in its own interest, as distinct
from that of the community. It is one of the
most hopeful and cheering features of the pres-
ent day that this feature is increasingly recog-
nized by all the best elements 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 molding of public opinion is that
of organized propaganda either through the
Public Press, the orator, the picture, moving or
otherwise, or the making of speeches ; and in all
these the mobilizing capacity of economic
power is without doubt immensely, if not pre-
ponderatingly, important.
When it is considered that the expression of
opinion inimical to ''vested interests" has in
the majority of cases to be done at 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
140 ECONOMIC DEMOCRACY
of dealing first with the economic basis of so-
ciety must surely be, and in fact now is, recog-
nized, and this having been established in con-
formity with a considered policy, the powers of
education and propaganda will be freed from
the improper influences which operate to dis-
tort their immense capacity for good.
The policy suggested in the foregoing pages
is essentially and consciously aimed at point-
ing the way, in so far as it is possible at this
time, to a society based on the unfettered free-
dom of the individual to co-operate in a state
of affairs in which community of interest and
individual interest are merely different aspects
of the same thing. It is believed that the ma-
terial basis of such a society involves the ad-
ministration of credit ~by a decentralized local
authority; the placing of the control of process
entirely in the hands of the organized 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
ECONOMIC DEMOCRACY 141
information in the interests of any small sec-
tion of the community becomes an anomaly
without a specific meaning ; and prostitution of
the Press and of similar organs of publicity
would no doubt within a measurable time dis-
appear 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 deter-
mined.
Thus, out of threatened chaos, might the
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.
INDEX
Administration, not the key,
19, 103
military, 45
functional, 48
centralized, 11, 36, 47, 80, 92
American Declaration of Inde-
pendence, 4
Analysis, of Production Eco-
nomics, 54, 63, 66
of Social Structure, 91
of Capitalism, 27
Business system, efficiency of,
75
Ca'canny, 32, 101
Capital direction, 25
definition of real, 106, 111
Capitalism, its merits, 20
basis of, 27
and Centralism, 24, 132
and Militarism, 35, 132
Cash-credits, 58, 67
Centralism, 11, 17, 30, 47, 92,
131
Cost, the basis of price, 52
definition of, 53
factory, 54, 66
Costing, 29, 116
Credit banking, 28, 29, 57,
114, 116
definition of real, 112
center, 116
operation of, 120, 140
Currency, inflation of, 29, 63
Darwinian Theory, abuse of,
8, 27
Debt, War, 113, 138
Debtor, State not a, 107, 115
Democracy, the roots of eco-
nomic, 6, 140
Distribution, the great prob-
lem, 26, 52, 69, 79, 89
Dollar, the leak in the, 59, 60
Economic basis of Society,
137
Education, influence of, 5, 138
Energy, time-unit, 93, 107
Finance, supremacy of, 28, 41,
42, 47, 89
mirage of, 63, 72
Freedom, basis of, 6, 118
Function, separation of, 88
Golden Age, 90
Industrial organization, 45
Jevonian Economics, 27
Manufactures ( semi- ) , rela-
tion to credit, 62
Medievalism, 42, 90
Money, definition of, 28
Nations, League of, 130 et seq.
Organization, use of, 9
Pay, 69, 98
Piece-work, 31, 99
Price, and cost, 53, 107
the Just, 91, 102, 124
143
144
INDEX
Production, accounting of, 54
super-, 51
to a program, 97
Sabotage, economic, 69
Shop-Steward System, 81, 108
Servile State, 21
Servility, 16, 19
Socialism, 20, 22
State systems, 7
Syndicalism, 24
Trusts, 24
Ultra-Modernism, 91
Unionism, Trades, 82
War, causes, 70, 134
Wealth, 65
A 000 677 925 o
