CHAPTER
II
SOUND
MONEY
IF we clear away from our minds all the over-growth with which
our conception of the industrial system is obscured, one fact
seems to emerge clearly. The primary inducement by which the
co-operation of the great majority of persons is obtained is
through the necessity of "getting a living." That is to
say, the first policy of an industrial system which would obtain
the unhesitating acquiescence of the majority, is that it should
deliver the goods and services that they require with the minimum
amount of trouble to everybody. Not only is it indisputable
that the industrial system does not do this at the present time,
but it is not even publicly contended that this is its object.
As a system, it is only considered to be open to criticism when
it fails to provide full employment for everyone.
So
far as the generally accepted methods of democracy are adaptable
to the situation, there is no shadow of doubt that the first
and most important task of the majority is to vote on this single
issue. And the first task for any executive, genuinely empowered
by the majority to serve its best interests, is to devise means
by which the desires of the majority can be given effective
embodiment.
At
this point it is valuable to recognise the parallelism which
exists between the attributes of a political majority, on the
one hand, and the economic consumer, and the political minority,
on the other hand, and the economic producer. Just as a political
majority is likely to be right on a matter which truly comes
within the domain of policy, but is very probably wrong in its
ideas as to how that policy can be made effective, so, conversely,
it is undoubtedly true that the industrial technician (the "intelligent
minority") is very apt to hold distorted views on the objective
of the producing process in which he is so keenly interested;
while being unquestionably the right and proper person to decide
on the technique to be applied to a given programme of production.
The parallelism extends with sufficient completeness to the
proper relationship between the consumer (the "majority") and
the programme of production, the consumer being only legitimately
interested in results.
It
is also vital to notice that, so far from these relationships
being in any sense theoretical, they are so automatic and inherent
that they exist in a definite form in the world to-day. In spite
of all the agitation for what has been called workers' control
of industry (an agitation which has been pressed forward in
every part of the world) such a thing has never been in effective
operation, for the reason that it is against the nature of things.
Finance directs, and always has directed, the programme of production.
Finance is the technique of credit; and the origin of credit
(though not the whole basis of credit) should be the consumer.
"Workers' Committees," Soviets, and so forth, are crude credit-distribution
societies, whose working is inferior as such to that of the
orthodox bank. It is possible to remove every factor from the
industrial system, except effective demand, and some sort of
industrial system, however primitive in kind (even to the extent
of digging for roots and climbing for fruit), will remain; but
take away the desire, the need or the belief in the ability
to consume, and not a seed will be planted nor a tool employed.
It is not for lack of technical ability, but for lack of effective
demand, that civilisation today stands on the brink of irremediable
catastrophe.
There
is, therefore, no room for doctrinaire theorising in regard
to the "aims of industry"; the trouble about industry is not
that its aims are wrong, but that it fails to achieve them.
And it fails to achieve them for a simple reason - the individual
is divorced from the credit which is his, and, in consequence,
does not duly function as a consumer. It is only necessary to
recognise the natural relationships which underlie any sort
of functioning of an economic society. If we recognise and admit
these relationships, and make our arrangements accordingly,
we have a machine which is designed to work in accordance with
the only forces which are available to work economic machines,
and the result is smoothness and efficiency. If we refuse to
recognise these forces, or pretend that they have a direction
which is contrary to the facts, or clamour for a change in their
nature (a "change of heart"), we are likely to get an economic
machine which is about as successful as would be a plough if
installed for the purpose of driving an Atlantic liner. We are
in the position of a would-be engineer who refuses to accept
the principles of thermodynamics, and, instead of endeavouring
to improve the steam engine, tries to alter the properties of
steam.
The
financial relationships which correspond to these principles
are fundamentally simple. The credit power which is based on
the demand of the community as a whole for goods and services
can only be effectively directed in detail by trained technicians,
using that description, in the words of the Labour Party, "to
include workers by hand and brain." But just as it is in the
nature of things that ownership and finance are indissoluble,
so, while emphasising the sphere of the technician in production,
it is equally certain that his product belongs not to
himself, but to the community from which he derives his financial
energy. It is the business of the scientist, the designer, and
the inventor, to place before the individuals who compose the
public the achievements which are considered possible. It, is
the business of the public to say in what quantity and in what
priority it considers those achievements desirable, and it is
the business of the producer, in the general sense of the term,
to act in accordance with the verdict, and to hand over the
product to the general public - the consumer - of whom alike
the producer and the inventor are a part. That is practically
what happens at present, with the vital exception that the order
system which connects the individual with the producer does
not function; whether by accident or design is largely immaterial.
One
method by which it is possible to visualise in a familiar form
the embodiment of such a set of relationships is in the conception
of, let us say, Great Britain, Limited. If we imagine a country
to be organised in such a way that the whole of its natural
born inhabitants are interested in it in their capacity as shareholders,
holding the ordinary stock, which is inalienable and unsaleable,
and such ordinary stock carries with it a dividend which collectively
will purchase the whole of its products in excess of those required
for the maintenance of the "producing" population, and whose
appreciation in capital value (or dividend-earning capacity)
is a direct function of the appreciation in the real credit
of the community, we have a model, though not necessarily a
very detailed model, of the relationships outlined. Under such
conditions every individual would be possessed of purchasing-power
which would be the reflection of his position as a "tenant-for-life"
of the benefits of the cultural heritage handed down from generation
to generation. Every individual would be vitally interested
in that heritage, and his clear interest would be to preserve
and to enhance it. Contemporaneously with this, he might also
be a "producer," and although it is probable that the money
incentive in the form of wages could be made small in comparison
with the dividends he would receive as a shareholder, the relation
between these two forms of effective demand offers a flexible
method of transition from the existing arrangements. It will
be obvious that such a set of relationships does not impinge
on what is commonly called the rights of property, so long as
these rights are "consumers' " rights. It renders each individual
immune from economic penalisation for his personal views, and
thus forms the only effective bulwark against tyranny, and it
places the underlying facts of co-operative production in a
light in which they can be seen and grasped by the most modest
intelligence. Under such an arrangement, wages and salaries
become what they are in fact at present - merely a credit grant
against future production, and a measure of the human
energy put into production. This credit grant would be cancelled
by the writing down of the national assets to an extent represented
by the sum of wages and salaries, the assumption being, of course,
that the wages and salaries represent the consumption of goods
over a given period which have to be debited against the production
of the same period. The dividend which is declared over the
equivalent period represents the division of the difference
between actual consumption and actual production (both of actual
products and production capacity) over the same period.
Pursuing
this line of reasoning, it is not difficult to see that in
the modern world a workable financial system is far more in
the nature of an accounting and order system than an exchange
system.
When
each man ploughed, sowed, and reaped his own harvest it was
a reasonable argument both ethically and pragmatically that
what he produced was his own to be used or exchanged for other
products, as he saw fit. In this exchange process the use of
tokens was an obvious development. Our word "pecuniary" (Latin,
pecus, cattle), no doubt derives from the practice of
using leather discs to represent a cow or a horse. The owner
of the animal parted with the disc in return for suitable consideration,
and when convenient the holder of the disc presented it and
obtained delivery of the property. It is of importance to realise
in this connection that (a) The owner of the cattle and
the original issuer of the money were the same individual; (b)
To the extent that the system was in use, it was obviously its
intention that production of goods and production of monetary
units should keep in step - that each unit of real property
should be represented by an equivalent unit of money and the
destruction (or final delivery by its original owner) of a unit
of real property would consequently involve the cancellation
of the equivalent monetary unit, or its re-issue by a new owner.
It
is easy to conceive that a simple monetary system of this nature
would be an immense convenience to a pastoral community limited
both in numbers and in the variety of its property, but that
abuses (probably forgery and inflation) would grow as the system
was enlarged and modified to meet a civilisation of greater
complexity. These abuses would naturally produce a group of
experts to deal with them and at once the general outlines of
a nascent banking and credit system become evident. The transfer
of the right to issue money from the property owner himself
to a group of specialists alleged to be acting on his behalf
would be an easy step.
Now,
as emphasised in Chapter
V, the factor transcending all others in importance in the
modern world is the cultural inheritance by the aid of which
wealth in practically unlimited quantity can be produced by
a small and diminishing amount of human labour. In order that
a financial system may work in accordance with the necessities
of the conception on which money rests fundamentally it is necessary
:
The
original conception of the classical economist that wealth arises
from the interaction of three factors - land, labour, and capital, was a materialistic conception which did not contemplate
and, in fact, did not need to contemplate, the preponderating
importance which intangible factors have assumed in the productive process of the modern world. The cultural inheritance,
and what may be called the "unearned increment of association"
probably include most of these factors, and they represent
not only the major factor in the production of wealth, but a
factor which is increasing in importance so rapidly that the
other factors are becoming negligible in comparison.
It
is both pragmatically and ethically undeniable that the ownership
of these intangible factors vests in the members of the living
community, without distinction, as tenants-for-life. Ethically,
because it is an inheritance from the labours of past generations
of scientists, organisers, and administrators, and pragmatically because the denial of its communal character sets in
motion disruptive forces, threatening, as at the present time,
its destruction. If this point of view be admitted, and I find
it difficult to believe that anyone who will consider the
matter from an unprejudiced point of view can deny it, it seems
clear that the money equivalent of this property, which is
so important a factor in production, vests in and arises from
the individuals who are the tenants-for-life of it.
The
question of its net increase is also beyond reasonable question.
Every scientific invention and discovery, besides forming a
real asset in itself and being essentially an addition to the
assets of civilisation, reacts on other assets in a manner which
automatically increases their value, just as the addition of
a new subscriber to a telephone exchange automatically increases
the value of the telephone system to the existing subscribers
by giving each one of them an additional line of communication.
This factor, probably far more than the material assets of civilisation
forms the basis of its real and growing store of wealth. To
be set against this, is merely the depreciation and obsolescence
of material assets, including consumption goods, and it is beyond
question that on balance the yearly appreciation of wealth is
greatly in excess of depreciation.
The
relationship of money issued, to the goods against which it
is issued, is completely maintained if prices are in the first
place related to costs, and the value of the unit in which costs
and prices are computed is consistently related to the changing
ratio between production and consumption. This is not satisfactorily
attained by any of the devices for the production of stabilised money, even if it were possible to achieve them, since
a stabilised unit of money involves the adjustment of past values
on a scale which seems to me, at any rate to be, fantastically
impracticable. But if, without varying the accounting figures
which apply to plant, machines, and other real property, we
vary the purchasing power of these units for which they are
accounted in accordance with the fundamental proposition
that the true unit of account derives from the ratio
the
whole of our production values are automatically adjusted in
accordance with the facts as these vary from day to day.
This
may be put in the following mathematical form.
Let
Y be any arbitrary unit and t = time, then the total
production at any time is P = f (y.t) and total
consumption at any time is C = 
(y1.t). Rates of change
of P and C with respect to time are
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dP
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dC
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=
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t
(y.t)
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and
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=
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(y1.t)
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dt
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dt
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Price
varies as
This
is an instantaneous value. Mean values can be found for a period
and the price factor then becomes
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T1
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dC
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dt |
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T2
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dt
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T1
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dP
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dt |
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T2
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dt
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i.e.
price factor =
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mean
consumption - rate for selected period
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mean
production - rate for selected period
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It
should be emphasised that the practical operation of a price
factor of this character involves no difficulty and is, in fact,
in various forms a commonplace of business operations at the
present time. As compared with the complex system of discounts
which are a feature of every business, and vary not merely from
business to business, but from one department of the same business
to another, the application of a uniform price factor for the
purpose of reducing the general price level is a matter of elementary
simplicity. As an appendix
to this book a model scheme, intended in the first place to
apply to Scotland, is attached, and it will be seen that a number
of considerations not apparently arising from this theorem have
been included, but on consideration it will probably be realised
that the general principles explained in the foregoing pages
form the basis of the conception underlying the proposals.
