Source: New International, vol.1 No.4, November 1934, pp.115-117.
(John Marshall was a pseudonym of George Novack.)
Transcription/Editing/HTML Markup: 2006 by Einde O’Callaghan.
Public Domain: George Novak Internet Archive 2006; This work is completely free. In any reproduction, we ask that you cite this Internet address and the publishing information above.
THE decline of capitalism in post-war Europe stimulated the production of monetary nostrums, guaranteed to be quick, pleasant, and painless cures for the diseases of a dying economic system. Since the crisis of 1929, many of these panaceas are being advertized in the United States, together with some home-brewed concoctions. They find a ready market among the middle classes, squeezed between the plutocracy and the proletariat, and desperately anxious to maintain their former comfort and security.
All these middle class radicalisms propose to abolish the gold standard in favor of some fanciful monetary invention of their own. Scrip, social credit, commodity-money, index-numbers, land-money, ergs and other energy units, effort, etc., are some of their substitutes for gold. The proponents of these schemes fall into two groups, the simon-pure monetary reformers and the radical Utopians. In the first group are the Social Credit followers of Major Douglas, the disciples of Gesell (the German inventor of “stamp scrip”), and Professor Soddy, the author of Wealth, Virtual Wealth, and Debt. The second includes the various sects of Technocrats, the Incorporated Utopians, the Epic Planners fathered by Upton Sinclair, and such inveterate Utopians as Stuart Chase and Lewis Mumford.
The two schools speak for different segments of the middle class. The currency cranks voice the demands of the upper middle classes, the independent producers, industrialists and merchants, who suffer directly from the extortions of finance capital The radical Utopians express the protests of the propertyless lower middle classes, the salariat, professionals, and intellectuals, against all the masters of capital.
The theoretical heads of these schools have themselves labelled their doctrines “The New Economics” in order to distinguish them from the presumably outmoded, nineteenth-century, pre-Power Age economic ideas of Smith, Ricardo, and Marx. Actually, however, the New Economics represents a modern revival of the theoretical errors and fanciful flights of the petty bourgeois socialist sects and monetary reformers of the early nineteenth century, so devas-tatingly criticized by Marx.
Despite their differences in detail, all the New Economists agree that the central cause of the contradictions of capitalism is to be found in the sphere of the circulation of commodities, rather than at the point of production, where the Marxist locates it. They pose the question in this fashion. The problem of production has been solved: we must now solve the problem of distribution. By “the problem of production” they mean the technical possibility of abolishing poverty, which incidentally, was solved generations ago. By “the problem of distribution” they mean the financial side of capitalist production. In short, the New Economists want to solve the social problem of capitalist production without changing the existing relations of production. They therefore discover the infirmity of what they call “the price system” in some part of the monetary mechanism. The Social Creditors in the banker’s credit monopoly; the Technocrats in the whole burden of debt-claims upon industry.
Their particular prescriptions for the cure of the disease accord with the desired diagnosis. The currency reformers of the Social Credit type wish to save capitalism by making changes in the monetary system alone. The Technocrats and their ilk hope to eliminate capitalism by doing away with the capitalist’s control over production. While the Social Creditors praise the industrialists for “perfecting the productive system” and concentrate their attacks upon the bankers for impeding its harmonious operation, the Technocrats condemn all the capitalist groups for their wilful sabotage of industrial efficiency. The Social Creditors propose to socialize credit only and leave the capitalists in control of industry. The Technocrats talk of socializing the means of production as well as the means of exchange, and placing industry under the “control” of a Soviet of Technicians, without, however, invalidating the property claims of the present owners. The proposed lever for this social transformation is the same as that by which Social Credit seeks to reform capitalism: an alteration in the monetary mechanism.
The differences between the two groups ultimately reduce themselves to the difference between two dreams, a dream of reform and a dream of revolution. Both shrink from drawing any genuine revolutionary consequences from their principles, and hope to attain their heart’s desire by peaceful; parliamentary means, as simply and easily as pressing an electric switch. Their practical political programs reflect the timidity of the middle classes, which can neither live with capitalism today nor without it, and tremble at the prospect of proletarian revolution.
Confronted with the Marxian analysis of the class basis of capitalist production, the New Economists rationalize their own middle class position by asserting that the economic and political power of the proletariat is rapidly decreasing. They paint pictures of factories operating with that mightiest of all instruments of production, the proletariat, either absent or thrust into the background. They quote statistics by the page to prove that the mechanization of industry is eliminating the worker, until one wonders from where the masses of striking workers suddenly spring. These ideas are of course advanced as impartial scientific observations with the claim that they support no particular class interests.
Although there is little originality or scientific value in the teachings of the various schools of New Economists, the social and political importance of their offspring is great. They become half-way houses on the road to a consistently revolutionary position, even though the movement as a whole may drift in the opposite direction. The contradictory currents in the English Social Credit movement, for example, carried John Strachey to Stalinism and Mosley to Fascism. In either case, the evolution of these middle class radicalisms is a reliable thermometer of the social fevers of the most advanced sections of the petty bourgeoisie.
The Social Credit scheme of Major Douglas, an English engineer, is the most popular monetary panacea among the middle classes of the British Empire. The Social Creditors claim sixteen representatives in the New Zealand Parliament, and in the September elections in Australia their candidates received strong support in New South Wales and Victoria, exceeding the Labour vote in some districts. They entertain hopes of initiating the first Social Credit experiment in the Antipodes.
Social Credit has only recently taken hold in the United States. Major Douglas made his first public appearance here last spring. He was greeted by his disciples as the greatest living economist and saluted with their slogan: “Adam Smith for Capitalism, Karl Marx for Communism, Major Douglas for Economic Democracy.”
The Douglasites have even proclaimed themselves to be the true Fourth International, the legitimate heirs of Marx and Engels. These delusions of grandeur are characteristic of their peculiar form of social paranoia.
The Social Creditors have the merit of recognizing that wars and imperialism are caused by the contradictions of capitalist economy; that the productive forces of capitalist society are being strangled in an economic strait jacket: that poverty in the midst of potential plenty is shameful and unnecessary. They sincerely desire to abolish war, poverty, and the miseries of exploitation, but without upsetting the existing social relations of production and without compelling anyone but a handful of bankers to yield up their present privileges. The proletariat must remain in its place; the productive forces must be enclosed even more tightly within national boundaries; the sphere of capitalist production, profaned by the investigations of the Marxists, must be considered holy ground belonging to the industrial high priests whom the rest of mankind was born to serve. These conflicting considerations, combined with their ignorance of all previous economic theory and history, lead them to look for an easily recognizable scapegoat on which to hang their troubles and a simple method for getting rid of them forever.
They find the scapegoat in “the money power”, the credit monopoly of finance capital. They quote from the fake Protocol of the Elders of Zion to prove the existence of “the banker’s conspiracy”. They insinuate that bankers deliberately create panics and crises by contracting credits or withholding them. They do not know that the calling of credits is simply evidence that the crisis is already under way, instead of being the fundamental cause of its occurrence, and pass over the fact that bankers, like other capitalists, can only invest money where there is the prospect of profit.
The fountain-head of their errors is the belief that money is not (or should not be) a commodity, but a system of worthless tokens. They mistake the superficial forms of modern money (its paper dress as currency or its phantom bookkeeping existence as checks) for its inner nature. They completely fail to comprehend the function of money in a commodity producing society, and particularly under capitalism, the most developed form of a commodity producing society. As the general equivalent of value, money is not only a commodity but the king among commodities, destined to reign so long as capitalism endures.
Nor do the Social Creditors understand that money is also a constitutional monarch, subject to all the laws of capitalism. Chief among these laws is the necessity of transforming money into capital, and using capital to appropriate surplus value. The financier accomplishes this by loaning money to the industrialist or the merchant, who, in their turn, appropriate their share of surplus value directly from the working class. The selfsame capital is used for exploiting purposes by both groups of capitalists, and yet the Social Creditors condemn the bankers alone. Their position amounts to this: the capitalist may exploit the working class, but the finance capitalist must not exploit his brother capitalists.
The social source of their animus is evident. Social Credit formulates the fear of the unorganized capitalists for the Frankenstein monster of finance capital which threatens to destroy them, just as the Single Tax expressed the hatred of the industrial capitalists for the landed proprietors. Hence, the Single Taxer’s attack upon the rent monopoly, and the Social Creditor’s assault upon the credit monopoly, both of which are merely specialized extensions of the monopoly of the means of production by the capitalist class. The credit monopoly is the means by which large aggregates of capital exploit the lesser capitalist groups, and through them, the working class. The credit monopoly at the apex of exploitation could be overthrown only by an overthrow of the general monopoly of the means of production in the hands of the capitalist class.
The Social Creditors, however, have no quarrel with any other form of the power of private property but “the money power”, and, above all, they fear a communist revolution. They therefore are forced to conceal their class interests by evading all questions that involve them and taking cover in meaningless abstract phrases. For example, they charge the banker with converting “the communal wealth into financial debt”, although that process is only a special case of the continuous transformation of social wealth into private property under capitalism. They speak of “the communal credit” as though such a thing existed in a social system based upon the institution of private property. Marx disposed of such nonsense once and for all with the remark that “the only thing which enters into the collective possession of the people under capitalism is the national debt”.
Douglas’ chief contribution to the science of economics is his discovery of a flaw in “the price system”. This flaw is formulated in an alegbraic theorem, A over A plus B. According to Douglas, all purchasing power is distributed in the course of the productive process, as follows: Let A represent payments made to individuals..(whether workers or capitalists) in wages, salaries, and dividends. Let B represent payments made to other organizations for raw materials, bank charges, and other external costs. Then A, the rate of flow of purchasing power to individuals, must obviously be less than the rate of flow of prices, A plus B, by a proportion equivalent to B. This permanent deficiency in purchasing power is supposed to be bridged by the banker’s extension of credit against production. When the banks withdraw credits, the gap between prices and purchasing power grows wider and wider, until the crisis occurs.
This theory fails to explain why, if there exists a permanent deficiency in purchasing power, capitalist crises break out periodically. The Social Creditors attempt to get around this difficulty either by asserting that the present crisis is altogether unprecedented, a phenomenon peculiar to the Power Age of the twentieth century, or by accusing the bankers of anti-social conduct. Neither of these explanations will hold water. Fourier over a century ago described the first capitalist crisis in the same phrase used by the Social Creditors, “poverty in the midst of plenty”. The financial magnates are as helpless as any other capitalist group to start or stop a general capitalist crisis, although they have induced temporary credit stringencies for their private purposes.
But even as it stands, the fallacy in Douglas’ discovery is not difficult to detect. This lies in the fact that B payments (raw materials, bank charges, and other external costs) are A payments (wages, salaries, dividends) at a previous stage of production. So long as some other, more fundamental flaw does not interrupt the production and circulation of commodities, B payments will continue to be transformed indefinitely into A payments; banks will keep extending or renewing credits; and the industrialist will continue producing profitably. The fundamental cause of capitalist crises is to be found in the antagonisms of capitalist production, which generate all the relatively superficial flaws discovered by Douglas in “the price system”.
Except for scientific purposes, it does not much matter whether the reader grasp this part of the Douglas theory. His panacea does not necessarily follow from it, nor is it understood by most Social Creditors. They put their trust in the scientific attainments of this quack doctor of economics because his remedy is so cheap and palatable.
There are three proposals in the Social Credit program: the socialization of credit, the National Dividend, and the Adjusted Price. First, the power of creating credit is to be taken away from the private bankers and vested in the state. Then the state is to be incorporated and a National Credit Account set up. Out of the Social Credit, calculated from the excess of productive capacity over purchasing power, National Dividends will be periodically distributed to all eligible stockholders of the corporative state. The inflationary rise in prices which would follow the issuance of National Dividends (a fancy name for unsecured currency) will be prevented by the Adjusted Price. The Adjusted Price requires all retailers to sell their goods at a decreed discount and to be reimbursed at the average rate of profit by the government. Thus, as Alfred Bingham, the editor of Common Sense remarked, Social Credit combines the best features of the dole, perpetual price-cutting, and a bull market.
The scheme is utterly Utopian. If credit was nationalized, as it is for all practical purposes in many capitalist countries today, it would simply put a more powerful weapon in the hands of the monopoly capitalists who control the state, and be used, as it is in those countries, to protect the profits of national capitalists against foreign competition. The closest the workers will ever get to a National Dividend under capitalism is the national dole, a subsistence pittance to keep them alive until capitalist production or imperialist war needs them. To put the Adjusted Price into effect would entail the regulation of the .entire national economy, and, short of proletarian revolution, this could only be attempted by a dictatorship of monopoly capital. Credit could only be successfully socialised, however, after all the instruments of production had been socialized.
The Social Creditors assure us that Social Credit is not socialism, communism, or Fascism, but Economic Democracy. The historical and social roots of Economic Democracy, its leading personalities, its practical proposals, and political direction, however, unmistakably point to Fascism as its nearest relative. The Fascist character of Social Credit stands out clearly in Douglas’ concrete plans. In the Draft Scheme for Scotland, he proposed to reduce all wages in organized industries twenty-five percent, to deprive the membership of any trade union violating a wage agreement of the National Dividend, and to compel every worker to remain at his present trade for five years after the initiation of the scheme on penalty of losing his dividend. The National Dividend is supposed to compensate the worker for this loss of wages, freedom, and the right to strike. Combine these labor conditions with Douglas’ project for reconstructing the English coal mining industry, which gave a perpetual six percent to the present owners – and all the elements of the Fascist state, from gleichgeschaltete trade unions to guaranteed incomes to stock and bond holders à la Mussolini, are present.
Like all typical Fascist programs, Social Credit is radical in form and reactionary in substance. Its propaganda panders to all the confused antipathies of the infuriated petty bourgeois, providing a pseudo-socialist covering for their outspoken hatred of finance capital, their nationalism, anti-communism and anti-semitism. It would be a mistake, however, to say that the Social Credit movement is Fascist in its present form. It is still in an adolescent stage of Utopian illusion. The Douglasites walk with their heads in the clouds, filled with rosy dreams of the future Economic Democracy in which, by their financial feat, there is enough of everything for everybody, God’s in his heaven, and all’s right with their world.
The small sect of Social Creditors in this country has so far devoted its energies to propaganda and persuasion of key men in government and industry. Their propaganda has found a welcome among the influential inflationists at Washington and elsewhere. Father Coughlin, the Sweet Singer of Michigan, has used Social Credit ammunition in his latest broadsides from the radio pulpit. Several Senators have been captivated by Major Douglas’ siren song, and Senator Cutting of New Mexico has already prepared a bill for the nationalization of currency and credit. Social Credit seems to have the charms of a femme fatale for the economic illiterati. Archibald MacLeish and Ezra Pound, the admirer of Mussolini, are two of its more celebrated advocates among the intelligentsia.
The Social Creditor’s hope to dislodge the money power in the country, the stronghold of monopoly capital, is doomed to disappointment. It is even doubtful if they can muster enough mass support among the middle classes to become a political force, particularly when they must enter the political arena in competition with such outright Fascist demagogues as William Dudley Pelley, Der Führer of the Silver Shirts. Pelley has stolen the most attractive features of the Social Credit program, including the Incorporated State and the National Dividend of eighty dollars a month.
In England the Social Credit movement is more advanced politically. There its oracle, A.R. Orage, hobnobs with the Tory die-hard, Lord Lloyd, who is being groomed as the Von Papen of British Fascism. A green-shirted youth movement, the Kibbo Kifft, has declared for Social Credit and may be seen on street corners, agitating for the Economic Democracy of Major Douglas. Social Credit propaganda has even affected certain sections of the labor aristocracy, who substitute speeches about “the banker’s ramp” and the nationalization of the Bank of England for a revolutionary program.
Whether the Social Creditors will wither into a hole-and-corner sect like the Single Taxers, or be sucked into the whirlpool of a Fascist movement depends upon the course of the class struggle in the English-speaking world. As the class struggle approaches a crisis, and the proletariat prepares for decisive battle, hard historical facts will dispel the intoxicating effects of such fantastic schemes. Social Credit, like its contemporary counterparts in Germany and Austria, will then expire in a miserable fit of the blues.
Last updated on: 4.2.2006