the douglas system of social credit alberta session 1934

8/6/2019 The Douglas System of Social Credit Alberta Session 1934

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A P R I L 6, 1934.Chairman: M r . Claypool.

EVIDENCE OF MAJOR C. H . D O U C LA SM a j o r DOUGLAS: Mr. Chairman, Mr. Prime Minister and Honoural~le

Alrlmbers of this Legislative i\ssenlbly of Alberta.In the first place I would like to thank you for your very kind receptionnn(l to assure you tha t an y service tha t I can render to you is freely at your~lisposal. Now I think in regard to this matter, although my kindly introducermentioned you ar e broadly familiar with the conditions of ou r existing monotzrs-ystem, thnt it is necessary to go over that in order to emphasize certain pointsin regard to it which have to be continuously born in mind in regard to thismatter, and the first thing I think to do is to bring into our consciousnesscertain propositions in regard to the economic system itself; that is to say the.-?stem by which we get bed, board, clothes and luxuries.

Sow the first point to recognize is that the economic system exists primarilyi o ~he production a nd distribution of goocis and services. That is, it is t h eprimary objective, and any other objective which rnay be introduced into i t istxtraneous. That is n matter which requires almost immediate attention inrcgartl to these matters, because you will very oft en hear it said that tll- pr iniaryfeatu re, let us say of the situation, is to deal with the unemployment p r o l ~ l e ~ i ~ .Now the unemployment problem is not in itself inherent as an objecti1.e o f theeconomic system. I t is not the sort of thing you can take as a n axiom th s t ?heeconomic system is fa iling if it fails t o provide employment. The perfect


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. ;.:.:rn which has nothing whatever to do with all these abstract descriptionsof it such as a medium of exchange, o r a storehouse of va lues or an y of theseother things. I t is a ticket system and nothing else. Wha t the result of pervert-ing and manipulating the ticket system may come to be in such a way as itseems to acquire these attributes, but if you will bear in Mind money is nothingbut a ticket system you will save yourself a great deal of trouble by strippingyour mind of pre-conceptions.

Now to show you that money is nothing but a ticket system I think the bestway is to go back very briefly to the origins of the money system and thoseorigins are connected with something with which in the western part of Canadayou should be very familiar. They are connected with cattle and grain as funda-mental riches, wealth. In the beginning of t he money system as we know itthe owner of capital was the chief owner of wealth, and he exchanged someof his cattle fo r grain, so he might feed th e cattle he retained. The grain vendorwas very often an itinerant and it was not always convenient for him to takeaway cattle a t the time and have to drive them around to his other customers,so he took from the vendor a leather disc which sometimes bore the head of acow or horse on it, and sometimes not. A t th at point there were two absolutelyvital things to be recognized in connection with the monetary system. The firstof these is th at t he origin of the money was a t the same place as the ownershipof the wealth; the man who owned th e wealth issued the money. The moneywas nothing but a ticket, as it is fundamentally today nothing but a ticket forwealth in existence.

Now you can easily see that a system like that would be open to abuse andtha t some bright fellow would very rapidly begin t o produce discs of leather whichwere unrepresented by cattle and this is no doubt wha t took place. Now if youjump for some distance, some thousands of years, to the middle ages, you willfind that the money makers, the owners of wealth, were the custodians ofwealth, and that canie about in this way, that portable wealth was very largelygold an d silver. I t was not recognized as money until a comparatively late date,


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regariiccl as the synibol of \vealrh-gold. Ther e was always this amount of ~ I J ! < Icoin or gold in some form or another, recognized form, available ag :i ir ~~ tilelegitimate dra ft s which could be made by cu st on ~e rs f the banking systern ag .;i i~~ .ittheir "tleposits" as they came to be known. Tha t is to say , in England tli,!re \\.:ISalways supposed to be one gold sovereign against any cheque for ii'l \ \ liici~n n stlrawn, or against a E3 note there would be five gold sovereigns s u p l ~ ~ ~ . ~ i i i y:lexistence. That itlea of course involved th at, if everybody nithdreiv h is ,il3po.;itsthcy would all be paitl in gold and presunlably there would be no gold 18.i~ ~ i 11,~bank, and the gold would be transferred to the people who hacl the 1.ig1it t>fcalling upon cleposits.

Now this theory was probably implicitly accepted by the public and tacitiyaccepteci by the banking system, bilt was never expressly true in the past scv+~r:clhundred years. As many generations of people have been only too veil ;.t\\:ii .:,on every occasion on which this r ight of cashing their deposits in go l~l i-i3.s : ~ c r -ciscd, the system always failed and the banks either failed thenl.ir2lves 01. hallto resort to some measures which did not meet the premises of the pulbliq: c~ >n-tention that all deposits were payable in gold. Th at was provetl, of c ou i - ; , . , inAugust, 1914, when there was a run on the Briti sh banks, including t l ~ ~ankof England. There were 900 millions on deposit drawable by cheque, ansl 5,)lnc-thing over 20 0 millions \vere tlrawn within two or thr ee days. The n.llul~*< 111txoltl stocks in the country were exhausted a'ntl passed into the hands of t 1 1 , . c ; c ~ ~ -era1 public, leaving pojsibly a t least six hundred millions of deposits ~ i ~ i l . ~ ~~ l i i . * , j : -resented by a ny tangible assets whatever in hand s of the bank, thus pmvinqthat the banks again, as they had been doing even from the days of t l ~ c olrl-smiths, issued more receipts than they possessed tangible wealth for.

Now that was, of course, originally-and I say this quite dispa;;.ionarclybecause it is working to the end of a practical result which is importa~lt-thatwas a system which originated in f r a ud ; it was a system which ori~i~~ntcr lythe issue of more receipts than there were goltl coins, on thq assumption. which\\as generally true, that all the receipts would not be presented xt once for


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ing percentage of the available population. That is because of the increasingperfection of these machines, and the fact that a decreasing number of operatorsare necessary to tap the keys of the machine, as you might say. Each one isincreasing his out-put per head every year. Fo r instance, working fro m entire lydifferent premises, or rather a long different lines, but from the same premises,I myself and those with me arrived a t the conclusion tha t by about 1940 , if therate of production increased in Great Britain only uniformly, and it is quitelikely to increase very rapidly by what we call acceleration, there would only bepossible work in Great Britain for eight million out of about fourteen millionavailable working population. Now I and those with me arrived at that conclu-sion by one route. I happened to discuss the subject with Denis Burney the air-ship builder, and without my mentioning any figures, or without his having anyof my information available, he said, "Oh, we have been working on this, and weshall have six million unemployed in Great Britain by 1940 if we go on the waywe have been doing and nothing is altered."

Now that involves a new idea in regard to the monetary system or quite anew use, let us say. I t means we have a t any rate to prepare, if not actually toarrange (at the present time in the older countries we have to arrange, butperhaps in Canada you might merely have to prepare, I should not like to saydefinitely at the moment which one of those may be necessary), but you willhave to arrange or prepare for the distribution of an increasing number oftickets which the goods for this machine of civilization can produce, withoutits being necessary f or the receivers of these tickets to pass through the turn-stileof the factories, as you might say. In other words you have got to get awayfrom the idea that the only legitimate grounds for the receipt of goods andservices is the doing of work. If you introduce any principle of that kind intoyour ideas, you contravene the first idea that I would endeavour to make clearerto you, that the objective of the producing system is to deliver and distributegoods and services; i t is not to provide employment. And if you have, as youhave, your best brains endeavouring to eliminate employment (because that iswhat the works manager means when he says, "I am reducing costs." He means


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interesting, but why should we change? We ar e not suffering; we are perfectlysatisfied with the situation." And there seems to be very little doubt a t thepresent time that the only reason that people with, let us say, perhaps a littlemore modem ideas about the financial system, are listened to in high financialplaces is in orde r that steps may be taken to see t ha t their views are not put intooperation. In other words you a re very largely in the position of a veryingenious genera l who sends all his plans to the opposing general anrl says: "Don'tyou think it would be a good idea if we do that," and the opposing general says:"Thank you very much. Send me some more plans. I will consider those too."Then he considers them with a view to seeing tha t they are not put into operation.

So that the problem from the practical point of view very largely resolvesitself into-"What can you put forward which will a t any ra te ameliorate thepresent state of affairs, if you assume that you cannot finally tlispose of it, andwhat can you put forward, and in what way can you put it forward, so that youcan put it through under the existirig circumstances, so that it will be a basisfrom which you can make a further attack upon the existing state of affairs?"

I may say that I am just finishing a tour of the world on this subject, andit is impressed on me by the situation everywhere that the general population isbcco,mingly increasingly aware of the drastic necessity for dealing with thefinancial problem, and it is being met by a hardening opposition and determina-tion on the part of the financial powers that be, against change in any funda-mental aspect. The questions of inflation or deflation in the ordinary way arequestions for discussion with the financial people. They are always ready todiscuss the questions of financial inflation or deflation, because they make almostequally well by inflation or deflation. The genera l public loses on both of them,so that there is no real objection to discussing whether more loans shall be issuedor additional loans shall be recalled and mortgages foreclosed; it is simply aquestion of tactics. There is nothing fundamental about that and I should like tosay with all the diplomatic consideration due to a friendly and very adjacentgrea t power, t ha t the re is nothin-g going on south of the line a t the present timewhich fundamentally contravenes the tenets of the existing financial system. I


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so that the line I took with New Zealand was this: "We will assume that theexisting monetary system is perfect, and we will make suggestions for theamelioration of the existing si tuation within the lines of the elcisting monecz1-Ysystem, and we will see how they work."Broadly speaking, the suggestions were something like this (and I shall

have much pleasure in depositing an actual copy with the prime minister for theus e of this house ): "We know qui te wall that t he core of this problem is in thedisparity between the real wealth available and the monetization of that wealth;that it is within the power of monetization of real wealth that this power ofcredit lies. Now certain institutions alone have the power of monetizing wealth.and we will take that power as it stands, and a-e will go to the banks and say:'Now you have the best possible precedent in the Bank of England for limitingdividends to 6%-which is the dividend invariably paid by th at bank. We

1~ .I; 51-our law-making powers limit your dividend to 6% . Then we will ask yourc do this, and if you do not do it we Nil1 ask you your reasons for y our objec-C I rn: we will ask you to make a return of the whole of your assets both real andn ,!.jonal. a t their market price a t the present time and a t the price a t which they:ire held on your balance sheet f o r th e purpose of your annual balance sheet'."

Real Value of Bank AssetsI may ray in digression that there is very little doubt that if we had anyconception of the market price of the assets held by the financial institutions weshould be very much surprised at th e real profits that they ar e making. Thereis an enormous difference between the disclosed value of the assets either heldby banks or held in lien by banks, in many cases under a lien which never canbe realize*, and the figures under which these assets are held for balance sheetpurposes.K e 523-:YOUwill make this return, and where it is found that the disclosedm:lrket value of pour assets is in excess of t he value for which they a re held fo rbaiance sheet purposes, we will not take those assets from you, we will not taxyou even on those assets; but we will merely ask you very kindly to exercise


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locus of t h e diil icul ti. , an d i t does b r in s up in ou r op inion fo r p ~ ~ b i i ciscussionthis c iuej t ion of the r ight to monet ize , or s t i l l more important , not to monet ize ,exis t ing rea l meai th . Tl ia t , under exis t ing condit ions , seems to m e to be one wa yto a t t a ck th is c it ade l of r ea l wea lth. W hen th a t c i tade l f a l l s ( a s i t mus t f a l l ,I fee l conf ident , in a few years' t ime , bu t i t is be t t e r pe rhaps th a t i t shou ld fa l lby success ive s taps , th an b y a ca tas t rophic sh ock ) i t wi ll undo ubtedly involvece rta in mea sures f o r the contro l an d red uction of prices, measu res vvirh whicilI t h i n k y ou a r e a ll p r o b a b ly t o s o me e x t e n t f a mi l i a r i n this house . B ut none ofthese theore t ica l ob jec tives can be p roper ly a t t a in ed so long as th i s monopoly o fc red i t r emains unchanged .

Q U E S T I O N S A N D A N SW E R S-M A J O R D O U G L A SQ. M r. MacLEOD: May I ask a quest ion wkich was substant ia l ly put to Mr. Aber-h a r t wh e n h e a p p e a r e d b e f o re t h e c o mmi t te e a week o r so ago . Xs 3 Ia jo rDouglas covered the grounds to which th is ques t ion refers , I a m g o i n g t op u t i t n o w: I s i t n o t t r u e t h a t t h e g o o d s a n d s e r v i c e s a v a i l a b l e i n C a n e d a ,nxt l the tcols by which they are produced, d is t r ibuted and exchangeci arethe personal proper ty of pr ivate individuals?A. They a r e unquest ionab ly un der the pe rsona l adm in is t ra t ion of p r iva te ind i-v idua ls an d the answ er ing o f th a t ques t ion in the fo rm of yes o r no wouldof course depend en t i re ly on wh a t you me an by p roper ty . Too ls and o the rimplements of p roduc t ion a re no t in themselves any th ing b u t the me ans tothe product ion of consum able products . Now the adm inis t ra t ion of tools an d

s o f o r t h i n t h e mo st c o n mp r e h e n si v e s e n se o f t h e wo r d is , u n d e r o u r p r e s e n tsys tem, ves ted in the ind iv idua l und er the f ic tion , a s I would pu t i t , tha t thosetool s and o th e r implements of p roduc t ion a r e h i s p roper ty . T ha t i s a pu ref ic t ion , because every coun t ry rese rves to i t se l f the r igh t to make a l l so r t sof ru les, no t on ly a s to the m ethods by which the y sha ll be used , and th econd i tions un de r which they sha l l be used, b u t t he ex ten t t o which th ey sha l l


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Q . Mr. MacLEOD: Without going over the first question, Major Douglas, I rvouldlike to develop your answer further by just saying what you have in mindwhen you mentioned the present system. Do you rea di ly recorrnize it is adefect in so f a r a s it fails to distribute th e goods, and if it is, just how muchwould be involved in your mind when you refer to the neecl of governmentsmaking regulations so that those goods can be distributed'?A. I do not think tha t a ny governmen t regulations other than a complete I .+-organization of the financial system are necessary. In reqard to the tlistri-bution of goods, it is not a question of administration at all. The dific~tl tyof dist ribu ting a government-produced procluct is just as %r eat as t1i;lr o ftlistributing a privately-produced product if the price is the same. l ' h rquestion of distribution is entirely wrapped up with the two factors of ~ I I I , ,and available purchasing power and is entirely sepa rate f ro m the metho(i , > Iadministrati on by which t he goods were produced.

Where the legiti mate field of government regula tion of in(lustry corn. .in, is under what we shoultl call, I think, factory act legislation. That i.. . ,>say, th at people should not work in a n unhealtky atmospher?, an ([ not i t < t b4too iong hours, and matters of that E nd . These have nothinr in tliern.i~.l'..sto do with the distribution of the product. The problem at the present t i 1 11 , .in the world is the problem of the distribution of the product, and that iienti rely a question of finance.Mr. MacLEOD: I do not think there a re an y furt her questions I could put t h n ~would be greatly different from the ones that I have already stated. I I I : L L # >other'questions here, but possibly Major Douglas has not come to the p n i n rwhere the questions would apply. We will be ver y much interesterl i r iknowing to what extent we in this province can apply this theory of sosi:llcredit, but I realize that Major Douglas has not come to that point in i1i.qaddress so far, so I will not present the questions now.

Q. Mr. MATHESON: Do you consider th at a ny government anywhere, unil-1.our present financial system can continue to administer the affairs of t i l e


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the r e a s o n f o r t h a t is tha t the power o f monetization of th e wea l th which isthere is he ld by th is monopoly to which I re fe r .Q. f i l l t h e r e d u ct io n , o r r e s tr i c t io n , of wh e a t p r o d u c ti o n i n cr e as e t h e p u r ch a s -ing power of the fa rm er , of the people in Wes te rn Canada , do you th in k?A. Well , the answer to tha t o f course depends on whe the r i t i s poss ib le to in -crease the purchasing power genera l ly of the community by ra is ing pr ices .Now of course th e an sw er seems to me , to anybody b u t a b ank er o r econo-mis t, is to be th a t i t is no t . I f you have a ce r ta in am ount o f purch as ingpower , and you doub le th e p r ice o f a l l a r t i c le s fo r sa le you ha lve th e pu r -chas ing power. The inc rease in the p rice of w hea t does appare n t ly f o r themo m e n t i nc r ea s e t h e p u r c h a s i n g p o we r o f t h e wh e a t f a r m e r , b u t t h e q u e s ti o n

i s wh ere does tha t inc reased p r ice come f ro m ? Th ere is of course th e a l t e r -n a t i v e t h e o r y a b o u t th i s t h i n g , b u t i t is n o t t h e o r th o d o x t h e o r y , a n d i t i s n o twha t you migh t ca l l the pub l ic op in ion , bu t the ind i spu tab ly cor rec t theoryab ou t p rices is tha t th e p r ice m us t u l t ima te ly be paid by th e consum er , so byinc reasing the p r ice o f whea t you s imply t a ke more purchas ing pow er off t h ec o n s ume r a s a wh o l e ; t h e r e c a n b e n o d o u b t a b o u t t h a t , so t h a t wh i le i t m a ybe possible to inc rease the p rosp er i ty o f the fa rm er tempora r i ly , you a r eb o u n d u n d e r o r t ho d o x a r r a n g e m e n t t o d o t h a t a t t h e e x p e n s e of t h e r e s t o ft h e c o mmu n i t y .

Q. You have jus t r e tu rne d f rom the Ant ipodes . Are cond i tions in Au s t ra l i ab a c k t o n o r ma l , a n d h a v e t h e Au s t r a l i a n s ma d e a wo n d e r f u l r e c o v e r y , a n dwha t i s the cause o f the rap id inc rease in Japanese expor t t r ade?A . I fee l tha t s t r i c t ly speak ing I o u g h t n o t t o a n s we r t h a t q u e st io n b e c au s e i t

is dea l ing wi th wha t you migh t ca l l a f r i end ly power , bu t I th ink I c a n a s s u r ey ou t h a t c o n d it io n s i n A u s t r a l ia a r e v e r y f a r f r o m b e in g s a t is f a c t o r y t o t h eAus t ra l ians . Th e on ly th ing th a t I can def in i te ly see an y s ign of im prove-m e n t a b o ut , i n t al k in g t o A u s t r a l i a n s a l t h o u g h I spoke in severa l A us t ra l i ancities I was no t in Aus t ra l ia ve ry long-they agreed , an d i t wa s comm on


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Q. I would l ike i f you would e lucidate tw o th ings fo r the benef i t of t he com-mi t tee . J u s t in w ha t wa y wou ld you use th e und isc losed asse t s o f banksa n d in s u r a n c e c o m p a n ie s t o d i s t r i b u t e p u r c h a s in g p o w e r t o t h e f a r m e r , a n dsecond ly in wha t manner cou ld we l iqu ida te ou r p rov inc ia l deb t under soc ia lc r e d i t ?

-4. I th ink I shou ld p robab ly be more he lp fu l in answer ing tha t ques t ion i f th i sa f t e r n o o n I a c tu a l l y r e a d t h e p r o p o s d s w h ich m e r e m a d e t o t h e N ew Zea landg o v e r n m e n t a n d t h e n e l a b o r a t e t ho s e t o a n y e x t e n t t h a t y o u l ik e.Q. Mr. CAMERON: When your p roposa ls were d i scussed in th i s house be fo rethe com mit tee ab ou t two weeks ago , the ques t ion o f ju s t p r ice was d i scussed

to some extent . My quest ion is th is , can th e province of A lber ta fix a jus tp r i c e ?A. You wi ll r ea l ize th a t i s no t a t echn ica l ques t ion ; i t i s pu re ly a l ega l ques tiona n d I a m n o t r ea l ly c o m p e t e n t to a n s w e r t h a t , b u t m y u n d e r s ta n d i ng i s t h a t ,a s a f i rs t s tep , i t would be ex trem ely d iff icu lt , because of t h e powers whichs ee n1 to b e r e s e w e d to t h e D o m in io n G o v e r n m e n t u n d e r t h e Br i ti s h N o r thAmer ica Ac t .

"A Plus B" TheoryQ. Mr. CIBBS: M a jo r D o u glas , y o u t o o k u s t h r o u g h a v e r y i n t e r e s t i n g s to r y o fth e d e v e lo p m e n t o f m o n e y , s t a r t i n g f r o m th e n o n - p o rt a bl e w e a l th , r e f e r r e dto a s c a t t l e , t h e n t o t h e t o k e n s f o r c a t t l e , t h e n t o t h e p o r t a b l e w e a l th , g o ld ,t h e n t o t h e r e ce ip t f o r t h a t p o r t a b l e w e a l th ; a n d , g r o w in g o u t of t h a t , alarge sur plus or excess of receip ts f o r the por ta ble w eal th u pon . iv llich the ywere supposed to be based . I a m c o m in g to t h i s p o in t , t h a t t h a t e x c e s s o frece ip t s was a necessa ry expans ion o f med ium of ex change b ro ug h t abou t bythe indus t r ia l revo lu t ion a nd th e t remen dous inc rease in p roduc tiv i ty o f th ein d u s t r ia l p ro d u c t io n s y s te m , a n d t h a t i t e v e n tu a l ly b e c a m e n o t m e r er e c e ip t s f o r t h e p o r ta b l e w e a l th , b u t c r e d i t f o r o th e r f o r m s of w e a l th t h a t


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tion of costs and prices is involved in a period of about three weeks, thereis no difficulty involved in the prices and the costs being equal, but any itemof cost which is outside that period of three weeks we will say cannot beliquidated by that stream of credit which is constantly in circulation at aperiod rate, we will say of three weeks.Now we know there a re a n increasing number of charges which origin-ated from a period much anterior to three weeks, and included in thosecharges, as a mat te r of fact, a re most of the charges made i n respect ofpurchases from one organization to another, but all such charges as capitalcharges (fo r instance, on a railway which was constructed a year , txo years.three years, five o r ten years ago, where charges ar e still e xta nt) , cannot beliquidated by a stream of purchasing power which does not increase involume and which has a period of three weeks. The consequence is. youhave a piling up of debt, you have in many cases a diminution of purchasingpower being eqilivalent to t he price of the ,goods fo r sale. I t is fr e~l uentl ysaid, "Your theory must be absurd because we know that there are periodsin which purchasing power is in excess of the price of the goods for sale,fo r instance a t the end of a war." What people who say that forget is thatwe were piling up debt at t hat time a t the r ate of ten millions sterling a dayand if it can be shown, and it can be shown, that we are increasing debtcontinuously by normal operation of the banking system and the financialsystem a t the present time, then th at is proof tha t we are not distributingpurchasing power sufficient to buy t he goods fo r sale a t th at time; otherwisewe should not be increasing debt, and that is the situation.

Q. Mr. PATTINSON: Mr. Chairman, I would like to ask one or two questions,and one is in relation to the huge amount of talk that is being indulged intoday on the necessity of restricting production in order to enhance prices,and as one way out of th e present so-called depression that we are in. Thequestion is, can we ever solve the paradox of want in the midst of plentysimply by doing away with plenty?


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really involves what is the first trench of ;he existing system that you cantake in the direction you want to go, and I was just hinting at that thismorning, and I propose to elaberate that this afternoon.Q . Is there any way to stop the erratic retreat in living standards except bychanging our present method of distribution of goods and services created?A. Yes, and it constitutes the greatest danger with which the world is faced at 'the present time. There is no difficulty whatever in providing the worldwith a rationing system if you establish everywhere a complete dictatorship,leaving all powers in the hands of the dictator. Unless steps are takenwithin a comparatively short time to readjust the financial system so that itwill work, the financial system as we know it will be swept away and weshall be faced everywhere with some form of dictatorship, either Fascistor what is called Communist which is, I think, in the strict sense, not Com-munist a t ail bu t another form of dictatorship. I t is possible to deal withthe material basis of the present problem; i t is possible to provide for thegeneral public a higher standard of living, through the agencies of a dictator-ship, but that involves a surrender of all those thing3 for which the Anglo-Saxon race has fought for a thousand years.Q. Has the relative condition of self-sustaining nations in the way of naturalproducts anyth ing to do with industria l conditions and the hope of financialsalvation ?A. I do no t think, with one o r two exceptions, tha t there is any country in theworld at the present time, certainly no country operating under what one

would call westernized conditions of mass production, the use of power,which is primary to the whole thing and matters of that kind, I do not thinkthere is any country in which it is at all diflcult physically to provide thewhole population with the highest possible standard of living that anybodycould reasonably desire. In the westernized countries it is entirely a problem


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travel to Calgary as an a bs ol u; ~necessity of life. Supposing that all thosegoods and services that we tern1 tiie "standard of living" and "the meansof existence" and so forth , be all involved in travelling fro m E ~ l ~ n o n t o noCalgary. You have the track, you have the locomotive, you have the train ,you have the drivers, you have everyth ing necessary to transport the popala-tion of Edmonton to Calgary just as often a s you want; but, completelyoutside that, yoti have a ticket office which has acquired the solc right toissue tickets, and the railway between Edmonton and Calgary has got intothm: nabit of only allottinq sea ts on a t rai n on receipt of a ticket. Now theticlrct office did no t make the railways; it does not operate th e railway in an yreal sense of the word, but it says, "We a r e the only people who have theright to print an d issue tickets fo r this journey between Edmonton andCalgary, and we will make ou r own terms. We are not interested inwhether there are enough trains, or whether it is vitally necessary that thepopulation should trave l; we ar e th e people who will make th e t erm s onwhich the tickets ar e issued; the tickets a r e our property." Now that powerof issuing tickets forms a valid claim on the real wealth. I t is th e power ofmonetization of wealth. I t has nothing to do with the production of wealth.The production of wealth is a physical process atta ined by machines withthe aid of power, operated by individuals. They make things. They growwheat, they bake it into bread an d so fo rt h; they do no t make one penny ofthe money which provides those thin-gs; tha t is in the possession of this thingwe can call the ticket office and I think you will see Lhat you cannot possiblyreally ,get any distance a t all in solvine this problem of ge tting the goodswhich are purchased, or can be purchased, over to the individuals bvho needand w an t them, until you get control of th e ticket office. It does not meanto say that you have to operate the ticket office; it doesn't even mean to saythat it has to be nationalized. What it does mean is th at you a re going tolay down the conditions under which tickets shall be issued. Tha t is aquestion of policy that the right number of tickets shall be issued, and shall


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..t~,:.i


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s ign a tu r e on i t f o r t he o r ig ina l go ld . Th e o rig ina l owners o f t h e wea l th l o se t hewea l th , bu t t hey ge t t he m on e ta ry va lue which i s r ep re sen ted by a p iece o fpape r . T ha t m on e ta ry va lue is of no va lue to t hem a t a l l , excep t because o f thewi l lingness of the gen; ra l publ ic to sup ply goods and serv ices f o r i t. S o th a tw ha t r ea lly happens i s t ha t t he gen e ra l pub l i c supp l ie s goods an d se rv ices aga ins tn o t h i n g b u t a p i ec e o f p a p e r , a n d i n t h a t c as e t h e B a n k o f E n g l a n d g e t s t h e g o ld .

Over-Subscr ibed Loan.Now exac t ly the same process takes p lace when you have the i ssue of a la rgepub l ic l oan such a s i n G rea t Br i t a in , t he "Cen t r a l E lec tr i ci ty" o r som e th ing o fth a t sor t . You wil l a lw ays find a per fe c t ly g i lt -edge sec ur i ty , no ma t te r how

bad the t imes a r e , i s a lways ove r - subsc r ibed , and i t i s gene ra l ly a s sumed bypeople tha t the re s ti l l m us t be a lo t of money in the han ds of th e publ ic . Wel l ,t h e f ac t is t h a t t h e l a rge f inanc ial i n st i tu t ions acqu i r e a l l t h is p rope r ty s ecu r i tyf o r no th ing by th e s imple p roces s o f w r i t i ng a ch eque upon themse lves andt a k i n g ov e r t h e s e cu r it y . T h e y t h e n g e t f o u r p e r c e n t, o r w h a t e v e r i t m a y b e,on those secu ri ti e s a s l ong a s t hey ho ld them, an d th e gen e ra l pub l ic s a y in t hi sc a s e th e c o n c e r n w h ic h i s c a r r y i n g o u t t h e w o r k g e t s t h e u J e o f t h e m o n e y w h ic hwas paid f o r t h e deben tu re s . Th e re you have , o f cou r se, a s l i gh tly d if f e ren ts i tua t ion in opera t ion . I f t h e y a r e d e b e n t u r e s o n w o r k w h i c h h a s n o t y e t b e e nc rea t ed you g e t a mo ne t i za t ion o n some th ing wh ich has no t ye t been c rea t ed .However , you ge t a m one t iza t ion on works wh ich will be c r ea t ed in t he fu tu re ,a n d t h e m o n e t a r y v a l u e of t h a t is paid o v e r t o t h e a c t u a l c o n t r a c to r s f o r t h epurposes of wages, a nd sa l a r i e s and th ings o f t h a t so r t , whe reas t he s ecu r i t i e sr ep re sen t ing th a t wea l th come qu i t e au tom a t i ca l ly i n to t he hands o f t he f i nancia lin s t i t u t i ons , t he s ame th ing be ing ve ry l a rge ly t rue o f i n su rance compan ie s .

W h a t is p r op os ed a s t h e f ir st s t e p i n r e g a r d t o t h e s e m a t t e r s is t h a t i n s t e a dof the b a n h n g i n s t i t u t i o n s a n d t h e o t h e r f i n a n c i a l i n s t i t u t i o n s g e t t i n g t h o s esecu ri t ie s fo r no th ing , t he pub l ic sha l l ge t t hem fo r no th ing . T ha t is t he on ly


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in talking, and I think you know that my own desire is to assist everybody con-cerned in order to get this business straightened out.

Revolutionary Method Ruled OutThe two methods by which anything can be put through of a social nature,

certainly anything of such magnitude as this, are the "revolutionary" and the"constitutional." I particularly rule out the revolutionary for reasons whichI touched on this morning. If the world is driven into another great war bythe existing financial system, as might quite reasonably and quite possibly be thecase, then anything may happen, but under present conditions the constitutionalmethod is the only method reasonably available to get things of this kind done.Fo r that reason I think it is a matter of great importance to grasp what are thepossible functions of a parliamentary institution. I believe myself that parlia-mentary institutions have weakened their position very much by not realizingquite what are their legitimate functions, the things that they could do, and thethings that they could not do. A parliamentary institution is based on whatwe call democracy, and democracy is a method of electing members th o u g h theagency of majority. The majority in matters of detail, in matters of intelli-gence, is, broadly speaking, always wrong. Minorities in matters of this kindrequiring special intelligence are invariably the only people who can be right.The matter is very nearly capable of mathematical demonstration in this way:Supposing you take a series of questions of increasing intricacy and you thenpick out men a t random in the streets of Edmonton representative of democracy,and you apply those ten questions of increasing difficulty to your selected tenmen. Now, when i t is a very simple question the ten will get i t right; when i tgets a little more difficult nine will get it right, and when it gets a little moredifficult eight will get it right; as it gets quite difficult and involved five, four,three, two and eventually one will get i t right. The more intricate the ques-tion is the more certainly it will be a minority that is right about it and the


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IVe.\vill not toierare a st ate of affairs tvh~cii s p~.ociucir!gsuch chaotic and tr a~ ic .conditio l~s n thc? world today as a r e being produced by this financial s y s t~ ~ , n ~ . "

That is where the focus of the trouble is, but I believe that parliarn~ntnr.ybodies make a great mistake in saying ho1.v the job should be done. Just so lonzas one parliamentary body says it sliouid be tlone this way, and another partyFays it niioultl be tlone anot he r way, the people run ni ng the money i,,.~jir.e.;s nrl:justified in saying, "When you have composed your own difficulties and kno~vivliat you want, then we will be prepared to do something ab out it, " an11 heywill see that you do not compose your oIvn business.

1-ou hantl over the s ituation to the existing conlrollers of medit by :-,lll~!:them as a parliarnentai-y institution what they ought to do. Toul. busines;. i.5 :otell these people that the job has to be done znrl if necessary to relnovc ti:c:nor provide t!!em with advice, or anything that may be neces.;ary to Zee ti13t ;!leydo the job. In th at x a y you place the responsibility fai rly an d absolutely \vhcr?it belongs. When you tliscuss how it should be done you tak e the responsibility\vhich is not properly yours.

That, gentlemen, makes the second half of what I had to say.Q. Mr. ROSS: Under the British Xol-th Xmerica .ict the provincij have nocontrol over currency and banking. Is it possible to establish a system of

social credit in ' an y province under these conditions? If so, please explainhow?

Q. Mr. GIBBS: How is it proposed to put the Douglas system into effect withina territorial unit that has no power to issue or even to define legal money?To what extent would the social credit issued within such a unit differ fromscript, and how would th e credi t house avoid the necessity of havinq toredeem its credit issues in some form of money xh ic h it has no power tocrea te ant1 which under presen t arranqemenbs i t xvould have to borrow?

.A . You will realize from wha t I have been hammering a t a good p ar t of the


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t hem f ro m i t , so th a t you have to ge t same power of b r ing ing these peoplet o r ea son . T he ques t i on i s w ha t pow er can you b r i ng t o bea r i n A l be r t a?C an you t a x t hem heav il y? C an you p l ace r e s t r i c ti on on t he ca r r y i ng on oft h a t bus ines s? T hose a r e ques ti ons no t fo r m e bu t fo r you . H ow can you go upto a ban k ma na ge r o r a ban k d i rec to r an d sap , "Look here , i f you do no t docer t a in th ings , if you won 't l i st en to w h at we have to sa y abo ut th i s sor t oft h in g , w e a r e g o i n g t o m a k e y o u f e e l it. W e d o n 't c a r e h o w w e m a k e y o u f e e li t, bu t w e a r e go i ng t o m ake you f eel it . I t i s no t pe r sona l ; the ques t ionsa t s t a k e a r e m u ch to o g r e a t f o r a n y t h i n g of t h a t k in d , b u t w e a r e g o i n g t oloca te you in the eyes of th e publ ic a s be ing th e people who a r e caus ing th i st rouble , and in every poss ib le way which i s s t i l l l e f t t o us , by our l eg i s l a t ivepow ers, w e a r e go i ng to pu t u p som e t h ing t o ba rga i n w i th . We a re go i ng t oimpose on you thes e thin gs a n d we w i ll ta ke them off x h e n you wil l do sucha n d s u ch , a c c or d in g t o w h a t w e a r e a d v is e d b y o u r e x p e r t a d vi se r s, b u t wehave go t you on the spot . "

T ha t gen t l em en seem s t o m e t o be a ques t i on ve ry l a rge l y fo r you ,b u t I f ee l su re t h a t i s t he on l y m e thod by w h i ch t ha t can be done . S i ng i ngsw ee t songs to t he se g sn t l em en and pu t t i ng up schemes of a n y k ind i s no tgo i ng t o do t he job, f o r if i t so happen s t h a t you p u t up a s chem e such a sm y ow n o r an y o t he r w h i ch tr ave r sed t he ex i s t ing f inanc ia l sy s tem and i thappened to be legal-I don ' t th in k th a t i t could be i l legal because the s i t ua -t ion has been so car efu l ly surveyed-it would be m ad e i llegal wi th in s ixmonths . Th e s i tua t ion w as well ske tched in "The Mikado" when i t i s sa id ,"Such i s t he l aw, I m ad e i t so ." If th e law is no t sufficient to permi t you top u t a good scheme fo r the benefit an d pro tec tion of th e publ ic , t hen th e l awshould be c h a n g e d so t h a t y o u c a n d o i t. S o y o u h a v e to see w ha t you cand o to f igh t back and , as I s a y , I t h in k t h a t a ques t ion fo r you in th i s housew i t h y o u r k no w le dg e of t h e l a w s of t h e c o u n t r y r a t h e r t h a n f o r m e.

Could Do I t in Three Mont hs


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eliminate what n-e call graft; it may eliminate excessive profits and mattersof t hat kind; bu t those ar e not questions of administrat ion; they ar e ques-tions of finance, and if you wiH put the financial side of the thing right, inother words, if you will make it perfectly certain that however the goodsar e produced, whatever the administration under which the goods a r e pro-duced, the product \\-ill reach the public on proper te rns , that is to say, pru?erfinancial terms, you, I believe, are fai rly sa fe in leaving the question of ad-ministration of production, ac any rate for the moment, where it ii. I amnot dogmatic about it, but all I am absolutely dogmatic about is tha: thepresent difficulty does not ari se out of the so-called private adminiscrationof the productive system, but ar ises out of the private control of themonetization value of real wealth.Q. Mr. ROSS: Under rhe British Nor th .imerica Act, the provinces cannot placerestrictions on inter-provincial trade. Could your jus t price system wo r kunder these conditions? Please explain.

-4. TVell, I don't quite see the relationship of those two pa rts of tilac question.You do not require to place any restriction on inter-provincial trade. Ifyou have one price for an article in Ontario and another in Alberta, the ulti-mate essential, I believe, of a sound finance system is a conpensated price,and that compensated price would result alnrays in a lower price in the a re ain which i t was in operation tha n in the are a in which it F a s not in operation.The only result of that is you get a flood of buyers from outside the are awhere it is in operation into the area where it is in operation. In other wo r k ,you steal all the trade of Ontario under those conditions. That is exactlywhat is bound to happen.If you look a t it in the larger field of international trade, you can seethe thing in this way: Supposing th at today the Canadian dollar is Kued a t6 ' 4 gold francs-I do not know what it is today, but supposing you lon-eredthe price level in Canada next week to ha!f hat i t is-we do not need to go


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Q. Mr. BOWLEN : Is it true tha t flea. cycles of bank loans are continually beingcreated and cancelled?

A. The answer to that of course is quite shor t: yes.Q. Do you beiieve that the amount of purchasing power in th e hands of the

peop!e of a community should always equal the value of all the proper ty inthe cornmunicy?

A. The answer is that the purchasi~igpower in the hands of the communityshould he equal to the prices of the consumable goods wilicl~are for sale.The con.


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Q. Mr. RONNINC: Did Major Douglas this morning intend to convey the irn-pression t hat Russia's inability to solve her problems of production thus f a ris due to public ownership and control of the means of production and distri-bution?-4. Well, I did not mean anything beyond what I said. I said that Russia wasthe only lzrgc westernized area which had a production problem. Speakinga3 an engineer I can explain the situation in this way. You have in Russiaa sta te of affairs where fo r the last 15 years or so a large number of expertsfrom the United States and elsewhere have been putting up the very bestplants of various kinds, probably, tha t exist a t an y ra te in Europe. The reis no difficulty about that. X sufficiently large force of engineers can utilizeunskilled labour quite successfully in putting up very large plants; I havedone it myself. It is quite a different matter when you come to operatethose plants, to get the balanced flow out of those plants that is necessary.In some of the very large plants in the Sta tes and in Germany they have twoor three generations of skilled workmen, a population which has used skilledmachinery and so forth. In Russia they have not go t tha t population; theyhave simply a population which one generation ago were completely illiteratepeasants, and those are the people who are operating these huge, delicate,interlocked plants and they a r e not operating them very successfully. Theplants are all right, but the operation of them is something else again, andthat situation has undoubtedly been very considerably complicated by thefact that practically the only way in which Russia could be industrialized inthe time in which she had to do it was through a centralized government

system of administration. If i t had been possible fo r individual enterpriseto put up a lot of small plants which, added together, would have had thesame total outpu t as these large plants (which is very largely the question inCanada or Grea t Brita in) even if two o r three of them were out of operationsome of them would have been working. But if you have got one of those


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Cdrlacla at the prcsent time. You obviously produce a great deal more wheatthat you can possibly use at the present time. You either hare to sell it inthe world's markets a t a price which will cover the cost of production, orelse your producers, as the phrase goes, lose money, eventually becomebankrupt, or go into the hands of the banks. If you were able to make i tpossible to sell your surplus in the world's markets a t any price suitable,any price which would enable you to ge t the market, and a t the same timesee that your producers of wheat did not make a monetary loss, and thesetwo things ar e perfectly possible, and are being done by Japan a t the presenttime, then you could dispose of the whole of your surplus of wheat. The onlyposs~ble eply to a policy of that kind would be f or the opposing countrieswho combat social credit to adopt that plan. If you utilize, if you havecontrol of, your own credit, you can make any price for anything you like,without the producer of th at particular thing making a monetary loss. I tcan be done, and in that way you can control your own export market.

Q. Mr. MOYER: In order to eliminate all questions of law, and to get a definiteapplication of your idea, let us assume the following question correctly statesour legal position and that we cannot alter it: Can any provincial ormunicipal body which cannot regulate or punish or prohibit the operationof a bank, carry out your system? In other words, is control or the powerof sanction necessary to the operation of your p lan?

A. Well, of course, I think the answer to that is obvious without asking it: Ifyou have no power to do anything, you cannot do anything. I am not pursu-ing the question because I am not, and cannot in the nature of things, becompletely conversant with what powers you have, but if you have no powers,then of course you cannot do anything.

Q. Mr. FARQUHARSON: If wealth is owned by certain people and those samepeople own the tickets to wealth, what gives us the right t o issue fur the rtickets or a duplication of tickets?

A . I an1 not cluite sure that I thoroughly understand that question. If wealthis owned by certain people and those same people own the tickets to wealth-


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i n g 2 t t i n g e n o u g h g o o d s f o r e v e r y b o d y a n d i t i s n o t n e c e s s a r y t o b e t oop a r t ic u l a r a b o u t l it tl e m a t t e r s o f w a s t e .4. M r . MacLACHLAN: I s i t p o ss ib l e t o o b t a i n n l a s i t n u m b e n e f i t s o f s o c ia lc r e d i t w i t h o u t a p p l y i n g t h e c o m p l e t e t e c h n i q u e , r u l e s a n d r e g u l a t i o n s as. l~tiaid o w n b y yo u i n y o u r v ar i ou s w r i t t e n w o r k s o n t h e s u b j e c t ?A . T h e ri : a r e n o t , I t h i n k , a n y s u c h r u l e s a n d r e g u l a t i o n s l a id t lo i\-n in I I I ~ ~ c i u k ~o n t h e s u b j e c t . S I y b o o k s o n t h e s u b j e c t h a v e b e e n v e r y l a r g e l y t l~ : \. o ~ c. tio

t h e e x p l a n a t i o n o f c e r t a i n p r i n c i p l e s . I d o r e g a r d a s b e in g p r o b a b l y 5 a t i --factor:: sche m es two m a in pr incip les . O n e is a c o n ~ p e n s a t c ~ lrice, i.:hich i ;t h e m a ill t h eo r e ti c al l ~ a s i s , n d t h e o t h e r i s so m e t h in g ~ v h i c i ~n som e fo rt11 o ra n o t h e r c o r r e s p o n d s t o w h a t \ y e t e r m t h e n a t i o n a l d i i . i ~ l c n t l s . T h o s r t \ \ 8 1t h i n g s are n o t sc h e m e s a t a l l ; t h e y a r e s im p l y p r in c ip l es . T il ey b e a r a i l o ~ ; tt h e s a n ic r c l a t i o n t h e r m o d i a c d y n a m i c s d o t o t h c d e s i g n o f a stcan1 c:r~sin.. .I t i s no t :h e s l i g h t e s t u s e t r y i n g t o d e s i g n a s t e a m e n g i n e i f y o u d o n o tk no xv s o m e t h i n g a b o u t t h e r m o d i a c d y n a m i c s , b u t y o u c o u l d n o t f ro ri i t h e iair.;o f t h e r m o t l ia c t ly n am i c s f in d o u t a n y t h i n g a b o u t w h a t a s t e a m e n g i n e l oo k -like. -111 I h a v e p u t f o r w a r d i n m y b o ok i s c e r t a i n p r i nc i p le s a c c o m p a n i? r l i no n e o r t:vo i n s t a n c e s b y i r h a t y o u m i g h t c a l l e x e m p l a r y s c h e m c a t o g i i e ~ O I Is o m e s o r t of p i c t u r e of t h e p r in c ip l es o f h o w t h e t h i n g w o r k e d , a s t o x . \ ~ t ~ ~ itlo ok 5 l ~ k e r c o u lt l loolc l i k e , b u t i t i s i n n o c a s e n e c e s s a r y t h a t t h o s e P Y L L C L:ch?nles sho uld be fo llowet l to the le t ter .

IVha t I do be l i eve to be, a s f a r a s I can s ee , c lu i t e ind i spu tab ly i s c j l r -t a i n l y t h e q u e s t i o n o f p r i c- s h a ll be d e a l t w i t h a s w e l l a s t h e q u e s t io n o f tliei s su ing o f pu rchas ing poxver , and I t h i n k i t h as t o be c o n ~ p e n s a t c d r ic e :I.;we ca l l i t , f o r tw o reasons a m on gs t s ev era l o the r s . T he f i r s t is th a t thv c.0111-p e n s a t e d p r i c e p r o v id e s f o r a c o n t i n u o u s lo w e r i n g of pr ic e . N o w t h e a c t u a lp h ys ic a l c o s t , t h e c o s t i n e n e r g y o n p ro c tu c ti on , i s c o n s t a n t l y f a l l i n g a n u ( h ef ir st r e q u i si t e o f a n y f i n a n c i a l s y s t e m i s t h a t i t s h a l l r e f l e c t t h e f a c t s . T h a t i i .o f c o u r s e , w h a t t h e e x i s t in g f i n a n ci a l s y s t e m c o n s p i c u o u s l y f a i l s t o d o . Youcou l t l no t have a s t a t e o f a f a i r s i n w h i ch a c o u n t r y iv a s s a i d t o b e p o o r


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: l , , 3 s i . i t 2 5 .-i~t:iilic nti I I V L I,:; : .:,I. ~ O L V F I ~ ~ ,ope to be successful in t l ~ capplication of your proposals:'

(2 . Since under the Canadian constitution contl-ol over banking, fnanc" trarleand conlmerce rests cntircly wit11 the Dominion govemnment. :; it not ~lc-sirable that advoc:itcs r,f .;octal credit centre their main etyurts upon theDominion ratliel. than t i ? , , ni.~,vincial ield?

.?i. \Yell, the snswer to tile ! I , . - ( of those questions I gave a short time ago, thatif you have no po~vorsyoi; cannot do anything; but I feel fairly certain thatLhc logical result of saying, "We must r efer this thing to Ottawa," \vouldbe in effect, if not in words, "We must ref er this thing to Lontlon." We ar eso intorlocked wit11 the international finance system that we cannot do any-thing in Ottawa. IVe must do it through London. And n-hen you get toJ.ondon you wo~il(i e toitl, "Ah, yes, bu t we must do this in conjunction withWall Street," and they \voultl say, "Ah, yes, bu t we must do th at in conjurlc-lion with the Bank of Inte rnat ional Settlement." There is absolutely nopoint a t which you ar e going to atop if you are going to surrender yourliberty; that is about what it amounts to, absolutely no point a t all. And inthese financial questions, the definite strategy of the existing financial powersis to mnkc this a world so that no section of the world will ever be powerfulenough to have it altered. -411 I can say in regard to all these questionsabo~ r t4lherta is that if you want to get anything done the best way to get ittlone is to hegin a t home and find out how you can do it, and I believe that if::on tackle it in that spirit you can do it, but you certainly are not likely todo it by referring it to Ottawa.

Q. M r . LOVE: If our power to deal with banking provincially is limited to taxa-tion, \\-oultt not higher taxation result in unreasonable interest rates beingi~nposetl n Alberta by the banking system?


27/51

then you have nothing else to do except to change those laws and I do notbelieve it is possible without an absolutely united drive from all sections ofthe population.Affects Whole PopulationThis is not a problem of the down-and-out. This is a problem whichaffects every business man just as much as it affects erery down-and-out.The down-and-out is the man who suffers the physical penalties of the sys-tem, the business man the mental penalties, and very often the mental penal-ties ar e more severe than the physical penalties and he commits suicide. Butthe whole population, I do not believe even excepting the financier, areunder the awful curse of this mis-working and perverted financial system.

I say this without any bias. I am not by any means a serious sufferer per-sonally. I am simply looking a t the matte r fr om the point of view of anengineer and just as I told them in Ottawa in 1923 exactly what was goingto happen in 1928 , so I tell you now in 1934 that before 1940 if you havenot changed this financial system it will change and probably eliminate you.Q . M r . MacLEOD: Will not Major Douglas explain a little more clearly how wecan administer wealth which is privately owned? Does not Mr. Fre d Hender-son in one of his books show very definitely that the Douglas system involvessocial 01s-nership?A. I am afraid I have no t read Mr. Henderson's book, but I am perfectly certainthere is no difRculty whatever in distributing socially privately-produced

production. There is a gr ea t deal of straining over words in these matters.The only question which arises in regard to administration of production iswhich produces the best results? Whether production is privately produced,or as you might say nationally produced, which of those systems produce thebest results, assuming that in either case the product is distributed?


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i i i r u ~ n so-cal l~xip r iva te shop o r sto r< ., UI. ~v11t:ther t is i l o m a g o v r r n ~ n e n t.sturc. Ei the r o f then1 wi ll de l iver the goods on the p resen ta t ion o f th ep roper t i cke ts ant1 you ca n d i s t r ibu te the pu rchas ing power a n y way , bypr iva te p roduc t ion , by g iv ing the genera l popu la t ion shares in so -ca l ledp r iv a t e pr o tlu ct io n h u t w i th o u t i n t e r f e r in g w i th t h e ad m in i s tr a t i o n o f t h a tbusiness a t all .

You will no t ice in the scheme fo r New Zealand I confined my distr ibu-t ion o f sharp . ; to deben tu res and p re fe rence shares . I t is a wel l know n con-v en t io n in r cpa r tl t o b o th t h o s e s h a r e s t h a t s o l o n g a s t h e s h a r eh o ld e r getshis tlividentl, which is a f ixed dividen d, i t is no business of h is how the busi-ness i s r u n ; he is on ly in te res ted in ge t t in g h i s d iv idend . Now in th is caset h a t g ive s h im th e p u r ch as in g p o w er r eq u i r ed to g e t t h e g o o d s f r o m p r iv a t ep r ot iu c tio n b u t d oes n o t i n t e r f e r e w i th t h e ad m in i s t r a ti o n , an d in m y o p in io nt h a t i s a desirab le s t a te of af fa i rs .(2 . M r. MacLACHLAN: Is the soundness or o therwise of your propoaals pre-d icate t l upon the val id i ty of the "A p lu s B" t h e o r y ?-4. The sou ndness o r o thenv ise o f m y p roposa ls i s p red ica ted mos t t i ef in itely o nthe ques t ion o f a mone t ized wea l th . The so-cal led "A plus B" theory is aqu i te incon t rove r tkb le descr ip t ion o f t he mechan ism by wh ich p r ices hecom eto o h igh f o r t h e g en e r a l p u b li c t o b u y . I n o ti ce t h a t t h e b an k in g s y st em h asco n cen t r a t ed o n th e "A plus B" the or y be cause i t i s a d ifficulb th eo ry tom a k e p e op le u n d e r s ta n d , i f t h e y a r e n o t v e r y f a m i l i a r w i t h t h e a b s o l u t ep ro cess es o f i n d u s t r y , b u t i t h a s n o th in g w h a tev e r t o d o w i th t h e f ac t t h a tth e ac tu a l c r ea t io n o f p u r ch as in g p o w er i s a m o n o p oly o f t h e b an k s , an d i t ist h e r e t h a t t h e co r e of t h e w h o le t r o u b le l ie s, an d m y p r op o sa l s a r e p r e -


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AP RI L 10, 1934.Chairman: Mr. Claypool.

MAJOR DOUGLAS (RECALLED)CHAI RM AN: I have taken the l iber ty of re turning to the members al l ofthe quest ions tha t they handed in the o ther da y tha t were not asked.

Q. Hon. M r. B AKE R: I would like to ask Major Douglas, assuming that. a socialcredi t scheme was appl icable to Alberta , and we put i t in effect here , wouldi t increase the to ta l am oun t of weal th we have annu al ly to d is t r ibute am ongthe people of Alberta, and if so when would that be done, and if i t woultlno t do th at what would be a benefit to us?A. I think the answ er to that ' fa l ls into two .parts . The actual m anipulat ion ofthe financial system in i tself , of course, simply confining th e thing to t h a t

manipulation, cannot possibly affect real wealth. It is a t icketing transac-t ion in earnings and no t icket ing t ransact ion can in i tself affect real weal th.B ut i f you have a s ta te of affairs which I believe to exist both in Albertaand elsewhere, wh ere you hav e th e flow of wealth-and the production ofwealth i n the m odern world is essent ia l ly a f low, not a s ta t ic performance-where you have tha t f low damned up by the inabi l i ty of the genera l publ icto take off the weal th from the producing organizat ions, then i t is possibleto a cer tain extent , with a modif icat ion to the f inancial system, that i t canaf te r a ver y l imited period inc rease the actual ra te of f low of weal th.

Q. Mr. MacLACHLAN: I s t h e r e in exis tence any Douglas p lan for Alber tad rawn up wi th your au tho r i ty o r approva l?A. Th e answer to th at is no.


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rather than to considerations of private profit. That is the first statementancl I would like it if Major Douglas would say yes or no to that?A. Broadly speaking, subject to reading it carefully, I should agree with that

statement.Q. The second question is this: You believe that any plan of financial reformmust be based on (1) the right of all citizens of 21 years anit over to receivedividends fr am the productivity of our industrial plant as an inherent right;( 2 ) the necessity of distributing the tickets of purchasing power in suchquantities as will correspond to the price volume of consumable goods avail-able and in such n way that they will actually be used in the purchase andconsumption of these goods?

A. Of course, you will realize you a re reading something out of me which quiteobviously I do not want to be bound by on short notice, but I have no verystrong objection to anything you say. The question of whether the age isplaced at 2 1 or something of that kind-all these things are questions of ,expediency, not questions of principle, but I see nothing fundamental toobject to in what you say.

Q, 4 s f a r as the principle is concerned you believe these two principles arefundamental. The question of age or the question of right as fa r as na-tionality is concerned are details to be worked out. The fundamental prin-ciple is the people have an inherent and inherited right to participate in alldividends resulting from productivity?A. It is a question of sovereign policy as to whether they have or have not. I t

is quite obviously not a question to be decided by some secondary interest.You see the difference? I t is quite certainly not something which somepurely technical system, which is what in effect the financial system is, candecided off its own bat.Q. In other words, i t is desirable on the part of public policy in view of the age


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land; even if you use it for a factory site you want some land. You willnotice in the model scheme, what you might call a scheme for discussionthat has been put forward in regard to Scotland, there is a clause which saysthat while no hinderance is placed on the arrangements for the transfer ofland, every transfer of land has to be ratified through the land office, whichin Great Britain, as no doubt here in Canada, exists already. At the presenttime the redemption of title is the application of a rubber stamp, plus pay-ment of the tax. There is no reason why that should not be the case, butyou can control the volume of production quite effectively by controllingthe land, and also preserve the amenities of the country which is desirablea t the present time. In my opinion that is more likely to be a auitablemethod of controlling production than by issuing direct orders to producingorganizations to produce just so much, because in that way certainly if youdo not do it by slow and well thougkt out steps you tend immediately to agreat deal of over-centralization. One of the inherent difficulties of ad-ministrative control of large quantity is to prevent over-centralization, andI believe that can be done. Generally speaking then, answering your ques-tion, some sort of direct control of production would probably be the resultof means of this kind, but I do not think what is very frequently called"packing" is the right way to do it.

Q. This is my last question: This is a new, undeveloped country. While wehave a very efficient industrial plant, we are short of such things as pavedroads, bridges, good houses, modem conveniences on the fann, completeeducational facilities, etc. In spite of technocracy, we suffer from no lackof worli to be done. We could put all our able-bodied men to work betweenthe ages of 25 and 55. Should not this be our objective rather than thepayment of national dividends? Should we not pay good wages, good super-


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A. Quite clearly the' sound and proper answer to that question has to be basedon real figures, which is a quantitative not qualitative question, but my gen-eral feeling is the question of debts, While it is becoming increasingly mo-mentous, is only so overwhelming because of the failure to monetize a greatdeal of real wealth which exists. If you had in a proper and scientificmanner monetized the real wealth, the potential wealth which exists at thepresent time, even the debt question would be reduced to much greaterproportions than it .is a t the present time, and the correct answer would haveto be based on figures.

Q.Mr. MacLEOD: In placing this matter before us the other day, Major Doug-las explained, and I think I was able to follow him fairly well, that money isnothing but a ticket system, and then he explained wherein in the beginningof things, in the development of money power, the owner of the cattle distri-buted the payment. Wha t reason is there to expect that the individuals whoat present own and control the goods that are for sale in Canada and themeans by which they are produced, and who in the aggregate also have thepurchasing power to buy these goods, will part with them when presentedwith tickets issued by the state?Producers D o Not O w n Their Product

A. There are a great many things taken to be axiomatic that are not axiomatic.In the first place, I do not agree that these people who own and control thegoods have the purchasing power to buy these goods, not they themselves.That is par t of the proposition. They in most cases, broadly speaking, pro-duce these goods with borrowed money. They do no t own these goods a t all, 'they simply produce them, and when they have purchased them with bor-rowed money they have either to dispose of these goods or the money theyhave borrowed forms a mortgage on their residua! assets and they go out ofbusiness, so I a m afraid the question is based on a misapprehension of what


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assumption that this demand is rested in, and is owned by, the organizationwhich issues the tickets. Now that is quite obviously an assumption which,to the actual oxners of the monopoly, only h a value if there is somethingreal on which this credit rests. I t does rest on the productive capacity ofthe unit. That is what i t does res t on, and therefore t he effective demand,so far from being the exclusive right of some specialized organization, quiteobviously belongs to that unit which has productive capacity. There seemsto be no possibility of misunderstarding that. The only thing involved isthe question of on,newhip of effective demand.

Q. You use the word "owned"?-4. The prot luct~on s not owned by the unit. The production of a large produc-

ing undertaking is not owned by these individuals unless they buy it. It isnot owned beceuse they pl.otluce it. They do not produce for t h e ~ r wnownership. They produce for saie and the moment they are unable to sellas we know quite well, they go out of business, which is complete proof thatthey do not own that production.

Q. Mr . BROWNLEE: think you suggested last night that a series of questionsmight be asked, and I -rill take the l iberty of asking a number of qrlestionsto see whether I have fully understood you in your comments on Friday. Inthe first place I understand, Major Douglas, that your whole plan of socialcredit is based on your belief that constitutional methods are always to bepreferred to revolutionary methods?

-4. Entirely.Q. Therefore, in a country Like Canada, where we have a very definite consti-

tution laid clown, we should follow the course of trying to change that con-stitution rather than embark upon any extreme measures of defying theconstitution?


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Q. This must be obviously'tme in the ultimate result when the various nationshave all adopted the sociaTization of a e d i t that there comes a distinct limitto which any count ry can go?A. You then. reach the limit.

Q. The statement true, dividends on products we have becomes limited to thereasonable avail~bilityof markets and the use of that natural resource,whatever i t may be, wheat o r coal?A. In the last analysis, it is limited by the consumptive power; that is right.Q. Suppose we take a unit such as Alberta, it will become a progressive effortto increase that consumptive demand?A. Entirely.Q. But in the meantime, we are still in the position that our productive wealthis measured by consumptive demand?,A. In t he last analysis yo w success in commanding markets is mainly putting touse your own credit.Q. In your suggestion of the use of tickets, there was never anything to conveythe idea that in a community such as Alberta we could issue these ticketsto any extent'whatever regardless of our ability to find either markets orincrease consumption demand?A. Absolute~y,of course not.Q. So any scheme that starts out with the arbitrary idea that the state mightissue the tickets to the extent of $ 26 or $50 or $100 a month to th e individualis erroneclns because it is not based upon any scientific measurement of ournatural productive capacity and our available markets?


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Q. Nay I ask a few questions about the New Zealand scheme without going intodetails. -4s I understand it, it is based upon a n assumption, or an accountingof the value of the assets of the banks and the insurance companies of NewZealand?

A. Yes.Q. Certain surpluses which have been earned. Fi is t of all you suggest limita-

tion of the dividend which the banks of New Zealand can pay the share-holders to six per cent. Your suggestion is that the six per cent limitation isbased upon the original capital of the banks of New Zealancl, or the presentcapitalization of the banks?

A. Do I understand by that ciuestion the subscribed capital?Q. The original subscribed capital, or the present capitalization, what ever it

may be. In Canada there is a great difference between the original sub-scribed par value of the shares of the banks and the present shares, accord-ing to their market value.

-4. That does not affect the capitalization.Q. Assuming that the original par value of the share was $100, and the averagemarket price a t present is $200, is your limitation based on the original par

value or market?A. The original par value.Q. Then when the difference is taken between the original or book value, or

whatever the basis of the banks and insurance companies, I understand youwould take that difference out of shares account and distribute?A. May I elaborate that a little? If you do not limit the dividend, then on thepromulgation of any proposal of this kind, the directors of the bank wouldmeet together and say, "We will a t once distribute these reserves, and pro-ceed to pay about 500 per cent." s


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A. I think it desirable not to penalize anybody.Q. Dealing with the insurance companies, your New Zealand scheme involves

taking certain profits, earned by the insurance company and also using thisas a basis of distributing credit?A. You have to be very careful, I think, in the meaning you attach to the word

"profit" In tha t case the essence of the thing is you are distributing some-thing which nobody gets a t the present time, not even the shareholders ofthe banks or insurance companies.

Q. Nor the policyholders?A. Nor .the policyholders. They are absolutely dormant and unutilized reserves.Q. Is your scheme in New Zealand based on the idea the hidden and undistri-buted wealth largely held by these institutions constitutes the greater part of

the fiscal system of the banks and insurance companies?A. Yes.Q. Would this be fair: Some of us are afraid that the extent that any com-

munity has not the power of controlling, managing, disciplining or penalizingthese institutions that constitute the major part of the financial institutions,to that extent they are handicapped in trying to bring in a system of socialcredit?

A. I agree absolutely.Q. So that if a community, such as one of our Canadian provinces, is bound by

the constitution which practically, according to the privy council decision,takes away any vestige of power to manage, control, discipline or penalizethesc major institutions, these major parts of our financial system, just tothat extent the constitution has, theoretically at least, taken away the powerto insti tute a system of social credit?

A. On the status quo.


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Q. You are in accord with that school of economists who believe unrestrainedinflation is a disastrous thing to any country?

A. Undoubtedly.Q. Mr. GIBES: Slight I suggest as part of your question, to get a bit closer,

what is unrestrained inflation in a country with such tremendous poten-tialities of production?Mr. BROWNLEE: I will leave you to ask that question.Major DOUGLAS! May I be altoired to answer? I once defined inflation asbeing anything the bankers did not want done, but there is an accuratedefinition of it and that is, an increase in the number o f monetary tokensaccompani9d by a similar, equal or greater increase in the general level ofprices. That is true inflation. Inflation in the number of tokens not accom-panied by a n increased demand is not necessarily inflation.

Q. Mr. BROWNLEE: Probably a more correct answer to my question \\-oultl t-,.it might be possible for a sovereign state like Canacla to issue new currencyto a certain point, provided it does not go beyond the point nhere it imme-diately would bring about rising prices?

A. Yes, but


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Q. Mr. ROSS: Pursuing iel-tain i.laluiries ma-le by tlie Preniier in rcgard ro t h e'vealth of the country being depenclent upon its ability to dispose of its sur-plus, either in intcrnnl or external markets and in view of the tremendou?increase in the productivity of industry and agriculture due to the exten:io:~of the use of machinery and power, does this mean this country, and othercourrtries will have to diversify their industries 3 r d occugations \.:iiI1i;i t l : ~country to a neater extent? Do you agree with thnt?

( 2 . Does iL mean ncccssarily to a consi~ierable xtent the trade a s bet:\.ec:: 1: i i -tions will ncees%arily be restrictcd to a greater and greater tlegrec to chosethings that cannot economically be produced by themselves:

A . I do, most strongly.Q. Does that mean in Canada \vc will have as one means to puiting in 3nch n

scheme, you have a further decentralization of industry':A. That shovld be the objective.Q. The amount you mentioned in your price system, the object would i ~ c:::.continual lowering of prices?-4. That would be rather the effect than the object.Q. And I understand that you were quite in favour of retention of private o\vnrr-

ship of poverty, and bearing in mind the measurement of the value of moneyis this purchasing power, does it not absolutely folloxv that a constant lon-ering of prices is giving lo the flon. of money an increased and'unearned in-crement in that value?

-A. I do not agree with the obvious explanation; I would say he has a right tothat. He has a right just like anybody else to a dividend in the constantlyincreasing assets of the general community which he gets by lowering prices.


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operation by the compensated price and he cannot possibly sell in competition.with those in possession of the campensated price.Q. I take it you are endeavouring to lower prices rather than stabilize prices?A. Absolutely.Q. One difficulty regarding debts in this country is they are being asked to repaydebts by means of production when it takes two or three times as much topay the debt than it did a t the time it was incurred. For instance, takewheat. Your suggestion does not take into account the matter of debts,because the farmer has increasing cost?A. I am quite convinced, to a very large extent it is pure abstraction. The majorowners of the debt of the world do not want it settled in wheat; they do notwant it settled in anything tangible at all but merely want it settled in formof more monetary instruments. The major owners of the debts that we haveare the financial institutions and the financial institutions do not take deliveryor payment of it in wheat.& You do not agree then that a great deal of the instability is due to the fluctu-

ating price level?A. What is absolutely vital is the conflicting price level and not an absolutelyequivalent fluctuation in the amount of purchasing power.Q. And, if you had a slightly advanced price level, as some people suggest, thatwould be, in other words, another way of paying that dividend, wouldn't i t?A No. On the contrary, if you had a slightly advancing price to the means that

everybody has, that purchasing power is lessened a t an inverse rate.Q. Unless they are obtaining a greater rate for their labour?A. They cannot be receiving that, if their purchasing power is falling all thetime.


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.Q.Well, you me ntioned a few mom ents ago, did you not, a definition? Wouldyou mind defining that ag a in ? If I understood you correctly, you definedinflation of m oney a s only bein g inflntion when it is aecompanierl by a nequivalen t o r hieher inflation of price.A. 1 agree.Q. And, on the contrary, a deflation is not a deflation unti l i t is nccornpu~~icd

by-A. Oh, I didn't define that. Deflation is a reduction in the num ber of th e tokcnsof purchasing power which is accornponied by a fall of prices up to the' point when th e cost of prod uction in reached. A fu r t he r reduction of thenumber of monetary tokcns in circulution is not accomparricd ncccssarilyby a f ur th er fa l l of prices, bu t is accompanied by n r c d u c t i o ~ ~f production,accompanied by the bankruptcy of the producer . T ha t is quite n ditrerentthing. I t is no t th e converse of inf lation; i t is something qu itc different.Q. Then, recognizing that both inflation and deflation are bad, which would you

define a s the w ors t?A. That reminrls me of asking which is the better of two rotten apples. Theyare both bad.Q, s i t not tr ue tha t deflation ade cts your production, whe reas inf lution onlyaf fe ct s the ti-ansfcrcncc of ownersh ip of wea lth? Isn 't thu t wha t dcflution is?A. No. I could givc you strings of conscqucnccs of both inllation untl dellatio~i;but inf lation is exactly what I said it was. 1 think, and doflirtion is exactlyw hat I said i t was . Th e consequences a re c lu itc a s ep or a tc ~ n n t t c r .Q. Have you any suggestion, in a practical way, for anything we can ( lo in this


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Q. If the Douglas plan were applied to Canada, but not to other countries, ~ o u l dnot our production, and, therefore, our wealth, be influenced by \vorld pricesand world conditions pretty much as at present?

A. The short answer to that is: No. Your production woul~lgo up, ant1 yourgeneral prosperity would go up, even though it was not accon~paniedby thesame plan elsewhere.

Q. If both of these questions ar e answered in the affirmative, would not th edividends payable to individuals or families under the Douglas plan fluctuatein value or amount, in more or less direct relationship with the value of ourproducts? In other words, if wheat goes down in price, will th e divitlendalso go down in value, or amount , and if wheat goes up, does the dividentlalso go up?

A. Not in value. Questlons of price are purely questions of figures on a ticket.Quite obviously, supposing you take a bushel of wheat and you put it in a nelevator, and wheat goes up from 60 to 00 cents a bushel, nothing n.hateverhas happened to the wheat; the wheat is exactly the same wheat as it n-asbefore, and nothing has happened to the real wealth of the country. Thewhole thing is nothing but a figure on paper.

Q. If question three is answered in the negative, please explain what maintainsthe dividend a t a permanent level.

A. The maintenance of the dividend at a permanent level can only possibly de-pend on the actual production of the country, including in the world produc-tion,' fo r the purposes of this calculation, imports, and subtract ing from thewealth of the country, for the purposes of this calculation, exports. Exportsar e a loss to the real wealth of the. country; imports a re a gain.

Q. If question two is answered in the negative, please explain how our produc


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ten, fundamentally, from the producer to the bank, where it is automaticallycancelled ,by the repayment of the loan.There is another way by which it can be done, which I think will prob-

ably form par t of an y workable scheme; and tha t is, if yo 4 take the balance~ h e e t f any prodncing company, you will find, on th e assets side, the cashdeposited with the bank and th at sort of thing, on the same side of the bal-ance sheet as the re al physical assets. You will find on the assets side, plant,huildings, debts receivable, cash in bank and things of that sort, as if moneyand goods were the same thing-as if money and real wealth were the samething, which they are not.

You will find that, in a national balance sheet, so far as there is such athing as a national balance sheet, they ar e on opposite sides. The cash crea-tions of a nation a r e represented by national debt. The assets, which standagainst the creation of the national debt, are the real assets of the country.So, in the case of a national balance sheet, you will find cash and real assetson opposite sides of the balance sheet.

Now you can recall issues of purchasing power by a process somethinglike this, which is a perfectly legitimate procedure:Certainly in Great Britain, and I have no doubt in Canada, every balancesheet of a public company has to be audited by a public auditor, and he in-sists that the real assets, the capital assets, and the physical assets: plant,buildings and t ha t sort of th ing; tha t th e figures attached to them in the hal-ance sheet, shall be written down.You must realize that those figures of real assets, in the balance sheet,are simply price tags attached to the things which are in the possession ofth e producing company; but they a re not money, although they a re lumpedtogether, on the asset side, with money.


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-4. Yea, it was; but i t wau accompanied by a very rapid rise in prices, whichheavily penalized everybody who was not in receipt of constantly increasingwages. I t set illto operation a most undesirable st ate of affairs. h con-stantly rising price ievel must of course be accompanied by a constantwrangle about wages and things of that sort.

Q. In Canada, we have been subjected for fire years to a process of cleflation,IVithdra\ving of credit and currency in the country; and the consequence isthat the debts created by the inflationary process have to be repaitl a t therate of five to one. Would it be a sensible thing for Canada to do. as agreat expolting country, to follow that course until the price level of theproducer in the country gets illto some correct relation to the price level a t\;.hidl he created the debt'.'

-4 . I don't t l~il~kI?. 1 am quite familiar with the line of argument that -011 arefollo~ring t this time. It is based on a continual crossing over in your mindbetween coa t and purchasing power. I answered a great deal of it in regardto the q ~est ion f the honourable member on my left. As to the delusionthat the debts are actually paid in wheat, they are not paid in wheat. d n dI might say that the very last thing tha t normally the real creators of thedebts of the world-which are undoubtedly the financial institutions-thelast thing they want is the repayment of the debts. They want merely totake all they can ge t under any consideration-all that they want? if youlike, and keep the general public in debt. This may be quite unconscious-we will say it is unconscious, I don't want to be uncharitable-but the gen-eral behaviour is: "Let us always keep the general public in the literal pos-session of the bonds." The bondholder, which is the general public, will beleft in possession of the bond; and, under those conditions, the very lastthing tha t they want is to have the bond paid off. So tha t, in any case, Idon't think you need worry, under tha t financial system, that, even if youraise the price of wheat t o anything you like, the bonds will be paid off.

Q. I agree with all that, but that does not answer my question. We are not


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purchasing power of those not employed, and therefore they draw less fromthe production system; and you decrease the purchasing power of the wagesof those who are employed, so you get involved straight away into an unend-ing wrangle as to what is the correct ra te of wages. You either have to baseyour wages on a composite price level, which means that the wage level isincreasing or decreasing, is changing every minute, or you have a great dealof industrial trouble. So, to summarize it , I do not agree with inflation.

Q. Is there any reason why inflation should be unrestrained? Could that notbe regulated by the government of the country?A. If you will eliminate the word 'Linflation,'' and tell me that you don't want

a rising price level, then you can do it by compensated price, without doubt;but, the moment th at you increase your money tokens, and a t the same timehave a rising price level, that is true inflation, according to the definition.Q. Then may I ask: I n Great Britain a t the present time ( I was over there lastyear) there is an increase in employment, an increase in circulation of cur-rency, and ar e not conditions there better a t the present time than they weresay two years ago?A. I will answer that question quite shortly, by saying that practically the wholeincrease in employment centres around th

the douglas system of social credit alberta session 1934

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