The Fallacy of Credit Power
Somerville, Henry
May 26, 1926 THE COMMONWEAL 65 THE FALLACY OF CREDIT...
...it is now called upon to pay for it again that amount...
...The community loses $Soo,ooo istence, but it would be more enlightening to compare of purchasing power in favor of the forgers...
...cost...
...The credit is then canceled...
...Professor Thorold Rodgers as saying that in the The disciples of Major C. H. Douglas had the con- fifteenth century the daily wage of an artisan was viction of witnessing to a great new revelation...
...Operating through the agency of price, the financial system filches and then admitted that he did not understand it l purchasing power from the community, so that life for The literature of social credit abounds in irrele- the mass is never far removed from subsistence level...
...Fixed capital is properly provided for out of When banks create and issue credits they produce the capital investments, not by credit creation...
...The chief asset of the scheme has been its liver money, not goods...
...money is the root of all the evil, though not in the sense Sixpence today buys less than formerly simply because meant by Saint Paul...
...Sup- annual output with plant and machinery...
...the price level has changed...
...Any reader ages...
...Defects and anomalies, real and unreal, are alleged against the existing system The arithmetic in this quotation is obscure, but it and then there is an agile jump to the conclusion that will be enough to examine its logic and economics...
...other charges that he must put into the price of his Further, an increased currency makes possible the products, he must also charge up this $52,000 loan and grant of increased credits by the banks...
...By the issue of In his first article, Mr...
...Rodger's own words of interest...
...The and "the Church, meanwhile, was at her zenith, and output of the operative with the twenty-five stocking there is something salutary in the thought that a fall- machines does nothing to justify the inference that ing back on first principles might restore something of labor is now fifty times as productive as in the middlereligion's lost prestige with the masses...
...At any forgers produce and circulate bogus notes to the value given moment this may be true because consumable of $Soo,ooo...
...to the day...
...for in the price of consumable goods (the foregoing analy- These are rather serious faults in what professes to be sis shows that it is) is it to be wondered at that the an analysis of the existing economic system...
...Manufacturers have redeemed tion has not a vestige of validity...
...to do so I was accused with the "money interests" of Mr...
...same economic effects as the forgers...
...rough estimate that plant and machinery exceed conIn his next argument Mr...
...We have paid for it in a as productive as it was before the industrial revoludiluted purchasing power...
...Its disciples live by faith rather than under- and ambiguity...
...make many qualifications to such a crude statement A creation of credit has much more limited effects of the effects of an increased quantity of currency...
...Rodger goes on to say credits which were turned into fixed capital like a factory...
...Raw materials masses are still poor despite our enormous increase in and foodstuffs are, in general, considering the size of wealth-producing capacity...
...The community thus bank would soon find itself in difficulties if it created gets its own back 1 Mr...
...With the expansion of the the populations to be supplied and the distances to be industrial machine the burden on the community grows...
...If it frankly confessed, when asked their opinion of it, that means that money is valued except as a means of getthey could not make head or tail of it...
...When propa- ting goods it is contrary to what everybody knows to ganda of the scheme was at its zenith in England the be fact...
...Purchasing power, temporarily incommunity" pays higher prices...
...Many well-known economists have no longer in the stage of barter it is a truism...
...And productivity has not increased at anything 66 THE COMMONWEAL May z6, 1926 like the same rates for all commodities...
...If this means that we are unintelligibility...
...goods are always coming in and going out of exPrices would rise...
...A present-day artisan, he consomebody that did 1 Two or three years ago I wrote tinues, cannot live for a week on a day's wage in spite an article on the control of credit and currency for a of the fact that the development of machine power leading Catholic review...
...Rodger assumes that the artisan could live for to ask them if they understood the scheme...
...So the $Soo,ooo in notes were put into effective circulation community has to pay twice...
...Rodger editor I told him that the remarks about the Douglas What applies to stockings has a general application, scheme could be omitted from the article as they were more or less, throughout other branches of production...
...chinery exceed consumable goods by a ratio of about His third great mistake is to confound the very differfour to one...
...The currency increase is permanent unless somebody bears manufacturer has yet to pay back the forgers with the expense of withdrawing that currency and the exinterest for the loan of the bogus notes...
...I was bombarded with ap- arteries of society, are the monopoly of the railway peals from the most unexpected quarters, important owner...
...In the first place, the present purposes, however, it is unnecessary to make effect is not permanent...
...May 26, 1926 THE COMMONWEAL 65 THE FALLACY OF CREDIT POWER By HENRY SOMERVILLE A MONG economists who are fettered in their Before Mr...
...One operative in charge of twenty-five mationed my experience of finding that its believers dis- chines can turn out i 5o dozen pairs of stockings per claimed understanding of it...
...If the forgers withdrew their notes at Where is he going to get it...
...Our industrial system exists to destanding...
...The editor, in returning me the If, then, our productive powers are so great, sixpence proofs, said the article needed shortening on account today should keep the artisan, other things being equal, of space but that I was to leave in my animadversions not for a week only, but for something like a year...
...On a reckon the opposite effect of increased output when rough estimate it has been calculated that plant and ma- new capital undertakings reach the producing stage...
...On failing only invite the cockney query: "Well, wot abaht it...
...The money in the middle-ages the principle of the "just price" wage of an American artisan today would have seemed prevailed, and the period was the golden age of labor, large for a merchant prince in the middle-ages...
...Credit, the life blood of society, is a monpresent writer was secretary of the Catholic Social opoly of the financier...
...follow an increase of currency and a creation of credit...
...When an operation has been precisions...
...If an extra interest charge in order to pay back the forgers...
...traversed, harder and not easier to get nowadays than It would be interesting to know the bases of the they were in the middle-ages...
...Rodger shows he makes a these credits the community has had to pay for a mass fallacious estimate of productivity, both potential and of plant and machinery valued in England alone at some- actual...
...He must get it from the the end of ten years they would have gained from their community...
...The increased supply paid by his customer...
...Rodger enters upon any argument he thinking by orthodox training the Douglas credit makes a number of remarkable assertions which have scheme has the marks of an ephemeral new an impressiveness because of their mixture of audacity religion...
...They business in the community to be financed...
...Robert Rodger introduces money is cheaper...
...A of goods tends to lower prices...
...These asseverations are not argument : they and unimportant, to "take up" the scheme...
...Rodger comes to argument when he quotes "boycotting" the scheme...
...Rodger supposes that sumable goods at the ratio of four to one...
...It paid for the building of the banks would increase their loans by several times the factory...
...Banks, as a rule, confine nually goods which yield wages, salaries, profits, and their credit issues to the financing of short trading $52,000 loan charges...
...The community, The importance of currency increase is much greater therefore, through the prices of the various commodi- than that of credit increase to the same amount...
...thus be multiplied with proportionately greater inAn orthodox economist would feel it necessary to flative effects...
...If the price of this plant expansion is paid ent effects of currency increase and credit creation...
...vancies and "non sequiturs...
...I quote Mr...
...Rodger's here exposed is that he reckons the innot only consumable goods, but also the means to further flation caused by increased currency but he omits to production in the shape of plant and machinery...
...The equivalent to a week's food...
...His reason was that he had things, of course, have not remained equal...
...except for any gains that may be reckoned in the shape We continue with Mr...
...The estimate that labor is nowadays fifty times thing like $6oo,ooo,ooo...
...An increased lend to a manufacturer so that he can execute an order stock of goods neutralizes the inflative effects of an received for goods and he repays the bank when he is increased quantity of currency...
...Rodger, the forgers pro- It shows a complete misapprehension of the subject, duce $Soo,ooo of bogus notes and lend them to an moreover, to imagine that the same economic effects honest manufacturer who spends them on a factory...
...posing now, continues Mr...
...Other on the Douglas scheme...
...The article contained a few has enormously increased our capacity to produce remarks about the Douglas credit scheme and I men- goods...
...Besides the wages, salaries, profits, and operations only the annual interest of 5 percent...
...Money his exposition of the Douglas doctrine by saying that wages have gone up as well as prices...
...Another fallacy of it, or are busy doing so, out of our payments for the goods they produce and which we buy...
...On the strength of this shortest way of dealing with their importunities was Mr...
...The level of prices is again raised...
...For than an increase of currency...
...There is a larger volume of operations so that the credits are self-liquidating...
...Spread over pense of withdrawal is equal to the profit of issue, ten years at 5 percent, he pays $52,000 per annum...
...But according to the creased, returns to its former level and there is no argument a new factory is built which produces an- permanent effect on prices...
...Without a week on a day's wage, as if nothing was required exception they said that they did not, but they knew for living except food...
...The increase in purchasing power would (over a period of ten years) in the price of the product...
...of no importance...
...Labor" produces Mr...
...Let us grant that an increase of the cur- financed by credit and the banker has been repaid, the rency by $5oo,ooo has an inflative effect and "the credit is canceled...
...It would be equally significant Guild and editor of a small Catholic publication de- to affirm, with all due solemnity, that railways, the voted to social questions...
...In sending the ms...
...A ties, has paid for the erection of the factory...
...Productivity has not increased to such an exwho labors through social credit literature, perhaps tent even in stocking-making, for the labor employed with a wet towel round his fevered brow, will appre- in making and maintaining the twenty-five machines as ciate the humor of the suggestion that from its "first well as that of the operative has to be counted in the principles" may come a religious revival...
...the factor of just been talking to a priest in a high ecclesiastical finance has intervened to rob the community of the beneposition who had been warmly advocating the scheme fits conferred by the scientist and the inventor...
...There would be consequent inflation...
Vol. 4 • May 1926 • No. 3
