28.05.2015

Major Clifford Hugh Douglas

Misreaders and misleaders

With ideas of paying everyone an unconditional basic income gaining some credence on the left, Chris Gray looks at the inter-war social credit movement

As Dr Samuel Johnson observed, the prospect of imminent death concentrates the mind wonderfully, so it is hardly surprising that a renewed plunge into crisis on the part of capitalism stimulates all sorts of speculation about how to get ourselves out of the mess. So it was last time round in the period between the first and second world wars (1919-39). Then one of the fashionable economic saviours whose ideas made the rounds was a certain Clifford Hugh Douglas (1879-1952), generally known from his military rank as Major Douglas. Douglas was the principal instigator of a movement that became known as social credit.

Born in Stockport, Douglas studied at Cambridge, becoming chief engineer for the Westinghouse Electric Company and subsequently assistant superintendent at the Royal Aircraft Works at Farnborough. He served as a major in the Royal Flying Corps in World War I and began writing in 1917. His first book, Economic democracy, was published in 1920. He went on to found a weekly journal entitled The Social Crediter, and his social credit movement started to gain adherents in Canada, Australia and New Zealand. In particular his ideas were taken up in Alberta, with whose political leader, William Aberhart, he had a somewhat stormy relationship. Aberhart showed an annoying tendency to go his own way - a trend also exhibited by his administrative successors, who, though formally aligned with social credit, do not seem to have implemented Douglas’s basic ideas. On top of all that, Douglas, who died in 1952, evinced a strong anti-Jewish bias. Janine Stingel writes:

Douglas devoted his career to speaking and writing about social credit’s economic and political theories, which were predicated on the paranoid assumption that an international financial Jewish conspiracy controlled the world’s economic and political systems. He disseminated these ideas in a number of books and pamphlets, which the Canadian social credit movement imported and sold.1

There does not seem a logical theoretical connection between the social credit viewpoint of Douglas and this anti-Jewish stance, but there was definitely a connection between them in practice.

We shall return to the topic of Douglas’s conception of an international conspiracy below. It is worth asking at this point, though, whether an examination of his views is worthwhile, given such a stance. What invites consideration of Douglas as a political economist, however, is the estimate of him that John Maynard Keynes gives in The general theory of employment, interest and money. Here is what Keynes had to say:

Since the [1914-18] war there has been a spate of heretical theories of underconsumption, of which those of Major Douglas are the most famous. The strength of Major Douglas’s advocacy has, of course, largely depended on orthodoxy having no valid reply to much of his destructive criticism. On the other hand, the detail of his diagnosis - in particular the so-called A+B theorem - includes much mere mystification ... Major Douglas is entitled to claim, as against some of his orthodox adversaries, that he at least has not been wholly oblivious of the outstanding problem of our economic system. Yet he has scarcely established an equal claim to rank - a private, perhaps, but not a major in the brave army of heretics - with Mandeville, Malthus, Gesell and Hobson, who, following their intuitions, have preferred to see the truth obscurely and imperfectly rather than to maintain error, reached indeed with clearness and consistency and by easy logic, but on hypotheses inappropriate to the facts.2

A+B theorem

Douglas distinguishes between payments made by firms to individual beneficiaries thereof and payments made to institutions in order for production to take place. In Credit-power and democracy he writes:

A factory or other productive organisation … may be regarded, on the one hand, as a device for the distribution of purchasing-power to individuals through the media of wages, salaries and dividends; and, on the other hand, as a manufactory of prices - financial values. From this standpoint its payments may be divided into two groups: Group A - all payments made to individuals (wages, salaries and dividends). Group B - all payments made to other organisations (raw materials, bank charges and other external costs) … additional purchasing power [since A will not purchase A+B] is provided by loan credit (bank overdrafts) or export credit.3

In the words of Janine Stingel,

The essence of the A+B theorem was that, since all payments made to individuals (wages, salaries, and dividends - A) and all payments made to other organisations (raw materials, bank charges and other external costs - B) go into prices, the rate of flow of prices cannot be less than A plus B. But the rate of flow of purchasing power to individuals is represented by A only, and obviously A will not purchase A plus B. Hence [!] the necessity to create money to distribute as social credit dividends to consumers to cover B, or as subsidies to producers to permit them to fix prices at A.4

Interestingly, the Dean of Canterbury, the very reverend Hewlett Johnson, who went on to become an apologist for Stalin, was a supporter of social credit in the 1930s and wrote a little pamphlet outlining it entitled Social credit and the war on poverty (London 1935). He gives a very succinct summary, pointing out that the ostensible deficiency of purchasing power is taken care of by bank loans and foreign trade.

However, the whole A+B theorem is thoroughly questionable, depending in part as it does on the definition of “dividends”. “Dividends” may mean distributed or potentially distributable profits, but in any case not all profit need be distributed: some monies may be retained - indeed must be retained in order to restart the production process. There is in fact no essential difference between the two groups of payments, as critics were not slow to point out.

The theorem has the merit of calling attention to the various payments made by the enterprise, but any one of the relevant beneficiaries or organisations may decide not to purchase - in which case we have a break in the cycle, liable to cause the emergence of a sub-optimal equilibrium. Hence the major misunderstands and obfuscates.

It is important to note, however, that for Douglas the problem is not lack of overall purchasing power, but its (mal)distribution. As Frances Hutchinson explains,

Sufficient purchasing power exists in the system. The problem lies with the impact of seemingly neutral accounting mechanisms upon policy formation. By issuing financial credit, banks create a claim upon future production … The net result is that the cost of living is constantly rising …5

However, the theorem does have one positive feature:

The A+B theorem breaks with neoclassical convention in observing that markets do not clear during each act of circulation, and that money does not act purely as a numeraire. In describing a dynamic economy in which real - ie, disequilibrium - prices operate, Douglas equates more closely to reality than does neoclassical theory.6

It has to be said, though, that Keynes does the job far better in The general theory of employment, interest and money.

National dividend

Perhaps the most attractive feature of Douglas’s theory is his notion of a “national dividend”. As Hutchinson explains,7 this was envisaged as a payment to every adult man or woman as an individual - ie, the payment would not be made to households, but to their members. Douglas gives a brief indication of how this might work in the 1933 third edition of Social credit, which contains a ‘Draft social credit scheme for Scotland’. Sequestration of one percent of all capital assets would produce a dividend for everyone “of Scottish birth and approved length of residence”, payable monthly, except where an individual’s net income is greater than four times the dividend. Payment would be free of tax. The largesse is not free of all obligation, however:

For a period of five years after the institution of this scheme, failure on the part of any individual to accept employment in whatever trade, business or vocation he was classified in the last census, under conditions recognised as suitable to that employment (unless exempted on a medical certificate), will render such individual liable to suspension of benefit in respect of the national dividend.8

This is all very laudable, even if it may seem unreasonable to ostensibly confine individuals to re-employment in their previous “trade, business or vocation” - maybe this is just a drafting oversight. We should perhaps also note the criticism voiced by Earle Davis on Ezra Pound, to the effect that calculation of the national dividend would require an extended army of bureaucrats.

As mentioned above, Douglas’s ideas were taken up in the mid-1930s by William Aberhart and his followers in Alberta, Canada. Aberhart promised $25 a month to every adult Albertan9 and called in Douglas as economic advisor. Unfortunately the pair were up against a stacked deck: the province was deeply in debt, but was restricted in its ability to create funds by the British North America Act of 1867 (constitution of Canada), and Aberhart’s attempt to get round this in his Credit of Alberta Regulation Act was declared unconstitutional. The Albertan social credit administration lingered on until 1971, but the provincials never got their promised $25 a month.

Anti-Semitism

The major also managed to combine his advocacy of economic reform with denunciation of an ostensible international Jewish financial conspiracy. In his 1933 edition of Social credit Douglas refers to the infamous Protocols of the elders of Zion (pp146-47) without stating that they were a forgery emanating from the Russian tsarist secret police. The 1933 book also contains the following passage:

... countries such as pre-war Germany and post-war Russia, which exhibit the logical consequences of unchecked collectivism, have done so under the direct influence of Jewish leaders. Of the Jews themselves, it may be said that they exhibit the race-consciousness idea to an extent unapproached elsewhere, and it is fair to say that their success in many walks of life is primarily due to their adaptation to an environment which has been moulded in conformity with their own ideal. This is as far as it seems useful to go, and there may be a great deal to be said on the other side. It has not yet, I think, been said in such a way as to dispose of the suggestion, which need not necessarily be an offensive suggestion, that the Jews are the protagonists of collectivism in all its forms, whether it is camouflaged under the name of socialism, Fabianism or ‘big business’, and that the opponents of collectivism must look to the Jews for an answer to the indictment of the theory itself. It should in any case be emphasised that it is the Jews as a group, and not as individuals, who are on trial, and that the remedy, if one is required, is to break up the group activity.10

Given the international context of the time, these words have a somewhat ominous ring. However, some qualifying remarks concerning such a stance and the social credit movement’s attitude need making. As Janine Stingel notes:

Social credit’s anti-Semitism was strictly rhetorical and ideological. At no time was the movement anti-Semitic in the Third Reichian sense of officially adopting and transforming that ideology into a policy of discrimination, then executing the policy by a system of aggression.11

Aberhart appeared at least partly willing to subscribe to the idea of a possible Jewish financial conspiracy, while at the same time denouncing the Protocols of the Elders of Zion as a forgery. His successor. Ernest Manning, went on to repudiate the social credit movement’s anti-Jewish wing. Meanwhile a Canadian Jew called Louis Rosenberg did his best to counter the stream of propaganda in favour of the idea that international finance was a plot by German Jewish bankers:

He cited statistics showing that German Jews had never formed more than three percent of the world Jewish population; that in 1925 only 3.3% of all persons in Germany who engaged in banking and stockbroking were Jewish; that there was not a single Jew on the board of directors of the Bank of England; that there were only three Jews among the 150 directors of the ‘big five’ banks in Great Britain ...; that of the 420 directors of the 19 member-banks of the New York Clearing House, only 30 were Jews ...; that there were no Jewish directors on the boards of any of the larger banks ...; and finally that there was not a single Jew on the board of directors of any chartered bank, trust company or mortgage company, or railway company in Canada.12

Unfortunately the Western Producer newspaper in Alberta, to which Rosenberg communicated these facts, refused to publish his letter. This paper supported the social credit cause.

All in all, it is clear that social credit did not logically need to be anti-Jewish; but it seems we have a common factor in both cases: ie, an inability to think straight.

Ezra Pound

Ezra Pound (1885-1972) was also a supporter of Douglas and of social credit, although he also had some good words for Silvio Gesell.13 A link between Douglas and Pound is provided by the guild socialist, AR Orage (1873-1934). As Davis observes,

About 1918 Douglas converted Orage and many of his fellow national guildsmen to his new principles of economic reform. This is when Pound joined too. In England Orage attempted to make social credit the motivating force in the British Labour Party, but was defeated by the Fabians and the organisers, who were mainly interested in higher wages and a greater share of the profits of production.14

Pound’s economic theories are set out in several places, not least in his extraordinary poetical oeuvre known as the Cantos. Way back in 1961 a certain Malcolm Cowley summarised the message of these in prose form as follows:

Western civilisation is at the mercy of an international conspiracy of bankers, or, as he calls them, usurers. Wars are caused by this ‘autocracy’ in order to run nations into debt and create opportunities for manipulating the currency. The worst of the usurers are Jews, especially a few big Jews conducting a ‘vendetta on the goyim’. Usury cheapens art, falsifies history and reduces literature to lying journalism. The autocracy could be abolished by a simple reform of the currency: namely, the issuance of stamped and dated script based on the goods available for consumption. Such a reform would have to be initiated by a benevolent despot on [of?] the order of Mussolini or the best Chinese emperors. Confucius laid down the lines of a good society. American culture, great in the days of John Adams and Jefferson, declined after 1830 and perished in the civil war, also caused by bankers. The United States were sold to the Rothschilds in 1863.15

This somewhat lurid summary seems more or less accurate, although it is interesting to compare it with Davis’s account, which runs:

His reform programme is based on his belief that it is the business of the state to insure and protect business prosperity, to supply intelligent leadership in economic matters, to regulate just prices and sufficient profits, to stimulate freedom in production and fair dealing in the market, and to check usury and other forms of special privilege which interferes with the circulation of the money needed for buying and selling. The government of any nation has the power to stop depressions and to promote prosperity; it must be willing to use that power. If business is unable to take labour into partnership or is unable to employ everyone, the government must stimulate business or even fill the gap. Enough money and credit must be made available and not borrowed at interest from private banking institutions. He wanted an ideal New Deal.16

Other sources for Pound’s version of political economy are ABC of economics, his various money pamphlets such as Social credit: an impact (London 1935) plus his wartime radio broadcasts in Italy (on which see Davis op cit). There is also ‘Jefferson and/or Mussolini’. It must be said that the ABC of economics contains very little of weight: almost the only passage worth noting is:

An economic system in which it is more profitable to make guns to blow men to pieces than to grow grain or make useful machinery is an outrage, and its supporters are enemies of the race. 2. The immediate problem is distribution. 3. National dividends are possible.17

Social credit: an impact is an altogether more substantial piece of writing.

Pound and Mussolini

From at least the early 30s, it appears, Pound was a supporter of Mussolini. As Davis puts it, “Mussolini drained the marshes - public works for public benefit - and, best of all, says Pound, he began effectively to control the banks.”18 However (sticking with Davis), “Whatever Mussolini was doing about distribution, no-one has presented concrete evidence that he did anything about the monetary system which is different from what is done in other countries.”19

Mussolini’s regime was not initially notable for laws discriminating against Jews - these were introduced later, as he gravitated closer to Hitler. Nevertheless Ezra Pound does identify Jews as prominent in the ‘autocracy’:

He never says that only the Jews are usurious. Other creeds, races, or nations supply the Hamiltons, the Biddles, the Morgans, the Patersons, the Churchills, the evil kings and rulers of China, Italy, Europe - anyone can collect an imposing list, whether or not one agrees with Pound’s estimates. But of them all Pound is most infuriated by the Rothschilds. The Rothschilds are obviously Jews.20

As Malcolm Cowley underlined, for Pound there is a connection between international finance and the US civil war, and here the Rothschilds feature. In Canto 48, Pound writes:

… Bismarck Blamed American civil war on the Jews Particularly on the Rothschild One of whom remarked to Disraeli That nations were fools to pay rent for their credit

Pound does not explicitly endorse Bismarck here, but why bring his remark up if you just want to mention it without condemning it? Davis comments:

Any of us can say that the causes of the civil war were various, slavery remaining paramount. The economic difficulties which had root in the debts of the south, owed to northern financial firms, may have contributed to the tensions leading to strife. How much money was supplied by Rothschild agents … can hardly be told for certain now. Many private firms made money out of the civil war; the Rothschilds presumably got a large share. We can easily see that Pound’s position is extreme …21

A bit further on in the poems we have Canto 52, which attributes a (spurious) remark to Benjamin Franklin:

Remarked Ben: better keep out the Jews Or yr/ grandchildren will curse you Jews, real Jews, chazims, and neschek Also super-neschek or the international racket

There next follow five lines which the publishers refused to print: Pound apparently insisted they be shown blacked out - and it appears these lines dealt with the Rothschilds.22

Pound and Roosevelt

Davis writes:

It is important to note that Pound examined the American scene in a continuous series of articles printed in The New English Weekly, beginning September 1932, and continuing to June 6 1940. Between 1933 and 1937 he wrote a great deal about how the New Deal was coming along … During this period he said many things about Roosevelt, not all of them derogatory. There are moments when he makes critical remarks about Hitler, where he denies anti-Semitism, where he praises America for positive acts like the bill restricting holding companies, even to the point of saying that the choice of Roosevelt over Landon was a great victory for the forces of good in our country.23

Pound’s views on Roosevelt are puzzling. It may be that he was critical of Roosevelt (as of Keynes) for not going far enough in the social credit direction.24 However, as the 30s wore on, Pound moved further into the Axis camp:

As World War II loomed on the horizon, Pound’s articles became more and more partisan and shrill. From saying that Hitler was owned by the great usurer, Thyssen, that he was a pathetic hysteric, he began to change his perspective, finding great forward steps in Germany, as well as Italy. He praises the Munich pact and Chamberlain, and he never falters in his support of Mussolini and Italian fascism. Roosevelt’s economic measures after 1936 do not receive any support from Pound’s articles, and he gives every indication of having lost all hope for the New Deal by 1939. His extremes eventually embarrassed his old British friends and the magazine which had sponsored him for years.25

Pound and Marxism

Certain passages in Social credit: an impact have a bearing on Pound’s view of Marx. He notes with approval that “Gesell observed that Marx found no fault with money” (p8). This is a somewhat surprising statement, given that Marx in the Critique of the Gotha programme envisages economic arrangements that dispense with money as we use it, but there is a pronounced tendency among bourgeois commentators to ignore or play down this particular work. It should be remembered, of course, that Marx’s early writings were not fully available to Gesell, but, even so …

Despite this, Pound feels moved to state that: “Property has never done any harm, it is the devil capital, sheltering himself behind property, the lien on other men’s services, that has played hell with the world.”26 In that case, why not call for the abolition of capital? Pound seems to have shrunk from this.

Pound is, on the whole, confused … and confusing (and it is not just the Chinese characters splattered about the Cantos that work to this effect). Still, we can safely ignore the denunciations of “usura”: Ezra Pound remains a great poet, nowhere more so than in the magnificent Canto 81, with its environmentalist slant.

The ant’s a centaur in his dragon world. Pull down thy vanity, it is not man Made courage, or made order, or made grace. Pull down thy vanity, I say pull down. Learn of the green world what can be thy place In scaled invention or true artistry. Pull down thy vanity. Paquin pull down! The green casque has outdone your elegance.

Notes

1. J Stingel Social discredit: anti-Semitism, social credit and the Jewish response Montreal 2000, p196.

2. JM Keynes The general theory of employment, interest and money New York 1961, pp370-71.

3. C Douglas Credit-power and democracy London 1934, pp19-20.

4. J Stingel op cit p12.

5. F Hutchinson The political economy of social credit and guild socialism London 1997, p48.

6. Ibid p50.

7. Ibid p69.

8. C Douglas Social credit Montreal 1933, p211.

9. See J Stingel op cit p14.

10. C Douglas Social credit Montreal 1933, pp29-30.

11. J Stingel op cit p4.

12. Ibid p37.

13. See Earle Davis’s invaluable Vision fugitive: Ezra Pound and economics Kansas 1968.

14. J Stingel op cit p106.

15. M Cowley, ‘Pound reweighed’ The Reporter March 2 1961 (quoted by E Davis op cit p13).

16. E Davis op cit p97.

17. E Pound ABC of economics New York 1935, p125.

18. E Davis op cit p131.

19. Ibid p131.

20. Ibid p173.

21. Ibid p179.

22. Ibid p126.

23. Ibid p188.

24. See ibid pp181-82 and p191.

25. pp188-89.

26. E Pound Social credit: an impact London 1935, p19.