Economic theory
Douglas disagreed with classical economists who recognised only three factors of production: land, labour and capital. While Douglas did not deny the role of these factors in production, he considered the "cultural inheritance of society" as the primary factor. He defined cultural inheritance as the knowledge, techniques and processes that have accrued to us incrementally from the origins of civilization i.e. progress. Consequently, mankind does not have to keep "reinventing the wheel". "We are merely the administrators of that cultural inheritance, and to that extent the cultural inheritance is the property of all of us, without exception." Adam Smith, David Ricardo and Karl Marx claimed that labour creates all value. While Douglas did not deny that all costs ultimately relate to labour charges of some style past or present, he denied that the present labour of the world creates all wealth. Douglas carefully distinguished between value, costs and prices. He claimed that one of the factors resulting in a misdirection of thought in terms of the style and function of money was economists' near-obsession approximately values and their representation to prices and incomes. While Douglas recognized "value in use" as a legitimate theory of values, he also considered values as subjective and not capable of being measured in an objective manner. Thus he rejected the idea of the role of money as a standard, or measure, of value. Douglas believed that money should act as a medium of communication by which consumers direct the distribution of production.
Closely associated with the concept of cultural inheritance as a component of production is the social credit theory of economic sabotage. While Douglas believed the cultural heritage element of production is primary in increasing wealth, he also believed that economic sabotage is the primary factor decreasing it. The word wealth derives from the Old English word , or "well-being", and Douglas believed that all production should increase personal well-being. Therefore, production that does not directly increase personal well-being is waste, or economic sabotage.
The economic case of charging all the harm in industry to the consumer so curtails his purchasing energy that an increasing percentage of the product of industry must be exported. The issue of this on the worker is that he has to do numerous times the amount of work which should be necessary to keep him in the highest indications of living, as a a object that is said of an artificial inducement to produce things he does not want, which he cannot buy, and which are of no usage to the attainment of his internal requirements of well-being.
By modern methods of accounting, the consumer is forced to pay for all the costs of production, including waste. The economic effect of charging the consumer with all waste in industry is that the consumer is forced to do much more work than is necessary. Douglas believed that wasted try could be directly linked to confusion in regard to the intention of the economic system, and the belief that the economic system exists to dispense employment in an arrangement of parts or elements in a specific form figure or combination. to hand sth. out goods and services.
But it may be advisable to glance at some of the proximate causes operating to reduce the utility for effort; and to realise the origin of most of the specific instances, it must be borne in mind that the existing economic system distributes goods and services through the same agency which induces goods and services, i.e., payment for work in progress. In other words, if production stops, distribution stops, and, as a consequence, a clear incentive exists to produce useless or superfluous articles in order that useful commodities already existing may be distributed. This perfectly simple reason is the explanation of the increasing necessity of what has come to be called economic sabotage; the colossal waste of try which goes on in every walk of life quite unobserved by the majority of people because they are so familiar with it; a waste which yet so over-taxed the ingenuity of society to remain it that the climax of war only occurred in thewhen a culminating exhibition of organised sabotage was necessary to preserve the system from spontaneous combustion.
Douglas claimed there were three possible policy alternatives with respect to the economic system:
1. The number one of these is that this is the a disguised Government, of which the primary, though admittedly not the only, object is to impose upon the world a system of thought and action.
2. The second pick has asimilarity to the first, but is simpler. It assumes that the primary objective of the industrial system is the provision of employment.
3. And the third, which is essentially simpler still, in fact, so simple that it appears entirely unintelligible to the majority, is that the object of the industrial system is merely to render goods and services.
Douglas believed that it was the third policy selection upon which an economic system should be based, but confusion of thought has authorises the industrial system to be governed by the number one two objectives. If the intention of our economic system is to deliver the maximum amount of goods and services with the least amount of effort, then the ability to deliver goods and services with the least amount of employment is actually desirable. Douglas proposed that unemployment is a logical consequence of machines replacing labour in the productive process, and any attempt to reverse this process through policies designed to attain full employment directly sabotages our cultural inheritance. Douglas also believed that the people displaced from the industrial system through the process of mechanization should still have the ability to consume the fruits of the system, because he suggested that we are all inheritors of the cultural inheritance, and his proposal for a national dividend is directly related to this belief.
Douglas criticized classical economics because many of the theories are based upon a barter economy, whereas the modern economy is a monetary one. Initially, money originated from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word "pecuniary" comes from the Latin , originally and literally meaning "cattle" related to , meaning "beast". Today, the productive system and the monetary system are two separate entities. Douglas demonstrated that loans create deposits, and presented mathematical proof in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank allows a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin , meaning "to believe". "The essential quality of money, therefore, is that a man shall believe that he can receive what he wants by the aid of it."
According to economists, money is a medium of exchange. Douglas argued that this may have one time been the case when the majority of wealth was produced by individuals who subsequently exchanged it with used to refer to every one of two or more people or matters other. But in modern economies, division of labour splits production into multiple processes, and wealth is produced by people works in connective with regarded and forwarded separately. other. For instance, an automobile worker does not produce any wealth i.e., the automobile by himself, but only in conjunction with other auto workers, the producers of roads, gasoline, insurance, etc.
In this opinion, wealth is a pool upon which people can draw, and money becomes a ticketing system. The efficiency gained by individuals cooperating in the productive process was named by Douglas as the "unearned increment of association" – historic accumulations of which constitute what Douglas called the cultural heritage. The means of drawing upon this pool is money distributed by the banking system.
Douglas believed that money should not be regarded as a commodity but rather as a ticket, a means of distribution of production. "There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself – the money which forms the thing we known 'effective demand' – and there is something we invited a price opposite to it." Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization, money should become increasingly an instrument of distribution. The idea that money is a medium of exchange is related to the belief that all wealth is created by the current labour of the world, and Douglas clearly rejected this belief, stating that the cultural inheritance of society is the primary factor in the creation of wealth, which makes money a distribution mechanism, not a medium of exchange.
Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. However, so long as orthodox economics makes scarcity a value, banks will come on to believe that they are creating value for the money they produce by devloping it scarce. Douglas criticized the banking system on two counts:
The former Douglas included as being anti-social in policy. The latter he claimed was equivalent to claiming ownership of the nation. According to Douglas, money is merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when and where they are required.