AN ADDRESS BY MR. C. R. SANDERSON, B.Sc.
Thursday, November 7th, 1935
PRESIDENT BRACE: We have today as our Guest Speaker a gentleman who carries a very definite responsibility to the citizens of this community as the Deputy Chief Librarian of the City of Toronto. He must, of necessity, have considerable to do with the 'development of thought and opinion of the members of our community. Mr. Sanderson is known to many of you. He is a speaker who is very much in demand. He is a student gifted not only with the ability to study, but also with the ability to select from those studies the important facts; and he is able to pass those on to those with whom he is in touch.
Today our Guest Speaker is going to discuss the subject of Social Credit. No doubt many of you have been studying this subject intensively during the past few months. It is a most interesting subject and we are all interested in learning more of the formula which is going to cure all our ills. After we have heard Mr. Sanderson I am sure our thoughts will have been very definitely broadened on this matter. Mr. Sanderson.
MR. C. R. SANDERSON: Mr. President and Gentle men: I thank you, Mr. President, for your introduction, not because I' flatter myself that I deserve what you say of me, but because it gives me an opening and gives me a chance to explain just where I stand on this topic.
I am not talking politics. I am not discussing any particular application of Social Credit. I am going to try to present to you both sides of the Douglas theory, equally forcibly, equally fairly.
In your public libraries in this city, you have, as you must have, books and material on all sides of all controversial topics. It must be so. A public library is a democratic institution, and if we believe, as we do, in this democracy under which we live, we must believe in the basic principles expressed by James Mill, and John Stuart Mill, and Jeremy Bentham, whereby democracy holds that all sides of a question must be aired in order that in the long run the democracy may, as it will, choose what is right, what is true, and what is just. That is what your Public Library does.
I am not coming to you today then as a politician. I am merely coming to you as in some measure a student of economics, as one who has read more or less widely in that field for a number of years; and I as n coming to summarize for you just what you would collect for yourselves if you chose to read on both sides of this particular topic. Actually, Major Douglas' own contributions to the subject are not particularly lucid. He has not the gift of clarity of expression, and it is mainly to his disciples, to his followers, that we have to go for a detailed expression of where he stands.
I therefore proceed to stand on one foot for a few moments and then stand on the other foot. Whilst standing on the one foot I propose to outline as briefly as I can the main principles of this new development called Social Credit; whilst standing on the other foot I propose to submit the opposite case.
Douglas starts with the common argument which we have heard, which we have read, which we ourselves have repeated: that the trouble in the world today is the trouble of under-consumption. There is nothing wrong with the production side. People would buy, nations would buy, you and I would buy, if we had more purchasing power. The trouble, the basic trouble, is under-consumption.
There are all sorts of ideas put forward to cure this ill of under-consumption. Some of the ideas involve a radical reorganisation of society. But Social Credit puts forward a scheme which it believes will cure under-consumption without interfering in any way whatsoever with the present economic organisation. It leaves ownership untouched, it leaves management untouched, it leaves profits untouched, it leaves interest untouched; it leaves the present economic organisation just as it is. It applies itself directly and entirely to the financial side.
Let us set up three preliminary points; and I would beg of the gentlemen in banking and financial circles to bear with me if I state these claims somewhat emphatically.
The first point is: that money need have no particular value in itself. We know that. Probably you remember reading a brief account in the Year Book of the Toronto Board of Trade, of a certain monetary project in the seventeenth century in this country, in Lower Canada. When actual metallic currency had run out, when no further supply was available, the representative of the French Government hit upon the device of using as currency playing cards which he had endorsed. They were made out for different amounts, a whole card for a large sum, a half card for a lesser sum, a quarter card for a still lesser sum; and these playing cards were in use for nearly thirty-five years, accepted as currency by the people amongst whom they circulated.
Therefore, money need have no particular value in itself. We know, for example, that the old goldsmiths, the originators of banking, accepted gold bullion for safe keeping and issued certificates in return; that those certificates changed hands without the bullion changing hands; and the goldsmiths soon discovered a way-you couldn't blame them-of issuing more tickets than they had actual bullion. Those tickets circulated as currency. So today, to the average man a dollar bill passes as a dollar bill without any particular thought as to the amount of specie there may or may not be at the back of it. As Douglas says, the banking system of today, the financial system of today, is an inverted pyramid of credit standing on an apex of gold. The figures given to me are that in Canada the transactions which are carried out in the form of bills and coin amount only to 2.7% of the total, and that 97.3% of the transactions of this country are carried out in the form of cheque-currency.
If we think of that point, Gentlemen, doesn't the whole currency question take on a different aspect? Doesn't the question of inflation or deflation assume a changed character? It is no longer a dollar bill question; it is a cheque-currency question. So we say, for our first point, that money need have no particular value in itself.
The second point is - and here again I would ask my banking friends to sit quietly: that bank deposits are largely fictitious. They are things that are created in the books of the banks by the loans. The man who goes to the bank and raises a loan of $100,000 immediately creates on the other side of the books of that bank a deposit of $100,000. The fact that he lodges collateral doesn't make one bit of difference. Normally the collateral is merely locked up. But the moment he begins to draw on that deposit (the creation of the bank) in the form of cheque-currency, he immediately adds to the currency of the country. Where does the additional currency come from? It comes from nowhere. It is just new currency added to old currency; it is created by the banks; it is dependent on those deposits which are merely the counterparts of the loans; the whole foundation is a fictitious thing, but it is turning more and more currency into circulation all the time. Go one step further. When the loan is repaid to the bank, as it must be, the bank charges interests and the bank therefore collects back out of the currency-circulation more than it actually puts in.
If we remember that point, Gentlemen, isn't it perfectly obvious that, as time goes on, under-consumption must be an ever-increasing evil? So much for our second point.
The third point is: that industry today attempts to recover in its prices all the costs of production. But we all know that a constantly increasing proportion of those costs goes to machinery; the relative costs that go to wages are a decreasing proportion of the whole. The result is that the amount which is paid back to the consumer as a return for his labour is never sufficient to buy back the product of industry as it is turned out. In fact the position is worse than that; there is always some saving, and of course we know that every time anybody saves anything this means a reduction of the present consumption-capacity. - a reduction of the demand by the final consumer for goods and services. There is never at any given moment enough purchasing power in the hands of the consumer to buy back the product of industry.
To emphasise this point Douglas here introduces his famous division between what he calls "A" costs and "B" costs. "A" costs in production are the payments made to individuals for salaries, for wages, for dividends. "B" costs are the costs that go for machinery, for maintenance, for raw materials, for financial charges. Actually it is only the "A" costs that are paid back directly to the consumer„ that is, the rate of the flow of purchasing power to the individual is represented by "A," because money is normally only distributable through the agency of salaries, wages, and dividends. True, some of the "B" costs go back one way or another to the consumer. Some of the machinery cost for example, goes back to the consumer. But in point of time it has already gone, perhaps even a considerable time earlier, and spending power 'distributed, say, two years ago is not available for consumption today. So far as any particular productive period is concerned, practically speaking it is the "A" costs alone that go to the consumer. Yet we expect the consumer with his "A" income to buy back the product of industry, which has cost "A" plus "B" to produce. No wonder we have under-consumption! And no wonder that it has taken on the appearance of being chronic!
That is the situation as Social Credit sees it. And Social Credit proposes to meet it by one piece of basic theory and by two simple applications of that particular theory.
The basic argument is just this: The Financial Credit of a country must be made equal and must be kept equal to its Real Credit. Its Real Credit is its productive capacity. Its Financial Credit is its consuming capacity. These must be made equal and kept equal and the task of doing it must be a function of the government.
It is stated that apart from all consumable goods and services, $250,000,000 were added to the permanent real credit of this country in 1931. What is needed is that financial credit shall be proportionately increased. If this is done, then the total national consumption can be made equal to the total national production. That is the argument which forms the basic theory of Social Credit.
Of the two applications, the first is this: It is proposed to set up a National Credit Account or a National Accounting Bureau. This is to be a government commission with a Chairman appointed for life, without political influence in any way whatsoever, having no voice in policy, but having only an actuarial duty to carry out. The actuarial 'duty is, first, to estimate in term of money, the real wealth of this country as expressed in its productive capacity. A difficult job? No, not particularly. Why should it be? It is an actuarial job; and if we recall the involved problems which the actuarial profession solves with amazing accuracy, this particular problem does not seem an impossible one. Moreover there are already in existence all sorts of certified balance sheets and other records. Surely an estimate such as is needed is not beyond the powers of skilled actuaries. The real wealth now in existence, having been estimated in this way, is to be made the basis of the issue of financial credit, somewhat after the method which the bank uses when it allows me to create a deposit as the result of a loan. We come back to this in one moment.
Then there is introduced what is called the just Price. Now, the just Price is not merely something which means a fair price, or an honest price. The term has a technical meaning. And the just Price is arrived at in this way: The National Accounting Bureau would actuarially estimate the production costs of industry, and would divide those costs of production under two heads. It would estimate separately the real costs of production, i.e., the wear and tear, use of raw materials, and the living costs of those who are employed in production and of their dependents. These real costs of production are represented by everything which is consumed in order to make production possible-the wastage, so to speak, that takes place in a productive period.
Then, there are in addition all the other costs which, together with these real costs, go to make up the total cost which is the financial cost.
Supposing then that the financial cost is represented by 100, and supposing the real cost is actuarially found to be 75, then the just Price for the succeeding period would be announced as 75. And immediately all things would sell at retail for 75 per cent of their previous prices.
A retailer is, of course, 25 percent out of pocket. He sends his sales-vouchers to the bank. The bank scrutinises them and then gives him credit for the missing 25 per cent, and the banks reclaim this amount from the National Credit Account. The additional purchasing power, i.e., the additional financial credit, is issued from the National Credit Account on the basis (.or security) of the estimated real wealth that the country possesses. It is called the National Discount.
But, you say, where is the money to come from? Wait a moment. Don't let us get a conception of dollar bills. Let us remember that 97.3% of our present transactions are cheque transactions, not dollar bill transactions. We saw earlier that with this conception in mind the currency question assumed a new aspect. It was no longer a dollar bill question; it was a cheque-currency question. And the authority which is exercised as the basis for this additional cheque-currency is of the same nature as the authority a bank exercises for additional cheque-currency when it advances a loan and thereby creates a deposit. But behind the authority of the National Credit Account is the real wealth of the country.
You say that is just inflation under another cover. Oh no! Inflation as we know it is inseparable from rising prices. Inflation operates when we add to existing money whilst goods remain fixed in amount; prices and not purchasing power then rise. But this thing doesn't even begin to operate until prices have come dawn, because it is only the difference between the new lower price (the Just Price) and the old higher price that is made up in this financial credit which is issued from the National Credit Account. Inflation is an increase of currency without any corresponding increase in production; prices must inherently be higher. But the kernel of Social Credit is the increased production that will immediately accompany the issue of the increased credit. To this we come in just one moment.
You say the prices won't come down. They cannot help but come down. We haven't interfered with competition. The big department stores will still be competing with one another. The independent trader is still competing with his old competitors and with the department stores. The manufacturers of motor cars are still competing, one with another. Of course prices will come down, by the amount of the National Discount for the period. Competition will see to this.
The Just Price is therefore a reduced price; the margin between that price and the old price is made up by a National Discount. Obviously the immediate result would be an enormously increased consumption-capacity. We should have an immediate and sustained increase in demand, and we should have given a wonderful stimulus to production.
Let us go on to the second application of the basic theory. The second application is the creation of what is called a National Dividend. Everybody in the country is regarded as a shareholder in Canada, Incorporated.
We are those shareholders. We are the successors in a big national inheritance, not merely on the cultural side but also on the real wealth side. And by regarding as the basis for financial credit one trivial section of that real wealth of the country, there can be paid to every man, woman, and child„ a National Dividend. One figure that has been suggested is $200 a year; another figure that has been suggested is $300; and this Dividend is payable to every man, woman, and child, as a shareholder in Canada, Incorporated. The authority for the issue of this additional financial credit (representing increased purchasing power) is exactly the same as in the case of the National Discount already discussed. The amount may be a small amount, but let us remember that it goes to every individual. It is a kind of old age pension payable from birth. And let us remember that its actual purchasing power is increased by the just Price and the National Discount which is already operative. The result is that this National Dividend would again increase consumption and stimulate production.
Look at it as compared with a national unemployment insurance scheme. It is claimed - I don't believe very justly, but it is claimed-that a national insurance scheme is an encouragement to people not to work, because the man pays out so long as he is employed, and draws from the scheme only when he is not working. Actually, I do not believe there is very much in the argument. I have followed the results in the Old Country fairly closely and the abuses are relatively trivial. But if there is any encouragement against work by a national insurance scheme there can be no such drawback in the case of the National Dividend. The individual gets the Dividend whether he is employed or not, and there is actually a stimulus to work rather than any possible discouragement. You say there would still be wasters. Yes, there would still be wasters. But remember the increased consumption, and the stimulated production we have just discussed. There would be work for anyone who was able to work. If a man is able but not willing to work, he becomes a national charge. And if he becomes a national charge he is kept out o f his own National Dividend, with the result that all the terrific load of taxation which is now going to the relief of unemployment is lifted at once.
The query as to where all this money is coming from has already been met, I think, in what we have said. The answer is practically the same as the answer to the query: where does the deposit come from when the bank creates one by making a loan, It is created in the same way, but in the case of Social Credit the creation is by the government, and the sanction behind creation is the Real Wealth of the country.
But you may ask where is it ultimately going to? It is going from consumer to producer; it is coming back from producer to consumer. It is stimulating consumption; it is at the same time stimulating production. "Oh, yes," you may interrupt, "but what about withdrawing it?" Social Credit asks in return: "Why does it have to be withdrawn at all?" The only reason why it would have to be withdrawn, the only possible circumstance under which we need even trouble ourselves so far as withdrawal is concerned, would be when the total national consumption would have caught up to total national production. The particular scale of financial credit that is issued under the National Discount is only issued for a fixed period. Three months is suggested. The scale of Discount is revised at the end of the period and announced for the next period. If prices are rising, if consumption is catching up to production, the national discount shortens from say 25 to 20, to 15, to 10, to 5. It may disappear altogether. In fact it may be replaced by a sales tax. Gentlemen, the only reason why that could happen would be because total national consumption would have caught up to total national production. And in our wildest dreams of economic recovery, in our wildest dreams of returning prosperity, have we ever imagined anything more wonderful than that-that total national consumption would have equalled total national production?
Whether that is achieved or not, it is the direction, in which we should then be moving. As the result of the National Discount plus the National Dividend there must inevitably be a stimulated consumption; this in turn showing itself in a stimulated production; increased production again meaning cheaper production; and cheaper production again in turn further stimulating production. The final result is the whole of industry starting on a new wheel, a new circle, a new cycle of restored and continued prosperity.
Now that, Gentlemen, is, very badly, an outline of what Social Credit proposes and, watching the time at my disposal, I cannot spend any further time on that side of our topic. But one thing you will ask is what becomes of the banks. Nothing becomes of the banks. The banks stay as they are, except that they lose their credit making function. That becomes a government function. Otherwise, the banks operate just as now. They take care of our savings, when we have any, and under such prosperous conditions savings would increase. They would lend the money out at interest and there would be much more to lend. But they would lend only actual deposits and would not create the deposits. Otherwise, the banks are the agency through which the scheme would operate. Nothing happens to the banks except perhaps an increase of work.
Let me now turn and stand on the other foot for a moment or two. Criticisms of the Social Credit scheme will have occurred to your mind as I have been talking. Let me put my finger on one or two of them. You know, as I know, that bank 'deposits and bank loans are not something that go on in ever-increasing quantity. Normally, they are constant, or roughly constant. Certainly the banks do not go on continually and all, the time creating new currency which is added to old, because cancellations are constantly taking place. New loans largely replace old loans.
Major Douglas quotes Mr. Reginald McKenna, the chairman of the Midland Bank, as having said: "Every bank loan and every purchase of securities by a bank creates a deposit." But a few hundred words further on McKenna proceeded to say: "While banks have this power of creating money they exercise it only within the strict limits of sound banking policy. Anyone who studies the monthly statements of the London Clearing Banks will see that these banks keep a reserve of cash fairly constant in relation to the amount of their deposits. Thus a limit is placed on a bank's power of lending by the amount of its cash and, so long as the canons of conservative banking are conformed to, additional loans case only be made if the cash is increased. Banks lend or invest up to the full amount permitted by their cash resources, but they do not go beyond that point." This is a very different picture from that which Douglas presents either by his own statement or by his quotation from McKenna. It is perfectly true that in times of depression the banks curtail their credit facilities. It may even be true, and probably is true, that the moment a little cloud of depression comes over the horizon, the bank puts up its umbrella before the storm starts. Isn't that conservatism just the thing that has kept our credit system stable? Security does not permit the taking of risks. Those of us who have friends over the border know not merely with what anxiety, but with what deep-seated disturbance, society is rocked when the credit security of a country is threatened in times of depression.
It is perfectly true also that in times of prosperity the banks expand their credit facilities. Indeed it probably is true that the accepted banking policy does actually increase the trend at any particular moment, by contracting its credit facilities or by extending them, the first in times of depression and the second in times of prosperity. But it is not true that in normal times, or at any times, the banks go on and on, adding new currency to old. There seems to be a fallacy in the Social Credit argument that deposits are in reality ficitious. And it is not correct to say that, in the final analysis, industry is financed by bank deposits. In the long run it is financed by individual savings, or, as is often the case by individual losses. Then it seems to me that there is a possible fallacy in the argument (at any rate in the form in which it is stated) about the insufficiency of consuming power in the possession of the consumer that there is never enough purchasing power in the possession of the consumer to buy back the product of industry.
Even accepting the statement that money is normally only distributable through the agency of salaries, wages, and 'dividends, the Douglas argument tends to suggest that the only money so distributed is through the producer of the final consumer's commodity. But similar payments are all the time being made by the manufacturers of producer's commodities; that is, for example, by the people responsible for the erection of buildings, the making of machinery; by the producers of raw materials; even by those who provide the very credit facility itself. The product in these cases is not intended to go directly to the final consumer, yet those responsible for the production are distributing purchasing power (in the form of salaries, wages, and dividends) to the final con sumer. Much more purchasing power is flowing directly to the final consumer than the Douglas argument suggests. And all these operations are going on at the same time; while the boot store is selling one consignment of boots, the tanner is producing hides for more.
Again, in the same connection I want rather emphatically to draw attention to one thing so generally accepted that we tend to forget it. That is consumer's credit. It plays an enormous part in industry today. A man can buy a house and hold it on a mortgage. He hasn't paid for it. He can buy a motor car and pay for it on installment. He can buy a radio, or a washing machine, or he can even furnish his house in the same way. Every time he does anything of this kind he is using consumer's credit, because he hasn't paid for the commodity he is enjoying. He goes to his doctor or to his dentist and it may be that his doctor or his dentist does not render his account for six months. Maybe the man doesn't pay the account for another six months. He is to that extent living on consumer's credit. And it may be argued that, so far from never being in possession of enough purchasing power to buy back the product of industry at any given time, the consumer is actually in possession of a very, very large number of goods and services long before he has paid for them. Indeed we can go further and say that he hasn't even begun to do the work necessary to earn the salary or wages which will ultimately pay for those goads and services. There certainly seems to be a fallacy somewhere in that argument about the insufficiency of purchasing power in the possession of a consumer to buy back the product of industry.
Then let us look for a moment at the finance of the scheme. That suggestion of 75 percent for a just Price was a very conservative suggestion. I have seen 60 percent suggested. I have seen even 40 per cent suggested. The figure is highly hypothetical. Leave that National Discount at one side for a moment, and look first at the National Dividend which will give every man, woman„ and child, say $300 a year. At a rough estimate that means 3 billion dollars a year in this country. Imagine the total as years go by. Then what kind of a figure are we going to add to this as a total represented by the National Discount? A sum very, very much larger, even on the most conservative basis. This represents a tremendous quantity of additional purchasing power if we take a number of years and add' the annual totals together. It is all right to say that whatever the amount may be it doesn't matter; it is all right to say that it merely represents purchasing power going from consumer to producer, back to consumer, and back to producer again. That sounds plausible enough„ but one thing seems to me to be involved which is a fundamental in the whole problem; it is a fundamental which has never yet been disproved; it is the fact that the quantity of a thing which is in existence is an inseparable factor in the value of the unit. And though it may be true that this additional purchasing power created by Social Credit may not appear in huge quantities of additional dollar bills, in the last resort the purchasing power must be fluid. It must be easily transferable. It must be measurable by the unit. What is the unit? What can the unit be? We may not have cart-loads of dollar bills, but we come down to the dollar bill as the unit measure. We know that if the banks substantially extend their credit facilities that means rising prices, because we know the unit falls in value. So with this enormous issue of additional purchasing power that same fundamental must still apply: the quantity of a thing is an inseparable factor in the value of the unit. That law applies to radium, it applies to 'diamonds, it applies to gold, it applies to dollar bills, it applies to anything in this world. That fundamental seems to me to be rather left out of the Social Credit argument, and whatever temporary lowering effect on prices the National Discount may produce, in the long run and as the value of the purchasing unit falls, prices must inevitably rise.
I have just time for one more point and only one. The real wealth of the country is to be made the basis for the issue of further financial credit, of further purchasing power. But, Gentlemen, can we put our finger on one bit of real wealth, either in this country or any other country, to which there is not already a ticket fastened indicating possession?
A friend of mine, who is the General Manager of one of the large insurance companies in England, came over here three or four years ago to find an avenue for investment funds. I had known him well in the Old Country and he came to see me within a few hours of his reaching Toronto. Almost his first question to me was: "Are there other cities in Canada with big buildings like Toronto?" "Oh, yes." "And what is your population?" "Oh, about ten millions." "Well, don't you know that you are over capitalised?" I said, "Why?" He said, "Well, I came to the Union Station - a beautiful station, a magnificent station. I come out of it and I face a beautiful and magnificent hotel. I look around and I see skyscrapers, enormous buildings. Those are apparently repeated, even if not to the same extent, in other parts of the country. For your population you are over capitalised."
He may be right or he may not. I am not expressing any opinion. But in all that wealth can we put our finger on one spot that is not already tagged with an ownership ticket, and, if he is right, possibly with a financial ownership ticket that is beyond the real value, We know there are ticket tags on the railways. We know the municipalities in many cases are mortgaged up to the hilt. We know the extent of watered stock. Where is the real wealth to which a ticket of possession is not already attached? How then can we capitalise this wealth again in order to create financial credit when the full, perhaps over-full, measure of financial credit justified by that real wealth is already in existence?
So my last comment is this: We have a credit system now which, perfectly or imperfectly, does work. It is backed by a banking system which, perfectly or imperfectly, does work. If we scrap that system which does work, whether imperfectly or otherwise, and if we substitute a hypothetical system which may work, but which may not work, what then will happen supposing the hypothetical system doesn't work, when we have already scrapped the system; that does work? In that event, the result could be expressed only in terms of economic disaster.
Now, Gentlemen, I come back on both feet and stand on both at once as impartially as I can. I have tried to present to you the bare bones of both sides of the case in the time that I have had at my disposal. You have had extraordinary patience with me. My eyes have constantly flickered over the whole of this big audience. I have been conscious that your eyes have been meeting mine, giving me a sustained attention for which I am grateful. I thank you very, very sincerely for your patience in a talk that has been somewhat hard slugging.
But there are the two sides. You pay your money,, you take your choice. You can go on the swings if you dike. If you don't like the swings, take the roundabouts. (Hearty Applause.)
PRESIDENT: Gentlemen, the same remark was passing through my mind as I listened to Mr. Sanderson. You pay your money and you take your choice. We can proceed with eyes front. We can divert to a Social Credit plan or we can take a ninety degree turn to the left. We are going to pay our money in any event. We and our children and our children's children will pay for what we have been going through during this past five years and I think we should recognise our responsibility at this time and in the future in planning the course of this country so that for ourselves, for our children, we may find the best future that is possible.
I would like to add just one thing to the later remarks of our guest speaker. I would like to quote an excerpt from a very much-discussed address made by Sir Edward Beatty in London recently, in which he said: "The business life of this country as I know it is carried on by thousands and hundreds of thousands of men and women, each doing his and her best, usually in all honesty and decency, to obtain a reasonable reward far what he can accomplish. I admit its clumsiness, I admit its perversion by individuals of less than average moral principle, I admit its periodical inefficiency. Against all these, I place the single fact that the system as we have it has for a thousand years or more of recorded history raised the living standard of the whale human race and has steadily removed and not accentuated the inequalities which a thousand years ago separated class from class."
I wish to express, Gentlemen, on your behalf, to Mr. Sanderson our very deep appreciation for this most illuminating address. (Applause.)