The Douglas Scheme pt.3


Prosperity in America

Major Douglas was rash enough in his evidence before the MacMillan Committee to give instances of “prosperity” having been achieved in various countries abroad by the adoption of what he regards as a more or less satisfactory financial policy. One country he mentioned was France, where, according to him, “there is no unemployment.” It is true that at that time unemployment was not so heavy in France as in England (Major Douglas was quite wrong in saying that there was no unemployment there) but he said nothing of the great poverty which existed in France in spite of a more or less “correct” financial policy; and even Major Douglas must be aware of the enormous unemployment which exists in France at the present time.

Another country he selected for mention was America. He instanced the large increase in bank deposits in America between 1922 and 1928, as compared with only a trifling increase in the deposits of the English banks. He said:–

“It is not necessary, I think, to seek further for the cause of the disparity in material and industrial prosperity between this country and the United States ; in the post-war period.”

Everyone is now well enough aware of the unemployment and trade depression in the U.S.A., but the fact is that during the years mentioned by Major Douglas (1922-1928) there was considerable unemployment and the usual contrasts between extravagant wealth and desperate poverty. It is just bad luck and misinformation which made Major Douglas raise the question of American “prosperity” at a time, 1930, when the great American depression was well under way and gathering momentum every day.

Bank Loans to Industry

Major Douglas holds the view that the amount of deposits standing to the credit of depositors can be increased indefinitely by the banks, by means of increasing their loans to industry. It was in this way that he tried to explain the rise in deposits in the U.S.A. and -the consequent “prosperity.”

What Major Douglas will not face up to is that banks do not and cannot (except at the risk of eventual bankruptcy) lend money without good security. The only security that business firms can offer in the ultimate is the prospect of being able to sell their goods at a profit. If a particular industry is overproducing in relation to the demands of the market, or if a general crisis is on, firms cannot offer that security. In that condition loans by banks would in many cases simply be giving the money away, and even then without turning depression into brisk trade. During 1932, between 2nd February and 30th September, the U.S.A. Reconstruction Finance Corporation (set up under Government auspices) used bank reserves and borrowed money equal to £282,000,000 gold pounds to enable the banks to make loans to indiscreet (News-Chronicle, 8th December, 1932).

Yet there was not the slightest sign of trade revival.

The Hon. Rupert Beckett, Chairman of the Westminster Bank, Ltd., commented on this. He referred to U.S.A., and to the abundance of money seeking profitable investment in England, and said : —

“Until quite recently the view was widely held that internal economic recovery could be stimulated by cheap money and credit expansion. The history of the last 12 months both in the United States and in this country has done much to discredit this theory. . . . The United States is a country which approaches so nearly to economic self-sufficiency that it provides the most favourable territory for the try out of the inflationary experiment, and in so far as it has been tried out it has failed. . . . My purpose is rather to draw attention to the lesson driven home by 1932 that credit expansion and cheap money are not a panacea in themselves. A plethora of credit is of itself incapable of inducing trade activity, unless there is somebody ready and willing to make use of that credit for the financing of enterprise. In a word, credit expansion is of active usefulness only when the manufacturing and trading communities of the world have sufficient confidence to make plans ahead and to borrow money to finance them. The supreme problem, therefore, is the restoration of confidence. (Times, February 3rd, 1933.)

Major Douglas’s error can be illustrated from another angle.

The very thing which he associated with American “prosperity,” i.e., the increase in bank deposits, was taking place on an enormous scale in Great Britain during the present depression. But whereas the Douglas theory sees bank deposits resulting from an increase of bank loans to industry, precisely the opposite took place. Bank loans were falling heavily during 1932 and bank deposits were increasing heavily! So much for this false theory.

Do the Banks Own Everything

Other illusions held by Major Douglas are that “with negligible exceptions, power to buy originates and is vested in the banking system” and that “the greater proportion of the larger industrial undertakings have passed from the possession of those who originally initiated and financed them into the control of banks and finance houses” (see evidence to MacMillan Committee).

In an address delivered at Ipswich on April 4th, 1933, Major Douglas said: “You can see at once that this monopoly of the power of creating money . . . means that those who are in possession of this monopoly are the potential or actual owners of everything produced in the world” (New English Weekly, May 11th, 1933).

The easily ascertainable facts belie this.

“Power to buy” is possessed by those who own valuable properties of all kinds, and it is fantastic to argue that all valuable properties have passed into the control of banks and finance houses. Major Douglas does not give and cannot give a shred of evidence to back up this nonsense. The overwhelming mass of profits flow from industrial and commercial concerns and not from banks and financial houses, and Major Douglas has only to look down the lists of shareholders of any typical industrial and commercial concern to see that the recipients of these profits are not wholly or mainly bankers. Are our millionaires all bankers ? Is Woolworths, with its 70% profit in 1932, a bank? Are the coal, shipping and iron companies which made fabulous profits during the war, banks ? Are the motor companies, the breweries, the Insurance Companies, banks ? In America we have recently seen thousands of banks go bankrupt (why did they not get Major Douglas to show them how to “create credit?”), while Mr. Ford, an industrialist, actually had to come to the aid of banks in Detroit.

It will be noticed that at the MacMillan Committee Major Douglas said that control has already passed to the banks and finance houses. In his address at Ipswich three years later he interposes the word “potential,” and gives us the much more cautious statement that the banks are “potential or actual” owners of everything produced in the world. This access of caution, while intended to get Major Douglas out of one difficulty, only lands him in another. For if the second way of putting it is really intended to mean something different from the first way, then Major Douglas is asking us to believe that the banks could assume possession of everything but choose not to do so. If Major Douglas wants to say that, then it is up to him to explain so extraordinary a situation.

Let us examine somewhat more deeply the statement that possession of the greater proportion of the larger industrial undertakings has passed from the non-banker owners. Each year Whitaker’s Almanack and the Daily Mail Year Book publish a list of the largest fortunes left during the past year. An examination will show that the fortunes made in banking are a very small percentage of the whole. By far the greater number are the fortunes of manufacturers and traders, coal and shipping owners, brewers, etc. In other words, their wealth has not passed to the banks. The list of 23 large fortunes in the 1933 Whitaker is a typical one. It includes £2,125,000 left by a shipping magnate, £1,055,000 left by the head of a tourist agency, .£929,000 by the head of a firm of chemists, £1,522,000 by a provision importer, £764,000 by the deputy-chairman of an artificial silk concern, and £764,000 by a cotton manufacturer. The fortunes range from £456,000 up to £2,125,000, and other interests represented among the 23 are mining and shipping, another cotton manufacturer, groceries, housebuilding in London suburbs, brewing. In three or four instances the interest represented cannot be ascertained. There is only one large fortune which is that of a banker.

Is not the Prudential (with a dividend rate several times as high as that of any English bank) in possession of “power to buy?” Actually, with its £250,000,000 assets, its income of millions of pounds a week seeking investment, and its interest in or control over industrial and commercial concerns of all kinds the Prudential is probably a power greater than any English bank.

We have at least two instances of banking businesses being controlled by trading concerns, Messrs. Harrods and Messrs. Thomas Cooks. According to Major Douglas this ought to give them power to create untold wealth. Why don’t they?

When the New English Weekly (a Douglasite paper) was asked to explain why, if they have so much power, the banks pay dividends so moderate in amount as compared with those of many commercial concerns, the editor gave the same answer that the banks pay a moderate dividend as a “matter of policy,” but that they could pay “hundreds per cent.” He gave no evidence whatever for his statement and, indeed, admitted that the bank’s “secret reserves are secret,” and that therefore he cannot know what they are. His statement, if true, must imply that the secret reserves are also kept secret from the Income Tax Authorities, otherwise the Government would have an unlimited income from income tax on the banks’ reserves. The chief absurdity about the whole reply is the assumption that bank shareholders, who could, according to this argument, enjoy dividends of hundreds per cent., choose to be content with a mere 12% or 15%! The editor added that it is “control” the banks want, not profits—”their profits are relatively unimportant.” This introduces us to a new and unbelievable type of capitalist investor, the man who wants nominal powers and not profits ! Let Major Douglas tell us why some of the banks reduced their dividend in 1931 and 1932, and why they took the trouble to save a few tens of thousands of pounds by reducing the pay of their staff.

Why has not Major Douglas started a bank and made himself a master of industry simply by ”creating credit ?” Why do banks ever go bankrupt ? Why do not Governments solve all their problems by going in for banking ?

Obviously the whole thing is a myth and the reply of the editor of the New English Weekly is a desperate attempt to stop up a case which gapes with holes like a sieve.

As for the general proposition of a “deficiency of purchasing power” the increase in bank deposits during 1932 by £250 millions, the enormous oversubscriptions which take place here whenever a safe investment is offered to the investing public, and the continuing evidences of great wealth in the hands of the richest section of the population, these undisputed facts demonstrate unquestionably that the purchasing power exists and could be used to buy the goods which the manufacturers complain they cannot sell, if (and it is a big if) those who have the money wished to buy the goods.

Banks and Government

A sideline of the Douglas theory is that the banks control the Governments. This again will not square with the facts. The English banks, like English industry, work under the protection of Acts of Parliament. What Parliament made, Parliament could unmake if its members had behind them an electorate which wanted such a course of action. Recently we saw President Roosevelt overruling American banks, and we saw Hitler, on his rise to power, summarily dismiss one head of the Reichsbank (Dr. Luther) and replace him with another (Dr. Schacht).

The New English Weekly, in fact, has had to recognise that where the banks have obstructed certain Governmental policies they have only been able to do so because the electors endorsed the policy of the banks. In its issue dated 26th May, 1932, the New English Weekly referred to the defeat of Labour Governments in New South Wales and Victoria (Australia), when they came into conflict with the banks. The Editor added the comment: —

“It is idle … to lay the blame on the Bank of England or upon its agent, the notorious Mr. Niemeyer. The Bank did not cast the votes of the Australian electors or create out of nothing, as it does money, the popular reaction against the policy of Mr. Lang and Mr. Hogan.”

The New English Weekly draws its conclusions : —

“The moral to be drawn . . . we think, is that a radical monetary policy is possible under two forms of Government only—a dictatorship … or a “Patriotic Government” largely and predominantly composed of “Tory Aristocrats,” by whatever name they may be called.”

This is of interest as showing how essentially reactionary the Douglasites, like all so-called “currency reformers,” really are; their policy can be carried out by “Tory Aristocrats,” the ennobled Tory brewers, shipping magnates, newspaper proprietors, bankers and others who so lovingly safeguard the interests of the propertied class.


It is now necessary to summarise what has been said about the Douglas scheme, and put it into proper perspective in relation to Socialism and the working class.

It is based not upon knowledge, but on a profound ignorance both of the underlying forces of capitalism and of the superficial forms of trade and industry. It thrives on a ludicrous proposition which owes its persistence largely to the fact that it is so amazing. Those who hear of it and are not familiar with economic theories and terminology feel that it must be true because otherwise an intelligent person like Major Douglas could not have the stupidity to believe it or the effrontery to put it forward knowing it to be false. What these credulous persons overlook is that there is simply no limit to the nonsense which able but unscientific persons of limited experience are capable of believing when they wander into strange fields.

The Douglas Movement owes its support to a number of factors. Many people, particularly young ones, are not attracted by the established political parties, which they denounce as “the old gangs,” nor can they fail to notice the economists’ and politicians’ manifest inability to grasp the problems of poverty and trade depression and to deal with them. The Douglas theory has the special attraction that it calls for little knowledge, no study, only a parrot-like mouthing of a few phrases, alleged (falsely) to be backed up by Mr. McKenna, Chairman of the Midland Bank.

It succeeds in winning adherents easily, because it deliberately avoids challenging the political parties. Instead of forming a political party with the definite aim of conquering power for the application of its schemes, the Douglas Movement relies on “peaceful penetration” into the existing parties. Thus it is able to boast that it has adherents, or at least sympathisers, high and low in the ranks of all the capitalist parties.

If the Douglas Movement came out in the open as a political party, it would quickly learn that gaining vague sympathy is a very different thing from winning more votes than the opposing parties. The other parties would very quickly turn their attention to smashing or swallowing the movement, according to whether they judged it to be a good vote-catcher or not. But as soon as one party took it up the other parties would turn and rend it.

In one instance, at least, the Douglasites did run a candidate in a local by-election, in the East Central Ward at Gateshead. The Labour candidate held the seat, and the Douglas candidate and a Communist candidate together only obtained 190 votes, an insignificant poll in comparison with the Labour vote (New Clarion, 11th February, 1933).

In a broader sense the Douglasites’ attitude towards politics shows them to be completely without understanding of the problem before us. Leaving aside the question of the soundness of their theory their view is that a scheme has only to be shown to be practicable for it to be adopted. They ignore all questions of the nature and control of political power. Actually we see political power (which is the dominating factor) in the hands of a section of the propertied class. It is useless for Major Douglas or anyone else to come forward with a scheme unless (a) the scheme is attractive to those who wield power, or (b) that the steps are going to be taken by those to whom the scheme is attractive to obtain the power to put it into operation.

Does Major Douglas think that his scheme is likely to attract those whose interests are represented by the present Government, that is the bankers and big industrialists ? Obviously not ! Then what is Major Douglas doing to get these people out of power ? The answer is, nothing! The probable reason (even if it is not consciously recognised by Major Douglas) is that any attempt to interfere in elections on a large scale would speedily deprive the movement of the major part of its funds and support.

It is a movement without an organised political basis; a parasite on the various capitalist parties. It has no real roots, .and under the appropriate conditions is the kind of movement which would rush helter skelter after a Mussolini, a Hitler, a Lang, or any other loud voiced advocate of violence as a cover under which to perpetuate and safeguard the sway of capitalism.

The Douglas movement has its chief propagandists among the professional section of the working class and among the little business men, conscious that big business is crushing them and lowering their standard of living, and unable to seek a way out except that indicated by big business itself. There is always scope for friction between the banks and moneylending capitalists on the one hand, and the industrial and commercial capitalist on the other, and, of course, the financial losses of the former might give corresponding gains to the latter. But where do the professional men and little business men come in ? Will the great industrial and commercial combines give better pay and more jobs to their staffs as a result of getting the banks to reduce their charges on loans? Will lower loan charges save the little manufacturer from ruin? The little boot manufacturer thinks that if he could get money from the bank at 2% instead of 8% he would be better off, but he forgets that if everyone got loans at 2% competition would be intensified, because every other small boot manufacturer would be equally favoured. And still the big manufacturer would have the advantage given by larger scale production.

These facts are, however, obscured, hence the readiness with which any currency-mongering which promises “plenty of customers” and “cheap money” gains adherents among those who stand midway between the mass of wage and salary earners on the one hand and the large-scale capitalists in finance and industry on the other.

One incidental evil arising out of the Douglas movement is that, to the extent that it gains support among the workers and in the trade unions, it makes Socialist propaganda more difficult and weakens the effort to resist wage reductions. The worker who falls a victim to Douglasism quite naturally disregards Socialist propaganda. Douglas promises the millennium of unlimited wealth by the simple device of controlling the banks. In comparison Socialism looks dull and slow-moving.

On the trade union side the Douglasites say that if their theory is correct, all trade union organisation and action is a sheer waste of time. If the banks control all industry and all purchasing power, of what use is it to try to get higher wages out of the employers ? On the political side he says it is of no use gaining control of the State. Logically, therefore, the Douglasite rejects both trade unions and political organisation. To him all political parties (including the Socialist Party) are useless. He is, in fact, if not in theory, the complete anarchist, satisfied to chant his sacred formulas in a world where preaching is futile unless followed up by political organisation and action.

Douglasism as a refuge for the bewildered is a product of capitalism’s contradictions, and in particular a product of capitalist crises. As a currency theory it is essentially not new or original, but has a record running back a century at least. It is utterly unscientific. As a separate political force it is negligible; although under certain conditions it might be used by sections of the industrial capitalists who want inflation. Socially it is based on some of the least stable and least conscious elements of the population. Economically it is reactionary. As a practical contribution to human progress it is worthless.

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