LIBRARY 
 
 UNIVERSITY OF 
 CALIFORNIA 
 
 SAN DIEGO
 
 ECONOMIC 
 DEMOCRACY 
 
 BY 
 
 C. H. DOUGLAS 
 
 Major, Royal Air Force (Reserve), M. Inst. Mecb. E., 
 M. Inst. E. E. 
 
 NEW YORK 
 
 HARCOURT, BRACE AND HOWE 
 
 1920
 
 COPYRIGHT, 1920, BY 
 HARCOURT, BRACE AND HOWE, INC. 
 
 THE QUINN ft BOOEN COMPANY 
 RAHWAV. N J.
 
 TO MY WIFE 
 
 urithout whose understanding 
 
 this book could not have 
 
 been written.
 
 PREFACE 
 
 WRITTEN for the most part under the pressure of 
 War conditions, this book is an attempt to disentangle 
 from a mass of superficial features such as Profiteer- 
 ing, and alleged scarcity of commodities, a sufficient 
 portion of the skeleton of the Structure we call So- 
 ciety as will serve to suggest sound reasons for the 
 decay with which it is now attacked ; and afterwards 
 to indicate the probable direction of sound and vital 
 reconstruction. 
 
 My apologies and sympathy are offered to the 
 reader in respect of the severe concentration which 
 its tabloid treatment of technical methods demands; 
 but I have some grounds for supposing that the mat- 
 ter it contains has aroused sufficient interest to excuse 
 its presentation in this form. 
 
 I am indebted to my friend Mr. A. B. Orage, the 
 Editor of The New Age (in which review, together 
 with the remainder of the book, it first appeared), for 
 the use of the block which forms the frontispiece. 
 
 C. H. DOUGLAS. 
 
 HEATH END, BASINGSTOKE. 
 November, 1919.
 
 CONTENTS 
 
 CHAPTER I 
 
 PAGE 
 
 Over-rated value of consistency Spirit, not form, im- 
 portant Socialism, the reaction from commercialism 
 - War, the rivaler Meaning of American Declara- 
 tion of Independence Freedom, not system, the 
 goal 1 
 
 CHAPTER II 
 
 How catch-phrases betray Abuse of Darwinian theory 
 Result in Germany The rise of centralized control 
 Signs of its failure and revolt against it Servility 
 necessary to it Advantages of technical centraliza- 
 tion 7 
 
 CHAPTER IH 
 
 Danger of loose thinking Socialists too sweeping 
 Credit side of capitalism The Servile State The 
 real enemy Nationalization no cure Capitalism 
 and centralism Discrediting of Jevonian Eco- 
 nomics Definition of Money Modern money comes 
 from credit creations Reaction in industry Scien- 
 tific management Piece-work systems and their rela- 
 tion to money values " Ca'canny " Financial cen- 
 tralization and militarism 19 
 
 CHAPTER IV 
 
 Personality not the ruling factor in centralism Over- 
 rides personality Lessons of history The cult of 
 Mediaevalism Its fallacy Industrial organization 
 The argument for super-production Its critical im- 
 portance Staking out the ground of argument . . 36 
 
 CHAPTER V 
 
 Factory cost the heart of the problem Profit-sharing 
 The rate of distribution of money The rate of in-
 
 viii CONTENTS 
 
 PAGE 
 
 crease of prices Example Where the real purchas- 
 ing power lies Loan-credit and cash-credit The 
 leak in the dollar Wealth and " weal "-being 
 Profiteering not the prime objection to existing sys- 
 tem Summary of analysis of production economics 54 
 
 CHAPTER VI 
 
 Fallacious arguments based on income-returns Import- 
 ance of loan-credit How it differs from pay and 
 wages Why starvation may exist amidst plenty 
 Economic sabotage Examples The mirage of fi- 
 nance Why it can never deliver the goods ... 68 
 
 CHAPTER VII 
 
 The final struggle approaching The issue Inadequacy 
 of commodity-reward for service Social symptoms 
 Business system not to blame Real and effective 
 demand .Productive system technically adequate 
 Decentralized control The Shop Steward System 
 A means, not an end A labor fallacy ... 74 
 
 CHAPTER VIII 
 
 Economic reconstruction the first necessity Poverty 
 largely artificial Why war has increased apparent 
 prosperity Function and control Medievalism and 
 Ultra-modernism The idea of the Just Price Sum- 
 mary of Analysis of Social Structure The objective 
 of change The time-energy unit Process, the key to 
 progress Production to a program The conditions 
 of economic emancipation The incentive to effort 
 Existing methods Financial manipulation Time- 
 work Piece-work The basis of the Just Price Ad- 
 ministration not germane to the idea The com- 
 munity already owns the plant A theoretical solu- 
 tion Definition of capital The Credit Center The 
 separation of function .86 
 
 CHAPTER IX 
 
 Necessity of dealing with Society as it is More purchas- 
 ing power wanted Futility of general wage in- 
 creases And of excess profits taxation Vital im- 
 portance of loan-credit Definition of real credit 
 Credit derives from the community Should be ac- 
 counted for to the community The nature of the
 
 CONTENTS ix 
 
 PAGB 
 
 War Debt The State a creditor, not a debtor How 
 to realize it Time-saving as an incentive Results 
 of projected policy Freedom 110 
 
 CHAPTER X 
 
 The relation of semi-manufactures to credit The Clear- 
 ing-house How to " clear " overhead charges Exact 
 statement of the Just Price How to meet the War 
 Debt The dawn of real co-operation . . . .119 
 
 CHAPTER XI 
 
 The League of Nations Its form dependent on economic 
 system Ultimate defeat of Centralist Policy certain 
 How a League of Free Peoples can come . . 130 
 
 CHAPTER XII 
 
 Concentrated economic power must be dissipated The 
 economic basis of sentiment Education and propa- 
 ganda Democratic control of the Press The roots 
 of Economic Democracy The End .... 137
 
 VALUES 
 
 PRICES AND PURCHASING POWER 
 (See Chapter V.) 
 
 The vertical columns represent the wages, salaries, and divi- 
 dends distributed to all the persons affected, either as share- 
 holders or employes, by the consecutive factory stages in the 
 passage of an article from the condition of " raw material," 
 in the bottom left hand corner, to that of an " ultimate 
 product," in the top right hand corner. 
 
 The portion of the diagonal column lying to the left of 
 any vertical column represents the total payments made out- 
 side the factory concerned. 
 
 The cross-hatched portion of the vertical columns represents 
 approximately the personal and normal expenditure of the 
 individuals in receipt of purchasing power through the sources 
 indicated, and the small white vertical columns show their cash 
 savings. It will be seen that aggregate prices increase much 
 faster than aggregate personal savings, causing the forced 
 export of manufactured articles and continuous expansion of 
 financial credits.
 
 ECONOMIC DEMOCRACY 
 
 CHAPTER I 
 
 Over-rated value of consistency Spirit, not form, important 
 Socialism, the reaction from commercialism War, the 
 revealer Meaning of American Declaration of Inde- 
 pendence Freedom, not System, the Goal. 
 
 THERE has been a very strong tendency, 
 fortunately not now so strong as it was, 
 to regard fidelity to one set of opinions as 
 being something of which to be proud, and con- 
 sistency in the superficial sense as a test of 
 character. 
 
 The Scottish political constituent who always 
 voted for a Liberal because he was too Con- 
 servative to change, has his counterpart in 
 every sphere of human activity, and most par- 
 ticularly so in that of economics, where the 
 tracing back to first principles of the dogmas 
 used for everyday purposes requires, in addi- 
 tion to some little aptitude and research, a 
 laborious effort of thought and logic very for- 
 eign to our normal methods. 
 
 i
 
 2 ECONOMIC DEMOCRACY 
 
 It thus comes about that modification in the 
 creed of the orthodox is both difficult and con- 
 ducive to exasperation; since because the form 
 is commonly mistaken for the substance it is not 
 clearly seen why a statement which has em- 
 bodied a sound principle, may in course of 
 time become a dangerous hindrance to prog- 
 ress. 
 
 Of such a character are many of our habits 
 of thought and speech to-day. Because from 
 the commercial policy of the nineteenth century 
 has quite clearly sprung great advance in the 
 domain of science and the mastery of material 
 nature, the commercialist, quite honestly in 
 many cases, would have us turn the land into 
 a counting house and drain the sea to make a 
 factory. On the other hand the Social Re- 
 former, obsessed, as well he might be, with the 
 poverty and degradation which shoulder the 
 very doors of the rich, is apt to turn his eyes 
 back to the days antecedent to the Industrial 
 Eevolution ; note, or assume, that the conditions 
 he deplores did not exist then, at any rate, in 
 so desperate a degree; and condemn all busi- 
 ness as abominable.
 
 3 
 
 At various well-defined epochs in the history 
 of civilization there has occurred such a clash 
 of apparently irreconcilable ideas as has at this 
 time most definitely come upon us. Now, as 
 then, from every quarter come the unmistakable 
 signs of crumbling institutions and discredited 
 formulae, while the widespread nature of the 
 general unrest, together with the immense 
 range of pretext alleged for it, is a clear indi- 
 cation that a general rearrangement is im- 
 minent. 
 
 As a result of the conditions produced by 
 the European War, the play of forces, usually 
 only visible to expert observers, has become 
 apparent to many who previously regarded 
 none of these things. The very efforts made to 
 conceal the existence of springs of action other 
 than those publicly admitted, has riveted the 
 attention of an awakened proletariat as no 
 amount of positive propaganda would have 
 done. A more or less conscious effort to refer 
 the results of the working of the social and 
 political system to the Bar of individual re- 
 quirement has, on the whole, quite definitely 
 resulted in a verdict for the prosecution; and
 
 4 ECONOMIC DEMOCRACY 
 
 there is little doubt that sentence will be pro- 
 nounced and enforced. 
 
 Before proceeding to the consideration of the 
 remedies proposed, it may be well to emphasize 
 the more salient features of the indictment, and 
 in doing this it is of the first consequence to 
 make very sure of the code against which the 
 alleged offenses have been committed. And 
 here we are driven right back to first principles 
 to an attempt to define the purposes, con- 
 scious or unconscious, which govern humanity 
 in its ceaseless struggle with environment. 
 
 To cover the whole of the ground is, of 
 course, impossible. The infinite combinations 
 into which the drive of evolution can assemble 
 the will, emotions and desires, are probably out- 
 side the scope of any form of words not too 
 symbolical for everyday use. 
 
 But of the many attempts which have been 
 made it is quite possible that the definition em- 
 bodied in the majestic words of the American 
 Declaration of Independence, ''the inalienable 
 right of man to life, liberty and the pursuit of 
 happiness," is still unexcelled, although the 
 promise of its birth is yet far from complete
 
 ECONOMIC DEMOCRACY 5 
 
 justification; and if words mean anything at 
 all, these words are an assertion of the suprem- 
 acy of the individual considered collectively, 
 over any external interest. Now, what does this 
 mean? First of all, it does not mean anarchy, 
 nor does it mean exactly what is commonly 
 called individualism, which generally resolves 
 itself into a claim to force the individuality of 
 others to subordinate itself to the will-to-power 
 of the self-styled individualist. And most em- 
 phatically it does not mean collectivism in any 
 of the forms made familiar to us by the Fabians 
 and others. 
 
 It is suggested that the primary requisite 
 is to obtain in the readjustment of the economic 
 and political structure such control of initiative, 
 that by its exercise every individual can avail 
 himself of the benefits of science and mechan- 
 ism; that by their aid he is placed in such a 
 position of advantage, that in common with his 
 fellows he can choose, with increasing freedom 
 and independence, whether he will or will not 
 assist in any project which may be placed be- 
 fore him. 
 
 The basis of independence of this character
 
 6 ECONOMIC DEMOCRACY 
 
 is most definitely economic ; it is simply hypoc^ 
 risy, conscious or unconscious, to discuss free- 
 dom of any description which does not secure 
 to the individual, that in return for effort exer- 
 cised as a right, not as a concession, an average 
 economic equivalent of the effort made shall be 
 forthcoming. As we shall see, this means a 
 great deal more than the right to work; it 
 means the right to work for the right end in 
 the right way. 
 
 It seems clear that only by a recognition of 
 this necessity can the foundations of society be 
 so laid that no superstructure built upon them 
 can fail, as the superstructure of capitalistic 
 society is most unquestionably failing, because 
 the pediments which should sustain it are 
 honeycombed with decay. 
 
 Systems were made for men, and not men 
 for systems, and the interest of man, which is 
 self-development, is above all systems, whether 
 theological, political or economic.
 
 CHAPTER II 
 
 How catch-phrases betray Abuse of Darwinian theory 
 Result in Germany The rise of centralized control 
 Signs of its failure and revolt against it Servility neces- 
 sary to it Advantages of technical centralization. 
 
 ACCEPTING this statement as a basis of 
 constructive effort, it seems clear that 
 all forms, whether of government, industry or 
 society, must exist contingently to the further- 
 ance of the principles contained in it. If a 
 State system can be shown to be inimical to 
 them it must go; if social customs hamper 
 their continuous expansion they must be 
 modified; if unbridled industrialism checks 
 their growth, then industrialism must be 
 reined in. That is to say, we must build up 
 from the individual, not down from the State. 
 It is necessary to be very clear in thus de- 
 fining the scope of our inquiry since the exalta- 
 tion of the State into an authority from which 
 there is no appeal, the exploitation of a public 
 opinion which at the present time is frequently 
 manufactured for interested purposes, and 
 
 7
 
 8 ECONOMIC DEMOCRACY 
 
 other attempts to shift the center of gravity of 
 the main issues these are all features of one 
 of the policies which it is our purpose to 
 analyze. If, therefore, any condition can be 
 shown to be oppressive to the individual, no 
 appeal to its desirability in the interests of ex- 
 ternal organization can be considered in ex- 
 tenuation ; and while co-operation is the note of 
 the coming age, our premises require that it 
 must be the co-operation of reasoned assent, not 
 regimentation in the interests of any system, 
 however superficially attractive. 
 
 There is no doubt whatever that a mangled 
 and misapplied Darwinism has been one of the 
 most potent factors in the social development of 
 the past sixty years ; from the date of the publi- 
 cation of ' ' The Origin of Species ' ' the theory of 
 the " survival of the fittest" has always been 
 put forward as an omnibus answer to any in- 
 dividual hardship; and although such books as 
 Mr. Benjamin Kidd's "Science of Power" have 
 pretty well exposed the reasons why the indi- 
 vidual, efficient in his own interest and conse- 
 quently well-fitted to survive, may and will pos- 
 sess characteristics which completely unfit him
 
 ECONOMIC DEMOCRACY 9 
 
 for positions of power in the community, we 
 may begin our inquiry by noticing that one of 
 the most serious causes of the prevalent dis- 
 satisfaction and disquietude is the obvious sur- 
 vival, success and rise to positions of great 
 power, of individuals to whom the term "fit- 
 test" could only be applied in the very nar- 
 rowest sense. And in admitting the justice of 
 the criticism, it is not of course necessary to 
 question the soundness of Darwin's theory. 
 Such an admission is simply evidence that the 
 particular environment in which the "fittest" 
 are admittedly surviving and succeeding is un- 
 satisfactory ; that in consequence those best 
 fitted for it are not representative of the ideal 
 existent in the mind of the critic, and that en- 
 vironment cannot be left to the unaided law of 
 Darwinian evolution, in view of its effect on 
 other than material issues. 
 
 To what extent the rapid development of sys- 
 tematic organization is connected with the 
 statement of the law of biological evolution 
 would be an interesting speculation; but the 
 second great factor in the changes which have 
 been taking place during the final years of the
 
 10 ECONOMIC DEMOCRACY 
 
 epoch just closing is undoubtedly the marshal- 
 ing of effort in conformity with well-defined 
 principles, the enunciation of which has largely 
 proceeded from Germany, although their source 
 may very possibly be extra-national ; and while 
 these principles have been accepted and devel- 
 oped in varying degree by the governing classes 
 of all countries, the dubious honor of applying 
 them with rigid logic and a stern disregard of 
 by-products, belongs, without question, to the 
 land of their birth. They may be summarized 
 as a claim for the complete subjection of the 
 individual to an objective which is externally 
 imposed on him; which it is not necessary or 
 even desirable that he should understand in 
 full ; and the forging of a social, industrial and 
 political organization which will concentrate 
 control of policy while making effective revolt 
 completely impossible, and leaving its origi- 
 nators in possession of supreme power. 
 
 This demand to subordinate individuality to 
 the need of some external organization, the 
 exaltation of the State into an authority from 
 which there is no appeal (as if the State had 
 a concrete existence apart from those who
 
 ECONOMIC DEMOCRACY 11 
 
 operate its functions), the exploitation of "pub- 
 lic opinion" manipulated by a Press owned and 
 controlled from the apex of power, are all fea- 
 tures of a centralizing policy commended to the 
 individual by a claim that the interest of the 
 community is thereby advanced, and its results 
 in Germany have been nothing less than' ap- 
 palling. The external characteristics of a na- 
 tion with a population of 65 millions have been 
 completely altered in two generations, so that 
 from the home of idealism typified by Schiller, 
 Goethe, and Heine, it has become notorious for 
 bestiality and inhumanity only offset by a slav- 
 ish discipline. Its statistics of child suicide 
 during the years preceding the war exceeded 
 by many hundreds per cent, those of any other 
 country in the world, and were rising rapidly. 
 Insanity and nervous breakdown were becom- 
 ing by far the gravest problem of the German 
 medical profession. Its commercial morality 
 was devoid of all honor, and the external in- 
 fluence of Prussian ideals on the world has un- 
 doubtedly been to intensify the struggle for 
 existence along lines which quite inevitably cul- 
 minated in the greatest war of all history.
 
 12 ECONOMIC DEMOCRACY 
 
 The comparative rapidity with which the 
 processes matured was no doubt aided by an 
 essential servility characteristic of the Teutonic 
 race, and the attempt to embody these prin- 
 ciples in Anglo-Saxon communities has not pro- 
 ceeded either so fast or so far ; but every indi- 
 cation points to the imminence of a determined 
 effort to transfer and adopt the policy of cen- 
 tral, or, more correctly, pyramid, control f-om 
 the nation it has ruined to others, so far more 
 fortunate. 
 
 Thus far we have examined the psychological 
 aspect of control exercised through power. 
 Let us turn for a moment to its material side. 
 Inequalities of circumstance confront us at 
 every turn. The vicious circles of unemploy- 
 ment, degradation and unemployability, the dis- 
 parity between the reward of the successful 
 stock-jobber and the same man turned private 
 soldier, enduring unbelievable discomfort for a 
 dollar per day, the gardener turned piece- 
 worker, earning three times the pay of the 
 skilled mechanic, are instances at random of the 
 piratic working of the so-called law of supply 
 ur-d . enianrl.
 
 ECONOMIC DEMOCRACY 13 
 
 In the sphere of politics it is clear that all 
 settled principle other than the consolidation 
 of power, has been abandoned, and mere ex- 
 pediency has taken its place. The attitude of 
 statesmen and officials to the people in whose 
 interests they are supposed to hold office, is 
 one of scarcely veiled antagonism, only tem- 
 pered by the fear of unpleasant consequences. 
 In the State services, the easy suprem- 
 acy of patronage over merit, and vested in- 
 terest over either, has kindled widespread 
 resentment, leveled not less at the inevita- 
 ble result than at the personal injustice 
 involved. 
 
 In its relations with labor, the State is hardly 
 more happy. In the interim report of the 
 British Commission on Industrial Unrest, the 
 following statement occurs : 
 
 "There is no doubt that one cause of 
 labor unrest is that workmen have come to 
 regard the promises and pledges of Parlia- 
 ment and Government Departments with 
 suspicion and distrust." 
 In industry itself, the perennial struggle be- 
 tween the forces of Capital and Labor, on ques-
 
 14 ECONOMIC DEMOCRACY 
 
 tions of wages and hours of work, is daily 
 becoming complicated by the introduction of 
 fresh issues such as welfare, status and disci- 
 pline, and it is universally recognized that the 
 periodic strikes which convulse one trade after 
 another, have common roots far deeper than the 
 immediate matter of contention. In the very 
 ranks of Trade Unionism, whose organization 
 has become centralized in opposition to concen- 
 trated capital, cleavage is evident in the acri- 
 monious squabbles between the skilled and the 
 unskilled, the rank and file and the Trade Union 
 official. 
 
 Although the diversion of the forces of in- 
 dustry to munition work of, in the economic 
 sense, an unreproductive character has created 
 an almost unlimited outlet for manufactures of 
 nearly every kind, it is not forgotten that before 
 the war the competition for markets was of the 
 fiercest character and that the whole world was 
 apparently overproducing; in spite of the 
 patent contradiction offered by the existence of 
 a large element of the population continually on 
 the verge of starvation (Snowden, "Social- 
 ism and Syndicalism"), and a great majority
 
 ECONOMIC DEMOCRACY 15 
 
 whose only interest in great groups of the 
 so-called luxury trades was that of the wage- 
 earner. 
 
 The ever-rising cost of living has brought 
 home to large numbers of the salaried classes 
 problems which had previously affected only 
 the wage-earner. It is realized that " labor- 
 saving'* machinery has only enabled the 
 worker to do more work; and that the ever- 
 increasing complexity of production, paralleled 
 by the rising price of the necessaries of life, is a 
 sieve through which out and for ever out go all 
 ideas, scruples and principles which would 
 hamper the individual in the scramble for an 
 increasingly precarious existence. 
 
 We see, then, that there is cause for dissatis- 
 faction with not only the material results of the 
 economic and political systems, but that they 
 result in an environment which is hostile to 
 moral progress and intellectual expansion ; and 
 it will be noticed in this enumeration of social 
 evils, which is only so wide as is necessary to 
 suggest principles, that emphasis is laid on 
 what may be called abstract defects and mis- 
 carriages of justice, as well as on the material
 
 16 ECONOMIC DEMOCRACY 
 
 misery and distress which accompany them. 
 The reason for this is that the twin evil (com- 
 mon more or less to all existing organized So- 
 ciety) of servility is poverty, as has been 
 clearly recognized by all shades of opinion 
 amongst the exponents of Revolutionary So- 
 cialism. Poverty is in itself a transient phe- 
 nomenon, but servility (not necessarily, of 
 course, of manner) is a definite component of a 
 system having centralized control of policy as 
 its apex, and while the development of self- 
 respect is universally recognized to be an ante- 
 cedent condition to any real improvement in 
 environment, it is not so generally understood 
 that a world-wide system is thereby challenged. 
 In referring the existent systems to the stand- 
 ard we have agreed to accept, however, it seems 
 clear that the stimulation of independence of 
 thought and action is a primary requirement, 
 and to the extent to which these qualities are 
 repressed, social and economic conditions stand 
 condemned as undesirable. 
 
 Now, it may be emphasized that a centralized 
 or pyramid form of control may be, and is in 
 certain conditions, the ideal organization for
 
 ECONOMIC DEMOCRACY 17 
 
 the attainment of one specific and material end. 
 The only effective force by which any objective 
 can be attained is in the last analysis the human 
 will, and if an organization of this character 
 can keep the will of all its component members 
 focused on the objective to be attained, the 
 collective power available is clearly greater 
 than can be provided by any other form of 
 association. For this reason the advantage 
 accruing from the use of it for the attainment 
 of one concrete objective, such as, let us say, 
 the coherent design of a National railway or 
 electric supply system (just so long as these 
 objects are protected from use as instruments 
 of personal and economic power), is quite incon- 
 trovertible ; but every particle of available evi- 
 dence goes to show that it is totally unsuitable 
 as a system of administration for the purposes 
 of governing the conditions under which whole 
 peoples live their lives ; that it is in opposition 
 to every real interest of the individual when so 
 used, and for this reason it is vital to devise 
 methods by which technical co-ordination can 
 be combined with individual freedom. 
 To crystallize the matter into a paragraph,
 
 18 ECONOMIC DEMOCRACY 
 
 in respect of any undertaking, centralization is 
 the way to do it, but is neither the correct 
 method of deciding what to do nor the question 
 of who is to do it.
 
 CHAPTER III 
 
 Danger of loose thinking Socialists too sweeping Credit side 
 of Capitalism The Servile State The real enemy 
 Nationalization no cure Capitalism and Centralism 
 Discrediting of Jevonian Economics Definition of 
 Money Modern money comes from credit creations 
 Reaction in industry Scientific management Piece- 
 work systems and their relation to money values 
 " Ca'canny " Financial centralization and militarism. 
 
 WE are thus led to inquire into environ- 
 ment with a view to the identification, if 
 possible, of conditions to which can be charged 
 the development of servility on the one hand, 
 and the discouragement of possibly more desir- 
 able characteristics on the other, and in this 
 inquiry it is necessary to avoid the real danger 
 of mistaking effects for causes ; and, further, to 
 beware of seeing only one phenomenon when we 
 are really confronted with several. 
 
 For instance, that from the misuse of the 
 power of capital many of the more glaring de- 
 fects of society proceed is certain, but in claim- 
 ing that in itself the private administration of 
 industry is the whole source of these evils, the 
 
 19
 
 20 ECONOMIC DEMOCRACY 
 
 Socialist is almost certainly claiming too much, 
 confounding the symptom with the disease, and 
 taking no account of certain essential facts. It 
 is most important to differentiate in this mat- 
 ter, between private enterprise utilizing capital, 
 and the abuse of it. 
 
 The private administration of capital has had 
 a credit as well as a debit side to its account; 
 without private enterprise backed by capital, 
 scientific progress, and the possibilities of ma- 
 terial betterment based on it, would never have 
 achieved the rapid development of the past hun- 
 dred years; and still more important at this 
 time, only the control of capital, which on the 
 one hand has degraded propaganda into one of 
 the Black Arts, has, on the other, made possible 
 such crusades against an ill-informed or misled 
 public opinion as, for instance, the anti-slavery 
 campaign of the early nineteenth century, or 
 the parallel activities of the anti-sweating 
 league at the present day. The very agitation 
 carried on against capitalism itself would be 
 impossible without the freedom of action 
 givon by the private control of considerable 
 funds.
 
 ECONOMIC DEMOCRACY 21 
 
 The capitalistic system in the form in which 
 we know it has served its purpose, and may be 
 replaced with advantage ; but in any social sys- 
 tem proposed, the first necessity is to provide 
 some bulwark against a despotism which might 
 exceed that of the Trust, bad as the latter has 
 become. In our anxiety to make a world safe 
 for democracy it is a matter of real urgency 
 that we do not tip out the baby with the bath 
 water, and, by discarding too soon what is 
 clearly an agency which can be made to operate 
 both ways, make democracy even more unsafe 
 for the individual than it is at present. 
 
 The danger which at the moment threatens 
 individual liberty far more than any extension 
 of individual enterprise is the Servile State; 
 the erection of an irresistible and impersonal or- 
 ganization through which the ambition of able 
 men, animated consciously or unconsciously by 
 the lust of domination, may operate to the en- 
 slavement of their fellows. Under such a sys- 
 tem the ordinary citizen might, and probably 
 would, be far worse off than under private 
 enterprise freed from the domination of finance 
 and regulated in the light of modern thought.
 
 22 ECONOMIC DEMOCRACY 
 
 The consideration of any return to isolated in- 
 dustrial undertakings is quite academic, since 
 there is not the faintest probability of its oc- 
 currence, but that stage of development had 
 undoubtedly certain valuable features which it 
 would be well to preserve and revive. The 
 large profit-making limited company which dis- 
 tributes its profits over a wide area is already 
 rapidly displacing the family business, and as 
 will be seen, it is not alone in the profit-making 
 aspect of its activities that its worst features 
 lie. 
 
 In attacking capitalism, collective Socialism 
 has largely failed to recognize that the real 
 enemy is the will-to-power, the positive comple- 
 ment to servility, of which Prussianism, with 
 its theories of the supreme state and the unim- 
 portance of the individual (both of which are 
 the absolute negation of private enterprise), is 
 only the fine flower ; and that nationalization of 
 all the means of livelihood, without the pro- 
 vision of much more effective safeguards than 
 have so far been publicly evolved, leaves the in- 
 dividual without any appeal from its only pos- 
 sible employer and so substitutes a worse, be-
 
 ECONOMIC DEMOCRACY 23 
 
 cause more powerful, tyranny for that which it 
 would destroy. 
 
 It is a most astonishing fact that the experi- 
 ence of hundreds of thousands of men and 
 women in such departments as the Post Office, 
 where real discontent is probably more general, 
 and the material and psychological justification 
 for it more obvious, than in any of the more 
 modern industrial establishments, has not been 
 sufficient to impress the public with the futility 
 of mere nationalization. This is not in any 
 sense a disparagement of the excellent qualities 
 of large numbers of Government officials; it is 
 merely an attempt to indicate the remarkable 
 facility with which well-intentioned people will 
 allow themselves to be hypnotized by a phrase. 
 It is notorious that the State Socialists of Ger- 
 many, commonly known as the Majority Party, 
 were of the greatest possible assistance to 
 Junkerdom in carrying out its plans for a 
 Prussian world hegemony; while in England 
 the bureaucrat and the Fabian have, on the 
 whole, not failed to understand each other ; and 
 the explanation is simply that both, either con- 
 sciously or unconsciously, assume that there is
 
 24 ECONOMIC DEMOCRACY 
 
 no psychological problem involved in the con- 
 trol of industry just as the Syndicalist is, with 
 more justification, apt to stress the psychologi- 
 cal to the exclusion of the technical aspect. 
 
 Because the control of capital has given 
 power, the effect of the operation of the will- 
 to-power has been to accumulate capital in a 
 few groups, possibly composed of large num- 
 bers of shareholders, but frequently directed by 
 one man; and this process is quite clearly a 
 stage in the transition from decentralized to 
 centralized power. This centralization of the 
 power of capital and credit is going on before 
 our eyes, both directly in the form of money 
 trusts and bank amalgamations, and indirectly 
 in the confederation of the producing industries 
 representing the capital power of machinery. 
 It has its counterpart in every sphere of ac- 
 tivity: the coalescing of small businesses into 
 larger, of shops into huge stores, of villages 
 into towns, of nations into leagues, and in every 
 case is commended to the reason by the plea of 
 economic necessity and efficiency. But behind 
 this lies always the will-to-power, which oper- 
 ates equally through politics, finance or in-
 
 ECONOMIC DEMOCRACY 25 
 
 dustry, and always towards centralization. If 
 this point of view be admitted, it seems per- 
 fectly clear that to the individual it will make 
 very little difference what name is given to cen- 
 tralization. Nationalization without decentral- 
 ized control of policy will quite effectively in- 
 stal the trust magnate of the next generation in 
 the chair of the bureaucrat, with the added ad- 
 vantage to him, that he will have no share- 
 holders' meeting. 
 
 One of the more obvious effects of the con- 
 centration of credit-capital in a few hands, 
 which simply means the centralization of direc- 
 tive power, is its contribution to the illusion of 
 the fiercely competitive nature of international 
 trade. Although as we shall see, in considering 
 the economics of the increasing employment of 
 machinery for productive purposes, this phe- 
 nomenon has been confounded with one to 
 which it is only indirectly connected, it may be 
 convenient at this time to point out one method 
 by which this illusion is produced, and it is 
 probably not possible to do so in better words 
 than those used by Mr. J. A. Hobson in his 
 "Democracy After the War":
 
 26 ECONOMIC DEMOCRACY 
 
 " Where the product of industry and 
 commerce is so divided that wages are low 
 while profits, interest, and rent are rela- 
 tively high, the small purchasing power of 
 the masses sets a limit on the home market 
 for most staple commodities. The staple 
 manufacturers, therefore, working with 
 modern mechanical methods, that contin- 
 ually increase the pace of output, are in 
 every country compelled to look more and 
 more to export trade, and to hustle and 
 compete for markets in the backward coun- 
 tries of the world. . . . Just as the home 
 market was restricted by a distribution of 
 wealth which left the mass of people with 
 inadequate power to purchase and con- 
 sume, while the minority who had the pur- 
 chasing power either wanted to use it in 
 other ways or to save it and apply it to an 
 increased production .which still further 
 congested the home markets, so likewise 
 with the world markets. . . . Closely 
 linked with this practical limitation of the 
 expansion of markets for goods is the limi- 
 tation of profitable fields of investment.
 
 ECONOMIC DEMOCRACY 27 
 
 The limitation of home markets implies a 
 corresponding limitation in the investment 
 of fresh capital in the trades supplying 
 these markets. " 
 
 Because capitalism per se is largely the in- 
 strument through which the will-to-power 
 operates in the economic sphere, some examina- 
 tion of its methods is necessary. The accumu- 
 lation of financial wealth through the making 
 of profit is merely one of the uses or abuses of 
 money, but it is in this sense that capitalism is 
 associated to a very great extent in the popular 
 mind with the processes of manufacture, pro- 
 duction and distribution, and it is in this sense 
 that the word is here employed. The capital- 
 istic system is based fundamentally on the 
 financial perversion of the law of supply and 
 demand, which involves a claim that there 
 exists an intrinsic relation between need or re- 
 quirement, and legitimate price or exchange 
 value; a statement in Jevonian Political Econ- 
 omy which is becoming increasingly dis- 
 credited, and is negatived in the limitation of 
 monopoly values, by common consent, in re-
 
 28 ECONOMIC DEMOCRACY 
 
 spect of public utility companies, such as light- 
 ing, water and transportation undertakings. 
 
 Proceeding from an economic system based 
 on this assumed relation, however, the capital- 
 istic producer only parts with his product for a 
 sum in excess of that representing its cost to 
 him, receiving payment through the agency of 
 money in its various forms of cash and financial 
 credit, which, so far as they are convertible, 
 have been defined as any medium which has 
 reached such a degree of acceptability that no 
 matter what it is made of, and no matter why 
 people want it, no one will refuse it in exchange 
 for his product. (Professor Walker, "Money, 
 Trade and Industry," p. 6.) 
 
 So long as this definition holds good, it is 
 obvious that the possession of money, or finan- 
 cial credit convertible into money, establishes 
 an absolute lien on the services of others in 
 direct proportion to the fraction of the whole 
 stock controlled, and further that the whole 
 stock of financial wealth, inclusive of credit, in 
 the world should, by the definition, be sufficient 
 to balance the aggregate book price of the 
 world's material assets and prospective pro-
 
 ECONOMIC DEMOCRACY 29 
 
 duction; and generally it is assumed that the 
 banks regulate the figures of wealth by the 
 creation of credits broadly representing the 
 mobilization value of these assets either in esse 
 or in posse, such value being for financial pur- 
 poses the transfer or selling price and bearing 
 no relation to the usage value of the article so 
 appraised. 
 
 But for reasons which will be evident in con- 
 sidering the costing of production at a later 
 stage of our inquiry, the book value of the 
 world's stocks is always greater than the ap- 
 parent financial ability to liquidate them, be- 
 cause these book values already include mobil- 
 ized credits ; the creation of subsidiary financial 
 media, in the form of further bank credits, be- 
 comes necessary, and results in the piling up 
 of a system on figures which the accountant 
 calls capital, but which are in fact merely a 
 function of prices. The effect of this is, of 
 course, to decrease progressively the purchas- 
 ing power of money, or, in other words, to con- 
 centrate the lien on the services of others, which 
 money gives, in the hands of those whose rate 
 of increase is most rapid. Intrinsic improve-
 
 30 ECONOMIC DEMOCRACY 
 
 ments in manufacturing methods operate to de- 
 lay this concentration in respect of industry, 
 but the process is logically inevitable, and, as 
 we see, is proceeding with ever-increasing 
 rapidity; and we may fairly conclude that the 
 profit-making system as a whole, and as now 
 operated, is inherently centralizing in char- 
 acter. 
 
 With this concentration of financial power 
 and consequent control, however, there is pro- 
 ceeding in industry another development, ap- 
 parently contradictory in its results, but of 
 the greatest importance in the consideration 
 of the subject as a whole. During the period 
 of transition between individual ownership and 
 company or trust management, and under the 
 stress of competition for markets, it became of 
 vital importance to cut down the selling price 
 of commodities, not so much intrinsically as in 
 comparison with competitors; and as a means 
 to this end, standardization and quantity-pro- 
 duction in large factories are of the utmost im- 
 portance, carrying with them specialization of 
 processes, the substitution, wherever possible, 
 of automatic and semi-automatic machinery for
 
 ECONOMIC DEMOCRACY 31 
 
 skilled workmanship, and the incorporation of 
 the worker into a machine-like system of which 
 every part is expected to function as systemati- 
 cally as a detail of the machine which he may 
 operate. The objective has, to a considerable 
 extent, been attained the scientific manage- 
 ment systems in factories (an outstanding in- 
 stance of this policy), based on the researches 
 of efficiency engineers such as Mr. P. W. Taylor 
 and Mr. Frank Gilbreth, have resulted in a 
 rate of production per unit of labor, hundreds 
 or even thousands per cent, higher than existed 
 before their introduction. 
 
 As a bait for the worker these methods have 
 commonly been accompanied by systems of 
 payment-by-results, such as the premium-bonus 
 system in its various forms as adapted by Hal- 
 sey, Rowan, Weir, etc., round which has raged 
 fierce controversy since in the very nature of 
 things, being based on the consideration of 
 profit, they were unable to take into account the 
 operation of broad economic principles. It is 
 no part of the argument with which we are con- 
 cerned to discuss such systems in detail, but any 
 unprejudiced and sufficiently technical consid-
 
 32 ECONOMIC DEMOCRACY 
 
 eration of them will carry the conviction that 
 while the immediate effect of their introduction 
 was undoubtedly to raise earnings and so ap- 
 parently to delay the concentration of wealth, 
 it was correctly recognized by the worker that 
 his real wage tended to bear much the same 
 ratio, or even to fall, in comparison with the 
 cost of living, since the purchasing power of 
 money in terms of food, clothes, and housing 
 fell faster than his wages rose. 
 
 As the mechanical efficiency of production 
 rose, therefore, discontent and industrial strife 
 became accentuated, and an unstable equi- 
 librium was only maintained by the operation 
 of such factors as have become known under 
 the names of "ca'canny," restriction of out- 
 put, etc., and before the war the operation of 
 piece-work systems in large industrial engi- 
 neering works almost invariably resulted in 
 the establishment of a local ratio between time 
 rates and piece-work earnings, generally rang- 
 ing between 1.25 and 1.5 to 1. It is not neces- 
 sary to discuss the ethics of such an arrange- 
 ment; it is merely necessary to note that the 
 settled policy of Labor, acting presumably on
 
 ECONOMIC DEMOCRACY 33 
 
 the best advice it could get in its own interests, 
 was to exercise a control over production \>y 
 fixing its own standard of output irrespective of 
 time. The situation created by the demand for 
 munitions of all kinds during the war has, of 
 course, profoundly modified this attitude, with 
 the result that a temporary very large increase 
 in real earnings undoubtedly took place in 1915 
 and 1916, taking the form of a rapid distribu- 
 tion of stored commodities ; but it is quite ques- 
 tionable whether this level is even approxi- 
 mately maintained, 1 and with the cessation of 
 the wholesale sabotage of war, it will unques- 
 tionably fall as economic distribution through 
 the wages system becomes ineffective; apart 
 from actual scarcity. 
 
 Quite apart, therefore, from all questions of. 
 payment, there has grown up a spirit of revolt 
 against a life spent in the performance of one 
 mechanical operation devoid of interest, re- 
 quiring little skill, and having few prospects of 
 advancement other than by the problematical 
 acquisition of sufficient money to escape from it. 
 
 iThis was written in 1918; and events have demonstrated 
 its correctness.
 
 34 ECONOMIC DEMOCRACY 
 
 The very efficiency with which factory opera- 
 tions have been sectionalized has resulted in a 
 complete divorcement between the worker and 
 the finished product, which is in itself conducive 
 to the feeling that he is part of a machine in 
 the final output of which he is not interested. 
 His foreman and departmental heads are, from 
 the largeness of the undertakings, almost inevi- 
 tably out of human touch with him, while all the 
 well-known phenomena of bureaucratic methods 
 contribute to maintain a constant state of irrita- 
 tion and dissatisfaction ; and in all these things 
 is the nucleus of a centrifugal movement of for- 
 midable force. Nor is this feature confined to 
 industrial life. The connection between mili- 
 tarism and capitalism as vehicles for the ex- 
 pression of the will-to-power has frequently 
 been pointed out. By the device of universal 
 liability to military service a general threat has 
 been made operative which would appear, ul- 
 tima ratio regis, to set the seal on the ability 
 of authority to dictate the terms on which the 
 existence of the individual can continue. But 
 it is doubtful whether there ever was a time 
 when this threat was held more lightly, and
 
 ECONOMIC DEMOCRACY 35 
 
 the disregard of consequences so widespread. 
 It is not suggested that conscription either mili- 
 tary or industrial is regarded with compla- 
 cency; the exact opposite is, of course, the 
 truth. But just for the reason that the whole 
 conception of a militarist world is instinctively 
 recognized as an anachronism, so, just to that 
 extent, is the determination to defeat at any 
 cost schemes involving compulsion strength- 
 ened in the minds of a population normally 
 acquiescent.
 
 CHAPTER IV 
 
 Personality not the ruling factor in centralism Over-rides 
 personality Lessons of History The cult of Mediaeval- 
 ism Its fallacy Industrial organization The argument 
 for super-production Its critical importance Staking 
 out the ground of argument. 
 
 " \ 7E are, therefore, faced with an apparent 
 V V dilemma, a world-wide movement to- 
 wards centralized control, backed by strong 
 arguments as to the increased efficiency and 
 consequent economic necessity of organization 
 of this character (and these arguments receive 
 support from quarters as widely separated as, 
 say, Lord Milner and Mr. Sidney Webb), and, 
 on the other hand, a deepening distrust of such 
 measures bred by personal experience and ob- 
 servation of their effect on the individual. A 
 powerful minority of the community, deter- 
 mined to maintain its position relative to the 
 majority, assures the world that there is no 
 alternative between a pyramid of power based 
 on toil of ever-increasing monotony, and some 
 form of famine and disaster; while a growing 
 
 36
 
 ECONOMIC DEMOCRACY 37 
 
 and ever more dissatisfied majority strives to 
 throw off the hypnotic influence of training and 
 to grapple with the fallacy which it feels must 
 exist somewhere. 
 
 Now, let it be said at once that there is no 
 evasion of this dilemma possible by the intro- 
 duction of questions of personality a bad sys- 
 tem is still a bad system no matter what 
 changes are made in personnel. The power of 
 personality is susceptible of the same definition 
 as any other form of power, it is the rate of 
 doing work ; and the rate at which a given per- 
 sonality can change an organization depends 
 on two things : the magnitude of the change de- 
 sired, and the size of the organization. As it is 
 hoped to make clear, the effect of a single or- 
 ganization of this pyramidal character applied 
 to the complex purpose of civilization produces 
 a definite type of individual, of which the Prus- 
 sian is one instance. Pyramidal organization 
 is a structure designed to concentrate power, 
 and success in such an organization sooner or 
 later becomes a question of the subordination of 
 all other considerations to its attainment and 
 retention. For this reason the very qualities
 
 38 ECONOMIC DEMOCRACY 
 
 which make for personal success in central con- 
 trol are those which make it most unlikely that 
 success and the attainment of a position of 
 authority will result in any strong effort to 
 change the operations of the organization in 
 any external interest, and the progress to 
 power of an individual under such conditions 
 must result either in a complete acceptance of 
 the situation as he finds it, or a conscious or 
 unconscious sycophancy quite deadly to the 
 preservation of any originality of thought and 
 action. 
 
 It cannot be too heavily stressed at this time 
 that similar forms of organization, no matter 
 how dissimilar their name, favor the emergence 
 of like characteristics, quite irrespective of the 
 ideals of the founders, and it is to the principles 
 underlying the design of the structure, and not 
 to its name or the personalities originally 
 operating it, that we may look for information 
 on its eventual performance. 
 
 In considering the objectionable features 
 which have arisen from modern industrial and 
 political systems in the light of this centralizing 
 tendency, it is instructive to turn for a moment
 
 ECONOMIC DEMOCRACY 39 
 
 to the examination of the differences which 
 have developed in them with respect to those 
 they have displaced, and without covering 
 afresh the ground which has been sufficiently 
 well traversed by the exponents of National 
 Guilds, Syndicalism and other systems of in- 
 dustrial self-government, it may be well to 
 point out that the industrial revolution of the 
 late eighteenth and early nineteenth centuries 
 was largely marked in principle by the separa- 
 tion of the workman from the ownership of his 
 tools and the control of his business policy. 
 
 All craft was handicraft; the equipment of 
 a tradesman was of the simplest; the selling 
 price of the product was practically material 
 cost plus direct labor cost ; direct labor cost was 
 indistinguishable from profit, and practically 
 the whole of it was available for the purchase of 
 further material, and the product of other 
 men's industry. 
 
 So far as our knowledge goes, and the theory 
 of industry would confirm such an assumption, 
 there was within the craft guilds no involuntary 
 poverty or unemployment at all comparable to 
 that with which we are too familiar, and, at any
 
 40 ECONOMIC DEMOCRACY 
 
 rate, within the circle of their influence the 
 standard of material comfort rose directly in 
 proportion to the total production, while at the 
 same time the craftsman maintained a pride in 
 his work and considerable independence. 
 
 With the advent of machinery came the in- 
 tervention of the financier into industry; will- 
 ing to provide the able craftsman with the 
 means to extend the exercise of his skill on 
 payment for his services. The development 
 from this stage, through the small workshop run 
 on borrowed money by the enterprising man 
 who both worked himself and directed the work 
 of others, to the larger factory in which the 
 function of the craftsman ceased to be exercised 
 by the employer, who retained only the direc- 
 tion and management ; to the large limited lia- 
 bility company or Trust, in which the crafts- 
 man, the management, and the direction of 
 policy, became still further separated, has been 
 logical and rapid, and this development carries 
 with it changes of a fundamental character. 
 
 Behind all effort lies the active or passive 
 acquiescence of the human will, and this can 
 only be obtained by the provision of an objec-
 
 ECONOMIC DEMOCRACY 41 
 
 tive. By the separation of large classes into 
 mere agents of a function, it has been possible 
 to obtain the more or less complete co-operation 
 of large numbers of individuals in aims of 
 which they were completely ignornnt, and of 
 which, had they been able to appreciate them in 
 their entirety, they would have completely dis- 
 approved, while at the same time Education and 
 Ecclesiasticism have combined to foster the 
 idea, that so long as the orders of a superior 
 were obeyed, no responsibility rested on the 
 individual. 
 
 It is not, of course, suggested that commer- 
 cial policy has been deliberately and uniformly 
 dictated by unworthy motives far from it; 
 nor is it unlikely that had the processes of pro- 
 duction and distribution been separated from 
 any control over individual activity along other 
 lines, its development might have been in the 
 best interests of the community ; but since it has 
 been accompanied by a growing subjection of 
 the individual to the machine of industrialism, 
 it is quite unquestionable that the whole process 
 of centralizing power and policy and alleged re- 
 sponsibility in the brains of a few men whose
 
 42 ECONOMIC DEMOCRACY 
 
 deliberations are not open to discussion ; whose 
 interests, largely financial, are quite clearly in 
 many respects opposed to those of the individ- 
 uals they control, and whose critics can be vic- 
 timized; is without a single redeeming feature, 
 and is rendered inherently vicious by the con- 
 ditions which operate during the selective 
 process. When it is further considered that 
 these positions of power fall to men whose very 
 habit of mind, however kindly and broad in 
 view it may be and often is in other directions, 
 must quite inevitably force them to consider the 
 individual as mere material for a policy 
 cannon-fodder whether of politics or industry 
 the gravity of the issue should be apparent. 
 
 Along with this development has gone a 
 parallel change in the status of the individual. 
 The apprentice, the journeyman and the master 
 were all of one social class; the apprentice or 
 journeyman dined at his master's table and 
 married his own or some other master's daugh- 
 ter; the standard of life therefore, without, of 
 course, being identical, was comparable as be- 
 tween various grades. The implication of this 
 was considerable it involved a common stand-
 
 ECONOMIC DEMOCRACY 43 
 
 ard to which everyday difficulties could be re- 
 ferred. A consideration of these facts, and a 
 comparison of the conditions produced by them 
 with those existing in our industrial districts 
 in more recent years, has led reformers of the 
 type of William Morris and John RusMn to 
 idealize this period and to place to the debit of 
 machinery and quantity-production all the 
 miseries and ugliness visible in the Midlands 
 and the manufacturing North of England. This 
 attitude seems mistaken, and here again we are 
 met by a confusion between cause and effect: 
 there is absolutely no virtue in taking ten hours 
 to produce by hand a necessary which a machine 
 will produce in ten seconds, thereby releasing a 
 human being to that extent for other aims, but 
 it is essential that the individual should be re- 
 leased; that freedom for other pursuits than 
 the mere maintenance of life should thereby be 
 achieved. 
 
 How, then, are we to deal with this dilemma? 
 It cannot seriously be contended that the ad- 
 vancement gained as a result of the application 
 of material science to the requirements of so- 
 ciety should be abandoned, and that men should
 
 44 ECONOMIC DEMOCRACY 
 
 abjure the use of anything more complicated 
 than a hammer and chisel or a spinning wheel. 
 But while progress in the replacement of man- 
 ual effort by machinery seems both natural and 
 beneficial, "it is equally clear that the spiritual 
 and intellectual revolt against the conditions 
 which have grown up alongside this material 
 progress is fundamental and widespread, and 
 will not be satisfied by any mere betterment 
 movement. The whole policy of Governments 
 and industrialists alike in respect of this con- 
 flict of interest has been one of grudging com- 
 promise, partly as the result of the natural 
 tendency of humanity to "laissez faire" 
 methods and partly no doubt from a settled 
 conviction that nothing but compromise was 
 possible; that the existing order is based on 
 natural law, and is not amenable to any radical 
 modification, and that all critics are either 
 cranks and dreamers, or else are solely actuated 
 by a desire for the sweets of office. It is most 
 important to recognize that there are two dis- 
 tinct problems involved in this dilemma: one 
 technical, the other psychological, and it is just 
 because the psychological aspect of industry
 
 ECONOMIC DEMOCRACY 45 
 
 has been confused with and subordinated to the 
 technical aspect that we are confronted with 
 so grave a situation at this time. There is little 
 reason to doubt that we are rapidly attaining 
 command of the means for the solution of any 
 reasonable requirement of a purely technical 
 nature, and it may be well therefore to consider 
 briefly the usual methods which the modern in- 
 dustrial system has developed to deal with the 
 organization of large numbers of individuals to 
 the end that their combined effort may result in 
 commercial success. 
 
 Very broadly the main difference lies between 
 what may be defined as the military and the 
 functional systems of control, or some combina- 
 tion of the two, and these involve an interesting 
 difference of conception. 
 
 As we have seen, the development of indus- 
 trial activity has been very largely a practical 
 application of the economic proposition in re- 
 gard to the division of labor; the " military" 
 organization conceives a large business or a 
 Government Department as an aggregation of 
 human units to carry out on a large scale that 
 which one immensely able and versatile man
 
 46 ECONOMIC DEMOCRACY 
 
 could do on a small scale, and, broadly consid- 
 ered, the perfect organization of this character 
 would be derived by dissecting the various at- 
 tributes of the perfect one-man business, mak- 
 ing each of them a Department, and staffing 
 them with men who in the aggregate repre- 
 sented nothing but an expansion of that at- 
 tribute. Fortunately, the perfect organization 
 of this character has yet to appear, but the 
 effect of the endeavor to achieve it has quite 
 definitely left its mark on civilization it is 
 easy to distinguish the soldier and the civil 
 servant, or even the infantryman and the bom- 
 bardier, and the development due to the un- 
 balanced exercise of one set only, of perhaps 
 many abilities resident in the human unit, is a 
 very definite factor in the existing discontent 
 and one which, if perpetuated, could only be 
 increased by wider education. 
 
 A little consideration will at once suggest 
 that this type of organization carried out to its 
 furthest limits is pyramid control in its sim- 
 plest form, and it is clear that successive grades 
 or ranks decreasing regularly in the number of 
 units composing each grade, until supreme
 
 ECONOMIC DEMOCRACY 47 
 
 power and composite function is reached and 
 concentrated at the apex, are definitely char- 
 acteristic of it. 
 
 The next step is to split the functions of the 
 higher ranks so that each unit therein becomes 
 the head of a separate little pyramid, each of 
 which as a whole furnishes the unit composing 
 a larger pyramid ; in every case, however, even- 
 tually concentralizing power and responsibil- 
 ity in one man, representing the power of 
 finance and of control over the necessaries of 
 life. 
 
 Several points are to be noticed in the condi- 
 tions produced by such an arrangement: 
 Firstly, there is fundamental inequality of 
 opportunity. The more any organization, 
 whether of society as a whole, or any of the 
 various aspects of it, approaches this form the 
 more certain is it that there cannot possibly be 
 any relation between merit and reward it is, 
 for instance, absurd to assume that there is 
 only one possible head, for each railway com- 
 pany, Government Department, or great indus- 
 trial undertaking. There is no doubt what- 
 ever that the intrigue which is a commonplace
 
 48 ECONOMIC DEMOCRACY 
 
 in such undertakings has its roots almost en- 
 tirely in this cause, and contributes in no small 
 degree to their notorious inefficiency. 
 
 Another objection which becomes increas- 
 ingly important as the concentration proceeds 
 is the divorce between power and detail knowl- 
 edge. This difficulty is recognized in the ap- 
 pointment of official and unofficial intelligence 
 departments which, of course, are in themselves 
 the source of further abuses. 
 
 Having these points to some extent in mind, 
 American industry has developed what is most 
 unquestionably a very important modification 
 of principle that of functional control in place 
 of individual control ; that is to say, the individ- 
 ual is only controlled from one source in regard 
 to one function say time-keeping. In respect 
 of such matters as technical methods he deals 
 with an entirely different authority, and with 
 still another in respect of pay. 
 
 The real objection to this is the effect on the 
 source of specialized authority of so narrow a 
 function as is demanded by much so-called 
 scientific management, but there is very little 
 doubt that the underlying idea does contain the
 
 ECONOMIC DEMOCRACY 49 
 
 germ of an industrial system which would be in 
 the highest degree efficient if its psychological 
 difficulties could be removed, and it is signifi- 
 cant that this form of organization produces 
 its own type of personality. 
 
 It will be seen, therefore, that we have, in 
 the industrial field, a double problem to solve: 
 while retaining the benefits of mechanism for 
 productive purposes, to obtain effective distri- 
 bution of the results and to restore personal 
 initiative. 
 
 The proposition which is being urged from 
 orthodox capitalistic quarters as a means of 
 dealing with this situation is a little ingenuous. 
 It consists of an intensification policy by which, 
 in some mysterious way, all the unpleasant fea- 
 tures, by being exaggerated, are to disappear, 
 and it is usually summed up at the moment in 
 the phrase, "We must produce more." A fair 
 statement of this demand for unlimited and in- 
 tensified manufacturing would no doubt be 
 something after this fashion : 
 
 1. We must pay for the war and for better- 
 ment schemes. 
 
 2. This means high taxes.
 
 50 ECONOMIC DEMOCRACY 
 
 3. Taxes must come from profits and earn- 
 ings, which are parts of one whole. 
 
 4. High earnings, high profits, and low labor 
 costs, and low selling and competitive costs, can 
 only be combined if increased output is ob- 
 tained. 
 
 5. High earnings will mean wider markets. 
 
 Now this is a very specious argument; a 
 large number of people, whose instincts warn 
 them that there is a fallacy somewhere, have 
 not felt themselves able to offer any effective 
 criticism of it, since some practical knowledge 
 of technique is involved. The labor attitude 
 has either been a simple non-possumus, or a 
 restatement of the evils of capitalistic profit- 
 making, together with sufficiently pungent in- 
 quiry into the qualifications of the holders of 
 the major portion of the securities representing 
 Government indebtedness, and their title to 
 rank as the winners of the war, and the chief 
 beneficiaries of the peace. All this is quite to 
 the point, but it is not even the chief economic 
 objection to such a policy. 
 
 First of all, let it be admitted that a consider-
 
 ECONOMIC DEMOCRACY 61 
 
 able amount of manufacturing will have to be 
 done, firstly, to reinstate the devastated areas, 
 and afterwards to meet the accumulated de- 
 mand, and these together will provide an outlet 
 for a very large quantity of manufactured 
 goods. These goods will not, of course, be 
 furnished for nothing, and the money to pay 
 for them will in the main be supplied by loans, 
 which to begin with clearly mean more taxes for 
 some one, where the work done is on public ac- 
 count. But, says the super-producer, this 
 money will be distributed in wages, salaries and 
 profits, which will enable the whole population, 
 at any rate of this country, where we propose 
 to do our manufacturing so long as labor and 
 other conditions are favorable, to buy more 
 goods, or, conversely, save more money, and 
 eventually enjoy more leisure and freedom. 
 
 Let us give to this statement the attention 
 it deserves, because on it hangs the fate of a 
 whole economic system. If it is true as it 
 stands, then the whole system which stands be- 
 hind it, the fight for markets, the cartels, trusts, 
 and combines, and the other machinery of com- 
 petitive trade, are justified at any rate by na-
 
 52 ECONOMIC DEMOCRACY 
 
 tional self-interest. In order then to make this 
 analysis it is unavoidable that we should enter 
 into some detail with regard to the accountancy 
 of manufacturing; not forgetting that the un- 
 equal distribution of wealth is an initial re- 
 striction on the free sale of commodities, and 
 that in consequence what we are aiming at, in 
 order to meet the final contention of the argu- 
 ment, is not an expansion of figures, but an 
 equalization of real purchasing power. 
 
 Now, purchasing power is the amount of 
 goods of tine description desired which can be 
 bought with the sum of money available, and it 
 is clearly a function of price. It is a widely 
 spread delusion that price is simply a question 
 of supply and demand, whereas, of course, the 
 upper limit of price only is thus governed, the 
 lower limit, which under free competition would 
 be the ruling limit, being fixed by cost plus the 
 minimum profit which will provide a financial 
 inducement to produce. It is important to bear 
 this in mind, because it is frequently assumed 
 that a mere glut of goods will bring down prices 
 quite irrespective of any intrinsic economy in- 
 volved in large scale production. Unless these
 
 ECONOMIC DEMOCRACY 53 
 
 goods are all absorbed, the result may be 
 exactly opposite, since deterioration must go 
 into succeeding costs. Cost is the accumulation 
 of past spendings over an indefinite period, 
 whereas cash price requires a purchasing power 
 effective at the moment of purchase. 
 
 Where competition is restricted by Trusts, 
 price is cost plus whatever profit the Trust 
 considers it politic to charge.
 
 CHAPTER V 
 
 Factory cost" the heart of the problem Profit sharing The 
 rate of distribution of money The rate of increase of 
 prices Example Where the real purchasing power lies 
 Loan-credit and cash-credit The leak in the dollar 
 Wealth and " weal "-being Profiteering not the prime 
 objection to existing system Summary of analysis of 
 Production Economics. 
 
 EOKED at from this standpoint it is fairly 
 clear that the kernel of the problem is 
 factory cost, since it is quite possible to con- 
 ceive of a limited company in which the shares 
 were all held by the employees, either equally or 
 in varying proportions, according to their 
 grade, and the selling costs were internal that 
 is to say, all advertising was done by the firm 
 itself, and the cost of its salesmen, etc., was 
 either negligible, or confined to their salaries. 
 We should then have the complete profit-shar- 
 ing enterprise in its ultimate aspect, and the 
 argument against Capitalism in its usual form 
 would not arise. 
 
 Such, an undertaking would, let us assume, 
 make a complicated engineering product, re- 
 
 64
 
 ECONOMIC DEMOCRACY 55 
 
 quiring expensive plant and machinery, and 
 would absorb considerable quantities of power 
 and light, lubricants, etc., much of which would 
 be wasted ; and would inevitably produce a cer- 
 tain amount of scrap the value of which would 
 be less than the material in the form in which 
 it entered the works. The machinery would 
 wear out, and would have to be replaced and 
 maintained, and generally it is clear that for 
 each unit of production there would be three 
 main divisions of factory cost, the " staple" 
 raw material, the wages and salaries and a sum 
 representing a proportion of the cost of upkeep 
 on the whole of the plant, which might easily 
 equal 200 per cent, of the wages and salaries. 
 As the plant became more automatic by im- 
 provements in process, the ratio which these 
 plant costs bore to the cost of labor and salaries 
 would increase. The factory cost of the total 
 production, therefore, would be the addition of 
 these three items: staple material, labor and 
 salaries, and plant cost, and with the addition 
 of selling charges and profit, this would be the 
 selling price. 
 As a result of the operations of the under-
 
 56 ECONOMIC DEMOCRACY 
 
 taking the wealth of the world would thus be 
 apparently increased by the difference between 
 the value of all the material entering the fac- 
 tory, and the total sum represented by the sell- 
 ing price of the product. But it is clear that 
 the total amount distributed in wages, salaries 
 and profit or dividends, would be less by a con- 
 siderable sum (representing purchases on fac- 
 tory account) than the total selling price of the 
 product, and if this is true in one factory it 
 must be true in all. Consequently, the rate at 
 which money is liberated by manufacturing 
 processes of this nature is clearly less than the 
 rate at which the total selling price of the prod- 
 uct increases. This difference is due to the fact 
 that while the final price to the consumer of any 
 manufactured article is steadily growing with 
 the time required for manufacture, during the 
 same time the money distributed by the manu- 
 facturing process is being returned to the capi- 
 talist through purchases for immediate con- 
 sumption. 
 
 A concrete example will make this clear. A 
 steel bolt and nut weighing ten pounds might 
 require in the blank about eleven and a half
 
 ECONOMIC DEMOCRACY 57 
 
 pounds of material representing, say, 85 cents. 
 The net selling price of the scrap recovered 
 would probably be about 2 cents. The wages 
 value of the total man-hours expended on the 
 conversion from the blank to the finished nut 
 and bolt might be $1.25, and the average plant 
 charge 150 per cent, on the direct time charge, 
 i.e., $1.87. The factory cost would, therefore, 
 be $3.95, of which $1.87, or just under one-half, 
 would be plant charge. Of this plant charge 
 probably 75 per cent., or about $1.40, is repre- 
 sented by the sum of items which are either 
 afterwards wiped off for depreciation and con- 
 sequently not distributed at all at that time, 
 or are distributed in payments outside the or- 
 ganization, which payments clearly must be 
 subsequent to any valuation of the articles for 
 which they are paid, and so do not affect the 
 argument. Without proceeding to add selling 
 charges and profit it must be clear that a charge 
 of $3.95 on the world's purchasing power has 
 been created, of which only $1.70 is distributed 
 in respect of the specific article under con- 
 sideration, and that if the effective demand 
 exists at all in a form suitable for the
 
 58 ECONOMIC DEMOCRACY 
 
 liquidation of this charge, it must reside in 
 the banks. 
 
 But we know that the total increase in the 
 personal cash accounts in the banks in normal 
 times is under 3 per cent, of the wages, salaries 
 and dividends distributed, consequently it is not 
 to these accounts that we must look for effec- 
 tive demand. There are two sources remain- 
 ing: loan-credit, that is to say, purchasing 
 power created by the banks on principles which 
 are directed solely to the production of a posi- 
 tive financial result; and foreign or export de- 
 mand. Now loan-credit is never available to 
 the consumer as such, because consumption as 
 such has no commercial value. In consequence 
 loan-credit has become the great stimulus either 
 to manufacture or to any financial or commer- 
 cial operation which will result in a profit, that 
 is to say, an inflation of figures. 
 
 An additional factor also comes into play at 
 this point. All large scale business is settled on 
 a credit basis. In the case of commodities in 
 general retail demand, the price tends to rise 
 above the cost limit, because the sums dis- 
 tributed in advance of the completion of large
 
 ECONOMIC DEMOCRACY 59 
 
 works become effective in the retail market, 
 while the large works, when completed, are paid 
 for by an expansion of credit. This process in- 
 volves a continuous inflation of currency, a rise 
 in prices, and a consequent dilution in purchas- 
 ing power. 
 
 The reason that the decrease in the con- 
 sumer's purchasing power has not been so 
 great as would be suggested by these considera- 
 tions is, of course, largely due to intrinsic 
 cheapening of processes which would, if not de- 
 feated by this dilution of the consumer's pur- 
 chasing power, have brought down prices faster 
 than they have risen. 
 
 There are thus two processes at work: an 
 intrinsic cheapening of the product by better 
 methods, and an artificial decrease in purchas- 
 ing power due to what is in effect the charging 
 of the cost of all waste and inefficiency to the 
 consumer. And it is clear that under this sys- 
 tem the greater the volume of production the 
 larger will be the absolute value of the waste 
 which the consumer has to pay for, whether he 
 will or no, because as the bank credits are 
 created at the instance of the manufacturer and
 
 60 ECONOMIC DEMOCRACY 
 
 repaid out of prices each article produced 
 dilutes, by the ratio of its book price to all the 
 credits outstanding, the absolute purchasing 
 power of the money held by any individual. 
 
 These facts are quite unaffected by the per- 
 fectly sound argument that increased produc- 
 tion means decreased cost per piece, since it is 
 the total production price which has to be 
 liquidated. 
 
 Already there is not very much left of the 
 argument for the innate desirability of un- 
 limited, unspecified and intensified manufactur- 
 ing under the existing economic system, but 
 more trouble yet is ahead of it. While the ratio 
 of plant charges to total wages and salaries cost 
 is less than 1 : 1 over the whole range of com- 
 modities, a general rise in direct rates of pay 
 may mean a rise (but not a proportionate rise) 
 in the purchasing power of those who obtain 
 their remuneration in this way. But when 
 by the increased application of mechanical 
 methods the average overhead charge passes 
 the ratio of one to one (which it rapidly will, 
 and should do on this basis of calculation) every 
 general increase in rates of pay of " direct"
 
 ECONOMIC DEMOCRACY 61 
 
 labor may mean an actual decrease in real pay, 
 because the consumer is only interested in ulti- 
 mate products and overhead charges do not 
 represent ultimate products in existence. 
 
 The whole argument which represents a 
 manufactured article, no matter what its de- 
 scription and utility, as an access of wealth to 
 the country and to every one concerned so long 
 as by any method it can be sold and wages dis- 
 tributed in respect of it, will, therefore, be seen 
 to be a dangerous fallacy based on an entirely 
 wrong conception, which is epitomized in the 
 use of the word "production," and fostered by 
 ignorance of financial processes. Manufactur- 
 ing of any kind whatever, even agriculture in a 
 limited sense, is the conversion of one thing into 
 another, which process is only advantageous to 
 the extent that it subserves a definite require- 
 ment of human evolution. In any case, it 
 shares with all other conversions the character- 
 istic of having only a fractional efficiency, and 
 the waste of effort involved, although being con- 
 tinually reduced by improvements of method, 
 still can only be paid for in one way, by effort 
 on the part of somebody.
 
 62 ECONOMIC DEMOCRACY 
 
 If this effort is useful effort "useful" in the 
 sense that a definite, healthy and sane human 
 requirement is served the wealth and stand- 
 ard of living of the community may thereby be 
 enhanced. If the effort is aimless or destruc- 
 tive, the money attached to it does not alter the 
 result. 
 
 The financial process just discussed therefore 
 clearly attaches a concrete money value to an 
 abstract quality not proven, and as this money 
 value must be represented somewhere by 
 equivalent purchasing power in the broadest 
 sense, misdirected effort which appears in cost 
 forms a continuous and increasing diluent to 
 the purchasing value of effort in general. 
 
 A careful consideration of these factors will 
 lead to the conclusion that loan-credit is the 
 form of effective demand most suitable for 
 stimulating semi-manufactures, plant, inter- 
 mediate products, etc., and that "cash "-credit 
 is required for ultimate products for real per- 
 sonal consumption. We have already seen that 
 the cash-credits provided by the whole of the 
 money distributed by the industrial system, so 
 far as it concerns the wage-earner, are only suf-
 
 ECONOMIC DEMOCRACY 63 
 
 ficient to provide a small surplus over the cost 
 of the present standard of living, and that only 
 by conditions of employment which the workers 
 repudiate, and rightly repudiate. 
 
 The core of this problem is the fact that 
 money, which is distributed m respect of ar- 
 ticles which do not come into the buying range 
 of the persons to whom the money is distrib- 
 uted, is not real money it is simply inflation of 
 currency so far as those persons are concerned. 
 The public does not buy machinery, industrial 
 buildings, etc., for personal consumption at all. 
 But it pays the price of them without acquiring 
 control, since they form an overhead cost added 
 to the price of ultimate products. Hence it will 
 be seen that the machinery of remuneration 
 must be modified profoundly, since the sum of 
 the wages, salaries and dividends, distributed in 
 respect of the world's production will buy an 
 ever-decreasing fraction of it, and can never 
 control it. 
 
 It is one of the most curious phenomena of 
 the existing economic system that a large por- 
 tion of the world's energy, both intellectual and 
 physical, is directed to the artificial stimulation
 
 64 ECONOMIC DEMOCRACY 
 
 of the desire for luxuries by advertisement and 
 otherwise, in order that the remainder may be 
 absorbed in what is frequently toilsome, dis- 
 agreeable and brutalizing work ; to the end that 
 a device for the distribution of purchasing 
 power may be maintained in existence. The 
 irony of the situation is the greater since the 
 perfecting of the organization to carry on this 
 vicious circle carries with it as we have just 
 seen a complete negation of all real progress. 
 
 The common factor of the whole situation lies 
 in the simple facts that at any given period the 
 material requirements of the individual are 
 quite definitely limited that any attempt to 
 expand them artificially is an interference with 
 the plain trend of evolution, which is to subordi- 
 nate material to mental and psychological 
 necessity; and that the impulse behind un- 
 bridled industrialism is not progressive but re- 
 actionary because its objective is an obsolete 
 financial control which forms one of the most 
 effective instruments of the will-to-power, 
 whereas the correct objectives of industry are 
 two-fold: the removal of material limitations 
 and the satisfaction of the creative impulse.
 
 ECONOMIC DEMOCRACY 65 
 
 It is for this reason that while, as we see, the 
 effect of the concrete sum distributed as profit 
 is over-rated in the attacks made on the Capi- 
 talistic system, and is of small and diminishing 
 importance as compared with the delusive ac- 
 counting system which accompanies it, and 
 which acts to reduce consistently the purchas- 
 ing power of effort, it is, nevertheless, of prime 
 importance as furnishing the immediate "in- 
 ducement to produce," which is a false induce- 
 ment in that it claims as " wealth" what may 
 just as probably be waste. 
 
 If by wealth we mean the original meaning 
 attached to the word: i.e., "well-being," the 
 value in well-being to be attached to production 
 depends entirely on its use for the promotion 
 of well-being (unless a case is made out for the 
 moral value of factory life), and bears no rela- 
 tion whatever to the value obtained by cost 
 accounting. 
 
 Further, if the interaction between produc- 
 tion for profit and the creation of credit by the 
 finance and banking houses is understood, it 
 will be seen that the root of the evil accruing 
 from the system is in the constant filching of
 
 66 ECONOMIC DEMOCRACY 
 
 purchasing power from the individual in favor 
 of the financier, rather than in the mere profit 
 itself. 
 
 Having in view the importance of the issues 
 involved, it may be desirable to summarize the 
 conclusions to be derived from a study of the 
 methods by which the price of production is 
 based on cost under the existing economic ar- 
 rangements. They are as follows : 
 
 1. Price cannot normally be less than cost 
 plus profit. 
 
 2. Cost includes all expenditure on product. 
 
 3. Therefore, cost involves all expenditure 
 on consumption (food, clothes, housing, etc.), 
 paid for out of wages, salary or dividends, as 
 well as all expenditure on factory account, also 
 representing previous consumption. 
 
 4. Since it includes this expenditure, the 
 portion of the cost represented by this expendi- 
 ture has already been paid by the recipients of 
 wages, salaries and dividends. 
 
 5. These represent the community; there- 
 fore, the only distribution of real purchasing 
 power in respect of production over a unit 
 period of time is the surplus wages, salaries
 
 ECONOMIC DEMOCRACY 67 
 
 and dividends available after all subsistence, 
 expenditure and cost of materials consumed has 
 been deducted. The surplus production, how- 
 ever, includes all this expenditure in cost, and, 
 consequently, in price. 
 
 6. The only effective demand of the con- 
 sumer, therefore, is a few per cent, of the price 
 value of commodities, and is cash-credit. The 
 remainder of the Home effective demand is loan- 
 credit, which is controlled by the banker, the 
 financier, and the industrialist, in the interest 
 of production with a financial objective, not in 
 the interest of the ultimate consumer. 
 
 It will be necessary to grasp the significance 
 of these considerations, which can hardly be 
 over-rated in its effect on the break-up of the 
 existing economic system, in order to appre- 
 ciate the result of a change in the control of 
 credit and the method of price fixing, with 
 which it is proposed to deal at a later stage.
 
 CHAPTER VI 
 
 Fallacious arguments based on income-returns Importance 
 of loan-credit How it differs from pay and wages Why 
 starvation may exist amidst plenty Economic sabotage 
 Examples The mirage of finance Why it can never 
 deliver the goods. 
 
 IT will be readily understood that the diffi- 
 culties which are seen to be inherent in the 
 policy of super-production are only an accen- 
 tuation of those with which we were only too 
 familiar prior to the outbreak of war, and it 
 may be contended and, in fact, it frequently is 
 stated, that even with the unemployment statis- 
 tics at their minimum point and the Nation at 
 its maximum activity in Industry, there is still 
 not enough product to go round. Eecently, for 
 instance, Professor Bowley has estimated that 
 the total British income in excess of $800 per 
 head per annum is only $1,250,000,000, which 
 would mean, if distributed to 10,000,000 heads 
 of families, $125 per annum per family, assum- 
 ing that this distribution did not reduce the 
 production of wealth. 
 
 68
 
 ECONOMIC DEMOCRACY 69 
 
 The figures themselves have been criticized; 
 but, in any case, the whole argument is com- 
 pletely fallacious, because it takes no account 
 whatever of loan-credit, which is by far the 
 most important factor in the distribution of 
 production, as we have already seen. What it 
 does show is that the purchasing power of ef- 
 fort is quite insignificant in comparison with its 
 productive power. 
 
 But it may be advisable to glance at some of 
 the proximate causes operating to reduce the 
 return for effort; and to realize the origin of 
 most of the specific instances, it must be borne 
 in mind that the existing economic system dis- 
 tributes 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 pro- 
 duce useless or superfluous articles, in order 
 that useful commodities already existing may 
 be distributed. 
 
 This perfectly simple reason is the explana- 
 tion of the increasing necessity of what has 
 come to be called economic sabotage ; the colos-
 
 70 ECONOMIC DEMOCRACY 
 
 sal waste of effort 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 extend it, that the climax of war only 
 occurred in the moment when a culminating ex- 
 hibition of organized sabotage was necessary to 
 preserve the system from spontaneous com- 
 bustion. 
 
 The simplest form of this process is that of 
 "making work"; the elaboration of every 
 action in life so as to involve the maximum 
 quantity and the minimum efficiency in human 
 effort. The much-maligned household plumber, 
 who evolves an elaborate organization and eti- 
 quette, probably requiring two assistants, and 
 half a day, in order to "wipe" a damaged 
 water pipe, which could, by methods with which 
 he is perfect familiar, be satisfactorily repaired 
 by a boy in one-third the time; the machinist 
 insisting on a lengthy apprenticeship to an un- 
 skilled process of industry, such as the opera- 
 tion of an automatic machine tool, are simple 
 instances of this. A little higher up the scale of 
 complexity comes the manufacturer who pro-
 
 ECONOMIC DEMOCRACY 71 
 
 duces a new model of his particular specialty, 
 with the object, express or subconscious, of 
 rendering the old model obsolete before it is 
 worn out. We then begin to touch the immense 
 regions of artificial demand created by adver- 
 tisement; a demand, in many cases, as purely 
 hypnotic in origin as the request of the mes- 
 merized subject for a draught of kerosene. All 
 these are instances which could be multiplied 
 and elaborated to any extent necessary to prove 
 the point. 
 
 In another class comes the stupendous waste 
 of effort involved in the intricacies of finance 
 and book-keeping; much of which, although 
 necessary to the competitive system, is quite 
 useless in increasing the amenities of life ; there 
 is the burden of armaments and the waste of 
 materials and equipment involved in them even 
 in peace time; the ever-growing bureaucracy 
 largely concerned in elaborating safeguards for 
 a radically defective social system ; and, finally, 
 but by no means least, the cumulative export of 
 the product of labor, largely and increasingly 
 paid for by the raw material which forms the 
 vehicle for the export of further labor.
 
 72 ECONOMIC DEMOCRACY 
 
 All these, and many other forms of avoidable 
 waste, take their rise in the obsession of wealth 
 defined in terms of money ; an obsession which 
 even the steady fall in the purchasing power 
 of the unit of currency seems powerless to 
 dispel; which obscures the whole object and 
 meaning of scientific progress, and places the 
 worker and the honest man in a permanently 
 disadvantageous position in comparison with 
 the financier and the rogue. It is probable that 
 the device of money is a necessary device in our 
 present civilization; but the establishment of a 
 stable ratio between the use value of effort and 
 its money value is a problem which demands a 
 very early solution, and must clearly result in 
 the abolition of any incentive to the capitaliza- 
 tion of any form of waste. 
 
 The tawdry " ornament,'* the jerry-built 
 house, the slow and uncomfortable train serv- 
 ice, the unwholesome sweetmeat, are the direct 
 and logical result of an economic system which 
 rewards variety, quite irrespective of quality, 
 and proclaims in the clearest possible manner 
 that it is much better to "do" your neighbor 
 than to do sound and lasting work.
 
 ECONOMIC DEMOCRACY 73 
 
 The capitalistic wage system based on the 
 current methods of finance, so far from offering 
 maximum distribution, is decreasingly capable 
 of meeting any requirement of society fully. 
 Its very existence depends on a constant in- 
 crease in the variety or product, the stimulation 
 of desire, and in keeping the articles desired in 
 short supply.
 
 CHAPTER VII 
 
 The final struggle approaching The issue Inadequacy of 
 commodity-reward for service Social symptoms Busi- 
 ness system not to blame Real and effective demand 
 Productive system technically adequate Decentralized 
 control The Shop Steward system A means, not an 
 end A labor fallacy. 
 
 IF the preceding endeavor to marshal into 
 some sort of coherent pattern the facts of 
 the general economic and social situation, as it 
 exists at present, has been to any extent suc- 
 cessful, it will be evident that the real antago- 
 nism which is at the root of the upheaval with 
 which we are faced is one which appears under 
 different forms in every aspect of human life. 
 It is the agelong struggle between freedom and 
 authority, between external compulsion and in- 
 ternal initiative, in which all the command of 
 resources, information, religious dogma, edu- 
 cational system, political opportunity and even, 
 apparently, economic necessity, is ranged on the 
 side of authority; an ultimate authority which 
 is now chiefly exercised through finance. This 
 antagonism does, however, appear at the pres- 
 
 74
 
 ECONOMIC DEMOCRACY 75 
 
 ent time to have reached a stage in which a 
 definite victory for one side or the other is 
 inevitable it seems perfectly certain that 
 either a pyramidal organization, having at its 
 apex supreme power, and at its base complete 
 subjection, will crystallize out of the centraliz- 
 ing process which is evident in the realms of 
 finance and industry, equally with that of poli- 
 tics, or else a more complete decentralization 
 of initiative than this civilization has ever 
 known, will be substituted for external author- 
 ity. The issue transcends in importance all 
 others : the development of the human race will 
 be radically different as it is decided one way or 
 another; but as far as it is possible to judge, the 
 general advantage of the individual will lie with 
 the retention of a measure of co-ordination in 
 all mechanical organization, combined with the 
 evolution of progressively decentralized initia- 
 tive, largely by the displacement of the power 
 of centralized finance. 
 
 The implication of this is a challenge (which 
 will become more definite as time goes on) to 
 extant authority, as to its right to adjudicate on 
 the absolute value, expressed in terms of com-
 
 76 ECONOMIC DEMOCRACY 
 
 modities, of various forms of activity. Even 
 now, the practical difficulty of estimating the 
 relation between material reward and individ- 
 ual effort is becoming almost insuperable, even 
 in the cases where an honest effort is made to 
 arrive at some solution. The various move- 
 ments for the grant of a minimum living wage, 
 the demand for the recognition of the ' ' right to 
 work" (i.e., to draw pay), are all symptoms of 
 the breakdown of the financial "law" of supply 
 and demand in its application to economic 
 problems. 
 
 Still another significant feature of the inade- 
 quacy of the economic structure is the increase 
 of voluntary unpaid effort and the large amount 
 of energy devoted to games. There is abso- 
 lutely no concrete difference between work and 
 play unless it be in favor of the former no one 
 would contend that it is inherently more inter- 
 esting or pleasurable to endeavor to place a 
 small ball in an inadequate hole with inappro- 
 priate instruments, than to assist in the con- 
 struction of a Quebec Bridge, or the harnessing 
 of Niagara. But for one object men will travel 
 long distances at their own expense, while for
 
 ECONOMIC DEMOCRACY 77 
 
 the other they require payment and consider- 
 able incentive to remain at work. 
 
 The whole difference is, of course, psycho- 
 logical ; in the one case there is absolute freedom 
 of choice, not of conditions, but as to whether 
 those conditions are acceptable; there is some 
 voice in control, and there is an avoidance of 
 monotony by the comparatively short period of 
 the game, followed by occupation of an entirely 
 different order. But the efficiency of the per- 
 formance, as compared with the efficiency of 
 the average factory worker, is simply incom- 
 parable any factory which could induce for six 
 months the united and enthusiastic concentra- 
 tion of, say, an amateur football team, would 
 produce quite astonishing results. 
 
 Now, it may be emphasized here at once, that 
 there is absolutely no future for inefficiency as 
 a cult; the whole promise of a brighter, prob- 
 ably a very bright, future for the world, lies in 
 doing the best possible things in the best pos- 
 sible way. In industrial affairs, the principle 
 of the maximum efficiency of effort per unit of 
 time is so patently unassailable, that its enun- 
 ciation would hardly be necessary, but that the
 
 78 ECONOMIC DEMOCRACY 
 
 proposition carries with it a very different con- 
 ception of efficiency than the narrow "busi- 
 ness" meaning commonly attached to the word, 
 and in consequence it is the fashion amongst 
 the less progressive elements of society to at- 
 tack any demand for improved conditions as 
 simply an attempt to substitute sloth and in- 
 capacity for energy and capability. While, 
 therefore, a readjustment of system and, above 
 all, a complete reconsideration of objective is 
 necessary, it is probable that the basis of such 
 changes must be economic, with political and 
 financial systems auxiliary rather than defini- 
 tive, and it is certain that a revision of eco- 
 nomic policy, to be stable, must result in higher 
 economic efficiency; even though the very aim 
 of that higher efficiency is to reduce economic 
 problems to a very subordinate position. And 
 the higher psychological efficiency of voluntary 
 effort is clearly a step to this end. 
 
 We have just seen that merely increased pro- 
 duction under existing conditions will not 
 achieve any economic stability, because there 
 are at least two quite irreconcilable criteria 
 governing the scope of the operations proposed.
 
 ECONOMIC DEMOCRACY 79 
 
 There is, on the one hand, the adjustment of 
 manufacturing of all sorts to the opportunity 
 of sale (not by any means always profitable 
 sale) ; and this is a purely artificial, and yet all- 
 powerful, consideration under present financial 
 systems, and constitutes the effective demand. 
 
 And there is, on the other hand, the growing 
 real demand, first for food, clothing and shelter, 
 and then for participation in the wider life 
 which modern progress has made possible, such 
 demand being quite irrespective of capacity to 
 pay in money. And the reconciliation of these 
 two interests means the defeat of the will-to- 
 power by the will-to-freedom, and in this recon- 
 ciliation is involved a modification of economic 
 distribution. 
 
 Now, if there is any sanity left in the world 
 at all, it should be obvious that the real demand 
 is the proper objective of production, and that 
 it must be met from the bottom upwards, that is 
 to say, there must be first a production of neces- 
 saries sufficient to meet universal require- 
 ments ; and, secondly, an economic system must 
 be devised to insure their practically automatic 
 and universal distribution; this having been
 
 80 ECONOMIC DEMOCRACY 
 
 achieved it may be followed to whatever extent 
 may prove desirable by the manufacture of 
 articles having a more limited range of useful- 
 ness. All financial questions are quite beside 
 the point; if finance cannot meet this simple 
 proposition then finance fails, and will be re- 
 placed. It has been estimated that two hours 
 per week of the time of every fit adult between 
 the ages of 18 and 45 would provide for a uni- 
 formly high standard of physical welfare under 
 existing conditions, and without endorsing the 
 exact figures, it is perfectly certain that dis- 
 tribution, and not manufacture, is the real eco- 
 nomic problem, and is at present quite intoler- 
 ably unsatisfactory. There is no need to as- 
 sume that the whole machinery of business as 
 we know it must be scrapped ; in fact, the ma- 
 chinery of business, as machinery, is highly ef- 
 ficient ; but it must undoubtedly be adjusted so 
 that no selfish desire for domination can make 
 it possible for any interest to hold up distribu- 
 tion on purely artificial grounds. Since the 
 analysis of existing conditions which we have 
 undertaken, shows that any centralized admin- 
 istrative organization is certain to be captured
 
 ECONOMIC DEMOCRACY 81 
 
 by some interest antagonistic to the individual, 
 it seems evident that it is in the direction of 
 decentralization of control that we must look 
 for such alteration in the social structure as 
 would be self -protective against capture for in- 
 terested purposes. 
 
 As we have already seen, alongside the con- 
 centration of political and industrial power a 
 powerful decentralizing force is already begin- 
 ning to show itself in various forms. In con- 
 sidering the manifestation of this force it will 
 be observed that at the moment it is seek- 
 ing expression through organization in new 
 forms, but for the present operating with old 
 sources of energy, chiefly negative in character, 
 such as the strike. To be effective, however, 
 against positive centralization, positive decen- 
 tralization will have to come decentralized 
 economic power is necessary. 
 
 Among the more important of these forms 
 is the shop steward or rank-and-file movement 
 in industry, and the workmen 's councils in poli- 
 tics, both purely decentralizing in tendency, 
 quite apart from any special policy for the 
 furtherance of which they may be used. The
 
 82 ECONOMIC DEMOCRACY 
 
 apprehension with which the movements are re- 
 garded by the reactionary capitalist is based 
 far more on a recognition of the difficulties such 
 a scheme of organization offers to successful 
 corruption and capture than to any regard for 
 the specific items in the policy it may for the 
 moment represent; most of which have been 
 previously parried with ease when presented 
 through delegated Trade Union leaders, whose 
 positions of authority have been perforce 
 achieved by exactly the methods best under- 
 stood by those with whom they have to 
 deal. 
 
 As the Shop Steward movement is the most 
 definite industrial recognition, from the Labor 
 side, of the necessity for decentralization, some 
 examination of the general scheme is of inter- 
 est. The actual details of the organization vary 
 from place to place, trade to trade, and even 
 day to day ; but the essence of the idea consists 
 in the adoption of a decentralized unit of pro- 
 duction such as the "shop" or department, and 
 the substitution of actual workers in consider- 
 able numbers, for the paid Trade Union official 
 as the nucleoli of both industrial and political
 
 ECONOMIC DEMOCRACY 83 
 
 power (although the political power is not exer- 
 cised through Parliamentary channels). 
 
 The shop steward is generally " industrial" 
 rather than ''craft" in interest; that is to say, 
 he represents a body of men who produce an 
 article, rather than a section who perform one 
 class of operation for widely different ends ; but 
 there is nothing inherently antagonistic as be- 
 tween the two conceptions of function, Indus- 
 trial Unionism being largely a militant device. 
 He is quite limited in his sphere of executive 
 action, but initiates discussion on the basis of 
 first-hand information, and forms a link be- 
 tween the decentralized industrial unit and 
 other units which may be concerned. The prac- 
 tical effect of the arrangement is that the 
 spokesmen are never out of touch with those for 
 whom they speak, since the normal occupation 
 and remuneration of representatives is similar 
 to that of those they represent ; and should any 
 cleavage occur, a change of representative can 
 be easily secured. The official concerned has, 
 in theory, no executive authority whatever, nor 
 can he take any action not supported by his co- 
 workers, i.e., the direction of policy is from the
 
 84 ECONOMIC DEMOCRACY 
 
 bottom upwards instead of the top downwards. 
 The individual shop stewards are banded to- 
 gether in a shop stewards' committee, which 
 has again only just as much authority as the 
 individual workers care to delegate to it. 
 
 It is, of course, obvious that the permanent 
 success of any arrangement of this character 
 depends on a common recognition, amongst the 
 individuals affected by the organization, of cer- 
 tain principles as " confirming standards of 
 reference." In other words, it would be im- 
 possible to administer a complicated manufac- 
 turing concern on any such principles, unless 
 the general body of employees had a general 
 appreciation of the fundamental necessities of 
 the business, inclusive of direction and techni- 
 cal design. 
 
 In other words, and in a more general sense, 
 all political arrangements of this or any other 
 description simply provide a mechanism for 
 the administration of an agreed system they 
 are not, and cannot in their very nature be, 
 that system in itself. 
 
 Where, of course, it is clear that there is a 
 confusion of function is, that the shop steward
 
 ECONOMIC DEMOCRACY 85 
 
 claims control, not only of the conditions of 
 production, but eventually of the terms of dis- 
 tribution. This confusion is quite inevitable at 
 present, but is not necessarily permanent, and 
 is obviously undesirable. It is based on the 
 fallacy that labor, as such, produces all wealth, 
 whereas the simple fact is that production is 
 95 per cent, a matter of tools and process, which 
 tools and process form the cultural inheritance 
 of the community, not as workers, but as a com- 
 munity, and as such the community is most 
 clearly the proper, though far from being the 
 legal, administrator of it.
 
 CHAPTER VIII 
 
 Economic reconstruction the first necessity Poverty largely 
 artificial Why war has increased apparent prosperity 
 Function and control Medievalism and Ultra-modernism 
 The idea of the Just Price Summary of Analysis of 
 Social Structure The objective of change The time- 
 energy unit Process, the key to progress Production to 
 a program The conditions of economic emancipation 
 The incentive to effort Existing methods Financial 
 manipulation Time-work Piece-work The basis of the 
 Just Price Administration not germane to the idea 
 The community already owns the plant A theoretical 
 solution Definition of capital The credit center The 
 separation of function. 
 
 A)MITTING, then, that any decentralized 
 scheme of society must first justify it- 
 self economically, it is necessary to grapple 
 with, at any rate, the main features of the radi- 
 cal economic reconstruction necessary, before 
 any attempt can be made to forecast the politi- 
 cal aspect. 
 
 The starting point is clearly a reason- 
 ably uniform and plentiful distribution of 
 simple necessaries: food, clothes, housing, 
 etc. 
 
 Now, the actual production of these articles 
 presents no difficulties whatever. Notwith- 
 
 86
 
 ECONOMIC DEMOCRACY 87 
 
 standing the diversion of the major portion of 
 the world's energy for four years to purposes 
 of destruction, the actual economic want in the 
 world has been almost entirely artificial, i.e., 
 has been confined either to countries effectively 
 blockaded, or else lacking the mechanical fa- 
 cilities for effective distribution. In fact, it is 
 most significant, that while useful (in a peace 
 sense) production has been enormously reduced 
 in Great Britain during the war, the standard 
 of comfort has been more uniformly high than 
 ever before. 
 
 The explanation of this is simple: The pay- 
 ments made in wages have increased, prices 
 and the production of luxuries have been 
 partly controlled, and sabotage has disposed of 
 useless product, and so kept up wage distribu- 
 tion. 
 
 The practical problem, then, is to make it 
 certain that commodities are produced under 
 satisfactory conditions, and equally certain 
 that they are distributed according to necessity, 
 and the organization for -these purposes may 
 well determine the social structure, inasmuch 
 as a complete success would be the most power-
 
 88 ECONOMIC DEMOCRACY 
 
 ful incentive to the adoption of similar methods 
 in less fundamental directions. 
 
 Profiting by the deduction made from the 
 examination already made, of the results of 
 various types of organization, it may be re- 
 peated that the best results would seem prob- 
 able from a co-ordinated organization for 
 purposes of technique, with the greatest decen- 
 tralization of initiative in the use of the facili- 
 ties so provided. 
 
 Now, it should be clearly grasped at the out- 
 set that at least two main problems are in- 
 volved in the question at issue, which may be 
 broadly defined as that of the producer, and the 
 consumer ; and not only are these entirely sepa- 
 rate, but, rightly considered, they are on com- 
 pletely different planes of existence. 
 
 The problem of the consumer is essentially 
 material; he is concerned with quality, va- 
 riety, price, supply; he is concerned with 
 product. 
 
 On the contrary, the producer is almost en- 
 tirely concerned with psychological issues: 
 fatigue, interest, welfare, hours of labor, all of 
 which, qua producer pure and simple, are
 
 ECONOMIC DEMOCRACY 89 
 
 broadly summed up in the word "content- 
 ment." 
 
 The consumer is interested in distribution; 
 the producer is concerned with effort. While 
 the producer and the consumer are frequently 
 combined in the same person, a recognition of 
 these distinctions will make it easier to define 
 the powers which should belong to each. 
 
 It is particularly necessary to emphasize this 
 distinction, since the existing structure of in- 
 dustry, based on finance, takes it for granted 
 that the possession of large quantities of goods, 
 or their equivalent purchasing power in money, 
 is a good and sufficient reason for the exercise 
 of a preponderating voice in the conditions and 
 processes of production. 
 
 We say, and it is only now that it is faintly 
 contested, that he who pays the piper calls 
 the tune. The idea that it is the hearer who is 
 primarily concerned in the tune, the piper pri- 
 marily in the instrument, and the payment a 
 mere convenience as between the two parties, 
 is so novel to large numbers of unthinking per- 
 sons, that it is only natural to expect violent 
 opposition to the world- wide efforts being made
 
 90 ECONOMIC DEMOCRACY 
 
 to reconstitute society on these very principles. 
 
 Bearing these distinctions in mind, it will 
 be recognized that there are two separate lines 
 along which to attack the situation presented 
 by the dissatisfaction of the worker with his 
 conditions of work, and the not less serious dis- 
 content of the consumer with the machinery of 
 distribution, and these may be called mediaeval- 
 ism and ultra-modernism. 
 
 Medigevalism seems to claim that all me- 
 chanical progress is unsound and inherently de- 
 lusive ; that mankind is by his very constitution 
 compelled, under penalty of decadence, to sup- 
 port himself by unaided skill of hand and eye. 
 In support of its contentions, it points to the 
 Golden Age of the fourteenth century in Eng- 
 land, for example, when real want was com- 
 paratively unknown, and green woods stood, 
 and clear rivers ran, where the slag-heaps and 
 chemical works of Widnes or Wednesbury now 
 offend the eye and pollute the air;- when arts 
 and crafts made industry almost a sacrament, 
 and faulty execution a social, and even a legal 
 offense; when the medium of exchange was 
 the Just Price, and the idea of buying in the
 
 ECONOMIC DEMOCRACY 91 
 
 cheapest and selling in the dearest market, if it 
 existed, was classed with usury and punished 
 by heavy penalties. 
 
 While appreciating the temptation to com- 
 pare the two periods, to the very great disad- 
 vantage of the present, it does not seem pos- 
 sible to agree with the conclusion of the Me- 
 dievalist that we are in a cul-de-sac from which 
 the only exit is backwards; and it is proposed 
 to make an endeavor to show that there is a 
 way through, and that we may in time regain 
 the best of the advantages on which the 
 Medievalist rightly sets such store, retaining 
 in addition a command over environment, which 
 he would be the first to recognize as a real ad- 
 vance; a solution which may be described as 
 Ultra-Modernist. 
 
 In order to do this, certain somewhat abstract 
 assumptions are necessary, and it has been the 
 object of the preceding pages to present as far 
 as possible the data on which these assumptions 
 are made. They are as follows : 
 
 (1) The existing difficulties are the im- 
 mediate result of a social structure framed 
 to concentrate personal power over other
 
 92 ECONOMIC DEMOCRACY 
 
 persons, a structure which must take the 
 form of a pyramid. Economics is the 
 material key to this modern riddle of the 
 sphinx, because power over food, clothes, 
 and housing is ultimately power over life. 
 
 (2) So long as the structure of Society 
 persists, personality simply reacts against 
 it. Personality has nothing to do with the 
 effect of the structure; it simply governs 
 the response of the individual to conditions 
 he cannot control, except by altering the 
 structure. 
 
 (3) It follows that general improvement 
 of conditions based on personality is a 
 confusion of ideas. Changed personality 
 will only become effective through changed 
 social structure. 
 
 (4) The pyramidal structure of Society 
 gives environment the maximum control 
 over individuality. The correct objective 
 of any change is to give individuality max- 
 imum control over environment. 
 
 If these premises are accepted it seems clear 
 that the first and probably most important step 
 is to give the individual control of the neces-
 
 ECONOMIC DEMOCRACY 93 
 
 saries of life on the cheapest terms possible. 
 What are these terms? What is the funda- 
 mental currency in which the individual does 
 in the last analysis liquidate his debts ? A little 
 consideration must make it clear that there 
 can be only one reply; that the individual only 
 possesses inalienable property of the one de- 
 scription ; potential effort over a definite period 
 ol time. If this be admitted, and it is incon- 
 ceivable that any one would seriously deny it, 
 it follows that the real unit of the world's cur- 
 rency is effort into time what we may call the 
 time- energy unit. 
 
 Now, time is an easily measurable factor, 
 and although we cannot measure human poten- 
 tial, because we have at present no standard, 
 it is nevertheless true that, for a given process, 
 the number of human time-energy units re- 
 quired for a given output is quite definite, and 
 therefore, the cheapest terms on which the in- 
 dividual can liquidate his debt to nature in 
 respect of food, clothes, and shelter, is clearly 
 dependent on process; and by getting free of 
 this debt with the minimum expenditure of 
 time-energy units, of which his individual sup-
 
 94 ECONOMIC DEMOCRACY 
 
 ply varies, but is, nevertheless, quite definite at 
 any given time, he clearly is so much the richer 
 in the most real sense, in that he can control 
 the use to be made of his remaining stock. 
 
 But, and it is vital to the whole argument, 
 improved process must be made the servant of 
 this objective, that is to say, a process which 
 is improved must, by the operation of a suitable 
 economic system, decrease the time-energy units 
 demanded from the community, or to put the 
 matter another way, all improvements in proc- 
 ess should be made to pay a dividend to the 
 community. (It will be noted that an admis- 
 sion of the theorem is a complete condemnation 
 of payment by results, as commonly under- 
 stood; that is to say, an arrangement of re- 
 muneration designed to foster an increasing 
 use of time-energy units.) The primary neces- 
 saries of life as above defined, i.e., food, clothes 
 and shelter, have an important characteristic 
 which differentiates them from what we may 
 call conveniences and luxuries; they are quite 
 approximately constant in quantity per head of 
 the population; in other words, the average 
 human being requires as a groundwork for his
 
 ECONOMIC DEMOCRACY 95 
 
 daily life a definite number of heat units in the 
 form of suitable food, a definite minimum quan- 
 tity of clothing and a definite minimum space 
 in which to sleep and work, and the variation 
 between the minimum and the maximum quan- 
 tity of each that he can utilize with advantage 
 to himself is not, broadly speaking, very 
 great. 
 
 This fact renders it perfectly feasible (it has 
 already very largely been accomplished) to 
 estimate the absolute production of foodstuffs 
 required by the world's population; the time- 
 energy units required at the present stage of 
 mechanical and scientific development to pro- 
 duce those foodstuffs; and the time-energy 
 units approximately available. Accuracy in 
 these estimates is unnecessary, since there is 
 not the very smallest doubt that the margins 
 are so large that it is only the failure of "ef- 
 fective demand" under existing circumstances 
 which has prevented over-production. The 
 most superficial consideration of the earnings 
 of agriculture before the war must make this 
 obvious. 
 
 There is good ground for stating that the
 
 96 ECONOMIC DEMOCRACY 
 
 subsistence basis of the civilized world stated 
 thus in time-energy units represents a few 
 minutes' work per day for all adults between 
 the ages of. 18 and 40. 
 
 Exactly the same principle is applicable to 
 the provision of clothing and housing, and the 
 "maintenance rate" in respect of these staple 
 commodities, as distinct from the " exploitation 
 effort" necessary to put the world on a satis- 
 factory basis, does not again exceed a few min- 
 utes per day per head, on the assumption that 
 the fullest use is made of natural sources of 
 energy, and that all the human effort specifi- 
 cally connected with the system of production 
 for profit is eliminated. The exact figures are 
 beside the point, but something over three 
 hours' work per head per day is ample for the 
 purpose of meeting consumption and deprecia- 
 tion of all the factors of modern life under nor- 
 mal conditions and proper direction. 
 
 Now, such a line of policy is clearly based on 
 co-ordination of design, but it evolves under 
 certain conditions radical decentralization of 
 initiative. 
 
 These conditions are, firstly, definite pro-
 
 ECONOMIC DEMOCRACY 97 
 
 ductions of ultimate products to a program, 
 and consequent limitation of output to that pro- 
 gram; and, secondly, the provision of an in- 
 centive to produce, which shall insure the dis- 
 tribution of the article produced. The basis of 
 the first condition has just been indicated 
 briefly; the provision of an incentive requires 
 more extended analysis. 
 
 There is a disposition on the part of certain 
 idealistic people, and, in particular, in quarters 
 obsessed by the magic of the State idea, to de- 
 cry the necessity of any organized incentive in 
 industry at all. They seem to suggest either 
 that the problem is merely one of designing a 
 huge machine of such irresistible power that no 
 incentive is necessary because no resistance is 
 possible, or, alternatively, that the mere crea- 
 tive impulse ought to be sufficient to induce 
 every individual to give of his best without any 
 thought of personal benefit. In regard to the 
 former idea, it may be said that, quite apart 
 from its fundamental objection, it is quite im- 
 practicable ; and in regard to the latter that it 
 is not yet, nor for a very considerable time 
 likely to be, practicable to satisfy the creative
 
 98 ECONOMIC DEMOCRACY 
 
 impulse through the same channels as those 
 used for the economic business of the world. 
 
 Under existing conditions, there is much 
 necessary work to be done which cannot fail 
 to be largely of a routine nature, and the pro- 
 vision of an incentive external to the perform- 
 ance of the immediate task seems both prac- 
 tically and morally sound. 
 
 First of all, sonie consideration of the defects 
 of existing incentives is necessary in order to 
 meet the difficulties so exposed. 
 
 Broadly, remuneration, or the system by 
 which the amenities of civilization are placed at 
 the disposal of the individual, is of three 
 varieties: payment by financial manipulation 
 (profit), payment by time (salaries and time- 
 rate wages), and payment by results (piece- 
 work in all its forms), and it should be noticed 
 that only the first of these combines possession 
 of the amenities with opportunities for their 
 fullest use. 
 
 Payment by financial manipulation, whether 
 through the agency of profit (other than that 
 earned by personal endeavor), stock manipula- 
 tion or otherwise, is quite definitely anti-social.
 
 ECONOMIC DEMOCRACY 99 
 
 It operates to neutralize all progress towards 
 real efficiency, by diluting the medium of ex- 
 change, and by this process it will quite cer- 
 tainly bring about the downfall of the social 
 order to which it belongs, largely through the 
 operation of the factory economic system al- 
 ready discussed. 
 
 Payment by time fails for two practical 
 reasons : it is based on the operation of the fal- 
 lacy that the value of a thing bears any relation 
 to the demand for it, and the assumption that 
 money has a fixed value. Because of the first 
 reason it clearly penalizes genuine initiative 
 (because there is no demand for the unknown), 
 and because of the second, it fosters aggression. 
 The policy of Trade Unions in regard to time 
 rates of pay has simply been successful to the 
 extent that it has used its organized power for 
 aggressive action ; and while such a policy may 
 be sound and justifiable under existing condi- 
 tions, it clearly offers no promise of social 
 peace. 
 
 Payment by results or piece-work may be 
 considered as the final effort of an outworn 
 system to justify itself. Superficially, it seems
 
 100 ECONOMIC DEMOCRACY 
 
 fair and reasonable in almost any of its many 
 forms ; actually it operates to increase the indi- 
 vidual time-energy units expended while de- 
 creasing, through diluted currency, the ex- 
 change value of each time-energy unit, and 
 crediting to the banker and the financier nearly 
 the whole value of increased efficiency. If this 
 contention is questioned, a reference to the 
 much greater purchasing power of labor in 
 the Middle Ages, admitted in such books 
 as "The Six-Hour Day," 1 must surely con- 
 firm it. 
 
 In actual practice, piece-work neither does 
 nor can take into consideration that, just as 
 there is no limit to progress either of method 
 or dexterity, so is there no fundamental rela- 
 tion between money and value as at present 
 understood. 
 
 Consequently, all piece-work systems pro- 
 duce in varying degree one of three conditions, 
 either 
 
 (1) Large classes of workers earn con- 
 tinuously increasing sums of money which 
 
 i " The Six-Hour Day and other Industrial Problems." 
 Lord Leverhulme.
 
 ECONOMIC DEMOCRACY 101 
 
 bear no ratio to equally meritorious efforts 
 on other bases of payment. 
 
 If any effort is made to unify the basis 
 on a large scale the purchasing power of 
 money becomes completely unstable. 
 or (2) A piece rate is " nursed" to avoid 
 any urgent incentive to change of method 
 as an excuse for cutting the rate and earn- 
 ings, with the result that output is re- 
 stricted to a locally agreed basis, having no 
 relation to either real or effective demand. 
 or (3) The price will be cut periodically 
 by dubious management, a constant state of 
 friction engendered, and the whole affair 
 surrounded with an atmosphere of sus- 
 picion. 
 
 These results are logical, and to blame any 
 special interest for any of them is beside the 
 point. The use-value of the product, short 
 time, unemployment, to say nothing of the ele- 
 mental facts of industrial psychology and eco- 
 nomics, are not considered at all in such sys- 
 tems ; with the result that the victims make, so 
 far as Trade Unions on the one hand, and Em- 
 ployers ' Federations on the other, can assist
 
 102 ECONOMIC DEMOCRACY 
 
 them, their own arrangements for protection 
 against the more dire consequences of crude 
 forms of scientific management, or lukewarm 
 service. 
 
 We have now arrived at this position: we 
 desire to produce a definite program of neces- 
 saries with a minimum expenditure of time- 
 energy units. We agree that the substitution 
 of human effort by natural forces through the 
 agency of machinery is the clear path to this 
 end ; and we require to co-relate to this a system 
 which will arrange for the equitable distribu- 
 tion of the whole product while, at the same 
 time, providing the most powerful incentive to 
 efficiency possible. 
 
 The general answer to this problem may be 
 stated in the four following propositions, which 
 represent an effort to arrive at the Just 
 Price : 
 
 (1) Natural resources are common 
 property, and the means for their exploita- 
 tion should also be common property. 
 
 (2) The payment to be made to the 
 worker, no matter what the unit adopted, 
 is the sum necessary to enable him to buy
 
 ECONOMIC DEMOCRACY 103 
 
 a definite share of ultimate products, irre- 
 spective of the time taken to produce 
 them. 
 
 (3) The payment to be made to the im- 
 prover of process, including direction, is 
 to be based on the rate of decrease of 
 human time-energy units resulting from 
 the improvement, and is to take the form 
 of an extension of facilities for further 
 improvement in the same or other proc- 
 esses. 
 
 (4) Labor is not exchangeable; prod- 
 uct is. 
 
 No attempt will be made to prove these 
 propositions, since their validity rests on 
 equity. 
 
 It should be noted particularly, that none of 
 these points has any relation to systems of ad- 
 ministration, although a recognition of them 
 would radically affect the distribution of per- 
 sonnel in any system of administration. 
 
 While the distribution of the product of in- 
 dustry is fundamentally involved, and the in- 
 ducements to vary the articles produced are 
 clearly modified to a degree which would pro-
 
 104 ECONOMIC DEMOCRACY 
 
 f oundly alter the industrial situation, no exten- 
 sion of bureaucracy in the accepted sense is im- 
 plied or induced. 
 
 It may he argued that these principles are 
 not susceptible of immediate embodiment; but 
 it is, nevertheless, well to bear in mind the im- 
 minence of an economic breakdown (as a direct 
 result of the inflation of currency by the capi- 
 talization of negative values) already dis- 
 cussed, and the probability that a new economic 
 system, having as its basis the principles of the 
 law of the conservation of energy, will re- 
 place it. 
 
 It may be said in regard to proposition (1) 
 that it involves a confiscation of plant which 
 is clearly an injustice to the present owners. 
 But is it I 
 
 A reference to the accounting process al- 
 ready described will make it clear that the com- 
 munity has already bought and paid for, many 
 times over, the whole of the plant used for 
 
 manufacturing processes, the purchase price 
 
 
 
 being included in the selling price of the articles 
 produced, and representing, in the ultimate, 
 effort of some sort, but immediately, a rise in
 
 ECONOMIC DEMOCRACY 105 
 
 the cost of living. If the community can use 
 the plant, it is clearly entitled to it, quite apart 
 from the fact that under proper conditions 
 there is no reason why every reasonable re- 
 quirement of its present owners should not be 
 met under the changed conditions. 
 
 Before allowing the methods of compromise, 
 which may or may not be desirable in the prac- 
 ticable evolution of a better conception of the 
 community, based on these propositions, to 
 obscure the objective, a purely idealistic inter- 
 pretation of them may be worth consideration, 
 as a basis from which to deduce a practical 
 policy. 
 
 Let us imagine the theories of rent and wages 
 to be swept away and discredited, the existing 
 industrial plant to be the property of the com- 
 munity and to be operating with technical ef- 
 ficiency. We are in possession of a census of 
 the material requirements of the community, 
 and are producing to a program either based 
 on those requirements or on the indirect 
 achievement of them by the processes of barter 
 with similar communities. 
 
 Since no extension or alteration of this pro-
 
 106 ECONOMIC DEMOCRACY 
 
 gram is possible without affecting the whole 
 community, the administration of real capital, 
 i.e., the power to draw on the collective poten- 
 tial capacity to do work, is clearly subject to the 
 control of its real owners through the agency 
 of credit. 
 
 Let us imagine this collective credit organi- 
 zation, which might preferably not be the State, 
 to be provided with the necessary organization 
 to fit it to pass upon, and if desirable to sanc- 
 tion, any private enterprise deemed to be in 
 the interest of the community represented, the 
 necessary capitalization being secured by the 
 general credit. It is clear that such an arrange- 
 ment involves an appraisal of values both in 
 respect to persons and materials, but it does not 
 necessarily involve any control of policy what- 
 ever in respect of the internal administration 
 of any undertaking once originated. 
 
 Under these conditions the community can be 
 regarded as a single undertaking (decentral- 
 ized as to administration to any extent neces- 
 sary) and every individual comprised within 
 it is in the position of an equal Bondholder en- 
 titled to an equal share of product. The dis-
 
 ECONOMIC DEMOCRACY 107 
 
 tribution of the product is simply a problem of 
 the arbitrary adjustment of prices to fit the 
 dimensions of a periodical order to pay, issued 
 to each bondholder, and we shall see that such 
 prices will normally be less than cost, as meas- 
 ured by existing methods. 
 
 Let this annual order to pay be inalienable, 
 but carrying the assumption that a definite per- 
 centage of the individual's stock of time-energy 
 units is freely placed at the disposal of the 
 community. Let these time-energy units be 
 graded, so that the lowest grade represents the 
 poorest capacity multiplied by the time-factor, 
 and let all adults on entering productive in- 
 dustry be so graded, and let the least attractive 
 work be done by the agency of these time- 
 energy units. Let an improvement of grade be 
 based on the proposal by the individual of 
 methods, processes or organization resulting in 
 a diminution of the total time-energy units re- 
 quired for the program of production, and the 
 success of the proposals. (It will be noticed 
 that the strongest incentive to right judgment 
 as regards facilities for trial exists here.) Let 
 the possession of a definite ''grade" of time-
 
 108 ECONOMIC DEMOCRACY 
 
 energy units be the absolute qualification for 
 each class of employment ; that is to say, proved 
 ability to render special service will be the 
 qualification for facilities to render service, but 
 will not affect the division of product. 
 
 Now, it will be noticed that we have under 
 these conditions absolute equity, both personal 
 and social. All improvement in process is to 
 the general benefit, while, at the same time, the 
 psychological reward of specific ability is 
 exactly that which common experience shows 
 to be the most perfectly satisfactory. No ques- 
 tions of material remuneration enter into the 
 problem of administration at all ; and increased 
 complexity of manufactured product is either 
 bought by increased efficiency or longer work- 
 ing hours; while simplicity of life provides 
 greater opportunities for the use of the product 
 and other activities. A system not dissimilar 
 from the existing Shop Steward system, but 
 with its members acting in the role of Citizens, 
 and not as Artisans, might control policy abso- 
 lutely, i.e., increase or decrease programs of 
 production and efficiency, etc., without interfer- 
 ing, or having any possible incentive to inter-
 
 ECONOMIC DEMOCRACY 109 
 
 fere, in direction or function. Economic in- 
 centive to competition other than in efficiency 
 would disappear completely, and with it the 
 primary cause of war.
 
 CHAPTER IX 
 
 Necessity of dealing with Society as it is More purchasing 
 power wanted Futility of general wage increases And 
 of excess profits taxation Vital importance of loan- 
 credit Definition of real credit Credit derives from the 
 community Should be accounted for to the community 
 The nature of the War Debt The State a creditor, not a 
 debtor How to realize it Time-saving as an incentive 
 Results of projected policy Freedom. 
 
 WHILE a much higher development, not 
 only of civic sense, but of material 
 progress, is necessary to a realization of a 
 scheme of society based on anything approxi- 
 mating to the foregoing sketch, it is quite prob- 
 able that eventually such an arrangement might 
 be the only solution having inherent stability. 
 
 But a transition period is highly desirable, 
 and as the present structure is susceptible of 
 change by metabolism, it may be well to con- 
 sider one of the numerous expedients avail- 
 able to that end. 
 
 Since an immediate leveling up of real pur- 
 chasing power is absolutely essential if indus- 
 try is to be kept going at all, the first point on 
 which to be perfectly clear is that increasing 
 
 no
 
 ECONOMIC DEMOCRACY 111 
 
 wages on the grand scale is simply childish. 
 Given a minimum percentage of profit, and a 
 fixed process, under the existing economic sys- 
 tem the real wage, in the sense of a proportion 
 of product, is steadily decreasing; and nothing 
 will alter that fact except change of process 
 (temporarily) and change of economic system 
 (permanently). Even taxation of profits is 
 quite incapable of providing any real remedy, 
 because, as we have seen, the sum of the wages, 
 salaries and dividends distributed in respect of 
 the world's production, even if evenly dis- 
 tributed, would not buy it, since the price in- 
 cludes non-existent values. There is no doubt 
 whatever that the first step towards dealing 
 with the problem is the recognition of the fact 
 that what is commonly called credit by the 
 banker is administered by him primarily for 
 the purpose of private profit, whereas it is most 
 definitely communal property. In its essence it 
 is the estimated value of the only real capital 
 it is the estimate of the potential capacity u/nder 
 a given set of conditions, including plant, etc., 
 of a Society to do work. The banking system 
 has been allowed to become the administrator
 
 112 ECONOMIC DEMOCRACY 
 
 of this credit and its financial derivatives, with 
 the result that the creative energy of mankind 
 has been subjected to fetters which have no 
 relation whatever to the real demands of exist- 
 ence, and the allocation of tasks has been placed 
 in unsuitable hands. 
 
 Now, it cannot be too clearly emphasized that 
 real credit is a measure of the effective reserve 
 of energy belonging to a community, and, in con- 
 sequence, drafts on this reserve should be ac- 
 counted for by a financial system which reflects 
 that fact. 
 
 If this be borne in mind, together with the 
 conception of "Production" as a conversion ab- 
 sorbing energy, it will be seen that the individ- 
 ual should receive something representing the 
 diminution of the communal credit-capital in 
 respect of each unit of converted material. 
 
 It remains to consider how these abstract 
 propositions can be given concrete form. 
 
 So far as Great Britain is concerned, the in- 
 strument which comes most easily to the hand 
 to deal with the matter is the National Debt, 
 which for practical purposes may be considered 
 to be the War Debt in all its forms, although
 
 ECONOMIC DEMOCRACY 113 
 
 it should be clearly understood that all appro- 
 priations of credit can be considered as equally 
 concerned. 
 
 Some consideration of the real nature of the 
 debt is necessary in order to understand the 
 basis of this proposal. 
 
 The $40,000,000,000 in round numbers which 
 has been subscribed for war purposes repre- 
 sents as to its major portion (apart from about 
 $7,500,000,000 re-lent) services which have been 
 rendered and paid for, and in particular the 
 sums paid for munitions of all kinds, payment 
 of troops and sums distributed in pensions and 
 other doles. Now, the services have been ren- 
 dered and the munitions expended, conse- 
 quently the loan represents a lien with interest 
 on the future activities of the community, in 
 favor of the holders of the loan, that is to say, 
 the community guarantees the holders to work 
 for them without payment, for an indefinite 
 period, in return for services rendered by the 
 subscribers to the Loan. What are those 
 services? 
 
 Disregarding holdings under $5,000 and re- 
 investment of pre-war assets, the great bulk
 
 114- ECONOMIC DEMOCRACY 
 
 of the loan represents purchases by large in- 
 dustrial and financial undertakings who ob- 
 tained the money to buy by means of the crea- 
 tion and appropriation of credits at the expense 
 of the community through the agency of indus- 
 trial accounting and bank finance. 
 
 It is not necessary to elaborate this conten- 
 tion at any great length because it is quite ob- 
 viously true. Eventually, to have any meaning, 
 the loan must be paid off in purchasing power 
 over goods not yet produced, and is, therefore, 
 simply a portion of the estimated capacity of 
 the nation to do work which has been hypothe- 
 cated. 
 
 Whatever may be said of subscriptions out 
 of wages and salaries, therefore, there is not 
 the slightest question that in so far as the loan 
 represents the capitalization of the processes 
 already described, its owners have no right in 
 equity to it it simply represents communal 
 credit transferred to private account. 
 
 To put the matter another way: For every 
 shell made and afterwards fired and destroyed ; 
 for every aeroplane built and crashed; for all 
 the stores lost, stolen or spoilt; the Capitalist
 
 ECONOMIC DEMOCRACY 115 
 
 has an entry in his books which he calls wealth, 
 and on which he proposes to draw interest at 
 5 per cent., whereas that entry represents loss 
 not gain, debit not credit, to the community, 
 and, consequently, is only realizable by regard- 
 ing the interest of the Capitalist as directly op- 
 posite to that of the community. Now, it must 
 be perfectly obvious to any one who seriously 
 considers the matter, that the State should lend, 
 not borrow, and that in this respect, as in 
 others, the Capitalist usurps the function of the 
 State. 
 
 But, however the matter be considered, the 
 National Debt as it stands is simply a state- 
 ment that an indefinite amount of goods and 
 services (indefinite because of the variable pur- 
 chasing power of money) are to be rendered in 
 the future to the holders of the loan, i.e., it is 
 clearly a distributing agent. 
 
 Now, instead of the levy on capital, which is 
 widely discussed, let it be recognized that credit 
 is a communal, not a bankers' possession; let 
 the loan be redistributed by the same methods 
 suggested in respect of a capital levy so that no 
 holding of over $5,000 is permitted; to the end
 
 116 ECONOMIC DEMOCRACY 
 
 that, say, 8,000,000 heads of families are cred- 
 ited with $250 per annum of additional purchas- 
 ing power. 
 
 And further, let all production be costed on a 
 uniform system open to inspection, the factory 
 cost being easily ascertained by making all 
 payments through a credit center; the manner 
 of procedure to this end is described hereafter. 
 Let all payments for materials and plant be 
 made through the Credit Center and let plant 
 increases be a running addition to the existing 
 National Debt, and let the yearly increase in 
 the debt be equally distributed after proper 
 depreciation. Let the selling price of the prod- 
 uct be adjusted in reference to the effective de- 
 mand, by means of a depreciation rate fixed on 
 the principle described subsequently, and let all 
 manufacturing and agriculture be done, with 
 broad limits, to a program. Payment for in- 
 dustrial service rendered should be made some- 
 what on the following lines : 
 
 Let it be assumed that a given production 
 center has a curve of efficiency, varying with 
 output, which is a correct statement for a given 
 process worked at normal intensity. The
 
 ECONOMIC DEMOCRACY 117 
 
 center would be rated as responsible for a pro- 
 gram, over a given time, such that this efficiency 
 would be a maximum when considered with 
 reference to, say, a standard six-hour day. On 
 this rating, it is clear that the amount of money 
 available for distribution in respect of labor 
 and staff charges can be estimated by methods 
 familiar to every manufacturer. 
 
 Now, let this sum be allocated in any suit- 
 able proportion between the various grades of 
 effort involved in the undertaking, and let a 
 considerable bonus, together with a recognized 
 claim to promotion, be assured to any individ- 
 ual who, by the suggestion of improved 
 methods or otherwise, can, for the specified 
 program, reduce the hours worked by the fac- 
 tory or department in which he is engaged. 
 
 Now, consider the effect of these measures: 
 Firstly, there is an immediate fall in prices 
 which is cumulative, and, consequently, a rise 
 in the purchasing power of money. Secondly, 
 there is a widening of effective demand of all 
 kinds by the wider basis of financial distribu- 
 tion. There is a sufficient incentive to produce, 
 but there is communal control of undesirable
 
 118 ECONOMIC DEMOCRACY 
 
 production through the agency of credit; and 
 there is incentive to efficiency. There is the 
 mechanism by which the most suitable technical 
 ability would be employed where it would be 
 most useful, while the separation of a sufficient 
 portion of the machinery of economic distribu- 
 tion from the processes of production would 
 restore individual initiative, and, under proper 
 conditions, minimize the effects of bureaucracy. 
 This rapid survey of the possibilities of a 
 modified economic system will, therefore, prob- 
 ably justify a somewhat more detailed examina- 
 tion of certain features of the proposed struc- 
 ture, and clearly the control and use of credit 
 is of primary importance. It should be par- 
 ticularly noted at this point, however, that 
 every suggestion made in this connection has 
 in view the maximum expansion in the personal 
 control of initiative and the minimizing, and 
 final elimination, of economic domination, 
 either personal or through the agency of the 
 State.
 
 CHAPTER X 
 
 The relation of semi-manufactures to credit The Clearing- 
 house How to " clear " overhead charges Exact state- 
 ment of the Just Price How to meet the War Debt 
 The dawn of real co-operation. 
 
 IN considering the inadequacy of a mere ex- 
 tension of manufacturing production, unac- 
 companied by a modification of the distributing 
 system, it was seen that, in any manufacturing 
 process, there enters into the cost, and re- 
 appears in the price, a charge for certain items 
 which are really rendered useless, but which 
 form a step towards the final product. These 
 items may be conveniently grouped under the 
 heading of semi-manufactures when considered 
 in relation to a more complex product, although 
 in many cases they may in themselves, for other 
 purposes, represent a final product. For in- 
 stance, electric power, if used for lighting, is a 
 final product, and ministers directly to a human 
 need, but the same energy, if used to drive a 
 cotton mill, is, in the sense in which the term is 
 here used, a semi-manufacture. 
 
 119
 
 120 ECONOMIC DEMOCRACY 
 
 Now, it should be obvious that a semi-manu- 
 facture, in this sense, is of no use to a con- 
 sumer if it is used as an ultimate product, it 
 ceases to come under the heading of a semi- 
 manufacture. 
 
 Therefore, a semi-manufacture must be an 
 asset to be counted into an estimate of the 
 potential capacity to produce ultimate products 
 (which is the whole object of manufacture from 
 a human point of view) , and, with certain reser- 
 vations, represents an increase of credit-capi- 
 tal, but not of wealth. This conception is of the 
 most fundamental importance. 
 
 If we concede its validity, a transfer of value 
 in respect of semi-manufactures as between one 
 undertaking and another is measured by a 
 transfer of real credit, and, like a financial 
 credit transfer, is most suitably dealt with 
 through the agency of a Clearing-house. 
 
 Let us imagine such a Clearing-house to 
 exist, and endeavor to analyze its operations in 
 respect to Messrs. Jones and Company who tan 
 leather, Messrs. Brown and Company who 
 make boots, and Messrs. Eobinson who sell 
 them, and let us imagine that all these under-
 
 ECONOMIC DEMOCRACY 121 
 
 takings are run on the basis of a commission or 
 profit on all labor and salary costs, an arrange- 
 ment which is, however, quite immaterial to the 
 main issue. 
 
 Messrs. Jones receive raw hides of the 
 datum value of $500 which require semi-manu- 
 factures, value $2,500, to turn out as leather, 
 together with the expenditure of $2,500 in 
 wages and salaries. Messrs. Jones order the 
 hides and the semi-manufactures by the usual 
 methods from any source which seems to them 
 desirable, and on receipt of the invoices, turn 
 these into the Clearing-house, which issues a 
 check in favor of Messrs. Jones for the total 
 amount, $3,000; by means of which Messrs. 
 Jones deal with their accounts for supplies. 
 
 The Clearing-house writes up its capital ac- 
 count by this sum, and by all sums issued by it. 
 The out-of-pocket cost to Messrs. Jones of their 
 finished product is, therefore, $2,500. Let us 
 allow them 10 per cent, profit on this, and the 
 cost, plus profit, at the factory under these con- 
 ditions is $2,750, and a sum of $3,000 is owing 
 to the Clearing-house. 
 
 Messrs. Brown, who require these hides for
 
 122 ECONOMIC DEMOCRACY 
 
 boot-making, order them from Messrs. Jones, 
 and other supplies from elsewhere amounting 
 to $2,500, and similarly transmit Messrs. Jones' 
 invoices (which include the sums paid by the 
 Clearing-house), with the rest, to the Clearing- 
 house, which issues a check for $8,250 to 
 Messrs. Brown, who pay Messrs. Jones; who, 
 in turn, retain $2,750 and pay back $-3,000 to 
 the Clearing-house. Messrs. Jones are now dis- 
 posed of. They have made their own arrange- 
 ments in respect of quantity of labor, etc., and 
 have made a profit of 10 per cent, on the cost 
 of this labor. 
 
 Messrs. Brown now make the leather into 
 boots, expending a further $2,500 in salaries 
 and wages, and making 10 per cent, profit on 
 this. They receive an order from Messrs. 
 Robinson for these boots: and Messrs. Robin- 
 son's own out-of-pocket cost, with their com- 
 mission, is $1,500, paid by a check from the 
 Clearing-house for $11,000 + $1,500, $11,000 of 
 which goes to Messrs. Brown, who pay off their 
 debt of $8,250 and retain the remainder. 
 
 Now, let us notice that the purchasing power 
 released externally in these transactions is that
 
 ECONOMIC DEMOCRACY 123 
 
 represented by wages, salaries and a commis- 
 sion on them, and that no goods have been, so 
 far, released to consumers against this pur- 
 chasing power. These sums thus distributed 
 will be largely expended by the recipients in 
 various forms of consumption, and it is only 
 their joint surplus which will assist in provid- 
 ing an effective demand for Messrs. Robinson's 
 stock. The price of this stock then requires 
 adjustment. 
 
 Let us now introduce into the transactions 
 a document we may call a retail clearing in- 
 voice, which might form, in its description of 
 the goods, a duplicate of the bill paid by the 
 purchaser of an article for the purpose of ulti- 
 mate consumption ; and let it be understood that 
 a properly executed retail clearing invoice is 
 accepted by the Clearing-house as evidence of 
 the transfer of goods to an actual consumer. It 
 will be seen that, by the process previously ex- 
 plained, we have distributed the means of pur- 
 chase, and are left in a position to fix the price 
 without reference to the individual interests of 
 Messrs. Brown, Jones or Robinson, as so far 
 the cost is charged to capital account. The
 
 124 ECONOMIC DEMOCRACY 
 
 question is what should the price be? The 
 answer to this is a statement of the average de- 
 preciation of the capital assets of the commu- 
 nity, stated, m terms of money released over an 
 equal period of time, and the correct price is 
 the money value of this depreciation in terms 
 of the cost of the article. In other words, the 
 Just Price of an article, which is the price at 
 which it can be effectively distributed in the 
 community producing, bears the same ratio to 
 the cost of production that the total consump- 
 tion and depreciation of the community bears 
 to the total capital production. 
 
 Let us now apply this to our example of such 
 a staple as the supply of boots. Let us assume 
 that in a given credit area the sum involved in 
 the delivery of boots to the user per month 
 amounts to $12,500, that is to say, the cost fig- 
 ures of the retail invoices turned into the Clear- 
 ing-house per month total that sum. This 
 means that services have been rendered and re- 
 munerated by the payment over an indefinite 
 period of the token value of $12,500, and the 
 product of these services distributed in one 
 month. But the token value has a general pur-
 
 ECONOMIC DEMOCRACY 125 
 
 chasing power, consequently it should be set 
 against a general value. The general value is 
 equal to the general rate of depreciation, or if 
 it be preferred, consumption, of the whole of 
 the goods which can be bought with the token 
 value. Let us assume this to be 40 per cent., 
 that is to say, let us imagine that of the total 
 work of the community for one month 60 per 
 cent, remains for use during a subsequent 
 period. Then the selling price of a pair of 
 boots would be equal to 40 per cent, of $12,500 
 divided by the total number of pairs of boots 
 distributed (not pairs produced) ; or would be 
 two-fifths of commercial cost. Messrs. Robin- 
 son, therefore, in respect of $12,500 of retail 
 invoices turned in by them (which would in- 
 clude their own labor and commission) would 
 be credited with 60 per cent, of that sum against 
 the check originally sent them (out of which 
 they paid Messrs. Brown), recovering the re- 
 maining 40 per cent, from the actual purchasers 
 of the boots, and reimbursing the Clearing- 
 house; who, after balancing Messrs. Robinson's 
 account, would write down their own credits by 
 that amount. This would leave the credit-capi-
 
 126 ECONOMIC DEMOCRACY 
 
 tal of the community that is to say, the finan- 
 cial estimate of potential capacity to deliver 
 goods written up by 60 per cent, of $12,500, 
 which is an accounting reflection of the actual 
 situation. 
 
 From this point of view, all semi-manufac- 
 tures become simply a form of tool power, and 
 are subject to the same treatment as manu- 
 facturing plant; they are a form of capital 
 assets to be depreciated and written down from 
 time to time. There is absolutely no difference 
 in principle between the treatment in this man- 
 ner of a tool which wears out in five years ' time 
 and a unit of energy which is dissipated in a 
 few minutes in driving the tool. 
 
 We arrive, then, at a conception of credit em- 
 ployment, by which all semi-manufactures are 
 treated as additions to communal capital ac- 
 count; subject to writing down as they are ac- 
 tually consumed as ultimate products. In 
 order to be effective the writing down must take 
 the form of a cancellation of credit-capital, a 
 process which is done quite simply and auto- 
 matically by the application to the capital ac- 
 count of retail clearing invoices in the manner
 
 ECONOMIC DEMOCRACY 127 
 
 roughly outlined, or by any other device which 
 is based on the dynamic conception of industry. 
 
 Exactly the same treatment is applicable to 
 the installation of fresh tools, buildings, etc., 
 although for convenience, no doubt, separate 
 accounts for such assets would be desirable, 
 since the writing down would be done at some- 
 what longer intervals. 
 
 We have now clearly arrived at a point where 
 there is a direct relation between effective de- 
 mand and prices, as distinct from the relation 
 between costs and prices. Let us now imagine 
 a single adjustable tax applied to all produc- 
 tion, of such magnitude as to bring prices from 
 those fixed by the foregoing method to the suit- 
 able international exchange level. In existing 
 circumstances, without affecting present prices, 
 such a tax would pay the interest on the War 
 Loan many times over. Let such a tax be ap- 
 plied to this purpose, the War Loan being dis- 
 tributed in the manner described and possibly 
 increased by additions from Clearing-house 
 transfers. It is clear that a rise in external 
 prices would be met by an increased distribu- 
 tion, while a greater internal efficiency would
 
 128 ECONOMIC DEMOCRACY 
 
 have a similar result. Such an arrangement 
 would make it possible to effect, in fact, would 
 certainly induce, a transition from a purely 
 competitive world system to one exhibiting in 
 concrete form the demand for co-operation 
 without regimentation, which, beyond all ques- 
 tion, underlies the so-called proletarian revolt. 
 It may, perhaps, at this juncture, be desir- 
 able to emphasize the obvious, to the extent of 
 pointing out that no financial system by itself 
 affects concrete facts; that the object of meas- 
 ures of the character indicated is the provision 
 of the right incentive to effort, and the removal 
 of any possible incentive to waste ; and only to 
 the extent that these are achieved, is the eco- 
 nomic emancipation of the individual brought 
 nearer to reality. Had the principles under- 
 lying these suggestions been generally under- 
 stood and accepted during the war, we should 
 have experienced a steady decrease of purchas- 
 ing power by every individual, which would 
 have enabled us to resume the general improve- 
 ment in social conditions at its close, without 
 that misunderstanding of facts which now 
 threatens catastrophe. The depreciation rate
 
 ECONOMIC DEMOCRACY 129 
 
 would, in a manner quite similar to that with 
 which we are familiar in the case of the Bank 
 rate, have been raised at suitable intervals to 
 represent the excess of destruction over pro- 
 duction ; the necessity of increased effort would 
 have been brought home to every individual by 
 decreased distribution in respect of National 
 Capital assets, and the general atmosphere of 
 distrust and recrimination, from which we 
 suffer as a result of confusion of thought, 
 would probably not have arisen.
 
 CHAPTER XI 
 
 The League of Nations Its form dependent on economic 
 system "-Ultimate defeat of Centralist Policy certain 
 How a League of Free Peoples can come. 
 
 THE awful tragedy of waste and misery 
 through which the world has passed dur- 
 ing the years 1914-19 has brought about a 
 widespread determination that the best efforts 
 of which mankind is capable are not too much 
 to devote to the construction of a fabric of so- 
 ciety within which a repetition of the disaster 
 would be, if not impossible, unlikely; and the 
 major focus of this determination has found a 
 vehicle in the project commonly known as the 
 League of Nations. 
 
 The immense appeal which the phrase has 
 made to the popular and honest mind has made 
 it dangerous to fail in rendering lip service to 
 it; but it is fairly certain that, under cover of 
 the same form of words, one of the most gi- 
 gantic and momentous struggles in history is 
 waged for the embodiment of either of the op- 
 posing policies already discussed. 
 
 130
 
 ECONOMIC DEMOCRACY 131 
 
 The success of an attempt to impose an eco- 
 nomic and political system on the world by 
 means of armed force would mean the culmina- 
 tion of the policy of centralized control, and the 
 certainty that all the evils, which increasing 
 centralization of administrative power has 
 shown to be inherent in a power basis of so- 
 ciety, would reach in that event their final tri- 
 umphant climax. 
 
 But there is no final and inevitable relation 
 between the project of international unity and 
 the policy of centralized control. Just as in the 
 microcosm of the industrial organization there 
 is no difficulty in conceiving a condition of in- 
 dividual control of policy in the common inter- 
 est, so in the larger world of international in- 
 terest the character and effect of a League of 
 Free Peoples is entirely dependent on the struc- 
 ture by which those interests, which individuals 
 have in common, can be made effective in 
 action. 
 
 Now, unless the earlier portions of this book 
 have been written in vain, it has been shown 
 that the basis of power in the world to-day is 
 economic, and that the economic system with
 
 132 ECONOMIC DEMOCRACY 
 
 which we are familiar is expressly designed to 
 concentrate power. It follows inevitably from 
 a consideration of this proposition, that a 
 League of Nations involving centralized mili- 
 tary force is entirely interdependent upon the 
 final survival of the Capitalistic system in the 
 form in which we know it, and conversely that 
 the fall of this system would involve a totally 
 different international organization. A super- 
 ficial survey of the position would no doubt 
 suggest that the triumph of central control was 
 certain; that the power of the machine was 
 never so great; and that, whether by the aid 
 of the machine-gun or mere economic elimina- 
 tion, the scattered opponents to the united and 
 coherent focus of financial and military power 
 would within a measurable period be reduced 
 to complete impotence and would finally dis- 
 appear. 
 
 But a closer examination of the details tends 
 to modify that view, and to confirm the state- 
 ment already made, that a pyramidal adminis- 
 trative organization, though the strongest 
 against external pressure, is of all forms the 
 most vulnerable to disruption from within.
 
 ECONOMIC DEMOCRACY 133 
 
 We have already seen that a feature of the 
 industrial economic organization at present is 
 the illusion of international competition, aris- 
 ing out of the failure of internal effective de- 
 mand as an instrument by means of which pro- 
 duction is distributed. This failure involves 
 the necessity of an increasing export of manu- 
 factured goods to undeveloped countries, and 
 this forced export, which is common to all 
 highly developed capitalistic States, has to be 
 paid for almost entirely by the raw material of 
 further exports. Now, it is fairly clear that 
 under a system of centralized control of finance 
 such as that we are now considering, this forced 
 competitive export becomes impossible; while 
 at the same time the share of product consumed 
 inside the League becomes increasingly de- 
 pendent on a frenzied acceleration of the 
 process. 
 
 The increasing use of mechanical appliances, 
 with its capitalization of overhead charges into 
 prices, renders the distribution of purchasing 
 power, through the medium of wages in par- 
 ticular, more and more ineffective; and as a 
 result individual discontent becomes daily a
 
 134 ECONOMIC DEMOCRACY 
 
 more formidable menace to the system. It 
 must be evident, therefore, that an economic 
 system involving forced extrusion of product 
 from the community producing, as an integral 
 component of the machinery for the distribu- 
 tion of purchasing power, is entirely incom- 
 patible with any effective League of Nations, 
 because the logical and inevitable end of eco- 
 nomic competition is war. Conversely, an ef- 
 fective League of Free Peoples postulates the 
 abolition of the competitive basis of society, 
 and, by the installation of the co-operative com- 
 monwealth in its place, makes of war not only 
 a crime, but a blunder. 
 
 Under such a modification of world policy, 
 interchange of commodities would take place 
 with immeasurably greater freedom than at 
 present, but on principles exactly opposite to 
 those which now govern Trade. The manufac- 
 turing community now struggles for the privi- 
 lege of converting raw material into manufac- 
 tured goods for export to less developed coun- 
 tries. Non-competitive industry would largely 
 leave the trading initiative to the supplier of 
 raw material. Since any material received in
 
 ECONOMIC DEMOCRACY 135 
 
 payment of exported goods would find a dis- 
 tributed effective demand waiting for it, im- 
 ports would tend to consist of a much larger 
 proportion of ultimate products for immediate 
 consumption than is now the case ; thus forcing 
 on the more primitive countries the necessity 
 of exerting native initiative in the provision of 
 distinctive production. 
 
 Again, International legislation in regard to 
 labor conditions, under a competitive system, 
 must always fail at the point at which it ceases 
 to be merely negative, because it has ultimately 
 to consider employment as an agency of dis- 
 tribution, and, rightly considered, distribution 
 should be a function of work accomplished, not 
 of work in progress, i.e., employment. As a 
 consequence, this most important field of con- 
 structive effort resolves itself into a battle- 
 ground of opposing interests, both of which are 
 merely concerned with an effort to get some- 
 thing for nothing. The inevitable compromise 
 can be in no sense a settlement of such ques- 
 tions, any more than the succession of strikes 
 for higher pay and shorter hours, which are 
 based on exactly the same conception, can pos-
 
 136 ECONOMIC DEMOCRACY 
 
 sibly result in themselves in a stable industrial 
 equilibrium. 
 
 Examples of the same class of difficulty 
 might be multiplied indefinitely, but enough has 
 probably been said to indicate the disruptive 
 nature of the forces at work. To state whether 
 or not the general confusion and misdirection 
 of opinion will make a period of power control 
 inevitable, in order to unite public opinion 
 against it, would be to venture into a form of 
 prophecy for which there is no present justifi- 
 cation ; but it is safe to say, that whether after 
 the lapse of a few months, or a very few years, 
 the conception of a world governed by the con- 
 centrated power of compulsion of any descrip- 
 tion whatever will be finally discredited and 
 the instruments of its policy reduced to im- 
 potence.
 
 CHAPTER XH 
 
 Concentrated economic power must be dissipated The eco- 
 nomic basis of sentiment Education and propaganda 
 Democratic control of the Press The roots of Economic 
 Democracy The End. 
 
 AS a result of the survey of the wide field 
 ./jL of unrest and the attempt to analyze, and 
 as far as possible to simplify, the common ele- 
 ments which are its prime movers, it appears 
 probable that the concentration of economic 
 power through the agency of the capitalistic 
 system of price fixing, and the control of finance 
 and credit, is of all causes by far the most im- 
 mediately important; and therefore, that the 
 distribution of economic power back to the in- 
 dividual is a fundamental postulate of any radi- 
 cal improvement. While this, it would seem, is 
 indisputable, it must not be assumed that by 
 the attainment of individual economic independ- 
 ence, the social problems which are so menac- 
 ing would immediately disappear. The re- 
 proach is frequently leveled at those who 
 insist on the economic basis of society, that in 
 
 137
 
 138 ECONOMIC DEMOCRACY 
 
 them materialism is rampant, and in conse- 
 quence the bearing of sentiment on these mat- 
 ters is overlooked, and the immense and de- 
 cisive influence on events which is exerted by 
 such factors is very apt to be ignored. There 
 is a germ of truth in this; but if such critics 
 will consider the origin of popular sentiment, 
 the influence of economic power will be seen to 
 predominate in this matter also, whether con- 
 sidered merely as the tool of a policy, or as an 
 isolated phenomenon. 
 
 It is claimed, and more particularly by those 
 who utilize it, that " public opinion" is the de- 
 cisive power in public affairs. Assuming that 
 in some sense this may be true, it becomes of 
 interest to consider the nature of this public 
 opinion, and the basis from which it proceeds, 
 and it will be agreed that the chief factors are 
 education and propaganda. 
 
 Now, the bearing of economic power on edu- 
 cation hardly requires emphasis. In England 
 the Public School tradition, and in America to 
 a less, but appreciable, extent the College sys- 
 tem, with all their admirable features, are 
 nevertheless an open and unashamed claim to
 
 ECONOMIC DEMOCRACY 139 
 
 special privilege, based on purchasing power 
 and on nothing else ; and with a sufficient num- 
 ber of exceptions, their product is pre-emi- 
 nently efficient in its own interest, as distinct 
 from that of the community. It is one of the 
 most hopeful and cheering features of the pres- 
 ent day that this feature is increasingly recog- 
 nized by all the best elements comprised within 
 the system; and the danger of reaction in the 
 future is to that extent reduced. 
 
 But by far the most important instrument 
 used in the molding of public opinion is that 
 of organized propaganda either through the 
 Public Press, the orator, the picture, moving or 
 otherwise, or the making of speeches ; and in all 
 these the mobilizing capacity of economic 
 power is without doubt immensely, if not pre- 
 ponderatingly, important. 
 
 When it is considered that the expression of 
 opinion inimical to ''vested interests" has in 
 the majority of cases to be done at the cost of 
 financial loss, and in the face of tremendous 
 difficulty, while a platform can always be found 
 or provided for advocates of an extension of 
 economic privilege, the fundamental necessity
 
 140 ECONOMIC DEMOCRACY 
 
 of dealing first with the economic basis of so- 
 ciety must surely be, and in fact now is, recog- 
 nized, and this having been established in con- 
 formity with a considered policy, the powers of 
 education and propaganda will be freed from 
 the improper influences which operate to dis- 
 tort their immense capacity for good. 
 
 The policy suggested in the foregoing pages 
 is essentially and consciously aimed at point- 
 ing the way, in so far as it is possible at this 
 time, to a society based on the unfettered free- 
 dom of the individual to co-operate in a state 
 of affairs in which community of interest and 
 individual interest are merely different aspects 
 of the same thing. It is believed that the ma- 
 terial basis of such a society involves the ad- 
 ministration of credit ~by a decentralized local 
 authority; the placing of the control of process 
 entirely in the hands of the organized producer 
 (and this in the broadest sense of the evolution 
 of goods and services) and the fixing of prices 
 on the broad principles of use-value, by the 
 community as a whole, operating by the most 
 flexible representation possible. 
 
 On such a basis, the control of the sources of
 
 ECONOMIC DEMOCRACY 141 
 
 information in the interests of any small sec- 
 tion of the community becomes an anomaly 
 without a specific meaning ; and prostitution of 
 the Press and of similar organs of publicity 
 would no doubt within a measurable time dis- 
 appear because it would lack objective. But 
 there would still remain the task of eradicating 
 the hypnotic influence of a persistent presenta- 
 tion of distorted information, at any rate so far 
 as this generation of humanity is concerned, 
 and it seems clear that a radical and democratic 
 basis of Publicity control is an integral factor 
 in the production of the better society on which 
 the Plain People have quite certainly deter- 
 mined. 
 
 Thus, out of threatened chaos, might the 
 Dawn break; a Dawn which at the best must 
 show the ravages of storm, but which holds clear 
 for all to see the promise of a better Day.
 
 INDEX 
 
 Administration, not the key, 
 
 19, 103 
 military, 45 
 functional, 48 
 centralized, 11, 36, 47, 80, 92 
 American Declaration of Inde- 
 pendence, 4 
 
 Analysis, of Production Eco- 
 nomics, 54, 63, 66 
 of Social Structure, 91 
 of Capitalism, 27 
 
 Business system, efficiency of, 
 75 
 
 Ca'canny, 32, 101 
 Capital direction, 25 
 
 definition of real, 106, 111 
 Capitalism, its merits, 20 
 
 basis of, 27 
 
 and Centralism, 24, 132 
 
 and Militarism, 35, 132 
 Cash-credits, 58, 67 
 Centralism, 11, 17, 30, 47, 92, 
 
 131 
 Cost, the basis of price, 52 
 
 definition of, 53 
 
 factory, 54, 66 
 Costing, 29, 116 
 Credit banking, 28, 29, 57, 
 114, 116 
 
 definition of real, 112 
 
 center, 116 
 
 operation of, 120, 140 
 Currency, inflation of, 29, 63 
 
 Darwinian Theory, abuse of, 
 8, 27 
 
 Debt, War, 113, 138 
 
 Debtor, State not a, 107, 115 
 
 Democracy, the roots of eco- 
 nomic, 6, 140 
 
 Distribution, the great prob- 
 lem, 26, 52, 69, 79, 89 
 
 Dollar, the leak in the, 59, 60 
 
 Economic basis of Society, 
 
 137 
 
 Education, influence of, 5, 138 
 Energy, time-unit, 93, 107 
 
 Finance, supremacy of, 28, 41, 
 
 42, 47, 89 
 mirage of, 63, 72 
 Freedom, basis of, 6, 118 
 Function, separation of, 88 
 
 Golden Age, 90 
 
 Industrial organization, 45 
 
 Jevonian Economics, 27 
 
 Manufactures ( semi- ) , rela- 
 tion to credit, 62 
 Medievalism, 42, 90 
 Money, definition of, 28 
 
 Nations, League of, 130 et seq. 
 Organization, use of, 9 
 
 Pay, 69, 98 
 Piece-work, 31, 99 
 Price, and cost, 53, 107 
 the Just, 91, 102, 124 
 
 143
 
 144 
 
 INDEX 
 
 Production, accounting of, 54 
 super-, 51 
 to a program, 97 
 
 Sabotage, economic, 69 
 Shop-Steward System, 81, 108 
 Servile State, 21 
 Servility, 16, 19 
 Socialism, 20, 22 
 
 State systems, 7 
 Syndicalism, 24 
 
 Trusts, 24 
 
 Ultra-Modernism, 91 
 Unionism, Trades, 82 
 
 War, causes, 70, 134 
 Wealth, 65
 
 A 000 677 925 o