-----Original Message----- From: William B. Ryan [mailto:[EMAIL PROTECTED]] Sent: Friday, November 12, 1999 2:37 PM To: DEBT Discussion List Subject: Effective Demand FIRST INTERIM REPORT Submitted to His Majesty's Premier and Legislative Council of Alberta, at Edmonton, Alberta, May 23, 1935. ...Effective demand originated in the barter system, that is to say, individuals parted with a surplus of real wealth in their possession to obtain in exchange real wealth of a different variety for which they had a need...In the modern world, however, the preponderating feature in effective demand which is universally employed to carry on the world's business is what is technically called a "credit instrument," of which there are several forms. For the purposes of this preamble it is only necessary to consider the cheque... While it is clear that under a barter system there is always sufficient effective demand although it may be inequitably distributed, under a money or cheque system both inequitable and ineffective demand are certain unless production and demand are consciously and systematically related. Cheques are drawn upon deposits, and it is admitted by all responsible authorities that deposits are created, to a major extent, by purely book-keeping transactions on the part of banking institutions. It is therefore correct to say that banking institutions are in a position to create, claim as their property, and to lend upon their own terms, effective demand which is the only method by which real wealth produced by the general public can be transferred from the producer of it to the user...At the moment it is sufficient to emphasise that the whole economic environment of the individual, his level of education, and to a large extent the conditions of his physical, mental and moral development, are controlled by the provision or withholding of this effective demand which is in essence merely a book-keeping process... Without going too far into this aspect of the matter, it may be said that the financial system in its orthodox form has worked fairly successfully during an age of expansion in which preponderatingly large quantities of capital goods, not intended to be used directly by individuals, have been produced, and the purchasing power or effective demand which has been distributed to individuals as an inducement to produce other capital goods has been available to them as effective demand for a sufficient quantity of consumable goods. Since this process of expansion is beyond question proceeding at a much slower rate, while the debts which have been contracted in regard to previous expansion are becoming increasingly onerous, sufficient purchasing power for the use of the general population does not become available through orthodox methods, and if it did, by excessive concentration upon capital production or Public Works, the breakdown of the system owing to intolerable debt charges would only be accentuated. In regard to the Province of Alberta, therefore, it appears to me to be evident that little which is effective can be done to relieve the economic difficulties which exist unless a departure is made from methods which were moderately effective in the past but are no longer suitable to conditions which have changed fundamentally. Any attempt to deal with the situation, which does not recognize its fundamental cause, must discredit the Administration and eventually result either in an abolition of organized forms of government in favour of a pure financial hegemony, or in a continuous disintegration of social morale, possibly ending in something approaching anarchy... It is clear, and all experience confirms this view, that if credit instruments can be issued under the sanction of the constituted legal authority, in this case the Province, no difficulty arises in obtaining their universal acceptance within the range of the jurisdiction of the governing body. This has been successfully demonstrated beyond question in many instances and under the most unfavourable conditions, during the past twenty years. In Great Britain, in 1914, the whole population was accustomed to handling actual gold coins, and in fact, strongly disliked the only existing paper money, the Bank of England note. Within a week of the outbreak of War a complete change from gold metallic currency to a paper currency was instituted without visible shock, in spite of the well- known existence of enemy agents-provocateurs, using all possible efforts to destroy confidence in the new money. Under conditions which could never be paralleled in this country, and after calculated inflation never before known in history, one series of paper Marks after another has been accepted and has functioned in Germany with no tangible backing other than the mere declaration that it was legal tender. No difficulty might be expected, therefore, if certain cheques were made legal tender. A difficulty does arise, however, where a considerable portion of the commodities required have to be imported from outside the credit area over which the Government has jurisdiction, and it is essential for the practical solution of this that a considerable amount of what may be considered as foreign currency or credit should be accumulated. I have given considerable attention to this aspect of the matter, and I do not believe that it is insuperable in regard to Alberta, more particularly since the fear of repudiation has raised in the mind of the external bond-holder a recognition that his debtor has claims upon his consideration, particularly if no suggestion of fundamental repudiation is contemplated... To summarize the position, therefore, the alternatives lie between a surrender to interests whose legal position is doubtful, and whose power, though admittedly great, is neither impregnable nor free from serious attack in quarters outside Alberta, on the one had, and measures designed to free the Province from external financial control on the other. The result of the former line of action can be judged from past experience, and in my opinion must involve failure to solve the so-called unemployment problem, a stationary or only very slowly increasing population in this Province, inability to develop the resources of the country, and political and social disintegration. Orthodox financial assistance would, however, be available, by the adoption of this policy, although accompanied by a rise in the public debt, and a continuous drain on individual financial resources through rising taxation. If this policy is adopted all experience tends to show that preparations for severely repressive measures, through increased police organization, are essential. The consequence of the adoption of the second policy, if properly conducted, might mean temporary difficulties in regard to the import of articles not produced in the Province, a certain amount of political conflict with the Dominion Government, and a good deal of misrepresentation as to the actions and policies which accompanied this general attitude. On the other hand, it would be possible, within a very short period of time, to minimize the unemployment problem in the Province, to increase the general standard of living of the whole population without decreasing that of any of its members, and to embark upon a systematic development of the resources of the Province on a scale otherwise unattainable... (Signed) C. H. Douglas Chief Reconstruction Adviser to His Majesty's Government of Alberta ______________________________________________________ Get Your Private, Free Email at http://www.hotmail.com
