While he was reorganising the work of the
Royal Aircraft Establishment during World War I, Douglas noticed that the weekly total costs of goods produced was greater than the sums paid to workers for
wages,
salaries and
dividends. This seemed to contradict the theory of classic
Ricardian economics, saying that all costs are distributed simultaneously as
purchasing power. Troubled by the seeming difference between the way money flowed and the objectives of industry ("delivery of goods and services", in his view), Douglas set out to apply engineering methods to the economic system. Douglas collected data from more than 100 large British businesses and found that all except those becoming
bankrupt, spent less in
salaries,
wages and
dividends than the value of goods and services produced each week: the workers were not paid enough to buy back what they had made. He published his observations and conclusions in an article in the magazine
English Review where he suggested: "That we are living under a system of
accountancy which renders the delivery of the nation's goods and services to itself a technical impossibility." The reason, Douglas concluded, was that the economic system was organized to maximize
profits for
those with economic power by creating unnecessary
scarcity. Between 1916 and 1920, he developed his economic ideas, publishing two books in 1920,
Economic Democracy and
Credit-Power and Democracy, followed in 1924 by
Social Credit. The basis of Douglas's reform ideas was to free workers from this system by bringing
purchasing power in line with production, which became known as
social credit. His proposal had two main elements: a national dividend to distribute money (debt-free credit) equally to all citizens, over and above their earnings, to help bridge the gap between
purchasing power and
prices; also a price adjustment mechanism, called the "just price", to forestall
inflation. The just price would effectively reduce retail prices by a percentage that reflected the physical efficiency of the production system. Douglas observed that the cost of production is
consumption; meaning the exact physical cost of production is the total resources consumed in the production process. As the physical efficiency of production increases, the just price mechanism will reduce the price of products for the consumer. The consumers can then buy as much of what the producers produce that they want and automatically control what continues to be produced by their consumption of it. Individual freedom, primary economic freedom, was the central goal of Douglas's reform. At the end of
World War I, Douglas retired from engineering to promote his reform ideas full-time, which he would do for the rest of his life. His ideas inspired the
Canadian social credit movement (which obtained control of Alberta's provincial government in 1935), the short-lived
Douglas Credit Party in
Australia and the longer-lasting
Social Credit Political League in
New Zealand. Douglas also lectured on social credit in the
United States, the
United Kingdom,
Ireland,
Canada,
France,
Germany,
Italy,
Japan,
Australia,
New Zealand and
Norway. In 1923, he appeared as a witness before the Canadian Banking Inquiry, and in 1930 before the
Macmillan Committee. In 1929 he made a lecture tour of
Japan, where his ideas were enthusiastically received by industry and government. His 1933 edition of
Social Credit made a reference to the
Protocols of the Elders of Zion, which, while noting its dubious authenticity, wrote that what "is interesting about it, is the fidelity with which the methods by which such enslavement might be brought about can be seen reflected in the facts of everyday experience." == Death and legacy ==