Social Credit - What is it?

By Martin Hattersley

Social Credit is the name given to a system of economic analysis and political philosophy by its originator, Major C.H. Douglas.

During the First World War, Douglas was a Scottish engineer employed in the analysis of the costs of aircraft production at Farnborough, England. His analysis led him to suspect that current methods of financing of industry made it impossible for people to buy all the goods that industry had placed on the market. The consequence was "poverty in the midst of plenty", unsold production, cut-throat competition, then business stagnation, unemployment, international trade rivalry, and ultimately war. He expressed this initially in an article published in 1919 under the title "The Delusion of Super-production".

The name "Social Credit" is the title of one of a number of books that Douglas wrote in the early 1920's. It reflects the kernel of his message - that our money system ("Credit") should be organized in the interests of society ("Social"). That is what the Social Credit message is all about.

Many of Douglas's other books centered around the theme of Democracy. The power of ordinary people to choose their own way of life in a world made wonderfully productive by invention and machinery can be destroyed by those with power to control the creation of Bank credit. Titles such as "Economic Democracy", "Credit Power and Democracy", "The Control and Distribution of Production", "The Monopoly of Credit" and "Warning Democracy" show how concerned Douglas was at the political effects of the flaws in the monetary system.

MONETARY ANALYSIS

Douglas's analysis of the problems of the modern economy runs along the following lines:

1. The major source of money in a modern economy is not the notes of the Bank of Canada, or the coins from the Royal Mint, but credit loaned to borrowers by the banking system. Banks issue credit - "promises to pay" - over and above the actual amount of gold, coin or government issued paper money in their vaults. When they do this, the number of dollars increases by the extra "dollars in the bank" created by the loan.
   
   
2. Every time they make a loan, therefore, banks actually increase the money supply of the nation.
   
   
3. Business pays money to consumers through wages, salaries and dividends. Consumers pay this money back to business in the prices of products placed on the market for sale. In every pay period this process is repeated. We are dealing with a series of comparatively short periods of time. People do not sit on large amounts of cash for very long - the money they receive is quickly either spent or invested.
   
   
4. In turning out products for sale, a business spends money in two directions:
   • (A) to pay wages to the persons directly employed by it, including dividends to its shareholders, and
   • (B) to pay for the overhead cost of buildings, machinery and equipment used in manufacture as it wears out, including paying back the capital borrowed to finance these in the first place and interest to the bank.
   
   
   
5. Modern methods of production increasingly depend on machinery rather than labour as a way to turn out their product in the cheapest and most efficient way. Consequently, more and more labour nowadays is spent on making capital goods and machinery ahead of time, and less and less is spent at the same time as the product reaches the market. During any pay period, therefore, there is less and less balance between how much income is being received by those able to spend it, and the prices of what is offered for sale on the market, which business needs to recover its costs.
   
   
6. When people are paid to make capital assets and machinery with wages that come from a bank loan rather than from their personal savings, an increased amount of money becomes available to buy a supply of consumer goods that has not increased at all. "Too much money chases too few goods", and prices rise. We have Inflation.
   
   
7. After the new capital assets and machinery have been installed, the manufacturer has to try to get back the cost of his machinery through prices, in order to repay his bank loan. When this happens, we have "Too little money" to pay realistic prices for the goods being marketed for sale. People are receiving "A" on each payday, and businessmen are charging prices of "A plus B". That price can't be paid UNLESS -
   • People go into debt, by buying on time, or
   • Governments borrow and increase the National Debt, or
   • Business borrows more bank credit to finance expansion, or
   • Businesses sell below cost, and go bankrupt, or
   • We win a trade war, putting foreigners in debt to us for our surplus of exports, or (if they can't or won't pay)
   • We have a war, "exporting" goods such as tanks and bombs to the enemy without ever expecting to be paid for them, and financing this by government borrowing.

     "A factory or other productive organization has, besides its economic function as a producer of goods, a financial aspect - it may be regarded on the one hand a a device for the distribution of purchasing power to individuals, through the media of wages, salaries and dividends, and on the other hand as a manufactory of prices - financial values. From this standpoint its payment may be divided into two groups.

     • Group A. - All payments made to individuals (wages, salaries and dividends).
     • Group B. - All payments made to other organizations (raw materials, bank charges, and other external costs).

     "Now the rate of flow of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A."(C.H. Douglas, The Monopoly of Credit, 1951 Edition p.140)

   • If none of the above things is done, businesses are forced to lay off workers, unemployment rises, the economy stagnates, taxes go unpaid, Governments cut back services, and we have widespread POVERTY, when physically all of us could be living in PLENTY. People become restive and demoralized, not realizing that their failure is not necessarily the result of their idleness or lack of skill, but rather of the way "the system" operates.

     "No economic training is necessary to assess the meaning of the existing situation. On the one hand we have an enormous and increasing capacity to produce the goods and services which are the primary objective of civilization and which probably form the material basis on which alone a cultural superstructure can be reared. On the other hand we have an immense population not only unable to obtain from the shops, which are so anxious to sell, those goods which they are unable to buy, but are, by the miscalled unemployment problem, prevented from producing still further goods. Ordinary common sense alone seems to be required to recognize that only one thing stands between this practically unlimited capacity to produce, and what is in fact a definitely limited capacity to consume, and that is the money system, the bottleneck which separates production and consumption". (Douglas, "The Monopoly of Credit (1951 edition) pp 87,88).

Stupid, isn't it? But it's the direct result of the way the present banking system works.

ECONOMIC DEMOCRACY

Behind this flaw in the price system which leads to avoidable poverty in a world full of wealth, Douglas saw something more sinister - the power of Finance to control the direction of the economy: to control the lives of the mass of the people through the threat of unemployment and poverty: to make or destroy business enterprises: to control the direction of political parties: to limit Government programs by the power of debt: to stir up trade competition and even actual wars - in short, to destroy Democracy and become the hidden government of the world.

The centuries have seen a continual struggle by ordinary people to gain control of their lives from forces that would tyrannize them. They have fought against the powers of priests, to bring the world freedoms of speech and religion. They have rebelled against the powers of kings, to give us Magna Carta, Constitutional Monarchy, and Parliamentary Government. They have rebelled against the power of class privilege, by extending the vote to all. They have gained power to prevent the Government and the police from oppressing individual rights, through an independent judiciary, the Charter of Rights and the Jury system. The powers of the guilds of the Middle Ages and the state monopolies of former times have been limited by laws to encourage a free market. But the power of finance is so easily hidden that no effective way has yet been put in place by which the people as a whole can control it for their benefit.

In fact, what has happened as a result of the poor working of the money system is that Socialist and Communist policies have been adopted by governments in order to deal with the problems of poverty caused by this defective monetary system. As a result, long established freedoms have been taken away. Marketing boards have interfered with the rights of private property. Heavy taxation has taken away the taxpayers' dollars, and so their ability to choose and pay for their own way of living their lives. To avoid one tyrant, we have been forced to submit to another.

According to Douglas, this is not right:

"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...

"We must build up from the individual, not down from the State". (C.H. Douglas, Economic Democracy. (1920) pp. 6,7)

"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 internal initiative, in which all the command of resources, information, religious dogma, educational system, political opportunity and even, apparently, economic necessity, is ranged on the side of authority; and ultimate authority is now exercised through finance." (Ibid. page 79)

It is to secure the power to all of us to enjoy the life we choose to lead, without unnecessary compulsion from outside, that the Social Credit movement is dedicated.

SOCIAL CREDIT PROPOSALS

It is worth noting that Douglas was not in favour of direct political action to achieve the reforms he wanted to come about - he considered that any political movement was likely to become corrupted by power and so vitiate the very principles that Social Credit stood for. It is also worth noting that, under the Canadian Constitution, Provincial governments do not have power to legislate on matters relating to Banking. Several pieces of legislation introduced by Alberta's Social Credit government in 1935 and following years were disallowed for this very reason.

The proposals made by Douglas were contained in "Three Demands":

1. For a "National Credit Office" - to calculate on a statistical basis the amount of credit that should be circulating in the economy.
   
   
2. For a "Just Price" - a price adjustment mechanism to absorb windfall profits in times of inflation, and return them to people in terms of subsidized, lower prices when the cost of goods on the market exceeds the money available to buy them.
   
   
3. For a "National Dividend", to give a basic guaranteed income to all regardless of whether or not they have a job.

It is on this basis of this philosophy that the Alberta Social Credit Party has based its principles and policies.

We start with the INDIVIDUAL'S POWER TO CHOOSE. Alberta's laws must protect Albertans from socialist controls and capitalist economic exploitation.

We continue with DEMOCRATIC GOVERNMENT. As far as it is physically possible and morally right, politicians must give the people the RESULTS they want in the management of their public affairs.

A third objective is ECONOMIC SECURITY, an aim to be achieved without sacrifice of our PERSONAL FREEDOM OF CHOICE.

Finally, we aim to to ensure that what is PHYSICALLY POSSIBLE AND DESIRABLE and morally right, can and should be made FINANCIALLY POSSIBLE.

Again to quote Douglas:

"The break-up of the present financial and social system is certain. Nothing will stop it: "Back to 1914" is sheer dreaming: the continuation of taxation on the present scale, together with an unsolved employment problem, is fantastic: the only point at issue in this respect is the length of time which the break-up will take, and the tribulations we have to undergo while the break up is in progress.

"A comparatively short period will probably serve to decide whether we are to master the mighty economic and social machine that we have created, or whether it is to master us; and during that period a small impetus from a body of men who know what to do and how to do it, may make the difference between one more retreat into the Dark Ages, or the emergence into the full light of a day of such splendour as we can at present only envisage dimly."(C.H. Douglas: Social Credit (1924) p.215-217).

That is what the Social Credit "Fight for Freedom" is all about.

Free Shipping Worldwide!