A Social Credit monetary system is necessary for a healthy economy

Readers of this publication, MICHAEL, may be curious by the ideas expressed herein regarding economics and finance. The ideas are logical although novel. Their application to national economies would deliver hope to societies. Where did these theories originate? What is Social Credit,¹ a term not found in Economics textbooks? Is it a fanciful concept developed by the editors of MICHAEL?

No! MICHAEL earnestly spread these ideas but did not conceive them. We believe a Social Credit monetary system would resolve most of the economic and social problems in the world today but our publication is not the author of this system. The author and originator was a Scotsman, Clifford Hugh Douglas, born in 1879.

Major Douglas was an engineer commissioned with various projects during his career. He served as Chief Engineer and Manager for the British Westinghouse Company in India. He was the Deputy Chief Electrical Engineer for the Buenos Aires and Pacific Railway, and in England he was employed in the construction of the London Post Office Tube Railway.

During World War I, he was Assistant Superintendent at the Royal Aircraft Factory in Farnborough, England. The British government had asked him to address “a certain amount of muddle” in the factory’s accounts.

Douglas never considered himself an economist yet he proved himself to be a natural with his diagnosis of the major flaw he discovered at Farnborough and realized it applied generally to today’s economic system. Douglas proceeded to develop a solution that became known as Economic Democracy, and more popularly, Social Credit.

Philosophically, Douglas was a student of Aristotle, and as such considered the various functions of the economy in relation to their logical and natural ends. Means were subordinated to ends in his formulation. With an engineer’s ingenuity he articulated elegant and efficient proposals. There is, he said, a “canon” that should not be violated; a natural law, as it were. Douglas was concerned that individual freedom and responsibility be preserved and individual natural rights retained. Institutions of every nature, whether political, economic or social, must serve the individual and not dominate or control him, he believed; systems must not restrict freedom.

These principles are not considered in the current economic system which operates as a monopoly. Douglas’ Three Proposals would put financial credit at the service of the population. Ultimately, if gradually, free association would ensure the supply of goods and services to respond to a population’s needs. The individual would have restored to him or her the freedom to accept or refuse each undertaking that was presented.

The money and credit monopolists immediately recognized in Douglas’ proposals a threat to their privileged position. Determined to maintain their control, even though it was harmful to society, the financial elite used their powerful influence over governments, institutions and the channels of communication to boycott and malign Douglas’ teachings. First, it was a conspiracy of silence followed by a misrepresentation of Douglas’ theories. After, they threw the public into confusion by denigrating the term Social Credit. Finally, they pushed ambitious people to launch a political party.

But Douglas had a written legacy and developed a following in several countries, including Canada. As a result, his teachings continue to be advanced. Governments have had to concede the veracity of several of his assertions. For instance, the gold standard as a basis for the volume of money is no longer considered viable. Another abandoned sacred cow is the “balanced budget”. Orthodox economists advanced this idea as if it was a matter of life and death but if governments did not have recourse to deficit spending, economic life would be choked in the current system.

When governments are in trouble they borrow from Douglas’ teaching but marinate the principles in the stew of the extant financial system, such as in the case of balanced budgets and head chef, John Maynard Keynes. Consider that the creation of community assets, such as infrastructure and public projects, results in public debt: a distortion of reality as schools, hospitals and roads are public assets! Students of Douglas’ teachings must acknowledge reality and not simply accept that a proposal for social security measures is a step toward a Social Credit economy.

A tranquilizer may relieve suffering but it does not cure pain. This is true for the current financial system: there may be medicines to relieve an ache or strain in the system but the sickness remains. Instead, we must insist on a Social Credit economy.

In 1917, at Farnborough Aircraft Factory, Douglas determined the problem with the economic system and established by his Three Proposals how the proper ends of an economy could be met. His first writings were published in 1918 in the form of articles in various journals and in the economic sections of newspapers. In 1919, his book, Economic Democracy, was published. Other books and pamphlets followed and he had lecture tours in England, Australia, Japan, Sweden, and Canada. Douglas died on September 29, 1952.

Credit

Douglas exposed the defects of the present capitalist system and flaws inherent in the bookkeeping of the price system (even when the bookkeeping was accurate). He recognized that ends and means in the realm of economics were inverted and illustrated that these various defects interfered with the good functioning of the economy and society. He indicated that capitalism could be rehabilitated to make it a servant of individuals and society alike in a system that would liberate all as opposed to the popular models of Fabian and Marxist socialism. Social Credit would make these tyrannical schemes pathetic contenders.

This article will cite some of the discoveries that brought Douglas to the Social Credit proposals.

The first concerned credit. He had been routinely stymied from completing engineering projects due to a lack of financial credit. These projects were needed by the population and were physically possible to complete (i.e. manpower and materials were in ample supply) but were halted simply because money was lacking. Herein, money assumed magical proportions. Its absence or presence affected society and peoples’ lives, almost as if it were a natural phenomenon, like weather or gravity.

Douglas soon realized that virtually all the money upon which economic life depended is only entries in bank ledgers credited to borrowers. These credits circulated via cheques and transfers with sums moving from one account to another. Why must society accept a restricted supply of these credits, when they are necessary to mobilize a productive capacity that exists to meet the population’s real needs?

Not long afterwards, Douglas determined that the true basis of all money, whether coins, cash or cheques, is a nation’s productive capacity. The gold standard, for instance, as the basis of the money supply is arbitrary. When someone wants to bake bread, he does not pan for gold but rather cultivates the earth and sows wheat.

Today, productive capacity is almost limitless. Why should financial credit be restricted? It is repugnant that the populations’ needs are unmet when everything exists to meet these needs except for the supply of money.

A real social capital

Modern productive capacity is huge largely because of mechanization rather than due to the efforts of human labour. Machines are the largest factor in production, especially during the last two centuries when steam power and the internal combustion engine replaced workers and animal power. We are now entering the era of automation. (Editor’s note: Since Mr. Even wrote this article, we have entered the computer age, robotics, and so on.)

But this succession of inventions and technical improvements could never have occurred without what we can think of as life in an ordered society. In such a society, we have a division of labour, specialization, research and the transmission of knowledge. No one human being can pretend to be, more than any other person, the owner of all these community assets which are inherited from past generations. All the members of society are co-heirs of these assets and they must all benefit equally from them. To limit financial benefits (wages, profits, dividends) only to investors and workers is an injustice to the rest of society.

A Social Dividend to all

Douglas proposed that a financial Dividend be issued to every citizen, whether the person was employed in production or not. The Dividend would provide purchasing power to everyone, particularly because human labour is a small factor in production relative to the cultural inheritance of progress. Purchasing power must be made up of Dividends to all and not only to salaries for the employed. Douglas explained in the 3rd of his proposals:

“The distribution of consumer money to individuals shall be progressively less dependent upon employment. That is to say that the dividend shall progressively displace the wage and salary, as productive capacity increases per man-hour.”

How is this explained? The simple reason is that the increase is the fruit of progress rather than the fruit of greater efforts by workers.

There is a logic that clashes head-on with the expectation that purchasing power must be reserved for workers. Nor is the answer in increased wages as a reward for human effort since human effort diminishes in duration and intensity because of progress.

When financial credit is based on productive capacity, and productive capacity is due in large part to technological advances passed from one generation to the next, we can conclude that every member of society must be recognized as a capitalist.

This publication frequently comments on issuing a Social Credit Dividend to all. Douglas was inspired by reality. He studied the economic situation, drew conclusions and developed solutions. The process was logical and his conclusions respected the dignity of the human person. Even as a professed Anglican, Douglas respected Catholicism and although his proposals do not refer to the Social Doctrine of the Church, it is apparent that establishing a Social Credit economy would best allow the embodiment of the Church’s social teachings.

Private property has a social function, particularly in economies in which ownership of the means of production is concentrated in fewer and fewer hands. Only 8 out of 20 people receive an income through employment. A Social Dividend, distributed to each individual in the nation, would provide everyone a slice of the pie of private enterprise.

A Social Credit economy would establish the bedrock for a just and humane economy and society based on Christian principles. Pope Pius XI explained in his encyclical letter, Quadragesimo Anno, that capitalism had been vitiated by an elite of international financiers.

A fundamental right

Pius XII, in a radio broadcast on Pentecost Sunday, on June 1, 1941 said the following:

“Material goods have been created by God to meet the needs of all men and must be at the disposal of all of them, as justice and charity require.

“Every man indeed, as a reason-gifted being, has, from nature, the fundamental right to make use of the material goods of the earth, though it is reserved to human will and the juridical forms of the peoples to regulate, with more detail, the practical realization of that right.”

Douglas did not refer to papal sources but his work brought him to similar conclusions. Each person is entitled to a share in the material goods that a nation’s economy can provide. The Dividend, issued to each citizen to ensure the basic necessities of life, is an apt “juridical form”.

The Dividend is not conditional. It harms no one. Consider the alternative to a Social Credit economy: governments imposing every manner of taxation on the population to cope with the festering wounds of the present system.

Prices

Douglas wrote that any financial reform that ignored the issue of prices was doomed to fail. Would reforms that increased consumers’ revenue be beneficial if prices also increased?

Purchasing power has two components: money in consumers’ pockets and retailers’ prices. The ratio between these two is important with 1 as the ideal, wherein Means of Payment and prices are equivalent. Douglas’ 1st proposal reads:

“The cash credits of the population of any country shall at any moment be collectively equal to the collective cash prices for consumable goods for sale in that country and such cash credits shall be cancelled on the purchase of goods for consumption.”

Before Douglas’ formulation, orthodox economists, parroting Say’s Law, said:

“Sir, it is so, and it has always been the case; the price of any good is the sum of the money spent during its production, so the total amount of the money distributed to the consumers is always equal to the total of the prices.”

Economists have been saying that for over a century, but facts have shown the contrary for just as long.

Conventional economists do not bother with facts; they only repeat axioms. To the contrary, Douglas reviewed the facts and then applied reason to construct an explanation. He sought a way to correct what was correctable. Douglas conceived a technique to prevent inflation, which was caused by price increases called the Compensated Discount. This will be the topic of a future article...

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1). Social Credit can also be called Social Money, or Economic Democracy to ensure there is no confusion with China’s ‘social credit’ system.  China’s system is the opposite of Douglas’ and Louis Even’s formulation.