Page 48 - Reflexions of African Bishops and Priests

Economic democracy encyclical letter Quadragesimo Anno, back in 1931 (no.

106): “This dictatorship is being most forcibly exer-
(continued from page 41) cised by those who, since they hold the money and
if the financial technique did not completely control it, control credit also and rule
provide a source of purchasing- the lending of money. Hence they regulate the flow;
power, or new money, in the form so to speak, of the life-blood whereby the entire
of bank loans and credit instru- economic system lives, and have so firmly in their
ments, which does not arise out grasp the soul, as it were, of economic life that no
of wages, salaries, or dividends, one can breathe against their will.”
paid for past production. By the A deeper study by the Church on this issue of money
exercise of this technique, how- creation and interest would be more than timely, espe-
ever, industry becomes mort- Geoff Dobbs cially in view of the serious problems of indebtedness
gaged to the banking system.” 16 facing various countries, not only from the so-called
In his second book, Credit–Power and Democracy, Third World but even developed countries, including the
18
Douglas crystallizes his thought about the double-circuit U.S.A. If the principle that debts must be paid is just,
of money in industry in the form of what will be known as it is certainly unjust to pay back the principal several
the “A+B theorem”: times. This is what currently happens because of com-
17
“A factory or other productive organization has, be- pound interest.
sides its economic function as a producer of goods, a Douglas summarized his reform in three proposals:
19
financial aspect – it may be regarded, on the “The general principles required of
one hand as a device for the distribution of any financial system sufficiently flexible
purchasing-power to individuals through the to meet the conditions which now exist
media of wages, salaries and dividends; and and that continue to reflect the economic
on the other hand as a manufactory of prices facts as these facts change under the
– financial values. From this standpoint its influence of improved process and the
payments may be divided into two groups: increased use of power, are simple and
Group A: All payments made to individ- may be summarised as follows :
uals (wages, salaries, and dividends). (a) That the cash credits of the popu-
Group B: All payments made to other or- lation of any country shall at any moment
ganizations (raw material, bank charges, and be collectively equal to the collective
other external costs.)” cash prices for consumable goods for
“Now the rate of flow of purchasing- sale in that country (irrespective of the
power to individuals is represented by A, cost prices of such goods), and such
but since all payments go into prices, the cash credits shall be cancelled or de-
rate of flow of prices cannot be less than A+B. The preciated only on the purchase or depreciation of
product of any factory may be considered as some- goods for consumption.
thing which the public ought to be able to buy, al- (b) That the credits required to finance produc-
though in many cases it is an intermediate product tion shall be supplied not from savings, but be new
of no use to individuals but only to a subsequent credits relating to new production, and shall be re-
manufacture; but since A will not purchase A+B, a called only in ratio of general depreciation to gen-
proportion of the product at least equivalent to B eral appreciation.
must be distributed by a form of purchasing-power (c) That the distribution of cash credits to indi-
which is not comprised in the descriptions grouped viduals shall be progressively less dependent upon
under A. It will be necessary at a later stage to show employment. That is to say, that the dividend shall
that this additional purchasing-power is provided progressively displace the wage and salary, as pro-
by loan credit (bank overdrafts) or export credit.” ductive capacity increases per man-hour.”
The creation of a substitute for money in the form A dividend and a discount on prices
of interest-bearing loans by private banks could be criti-
Douglas points out the fact that two policies are es-
cized for moral reasons but Douglas’s criticism of the sential to make the financial system an exact reflection
present system is from a functional point of view: of the real credit – the capacity to produce and deliver
Pope Pius XI had strong words about the discre- goods. The first policy is the lowering of retail costs
tionary power of private lenders to create or cancel under production costs through a discount given to con-
money (through loans or the repayment of loans) in his
16 Douglas C.H.; Social Credit, The Institute of Economic 18 cf. John Paul II, encyclical letter Centesimus Annus, n. 35
Democracy, Canada, (1924), 5 edition, 1979, pp. 94-95 19 Douglas C.H.; “Social Credit Principles”, in Warning
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17 Douglas C.H.; Credit–Power and Democracy, Stanley Democracy, Stanley Nott, London, (1931), 2 edition., 1934,
nd
Nott, London, (1920), 4 edition, 1934, pp. 19-20 pp. 37-43
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48 2010 session www.michaeljournal.org