Social Credit

Social Credit is an economic theory and a social movement which started in the early 1920s. The Canadian social credit movement was by far the most notable, but the ideas also gained some lesser success in other countries. One such country was New Zealand, where the Social Credit Party gained several seats in the national parliament, with 21% of the total votes at one election. In England, the Kibbo Kift, a small breakaway from the Boy Scout movement, transformed itself into the Green Shirt Movement for Social Credit, a political uniform-wearing paramilitary mass-movement, that marched, demonstrated and agitated in the 1930s for the introduction of a Social Credit system.

Theory

C. H. Douglas proposed that because the amount of money available under capitalism is necessarily lower than the total cost of goods produced, there will always be insufficient money to pay a realistic, sustainable price. He demonstrated this fundamental flaw with his A+B theorem, which states that if A is the payments made to all the consumers in the economy (through wages, dividends, and interest paid to banks) and B is the payments made by producers that are not eventually paid out to consumers (such as the overhead costs of buildings and equipment as they wear out) then the price charged for all goods must be at least A+B — an impossibility since only A is available to spend.

Related Topics:
C. H. Douglas - Capitalism - Overhead cost

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

For such a system to sustain itself Douglas asserted that some or all of the following must happen:

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

• People go into debt by buying on credit
• Governments borrow and increase the national debt
• Businesses borrow from banks to finance expansion, in a way that creates new money
• Businesses sell below cost, and eventually go bankrupt
• A state wins a trade war, putting foreigners in debt to us for our surplus of exports
• A state has a real war, "exporting" goods such as tanks and bombs to the enemy without ever expecting to be paid for them, financing this by government borrowing

If these things don't happen "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."

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Douglas believed that Social Credit could fix this problem by ensuring that there was always enough money (credits) issued to buy all the goods that could be produced. His solution is outlined in three core demands:

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

• For a "National Credit Office" to calculate on a statistical basis the amount of credit that should be circulating in the economy;
• For 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;
• For a "National Dividend" to give a basic guaranteed income to all regardless of whether or not they have a job.

The engineer argued that this last demand makes sense now that automation and labor-saving devices have reduced the number of workers we need to produce our goods, and the hours they would have to work.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Douglas' ideas enjoyed great popularity during the Great Depression, although not enough to realize his plan.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~