Social Credit Theory

“The creation of credit by the banks constituted the usurpation of a national function which was not only unjustifiable in itself, but had disastrous results; that the present hypotheses concerning what was assumed to be debt to the banks involved the accounting of unreal elements of cost into prices; and that as a result the community was not in a position to buy or exchange what it was able to produce – these contentions of the Douglas analysis seemed (and still seem) to me irresistible. The Douglas proposals follow from that analysis. The community must resume control over the conditions on which is issued what is essentially its own credit; it must establish a true basis for prices which will enable goods to be sold below financial cost; and instead of striving artificially to tie income to employment, it must distribute a proportion of the unearned increment of association in the form of a universal dividend." - Maurice Reckitt

We can be no more short of money for useful production than we can be short of miles for roads.

Q. What is money? A. Money is a ticket for the distribution of goods and services, a direct dividend from the state, which must equally match purchasing power to production. It is the initiating element for all economic activity wherein land, labour and capital are directly tied. Without money there is no production for exchange. In a word, money is a ticket which must match the ability of the communal economy to absorb it.

- 1. The total supply of cash credit should be proportionate to aggregate prices for consumable goods available in the country. Upon the exchange of credit for an item, the credit will be cancelled.

- 2. New credits will be produced for new production, not funded from savings.

- 3. The National Dividend should become the basic source of income nationwide.

- Production alone does not create money. A farmer who produces a bushel of potatoes for no financial cost and sells it for $10 does not actually create $10, it is just exchanged. However sophisticated the system of production may be, all things manufactured, made or grown follow this same path. Production and exchange. All production requires inputs from the natural world, like land and minerals, and human input, neither of which the economy can conjure. The transformation of natural materials by the producer, rather, creates wealth.

- Instead, products produced through single-stage production are exchanged through the medium of money, facilitating money as a barter-style system which it was originally intended to be. Money operates as a commodity which calls upon goods on the market for exchange.

Perhaps the greatest summation of the flaws of the current non-social credit system are as follows, provided by C.H. Douglas in a debate against Dennis Robertson: “The present financial system claims payment in money for the creation of money itself.  Since it creates all money, payment in money for the use of money can only be made by creating fresh debt. In addition to this claim by the bank for the use of its money, the industrialist, with much more reason, claims payment for the use of his real plant and buildings; and he claims it also in money. Neither he nor the banking system, however, recreates the necessary money to enable this payment to be made by the public.”

- Debt free credit instead should be issued consistent with consumer prices and productive capacity, bringing into balance the consumer and the prices he pays for goods and services, in a self-liquidating equilibrium.

- To this end, a National Credit Office free of all influence of politics should be established as a state organ to assess the volume of debt-free credit required to counteract unfunded costs. Debt free credit will pay off bank advances and cause credit and debt to cancel each other out. 

- This above list will restore a self-adjusting system continually issuing the correct amount of credits to offset unfunded costs.

- The National Credit Office prints all the money itself. All other institutions, especially banks, are expressly forbidden from printing money.

The A + B Theorem

In a word, the problem may be described thusly: the amount of money in circulation cannot be absorbed by the market because it is never proportional to the ability to consume the productive capacity of the nation. A equals the payments made to employees by the workplace head, B represents payments made outside of business. B payments are not spent on consumption, only A is available as purchasing power. There is consequently a chronic lack of sufficient purchasing power because B payments are more numerous than A payments, so purchasing power equivalent to B payments must be distributed from an outside source. 

The A+B Solution

In order to resolve the chronic purchasing power present within the banker's world, Social Credit offers the Just Price based upon the ratio of consumption to production. The state then grants credit to sellers to sell goods below the actual financial cost, remaining profitable, and closing the gap between purchasing power and production. Essentially, the government offers rebates. For example:

An economy produces 1,000 cars in a year.

The total cost to produce is $20,000,000.

$10,000,000 is paid out in dividends and wages.

Consumers only have $10,00,000 to buy $20,000,000 worth of goods.

If the economy only were to consume 500 of these cars, the just price is adjusted; the ratio of consumption to production in this example is 50% or 0.5. Assume the original price of the car is $20,000.

The consumer pays $10,000, the government issues $10,000 in credit to the dealership, ensuring an equilibrium in production and consumption and a full remuneration for production.  using the formula price = Cost Price x 0.5.  

To make up for this gap in purchasing power for the consumer, a national dividend will be issued on state directive as a birthright, diffused by credit offices on a local level, with a minimal fee of less than 1% (to cover the cost of issuance), to the various members of diverse vocations within their locality, in order to make for the active and sustained exchange of goods and services. These local credit offices would be paid a fee for their services.

The Viability

Japan, in 1932, remodelled the National Bank into an exclusively state institution. This was further bolstered by Takahashi Korekiyos’ policies of central bank credit modelled after injecting purchasing power into the economy following an abandonment of the gold standard. From the 1931-1941 period, industrial and manufacturing output increased by 140% and 136%, the GDP increased by 259%, labor unemployment decreased from 5.3% to 3%, and industrial disputes (accounted for by stoppages in production) decreased from 998 in 1931 to 159 in 1941.

From 1935 well into the 1970s the Canadian government pursued a policy of state credit backed by the state-owned Canadian bank issuing all money at minimal interest. 62% of all credit was directly issued by the government well into the mid-1940s, and into the 1970s the Canadian government continued to issue state money, monetizing at least 20% of the state deficit and often reaching 30%. These policies were clearly influenced by the Social Credit Party' s assumption of office in Alberta in 1935 and often mirrored the propositions the party gave. Following the decline of state credit policies the ratio reached as low as 7.5% of the state deficit being monetized. The Bank of Canada only issues 2% of the $22,000,000,000 issued annually. Harold Chorney of Concordia University estimated that a continued state credit policy would’ve allowed Canada to maintain an annual $13,000,000,000 surplus.