The term Social Credit, as a formal name, originated from the writings of British engineer and originator of the Social Credit movement, Clifford Hugh Douglas (1879-1952), who wrote a book by that name in 1924. According to Douglas, the true purpose of production is consumption, and production must serve the genuine, freely expressed interests of consumers. Each citizen is to have a beneficial, not direct, inheritance in the communal capital conferred by complete and dynamic access to the fruits of industry assured by the National Dividend and Compensated Price. Assuming the only safe place for power is in many hands, Social Credit is a distributive philosophy, and its policy is to disperse power to individuals. Social Credit philosophy is best summed by Douglas when he said, “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.”
In this view, wealth is a pool upon which people can draw, and the efficiency gained by individuals cooperating in the productive process is known as the “unearned increment of association” – historic accumulations of which constitute what Douglas called the cultural heritage. The means of drawing upon this pool are the tickets distributed by the banking system.
Initially, money originated from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word “ pecuniary” comes from the Latin “pecus,” meaning "cattle". Today, the productive system and the distributive/monetary system are two separate entities. Douglas demonstrated that loans create deposits, and presented mathematical proof in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank makes a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin "credere", meaning "to believe". "The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it.
Money should not be regarded as a commodity but rather as a ticket, a means of distribution of production "There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself – the money which forms the thing we call 'effective demand' – and there is something we call a price opposite to it." Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization, money should become increasingly an instrument of distribution.
Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. Douglas criticized the banking system on two counts:
The latter he claimed was equivalent to claiming ownership of the nation. Money, Douglas claimed, was merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when, and where they are required.
In 1920, Douglas presented the A + B theorem in his book, Credit-Power and Democracy, in critique of accounting methodology pertinent to income and prices. In the fourth, Australian Edition of 1933 Douglas states:
The price rebate is based upon the observation that the real cost of production is the mean rate of consumption over the mean rate of production for an equivalent period of time.
|where M = Money distributed for a given programme of production, C = consumption, P = production|
The physical cost of producing something is the materials and capital that were consumed in its production, plus that amount of consumer goods labour consumed during its production. This total consumption represents the physical cost of production. Since less inputs are consumed to produce a unit of output with every improvement in process, the real cost of production falls over time. As a result, prices should also fall with the progression of time.
Based on his conclusion that the real cost of production is less than the money distributed in production, the Douglas price rebate (Compensated Price) stems from the ratio of consumption to production. Since consumption over a period of time is typically less than production over the same period of time in any industrial society, the real cost of goods should be less than the financial cost.
For example, if the money cost of a good is $100, and the ratio of consumption to production is 3/4, then the real cost of the good is $100(3/4)=$75. As a result, if a consumer spent $100 for a good, the National Credit Authority would rebate the consumer $25. The good costs the consumer $75, the retailer receives $100, and the consumer receives the difference of $25 via new credits created by the National Credit Authority.
The National Dividend is justified by the displacement of labor in the productive process due to technological increases in productivity. As human labor is increasingly replaced by machines in the productive process, Douglas believed people should be free to consume while enjoying increasing amounts of leisure, and that the Dividend would provide this freedom.
Further, labor displacement in the productive process implies that overhead charges (B) increase in relation to income (A), because "'B' is the financial representation of the lever of capital”. In these terms, any attempt to stabilize or increase income is met with rising prices. If "A" is constant or increasing, and "B" increases due to technological advancement, then "A+B" (prices) must also increase. As the Phillips Curve suggests, inflation and unemployment are trade-offs, unless prices are reduced from monies derived from outside the productive system.
In his pamphlet entitled, The New and the Old Economics, Douglas describes the cause of "B" payments:
In 1932, Douglas estimated the cyclic rate of circulation of money to be approximately three weeks. The cyclic rate of circulation of money measures the amount of time required for a loan to pass through the productive system and return to the bank. This can be calculated by determining the amount of clearings through the bank in a year divided by the average amount of deposits held at the banks (which varies very little). The result is the number of times money must turnover in order to produce these clearing house figures. In a testimony before the Alberta Agricultural Committee of the Alberta Legislature in 1934, Douglas said:
According to Douglas, the major consequence of the problem is exponentially increasing debt. Further, society is forced to produce goods that consumers either do not want or cannot afford to purchase. The latter represents a favorable balance of trade, meaning a country exports more than it imports. The former represents excessive capital production and/or military build-up. But not every country can pursue this objective at the same time, as one country must import more than it exports when another country exports more than it imports. The long-term consequence of this policy is a trade war, typically resulting in real war – hence, the Social Credit admonition, “He who calls for Full-Employment calls for War!”, expressed by the Social Credit Party of Great Britain and Northern Ireland, led by John Hargrave. Excessive capital production is only a temporary correction, as the cost of the capital typically appears in the cost of consumer goods or taxes, further exacerbating future gaps between income and prices. Military buildup necessitates either the violent use of weapons or a superfluous accumulation of them.
The Alberta Social Credit government published in a committee report what was perceived as an error in regards to this theory : “The fallacy in the theory lies in the incorrect assumption that money 'circulates', whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption.
All money is created as a debt that needs to be repaid; consequently, money does not circulate, but instead operates in an accounting cycle. If a retailer receives money from a customer for its product, the total sum of this money is neither profit, nor income. A retailer has debts to repay, or it must replace working capital. These sums are subtracted from revenues when determining profits. Neither is the profit entirely income, as taxes must be paid, and a portion may be re-invested back into the business.
In this view, only a small percentage of money received by retailers actually distributes as income that can then be spent on goods or services. The remainder is either used to repay debts, replace working capital, or re-invested back into the firm. The fallacy is that the same dollar can "circulate round and round". Every loan creates a deposit, and every repayment of a loan destroys a deposit. As such, money does not "circulate round and round" but is created and destroyed through the creation of loans and their repayment. Money is a directional flow, either creating costs, or cancelling them. If money is created in such a way that it cancels costs (i.e. the Social Credit price rebate), then an increase in the money supply can lower prices to consumers.
Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale.
Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee:
Incomes are paid to workers during a multi-stage program of production. According to the convention of accepted orthodox rules of accountancy, those incomes are part of the financial cost and price of the final product. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. In the real world, earned incomes are typically spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future --goods which must include the sum of incomes paid out during their period of manufacture in their price. This does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, supply does not create enough demand to liquidate all the costs of production: Social Credit denies the validity of Say's Law in economics.
Douglas considered the constitution an organism, not an organization. In this view, establishing the supremacy of common law is essential to ensure protection of individual rights from an all-powerful parliament. Douglas also believed the effectiveness of British government is structurally determined by application of a Christian concept known as Trinitarianism: "In some form or other, sovereignty in the British Isles for the last two thousand years has been Trinitarian. Whether we look on this Trinitarianism under the names of King, Lords and Commons or as Policy, Sanctions and Administration, the Trinity-in-Unity has existed, and our national success has been greatest when the balance (never perfect) has been approached."
Opposing the formation of Social Credit Parties, C.H. Douglas believed a group of elected amateurs should never direct a group of competent experts in technical matters. While experts are ultimately responsible for achieving results, the goal of politicians should be to pressure those experts to deliver policy results desired by the populace. According to Douglas, "the proper function of Parliament is to force all activities of a public nature to be carried on so that the individuals who comprise the public may derive the maximum benefit from them. Once the idea is grasped, the criminal absurdity of the party system becomes evident.
Douglas’s first book, Economic Democracy, was published in 1920, shortly after his article The Delusion of Super-Production appeared in 1918 in the English Review. Among Douglas’s other early works were The Control and Distribution of Production, Credit-Power and Democracy and Warning Democracy and The Monopoly of Credit. Of considerable interest is the evidence he presented to the Canadian House of Commons Select Committee on Banking and Commerce in 1923, to the British Parliamentary Macmillan Committee on Finance and Industry in 1930, which included exchanges with economist John Maynard Keynes, and to the Agricultural Committee of the Alberta Legislature in 1934 during the term of the United Farmers of Alberta Government in that Canadian province.
The writings of C.H. Douglas spawned a worldwide movement, most prominent in the British Commonwealth, with beachheads in Europe and activities in the United States where Orage, during his sojourn there, promoted Douglas’s ideas. In the United States, the New Democracy group was headed by the American author Gorham Munson who contributed a major book on Social Credit titled Aladdin’s Lamp: The Wealth of the American People. While Canada and New Zealand had electoral successes with “Social Credit” political parties, the movement in England and Australia was primarily devoted to pressuring existing parties to implement Social Credit. This function was performed especially by Douglas’s Social Credit Secretariat in England and the Commonwealth Leagues of Rights especially in Australia. Douglas continued writing and contributing to the Secretariat’s journals, initially Social Credit and shortly thereafter The Social Crediter (which continues to be published by the Secretariat) for the remainder of his lifetime, concentrating more on political and philosophical issues in his later years.
In 1935 the first “Social Credit” government was elected in Alberta, Canada under the leadership of William Aberhart. A book by Maurice Colborne entitled The Meaning of Social Credit convinced Aberhart that the theories of C.H. Douglas were essential for Alberta's recovery from the Great Depression. Having counseled the previous United Farmers of Alberta Provincial Government, Douglas became an advisor to Aberhart, but withdrew shortly after due to strategic differences. Aberhart sought orthodox counsel to restore order in Province finance, and the strained correspondence between them was published by Douglas in his book, The Alberta Experiment.
While the Premier wanted to balance the provincial budget, Douglas argued the whole concept of a "balanced budget" was inconsistent with Social Credit principles. Douglas stated that, under existing rules of financial cost accountancy, balancing all budgets within an economy simultaneously is an arithmetic impossibility. In a letter to Aberhart, Douglas stated:
Douglas sent two other expert Social Credit technical advisors from the United Kingdom, L. Denis Byrne and George F. Powell. But all attempts to pass Social Credit legislation were ruled ultra vires by the Supreme Court of Canada and Privy Council in London. Based on the monetary theories of Silvio Gesell, William Aberhart issued a currency substitute known as prosperity certificates. But these scrips actually depreciated in value the longer they were held, and Douglas openly criticized the idea:
Under Ernest Manning, who succeeded Aberhart after his untimely death, the Alberta Social Credit Party gradually departed from its origins and became popularly identified as a right wing populist movement. In the Secretariat’s journal, An Act for the Better Management of the Credit of Alberta, Douglas published a critical analysis of the Social Credit movement in Alberta, in which he said, "The Manning administration is no more a Social Credit administration than the British government is Labor". Manning accused Douglas and his followers of anti-Semitism, and went about purging all of the so called "Douglasites" from the Party. While Social Credit governments formed in British Columbia, Canada, they had little in common with Douglas or his theories. Social Credit Parties also enjoyed some national electoral success in Canada and in New Zealand, with support from Western Canada and more notably from Quebec.
The goal of Social Credit is to maximize immanent sovereignty. Social Credit is consonant with the Christian doctrine of Salvation through unearned Grace, and is therefore incompatible with any variant of the doctrine of salvation through works. Works need not be of Purity in intent or of desirable consequence and in themselves alone are as "filthy rags." For instance, the present system makes destructive, obscenely wasteful wars a virtual certainty—which provides lots of "work" for everyone. Social Credit has been called the Third Alternative to the futile Left-Right Duality. Although Douglas defined Social Credit as a philosophy with Christian roots, he did not envision a Christian theocracy. Practical Christian society is Trinitarian in structure,based upon a constitution where the constitution is an organism changing in relation to our knowledge of the nature of the universe. Social Credit society recognizes the fact that the relationship between man and God is unique. In this view, it is essential to allow man the greatest possible freedom in order to pursue this relationship. If people are given the economic security and leisure achievable in the context of a Social Credit dispensation, most would end their service to mammon and use their free time pursuing spiritual, intellectual, or cultural goals leading to self-development. Douglas did not believe that religion should be thrust upon anyone through force of law or external compulsion. He emphasized that all policy derives from its respective philosophy and that “... Society is primarily metaphysical, and must have regard to the organic relationships of its prototype.”
Douglas said that Social Crediters want to build a new civilization based upon absolute economic security for the individual—where “...they shall sit every man [individual] under his [her] vine and under his [her] fig tree; and none shall make them afraid.” In keeping with this goal, Douglas was opposed to all forms of taxation on real property. This set Social Credit at variance from the land-taxing recommendations of Henry George.
Douglas opposed what he termed "the pyramid of power". Totalitarianism reflects this pyramid and is the antithesis of Social Credit. It turns the government into an end instead of a means, and the individual into a means instead of an end—Demon est deus inversus—“the devil is God upside down.” Social Credit is designed to give the individual the maximum freedom allowable given the need for association in economic, political and social matters. "The progress of human society is best measured by the extent of its creative ability. Imbued with a number of natural gifts, notably reason, memory, understanding and free will, man has learned gradually to master the secrets of nature, and to build for himself a world wherein lie the potentialities of peace, security, liberty and abundance. Social Credit rejects dialectical materialistic philosophy. Douglas divided philosophy into two schools of thought that he labeled the "classical school" and the "modern school", which are broadly represented by philosophies of Aristotle and Francis Bacon respectively. Douglas was critical of both schools of thought, but believed that "the truth lies in appreciation of the fact that neither conception is useful without the other".
Social Credit is opposed to abstractionist philosophies, as Douglas believed these philosophies inevitably led to the elevation of abstractions, such as state, over individuals. He also believed that Jewish abstractionist thought tended to lead them to communist ideals and the emphasis of the group over the individual. “Anti-Semitism of the Douglas kind, if it can be called anti-Semitism at all, may be fantastic, may be dangerous even, in that it may be twisted into a dreadful form, but it is not itself vicious nor evil.”
In her book, Social Discredit: Anti-Semitism, Social Credit and the Jewish Response, Janine Stingel claims, “Douglas's economic and political doctrines were wholly dependent on an anti-Semitic conspiracy theory". Douglas's A+B theorem is based upon an analysis of prices and incomes and their relation to cost accounting, not an "anti-semitic conspiracy theory". While some of Douglas’s statements about Jews, especially in relation to the alleged forgery known as The Protocols of the Learned Elders of Zion, have caused numerous attacks on the entire movement, claims that his works wholly based upon anti-semitic conspiracy theory is grossly exaggerated at best. "It must also be noted that while Douglas was critical of some aspects of Jewish thought, Douglas did not seek to discriminate against Jews as people. It was never suggested that the National Dividend be withheld from them.
Provincial political parties:
Robert A. Heinlein described a Social Credit economy in his first novel, For Us, the Living, and his Beyond This Horizon describes a similar system in less detail. In Heinlein's future society, government is not funded by taxation. Instead, government controls the currency and prevents inflation by providing a price rebate to participating business and a guaranteed income to every citizen.
More recently, Richard C. Cook, an analyst for the U.S. Civil Service Commission, Food and Drug Administration, NASA, the U.S. Treasury Department, and author of the books Challenger Revealed and We Hold These Truths, has written several articles relating to Social Credit and monetary reform at Global Research, an independent research and media group of writers, scholars, journalists and activists.
Frances Hutchinson, PhD and Chairperson of the Social Credit Secretariat, has co-authored, with Brian Burkitt, a thoroughly researched and peer reviewed book entitled "The Political Economy of Social Credit and Guild Socialism". .