(left: Clifford Hugh Douglas, the brilliant economist who invented Social Credit)
Social Credit is one of the main achievements of the 20th century in terms of monetary innovations. It solves poverty and depressed economies and provides a basic income to all. It reclaims the currency monopoly in the hands of the banking cartel, without centralizing power in State hands.
Social Credit was developed by Major Clifford Hugh Douglas, who penned a book with the same name in 1924.
Its major breakthrough in terms of economic understanding is the so called ‘Gap’ or the A + B theorem. This refers to the gap between total income and total value of production. The latter being always higher than total income. As a result, society never has enough income to mop up all of its own production. Not only does this lead to depressed economies and to ever mounting debt to compensate for this lacking purchasing power, it also creates a strong incentive for corporations to look for markets elsewhere.
The Gap is a crucial notion. It is undeniably true that there is a structural lack of purchasing power in the economy. This is fundamental part of structural unemployment, for instance. Please see the diagram below the article for quantification of the gap.
Douglas also noted another trend in the economy: automation. He foresaw a time when many people were basically no longer necessary in the production process. These people are called the useless eaters by our masters, but Douglas, being a real human being, understood that production serves consumption and that the economy exists to feed the people, not the other way around.
To solve the problem he came up with an eminently practical and simple solution: let the Government print debt-free money to be spent into circulation by the people. Everybody should get an equal amount of money, whatever their income or asset position. The amount of money to be printed should equal the lack of purchasing power in the economy. If this is done correctly, it could be done with stable prices: the inflation in terms of a growing money supply would serve to buy up production for which there are insufficient funds available and thus would not lead to price pressures.
In this way Social Credit is associated with a Basic Income or National Dividend, both of which, incidentally and surprisingly, were supported by Mont Pelerin Alumni von Hayek and Milton Friedman.
Social Credit gained a lot of attention in the 1930’s, throughout the dominions of the British Empire (the white colonies) and the Axis powers. Ezra Pound favored it, wrote about it (in ‘What is Money For‘, an excellent primer for the unitiated) and discussed it with Il Duce at some point. In Japan it was highly regarded and gained a lot of traction. Also the Catholic Church, for instance the Michael Journal, promoted Social Credit as a solution to Usurious Usurpation.
Social Credit compared to the Greenback
With the Greenback I mean a debt free paper currency spent into circulation by the Government. Recently it has come to my attention that this is not actually what Abraham Lincoln did. I intend to come back to that at a later stage, but for now we’ll stick with the common notion that people have when talking about Greenbacks.
Social Credit is vastly superior to the Greenback as a way for Government to provide currency.
The fact that the cash is handed out to the populace to be spent into circulation not only ends poverty and solves the problem of the Gap, it also prevents the massive power centralization with the State that is associated with the Greenback.
When Government can print its own cash, not much good can be expected from it. True, it’s much better than letting a private cartel do it, but most people suggesting the State should print its own money equate that with the notion that the people would be printing their own money. This, to my mind, requires an extraordinary leap of the imagination.
Government is not the People. If kept small and in its cage it can be of use. But it is a threat always. It’s hard to think of a Government in human history that was not owned lock stock and barrel by the Plutocracy behind the scenes.
The simple fact is that Social Credit is probably the closest we will ever get to the notion of ‘the People printing their own money’, as they can spend it themselves. It truly is THEIR money.
The US Government, equipped with a debt free dollar would undoubtedly be an even worse threat to the world at large than a deeply indebted one.
Also, if Government can spend its own money into circulation, it would have a very strong incentive to badly inflate the money supply. This is what seems to have happened to the Chinese Emperor’s units and also to Washington’s Continental.
Social Credit, the Gap and Interest
Although the Gap, in terms of insufficient purchasing power, is a very important issue, it also in some ways obfuscates the real problem: the Gap is mainly debt service. Cost for capital: Usury.
It is not for nothing that the size of the Gap as calculated in the diagram below is about 53% of GDP. This is similar to the 45% of prices that Margrit Kennedy famously calculated to be related to cost for capital (interest).
And while Social Credit compensates the people for usurious financing of production, it does not end it. Corporations and people will still need banks to provide credit and these banks will have to be capitalized by savings. Both imply interest.
People insufficiently understand that Interest is per definition a wealth transfer from the poor to the rich. The rich have money and lend it out (or own the bank), while the poor must borrow money and thus pay interest.
Worse still, only very few people see the horrible truth: that eventually ALL the interest ends up at the very top of the food chain. Slowly but surely interest payments move up the ladder as even the very rich pay interest to the Money Power: the banking families at the very top. This is Usurious Usurpation.
So compensating for interest is not enough: interest itself must end. We can cannot allow the eternal wealth transfer to continue.
Of course we can not outlaw interest. But we can make it irrelevant: nobody is going to pay interest if he can get an interest free loan. Therefore Social Credit must be combined with Mutual Credit, which provides interest credit at cost price, which is a fraction of normal interest rates.
While many still have a hard time grasping how nefarious usury really is, it must be understood that we can easily do without. Just imagine: why should we be paying $300k interest over a $200k mortgage when we can easily have an interest free one? Only the richest ten percent of society gain with interest. The rest are paying more interest than they receive to the rich. They stand to gain from universal interest free credit.
Social Credit undoubtedly was a major breakthrough. Its analysis is sound. Its solution provides a basic income to all, ending poverty and wage slavery. It does not empower Government, but the people.
It may be the best way for Government to provide currency. It certainly is the best debt-free unit there is. But it still is not comprehensive: it does not allow for interest-free credit. In its classical version, that is, because modern Social Crediters have proposed combinations with interest free credit.
Of course, a money supply based entirely on interest-free credit also looks like a very viable option.
Also, Social Credit, while decentralizing economic power, still assumes a Government Currency Monopoly. This monopoly will have to go just like all the others, but that is a different story altogether.
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Reassessing the Greenback and other Alternative Monetary Systems
Usury: why we don’t build Cathedrals these days….