Tuesday 22 March 2016

Social Credit: A Simple (If Somewhat Lengthy) Explanation

Source The Clifford Huge Douglas Institute    http://www.socred.org/index.php/


Posted on: January 09, 2015 by M. Oliver Heydorn   
Category: Social Credit Views /
 
  
Social Credit: A Simple (If Somewhat Lengthy) Explanation

The founder of the Social Credit movement, Major Clifford Hugh Douglas (1879-1952), correctly discerned the cause of our perennial economic difficulties and also developed a series of proposals to effectively deal with the  underlying problem.

 
     Social Credit encompasses the philosophical, economic, political, and historical ideas of the brilliant Anglo-Scottish engineer, Major C.H. Douglas.
     As far as the economics of Social Credit is concerned, the choice with which we are faced is a simple one: we can either continue to suffer unnecessarily and increasingly under a financial system (i.e., a banking and cost accountancy system) which serves an oligarchic elite at the expense of the common good, or we can reform the financial system along Social Credit lines in order to ensure that it will operate in full service to the common citizen.
     The key issue is not the fact that the banks create the bulk of the money supply out of nothing, nor the fact that the interest which they charge on loans can often be onerous, excessive, and/or exploitative. The key issue is one of policy. Does the financial system serve our policy, yours and mine, in the best possible manner: getting the goods with the least amount of effort, or does it serve the policy of those who occupy the pinnacle of the economic pyramid: getting the most effort from us (as measured in economic and, above all, financial terms) in exchange for the least amount of goods?
     The standard financial conventions generate an artificial scarcity of both producer and consumer credit and then allow that scarcity to be leveraged by the private banks due to their monopoly on credit-creation.[1] As a result, economic wealth, power, and privilege are illegitimately funneled into the hands of financiers and those upon whom their favour rests.
     The costs of running the financial system as a private self-serving monopoly are extremely heavy. Instead of enjoying an abundance of needed goods and services alongside increasing leisure from an economic system that is socially equitable, environmentally sustainable, and internationally concordant, we are hounded by the paradoxes of poverty in the midst of plenty and of servility in place of freedom, by the recurring cycle of boom and bust, by continual inflation (both cost-push and demand pull), by economic inefficiency, waste, and sabotage, by forced economic growth, by an ever-increasing mountain of societal debt that is, in the aggregate, unrepayable, by heavy and often increasing taxation, by social conflict, by forced migration, by cultural dislocation, by environmental degradation, and by international economic conflicts leading to war, etc., etc.
     The present financial system does not permit the members of society to fulfill the true purpose of economic association (the delivery of goods and services, as, when, and where required and with a minimum of trouble to everyone) to the extent that this fulfillment is physically possible because it is a fundamentally dishonest system.
     Every society relies on its inventory of ‘physical’ economic resources (land, labour, the increment of association, and, in an industrialized country, know-how and real capital in the form of machines and equipment) in order to provide its members with the goods and services that they need to survive and flourish. This stock of raw economic power is what Social Credit theory refers to as the real credit. It is a society’s useful productive capacity.
     By contrast, financial credit, or money, is only a method of representing this real credit so that production can be catalyzed and then distributed to consumers. The creation, issue, and recall of financial credit is administered by a society’s financial system.
     The primordial problem with the reigning financial system is that it does not issue and recall financial credit of the right nature, at the right rate, and under the right conditions so as to accurately represent society’s real credit. Instead, it artificially limits the real credit and misdirects many of our economic activities.
     An honest financial system, i.e., one in which the nature of financial credit, the rates at which it is issued and recalled, and the terms under which it is issued and recalled, accurately represented the physical facts of real credit, would allow the citizens of a nation to freely produce whatever they desired (so long as the production in question was physically possible) and to consume all of the resultant goods and services without the imposition of any further and illegitimate conditions (such as the contraction of debts that are, in the aggregate, unrepayable, and/or additional work). Money would be regarded as a mere accounting unit and not as a scarce commodity that is to be rented out by the private banks (N.B., the banks currently claim the ownership of the financial credit that they create).
     An honest system would operate quite naturally in the interests of the common citizens because it would recognize that a society’s financial credit belongs not to the private banks but to those who actually own, in varying degrees, the real credit that the financial credit is supposed to represent. Hence it follows that consumers, who may rightfully be regarded as shareholders in their country’s economies, are the people who should determine a society’s overarching financial and hence economic policy.
     Whenever there is, on the one hand, sufficient ‘physical’ economic resources to actualize a specific production programme, and, on the other hand, a real demand on the part of consumers for the goods and services which that programme would make available, sufficient financial credit to catalyze that production should be created and issued as a matter of course. Similarly, whenever there is, on the one hand, a certain volume of consumer goods and services coming on to the market, there should also be, on the other hand, sufficient consumer purchasing power in the form of consumer income (not associated in any way with additional or extraneous costs) to purchase that volume in full and to liquidate all of the corresponding costs of production.
     In order to accomplish the equation of society’s financial credit with its real credit, Social Credit proposes the establishment of a National Credit Office. The NCO would be a politically independent organ of the state and a purely administrative device. Its activities would be entirely determined by statistical data and that data would be the result of the free decisions of private firms, governments, and individual consumers in conjunction with the physical facts of the economy's natural resources. The NCO would guarantee sufficient producer credit in line with a society’s useful productive capacity and sufficient consumer credit, in the form of a ‘debt-free’ National Dividend and National Discount, to equate the flow of consumer purchasing power with the flow of consumer prices. The dividend would also ensure that the increasing number of people whose labour is no longer necessary in the formal economy (on account of the intensifying trend of technological unemployment) would nevertheless have access to goods and services. One can read about the stark differences between a National Dividend and conventional basic income proposals here: http://www.socred.org/index.php/blogs/view/the-big-difference-between-a-basic-income-and-the-national-dividend.
     Social Credit does not advocate the nationalization of the private banking system, but rather the breaking of its monopoly and the restoration of the ownership of financial credit to the individuals who make up the community. It is completely opposed to any proposal that would see us jump from the frying pan of a self-serving private system into the fire of a complete state monopoly over money and its issuance. The latter would be a fine basis for the introduction of a totalitarian society. In direct opposition to this vision of the social order, Social Credit stands for the decentralization of economic and political power in the direction of the individual. What Social Crediters want is a financial system which, while dutifully serving a public policy of maximizing individual benefit, is nevertheless privately administered to a very large extent.
     Finally, in spite of the presence of the word ‘social’ in Social Credit, it must also be recognized that Douglas’ economic proposals are not socialist but rather anti-socialist. They are completely consonant with and supportive of a free enterprise economy (incorporating free markets, private property, individual initiative, and the profit motive) so long as it is financially structured towards the fulfillment of the true purpose of economic association Cf.http://www.socred.org/index.php/blogs/view/why-social-credit-is-not-socialism.



[1] N.B., the artificial scarcity of consumer credit or the chronic deficiency of consumer income that Douglas identified is not due, in the first place, to the charging of interest on loans but rather to the way in which real capital (machines and equipment) are financed and the way in which their costs are then accounted and charged into the prices of consumer goods. Cf. http://www.socred.org/index.php/blogs/view/social-credit-and-usury.






Comments

Posted: February 07, 2015
By: Colin Holcombe
Yes, a very sound suggestion, which would dovetail with modern money theory -- i.e. that sovereign governments create money, and national spending deficits are all to the good if inflation is kept nominal and unemployment extremely low (< 2%)
Posted: February 07, 2015
By: Oliver Heydorn
Hi Colin,

Thank you for your comment!

In contradistinction to MMT, all of the money created by the National Credit Office to fill the macroeconomic price-income gap under a Social Credit system is to be given directly (through the National Dividend) or indirectly (through the compensated price or National Discount) to the individual consumers. The government is not to have control over policy by determining the purposes for which the compensatory debt-free money is to serve. Governments must get their money from the citizens for objectives that the citizens demand or approve of. Social Credit wants to decentralize economic power by making individuals independent and free, not centralize it in the hands of a government. Furthermore, SC anticipates continually falling prices as technological advances result in further labour displacement and Social Credit stands for maximizing unemployment in the form of leisure. Only a small percentage of the available labour force is necessary in an industrialized economy to provide all the goods and services that people need to survive and flourish ... a policy of full employment is, realistically speaking, neither necessary nor desirable when one considers the brute physical capacity of the industrialized economy.
Posted: February 09, 2015
By: Colin Holcombe
Hi Oliver,

Thanks for a splendidly clear reply. You’re quite right, of course, and I shouldn’t have shot off that comment without reading further on Social Credit.

I suspect the excessive and often perverse influence of the financial institutions derive from the very nature of capitalism. It’s not a peculiarly modern problem, certainly, since Fernand Braudel and others trace the power of banking houses at least back to the fifteenth century, through the growth of trade, division of labour, industrialization and today’s globalism. Bankers had come to dominate large areas of European trade even before that period, and were correspondingly restricted or expelled from Aragon (1401), England (1403), Flanders (1409) and Paris (1410). Spain’s supply of New World silver was captured by Genoese bankers, and the German banking families of the Fuggers and the Welsers controlled much of the European economy in the fifteenth century and dominate international high finance in the sixteenth. And so on. I'm sure you know all this.

Given the deep-seated nature of the political economy we have today (how natural it seems to us), my qualms about SC centre more on whether the present political system can or would adapt to such novel concepts. I rather fear that’s unlikely. More social equality would upset the current status quo, curb those with their hands on the levers of power, restrict the political influence of Wall Street, and in general lead to a fairer and saner world that our politicians seem hell bent on denying us. MMT has a hard time asserting itself in mainstream economics, and even Ellis Brown’s modest and sensible plea for state banks on the North Dakota model seems to have fallen on deaf ears. If people had the sense and independence to think for themselves then something like SC would surely appeal. But they don’t, or don’t seem to, preferring to take their opinions ready-made from the mainstream media that manages what is acceptable thought.

I think sites like yours are to be applauded, but I don’t personally see the political will for change. Inequality is indeed growing in Europe and America, helped of course by quantitative easing, and austerity measures that have been imposed after the 2008 financial melt down. How is SC going to counter the power of big money, especially in America where (to European eyes) the dominant parties seem so similar, and both are bought by lobbying and campaign donations?
Posted: February 09, 2015
By: Wally Klinck


Thanks for your message, Colin.

Ultimately the solution lies in loving God and one's fellow human. The Christian message contains all the basic prerequisites for applying the Golden Rule. Our primary motivation for the benefits which Social Credit would confer must not merely be to receive them selfishly but to take joy in seeing them contribute to the well-being and happiness of all citizens. True joy is in seeing someone else able to develop in love, knowledge and understanding. Unfortunately these values have been under devastating attack with a neutered clergy seemingly intent primarily on abstracting religion rather than incarnating it. Christianity, not being consciously applied to our organic affairs, has receded into the background as being irrelevant except for those who see it applying only to personal relationships and not to institutional or societal concerns. What has to be done is to demonstrate the uniquely critical relevance of Social Credit as a practical policy (discovered rather than intended) of Christian philosophy.

There is nothing like an object lesson to bring into focus certain issues and Douglas predicted that the inevitable and inexorable unfolding of technology would in time render the existing financial system patently unworkable. This is happening before our very eyes. One can imagine the crisis as it deepens with fewer and fewer income earners being requisitioned to support a mushrooming overhead of non-earners whose services have become redundant consequent to increasing production efficiency achieved by growing use of artificial intelligence and automation.

In the economically devastated Province of Alberta the people, in 1934, literally demolished the existing Government and voted in one running under the Social Credit banner. That Government remained in office for well over three decades, supported by the hoes of many devoted adherents.

Unfortunately improved economic conditions because of war expenditure and the discovery of oil as an export commodity, people lost their zeal for genuine reform and this factor plus betrayal from within brought a major decline in the fortunes of the movement which potentially could have changed the world. But we should never seek Social Credit merely for personal gain but always with the common good of society as a whole as the primary goal--for the love of mankind. The Abundance of the Kingdom must be opened so that all have access to the stupendous opportunity available to mankind to live well materially with increasing leisure wherein the mind and spirit may flourish.

The problem with political parties in general is that they are power organizations and the goal of securing office and power almost inevitably triumphs over integrity and truth. I have been through the process myself. Although well-meaning and sincere people can become involved in party activities, they are usually among the first to be isolated, sacrificed and purged because the last thing party officials want is anything which might be regarded as “controversial" and might “confuse" the electorate. At the bottom line the party seeks to capture and retain power and demands “unity” above all other considerations.

Social Credit, however, seeks truth and its policy is to distribute power to individuals—power derived from knowledge of truth. The two policies are obviously irreconcilable. What is required is a new paradigm involving a general cultural regeneration—a sea-change in the dominant philosophy, so that the motive force for change comes from intellectually and spiritually awakened individuals who compose society. If a political party were hypothetically to institute “Social Credit” it would not last for more than a couple of weeks unless it were part of the popular thinking and general social culture and had the conscious support of the population in general.

Hence, it is general education and awakened conscience alone which can bring the desired changes where an informed and militant public demands of their elected servants the required changes in philosophy, policy and administration. In the vernacular, “letting George do it” will not suffice to carry the issue. People must become informed and empowered as individuals by the new knowledge about reality which Social Credit offers. Only a clear sense of direction, ethics and civic responsibility can eventually prevail.

Some people continue, tragically, to adhere to the idea that if we can only find a great leader to send off to Ottawa such leader will then institute what we want. This is delusional and such an attitude of irresponsible blind trust, i.e., idolatry, was a major factor in the total betrayal of Social Credit in the Province of Alberta. People like Oliver do not seek political power. They seek rather to discern truth and make it available to the public so that individuals may develop their knowledge and confidence in calling for appropriate policy. Either power will reside widely within individuals or in power organizations controlled from the top and imposing policies justified by false moral abstractions which are inimical to the general social well-being.. Real “social credit”, the actual real credit of society, can only arise from expressed creativity and exercised initiative residing within individual persons. What is the soul of Man?

If the Social Credit Party of Alberta is doing anything to actually promote a general consciousness of genuine Social Credit philosophy and policy, I am not aware of any such action. Certainly one hears virtually nothing from them. The best way for anyone to determine their direction is to observe the actions and the statements which emanate from Party members and officials. One can identify a tree by the fruit it bears. My impression is that they are basically a Conservative “Christian” organization having very little interest, much less passion, about Social Credit. That is their privilege but it seems to me that elementary ethics would prevent them from using the Social Credit label.

Social Credit is not about “occupying” until the return of Christ as the late "Social Credit" Premier Ernest Manning taught—nor is it about insecure or guilt-ridden persons obsessing about their personal “Salvation.”

Douglas said that the greatest challenge facing Christians is the Incarnation—that is, in living by and giving “flesh” to the Word in our organic affairs. Christian belief should not be abstract but rather imminent. Our affairs should be an incarnation of the doctrine of Unearned Grace of which the Dividend and Compensated Price are practical expressions. Yes, "something for nothing": a Gift from God and Nature. I cannot think of anything that could be more inspiring and motivating than that. Social Credit is much more than dry economic theory. The reality is that God and nature have provided us the basis of not only something but an abundance “for nothing”—something for which we should be eternally grateful. Surely it is the mark of greatest disrespect to cast a gift from one’s father upon the ground and trample it before his face. Such rejection is bound to ensue in future disaster.

The motive force for Social Credit is not within either the Governments of Alberta or Ottawa. it must originate and come forth from individual knowledge, inspiration and the confident initiative which springs forth from such knowledge. If every Canadian citizen understood Social Credit essentials and had full confidence in his ability to demand Social Credit policy the task would shortly be accomplished. Ignorance destroys faith, which alone can “move mountains”—and ignorance must be eradicated.

Informed quarters have been well aware for nearly a century at least that banks create money when they grant loans, or purchase securities. Social Credit of course was very instrumental in popularizing such awareness. But it is not the creation of money by the banking system wherein lies the core problem. As Douglas observed, the modern economy could not function without such creation of credit. The evil and disfunction of the system is not that banks create credit but rather that they claim ownership of the credit which they create against the community’s real credit—which they do not create. They have appropriated the communal credit and seized control over the Cultural Heritage—securing to themselves centralized power to direct and control the creative resources and destinies of nations.

Douglas’s policy was to break this Monopoly of Credit by means of the Consumer Dividend and Compensated Price made possible by appropriate changes to national cost accountancy which would eliminate the macroeconomic need for consumer debt (and for un-repayable debt, per se) and allow producers to recover their financial costs out of current income rather than through increasing debt charges against future production—or through incomes distributed via increasingly irrelevant, wasteful and destructive production activities.

Douglas showed how to restore to the individual his rightful inheritance in the Cultural Heritage by returning it to him or her in the form of a beneficial ownership in the communal capital, by means of the Dividend and falling prices.

The purpose of production is consumption—not to create “work”. The ends to be sought are increasing abundance of goods and services with expanding leisure--all achieved through implementation of greater production efficiency.

Certain impressionable people are both shocked and scandalized upon leaning that banks create “money”. They instinctively seek to redress this supposed evil by conferring all money creation to the State. This is contrary to Social Credit policy because it centralizes the control of credit in the hands of the organs of the State. Credit mobilizes initiative and creativeness and by placing its issue in the hands of the State we would give the State control over the creative powers which reside in individuals comprising society. This is communist/socialist or fascist, i.e., "Statist", policy which places the State above the individual instead of putting the State in a position to serve the interests of the individual. Conversely, Social Credit stands for genuine economic democracy wherein the consumer through his “money-vote” is empowered to dictate the policy of production. As Douglas warned, placing the control of money in the hands of the State would ensconce the Money-Power in an even more unassailable fortress of power.

William Aberhart was faced with critical immediate problems within the Province and initially he did not have a clear understanding of Social Credit. Delay over implementation of Social Credit policy led, inevitably, to the “insurgency" wherein some of the more informed members demanded effective action. Aberhart did develop a better understanding of Social Credit, largely due to the instruction by L. Denis Byrne and George Powell, technical experts in Social Credit, who Douglas sent as advisors from England. Unfortunately, Aberhart’s life was cut short by his premature death while in British Columbia—a death which many people considered highly suspect. Ron Gostick, National Director of the non-party Social Credit Canadian League of Rights related to me how Aberhart had confided to him that were he to "do it all over again" he would launch a vigorous campaign to enlist an army of intelligent and devoted young persons across the nation to mobilize for the implementation of Social Credit policies. In Alberta the legal or Constitutional route had resulted in defeat and deadlock.

The enormous real potentialities of the future and the vicissitudes we must more obviously suffer by failure to recognize and realize those potentialities for society at large should provide the required object lesson and motivation for future successful action--provided we maintain our efforts through strength of faith and do not allow failure by default. That would be unthinkable and is no option for intelligent and well-intentioned humans. Douglas demonstrated conclusively how economic security is possible in the context of freedom and abundance.

Sincerely
Wally Klinck





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