Science Fair Project Encyclopedia
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 shirted paramilitary mass-movement, that marched, demonstrated and agitated in the 1930s for the introduction of a Social Credit system.
Social Credit was originally an economic theory developed by Scottish engineer Major C. H. Douglas. The name Social Credit came from his desire to make the betterment of society (Social) the goal of the monetary system (Credit).
Social Credit theory proposes 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.
For such a system to sustain itself Douglas asserted that a number of things must happen:
- People go into debt by buying on credit
- Governments borrow and increase the national debt
- Business borrow from banks to finance expansion
- 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.
Later Versions of Social Credit Theory
Robert A. Heinlein described a Social Credit economy in his first novel, For Us, the Living (published in 2003, but apparently written ca. 1939). (Beyond This Horizon describes a similar system, but in less detail.) The society in the book uses a libertarian method to prevent inflation: the government makes a deal with business owners. Instead of increasing prices, they cut prices, and the government (or the Bank of the United States) pays them the difference after seeing their sales receipts. Like the guaranteed income or heritage checks, this money comes out of the inkwell. In the future, the government no longer uses taxation to fund itself. The characters point out that present "fractional reserve" law allows banks to create money (by loaning out many times more money than they have on hand), while in Heinlein's future society only the US government can create US currency.
Robert Anton Wilson proposed another form of Social Credit. His plan aims to end "wage slavery", and begins by offering a reward to any worker who designs him-or-herself out of a job. The guaranteed income (or, in the Schrodinger's Cat Trilogy, a lesser reward to all other workers who "lose" their jobs to innovation) would prevent starvation. This income would consist of "trade aids" which would lose numerical value with the passage of time. This official reduction in value would encourage spending and (although Wilson does not state this explicitly) limit price inflation. Elsewhere RAW attributes this strategy to Silvio Gesell, who also suggested the government encourage small communities to experiment with alternate economic models. If one of these enclaves seemed especially successful, the country could copy their model in place of Gesell's own plan.
Many if not all critics of Social Credit have argued that it would cause inflation. Gary North (who wrote a book on Social Credit and allows it to appear online) addresses Douglas's plan to stop inflation, but calls it socialistic. He also adds moral arguments, such as the claim that God intends us to work for our survival.
North makes several practical arguments as well (beyond the threat of inflation), all concerning the justification Douglas offered for his plan. First, he states that the fact of consumer debt destroys Douglas's theory. Second, he says the A+B Theorem ignores the fact that all payments go to individuals. Third, he asserts that if the current system causes a break in the flow of purchasing power, so will the guaranteed income payments. Lastly, North proposes that we outlaw fractional reserve banking without instituting Social Credit. He says a 100% reserve free market system would not have any of the flaws Douglas points out.
Heinlein's presentation contains a modified A+B theorem, stressing the argument that all savings remove money from circulation. Wilson does not seem to mention this justification for the plan, stressing instead that the plan (in his view) would end poverty, taxation and wage slavery.
Groups influenced by Social Credit
- Social Credit Party of Canada
- See also: Prosperity Certificate
- Country Party (New Zealand)
- New Zealand Democratic Party
- New Democratic Party (New Zealand)
- Social Credit Party (New Zealand)
- Mondo Politico Library's presentation of Clifford Hugh Douglas' book, Social Credit (full text, formatted for easy on-screen reading)
- Major Douglas and Alberta Social Credit by Bob Hesketh ISBN 0802041485
- Australian League of Rights online library
- Guido Giacomo Preparata - Major Douglas in the witness box
- The Green Shirts in 1930s England
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