Social Credit

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.

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 played 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
We win a trade war, putting foreigners in debt to us for our surplus of exports
We have 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

Many of Douglas' ideas have since been proven to be failures, but during the depression they were very popular, and seemed to provide common-sense solutions to complicated economic problems.

Social Credit

Further Reading