Thus far in this series of articles exploring the relationship between Social Credit and democracy, we have seen that conventional ‘democracy’ suffers from a large number of design faults which vitiate it and render it ineffective. That would be bad enough, but Douglas goes one step further and claims that the ineffective mechanisms of conventional ‘democracy’ provide the best possible cover for the operations of a hidden dictatorship. Not only do they provide the best possible cover, but the same mechanisms which are ineffective from the point of view of fulfilling the true purpose of political association can be rendered most effective (by being cleverly manipulated) for the purpose of fulfilling an alternative policy-objective, one that is imposed by an agency that is external to the elected ‘government’.
The debt-finance system, by generating a chronic insufficiency of purchasing power, thereby requiring increased borrowing (in lieu of large trade surpluses) if economic activity is not to grind to a halt, causes the State with its great, almost unlimited capacity to borrow, thanks to its power to tax (i.e. creditors are eager to lend to it in the knowledge that it will always have a means to pay them back), to expand its role in the economy. Thus, as society finds its purchasing power increasingly insufficient to satisfy its requirements, the State steps in, with its role becoming larger and larger as it fills the growing gap. Caught unawares by these developments, which they were utterly incapable of anticipating, economists scrambled to come up with theories explaining and indeed, justifying such extensive government intervention.
The central contention of the Social Credit critique of contemporary economic management (or rather mismanagement) is the existence of a gap between prices and incomes in the operation of any modern economy - i.e. an economy based on debt-finance and multi-stage, mechanized production. This underlying deficiency of purchasing power, makes it impossible to liquidate the costs of production without resorting to increased debt and/or a large trade surplus - since prices cannot fall below costs without putting the continued operation of an enterprise in peril, (unless it can rely on direct or indirect government support). Furthermore, the critique contends that this gap is bound to grow as the economy becomes more sophisticated - i.e. as production involves more and more stages, and use of machinery increases - entailing spiralling debt and increasing trade tensions if the necessary financial remedies are not applied.