In his 1979 introduction to The Monopoly of Credit, Geoffrey Dobbs used a striking chemical analogy to describe both the defects of the existing money system and the broad nature of C.H. Douglas’s remedial proposals:
Another result of this treatment of money as if it were a simple "quantity" is that the polarity in respect of time which is introduced by its creation, not as a simple quantity addition, but always as a repayable loan, is ignored. Although individuals and businesses have to balance their debits and their credits, when it comes to the economy as a whole, units of account are totted up whether they are coming or going, on the plus or minus side of the debt ledger, whether they are cancelling costs or creating them. Thus, when economists have added up all the borrowed mortgage-money paid out to maintain witless, useless, redundant, unwanted, destructive, or simply irrelevant "employment", they find that there is "too much money chasing too few" of the miserable trickle of wanted and needed goods and services actually produced and allowed to reach the consumer. They then cannot understand how permanent and progressive inflation, quite as much as the deflation of the 1930’s, is a sign of a progressive time-lag in the generation of incomes as compared with prices, which can be neutralised only by a direct issue of credit to the consumer (whether by dividend or price discount, or both).
However much it is sophisticated, the argument is essentially the simple one that, if inflation is due to too much of a homogeneous quantitative entity called "money", to add more "money" will make it worse. But "money" is not a homogeneous entity, it is a loan, which is travelling either outward, creating debt, or inward, cancelling it. The best analogy is, perhaps, a chemical one. A state of inflation might be compared to one of corrosive acid poisoning, due to a gross excess of (positive, hydrogen) ions. The urgent need is to neutralise these with a base, i.e. by adding negative, basic, ions. The argument that, since the damage is due to an excess of "ions", to add more "ions" would make it worse, is quite analogous with that used by economists who reject Douglas’s analysis and proposals as "inflationary".[1]
In what follows, I intend to build on Dobbs’ seminal insight, showing how his chemical metaphor greatly illuminates Douglas’s analysis of the modern financial system as well as the Social Credit proposals he presented for its due rectification.
The Chemical Analogy: Debt-Money as Acid
Let’s start with the observation that when you put hydrochloric acid in water, i.e., HCl, it dissolves into H⁺ ions and Cl⁻ ions. This makes the water acidic (caused by an excess of H⁺ ions). By contrast, when you place sodium hydroxide in water, i.e., NaOH, it dissolves into Na⁺ and OH⁻. This makes the water basic (caused by an excess of OH⁻ ions). Now, when you place both HCl and NaOH into water in equal concentrations, the H⁺ ions unite with the OH⁻ ions and they form H₂O. The NaOH base neutralizes the HCl acid and the overall pH of the water reads 7 (or neutral).
For the sake of the analogies which I now intend to draw, let’s have HCl represent “debt-money”, i.e., bank credit that comes into existence alongside an equivalent debt, a credit-debt compound. When a producer or consumer borrows money from a bank, that money sitting in their accounts as a bank liability and offset by an equivalent debt as the bank’s asset, could be likened to HCl. Spending the money into the economy as part of production can then be viewed as equivalent to dissolving HCl into water; the debt obligation of the borrower becomes H⁺ and the money (spendable credit) injected into the economy can be regarded as the Cl⁻. HCl money is, if you will, “acid money”. We might also distinguish a kind of “neutral money”, insofar as the credit (Cl⁻) received via wages, salaries, and dividends derived from the expenditure of producer credit is thereby transformed into consumer income which is not owed by the recipients, but nevertheless remains tied to H⁺ debt elsewhere (i.e., the producer’s loan). This credit is “debt-free” to the recipient, but is still acidic relative to the system as a whole (because someone owes it). When this Cl⁻ is spent by consumers and received as revenue by producers and is used by the latter to pay down their production loans, the Cl⁻ and the H⁺ re-unite and cancel each other out (reducing the acid in the system – to speak metaphorically).
The Interface of the Debt-Money System with the Price System: A Chronic Imbalance
Now, our current money system is, for all intents and purposes, a debt-money system. That is, virtually all money, or the vast majority of money, in the system is HCl money, i.e., bank credit that comes into existence alongside a debt or debt-equivalent when private banks expand both sides of their balance sheets.
Douglas observed that the central flaw of the current system was not the mere fact that it’s a debt-money system, but rather the fact that as debt-money is created, spent, and destroyed in connection with the process of production, costs and prices are generated faster than incomes are distributed. What is basically happening, in terms of our analogy, is that H⁺ is showing up as costs and hence in the prices of the final goods and services being produced, but over and against this flow of prices insufficient Cl⁻ is being distributed to consumers with which those debt obligations (H⁺) can be met. There is thus a chronic imbalance in the system, which we refer to in Douglas Social Credit literature as the price-income gap.
Why does this happen? The following is a very simplified example in order to illustrate the basic cause. Let’s say a producer borrows $100 (HCl money); it dissociates into $100 Cl⁻ (spendable credit) and $100 H⁺ (debt). The producer spends $60 on wages (Cl⁻ to households) and $40 on capital charges (e.g., loan repayments, depreciation, maintenance charges, etc.) Prices are now set at $100 (plus profit) to cover all costs, reflecting the full H⁺ load (what the producer must repay to the bank). But households only receive $60 in Cl⁻ as income, creating a $40 gap. The core problem here is that not all costs are distributable as concurrent income. Labour costs do translate into an equivalent of labour income, but capital costs do not so translate. Money that ends up being spent via the capital channel is used to pay down capital loans (and destroyed), and/or is sequestered in reserves for depreciation/maintenance, and/or is otherwise locked into the producer system and so on.
The existing system, being a debt-money system, can only compensate for this gap by injecting yet more HCl money into the system. This releases Cl⁻ neutral money to consumers, who can then meet the H⁺ debt obligations in prices, but it also adds additional H⁺ debt obligations that will have to be paid by somebody later on. In other words, it pays off production debts by contracting new debt. For example, increasing consumer borrowing can indeed help to fill the gap, but only by indebting the consumer. Alternatively, businesses and governments can borrow. New loans release additional income in the form of wages, salaries, (Cl⁻ as neutral money to recipients), but they likewise add H⁺ to the system (what firms/governments owe). The conventional prescription for patching the gap, because it tries to deal with an excess of debt by means of a process that creates even more debt, does not resolve the surplus debt problem in any definitive manner. Instead, the debt left outstanding tends to accumulate in each succeeding economic period, leading to a condition akin to acidosis (an excess of H⁺ ions). In essence, a debt-money system operating in conjunction with the price-income gap turns the economy into a debt treadmill, where constant and indeed constantly increasing borrowing is required to sustain demand and yet the underlying imbalance is never properly and definitely resolved. We are constantly chasing after Cl⁻, which is ab initio artificially scarce relative to prices, often difficult to obtain, and, in the main, can only be increased in the aggregate by constantly increasing the total outstanding debt (H⁺), in order to pay off existing production debts (H⁺).
Consequences of the Debt Treadmill
This dynamic induces a cascade of problems, or rather a cascade of cascading problems marked by entropy, friction, and intensifying dysfunctionality, etc. We will only examine a few of the more salient ones in what follows, but there are many more that could be mentioned:
- 1. Economic Instability (Bust and Booms): The price–income gap means there’s never enough consumer Cl⁻ (consumer purchasing power in the form of income) to meet the prices reflecting the full H⁺ debt load. When borrowing fails to bridge this gap, demand falls, production stalls, and recessions loom as goods pile up unsold. Conversely, excessive borrowing to compensate overshoots the gap, flooding the economy with Cl⁻ and causing demand-pull inflation as too much money chases limited goods. This boom-bust cycle is inherent to the debt-money system as it operates under the weight of the price-income gap. The scarcity of Cl⁻ forces reliance on more HCl, which can either under- or over-corrects the imbalance, periodically destabilizing the economy.
- 2. Cost-Push Inflation: The constant need on the part of consumers to repay H⁺ obligations contracted by their previous attempts to fill the gap diverts Cl⁻ from the purchase of goods and services into debt-servicing, thereby reducing available purchasing power. Workers, squeezed by this diversion, demand higher wages or salaries to secure more Cl⁻. But these wage increases eventually result in increased prices. Once that occurs, the consumers need to borrow even more to meet the increased prices when their incomes fall short and the cycle repeats. There is, in other words, a positive feedback loop where cost-push inflation becomes a structural feature. The scarcity of Cl⁻ thus initiates a cycle of rising costs, as economic actors chase insufficient purchasing power to cover both living expenses and debt repayments.
- 3. Financial Crises: As aggregate H⁺ (societal debt) grows, the burden of repayment can become unsustainable. When the rate of new borrowing slows—due to caution, high interest rates, or lender reluctance—the inflow of Cl⁻ money shrinks, exacerbating the price–income gap. Businesses, unable to sell goods or service debts, go bankrupt, wiping out H⁺ through defaults but also destroying wealth and livelihoods. This cyclical purging of debt through crises is a direct consequence of the system’s reliance on additional HCl to compensate for Cl⁻ scarcity, highlighting its inherent fragility.
- 4. Economic Conflict: Because Cl⁻ is inherently scarce and otherwise not so easy to come by (someone has to borrow more HCl into existence to increase its volume), economic conflict is induced as people try to get as much Cl⁻ as they can and to avoid being the person who has to be saddled with more debt (H⁺). Individuals, businesses, and governments all vie to secure purchasing power without incurring more H⁺ debt whenever possible. Workers demand higher wages, businesses raise prices, and creditors tighten terms, fostering conflict between classes and sectors. This struggle reflects the zero-sum nature of a system where Cl⁻ is scarce, and no one wants to bear the H⁺ burden. The result is social tension, labour disputes, and inequality, as the fight for Cl⁻ pits economic actors against one another.
- 5. Cancerous Economic Growth: The constant need for consumers and businesses to obtain more Cl⁻ induces constant economic growth. This growth is rightly characterized as cancerous because it is largely undertaken for the sake of meeting debt-demands and not for the resultant production in and of itself. Speculative bubbles, overproduction, and resource-intensive projects proliferate as they prioritize expansion over efficiency or human welfare. The system’s dependence on more HCl to bridge the gap distorts economic priorities, sacrificing sustainability for short-term debt relief.
- 6. Economic Waste and Sabotage: To maximize Cl⁻ revenue in a system where purchasing power is scarce, producers engage in waste and sabotage. Farmers destroy crops, manufacturers build obsolescent products, and industries hoard resources to keep prices high, ensuring they capture as much Cl⁻ as possible. Planned obsolescence and overproduction maintain demand for Cl⁻, but at the cost of efficiency and societal benefit. This deliberate waste is a direct response to the price–income gap, as economic actors manipulate supply to compensate for insufficient demand.
- 7. Centralization of Wealth and Power: The reliance on HCl money to bridge the price-income gap introduces compound interest on long-term debt, concentrating wealth and power in the hands of the owners of the banking system. Each injection of HCl creates H⁺ obligations that accrue interest, siphoning Cl⁻ from the broader economy to the creditors. Over time, this dynamic funnels resources toward a narrow elite, as borrowers—individuals, businesses, or governments—strive to service mounting H⁺ burdens. Like an acidic solution corroding its container, this process erodes economic democracy, consolidating wealth, power, and privilege among those who control the issuance of HCl, leaving society increasingly stratified.
- 8. Servility/ Wage and Debt Slavery: The scarcity of Cl⁻, coupled with a policy of full-employment as part and parcel of the debt-induced demand for continual growth and the necessity to distribute additional incomes through work, transforms individuals into wage and debt slaves, eroding leisure and fostering servility. To secure Cl⁻, workers must labour incessantly and continually borrow additional HCl when their incomes fall short, incurring H⁺ obligations that bind them to creditors. This relentless pursuit of scarce purchasing power as a condition of survival diminishes time for personal fulfillment, replacing autonomy with dependence on employers and lenders. Individuals lose freedom, compelled to serve the system’s demands rather than their own aspirations.
- 9. Poverty Amidst Plenty: The price-income gap generates poverty amidst plenty, as abundant goods (Na⁺) remain unsold due to insufficient Cl⁻ to meet H⁺-laden prices or are only sold to those who can gain the additional income needed to pay for them or who can borrow to buy. While production creates wealth, the underlying scarcity of purchasing power leaves many unable to access it, resulting in want amid surplus. This paradox underscores the system’s failure to distribute wealth efficiently and equitably to all, condemning certain segments of society to deprivation despite the economy’s capacity to provide.
- 10. Heavy and Increasing Taxation: To service public debts (H⁺) incurred by government borrowing to bridge the gap, and to cover social programs addressing the system’s dysfunctions—such as poverty or unemployment—taxation escalates. These taxes drain Cl⁻ from consumers, further reducing purchasing power and exacerbating the gap. Such measures fail to address the root imbalance, instead imposing a regressive burden that stifles economic vitality and deepens the cycle of dependency on HCl injections.
- 11. International Trade Imbalances: For the same sort of reasons, countries, each of them labouring under their own internal deficiency of consumer buying power in the form of income (Cl⁻), try to export more than they import. This lessens the gap in two ways: by importing more Cl⁻ that is effectively debt-free as far as the receiving country is concerned, while, at the same time getting rid of some surplus production.
- 12. International Conflict and Militarism: The zero-sum nature of trade, driven by Cl⁻ scarcity, often escalates into geopolitical conflict. Countries that lose in the export game face worsening gaps, increasing internal pressure and debt. To secure markets, resources, or Cl⁻ inflows, nations may resort to military means, enforcing exports or seizing assets to alleviate their H⁺ burdens. Historical examples, like colonial exploitation or resource wars, reflect this dynamic, where the need for Cl⁻ drives aggression, perpetuating global instability as winners and losers emerge in the struggle for economic dominance.
- 13. Environmental Degradation: The cancerous economic growth means that the economy does not operate in the most physically efficient manner possible; many materials and resources are consumed in order to sustain the rate of growth needed to maintain the flow of additional Cl⁻ injections. Habitats and non-renewable resources are senselessly destroyed in the process. Pollution abounds because no one can afford, in an economy that is inherently anemic where Cl⁻ income is concerned, to pay enough to prevent it, mitigate it, or repair the damage that it does. Costs become externalized.
- 14. Migration and Demographic Pressures: Developed countries that don’t reproduce adequately (and who can afford it?) import additional producer-consumer units known as immigrants (who can also be saddled with consumer debt) in order to help sustain the requisite level of economic growth and inflow of compensatory Cl⁻. At the same time, countries that have difficulty filling their gaps export some of their people to lessen the burden on societal infrastructure, the need to provide jobs, and so on. Migration thus becomes a byproduct of Cl⁻ scarcity, exacerbating cultural tensions and global inequality as countries shift the burden of their economic imbalances onto mutually beneficial (in narrow economic terms) population flows.
The Social Credit Solution: A Base to Neutralize Acidity
To rectify the corrosive imbalances of the debt-money system operating under the demands of the recurring price-income gap, C.H. Douglas proposed the issuance of a new form of money, analogous to sodium hydroxide (NaOH), which dissociates into Na⁺—representing the real wealth of goods and services produced—and OH⁻, embodying debt-free purchasing power. Unlike HCl, which burdens the recipient with H⁺ debt, OH⁻ flows unencumbered, requiring no repayment. This base money, issued under the auspices of a National Credit Authority, would be grounded in a National Profit and Loss Account, wherein surplus production—goods and services unmatched by distributed income—serves as the asset base justifying the creation of OH⁻. Such debt-free credit would supplant the palliative measures of consumer, business, or governmental borrowing, which merely perpetuate the acidic cycle.
When OH⁻ enters the economy, whether as a National Dividend distributed directly to consumers or as a National Discount reimbursing retailers to lower prices, it would neutralize the surplus H⁺ embedded in the costs and prices of production. Consumers wield enhanced purchasing power without incurring new debt, while producers recover their costs without adding to the systemic H⁺ load. This interaction, akin to H⁺ and OH⁻ combining to form neutral H₂O, restores a self-liquidating equilibrium, aligning the financial system with the real economy at a metaphorical pH of 7.
Illustration: Neutralizing the Price-Income Gap
To elucidate, let us consider the following production scenario involving $100,000 of HCl money:
- A producer borrows $100,000, dissociating into $100,000 Cl⁻ (spendable credit) and $100,000 H⁺ (debt).
- Of this, $60,000 is disbursed as wages (Cl⁻ to households), and $40,000 covers capital costs. Prices are then set at $100,000 to reflect the full H⁺ load, but consumers possess only $60,000 in Cl⁻, yielding a $40,000 gap.
- Current System: Consumers borrow $40,000 (HCl), gaining Cl⁻ to purchase goods but adding H⁺ debt, perpetuating the acidic treadmill.
- Social Credit System: Instead of additional borrowings, the National Credit Authority issues $20,000 OH⁻ as a National Dividend to consumers and $20,000 OH⁻ as reimbursements to retailers, enabling a 20% price discount. Consumers, now holding $80,000 ($60,000 wages + $20,000 dividend), purchase $100,000 of goods for $80,000 due to the discount. Retailers receive $80,000 from consumers and $20,000 from the state, fully covering costs. The $40,000 gap is closed without new debt, neutralizing the system’s acidity.
The NaOH mechanism ensures that purchasing power matches production, dissolving the price-income gap without compounding H⁺ obligations, much as a chemist balances a solution to achieve neutrality.
The National Credit Authority: Architect of Equilibrium
Douglas envisioned the National Credit Authority as the economy’s master chemist, tasked with maintaining financial equilibrium. Its functions would include:
- Assessing the Imbalance: Calculating the price-income gap, akin to measuring a solution’s pH, to determine the extent of H⁺ surplus.
- Issuing OH⁻: Dispensing precise quantities of debt-free credit (OH⁻) via dividends and discounts, calibrated to neutralize excess H⁺ without overshooting into inflationary alkalinity.
- Sustaining Balance: Continuously adjusting issuance to align purchasing power with production, ensuring a stable, pH neutral economy.
Insufficient OH⁻ would leave the system acidic, fostering stagnation, whereas excess OH⁻ would risk alkalinity, sparking OH⁻ inflation. The Authority’s role is to maintain a delicate balance, ensuring money reflects real wealth without the distortions of debt, much as a chemist titrates a solution to achieve a pH of 7.
Social Credit as a Transformative Paradigm
The acid/base chemical analogy thus reveals why Social Credit transcends mere reform, constituting a fundamental reorientation of economic thinking. It exposes one of the basic fallacies of conventional economic orthodoxy which misconstrues HCl money as a uniform quantity, ignoring its dual nature as credit and debt. Remedies that inject more HCl—additional debt—cannot solve the price-income problem in any definite manner, but merely kick the can down the road while exacerbating the acidic imbalance, intensifying systemic corrosion. By introducing OH⁻, issued against the tangible Na⁺ of real production, Social Credit neutralizes H⁺ without adding debt. Far from inflationary, this approach, when properly calibrated, aligns money with goods and services, preventing both scarcity and excess.
Critics who decry Social Credit as inflationary misinterpret OH⁻ as indiscriminate money creation, overlooking its anchorage in real wealth and its issuance in lieu of all existing palliatives including the debt-based palliatives and ‘favourable’ trade balances. It’s quite likely that they are also mistaking OH⁻ money for the only type of money they know, acidic HCl money. Concerns about centralized control can be mitigated by transparent, objective accounting and robust public oversight, ensuring the Authority serves the common interest. Social Credit thus redefines money’s role entirely, transforming it from a tool of debt into a servant of human prosperity and well-being.
Conclusion: A Vision of Economic Harmony
Geoffrey Dobbs’ chemical metaphor casts a brilliant light on Douglas’s Social Credit, revealing that the debt-money system is, in conjunction with an unbalanced price system, an acidic force—corrosive, unstable, and conflict-inducing. Social Credit, by contrast, provides the base money that neutralizes this acidity, infusing the economy with debt-free purchasing power (OH⁻) to balance the H⁺ of debt-laden prices. The National Credit Authority, as the economy’s alchemist, orchestrates this equilibrium, ensuring financial flows mirror real production.
This vision for the financial system liberates society from the debt treadmill, the volatility of boom-bust cycles, and the corrosive strife of scarcity. In an era scarred by constant and often intensifying economic turmoil, Social Credit’s promise of neutralization—where money serves human needs rather than the inner logic of a dishonest and dysfunctional debt-system—resonates with urgent clarity. Like a solution poised at pH 7, it offers an economy of balance, stability, and enduring harmony.
-------
[1] C.H. Douglas, The Monopoly of Credit, 4th ed. (Sudbury: Bloomfield Books, 1979), xviii-xx.
