Sunday, 28 December 2014 00:47

Social Credit Explained in 7 Points

Written by M. Oliver Heydorn
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As interest in the economics of Social Credit grows, it is important to provide people with accurate and comprehensive summaries of C.H. Douglas' analysis and remedial proposals. In what follows, I will outline in seven points the salient features of the Social Credit approach to economic questions.

1. The economy exists to provide people, as efficiently as possible, with the goods and services that they need to survive and flourish. That is, production exists for the sake of consumption, not for the sake of money-making, employment, satisfying the creative impulse, or ‘moral’ discipline (considered as ends in themselves). It most certainly does not exist for the sake of centralizing wealth and power in the hands of an oligarchic elite.

2. The primary economic problem, that which prevents the economy from fulfilling its true purpose (as outlined in point #1) to the extent that this fulfillment is physically possible, is a structural feature of the conventional financial system: there is a chronic deficiency of consumer purchasing power, or a macro-economic gap between the rate of flow of retail prices and the rate at which incomes are distributed by the corresponding production of consumer goods and services. The established system is inherently unbalanced; Say's law does not hold.

3. This gap has many causes [profit-making (including profits derived from interest charges), the re-investment of savings, deflationary banking policies, and taxation], but is due, in the main, to the way in which real capital (machines and equipment) are financed and the way in which their costs are then accounted under existing conventions. Whenever real capital is manufactured or replaced, the capital costs that are generated exceed the consumer incomes that are simultaneously distributed. The gap is intensified by net savings.

4. The present economic system employs a variety of palliatives in order to compensate for the gap (bankruptcies, forced sales, ‘favourable’ trade balances, etc.), but, in the main, it relies on governments, businesses, and individuals to borrow additional debt-money from the private banking system. By spending money on additional production, whether public or private, that the consumer will not buy or will not pay for in the same period of time, consumer incomes can be augmented without increasing the flow of consumer prices. In the same way, loans to consumers can help to bolster the existing flow of consumer purchasing power. For the most part, we muddle along by filling the gap with debt-money. (N.B. every bank loan creates money ex nihilo in the form of bank credit and every repayment of a bank loan destroys bank credit. The vast majority of the money supply exists in the form of bank credit and most of the bank credit is issued in the form of a repayable debt).

5. The consequences of the conventional palliatives are: the business cycle, constant inflation (mostly cost-push, but also demand-pull), the misdirection of economic resources, economic inefficiency, economic waste and sabotage alongside forced economic growth, an ever-increasing mountain of societal debt that is, in the aggregate, unrepayable, recurring financial crises, heavy and often increasing taxation, wage and debt-slavery, servility, the usurpation of the unearned increment of association by the private banking system, the centralization of economic wealth, privilege, and power in fewer and fewer hands, forced migration, cultural dislocation, unnecessary stresses and strains, social conflict, environmental degradation, and international economic conflict leading to war, etc., etc.

6. The Social Credit solution to the problem of the gap is to have a politically independent organ of the state, a National Credit Office, continually issue, on the basis of the relevant statistics, a sufficient volume of credit so that consumers can purchase the ‘surplus’ of goods and services that are being produced. This credit is to be issued free of debt and in lieu of all of the conventional palliatives that are presently employed in attempting to manage the gap.

In order to accurately reflect the physical reality, a certain volume of this compensatory credit would be used to lower retail prices in accordance with the consumption/production ratio. The true cost of production is consumption. Hence, production should not cost, in financial terms, more than was spent on the consumption that was necessary to bring it into existence. Selling goods below cost to the consumer and making up the difference to the retailer would allow for production to be sold at its ‘Just Price’ – i.e., the price that reflects its real cost.

The remainder of the compensatory credit is to be issued in equal proportions to each citizen, whether he be employed in the formal economy or not. The National Dividend is justified morally by the fact that each citizen is rightly regarded as a shareholder in his economic association and as an heir to society’s cultural heritage. It is the cultural heritage (the inventions and discoveries of past scientists, engineers, organizers, etc.) which makes the greatest factor in modern production, the real capital, possible. And it is the real capital which is primarily responsible for the price-income gap. Therefore, the most appropriate way of filling this gap is to recognize that individuals are the beneficial owners of the real capital and deserve to receive a dividend on its operation. The National Dividend is justified pragmatically by the fact that the economy needs an injection of debt-free credit in order to function in a real or self-liquidating equilibrium and it needs to provide those whose labour is no longer required in the formal economy (on account of technological advances and improved production efficiency) with an income so that they can nevertheless purchase goods and services. A policy of full employment makes absolutely no sense when the efficient production of those goods and services which people can use with profit to themselves does not require, within the context of a modern, industrial economy, the full capacity of the available labour force.

The Social Credit economic system is simply free enterprise (i.e., the private ownership of the means of production, the free market, individual initiative, and functionalist profit-making) plus an honest financial system. It is neither socialist nor capitalist, but is rather distributist in orientation: by means of the dividend every citizen would be guaranteed a minimum claim on the production made possible by the real capital. Social Credit would transform society into a gigantic profit-sharing co-operative.

7. The consequences of a Social Credit monetary reform would be the establishment of absolute economic security for every citizen in place of poverty and the threat of poverty, increasing leisure in place of servility (i.e., freedom from wage-slavery, debt-slavery, and useless, witless, and/or destructive employment), the elimination of society's chronic and unrepayable debt burden and the interest charges that accompany it, the decentralization of economic wealth and power to the individual, the elimination of economic waste and sabotage, continual reductions in prices instead of inflation, much lower taxes, much less government regulation and interference, economic co-operation instead of ruthless competition, social stability, the transformation of civilization based on the unfettering of the creative impulse and the flourishing of both folk culture and high culture, environmental protection, conservation, and repair, and mutually beneficial international trade providing a sound foundation for world peace. Whatever is physically possible and desirable should be financially possible. All that is required is to alter the financial system so that it accurately represents the physical facts and potential of the real economy.

Last modified on Saturday, 10 February 2018 18:00
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19 comments

  • Comment Link Oliver Sunday, 09 May 2021 18:21 posted by Oliver

    Hi Michael,

    Those are some good questions and observations. Douglas suggested that if there is some danger of gaming or other forms of manipulation, retailers who wished to benefit from the compensated price discount would have to agree to a negotiated percentage of profit on turnover that is determined to be equitable for the industry in question. There is no limit there on aggregate profits, but, in order to increase profit, retailers would have to supply more. This is explained in one of the latest DSC animated videos: https://www.youtube.com/watch?v=K9xYDK64GAc&t=1s

  • Comment Link Michael Kean Sunday, 18 April 2021 21:46 posted by Michael Kean

    Thanks Oliver,
    If supplier1 gets a sale at $100 after NCA discount and supplier2 gets a sale at $102 after discount for the same product, will the NCA pay the discounts in both cases whatever they are, or will it only pay a maximum of the lowest discount requested? I see an issue here if supplier1 requests a profit of $5 (total $105) and supplier2 requests a profit of $6 (total $108), ignoring all other cost not passed on in wages, etc. Why should the NCA pay more than a $5 profit ceiling? Alternatively, why wouldn't supplier1 collude with supplier2 and both ask for profit of $10 (typical prisoners' dilemma/game theory issue)? The customer doesn't seem to get a lookin here. That is, the capitalist supply/demand curve seems to translate to a cost/demand curve with a profit ceiling or profit gaming under Social Credit. Please clarify. Thanks again, Michael.

  • Comment Link Oliver Thursday, 15 April 2021 21:03 posted by Oliver

    Hi Michael Kean, we have to make a distinction between what is sometimes referred to as the national or societal profit in Douglas Social Credit, i.e., the total surplus of goods and services as represented via prices vs. the income made available through the normal paths of distribution (wages, salaries, and dividends) to purchase them on the one hand, and private profit, the profit of companies, entrepreneurs, etc., on the other.

    Under Douglas Social Credit people who work would retain wages and salaries and, if they successfully give people what they want, companies and scientists, inventors, developers, etc., are free to make a profit, as much profit as the turnover of their goods and services can justify. The incentive to work and to innovate remains.

  • Comment Link Michael Kean Saturday, 10 April 2021 01:04 posted by Michael Kean

    Hi,

    "To respond to just one of your questions, under SC, people who work in the formal economy would still retain their wages and salaries and those who own businesses would still be able to make a monetary profit (which would be wholly dependent on giving consumers what they independently want) in addition to their National Dividend payments."

    Just wanting to understand how this profit is determined/limited and distributed nationally, and the profit-sharing relationship between the inventor that provides the intellectual property and the owners / shareholders of the business that brings the IP to market. Thanks.

  • Comment Link Michael Kean Friday, 09 April 2021 21:01 posted by Michael Kean

    Hi,
    "It is the cultural heritage (the inventions and discoveries of past scientists, engineers, organizers, etc.) which makes the greatest factor in modern production, the real capital, possible."
    What about current scientist, engineers, organizers, etc.? If production is fully consumed, the Just Price is the cost of production. Where is the incentive for current IP creators to make a profit from their labor-saving contributions? Are they just paid a fixed wage or salary (part of cost of production) or do they compete with the citizenry for a higher portion of the National Dividend? If so, how?
    Thanks,
    Michael

  • Comment Link Adrian Newell Friday, 10 July 2020 09:38 posted by Adrian Newell

    I know very little about SCT, this is the second time I have looked at it. I just wonder if in part, only in part, it is compatable with MMT. Compatable to the extent that money creation can be done in the Financial System. Not of course that it goes along the whole path that SC does. Becasue in MMT the money is not distributed evenly to the people and also its not linked to the level of production.

  • Comment Link Victor C Friday, 26 January 2018 01:08 posted by Victor C

    a very good summary. production exist because of consumption. Social credit is based on the time tested principles of the gospel. "work" was the effect of sin.(Genesis 3:19) removing sin and its consequences, ie greed, etc. will eliminate "work", eliminate the need, etc visit http://www.race2020.org as we embark a new system, as we say come holy spirit and renew the face of the earth...

  • Comment Link mhikl Friday, 26 January 2018 01:06 posted by mhikl

    What messed up fonts when I try to copy any pages for study from and Clifford Hugh Douglas institute.
    Terrible. I have to reformat them to plain text and then back again to be able to use them

  • Comment Link  august vermassen Friday, 26 January 2018 01:04 posted by august vermassen

    Very hard to get one's head around.

    Graphics might be a great aid to make it more understandable.

    A picture is still worth a thousand words.

  • Comment Link Liam Friday, 26 January 2018 01:03 posted by Liam

    @Darrell: In my book "Economic Cures They Don't Want You to Know About" (see http://www.economiccures.com for synopsis) you will find a very practical set of answers to all of these questions and much more. In short though, the economy and businesses would work pretty much exactly like they do today. The only real difference is that the shortage of money would be eliminated so that all people and businesses would share the plenty of our land of plenty and mechanisms are suggested to prevent future generations from being hoodwinked by tomorrow's parasite sociopaths.

  • Comment Link Oliver Heydorn Friday, 26 January 2018 01:03 posted by Oliver Heydorn

    Hi, Darrell,

    I agree that there is much work of a more practical or empirical nature which must be done in support of the Social Credit case. I think, however, that you will find that most of the questions you list here are answered in my 548 paged book Social Credit Economics. To respond to just one of your questions, under SC, people who work in the formal economy would still retain their wages and salaries and those who own businesses would still be able to make a monetary profit (which would be wholly dependent on giving consumers what they independently want) in addition to their National Dividend payments.

  • Comment Link Darrell Friday, 26 January 2018 01:02 posted by Darrell

    This is a good summary - for those who have spent some time digesting the basic principles of Social Credit philosophy and understanding the mechanism of distribution. What is lacking here - and in every instance where SC is "explained" - are practical, real-world examples of the implementation of SC priniciples and what it would do/how it would change the day-to-day business exchange to which we are all familiar. For example, while the National Distribution would ensure that no one goes without the basic necessities of life, could one still amass monetary wealth (whether or not this is necessary) through employment or owing and operating a business? How would our currency relate to other currencies and could one exchange currencies to travel to other countries? Would the wage scales that we are used to, based on education, job position, industry, remain the way they are today? Would commodities that are denominated in world curerncies be provided to Canadians at cost rather than at world prices?
    These are the sort of questions that never get answered when any SC experts set out to explain SC. I think that if one wants to create a grass roots revolution to bring about change to a SC-based economy, there needs to be a lot of focus put on practical examples of SC in action in order to grow support.

  • Comment Link abc Friday, 26 January 2018 01:01 posted by abc

    I agree this is not enough simplification. As a test, you can show it your mother/neighbour and see how much they understand. IMHO, this needs to be drastically simplified for an average person to understand. Way too complicated.

  • Comment Link ezra Friday, 26 January 2018 01:00 posted by ezra

    What do you think of T. Thoren's work THE TRUTH IN MONEY....interest free fiat money

    Ezra

  • Comment Link  Ted Reznowski Friday, 26 January 2018 00:59 posted by Ted Reznowski

    Thanks for a great summary. It is certainly difficult, but needed more than ever, to have summaries that can explain to people, what Social Credit is and how it would affect their every day life. I've always thought that it was one of SC weaknesses, as there are really no good, modern summaries, or even courses (book, audio, film), that can be easily distributed and understood. Maybe others, who think they have the talent and knowledge, will put it to good use in creating teaching materials.

  • Comment Link  B. Mitchell Friday, 26 January 2018 00:58 posted by B. Mitchell

    Unfortunately not well expressed at all. Got boring and nearly incomprehensible for most folk by the end of point 2. Switched off didn't read the rest. The points could have been simplified and been far more illucidating for folk who are not already accountants or economists. The other ordinary folk are those that need to be reached and have something easily understood to read. The current system has avidly avoided and indeed suppressed the Social Credit philosophy and discredited political parties that have stood on SC principles. Most unfortunate, but the Zionist/Jewish banking system with their corporate enterprises, their military / terrorist and political puppets are actively protecting or extending their strangle-hold on everything. Their greed, control and NWO schemes for self gratification take total priority.

  • Comment Link Jean-Nil Chabot Friday, 26 January 2018 00:57 posted by Jean-Nil Chabot

    "Social Credit Explained in 7 Points is a summary well made. Summaries are for awakening interest. They raise questions which need to be answered. Money was not invented in its finished and perfect form, rather, it has been in evolution since its beginning and as long as it was attuned to man's social nature it has allowed human creativity to accomplish great things. The real nature of money (or credit) is social. Its capacity to serve the common good is immense. Unfortunately, some have usurped that capacity and made it a powerful instrument to serve their own selfish interests or ideology. They have used the power of money to dictate to governments and enslave the nations. Under their control, money has become a travesty of its true nature; it has become Mammon, an enemy of the common good. Being false, it is necessarily irrational which causes it to partially collapse periodically and will certainly do so completely in the end. Douglas has proposed a truly rational monetary system as a substitute for the false one that has been in place for too long - Social Credit will bring rationality to the whole of the economy. Understanding Social Credit demands reflection and the capacity to think a new monetary paradigm. Douglas brought it to light during the Great Depression, and it is still valid today, but it will have to implant itself in a different economic world. For instance Social Crediters might want to consider how electronic money could be integrated into Social Credit policy. To grasp the doctrine of Social Credit is to know money as the social means of making the fruits of progress available to all people. Social Credit would open the door to a better world."

  • Comment Link Francois Friday, 26 January 2018 00:57 posted by Francois

    Thank you for putting it to words. How do we go about changing the "system"???

  • Comment Link Steve Friday, 26 January 2018 00:56 posted by Steve

    Excellent summary. Integrates the philosophy and policies in a coherent fashion.

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