Salient. Victoria University of Wellington Students' Newspaper. Volume 31 Number 16 July 16, 1968
For And Against — Defence by S. L. Dickson
For And Against — Defence by S. L. Dickson
The National and Labour parties have still to adjust to an important new factor in the New Zealand political situation: Social Credit is now, suddenly, arguing its case from the statements of economists whose references are impeccable.
Hence the endorsement by the Social Credit Leader, Mr. V. F. Cracknel, M.P., of the new International Monetary Fund scheme for creating international money, the physical existence of which will consist only of book entries.
The Minister of Finance, Mr. Muldoon, has expressed public surprise that Mr. Cracknell should take this position, but to anyone familiar with the basic ideas of Social Credit there is nothing surprising about it.
Consider this statement, for instance, made by the I.M.F. Managing Director, Mr. Pierre-Paul Schweitzer, himself: "These special drawing rights, created, as it were, by a stroke of the pen. will be essentially entries in the books of the Fund . . .Some people like to think of them as money, others as a form of credit . . .The material point is not how they are named but what can be done with them."
Such a comment contains all the essential elements of the Social Credit attitude towards money. So Mr. Cracknell quite naturally calls it "a tremendous step forward in international monetary thinking."
This is only one way in which major elements of Social Credit monetary theory as formulated in the 1920's by Major C. H. Douglas have been subsequently vindicated, and are to be found—couched in appropriate academic language—in almost any modern economics textbook.
But Douglas was an engineer, not an economist. It was the Social Creditors' misfortune that—like the Australian nurse Sister Kenny in her fight to obtain medical recognition of a new method for treating polio victims—they persisted in using their own terminology.
They suffered as a result a remarkable storm of abuse and ridicule which continues to this day. None of this alters the fact that in some important respects the Social Credit analysis of the operation of the financial system and its defects was way ahead of its time.
Economists have now caught up with these useful Social Credit ideas, as the new I.M.F. scheme and various current proposals for linking wages with productivity demonstrate. But this situation makes possible a peculiar political reaction.
Social Crediters are now free to argue the facts on which their case is based directly from the writing of economists. This is a technique which can be quite unsettling to their opposition.
For the first time Social Credit is achieving widespread credibility, which after next year may be reflected by an increasingly influential position in Parliament.
What Social Crediters are promoting is in fact a political policy. (Government should create more of the nation's credit supply at no cost to the people, and private institutions less), not a radical new economic theory. But to audiences untrained in economics, concepts like credit creation hit them as a major revelation, because they have always thought of banking in terms of the relending of cash deposits.
The psychological effect of this is that many people tend to accept the Social Credit policy along with the indisputable economic facts Social Crediters teach with it. (The process is something like this: "Social Crediters have been right all along about money being a matter of book entries made against the security of production—therefore their policy is right too.")
It is here that the political parties and financial institutions which have perpetuated false thinking about credit fall into a trap of their own making. The electoral ignorance on which they blame the Social Credit "protest" vote is a result of their own attitudes.
Right now the National Party is distributing a pamphlet on Social Credit in Canada by Mr. H. J. Walker, M.P., who makes this statement: "If Social Credit ever became the Government here, and decided to put into operation some of the cranky schemes which the party, including its leader the Member for Hobson, are advocating, they could wreck our financial institutions within a matter of days."
Now Mr. Cracknell is a qualified accountant widely respected in Northland for local body work carried out over many years. Examination of his careful parliamentary record in his first session makes such attempts to portray him as a radical innovator of ruinous financial schemes look more than a little silly.
What are the policies that Mr. Cracknell and the Social Credit League advocate? The short answer is that Social Credit means the full implementation of the Reserve Bank Act, 1964.
This sounds awfully unexciting, but it's the truth. Because of the provisions of the Act. which outline the functions and powers of New Zealand's central bank, Social Credit policies could be put into effect without any new legislation. No more personnel would be needed because existing agencies would be used.
Social Credit will use the bank's statutory powers to "regulate and control money, banking credit and currency", with regard for the "highest degree of production, trade and employment, and the maintenance of a stable internal price level."
In terms of practical policy, this involves the increased use of Reserve Bank credit at cost of issue for government and local body capital works. (The total volume of credit issued by both government and private institutions would be kept in balance with the value of the production of gods and service.)
What is the reasoning behind the advocacy of the greater use of "costless credit"? The Social Credit analysts of the New Zealand economy reveals these major defects:
1. An unnecessarily high cost structure, resulting from high charges for credit available to the private sector, and high public debt servicing charges (when expressed as a proportion of the budget.)
2. A tax load sufficiently burdensome to act, together with high costs, as a severe disin centive to increased production both in agriculture and industry.
3. A shortage of capital for local government industry, resulting from Government commandeering of the people's savings through enforced savings investment in central government loans.
4. A lack of Government enterprise in seeking bilateral trade agreements with a variety of countries, to expand the narrow base of our overseas trade.
Social Credit believes its policy would alleviate these defects in the following ways:
1. The cost spiral would be cut back, because the cost of credit in both the private and public sectors would be reduced.
2. Taxation and local body rates could be reduced.
3. Production would be stimulated by these incentives (reduced taxes, rates, costs) and by careful selection of projects to be financed by Reserve Bank credit.
4. More private savings, at present used largely to finance local and central government, would be released for investment in industry. (At the end of last year trustee and private savings banks alone had investments of $426 million in Government securities, $36 million in local government securities, $86 million in mortgages and only S19.5 million in business loans.)
5. The people, through their elected government, would have greater control over the total issue of credit, which after all is made possible because of their combined efforts.
Such a policy is often condemned as inflationary, but there need not be any more credit created over-all.