Major Douglas

The name "Social Credit" has come to be applied to the monetary and philosophical theories stemming from the writings of the late Major C. H. Douglas, a highly trained and qualified engineer and mathematician. He occupied various important posts in charge of constructional projects in England. India and South America. While his analysis of many features of our financial and economic system was derived from his study of earlier thinkers, his own original contribution to economics was first his discovery Of the chronic fault of shortage of purchasing power distributed during the productive processes, and secondly his suggestions as to how this shortage could be remedied.

"Social Credit"

Major Douglas named one of his books "Social Credit" because in that book he elaborated the theory that social credit as he called it, could be the basis by which the human community could step out of one type of civilisation into another type of civilisation. From derivation the word "social" immediately suggests "association" and the word "credit" suggests "belief'. These in combination give rise to the widely accepted definition that "Social Credit is the belief inherent in society that its individual members in association can obtain the results they want." Many Social Crediters throughout the world have cursed the day when Major Douglas first used the term "Social Credit," not because they disagreed with his theories, but because the appellation left itself open to so many misconstructions. Even today we are constantly identified with Socialists, despite the fact that the two philosophies arc worlds apart.

Social Crediters are Insistent that our financial and economic systems are only the means to an objective, and that objective is a new civilisation based on economic security, a civilisation in which all the fundamental freedoms are realities, a civilisation of prosperity, culture, happiness and peace. To come down to earth, the Social Crediter does not believe that it is a supreme function of our economic system to provide work for everyone. Rather we believe that human beings would be better served by our economic system if it relieved us of the deadening, dally routine of toll, leaving individuals free to enjoy Byron's "eternal spirit of the chainless mind." This is one of the most misunderstood conceptions of Social Credit. Our Labour critics sneer that we are against full employment.

Attitude to Work

Mr J. Mathison M.P., in an address prior to the last election condemned "Social Credit bell, book and candle because he said that we were against using the financial system to provide jobs for all, inferring that work from the cradle to the grave was a beneficient ideal. Just as he finished his scathing denunciation of the Social Credit attitude to work, one of his most fervent supporters walked in, a man who had given most of his life in a humble capacity to the Labour movement. Gnarled, wrinkled, bent with toll and poverty this supporter was in himself a living Indictment of the philosophy that if a man does not work neither shall be eat.

Please don't misunderstand me. We have not yet, maybe we never will, reach the stage where work as we know it today can be abolished, even with the aid of all the scientists and the engineers of the world.

Flaw in System

Social Credit is inseparably associated with financial reform. It is because we believe that a serious flaw in our money system prevents us from enjoying the fruits of our productive capacity. The financial proposals of Social Credit depend upon the truth of this belief. If this flaw does not exist then Social Credit monetary theory falls to the ground. Most of our critics, including the orthodox economists, do their utmost to disprove the existence of this flaw.

Best Use of Productivity

We believe that until this flaw is corrected we cannot make full use of the total actual and potential production of goods and services that modern knowledge and skill have made possible. Please be quite sure that you understand what we believe, because again and again Social Crediters are accused of saying that money will cure all our troubles.

The Gap

The fundamental flaw in the present financial system is that it produces a disparity between available purchasing power and collective prices for goods for sale, or in the words of Douglas "the wages, salaries and dividends distributed over any given period of time do not and cannot buy the product of that period, and the whole of production can only be bought by a draft and an everincreasing draft on the purchasing power distributed in respect of future production." This theory of a flaw is denied by the orthodox economist who states that sufficient purchasing power is distributed during production. I have never been quite sure what the orthodox economist blames for recurring depressions, inflation, deflation, over-production, under consumption, too much money, not enough money, and all the rest of the afflictions which cause our economic system to stagger from war to war.

Bank Creations

It is useless to discuss this theory of the flaw until we are agreed on certain basic facts. One of these facts is that practically all money comes into existence as the result of borrowing from the banking system. Once upon a time even orthodox economists believed that banks only loaned money deposited with them. Apparently no one ever asked where the depositors got the money from to make the deposits. The truth is of course that the banking system creates the money in the act of lending by means of book entries. I am not going to expand on this theme nor am I going to argue about it. If any reader does not believe this statement that the banking system creates practically all the money in existence then I suggest that he or she goes no further into this matter of financial reform until they have clarified their minds on the [unclear: tter.]

Money Mainly Credit

Another widely-held misconception regarding money is that it comprises mostly bank-notes and coin. Most readers will have heard of the silly sneers regarding "funny money" and "flooding the country with millions of bank-notes." You can be [unclear: sare] that anyone who uses these phrases has only a very hazy notion of how our present money system works, let alone having an understanding of any proposals for financial reform.

I was moaning bitterly to my wife recently that apparently intelligent friends of mine were unable to grasp the fact that credit-money (operated on with cheques) was used for over ninety per cent of financial transactions in New Zealand. Her explanation, which seemed quite feasible to me, was that the majority of people in New Zealand hardly ever saw a cheque. Most workers receive their wages or salaries in the form of notes and coin and pay their bills in the same medium. They therefore get the impression that notes are the main form of money, whereas a business-man like myself sees very little of notes and coin, practically all transactions both buying and selling being completed with cheques.

Banks Under Social Credit

We have now arrived at the point where two main features of our present money system have been presented. The first is that practically all money comes into existence as the result of the banking system creating it, and the second is that this credit-money is operated on by the use of cheques. It follows therefore that "when a bank makes a loan it increases the amount of money in circulation and the repayment of a bank loan reduces the amount of money in circulation." The words in black type are taken from the Reserve Bank bulletin titled "Money Supply in New Zealand." There is therefore in existence an exceptionally efficient mechanism for the issue and cancellation of money. Under a Social Credit regime the trading banks as they are called, would operate exactly as they do now.

The Flaw Again

Earlier I have referred to a flow in our present financial system upon which the case for Social Credit stands or falls. The flaw is that the total prices for goods produced during a given cycle of production exceeds the total incomes distributed during that cycle. In other words if £100 is distributed in incomes during the production of one hundred pairs of shoes then the total prices of those shoes must be more than £100. The shoes can be sold only if purchasing power is obtained from another source and as that source can only be a lending source it follows that New Zealanders can only buy the goods they themselves produce (or get in exchange) by going further and further into debt. There are some apologists for the present system who see nothing wrong in mounting millions, of debt. Let us see just exactly what happens.

A shoe manufacturer distributes £100 in purchasing power during a cycle of production. As practically all money comes into existence as a debt it obviously means that this £100 must meet an interest levy of approximately £5 per annum. Let us suppose that the shoe manufacturer takes a year to complete his cycle of production and that his borrowing therefore costs him £5. It is quite plain that he must obtain at he very least £105 back from shoe buyers in order to meet his costs including the interest. The first point is that his prices must be raised by the £5 if he wants to escape bankruptcy. Secondly where do the shoe buyers get the money from to meet the £5 imposition? They have received only £100 in the form of purchasing power during the cycle of production.

It is true that the £5 eventually paid to the banks in the form of interest will re-emerge In the form of wages and salaries etc. to the bank employees. But before the shoe buyers can buy the shoes, so that the shoe manufacturer can pay the interest, so that the bank can pay its employees, somewhere, somehow that extra £5 has to come into existence and the only way under the present system for it to come into existence, is for it to be borrowed. So that in addition to the interest bill on the original £100, a bill for the interest on the Interest has to be met. This interest business is one cause of the disparity between purchasing power and prices. There are other causes but this one should suffice to show that there is a considerable case for the fundamental Social Credit theory of the flaw.

Compensation for Disparity

The question now arises as to how this disparity caused by the flaw can be remedied. As the interest bill can be considered as a necessary charge by the trading banks to cover their costs of operation the most common-sense way seems to be to provide the people of New Zealand with the purchasing power to meet this charge without going further into debt. In other words to compensate them for this necessary charge.

The very essence of the Social Credit remedy is the insistence on the necessity to find out in any given period, a year if you like, Just what New Zealanders have produced and what purchasing power they have received to enable them to buy it (or exchanged for it). If there is a deficit, as Social Crediters believe under normal circumstances there will be, then the deficit must be made good by creating sufficient purchasing power debt-free. As in New Zealand taxation takes a good deal out of the pockets of New Zealanders then obviously the first use of this debt-free money must be to finance services at present financed by taxation.

Gap is Being Felt

This does not necessarily mean that there will be more money in existence, because under the present system, while there is an expanding credit policy the gap is closed by debt-money. It is only when a restrictive credit policy is inaugurated that the gap begins to make itself, felt, as is happening in New Zealand at the present time.

To sum up, the Social Credit philosophy believes that the resources of nature, the knowledge and the skill of engineers and scientists and the capacity of our productive system are such that as Sir Winston Churchill said "the human race could have the swiftest expansion of material well-being that has ever been within their reach or even within their dreams. By material wellbeing I mean not only material abundance but a degree of leisure for the masses such as has never before been possible in our mortal struggle for life."

The main hindrance to our enjoyment of this possibility is an outworn, outmoded, man-made financial system which shackles our productive capacity to the limitations of a money supply which, has no real relation to the physical facts. No one in his right senses could pretend that a system which gives us booms and slumps, high prices demands for higher wages, poverty amidst plenty, hundreds upon hundreds of millions of debt and all the rest of the symptoms of our disordered life, has no fundamental fault. They are only two alternatives to the evils of our present chaos, the slave state of Communism or the democracy of a country freed from financial bondage.