The 'A + B' Theorem

Major Douglas gave birth to social credit in the nineteen twenties, and social credit movements first spawned during the depression of the thirties. Like all major depressions under capitalism this one grew out of a crisis of over-production (intensified by a crisis of the financial system). The production of goods and services in the arena of the capitalist world market outran the available purchasing power and the result was falling profits, unemployment, the destruction of unsold goods in a vain endeavour to keep up prices, the collapse of Wall Street and the bankruptcy of many major European and American banks.

The social credit explanation of this crisis was that under capitalism there is an inherent, unavoidable 'gap' between the incomes distributed to consumers in the process of production, and the costs incurred by entrepreneurs in the same process. Depression is therefore inevitable unless this gap is made up by handouts of credit by the government (ie. a National Credit Authority) in the form of a National Dividend, tax cuts, discounts on the prices of goods sold or increased public works.

According to SC legend Douglas's discovery of the 'gap' pre-dated the depression, originating from a time during World War I when he had the job of overhauling the finances of the Harnborough Aeroplane works. (According to other versions, it happened when he was in charge of building a railroad in India!). Douglas noticed (so the story goes) that the amount paid out in salaries and wages did not go anywhere near equating with the final costs. He then went on to examine the balance sheets of over 100 industrial firms and in every firm he discovered the same 'fault'.

'...every business has to recover A + B costs from the public, but distributes only A incomes. Thus there is never sufficient purchasing power distributed through industry as a whole to enable the public to meet the costs of goods produced.' (The Problem of Money. Circulated by Waikato Regional Council of the NZSC Political League)