The Creation of Money (or How to not Control Inflation.)

Social Credit claims that the amount of money in circulation (the monetary base) is decreasing, while its circulation is becoming more rapid, largely due to the operations of financiers who cream off a huge profit in interest on loans, "Under modern conditons," the NZSC pamphlet Cause and Cure argues, "a further reduction in the monetary base makes inflation worse." The Social Credit solution is to increase the money supply, while slowing its rate of circulation, and simultaneously to eliminate financial exploiters.

There are two faults in this reasoning. Firstly, it is incorrect to say that the amount of money in circulation has decreased in relation to the real output of goods and services (GNP) in the economy. Money has become relatively more plentiful over the last 20 years; so to maintain a stable price level it would be necessary to increase the supply at a slower, not faster rate than at present.

Secondly, it is wrong to assume that there is any definite relationship between the size of the money supply and the rate of inflation. In 1975/76, for example, the money supply increased in relation to the GNP, and there was a drop in the rate of circulation. Under Socred logic, inflation would not have decreased, yet it jumped to 15.7%.

Social Credit identifies financiers as the root cause of economic crises, and seeks to fiddle the financial superstructure to overcome such crises. It does not appreciate that the monopoly capitalist class as a whole must be attacked. This cannot be done by changing the economic laws: the class itself must be forbidden from using those laws to its own advantage.

As the economic crisis worsens. Social Credit could appeal more and more. In the words of one commentator, it is "a well-founded, though necessarily confused, cry of protest raised by the remaining independent producers against the ever growing domination of the great monopolistic capitalist groups." It pretends to be able to preserve capitalism for the small producers. A dangerous, but for them, necessary, fallacy.

Kathy Jamieson.