Social Credit

Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.


"Banking and credit are too important a business
for citizens and politicians to be ignorant of. Upon its fair and
equitable administration rests the very existence and future of our society".


Every society has its orthodoxy. But there comes a time when the "accepted view" no longer functions. When this occurs it is time for change. The movement of stars told Galileo that the earth centred Universe was wrong. The relative inner stability of two moving trains told Einstein that Newton and Euclid were wrong. The current Sub-Prime credit crisis is an indication that the orthodox concept of banking and credit is wrong.

This is not the first time that the failings of the accepted "credit concept" were identified as being erroneous in an increasingly technologically efficient world. The great depression of 1929 also gave the same signal. However instead of dealing with the cause only the symptoms were addressed. Accordingly, another world war ensued and through "sticking plaster" policy modifications we bungled on for another 80 years. Now, once again, the dormant "error" has become virulent and threatens the whole. The disease within the economic body was diagnosed successfully in the early 1900's and a solution was prescribed but ignored. The same remedy will work today but its successful application requires a "Copernican" change in economic conceptional modalities. The world was not ready then. Is it ready now? The cure is called: "Social Credit".

Due to developments in technology and technique the age old problems of production and scarcity have been all but solved, the issue now is one of distribution. Money creates effective demand and orthodox banking and accounting rules makes money scarce. This state of affairs if allowed to continue will result in:

1. Surplus production due to efficiencies

2. Consequent unemployment and under-employment resulting in effective demand destruction

3. Poverty due to lack of purchasing power

4. Redundant industrial machinery

5. Consequent cut-throat competition

6. Disappearance of industrial profits

7. Consequent business bankruptcy and depression

8. Aggressive competition for foreign markets

9. Consequent international friction and war

In order to prevent the above constantly recurring, as in 1929 and now with the sub-prime crisis, it is necessary to change our orthodox view of economics. WE MUST MOVE FROM AN OUT-DATED MINDSET. This does not require a revolution in society it simply requires a revolution in our consciousness. However the elite who control the ownership of the "orthodox" credit myth will not allow acceptance of this alternative knowledge because to do so will weaken their system of management and domination. However truth is an amazing thing. Slowly but surely, like a seed whose hibernation is over, the practicality and human goodness of the concept of Social Credit is germinating. But it needs aware and dedicated followers to nurture this growth. MONEY MUST NOT BE REGARDED AS A COMMODITY. IT IS IN ESSENCE A MEANS OF DISTRIBUTION OF SOCIAL PRODUCTIVE CAPACITY. AS A RAILWAY TICKET IS TO A TRAIN NETWORK THE DOLLAR BILL IS TO THE ECONOMIC SYSTEM. THE OBJECTIVE IS NOT TO OWN ALL THE TICKETS BUT TO HAVE A RAILWAY SYSTEM THAT SERVES THE FUNCTION OF MOVING PEOPLE AND GOODS. Through our ignorance of banking and credit, politicians have allowed an elite professional group corner the market for "railway tickets" and thus control the "transport network".

For the current economic crisis to be finally resolved the realisation must sink in that BANKING IS NOT SIMPLY AN AVERAGE BUSINESS LIKE ANY OTHER. On the contrary, upon its fair and equitable administration rests the very existence and future of our society. Banking and credit are too important a "business" for citizens and politicians to be ignorant of. To deal with this matter we must, to use the words of President Obama: "up our game" or perish.

The word credit comes from the Latin word "CREDERE", meaning "TO BELIEVE". The essential quality of money, therefore, is the belief that one can get what one wants when one possesses it; THUS MONEY IS A SOCIAL CONTRACT BASED ON TRUST AND MUTUAL BENEFIT. Since credit is a function of money it follows, axiomatically, that CREDIT IS A SOCIAL CONTRACT ALSO. A society cannot allow a particular grouping to have a monopoly on the functioning of this social contract because ultimately this group could end up monopolising all contracts. If you own the contracts you will end up owning society.

The central problem which Social Credit addresses is the negative consequences resulting from the increasing use of capital in manufacture and distribution. This drive towards capital intensification brings efficiency but it decreases the requirement for labour. With the loss, or through the down-grading, of "jobs", the trend is for higher unemployment and/or under-employment. With under-employment there is less purchasing power in the economy thus the true potential capacity of modernity cannot be attained because there is no effective demand, since desire without money is meaningless in our system.

Social Credit strives to solve this spiral of lower employment, lower wages, recession and depression by increasing effective demand in the system by generating societal purchasing power. Purchasing capability is increased through a social dividend and the adjustment of prices. It also proposes that the ownership of credit reside with the society rather than with a monopoly group. Thus excess reserves owned by credit institutions, over a certain minimum to allow their sustained and stable operation, are systematically issued to society. Social Credit believes in banking but does not accept monopoly ownership of credit and legal tender. The objective of such policies are as follows:


1. Money is no longer a commodity controlled by banks

2. Credit is no longer a social contract controlled by banks

3. Boom and bust credit cycles are negated

4. Increased stable purchasing power allows for effective distribution of goods and services.
This stability allows better long term decisions to be made by entrepreneurs about the economy.

5. Increased demand for goods and services boosts an economy centred on smaller community based businesses.

6. Corporatism diminishes

7. Unemployment and under-employment are seen as opportunities for freedom to develop since citizens are able to function in the economic system through receipt of social dividends. Due to a change in the "zeitgeist" time is no longer equated to work in order to obtain legal tender.

8. Speculation diminishes due to the non availability of "commodity" credit and a real economy, rather than a gambling economy, flourishes.

9. Government down-sizes due to the diminished availability of monetised debt.

Many folk have attacked these objectives as idealist or socialist. They are wrong. In fairness these objectives are based more on community than the commune. But that is the point. Social Credit strives to reaffirm the supremacy of human association rather than abstract institutionalism. Capitalism, under our current banking arrangements, and communism /socialism are all "Cesarist" theories of society; they end in monopoly ownership of everything. This monopoly results in the "state" or "core political group" being master of the individual. As a result community dies and corporatism thrives. The philosophy of Social Credit is the exact opposite. It believes in the individual and it aspires to provide the individual with as much freedom as possible. It acknowledges that the STATE SHOULD EXIST TO SERVE THE INDIVIDUAL ; NOT THE OTHER WAY ROUND. Social Credit therefore rejects the dialectic materialism of capitalism/communism/socialism; and accepts grace.

As this sub-prime crises festers and invades the social, economic and political body I hope that more and more like minded people will become focused, educated and aware. There is no more important goal in life than actively participating in the growth and development of one's spirit, one's family, one's community and one's nation. "Banking and credit are too important a business for citizens and politicians to be ignorant of. To deal with this matter we must, to repeat, up our game or perish".


References:

"Economic Democracy"
Major C. H. Douglas
Bloomfield books

"Aladdin's Lamp: The Wealth of the American People"
Gorham Munson
Creative Age Press: New York

New Zealand Government's
Monetary Committee
Notes of Evidence and Correspondence
Wellington, 24th. February 1934

Hegelian Materialism and Transcendence

Christopher M. Quigley
B.SC., M.I.I.I. Grad., M.A.



James Joyce often stated that history was a nightmare from which he sought to escape. Hegel was the first philosopher to fully incorporate time (history) into his system and thereby he produced the mental framework for advancing socialism and ultimately communism. Under his system of thought the only "time" is human time and its ultimate end product is a closed society where individuality is lost and "time" stops. Thus a nightmare of the "ever bureaucratic present" is replacing the nightmare of "history" around the globe.

Hegel in his masterwork "Phenomenology of Spirit" propounded that the only time that matters is human time, all else (i.e. nature) is space. This human time develops through a "dialectic" process of thesis, antithesis and synthesis. For Hegel reality was all about a struggle for recognition and the story of history is the story of this struggle. Hegelian conflict produces masters and slaves. Masters order society; slaves build society. History is the story of this human action. While Hegel accepted the existence of spirit he rejected the existence of any God, he was a total materialist. Alexander Kojeve explains it as follows:

"Hegel knew that this knowledge cost him dearly. He speaks of a period of total depression that he lived through between the twenty-fifth and thirtieth years of his life. A "hypochondria" that was so severe as to paralyse all his powers, and that came precisely from the fact that he could not accept the necessary abandonment of individuality- that is, actually, of humanity- which the idea of absolute knowledge demanded. But, finally, he surmounted this "hypochondria" and becoming a wise man by that final acceptance of death. He published a few years later the first part of the "System of Science" entitled "Science of the Phenomenology of the Spirit", in which he definitely reconciled himself with all that is and has been, by declaring that THERE WILL NEVER BE ANYTHING NEW ON THE EARTH........ Thus the phenomenology ends with a radical denial of all transcendence."


The end result of this philosophy was a rejection of the divine and a replacement of the role of God by the State. This became the philosophical bedrock for the rise of Socialism and Communism. This mentality accepted that Man was alone and must rely on his own devices to survive and prosper. To quote Hegel:

"Man is negating action, which transforms given being and, by transforming it, transforms itself. Man IS what he IS only to the extent that he BECOMES what he is; HIS TRUE BEING IS BECOMING, TIME, HISTORY; and he becomes, he is history only in and by action that negates the given, THE ACTION OF FIGHTING AND OF WORK........."

"........For dialectical understanding is nothing other than the historical or temporal understanding of the real. Dialectic reveals the trinitary structure of being. In other words, in and by its dialectic the real reveals itself...as a present situated between the past and the future, THAT IS, AS A CREATIVE MOMENT, OR ELSE, AGAIN AS A RESULT WHICH IS A PROJECT AND A PROJECT WHICH IS A RESULT-
A RESULT WHICH IS BORN OF A PROJECT AND A PROJECT ENGENDERED BY A RESULT, IN A WORD, THE REAL REVEALS ITSELF IN ITS DIALECTICAL TRUTH AS A SYNTHESIS......."

"........Only the present thus determined by the future and past is a human or historical present......."


Thus in summary, for Hegel, the "dialectical process" or the "concept" of reality is man in the present, focused on future action, determined by his experience of past events. THUS THE FORMULA IS: PRESENT-FUTURE-PAST.

We know this to be the correct interpretation because further on Hegel says;

"THEREFORE BY REALIZING ITSELF, THE TIME IN WHICH THE FUTURE TAKES PRIMACY ENGENDERS HISTORY."


For my part one can only truly understand the modern march toward global socialism and communism when one understands Hegel. In almost every society today we see five and ten year "economic & social plans". Human beings have become subservient to a FUTURE rather than the PRESENT. In other words the world lives in a suspended state of future orientation. "Nobody is here everybody is there". When one understands the nature of the Hegelian system one can readily comprehend why its teachings were so influential on Marx, Engels and Lenin. Anybody can be made to do anything in the expectation of the future "Utopia". Unfortunately what Marx and Lenin knew, which they did not inform their followers, was that Hegelianism is a closed philosophy, which produces a static society, which has no allowance for individuality. Static societies eventually stop "time" and opportunity is limited due to "statism". This is exactly what is happening all over the world today. Material future orientation is making the whole world "the same" and "time" ( i.e. human time) appears to be the same also. (E. G. the New Year, Easter, Halloween, Thanksgiving and Christmas all blend into one similar event throughout the globe and nothing is "special" anymore because the local human "magic", the mystery and romance have gone and nobody really understands why).


To prevent a monolithic world sameness overtaking every society and destroying individuality folks need to understand the underlying Hegelian materialism surrounding modern culture. You cannot overcome what you do not understand.
Human culture is more than "a plan". The present does matter. Individuality is paramount. Freedom is essential to true peace and happiness. Creativity and individuality, fundamental benchmarks of western culture, need to become heroic ideals again. The socialist Emperor must be seen to have no clothes. TIME HAS NOT STOPPED BECAUSE "GOD IS DEAD"; as Hegel proposed. "God" is alive and is a human knowledge of truth, which accepts that there is transcendence. Human beings
evolved from nature. Therefore Hegel is wrong when he asserts that nature is "space" because the development of human consciousness enabled human beings to move beyond " nature" and transform it, therefore human consciousness is "transcendence" made manifest. This "transcendence" means that the future is not certain as socialists and communists assert, but is free and open and subject to potentials and possibilities as yet unknown. Consciousness proves Hegel false because we now know the following: THAT WHICH WAS NEED NOT NECESSARILY BE, THERE IS FREE WILL.


Thus in essence the spiritual crisis in World events is a crisis in human philosophy. The sophists are alive and kicking and are running the show. Social progressive materialists, of the Hegelian type, are communists in humanist clothing. Freedom and individuality and transcendent creativity need to be championed against statisim, totalitarianism and bureaucratic control. Many would say that this is overstatement but Hegelianism is definitely active and influential. For example, Alexander Kojeve one of the greatest pupils of Hegelian philosopy, was invited to give up lecturing and become one of the architects of the greatest experiments in World socialism, he graciously accepted. He went to Brussels and joined the economic board planning the European Economic Union (now the European Union). Need we say more?


If such socialist "planning" is allowed to flourish unchallenged eventually Europe, America, Asia and India will be crushed under Global institutionalism. The role of individual freedom will be replaced with political opportunism. Western culture needs a reawakening of the essence of the human spirit, which were its hallmark. This spirit once died in the dark ages but miraculously it experienced a rebirth. Do we have the courage, the insight and the philosophical awareness to nurture a new renaissance?




Reference:

Introduction To The Reading Of Hegel

Lectures On The Phenomenology Of Spirit
Assembled By Raymond Queneau
Cornell University Press

Economic Sabotage

Douglas's ideas on economic sabotage are essential in understanding his belief that the current economic system is producing nowhere near capacity, and that the price of goods for sale could be reduced significantly. Often, economists will criticize Douglas's theories by pointing out that there is not this pool of unused capacity that Douglas claimed. Some Social Crediters have even stated that Douglas's comments about the unused capacity in the economy were merely specific to a period of severe depression. The purpose of this essay is to show that the unused capacity is being used up through the superflous production of products that nobody needs or desires, and is part of what Douglas coined "economic sabotage".

The concept of economic sabotage is essential to understanding Social Credit, and Douglas commented on it in his first article to appear in the New Age:

"The economic effect of charging all the waste in industry to the consumer so curtails his purchasing power that an increasing percentage of the product of industry must be exported. The effect of this on the worker is that he has to do many times the amount of work which should be necessary to keep him in the highest standard of living, as a result of an artificial inducement to produce things he does not want, which he cannot buy, and which are of no use to the attainment of his internal standard of well-being." (C.H. Douglas, "A Mechanical View of Economics")

Douglas defined wealth as personal well-being. And if the purpose of production is consumption, then the only purpose of production is to increase our well-being. Goods and services which do not enhance our well-being are merely a waste. However; as Douglas states, all waste in industry must be charged to the consumer, since the consumer ultimately pays for everything. The fact that the consumer has to pay for all waste in industry diminishes his purchasing power in relation to the things he does need or desire. Consequently; there is a great deal of unused capacity in the economic system which is being wasted on producing things that the consumer does not need or desire but simply exists in order to distribute income. We have been hypnotized into believing that you must produce a chia pet in order to eat a steak, but in reality, what you need to produce in order to eat a steak is steak, and the production of the chia pet actually diverts resources away from the production of steak. The fact that people claim that Douglas overstated his price rebate is due to this hypnotic effect.

As Douglas stated in "Credit-Power and Democracy":

"The enormous increase of sabotage of all descriptions which is the outstanding feature of contemporary industry is due to the blind effort to equate purchasing-power to production without altering the principles of price-fixing" (C.H. Douglas, "Credit Power and Democracy" pge 18)

Only through price fixing via a price rebate can the increasing sabotage in industry be curtailed. This is due to the fact that a price rebate mechanism allows the consumer to control industry. No longer would it be necessary to produce all sorts of wasteful products which nobody wants or needs, and industry's efforts can be adjusted to producing the things that increase the consumers well-being. Instead of production for the sake of distributing income, or for its own sake, we would have production for the sake of increasing our true wealth. The enormous scale of this industrial sabotage is hard to understand, because we have been hypnotized into believing that all production is necessary, but this is only true if consumers controlled production.

There can be no better elaboration on the scale of economic sabotage in our current economic system than in Douglas's book "Economic Democracy", so it is reproduced below:

"But it may be advisable to glance at some of the proximate causes operating to reduce the return for effort ; and to realise the origin of most of the specific instances, it must be borne in mind that the existing economic system distributes goods and services through the same agency which induces goods and services, i.e., payment for work in progress. In other words, if production stops, distribution stops, and, as a consequence, a clear incentive exists to produce useless or superfluous articles in order that useful commodities already existing may be distributed. This perfectly simple reason is the explanation of the increasing necessity of what has come to be called economic sabotage ; the colossal waste of effort which goes on in every walk of life quite unobserved by the majority of people because they are so familiar with it ; a waste which yet so over-taxed the ingenuity of society to extend it that the climax of war only occurred in the moment when a culminating exhibition of organised sabotage was necessary to preserve the system from spontaneous combustion.

The simplest form of this process is that of " making work " ; the elaboration of every action in life so as to involve the maximum quantity and the minimum efficiency in human effort. The much- maligned household plumber who evolves an elaborate organisation and etiquette probably requiring two assistants and half a day, in order to " wipe " a damaged water pipe, which could, by methods with which he is perfectly familiar, be satisfactorily repaired by a boy in one-third the time ; the machinist insisting on a lengthy apprenticeship to an unskilled process of industry, such as the operation of an automatic machine tool, are simple instances of this. A little higher up the scale of complexity comes the manufacturer who produces a new model of his particular speciality, with the object, express or subconscious, of rendering the old model obsolete before it is worn out. We then begin to touch the immense region of artificial demand created by advertisement ; a demand, in many cases, as purely hypnotic in origin as the request of the mesmerised subject for a draught of kerosine. All these are instances which could be multiplied and elaborated to any extent necessary to prove the point. In another class comes the stupendous waste of effort involved in the intricacies of finance and book-keeping ; much of which, although necessary to the competitive system, is quite useless in increasing the amenities of life ; there is the burden of armaments and the waste of materials and equipment involved in them even in peace time ; the ever-growing bureaucracy largely concerned in elaborating safeguards for a radically defective social system ; and, finally, but by no means least, the cumulative export of the product of labour, largely and increasingly paid for by the raw material which forms the vehicle for the export of further labour.

All these and many other forms of avoidable waste take their rise in the obsession of wealth defined in terms of money ; an obsession which even the steady fall in the purchasing power of the unit of currency seems powerless to dispel ; an obsession which obscures the whole object and meaning of scientific progress and places the worker and the honest man in a permanently disadvantageous position in comparison with the financier and the rogue. It is probable that the device of money is a necessary device in our present civilisation ; but the establishment of a stable ratio between the use value of effort and its money value is a problem which demands a very early solution, and must clearly result in the abolition of any incentive to the capitalisation of any form of waste.

The tawdry " ornament," the jerry-built house, the slow and uncomfortable train service, the unwholesome sweetmeat, are the direct and logical consummation of an economic system which rewards variety, quite irrespective of quality, and proclaims in the clearest possible manner that it is much better to " do " your neighbour than to do sound and lasting work. The capitalistic wage system based on the current methods of finance, so far from offering maximum distribution, is decreasingly capable of meeting any requirement of society fully. Its very existence depends on a constant increase in the variety of product, the stimulation of desire, and in keeping the articles desired in short supply." ( C.H. Douglas, "Economic Democracy" pge 74-78)

As Douglas states, we must abolish any incetive to the capitalization of waste. Social Crediters envision a new society, where wasted effort is no longer rewarded. It is waste, or economic sabotage, that accounts for the vast difference in current financial prices and those proposed by a Social Credit rebate system. Economists are so blind to the forms of waste that exist in our economy that they cannot see the vast pool of unused capacity that could be diverted to the production of goods and services that actually increase our well-being. Further, the beneficial effects of this policy to our environment would be immense.

The fact that so much sabotage exists in our current economic system is due to the fact that we make scarcity a value. Orthodox economics is the "science" of scarcity, or the "allocation of scarce resources", whereas, Social Credit is the science of abundance, or the distribution of abundant resources. It is primarily due to the fact that our current economic arrangement in terms of prices rewards scarcity that businesses actually pursue it as a policy. The object of business is to deliver the minimum amount of product for the maximum price. A smart businessman seeks to control prices through monopoly control of the industry in which he is engaged. While markets which exhibit attributes of perfect competition do exist (especially in commodity markets), the whole purpose of advertising and packaging is to differentiate product enough to give a business some degree of monopoly control over prices (i.e. "monopolistic competition). Douglas noted this fact in his testimony before the Select Standing Committee on Banking and Commerce.

"Well, to return to what I was saying. Modern business is practically based on the creation of a scarcity of value. The whole efforts of general business communities are to be able to control prices to such an extent that you get the maximum price for the minimum delivery. Taking it collectively that is the basis of the whole thing, and is, according to the rules of the game, perfectly legitimate. Your object in business at the present time is to make money. It is not to deliver goods. The delivery of goods is incidental to the making of money, and if you can deliver fewer goods for more money then that is sound business, and the banker is a sound business man." (C.H. Douglas, testimony before the Select Standing Committee on Banking and Commerce)

Businesses produce in order to earn a profit, and if it is profitable for them to increasingly engage in economic sabotage, they will continue to do so. However; through the price rebate mechanism, businesses will find it profitable to increase the distribution of goods and services that people desire, and they will increasingly engage in these activities. Douglas didn't claim that the price rebate could be as high as 75% because he was an idiot. Douglas saw the immense waste in industry which most of us have fail to see. Remove this waste which is charged to the consumer, and watch how far prices can drop. The first step in this process is to understand that money is not a commodity which is scarce, but merely a ticketing system which enables the efficient distribution of production.

Social Credit and Existentialism

The opening to the Social Crediter states that this journal is for “Political and Economic Realism”. The purpose of this essay is to demonstrate that the philosophy of Social Credit is not Realism, where truth is defined as conformity of thought with being. But that Social Credit is for “Political and Economic Existentialism”, where truth is “an objective uncertainty held fast in an appropriation-process of the most passionate inwardness”(Soren Kierkegaard, Concluding Unscientific Postscript pge. 182). It is my view that Social Crediters adopted the philosophy of Realism in opposition to the philosophy of Idealism, thereby erroneously believing that they had overcome abstractionist thought. However; as Kierkegaard said, "let ideality and reality be in conflict forever and a day - as long as there is no consciousness, no interest, no consciousness that has an interest in this struggle, there is no doubt - but let them be reconciled, and doubt can continue just as actively." (Soren Kierkegaard, Philosophical Fragments) Ideality and reality will never be reconciled in human consciousness where the possibility of doubt exists. In reality, realism does not negate abstractionist thought, but is merely another form of it.


"All progress in the world, and in some ways the world has unquestionably made progress, has been achieved by the recognition of the TRUTH, and the reason that so little progress has been made in the solution of social problems is, to my mind, because in this sphere alone truth has been ignored or denied." (Speech by Major C.H. Douglas at "The New Age" Dinner, March 18, 1933.) But what is the truth? If the truth is defined as conformity of thought with being, then the truth becomes an approximation-process that can never be completed in time. This is due to the fact that “all understanding comes after the fact”. (Soren Kierkegaard, Concluding Unscientific Postscript pge 108) However; the individual is always in the process of becoming and as such is always incomplete. For the existing individual, there can be no finality. With this in mind, “then it will be evident that the idea of a persistent striving is the only view of life that does not carry with it an inevitable disillusionment. (Soren Kierkegaard, Concluding Unscientific Postscript pge 110) The idea that truth is conformity of thought with being must inevitably bring disillusionment as we are forever waiting for “the truth to be revealed”. The TRUTH that Douglas refers to cannot be defined by philosophical Realism, but must be something else, since Douglas, and Social Crediters, would not want us to be disillusioned.

Douglas said that;“Systems were made for men, and not men for systems, and the interest of man which is self development, is above all systems, whether theological, political or economic.”(C.H. Douglas “Economic Democracy” pge 18). In my opinion, this statement is the essence of Social Credit philosophy and contradicts the tenets of Realism, because “the systemic Idea is the identity of subject and object, the unity of thought and being. Existence, on the other hand, is their separation. It does not by any means follow that existence is thoughtless; but it has brought about, and brings about, a separation between subject and object, thought and being. (Soren Kierkegaard, Concluding Unscientific Postscript pge 112) If Social Credit is for Realism, and the idea that the truth is conformity of thought with being, or subject and object, then men must be made for systems, since the essence of the systemic Idea is conformity of thought with being. In other words, we must either accept the idea that the philosophy of Social Credit is Realism, and reject that systems were made for men, or we must reject the philosophy of Realism, and look for the truth somewhere else. "An existential system cannot be formulated. Does this mean that no such system exists? By no means; nor is this implied in our assertion. Reality itself is a system - for God; but it cannot be a system for any existing spirit. System and finality correspond to one another, but existence is precisely the opposite of finality." (Soren Kierkegaard, Concluding Unscientific Postscript pge 107) Realism, and the finality of the correspondence between thought and being exists for God, but cannot exist for us spirits who exists in time, and are always in the process of becoming.

What is it to exist as a spirit? "Spirit is creative initiative." (Why I am a Social Crediter, Bryan Monahan pge. 9), and further, "spirit is inwardness, inwardness is subjectivity, subjectivity is essentially passion, and in its maximum an infinite, personal, passionate interest in one's eternal happiness." (Concluding Unscientific Postscript pge 33) Therefore, spirit is not a form of objective knowledge which is essentially dispassionate, but is the ultimate form of passion for one's own eternal happiness. Man is essentially creative, and his creativity is a result of his passions. All systems seek to control man's passions, to destroy his creative nature, so that he may fit into the system. "It is, you see, a "live" problem, a spiritual problem, which is a conclusion that we Social Crediters have to some extent avoided, for the reason that, as a class, we possess that trained cast of mind that is intensely apprehensive of emotional excess." (Social Credit and the Christian Ethic Norman F. Webb) In other words, it is an "existential" problem, and a spiritual problem, which is something that the objective mind finds repulsive. This is not to say there is no value in scientific or "objective" knowledge. "No, all honor to the pursuits of science, and all honor to everyone who assists in driving the cattle away from the sacred precincts of scholarship. But the ethical is and remains the highest task for every human being. One may ask even of the devotee of science that he should acquire an ethical understanding of himself before he devotes himself to scholarship, and that he should continue to understand himself ethically while immersed in his labours; because the ethical is the very breath of the eternal, and constitutes even in solitude the reconciling fellowship with all men." (Soren Kierkegaard, Concluding Unscientific Postscript pge 136) The scientist is not dispassionate about his work (one would hope!), even if he must not let his passions interfere with his observations or judgement. The doctor seeks a cure for cancer because he is passionate about saving lives! Douglas made observations in regards to economics and the monetary system because he wanted to better mankind! It is first and foremost an ethical decision which brings doctors to seek a cure for cancer, or brings Douglas to seek a better understanding of the monetary system.

The ethical decision is made by individuals through free will, and our ability to choose between good and evil. As Douglas said, "freedom is the ability to choose or refuse one thing at a time". Ethical man is constantly in the process of choosing between good and evil as he exists in time. Socialists believe that man is essentially evil, and will choose evil unless bound by the "laws" of an imposed system. This belief is also expressed in the theology of Puritanism. "Puritanism, as I said, is of the devil, clothing the very deepest and darkest passion of the human mind--the impulse to dominate over one's fellow mortals--in a moral disguise" Social Credit and the Christian Ethic Norman F. Webb) Social Crediters believe that man is essentially good, and given the freedom and subsequent responsibility to choose between good and evil, man will generally choose to do good. As Douglas said, it is " the object of Christ, to permit the emergence of self-governing, self-conscious individuals, exercising free will, and choosing good because it is good." (C.H. Douglas The Realistic Position of the Church of England) In order to maximize the good decisions that responsible individuals will make, we must allow them freedom to exercise their will, and make them responsible for the decisions that they make. Economic and political systems must first serve the individual, for the individual must never exist to serve the system. "The fundamental idea underlying Social Credit is that the community exists for the sake of the individual; that the development of industrial organization is for the sake of freeing the individual to the maximum practical extent from occupying his time in working in order to exist." (Bryan Monahan, “Why I am a Social Crediter”) It is individuals who comprise the community, and if they are making choices which are good for themselves, then generally these choices will be good for the community at large. If the existing individual is the vehicle through which good and evil comes into the world, we must seek the truth in the individual, and not in the objective correspondence between idea and being which exists only in God.

What is the truth? This question could not even be asked if it were not for the possible existence of untruth. It is human consciousness that brings the question of truth into existence because the essence of knowledge is doubt. However; doubt itself cannot lead to the truth, but only the question of the truth. Descartes' doubt led him to conclude "I think therefore I am", but this in an inversion of reality and the essence of idealism, for in reality "I am therefore I think". Truth is not to be found in doubt, but in existence itself. "For since it is a fact that the nearest the human mind and language can get to a statement of Truth is a paradox -- "For whosoever will save his life, shall lose it," and many others -- it is quite probable that the approach to a practical problem, even our very actions themselves, may require to be in a sense paradoxical in order to be sound. (Social Credit and the Christian Ethic Norman F. Webb) Because humans can never be the conformity of thought with being, any statement of Truth must appear to be a paradox, because the truth is not objectively known, but subjectively lived. "Inwardness in an existing subject culminates in passion; corresponding to passion in the subject the truth becomes a paradox; and the fact that the truth becomes a paradox is rooted precisely in its having a relationship to an existing subject." ( Soren Kierkegaard, Concluding Unscientific Postscript pge 178) The truth is that man is an ethical being who exists in time, meaning that the conformity between thought and being can never be resolved within him; however, through free will he is forced to choose between good and evil in a passionate embrace through faith that Truth is a paradox. The ultimate form of this paradox is that God, the eternal, existed in time in the persona of Jesus Christ. The doctrine of Incarnation is what presents itself as an absurdity to the Greeks and an offense to the Jews. “It is not too much to say that one of the root ideas through which Christianity comes into conflict with the conceptions of the Old Testament and the ideals of the pre-Christians era, is in respect of this dethronement of abstractionism.” (C.H. Douglas, Social Credit pge 22) The dethronement of abstractionism is not found in the conformity of thought with being, which is the essence of the systemic Idea, but in existence itself which holds that the truth is "an objective uncertainty held fast in an appropriation-process of the most passionate inwardness, the highest truth attainable for an existing individual." ( Soren Kierkegaard, Concluding Unscientific Postscript pge 182)

Realism, or the idea that truth is the conformity of thought with being, is, ironically, unrealistic because it can only be realized by God. Existentialism, which concludes that conformity of thought and being can never be realized for an existing individual, is more realistic than the philosophy of Realism. Social Credit, in order to protect itself from rationalization of the system, and to uphold the belief than systems were made for men, must reject the philosophy of realism, and accept the philosophy of existentialism, because "an existential system cannot be formulated"( Soren Kierkegaard, Concluding Unscientific Postscript pge 107). Idealism, which seeks the conformity of reality with thought, and realism, which seeks the conformity of thought with reality are in essence two sides of the same coin, and both are the essence of the systemic Ideal. I believe that existentialism, which rejects all systemic thought, and begins with the questions of what it is to exist as a human consciousness in time is in actuality the beginning point for a Social Credit philosophy, because in essence it represents the ideals of the society Social Credit seeks to create which is that systems were made for man.

Synopsis of Social Credit

The following is a collaborative effort between Wally Klinck and myself.

Introduction

The term Social Credit, as a formal name, originated from the writings of the British engineer and originator of the Social Credit movement, Clifford Hugh Douglas (1879-1952), who wrote a book by that name in 1924. Douglas, a civil engineer who had pursued his higher education at Cambridge University, had published previously, most notably in the British intellectual journal The New Age whose editor, Alfred Orage, became converted to Douglas’s ideas and, subsequently devoted The New Age and latterly The New English Weekly, after a ten year sojourn in the United States, to promulgation of those ideas until his death on the eve of his BBC speech on Social Credit, November 5, 1934, in the “Poverty in Plenty” Series. Douglas’s first book Economic Democracy was published in 1920, shortly after his article “The Delusion of Super-Production” appeared in 1918 in the English Review. Among Douglas’s other early works were The Control and Distribution of Production, Credit-Power and Democracy and Warning Democracy and The Monopoly of Credit. Of considerable interest is the Evidence that he presented to the Canadian House of Commons Select Committee on Banking and Commerce in 1923, to the British Parliamentary Macmillan Committee on Finance and Industry in 1930, which included exchanges with economist J. M. Keynes, and to the Agricultural Committee of the Alberta Legislature in 1934 during the term of the United Farmers of Alberta Government in that Canadian Province.

Douglas’s prolific writings spawned a worldwide movement, most prominent in the British Commonwealth but with beachheads in Europe and activities in the United States where Orage, during his sojourn there, promoted Douglas’s ideas. In the United States, the New Democracy group was headed by the American author Gorham Munson who contributed a major book on Social Credit titled Aladdin’s Lamp: The Wealth of the American People (New York: Creative Age Press, 1945.). While Canada and New Zealand had electoral successes with “Social Credit” political parties, the movement in England and Australia was primarily devoted to pressuring existing parties to implement Social Credit: this function was performed especially by Douglas’s Social Credit Secretariat in England and the Commonwealth Leagues of Rights especially in Australia. Douglas continued writing and contributing to the Secretariat’s journals, initially Social Credit and shortly thereafter The Social Crediter (which continues to be published by the Secretariat) for the remainder of his lifetime, concentrating more on political and philosophical issues in his later years.

Political History

In the early years of the movement in the UK there was strong pressure from trade unionists for the Labour Party to consider adopting ‘social credit’ ideals and policies. The Labour leadership proved hostile, however, essentially because its doctrines of Fabian socialism, with its hierarchical view of state-socialism, economic growth and full employment, were incompatible with such ideas as National Dividends and an end to wage/salary slavery. Certain British Labour economists expended considerable effort in an effort to discredit Social Credit. One of the leading Fabians is said to have declared that they didn’t care whether Douglas was technically correct or not—they simply did not like his policy!

In 1935 the first “Social Credit” government was elected in Alberta, Canada under the leadership of William Aberhart. “Bible Bill”, as he was also known, was a high school mathematics teacher and radio evangelist who was given a book on Social Credit, titled The Meaning of Social Credit, written by the English author and actor Maurice Colborne, and decided Douglas’s theories were exactly what Alberta needed to escape the depression. Douglas, having counseled the previous United Farmers of Alberta Provincial Government was sought as an advisor to Aberhart, but withdrew shortly after due to disagreements, or misunderstandings, in policy and strategy. Under the pressures of dealing with the extreme conditions of the Great Depression and being unable to understand Douglas’s advice Aberhart sought the assistance of a representative of orthodox finance to put the Provinces finances in order. The difficult and strained correspondece between Aberhart and Douglas was published by Douglas in his book The Alberta Experiment (London: Eyre and Spottiswoode, 1937).

The Premier wanted to balance the provincial budget, and Douglas stated that the concept of a balanced budget was completely inconsistent with the use of Social Credit, because of the arithmetic impossibility, under the existing rules of financial cost accountancy, of balancing all budgets within an economy simultaneously. (“The Fallacy of a Balanced Budget,” The New English Weekly, July 28, 1932, pp. 346-7) In a letter to Aberhart, Douglas stated, "This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit [i.e., Real Credit—the ability to deliver goods and services “as, when and where required”] in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create an issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."

Two other expert Social Credit technical advisors, L. Denis Byrne and George F. Powell, were sent from the United Kingdom by Douglas, but all attempts to pass Social Credit legislation were ruled ultra vires by the Supreme Court of Canada and Privy Council in London. In desperation, William Aberhart attempted to implement the monetary theories of Silvio Gesell by issuing a form of scrip known as "prosperity certificates", which depreciated in value the longer they were held. Douglas, however, was not impressed by Gesell's theories and openly criticized them. "Gesell's theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster. Disappearing money is the heaviest form of continuous taxation ever devised. The theory behind this idea of Gesell's was that what is required is to stimulate trade - that you have to get people frantically buying goods - a perfectly sound idea so long as the objective of life is merely trading." (" The Approach To Reality")

The Alberta Social Credit Party, under Ernest Manning who succeeded Aberhart after his untimely death, slowly departed from its roots and became popularly identified as a right wing populist movement. Meanwhile, Douglas published in the Secretariat’s journal “An Act for the Better Management of the Credit of Alberta” (The Social Crediter, February 8, 1947). Subsequently, in the same journal, he wrote a critical analysis of what went wrong with Social Credit in Alberta (“Social Credit in Alberta”, August 28/September 4-11, 1948) in which he said, “The Manning administration is no more a Social Credit administration than the British government is Labor”. Social Credit also formed governments in British Columbia, Canada, but again the party had little in common with Douglas and his theories. Social Credit Parties also enjoyed some national electoral successes in Canada, with support from Western Canada and more notably from Quebec. Social Credit parties also had some electoral successes in New Zealand.

Political Theory

Douglas opposed the formation of Social Credit Parties, because he felt that a group of elected amateurs should never direct a group of competent experts in technical matters. ( “The Approach to Reality,” Address at Westminster, March 7, 1936.) The goal of politicians should be to pressure the experts to get the policy results desired by the populace, but the experts are ultimately responsible for achieving those results. “The proper function of Parliament, I may perhaps be allowed to repeat, is to force all activities of a public nature to be carried on so that the individuals who comprise the public may derive the maximum benefit from them. Once the idea is grasped, the criminal absurdity of the party system becomes evident.” ("The Tragedy of Human Effort,” Address at Central Hall, Liverpool, October 30, 1936.) Therefore, Social Credit supported by effective public demand could be implemented by any political party, and once implemented, achieving a realistic integration of means and ends, party politics would cease to exist. Douglas defined democracy as the “will of the people”, not rule by the majority. It is the right of the individual to choose freely one thing at a time, and to contract out of unsatisfactory associations. Traditional ballot-box democracy is incompatible with Social Credit, and Douglas advocated what he called the “responsible vote”, where anonymity in the voting process no longer existed. "The individual voter must be made individually responsible, not collectively taxable, for his vote." ("Realistic Consitutionalism")


The establishment of the supremacy of common law is essential to ensuring the rights of individuals are protected from an all powerful parliament. Douglas believed that the constitution was an organism, not an organization. He also believed that the effectiveness of the British government was structurally determined by its application of the Christian concept known as Trinitarianism. "In some form or other, sovereignty in the British Isles for the last two thousand years has been Trinitarian. Whether we look on this Trinitarianism under the names of King, Lords and Commons or as Policy, Sanctions and Administration, the Trinity-in-Unity has existed, and our national success has been greatest when the balance (never perfect) has been approached. ("Realistic Constitutionalism")

Economic Theory

Douglas disagreed with classical economists such as Adam Smith and David Ricardo who divided the factors of production into land, labour and capital. He also disagreed with Marx who claimed that labour created all wealth. Douglas believed the “cultural inheritance of society” was the primary factor in production. Our cultural inheritance is defined as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization. Consequently, we do not have to keep “reinventing the wheel”. “We are merely the administrators of that cultural inheritance, and to that extent the cultural inheritance is the property of all of us, without exception.” (“The Monopolistic Idea,” Address at the Melbourne Town Hall, Australia, January 22, 1934.)

Douglas also criticized classical economics because it was based upon a barter economy; whereas, the modern economy is a monetary one. To the orthodox economist, money is a medium of exchange. This may have once been the case when the majority of wealth was produced by individuals who exchanged it with each other, but in the modern economy, where production is split up into multiple processes, wealth is produced by people working in association with each other. For instance, any automobile worker does not produce any wealth by himself ; the wealth that is produced (i.e., the automobile) is only produced in conjunction with other auto workers, the producers of roads, gasoline, insurance etc. Therefore, wealth is a pool upon which people can draw, and the efficiency gained by individuals co-operating in the productive process in known as the “unearned increment of association”—historic accumulations of which constitute what Douglas called the Cultural Heritage. The means of drawing upon this pool are the tickets distributed by the banking system.

Money originally came from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word “pecuniary” comes from the Latin “pecus,” meaning cattle. Today, the productive system and the distributive/monetary system are two separate entities. Douglas was one of the first to understand that loans create deposits, and he gave a short mathematical proof of this in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank makes a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin “credere”, meaning to believe. “The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it.” (C.H. Douglas, “Engineering, Money and Prices,” Paper read at the Institution of Mechanical Engineers, April 22, 1927, reprinted in Warning Democracy, 1935, p. 15)

Money should not be regarded as a commodity but rather as a ticket, a means of distribution of production (“The Use of Money,” Address in St. James’ Theatre, Christchurch, New Zealand, February 13, 1934, p. 11, 13.) “There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself--the money which forms the thing we call ‘effective demand’—and there is something we call a price opposite to it.” (“The Use of Money,” op cit., p. 15) Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization money should become increasingly an instrument of distribution.

Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. Douglas criticized the banking system on two counts: 1) for being a form of government which has been centralizing its power for centuries, and 2) for claiming ownership to the money they create. The latter he claimed was equivalent to claiming ownership of the nation. (“Dictatorship by Taxation,” An Address delivered in the Ulster Hall, Belfast, November 24, 1936.) Money, Douglas claimed, was merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when, and where they are required.

The first article to appear in the New Age, edited by A.R. Orage, titled “A Mechanical View of Economics” appeared in January, 1919. In this article, we get a glimpse of Douglas’s concerns in regards to the methods by which economic activity is measured when he says, “It is not the purpose of this short article to depreciate the services of accountants; in fact, under the existing conditions probably no body of men has done more to crystallize the data on which we carry on the business of the world; but the utter confusion of thought which has undoubtedly arisen from the calm assumption of the book-keeper and the accountant that he and he alone was in a position to assign positive or negative values to the quantities represented by his figures is one of the outstanding curiosities of the industrial system; and the attempt to mold the activities of a great empire on such a basis is surely the final condemnation of an out-worn method."

Just over a year later, in his book Credit-Power and Democracy (1920), we see Douglas's critique of accounting methodology as it pertains to income and prices in his famous “A+B theorem”. This was not a theory but a theorem. Quoting from the fourth, Australian Edition of 1933:

"A factory or other productive organization has, besides its economic function as a producer of goods, a financial aspect—it may be regarded on the one hand as a device for the distribution of purchasing-power to individuals through the media of wages, salaries, and dividends; and on the other hand as a manufactory of prices—financial values. From this standpoint its payments may be divided into two groups:
Group A - All payments made to individuals (wages, salaries, and dividends).
Group B - All payments made to other organizations (raw materials, bank charges, and other external costs).

Now the rate of flow of purchasing-power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A+B. The product of any factory may be considered as something which the public ought to be able to buy, although in many cases it is an intermediate product of no use to individuals but only to a subsequent manufacture; but since A will not purchase A+B; a proportion of the product at least equivalent to B must be distributed by a form of purchasing-power which is not comprised in the description grouped under A. It will be necessary at a later stage to show that this additional purchasing power is provided by loan credit (bank overdrafts) or export credit.”. (C.H. Douglas, Credit-Power and Democracy, Aust. Edition, 1933, pp. 22-23)

The theorem itself demonstrates that total prices rise faster than total incomes when regarded as a flow. Douglas proposed to eliminate this problem by giving “debt-free” credits to consumers in the form of a price rebate and a dividend, called formally a Compensated Price and a National (or Consumer) Dividend. A National Credit Office would be charged with the task of calculating the size of the rebate and dividend by determining a national balance sheet, and keeping track of aggregate production and consumption statistics. The price rebate is based upon the observation that the real cost of production is the mean rate of consumption over the mean rate of production for an equivalent period of time. The physical cost of producing something is the materials and capital that were consumed in its production, plus that amount of Labor consumed during its production. This total consumption represents the physical cost of production. Since less inputs are consumed to produce a unit of output as technology advances, and total production increases relative to total consumption over time, the real cost of production is falling over time; hence, prices should be falling with the progression of time.

The price rebate (Compensated Price) is designed to realize this fact. The Dividend is based upon the fact that Labor is being displaced in the productive process due to increases in productivity. Since Labor is being replaced in the productive process, people should be free to consume while enjoying an increasing amount of leisure as machines displace them. The Dividend would give people this freedom. Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas Credit Power and Democracy, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the Phillips Curve), unless prices are reduced from debt- free monies that do not derive from the productive system.

The cause of these “B” payments, or overhead charges, is described by Douglas in his pamphlet entitled, "The New and The Old Economics" when he says, “I think that a little consideration will make it clear that in this sense an overhead charge is any charge in respect of which the actual distributed purchasing power does not still exist, and that practically this means any charge created at a further distance in the past than the period of cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included.” The cyclic rate of circulation of money measures the amount of time that it takes for a loan to go through the productive system and to come back to the bank. This can be calculated by determining the amount of clearings through the bank in a year divided by the average amount of deposits held at the banks (which varies very little). This number will give you the amount of times money must turnover in order to produce these clearing house figures. Douglas estimated the cyclic rate of circulation of money to be approximately three weeks. As Douglas said in his testimony before the Alberta Agricultural Committee of the Alberta Legislature in 1934, “Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale.” (p. 90)

We see the major consequence of the problem that Douglas identified is exponentially increasing debt. Other less noticeable consequences are that society is either forced to engage in production that the consumer does not want, or production he cannot purchase. The latter represents a “favorable balance of trade”, meaning a country exports more than it imports. The former represents excessive capital production and/or military buildup. The problem with pursuing a favorable balance of trade is that not every country can pursue this objective at the same time, since it is necessary for a country to import more than it exports if another exports more than it imports. The long-term consequence of this policy is a trade war, ultimately resulting in real war. Hence, the Social Credit admonition, as expressed by the Social Credit Party of Great Britain and Northern Ireland, led by John Hargrave, that “He who calls for Full-Employment calls for War!” Excessive capital production is only a temporary fix because the cost of the capital ultimately shows up in the cost of consumer goods, or taxes, which only goes to further exacerbate the gap between income and prices at a later date. Military buildup necessitates either it’s use, or stockpiling of weapons leading to inventory accumulation.

Philosophy

Douglas warned against viewing Social Credit solely as a scheme of monetary reform. He described Social Credit as a policy of a philosophy. He coined this philosophy “practical Christianity.” Douglas believed there was a Canon which ran through the universe, and Jesus Christ was the Incarnation of this Canon. However, he also felt that Christianity remained ineffective so long as it remained transcendental. Religion, which derives from the Latin word relegare, meaning to “bind back”, was supposed to be a binding back to reality. Christianity was only effective to the extent that it was rooted in existence. Although Douglas defined Social Credit as a philosophy with Christian roots, he did not envision a Christian theocracy. Social Credit society recognizes the fact that the relationship between man and God is unique. Therefore, it is essential to allow man the greatest possible freedom in order to pursue this relationship. If people are given the economic security and leisure achievable in the context of a Social Credit dispensation, most would end their service to mammon and use their free time pursuing spiritual, intellectual, or cultural goals leading to self-development. Douglas did not believe that religion should be thrust upon anyone through force of law or external compulsion. He emphasized that all policy derives from its respective philosophy and that “. . . Society is primarily metaphysical, and must have regard to the organic relationships of its prototype.”

Douglas said that Social Crediters wants to build a new civilization based upon absolute economic security for the individual—where “. . . they shall sit every man [individual] under his [her] vine and under his [her] fig tree; and none shall make them afraid.” (Micah iv, 4 quoted on the cover of the Douglas Quarterly Review, The Fig Tree, New Series. 1954-55.) In keeping with this goal, Douglas was opposed to all forms of taxation on real property. This set Social Credit at variance from the land-taxing recommendations of the Henry George School.

Douglas opposed what he termed “the pyramid of power.” Totalitarianism reflects this pyramid and is the antithesis of Social Credit. It turns the government into an end instead of a means, and the individual into a means instead of an end—Demon est deus inversus—“the devil is God upside down.” Social Credit is designed to give the individual the maximum freedom allowable given the need for association in economic, political and social matters. Liberty in politics is dependent on the metaphysical concept of free will, for what use is the purpose of liberty if man is not free to choose? Social Credit rejects dialectical materialistic philosophy. Douglas divided philosophy into two schools of thought that he labeled the "classical school" and the "modern school", which are broadly represented by philosophies of Aristotle and Bacon respectively. Douglas was critical of both schools of thought, but believed that "the truth lies in appreciation of the fact that neither conception is useful without the other". (C.H. Douglas: Social Credit. ISBN 0-087968-107-1, p. 6) Social Credit philosophy is best summed by Douglas when he said, “Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic.” (Economic Democracy, Fourth Revised and. Enlarged Edition, 1934, p 18.)

Critics to A+B and Rebuttal

Critics to the theorem argue there is no difference between A and B payments, and Social Credit policies are inflationary. These criticisms are based upon the quantity theory of money, which states that the quantity of money multiplied by its velocity of circulation equals total purchasing power. Following is a brief explanation of the quantity theory of money:
"MV=PQ:

where

M=quantity of money in the hands of the public

P=average level of prices

Q=quantity of output (that is real national product or real national income).

Thus, PQ = national product, measured in nominal (dollar) terms

And V = income velocity of money, that is, the average number of times that the money stock (M) is spent to buy final output during a year. Specifically, V is defined as being equal to PQ/M

Suppose that the money stock is $20 billion. Assume that, in the course of a year, the average dollar bill and the average chequing deposit are spent twelve times to purchase final goods and services. In other words, V is 12. Then, total spending for final output is $20 billion times 12, or $240 billion. In turn, this total spending (MV) equals the total quantity of goods and services (Q) times the average price (P) at which they were sold.

But how can the same dollar be used over and over to purchase final goods? Very simply. When you purchase groceries at the store, the $50 you pay does not disappear. Rather, it goes into the cash register of the store. From there, it is used to pay the farmer for fresh vegetables, the canning factory for canned goods, or the clerk's wages. The farmer or the clerk or the employee of the canning factory will in turn use the money to purchase goods. Once more, the same money is used for final purchases. The same dollar bill can circulate round and round." (Blomqvist, Wonnacott and Wonnacott, "Economics First Canadian Edition" ISBN: 0-07-54815-X: p. 247-248)

It was written in a committee report to the Alberta government in regards to the quantity theory of money: “The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ (“The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance") Because all money is created as a debt that needs to be repaid, money does not circulate, but instead operates in an accounting cycle. If a retailer receives money from a customer for its product, the total sum of this money is neither profit, nor income. A retailer has debts to repay, or it must replace working capital. These sums are subtracted from revenues when determining profits. Neither is the profit entirely income; taxes must be paid, and a portion may be re-invested back into the business. Therefore, of the money received from the customer, the retailer may find that only a very small percentage is actually distributed as income that can then be spent on goods or services, the rest is either used to repay debts, replace working capital, or re-invested back into the firm. The fallacy is that the same dollar bill can "circulate round and round"; in reality, money is created as a debt that needs to be repaid. Every loan creates a deposit, and every repayment of a loan destroys a deposit. Therefore; money does not "circulate round and round" but is created and destroyed through the creation of loans and their repayment.

Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale.

Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee when he said, "What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (p. 90)

Incomes are paid out to workers during a multi-stage program of production, and according to the convention of accepted orthodox rules of accountancy, said incomes, are part of the financial cost and price of the final product when it is ready for use at the point of retail sale. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. In the real world earned incomes are largely, and necessarily, spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future –goods which must include the sum of incomes paid out during their period of manufacture in their price . Because the cyclic rate of circulation of money takes less time than the cancellation of the costs that the money created, orthodox economics can only allow access to the final products of industry by the mechanism of increasing consumer debt that constitutes a mortgage against future incomes. This does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, supply does not create enough demand to liquidate all the costs of production: Social Credit denies the validity of "Says Law" in economics.

Literary Figures in Social Credit

As lack of finance has been a constant impediment to the development of the arts and literature, the concept of economic democracy through Social Credit had immediate appeal in literary circles. Names associated with Social Credit include Charlie Chaplin, William Carlos Williams, Ezra Pound, T.S. Eliot, Herbert Read, Aldous Huxley, Storm Jameson, Eimar O’Duffy, Sybil Thorndyke, Bonamy DobrÈe and the American publisher James Laughlin . In 1933 Eimar O’Duffy published Asses in Clover, a science fiction fantasy exploration of social credit themes. His social credit economics book Life and Money: Being a Critical Examination of the Principles and Practice of Orthodox Economics with A Practical Scheme to End the Muddle it has made of our Civilisation, was endorsed by Douglas.

Summary

In Social Credit terminology, the words “Economic Democracy” do not mean worker control of industry. They mean conditions of consumer sovereignty wherein the consumer establishes the policy of production through exercise of his money-vote, fully provided with adequate purchasing power. The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. Each citizen is to have a beneficial, not direct, inheritance in the communal capital—conferred by complete and dynamic access to the fruits of industry assured by the National Dividend and Compensated Price.Social Credit is distributive and its policy is to disperse power to individuals. “The only safe place for power is in many hands.”

Douglas's A+B Theorem

Douglas’s A+B theorem is probably the most simple, yet most controversial, of all of Douglas's ideas. Oftentimes, too much emphasis has been placed on this theory amongst Social Crediters themselves, but the theory itself is essential for understanding Douglas’ monetary policies. The theorem is a truism; however, the controversy lies in the nature of the “B payments” which Douglas identified. The theorem is stated by Douglas as follows:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

Douglas was an engineer, and a cost accountant.. As a scientist, he started with an observation, and formed a hypothesis. This is different than many orthodox economists who form a hypothesis, and then try to make the facts fit their theory. Douglas’ A+B theory is a simple statement of fact, and the accounts of any business will verify this fact. The confusion amongst orthodox economists lies in the nature of the B payments, and what causes them.

The critics of the theory generally fall into two categories by arguing: 1) B payments are really income, so there is no differentiation between A and B payments or 2) B payments are either past, or future, income. Let’s address both these criticisms individually.

The first criticism, which states that B payments are income, implicitly assumes the quantity theory of money. According to this theory, all money received by firms is income and can be used to purchase other goods and services. The theorem states that the quantity of transactions, multiplied by the quantity of money, equals total purchasing power. On the surface, this theory seems to make sense, but upon further investigation, it is not a reflection of reality. In reality, firms have costs that must be repaid. These costs can ultimately be traced back to bank debt because all money originates as debt. If a company receives $10 for its product, and assuming accumulated costs of $8.50 to acquire and sell this product, then only $1.50 is actually profit to the company, and potential income. The $8.50 must be used to cancel debts, or replace working capital. All of the $10 received by the company is not income. The fallacy was pointed out in "The Alberta Post-War Reconstruction Committee Report".

“The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ ( “The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance")

The truth is that money does not “circulate” but instead operates in an accounting cycle, and B payments are monies on their way back to the bank, thus completing the cycle. Therefore, B payments do not exist as income to anyone. Income, by contrast, is flowing from the bank, and reaches individuals through the media of wages, salaries, and dividends. The argument that B payments are income is a complete fallacy based on the erroneous assumption that the circulation of money increases its purchasing power.

The second criticism, which has more credibility, will be seen to be a complete fallacy when the concept of time is introduced. Although not all B payments represent previous, or future, income (something we will touch on later), it is true that a proportion of the B payments are represented by past and future incomes. However; income and prices must be regarded as flows, and as Douglas stated:

“The mill will never grind with water that has passed, and unless it can be shown, as it certainly cannot be shown, that all these sums distributed in respect of the production of intermediate products are actually saved up, not in the form of securities, but in the form of actual purchasing power, we are obliged to assume what I believe to be true, that the rate of flow of purchasing power derived from the normal and theoretical operation of the existing price system is always less than that of the generation of prices within the same period of time.” (C.H. Douglas, “The Monopoly of Credit”)

It is obvious that future incomes cannot be used as present incomes (excluding momentarily credit from an extraneous source, which is a mortgage on future incomes). These future incomes are profits (interest on loans representing bank profit), which become future incomes via dividends paid to individuals. The fact that profits partially cause the gap between income and prices forms the supposed justification for the socialist argument against profits. However, nobody will do something unless it in some sense of the word profits him. Also, profits only represent a portion of the gap between income and prices. Douglas did not seek to eliminate profits, instead he wanted to compensate for the gap between income and prices which profits helped create.


"The essential point to notice, however, is not the profit, but that he cannot and will not produce unless his expenses on the average are not more than covered. These expenses may be of various descriptions, but they can all be resolved ultimately into labour charges of some sort (a fact which incidentally is responsible for the fallacy that labour, by which is meant the labour of the present population of the world, produces all wealth). Consider what this means. All past labour, represented by money charges, goes into cost and so into price. But a great part of the product of his labour -that part which represents consumption and depreciation - has become useless, and disappeared." (C.H. Douglas, "The Control and Distribution of Production")

Past income used for consumption represents a substantial portion of the gap between income and prices. The belief that incomes disbursed in the past for capital production are all saved up in order to defray the costs associated with those incomes as they make their way into the cost of future consumer goods is a complete fallacy. People tend to spend their income on consumer goods in a relatively expeditious fashion. This money is recollected from the consumers by businesses through the agency of prices. The upper limit of prices being governed by the laws of supply and demand, or what the item will fetch. This income, recollected by businesses, forms a part of their profit, assuming they can sell their product above cost. These profits can be distributed as income in the form of dividends, but is most often re-invested back into the company, and therefore, do not exist as income to anyone.

“Consider the nature of these B payments. They are repayments collected from the public of purchasing power in respect of production not yet delivered to the public. If the wage earners in process ‘I’ use their current month’s, i.e. May’s, wages to buy their share of one current month’s production of consumable goods, they are using money distributed in respect of production which will not appear as consumable goods till October. They are in fact involuntarily reinvesting their money in industry, with the results previously explained” (C.H. Douglas, “The Monopoly of Credit”)

Therefore, it can be seen that the criticisms of the A+B theorem are based on the fallacy known as the quantity theory of money, or they fail to take into account the effect of time on income and prices (i.e. they are static). Incomes and prices are flows, and any analysis into their nature must account for the dimension of time. Since prices include all payments made to individuals as income (A), as well as all overhead charges (B), we must understand what causes these overhead charges in order to understand why prices rise faster than incomes when regarded as a flow.

"It is now necessary to see to what extent this conception of overhead charges can be extended, and I think that a little consideration will make it clear that in this sense an overhead charge is any charge in respect of which the actual distributed purchasing power does not still exist, and that practically this means any charge created at a further distance in the past than the period of cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included." (C.H. Douglas, "The New and The Old Economics")

The cyclic rate of purchasing power of money can be calculated by calculating the average amount of deposits held by depositors in banks relative to the amount of clearings through the banks, minus the amount of "Butcher-Baker" transactions. Douglas referred to any transaction that broke a chain of repayments as a "Butcher-Baker" transaction. When a butcher receives money for his product from his customer, he must repay debts owed to the slaughterhouse for the meat, who in turn must pay debts owed to the farmer, who pays debts to the banker (all money originating from the bank as a debt). If the butcher buys bread from the baker with the money he has received from his customer, then he has broken the chain of debt to the slaughterhouse, farmer, and ultimately the banker; and therefore, these transactions leave a trail of debt, and must be deducted when calculating the cyclic rate of purchasing power, because the monetary cycle has not been completed. Douglas calculated the average cyclic rate of purchasing power to be approximately two and a half weeks in Britain ("The Old and the New Economics”). Therefore; any cost anterior to three weeks, must form a part of the gap between income and prices. Douglas spoke of this fact when questioned before the Alberta Agricultural Commission.

"Well, that question of course is outside what I was speaking of this morning, but I have no objection whatever to answering it shortly. The best way of understanding what the speaker has referred to as the "A plus B" theory is to look at the matter in this way: The purchasing power of the general community is practically 98 per cent, I think, taken over all products, bank money. The actual deposits in banks under what are sometimes called "normal times" (I don't know what normal times are, but they are frequently referred to so we will assume that there are normal times) the deposits remained fairly constant. For instance, in Great Britain since the war they have reached around between 16 and 18 hundred millions of pounds. Now there is quite obviously a circulation of those deposits through the agency of costs. They are distributed for wages and so forth and they come back to the same source through the agency of price. That is the way the existing financial system works.

Now all business in the world at the present time is carried on on the theory of the balanced budget, including governmental business. Therefore, you must have a right, or period of cycle through which this money which starts from the banks goes out through cost and comes back again to the banks through the agency of price; there must be a time that that cycle takes. Now we have as a matter of fact means of calculating that time, and in Great Britain the average is somewhere in the neighbourhood of around about three weeks. Now, so long as a charge is incurred and liquidated inside that period of three weeks it can be liquidated by that cycle of the flow of purchasing power, starting from the banks, going out through costs and coming back again through prices. So long as the whole transaction of costs and prices is involved in a period of about three weeks, there is no difficulty involved in the prices and the costs being equal, but any item of cost which is outside that period of three weeks we will say cannot be liquidated by that stream of credit which is constantly in circulation at a period rate, we will say of three weeks.

Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale. It is frequently said, "Your theory must be absurd because we know that there are periods in which purchasing power is in excess of the price of the goods for sale, for instance at the end of a war." What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (C.H. Douglas, "Douglas System of Social Credit", evidence taken by the Agricultural Committee of the Alberta Legislature 1934)

If money disbursed for production makes its way to the bank before its cost can be extinguished in the price of the consumer goods it creates, then there is a corresponding gap between income and prices. If income is reinvested back into the productive system, then each time it is re-invested, it creates a new cost without creating new purchasing power (we have already seen that money does not circulate, but cycles, so money is only capable of cancelling one cost). The income I receive in terms of wages or salaries has been debited to the cost of some good or service. If I invest my income, then I expect to receive my investment back, with a rate of return. The only way the company I invested in can give me my money back with a rate of return is by charging the consumer through prices. Therefore; my income has created two costs: 1) the cost associated with the good or service that I helped provide, and 2) the cost associated with the investment that must be returned to me. However, my income can only cancel one of those costs. There is now a new cost created, without the creation of new purchasing power.

"But we also find that apart from this question of the distribution of purchasing power there is not enough purchasing power distributed to buy the goods which are for sale if the production of these goods has been financed by ordinary methods. There are many contributory causes to this situation, but it is probable that the main cause is due to the reappearance in prices of the same sum of money several times, a state of affairs which is rendered possible by the splitting up of production into a large number of processes." (C.H. Douglas, "Money and the Price System")

The reappearance in prices of the same sum of money several times creates a gap between purchasing power and prices. The re-investment of savings causes the reappearance in prices of the same sum of money, and the more production is split up into a large number of processes, the greater the probability that income disbursed in capital production will be reinvested. Douglas listed five causes of the gap between prices and purchasing power in "The New and The Old Economics":

"Categorically, there are at least the following five causes of a deficiency of purchasing power as compared with collective prices of goods for sale: -
1. Money profits collected from the public (interest is profit on an intangible)
2. Savings, i.e., mere abstentation from buying
3. Investment of savings in new works, which create a new cost without fresh purchasing power
4. Difference in circuit velocity between cost liquidation and price creation which results in charges being carried over into prices from a previous cost accountancy cycle. Practically all plant charges are of this nature, and all payments for material brought in frm a previous wage cycle are of the same nature.
5. Deflation, i.e. sale of securities by banks and recall of loans" (C.H. Douglas, "The New and The Old Economics")

We have already discussed at length reasons 1, 3, and 4. Reasons 2 and 5 are pretty much self-explanatory, both being a reduction in A, and not the creation of B costs. Add to all this the fact that overhead charges are growing in relation to income (i.e. B is increasing relative to A), due to the fact that capital is replacing the need for labour in the productive process, and it is apparent that the gap between income and prices is ever increasing, and this problem is ever worsening.

"At the moment the point to be borne in mind is that B is the financial representation of the lever of capital, and is constantly increasing in comparison with A. So that, in order to keep A and the goods purchase with A at a constant value, A+B must expand with every improvement of process..." (C.H. Douglas, "Credit-Power and Democracy")

What does this mean? If A+B must expand with every improvement of process in order to keep A, and the goods purchased with A ,at a constant value, and if A+B represent prices, then prices must expand with every improvement in process. This is why certain periods of time, when people have enough income to purchase most goods coming onto the market, are met with rising prices (i.e. inflation). Inflation is generally not caused by too much income chasing too few goods, but is caused by the ever increasing expansion of overhead costs via advancing technological processes. This means that inflation is inherent in our economic system, unless credit from an extraneous source is used to decrease, or stabilize, prices.

"Now any attempt, by current financial methods, to reduce prices (or even to stabilize them, as the phrase goes) is a mathematical absurdity unless the cost of this stabilization, or lowering of prices, is met from some extraneous source. Or to put the matter another way, the margin of profit which makes it possible for a producer to go on producing, disappears unless the financial cost, and consequently the price of production, is allowed to rise steadily in relation to direct labour cost." (C.H. Douglas, "Social Credit")

Industry, Income and Prices

The monetary system and the productive system are two distinct factors in an economy. Therefore; we must inquire how the money system and the productive system are linked? What is the purpose of a productive system? And how does the productive system satisfy our needs?

"It must be borne steadily in mind in considering this question that the object of industry is not work for its own sake; the industrial system exists firstly because society has need of goods and services." (C.H. Douglas, "Credit-Power and Democracy")

The goal of the productive system is to create goods and services. The production of goods is the transformation of matter, and its movement to where it is demanded. Services enhance the value we attribute to goods. Work is merely a bye-product of this system. Therefore, the purpose of the industrial system is not to provide work; although, some work is necessary to provide the goods and services that we desire. The amount of labour required for production is constantly decreasing through advances in technology. Man organizes himself for productive purposes because we are capable of producing far more when we work together than if we were to attempt to produce individually. The increased output achieved by working together is known as the increment of association. This increment is dependent on available physical capital (raw materials, machines, buildings etc. ), technology and processes; most of which were built, invented, and developed, by people who are long since dead. The invention of the wheel, or the harnessing of fire, have both brought great benefit to mankind, but the people who developed these technologies are long since gone. These technologies, or processes, belong to every man by birthright, and form a part of our cultural heritage. Production is mostly a function of our cultural heritage. Direct labour is constantly becoming a less important factor in production.

"The modern producer-not so much of course, the agricultural producer, although to some extent that is true by the use of harvesters, and gang plows and many other things, application of transportation and so forth--but taken over the whole world, the actual producer so called is more and more the delegate of the general community, delegated as you might say, to press the keys of an enormous productive machine which is over-whelmingly effective as a result of inherited knowledge and technique. You can prove that to yourselves if you consider the effectiveness as producers of ten men, let us say in Detroit, and ten men on a desert island. What ten men on a desert island can do, is what they can do as producers; what ten men can produce in a year in the way of wealth in Detroit is due to their value as producers plus their application of the heritage of civilization, and I suppose ten men in Detroit could probably produce ten thousand times as much real wealth in a year as the same ten men on a desert island. The difference between that productivity is due not to their own virtues but to their inheritance of this technique of civilization." (C.H. Douglas, Testimony before the Alberta Agricultural Commission)

The cultural inheritance of the technique of civilization is primarily responsible for the wealth that we are capable of producing today. The current generation of men who "press the keys" of this enormous productive machine add very little to its productivity, and as Douglas said, if someone is sceptical of this fact, they should compare the productivity of ten men on a deserted island who do not have access to the cultural heritage, as opposed to ten men in Detroit who do. Of course, the machine would not produce at all without those who "press the keys", but the productivity of those who press the keys is mostly a function of our cultural heritage.

"The industrial machine is a lever, continuously being lengthened by progress, which enables the burden of Atlas to be lifted with ever-increasing ease. As the number of men required to work the lever decreases, so the number set free to lengthen it increases." ( C.H. Douglas, "Credit-Power and Democracy")

The industrial machine acts as a lever, which allows man to free himself from the burden of Adam, by substituting solar power for human power. Progress, or advances in technology, decrease the amount of labour it takes to produce goods or services. As the amount of men freed from production increases, via advances in technology, so the amount of men available to devise technology that is labour saving, is increased. As an example, the productivity of farmers has increased dramatically since the advent of the industrial revolution, and this has led to a drastic decrease in the amount of people engaged in agricultural production.


"A factory or other productive organization has, besides its economic function as a producer of goods, a financial aspect - it may be regarded, on the one hand as a device for the distribution of purchasing-power to individuals through the media of wages, salaries, and dividends; and on the other hand as a manufactory of prices-financial values" ( C.H. Douglas, "Credit-Power and Democracy")

Companies have a dual role in the economy, because the modern economy is dependent on money for the distribution of goods and services. Firms not only create goods and services, but distribute incomes, at the same time creating price values. Income is distributed when a company pays wages and salaries to its employees, or distributes dividends to its owners, and that income is "repaid" when a consumer pays a price, thus acquiring a good or service in exchange for his money. We are now in a position to apprehend the accounting cycle of money. Money is created by banks through loans or overdrafts to businesses (excluding for the moment consumer debt), it is then distributed as income to workers, and owners, through the media of wages, salaries and dividends. It is eventually taken back in the form prices or taxes in exchange for a good or service,making its way back to the bank where the loan is repaid and, consequently, the money destroyed. Money operates in accounting cycle: it does not circulate. It is either creating costs or cancelling them. It has direction: it is either flowing from the bank and being distributed as income, or it is taken back as prices and flowing back to the bank (taxes being the government equivalent of prices) .

"It is a widely spread delusion that price is simply a question of supply and demand, whereas, of course, only the upper limit of price is thus governed, the lower limit, which under free competition would be the ruling limit, being fixed by cost plus the minimum profit which will provide a financial inducement to produce." (C.H. Douglas, "Economic Democracy")

Companies will not produce for any length of time below cost. Profit is the incentive to produce. Obviously, any price below cost results in a negative profit and a disincentive to produce. Retailers may sell some items below cost (known as "loss leaders") in the hope that they can sell other products above cost in order to compensate for that loss, but no company can produce below the total cost of production for any length of time. Hence; cost is the lower limit of price. The upper limit of price is what people are willing to pay, and the more they are willing to pay, the more profit. Often, firms will engage in "economic sabotage", or the artificial restriction of output, in order to sell at a higher price; thus maximizing their profit. This restriction is made easier when there is differentiation between products. For example, an individual farmer has no affect on the price of wheat by restricting his output, because wheat is a homogeneous product. Consequently; the price of wheat is often at or below the cost of production. However; a Mazzerati can be sold well above the cost of production by merely limiting the amount of Mazzeratis produced: creating an artificial scarcity. If effective demand is well above the ability of all producers to supply consumer goods, then the price of all goods will eventually rise regardless of the ability to create artificial scarcity. This situation is also known as inflation.

"The essential point to notice, however, is not the profit, but that he cannot and will not produce unless his expenses on the average are not more than covered. These expenses may be of various descriptions, but they can all be resolved ultimately into labour charges of some sort (a fact which incidentally is responsible for the fallacy that labour, by which is meant the labour of the present population of the world, produces all wealth). Consider what this means. All past labour, represented by money charges, goes into cost and so into price. But a great part of the product of his labour -that part which represents consumption and depreciation - has become useless, and disappeared." (C.H. Douglas, "The Control and Distribution of Production")

All costs go into price, and represent the lower limit of price. And all costs can ultimately be resolved into labour charges of some sort. However; the portion of the labour that represents past consumption and depreciation is no longer income. The problem is clear: cost forms the lower limit of price, and all costs go into prices: these prices are paid by incomes, but the portion of cost represented by consumption and depreciation does not exist as income. Therefore, total incomes are less than total costs. If every firm sold their product at cost (i.e. without profit), total incomes would be incapable of purchasing all the products that are produced. This fundamental flaw would have been exposed a long time ago if it were not for an intervening factor - credit from an extraneous source. An obvious extraneous source of credit is consumer credit, which is really a mortgage on future incomes, and only goes to exacerbate the problem as future incomes are decreased by an equivalent amount. However; the gap is mainly hidden by capital production and exportation of product. There are two types of goods: 1) Consumer goods, and 2) Capital goods. Consumer goods are purchased by consumers and their cost is defrayed upon purchase. Capital goods are purchased by businesses in order to produce consumer goods. Capital goods are raw materials, buildings, equipment etc., and their cost is not defrayed upon purchase, but transferred, and the cost ultimately ends up in the cost of a consumer good, where it is eventually defrayed upon purchase by a consumer.

"In consequence, the production which is stimulated - the production which we are asked to increase - is that which is required by the industrial machine, intermediate products or semi-manufactures, not that required by humanity." (C.H. Douglas, "The Control and Distribution of Production")

The cost of capital production showing up in the cost of consumer goods is delayed, because it takes time for a capital good to make its way through productive system in order to be consumed. This fact allows the income from capital production to cover the gap between income and prices on consumer goods. In fact, massive amounts of capital production can lead to inflation in prices of consumer goods, if the effective demand created through capital production is in excess of this gap. Alberta is experiencing this situation currently, as capital production in heavy oil upgraders is dispersing massive amounts of income leading to the inflation of prices - especially for consumer goods whose supply increases slowly (i.e. housing). However; the cost of these capital projects eventually make their way into the cost of a consumer goods (i.e. the cost of the upgraders will eventually be included in the cost of gasoline), and if the money disbursed as income for these capital goods is used on current consumption (which it most likely the case), then it will not be available to meet the price of the consumer good created at a future date. By attempting to close the gap between income and prices of consumer goods through capital production, we are exacerbating the problem, as the gap between income and prices of consumer goods only widens at a future date. When there is a lack of capital production (i.e. investment), firms find their margins decreasing, and we experience a business "slump".

"In other words, it is quite immaterial how many commodities there are in the world, the general public cannot touch them without doing more work and producing more commodities." (C.H. Douglas, "The Control and Distribution of Production")

Regardless of how many consumer goods are in existence, we are unable to purchase them unless we engage in capital production (i.e. there has to be sufficient investment to cover the gap between prices and income), or we engage in a policy of a "favorable balance of trade" (i.e. exports exceed imports) with other nations, disposing of production (i.e. doing more work than is necessary) in order to close the gap between income and prices . The more we engage in capital production, the more we are forced to seek a favorable balance of trade with other nations. This is a vicious cycle, because if we don't engage in excess capital production, or dispose of production by sending it to another country, companies find their margins decreasing, which in turn leads to layoffs, and a recession. However; it is impossible to keep following this path, because increasing investment ultimately leads to inflation as capital production makes its way into the cost of consumer goods, and all industrialized countries are seeking to continuously export their surplus production to foreign nations, which leads to ever increasing third world debt, and friction between industrialized nations, ultimately leading to war. Capitalism is plagued by periods of heavy investment, followed by rising prices, increasing interest rates in order to control prices, decreasing profit margins to businesses, unemployment, and finally a recession. In fact, some people have come to believe that this is a naturally occurring phenomenon like the rising of the sun or the law of gravity: what goes up must come down.

"By an accounting method of analysis, the conclusion is reached that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources. In other words, recurring periods of business depression are shown to be the result of present financial and business policies." (C.H. Douglas, "Social Credit")

Business cycles are simply caused by financial and business policy, and unless there is a change in our policy towards incomes and prices, this will be a recurring problem with our economic system. Attempts to close the gap between income and prices by increasing income through investment simply results in inflation: attempts to close the gap by giving surplus production to foreign nations leads to the struggle for markets, resulting in third world debt, friction between industrialized nations, and ultimately war. Attempts to reduce prices by restricting credit through increasing interest rates is also doomed to failure, because the upper limit of price is governed by the law of supply and demand, but the lower limit is governed by cost of production. It is the rising cost of production that is the primary culprit for inflation, not too much income. If effective demand is insufficient to cover the cost of production, plus the profit margin just large enough to provide incentive to produce, businesses will simply stop producing. This policy leads to bankruptcies and economic hardship.

"Now any attempt, by current financial methods, to reduce prices (or even to stabilise them, as the phrase goes) is a mathematical absurdity unless the cost of this stabilisation, or lowering of prices, is met from some extraneous source. Or to put the matter another way, the margin of profit which makes it possible for a producer to go on producing, disappears unless the financial cost, and consequently the price of production, is allowed to rise steadily in relation to direct labour cost." (C.H. Douglas, "Social Credit")

Central Banks attempts to arrest inflation through the use of interest rates to restrict the supply of money is futile, since it does not deal with the root cause of inflation, making the cure worse than the disease. The artificial restriction of credit causes margins to decrease leading to decreased production, which explains the common fallacy that there is a natural trade-off between inflation and decreased production. In reality, there is no trade-off. Prices can decrease, and production can increase, if part of the cost of production is defrayed with money that did not come from the productive system. Every debt created in the aid of production creates an equivalent cost, because the debt must be repaid. Debt is recovered in prices.

"the consumer cannot possibly obtain the advantage of improved process in the form of correspondingly lower prices, nor can he expect stable prices under stationary processes of production, nor can he obtain any control over the programme of production, unless he is provided with a supply of purchasing-power which is not included in the price of the goods produced. If the producer or distributor sells at a loss, this loss forms such a supply of purchasing-power to the consumer; but if the producer and distributor are not to sell at a loss, this supply of purchasing-power must be derived from some other source. There is only one source from which it can be derived, and that is the same source which enables a bank to lend more money than it originally received. That is to say, the general credit." (C.H. Douglas, "Social Credit")

Mankind will never have control over production, or stable prices, unless we are provided with a steady supply of purchasing power not included in the cost of goods sold. This purchasing power must be created debt free, and given to individuals in such a way that it's not derived from work, for all debt servicing charges, and labour costs, go into the cost of goods sold, and consequently, into price. In this way, improvement in processes, which decrease the real cost of production (i.e. the amount of energy used), will also reduce the financial cost of production, resulting in falling prices. By providing debt free credit to consumers in reduction of prices, and by virtue of a dividend not associated with work, not only will prices fall, but consumers will finally have control over production, and no longer will the productive system have control over mankind.