By: Socred - B.A., SCMP
One of the primary criticisms of Social Credit is that it is inflationary. Gary North has written a critique of Social Credit entitled “Salvation Through Inflation”. The purpose of this essay is to demonstrate the claims that Social Credit policies are inflationary are fallacious, and to demonstrate that its policies are in fact the only way to reduce prices given that labour is being replaced by capital in production. Economists define inflation as too much money chasing too few goods. They argue that an increase in the money supply with a relatively fixed amount of goods and services for sale tends to increase the price of those goods and services. This assumption is based upon the quantity theory of money, which is critiqued in another article on this blog.
Douglas said there were two forces that governed prices: 1) the upper limit of price is governed by supply and demand, or what the good or service will fetch on the open market, and 2) the lower limit of price is governed by the cost of production and the rules of cost accountancy. Economists focus solely on the forces of supply and demand and their effect on prices, but they tend to ignore the rules of accrual accounting and its effect on prices. As such, economists always see rising prices as a result of too much effective demand, which they believe is the result of too much money being created. Their only policy recommendation to eliminate, or reduce, inflation is to reduce the quantity of money being created. The quantity theory of money ignores how money is created by banks as a debt. It also ignores the fact that the creation of money for capital production is prior to said capital being able to produce any consumer goods.
When physical capital (machines, raw materials, factories etc…) is created it is generally financed through loans from banks. This increases the money supply at the time the capital is being constructed, and this money makes its way to consumers as effective demand through wages, salaries and dividends. Since the capital is being constructed, it is not capable of creating any new consumer goods, so the income disbursed in its creation makes its way to consumer goods and services already on the market. This has a tendency to inflate the price of those goods and services, and this is what economists would call “too much money chasing too few goods”. But is it too much money? The money disbursed via the construction of capital has to be given to consumers, because eventually said income will be part of the cost of that capital. If that money was not disbursed, consumers would not have enough income to pay for the capital as it was expensed at a later point in time. In other words, rising prices at the time capital is being created is not caused by “too much money”: it’s caused by income making its way to consumers prior to the capital being built being able to produce any consumer goods and services. This income is necessary to defray the cost of the capital being created, but it is not used to purchase the consumer goods said capital produces, because consumers have to use it to purchase goods and services at the time the capital is constructed in order to meet the needs of living.
Once the capital is constructed its costs are generally capitalized and expensed over a period of time using the rules of accrual accounting. Douglas’s A+B theorem divides costs into two categories: 1) A = income = wages, salaries and dividends, and 2) B = payments to other organizations. Over any given time an organization will distribute A in income and charge A+B in prices. This is true for all organizations. Consequently if we sum all of the income disbursed in an economy over a period of time it will always be less than the total prices generated over the same period of time. If this is true, how has the economy not collapsed? It has not collapsed because income in the creation of capital is distributed prior to the capital’s costs entering the market and being charged to the consumer. So long as capital is being created, and debt/money is increasing in order to finance its creation, the economy functions fairly well. As soon as the capital’s costs enter the costs of consumer goods, income is insufficient to defray those costs, unless more capital is being contructed, because the income disbursed to create the capital was used to purchase consumer goods at the time the capital was created.
As labour is displaced in production by capital, B costs increase relative to A costs. How does this influence prices? Price = A+B, and if B is increasing relative to A, then any attempt to stabilize or increase A (income) has to be met with rising prices. Conversely, any attempt to stabilize prices (A+B) has to be met by falling incomes (A). In other words, even if there’s not “too much money chasing too few goods”, prices will rise so long as the government tries to stabilize or increase incomes. Inflation is systemic given the rules of cost accountancy coupled with the fact that labour is being replaced by capital in production and a policy of full employment is being pursued. This is why the government accepts “limited” inflation: they are afraid of the effects of reducing prices will have on people’s incomes and economic activity.
Fortunately, there is a solution, and it’s the only mathematically viable solution. The solution is reduce prices at the point of retail with monies with no cost attached to them. If money passes through the productive system, it has to have a cost attached to it, but if the money is given directly to the consumer it does not. Prices can be reduced to the consumer via a price rebate distributed with debt/cost free money given to the consumer. For instance, if the price of the good or service is $100 and the rebate to the consumer is $25, then the price of the good/service has been reduced by $25 to $75. The retailer receives $100 and the consumer pays $75 – the difference is made up via the creation of new debt free money.
In summary, prices are governed by two limits – supply and demand and the cost of production. The quantity theory of money, and the belief that inflation is only caused by too much money chasing too few goods, focuses solely on supply and demand and assumes that prices are only governed by these factors. However, prices are also governed by costs and the rules of accrual accounting. The fact that labour is being displaced in production, combined with a policy of full employment, increases the costs of production and consquently prices, even though consumers have inadequate incomes to purchase all of production. The only way to eliminate this type of inflation is to give consumers a price rebate at the point of retail. Therefore, not only is Social Credit not inflationary, but its policies are the only viable way to eliminate the real cause of most inflation today which is the displacement of labour in production coupled with full employment policies.
26 comments:
Say, Socred, I’ve been following the ideas of Douglas for a little while now and they sound like good ideas. What I don’t understand is the resistance to these ideas by orthodox economists, government officials, and just people in general.
The main objection I seem to here from economists, in articles on the web, is that it is inflationary. If the idea of national dividend is taken by itself I think that would be true, but if I’m not mistaken, this is adressed by price controls which Douglas also suggested.
They also tend to start talking a lot about the “free market”--that’ll it’ll sort itself out automatically if we just leave things alone. Except that it seems that left by itself, the only thing that seems to happen is war.
Here in the US, for example, World War II is widely credited with having ended the Great Depression of the 1930s. I think Douglas also suggested something similar of World War I. War is certainly not the best way to resolve economic problems, I think.
What’s odd is that Douglas put forward what sounds like a reasonable idea but yet it seems that it was never really tried out.
Your thoughts?
Hi Econquestioner:
Yes, one of the primary criticisms of Social Credit from economists is that they feel it is inflationary. The point of this post, and another on the quantity theory of money and Social Credit is to demonstrate that economists are misdiagnosing the cause of today's inflation.
Economists view all inflation as "too much money chasing too few goods", so if there's inflation, there must be "too much money". However, there is an alternative view of inflation which I put forward in this article. If prices = income + overhead, and overhead is always increasing relative to income through technological progress, then any attempt to stabilize income has to be met with rising prices - even if there's still not enough money to purchase all the goods and services being created. That's not to say that inflation can't be caused by "too much money chasing too few goods", like in Germany after WWI, but I don't believe this is the primary cause of inflation, especially today in industrialized societies.
Economists have a very poor understanding of accounting, especially as it relates to the macro-economy, and accountants are generally unconcerned how their practices affect the macro-economy.
Douglas saw an accounting flaw, and like a scientist, he tested his theory on actual businesses. He found in every case, except those businesses headed for bankruptcy, that the company charged more in prices in a given period of time than they distributed in income. If it's true of every business, it has to be true of the economy as a whole.
The only thing that prevents the economy from collapsing is the continual production of goods and services the consumer does not buy (i.e capital goods, and military goods). In this way, income is distribted to consumers to purchase current consumer goods and servies on the market now. This method is unsustainable because it continuously increases debt, and eventually the cost of said capital or military goods shows up in the price of consumer goods or taxes respectively.
Oh, I forgot to respond to the idea that that "free market" will just sort itself out.
This idea is idiotic. There are RULES to accounting which do not just "sort themselves out". If a company cannot charge more in price than its costs, then it has a negative profit and eventually goes out of business. If the quantity of purchasing power distributed to consumers is insufficient to cover the costs of goods produced, then the company cannot simply lower its prices below its costs in order that income and prices will equate.
In fact, Douglas's proposal for a price rebate and dividend is the only way they can equate, because incomes distribute are always less than prices generated in a given period of time. By creating money that is debt/cost free, purchasing power can be created without creating additional costs.
Under our current monetary system, virtually all money that is created passes through production, and thus, has a cost attached to it. Only by giving purchasing power to consumers directly (by-passing production) can purchasing power and prices equate.
This is why increasing incomes does not solve the problem. Prices = incomes + overhead. An increase in incomes increases prices. Not only is this inflationary, but it can never be a method of obtaining equilibrium so long as overhead charges are continuously increasing relative to income.
I agree with you there. Price rebates do seem to be the only option to bring purchasing power back to the people without increasing prices.
Another question, though: why is it that some social crediters are so focused on the issue of interest bearing debt that they never mention the gap between prices and purchasing power? It's sort of wierd considering that the gap is the foundation of the theory.
Another thing was that another common issue that orthodox economists bring up is the velocity of money debunking the gap.
I did read somewhere from Douglas and on your blog that money does not flow throughout the economy as much as it does to and from banks--to pay off debt. And I assume that when this happens, the money supply is decreased again after prices have risen. And that the only way (under orthodox economics) to counteract this is to keep expanding debt at a rate faster than it is paid back. Is this a correct interpretation of Douglas' response to the "velocity of money?"
Also on a funny note, i started off reading a lot of labor activist type material when I was looking for answers to our economic problems. I used to think wage increases were a good thing! I can see that this it is a hollow victory at best. Most activists seem unaware of Douglas' work though. It's all very bizarre...I mean after WWII there's almost no mention of his work...
Hi again,
I'm not sure why some "Social Crediters" are focused on some imaginary problem with the charging of interest on loans. My guess is that they have fallen for the "debt virus theorem" which claims that if you take out a loan for $10, and the bank correspondingly creates $10, and then asks to repay $10 + interest, that it's impossible to repay the interest of the loan. The error in this reasoning is the neglect of reciprocal spending by banks, especially in the form of interest paid to depositors, which increases the money supply. Further, I think that some Social Crediters have misinterpreted the word "usury" in the bible to mean all insterest on loans. In other words, they believe that the bible forbids the charging of all interest on loans; whereas, Calvin demonstrated that there are two words for interest in Hebrew, and usury refers to "biting" interest, or an excessively high rate of interest. Most nations have usury laws now.
The quantity theory of money is a “myth”, and having a degree in economics, this theory posed the biggest hurdle to my understanding of Social Credit. The quantity theory of money does not analyze how money comes into existence of a loan. The theory just assumes that money just comes into being, and goes about “circulating” through the economy. This theory probably derives from the false belief that money was gold that was somehow “dug up” and circulated around the economy liquidating costs through each transaction. The truth is that even in the times of a “gold standard” most money was credit created by banks through loans. This credit does not “circulate” but instead operates in an accounting cycle, or “monetary circuit”. Economists have such a poor understanding of accounting that it would be comical if it wasn’t so tragic in its consequence. I know for a fact that you can get a PhD in economics without having taken one course in accounting. How can economists talk about prices when they have no clue how accrual accounting works and prices are actually determined in the real world?
Increasing wages cannot bring about equilibrium between prices and incomes, and is inflationary. If income and prices are in equilibrium then the ratio of prices/income, or (A+B)/A equals 1. However, increasing income (A) can never bring the ratio of (A+B)/A to unity. It can get infinitely close, but never get there. Further, increasing A also increases A+B (prices) which is inflationary, and hurts anyone with savings or on a fixed income.
Before posting more I'd like to point out that I am not an economist, an accountant, or a banker. Nor have I taken any college courses in any of those fields. I'm just an average joe trying to make sense of the monetary system, so if I misunderstand anything here please bear with me.
As far as the "debt virus" idea, I don't really care whether they are "Social Creditors" or not. I just thought it was confusing that they talk about Social Credit without ever mentioning the A + B theorem.
That being said, I still think that they make a compelling point. I don't actually know what reciprocal spending means, to be honest, but I do recognize that banks do pay out wages and interest, and that this does increase the money supply.
But the thought occurred to me as I was thinking about your comment--"Doesn't the A + B theorem apply to banks, as well?"
Here are my thoughts:
I've read at this site (http://www.imf.org/external/pubs/ft/fandd/basics/bank.htm) that banks make most of there income through interest paid on loans. In other words, loans can be thought of as "products" and interest as the "prices" paid for these products. If this is the case, is it not true that "prices" (interest on loans) must exceed A costs (wages, interest on deposits, etc.) because of B costs (various overhead costs)?
In other words, I don't think that Social Credit and debt virus ideas are incompatible. If I have not misunderstood anything, it seems that the debt virus idea may hold some validity as an extension of the A + B theorem to banks.
About the quantity theory of money, I agree. I do notice that orthodox economists do ignore reality and tend to make assumptions which aren't true at all. It's actually really disturbing considering the amount of influence these people hold over government policies.
Anyway, when you say "monetary circuit," I assume you are referring to Monetary Circuit theory (as described here: http://en.wikipedia.org/wiki/Monetary_circuit_theory)? I've never heard of the term before. Is the description on that site accurate?
As far as increasing wages go, yeah, I understand now. After having read from Douglas I came to understand that increasing wages will only serve to increase prices later on which still leaves our products and services as unaffordable. What's really tragic is that activists, labor unions, etc. don't know this. They keep calling for higher wages and more jobs without even realizing that it will only make the gap between prices and income bigger.
Ah, yeah, increasing prices does hurt anyone on a fixed income. That's what Douglas meant meant when he said that inflation was a cruel tax on us, isn't it? What's worse is we're doing it to ourselves...It's really tragic.
Oh right, I forgot to add to my comment about the debt virus theory. Many proponents of the debt virus theory recommend the abolishment of the central banks as a solution. Some recommend creating banks owned and operated by the people. Some suggest zero interest loans, I think. I do disagree with them there, though.
I can recognize that none of these actions goes towards addressing the accounting flaw presented in the A + B theorem.
Well, as an “average Joe” you probably have a head start in understanding money and banking, because economists have so many misconceptions based on erroneous assumptions. Like I said, I was brainwashed with the “quantity theory of money”, so I had a difficult time understanding Social Credit until I finally realized that this theory is a fallacy. If I put something in terms you don’t understand, please let me know.
I personally care whether adherents to the “debt virus theorem “ call themselves Social Crediters for the exact reason you point to – it’s confusing to others. It’s hard enough explaining the A+B theorem and responding to criticism of the theorem, without having to explain that the “debt virus theorem” has nothing to do with actual Social Credit to people who are unfamiliar with the subject.
The fact that banks pay out interest on deposits, dividends to shareholders, and wages to employees – all of these activities increase the money supply – is “reciprocal spending”. The debt virus theorem ignores this spending by banks which increases the money supply. The model is incomplete, and that is why it gives erroneous results.
All companies have A+B costs, including banks. You cannot talk about Social Credit while ignoring the A+B theorem. The theorem is not the be all and end all of Social Credit, but it is an important aspect of it – in fact, crucial aspect of the Social Credit analysis. As you state, interest on a loan is the price of the loan. Those who want to eliminate interest on loans want to eliminate the ability of banks to charge a price for their service (by the way, there’s absolutely no difference between a service fee and an interest rate, they are just mathematically different ways of expressing the same thing). Social Crediters recognize that there are costs associated with banking, and that banks should be able to charge a price for their service (or in other words, they should be able to charge interest on loans).
Social Credit and the debt virus theorem are incompatible because the debt virus theorem does not take into account the A+B theorem or any other company besides banks. Further, it assumes that all bank charges cause a “gap” between the principal lent, and the amount to repay. This “gap” is nonexistent, because the analysis is incomplete and does not include reciprocal spending by banks. The only “gap” that really exists is the gap between income and prices identified in Douglas’s A+B theorem.
When I talk about the “monetary circuit” I am referring to a term that Post Keynesians use to describe what Douglas talked almost a century ago. Money is not a commodity that “circulates”. Most money is credit which operates in an accounting cycle or “monetary circuit”. It is created as a loan, flows to the consumer through the media of wages, salaries and dividends, is recovered from the consumer in the form of prices and taxes, then flows back to the bank cancelling all of the costs associated with the creation of said goods or services in the process until it finally reaches the bank and cancels out the loan that was initially created (and cancels the money out of existence as well).
Inflation is a form of taxation. That’s why Douglas called Gesell’s ideas of scrip that depreciated in value the longer it was held the worst form of continuous taxation ever devised. Those monetary reformers who want to abolish interest, or abolish the Fed, or centralize all banking are misguided in my opinion. Interest on loans is not a problem, and a change in administration of central banks is not going to change the policy of the banks What we need to change is the policy of the banks, and distribute sufficient purchasing power to consumers so that they can buy back all of production.
Anon said:
Re inflation: in virtually all English speaking countries Reserve Banks have a policy of low inflation. The Reserve Bank of my country informs us that we now have an official annual inflation rate of less than 1%.
In light of the Douglas analysis (and he did write of a continuous increase in the cost of living)how is it possible for an industrialised country circa AD2013to end up with a very low rate of inflation?
Anon:
Also, This from an article on 'Social Credit and Debt' (recently published).
Douglas promoted two remedies - a national dividend and a discount scheme.
The writer (of said article) wrote that "the discount scheme appears to be unworkable under modern conditions".
He also wrote that "funds to repay overseas debt can be obtained only by using some of the returns from our exports".
If you have any comments re the above, Socred, it would be very much appreciated.
Many thanks. All the best.
Hi Anon:
Inflation is kept low in our modern industrialized countries mostly by importing cheap goods from overseas.
I don't see how a discount scheme would be unworkable in modern conditions. In fact, modern conditions would make it as simple as a computer program. For instance, if the ratio of production to consumption is 3/4, and I purchase a good for $100, then the rebate would be $25. The national credit office could write a simple program so that when I pay the $100 with my debit card, they automatically credit me $25. I pay $75 for the good, and the producer receives $100, the difference $25 is created by the authority.
We do not "pay" for imports with exports. That would be true in a barter economy. We pay for imports with the money of the country we are importing the goods from. I think your adversary needs to familiarize themselves with the foreign trade capital account. If a country has a current account deficit, then they must have a capital account surplus, and vice-versa.
Anon asks:
Socred: Many thanks for your reply above. Could you briefly explain about 'foreign trade capital accounts'. The news media never seems to mention them. We just get constant reference to exporting being the way to prosperity.
Also, could you confirm if private banks borrow money (credit) from other private banks and other overseas "money markets".
No worries. Thanks for the intelligent questions.
There is a good description of the capital account at Wikipedia:
http://en.wikipedia.org/wiki/Capital_account
The reason why government's around the world think that prosperity is achieved through exports relates to GDP accounting, and the erroneouos belief that the economic system exists to provide jobs. A balance of trade surplus is a net loss to any country who holds it in that the country is giving away more than it receives back. In any sane sense, a favourable balance of trade is a stupid goal.
I see no reason why private banks would borrow credit from other banks, since they can create credit at will. I do know that they borrow reserves from other banks. They would need to borrow from overseas banks if they were trying to obtain money in that particular currency.
Anon said:
Socred,
Hi. Your opinion on free trade, please. We are constantly told - by economists - free trade has brought millions of people out of poverty and into prosperity. In Social Credit literature so-called free trade or, in reality exporting, is, I think, described as the economic theory of the merchant. (Something CHD didn't seem too impressed with.) Anyhow, is free trade the clever way for 'prosperity' and a high standard of living?
Also: National Dividends and Consumer Price Discounts. These are, under social credit policies, to be established from new credits in the same way as the banking system creates money? And backed by the economic activity of society? Is that correct?
Plus: The flaw in the financial system. Have you written an article specifically describing this flaw? As in here is the exact technical problem Douglas was talking about. (When one mentions a defect in the money system, most people just give a blank stare, or at best say "Oh you mean money is created as debt".)
Many thanks.
There's nothing wrong with foreign trade so long as the objective is to trade something in order to get something in return. Economists have their theories of comparative and absolute advantages when it comes to international trade. Of course, like most theories in economics, they are based upon a barter economy.
There is, however, a problem with international trade when the objective is to give away more goods and services to other countries than you receive in return. This is really a "net loss" to the exporting country, as they give away more than they get back - even though it provides employment. If employment is the objective of an economic system, then we should destroy all labour savings devices and force people to dig holes in order to fill them back up again.
Dividends and the price rebate would be created debt free in the same way the banks create debt free money when they pay interest on deposits.
I do have a couple of articles on the flaw in the financial system. One is on Douglas's A+B theorem, and another is on costs and time. The problem with the financial system is not the fact that banks create money as debt. The problem is that prices increase faster than incomes which results in ever increasing debt. Debt is the mechanism that forces money to return to the banks. Money is created as a debt, flows to the consumer through the media of wages, salaries and dividends - is recovered by businesses and government through the media of prices and taxes (the consumer receives goods and services in exchange for the prices and taxes paid), and the businesses return the money to the bank in order to cancel the debt. This is the accounting cycle of money. In and of itself, it's a clever device, but the problem is that people cannot buy back all of production without access to ever increasing debt.
Anon said: Thank you, Socred, for your answers above.
In his specification on Social Credit, Feb 1951, CHD mentioned "Integral Accounting". Also, under Administration, there is "Contracting-out Mechanisms". Could you briefly describe what is meant by integral accounting and contracting-out mechanisms?
Douglas also wrote about the "control of the policy of the banks at the disposal of the consumer interest". How could this be achieved? How can the end consumer control bank policy? Are we talking National Dividends? or through political control?
Social Credit claims there is a deficiency in purchasing power in relation to prices in any one period of production. Many people mey be confused by this phrase 'period of production'. Are we talking about, say, the manufacture of any one item i.e. a loaf of bread, a cell phone, or a batch of motor vechicles etc?
There is constant talk in some English speaking countries of the need for more human labour i.e. farm labourers, tradesmen etc. Is this because human labour is cheaper than automation? More jobs are being created in the servicing sector, i.e. old age care, hospitality industry, sales management etc. Is this because there will always be a demand in these areas or is it because the financial system is simply creating excess work etc?
Many thanks.
Hi Anon:
Excellent questions. You seem familiar with Douglas's work, so perhaps you should share what you thought he meant by integral accounting and control of the policy of banks.
I will give my own opinion on the matter.
By integral accounting I believe that Douglas meant a complete accounting system beyond what we account for now in terms of assets, liabilities and costs.
I'm not sure where you're quoting Douglas as having said, "control of the policy of the banks at the disposal of the consumer interest", so I'd need a reference to be certain of the meaning. My guess is that he meant that money should be viewed as a ticketing system used for the distribution of production rather than the banks view that it is a commodity which increases in "value" in terms of its scarcity.
What Douglas meant was that in any cycle of production and consumption by the time a good/service comes to completion in the form of a consumer good, the incomes disbursed in the production of said good is always less than the final price of the good. Some will argue that this deficiency can be made up by production of capital goods, but this leads into the whole Social Credit theory of economic sabotage.
Human labour is not cheaper than automation (especially if poor quality is considered a cost) otherwise, there would be no need to implement said technology. The reason why people don't work less as they are replaced in production is that a policy of full employment is pursued by governments and business in order distribute income.
Douglas said in his book "Economic Democracy":
"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."
Anon says:
Hullo Socred.
First, as far as the quote "control of the policy of the banks at the disposal of the consumer interest" I may have to leave that one. Sorry, but I gleaned it from a social credit newsletter which I can't find right now. But I think the original was from Consumer Control of Production.
Anyhow, could you tell us about the stock market. I was once told 95% of FOREX is little more than a glorified gambling den. Is this true also of the stock market?
In his speech The Use of Money, Douglas spoke of the absurd anomaly between poverty and actual/potential plenty, and if this anomaly is not quickly solved..."then the civilisation to which we have devoted such wonderful care, and brought on to the very edge of a golden age, will go down with those of Greece and Rome". Still a valid comment (future tense) as of 2013? or have we gone beyond the point of no return?
Also this: "...the continued functioning of the [financial] system depends upon an ever-swelling expansion of new credit to accomodate rising industrial costs resulting from a growing capital-to-labour ratio". Is this valid as a general statement? I mean, what about the likes of 3D Printing which today is cheaper than, say, several years ago? Some industrial costs (re manufacturing in the Western world, we are told, are lower now in real terms than 20 years previously.
Many thanks.
Anon says:
Greetings Socred,
Please note that when I mentioned FOREX in the comment above, I was referring to the world foreign currency exhange market/trading (commonly known as FOREX) - not to any private registered company.
Anyhow, while here one final question, please:
This centres on social credit and the Douglas analysis and where it finds itself today.
Canada, Australia and New Zealand are three countries seemingly doing quite well for themselves: at least their overall economies. Not only so, but Far Eastern economies are doing very well too.
The point is this: Global commodity prices are fairly high for most minerals and for food. Retail spending is positive for the most part, and the vast majority of adults have jobs (income). The banks are awash with money and lending vast sums - especially for mortgages. Company profit levels have much improved since last year. In New Zealand there is developing another housing bubble; plus a $30 billion rebuild due to a major natural disaster. This is helping boost GDP and putting money into the system.
In other words we see in these countries a fair bit of money being generated and much economic activity.
Therefore, are social crediters today in much the same situation as they found themselves in the 1940s and 1950s?
That is Social Credit was 'big' in the 1930s (financial crunch) and then along came World War 2 and the aftermath with all the rebuilding and exports etc (the Western world having gone from a shortage of money to the exact opposite).
Your opinion would be much appreciated.
Thank you. God bless.
Hi Anon:
In order to answer your question about the stock market, I would need you to clarify the difference between "speculation" and "investment", because investment is a form of speculation. The fact that some people earn their living from this activity is merely a corollary of the A+B theorem in terms of economic sabotage.
I still have faith that we have not gone past the point of return (hopefully), but we are certainly edging closer and closer to the abyss.
Cost should decrease over time as the real cost of production (amount of inputs used to produce a unit output) decreases over time. There have been a few instances where financial costs have decreased over time, but this is the exception, not the rule. Generally, we have price inflation. This is due to the fact that as technology replaces labour in production, B costs increase relative to A costs combined with a policy of full employment. If prices = A+B, and B is increasing relative to A, then any attempt to stabalize or increase A must be met with rising prices (A+B). The only technicaly correct way of solving this problem and decreasing prices is through a price rebate at the point of retail with debt free money that has not passed through the productive system (ie. does not have a cost associated with its creation).
Douglas once said that if people view Social Credit merely as a form of monetary reform, then the popularity of Social Credit will follow the ebbs and flows of the economy (or something to that effect). In other words, when times are good and there's an economic boom, then there will not be much interest in Social Credit, but when times are bad, there will be interest.
Social Credit is much more than a scheme for monetary reform. Douglas called it the policy of a philosophy, and he called his philosophy "practical Christianity".
Social Credit encompasses much more than merely a scheme for monetary reform, and that is why its monetary reform proposals are quite unique. It's also why you'll find that followers of Douglas are less likely to work with other monetary reformers due to fundamental differences in philosophy, whereas, those reformers are more willing to work with Social Crediters because their philosophy is not well worked out.
Anon says:
Socred,
In answer to your question above re the stock market, and the difference between speculation and investment, I would say that to most people, investment has to do with what social crediters would call real credit, whilst speculation is linked to financial credit. Does that make sense? But your answer is most useful all the same.
Could you tell us, Socred, do banks create credit and loan money on the basis of currency? While social credit would do so on the basis of national production or the national credit of a country? Is this correct?
A quote from CHD: "It may be advisable to glance at some of the 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 servives i.e. payment for work in progress."
Could you clarify the phrase "...reduce the return for effort..." and what Douglas was getting at here. Are we talking along the lines of automation and less purchasing power and less leisure for the individual? Also is Douglas hinting at the wage slave state that most people find themselves in i.e. No work, no money, no food.
How do you respond to Christians who quote a little NT passage written by St Paul (letter to Timothy if I remember rightly) along the lines of a person must settle down and work for his living and one must work hard etc. (Such verses are frequently used against social credit proposals). One also comes across theological opposition to 'getting something for nothing'. No such thing as a free lunch etc
Many thanks.
Anon says:
Socred,
I have now looked up the correct Bible verses (should have done so beforehand). They are not St Paul's letters to Timothy, but:
2 Thess. 3:10: "...If anyone will not work, neither shall he eat."
2 Thess. 3:8: "...but worked with labour and toil night and day, that we might not be a burden to any of you..."
Also, there are Proverbs 6:6 and Proverbs 19:15, "...And an idle person will suffer hunger."
In the commentary section we read "...a lazy person held captive to leisure"; and "Idleness breeds sin. Those who are disorderly, not working at all, become busybodies..."
The point being such verses are used as an argument for both the work state (people must work 'hard' well into old age), and the policy of full employment. And also as an argument against any proposal for any social credit based Christian leisure society. Your thoughts on the matter?
The more I have gone into the Douglas analysis and Social Credit policies and seen the "reaction", especially from non-christian sources, the more I am convinced such a reaction has everything to do with the Christian philosophy of social credit. In other words those who oppose social credit don't like the Christian philosophy. (Shades of "...but I don't like your objective.") Oh well...
All the best.
Anon says:
Socred,
Just send a comment but do not know if it successfully reached your website. Therefore we shall try again.
Regarding the Bible verses mentioned in a previous comment. These were not St Paul's letters to Timothy, but:
2 Thess. 3:10 "...If anyone will not work, neither shall he eat".
2 Thess. 3:8 "...but worked with labour and toil night and day, that we might not be a burden to any of you..."
Also:
Proverbs 6:6 and Proverbs 19:15.
In the commentary sections we read "...a lazy person held captive to leisure", and "Idleness breeds sin. Those who are disorderly, not working at all, become busybodies..."
The point being such bible verses - or similar thoughts as we read in the commentary sections - have been used as an argument (even by secularists) against any social credit based Christian leisure society.
The more I have gone into the Douglas analysis and Social Credit proposals and the negative "reaction" from non-christian sources, the more I think such reaction has to do with the Christian philosophy of social credit. That is, those who oppose social credit don't like the christian philosophy or the social credit objectives because of the christian aspect to them. Fair comment?
All the best.
Hi Anon:
Thanks again for your excellent questions and comments.
Banks create credit based upon their ability to monetize the assets of society. Their ability to do this is limited by the demand for credit, and their ability to access reserves. In a Social Credit society financial credit would only be limited by the real credit of society.
What Douglas is saying in the quote you reproduce from “Economic Democracy” is exactly what you suggest. Automation SHOULD reduce the amount of effort required to purchase goods and services; however, due to the fact that income is only derived from work, and the fact that the consumer pays all the costs of production, and increasing amount of goods and services are produced which are not necessary, but are ultimately charged to the consumer, even if they are waste.
I respond to Christians who quote Paul where he says ““if any will not work, neither should he eat” (Thessalonians 3:10). “ by saying, that this was certainly true at the time and place it was written, but that does not mean that this is a universal truth that holds for all time and all places. Just as Jesus said, “go sell what thou hast, and give it to the poor” (Matthew 19:21), he did not mean that everyone has to sell all they have and give it to the poor. This statement was true for the intended recipient, who valued his material possessions above all else. It was not meant as a universal truth to applicable to everyone.
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