(Trevor wrote:-) "It is not
logical to have governments hamstrung in carrying out their
responsibilities to those who they purport to represent by adhereing to
and defending the right of the private owners of the debt mechanism to
dictate the terms and conditions on which 'money' is made available for
public provision." Nor would it serve to
realize Social Credit objectives by shifting the monopoly of credit toward
the State from the banking sector. Social Credit policy is
to distribute in the widest manner the power of economic decision
making to consumers via the distribution of credit. Note:
Social Credit does not define "credit" as "debt" in the usually accepted
(reply) Having the
banks nationalized would in no way bridge the gap between prices and
purchasing power. Neither would having all companies "one" - a
proposition forwarded by Keynes in the MacMillan commision testimony,
which of course is the communist solution:
4479. Mr. Keynes: If all firms were united in a
single firm would your difficulties be overcome?
Douglas: That is the obvious remedy for the
financial difficulty but not necessarily the right remedy. Even from a
purely financial standpoint it is a little difficult to say; you
understand a time lag comes in.
4480. Mr. Keynes: Do you think it would
Douglas: No, I do not think it would completely
4481. Mr. Keynes: Why not?
Douglas: Because there would be a considerable
amount of money being paid out in wages for delayed production, and your
hypothesis assumes that the distributed costs of a given week are the
total prices of the goods for sale of a given week.
4482. Mr. Keynes: It would be
Douglas: It probably would be diminished I think
(Joe replies:-) I quite agree.
But the methods by which this private 'monopoly of credit' is to be ended,
as proposed by the NZ Democrats and other 'Social Credit' political
parties elsewhere, (including here in BC, when they still had this issue
in mind, and weren't just trying to survive as a viable 'party', as they
are at present), is what I would question. They tended to regard prosperity as being compatible with a
full-employment society and did not challenge fundamental orthodoxy in its
acceptance of the social objective of providing work for as many citizens
as possible. They never really envisaged genuine Social
Credit philosophy and policy--except for a few (such as Joe!) who never
carried sufficient influence to give effective or decisive
direction. In the case of the Manning administration of the Province
of Alberta, Douglas expressed the view that it was little more than a form
of state socialism.
(reply) I'm to
young to remember the time of Ernst Manning, even though I was alive when
he was Premier of this province, but from what I understand of Ernst, he
was to Social Credit what Judas Iscariot was to Jesus Christ. Would
you say that's a fair comment Wally?
(Trevor continues:-) "There is a vast
difference in outcome between issuing new currency (printing money) and
making available a measured amount of interest free funding for
specific infrastructural assets that will contribute to increased
productive capacity and a better lifestyle for everyone." I think, Trevor, that you have not had an opportunity to
really study Douglas in depth. The Consumer Dividend and Compensated
Price employ money issued without the involvement of either debt or
interest in a manner to increase effective demand and reduce the price
(reply) It seems to me
that this is the point that Keynes couldn't understand either.
Keynes thought in order to bridge the purchasing power gap, all you needed
to do was increase A, but since A+B goes into price; increasing A relative
to B will decrease the gap between purchasing power and prices, but it
will never fully alleviate it. And the results will be inflationary,
as prices rise due to the increase in A.
Douglas addresses this in
Social Credit when he states:
Costs = purchasing-power.
Costs are <
Costs - x
Prices - x
An addition to both the numerator and denominator of the fraction,
such as is brought about by a rise of wages, accompanied by a
rise in price, has, of course, the opposite effect; it brings the ratio of
purchasing-power to prices nearer, though never to unity, with
the result, seen in Germany in the inflation period, of immense, though
unstable, economic activity, accompanied by great hardship to the
professional and rentier classes, both of whom have claims to
consideration, and a most undesirable concentration of economic power,
resulting infallibly in the enslavement of the artisan.
Even without demonstration, therefore, it is easy enough to see the
effect of either deflation or inflation by the exercise of analytical
methods; but nothing of the sort is now necessary. A full-scale
demonstration of both of them has taken place since Chapter XIII of
Credit Power and Democracy was written; and the course of events
in Germany, under a policy of reckless inflation of credit, reappearing in
prices, followed with some exactness the sequence, both economic and
psychological, which was explained therein, and can be considered and
compared with the contemporaneous restriction of credit in Great Britain.
During a few months of 1923 a condition of fairly steady, though high,
prices was maintained at the cost of increasing industrial stagnation; and
the fact that this situation changed into an era of rising prices,
accelerated by every effort to grapple with the "unemployment" problem by
orthodox methods, should be conclusive proof of the inability of the
existing financial system to carry out the policy of "Stabilisation."
The efforts to control prices by manipulating credit along orthodox
lines culminated in the unmanageable fall of prices which began in 1928, a
fall which complicated, although it did not cause, the financial crisis of
1929 in which the world is still (1933) involved.
(Joe replies:-) It seems to me, strictly from what
I've observed here and elsewhere, that the ''vast difference'' seems
to be largely made up by the amount of 'inflation'. True
enough there's likely to be a difference between the way a responsible
government, such as the NZ Democrats, would act in this regard when
compared with such as Zimbabwe's current regime, say. But you are
still going to get 'inflation'. Unless you've got some way of
controlling consumer prices in mind. Douglas makes a comment in one
of his earlier books about how the construction of a new 'railway bridge'
raises 'the price of bacon' in the local butcher shop. In other
places he goes into a great deal more detail about this. But
regardless of whether the money is introduced 'interest-free' or not, when
it's done the way you propose (for capital works) it seems to always
raise 'consumer prices'. This should lead us to
the crux of Douglas's concept of true "cost"--the latter being the mean
ratio of consumption to production. Most critics of Social Credit
seem simply to ignore this idea which Douglas regarded as being
central to his ideas.
(reply) I think the major
basis of Douglas and A+B is the compensated price based on financial
cost*(consumption/production). The dividend itself is of secondary
importance. And Douglas said himself that the first thing to be
implimented would be the compensated price. The dividend would come
later, and seems to be the harder figure to come up with. His
compensated price is fairly straightforward.
(Trevor continues:-) "The process of using
interest free funding for essential infrastructural assets must initially
be targeted at backing debt out the economy and thus
creating greater stability in the financial system and a stable
foundation for the policy of a philosophy as envisaged
by Douglas." Trevor, you seem repeatedly to
refer to "interest-free" funding. This does not address the
fundamental accounting error with which Douglas dealt.
"Interest-free" money still originates as a debt--how are you going to go
about "backing debt out of the economy" when you are in fact creating more
(reply) Admittedly, I
fell for this reasoning as well, and interest, like profit, will
accumulate wealth in the hands of the banks, and "capitalists"
respectively, in a closed system with no credit expansion. Of
course, as long as new credit is entering the system, the problem
disappears - like Bill likes to demonstrate with regards to
interest. New money being injected into the economy via A does bring
the gap between purchasing power and prices closer to unity, but never
gets there, and the results are highly destabalizing in terms of
inflation, and definetly tyrannical in terms of moving us from a leisure
state, to production of useless government "services". This is why
Douglas always states:
"Since A will not purchase A+B, a portion 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
(Joe replies:-) How are you going to
"back debt out of the economy" this way if it leads to a rise in 'consumer
prices'? You haven't made any use of new credit to lower prices, (as
per the 'compensated price discount' ), nor have you moved to address the problem revealed by A+B.
While admittedly 'saving interest' currently paid to private bankers, is
all the money generated by the economic activity related to the new
interest-free 'infrastructure' going to be used to repay existing
debt? Or will those receiving it be more likely to then be able to
incur new debt? What do you do when the initial round of creating
'essential' infrastructure is completed? You
either go into a recession or the state dreams up some more superflous,
unnecessary, self-enhancing or destructive psuedo-economic activity to
keep people busy and rob them of the leisure which industrial efficiency
should increasingly provide. "Full-employment" the cornerstone policy
of state-imposed policy--of both fascism and communism, or, indeed, any
centralized form of tyranny.
(reply) I would also
state full employment is the policy of the banks.
'Interest-free' or not, won't you find
yourselves in a spot where you have to keep repeating the process to
continue to provide 'employment'? Don't get me wrong, I detest
the current methods by which governments finance as much as you do.
But those are just some of the questions I'd have about what's
proposed. If the price-system were adjusted so
that it is self-liquidating, i.e., so that there is always sufficent
effective demand in consumers' hands to cancel the financial costs of
production, the problem of unrepayable debt would be eliminated and with
it the essential inequities associated with interest. To flay at the
branches of economic injustice while failing to deal with the root causes
is a futile endeavour and can only perpetuate and even worsen the existing
All the best