by Alain Pilote
We have just read on page 12 of this issue of MICHAEL that according to Saint Thomas Aquinas — and according to the Catechism of the Catholic Church — the definition of justice is « to render to each his due ». Well, according to the Economic Democracy taught by MICHAEL, it's a social dividend — a monthly sum of money — that is owed to each citizen.
Louis Even (1885-1974) advocated the financial proposals of the Scottish engineer Clifford Hugh Douglas (1879-1952), first stated in 1918, and known as Economic Democracy (after Douglas' first book on the subject), or Social Credit. Louis Even founded a periodical to publicize these ideas, Vers Demain in French in 1939, and then MICHAEL in English in 1953. He also founded a movement dedicated to the advance of Social Credit, the Pilgrims of Saint Michael, with headquarters in Quebec, Canada.
Applying the monetary reform principles of Economic Democracy would ensure that the economy and society would effectively reach its goals, which are the satisfaction of human needs. The system would ensure that production of goods which correspond to needs, would be financed, AND that consumption would be financed, thereby ensuring that necessary goods and services reach the population in a concrete and logical manner.
The genius of Louis Even was to popularize Douglas' principles and place them within the reach of Mr. and Mrs. Everyone. Mr. Even further showed that these monetary reform principles are coherent with the Social Doctrine of the Catholic Church and the philosophy of Saint Thomas Aquinas.
One of the three principles of Economic Democracy, which is the subject of this essay, is the social dividend payable to each citizen from the cradle to the grave. It can be considered a form of guaranteed income, furnished without conditions and regardless of employment status. This is not an egalitarian system, per se, as the employed people would receive their salary or wages in addition to the social dividend. This brings us back to a consideration of justice. According to Saint Thomas Aquinas, the guiding principle is suum cuique, which, translated from Latin, is to give everyone what is due them.
In addition to the dividend, a just economy would be built on two other fundamental principles of Economic Democracy:
1. New money belongs to society, not to private companies (commercial banks), and must be issued by an institution created by society such as a National Credit Office. In truth, money belongs to society; it derives its value from the productive capacity of the country; from the fact that there are natural resources, a rich cultural heritage and workers willing and able to develop these capacities.
2. Another principle of Economic Democracy is called the Compensated Discount. This constitutes a price reduction to the consumer which is compensated to the retailer by the Monetary Agency. It is a mechanism which will prevent price increases, and therefore, inflation.
Usually, we think of someone who receives dividends as a capitalist and shareholder in a company. The dividend paid to the shareholder represents a share of profits. In truth, every citizen of a nation and member of society should be recognized as a co-capitalist and owner of an immensely productive real capital, which we call Real Credit.
A country's productive capacity is the basis for Real Credit. We can consider money to be Financial Credit, remembering that, rightly, money has a relationship to Real Credit, which is owned by society as a whole. Consider the several components of Real Credit: the labour and competency of those engaged in work, and other elements, described below, which are the property of all.
First, there are natural resources, which are not produced by any man but are a gift created by God which must be at the service of all. There are also inventions, discoveries and innovations which have been made, developed and passed down from one generation to the next. This cultural heritage is the largest factor in production today. No man can claim, more than any other, ownership of this form of progress, which is the fruit of past generations.
It is today's workers who mobilized these resources, and these folks are entitled to remuneration in the form of wages, salaries, etc. But consider our earlier example of a capitalist who does not personally participate in the industry where he invested his capital and yet earned dividends. We consider that this person is entitled to a share of the profitable result of his invested capital.
The largest component of modern production is a form of capital which we earlier identified as the sum of discoveries, progressive inventions, etc. passed down from earlier generations. As a result of this form of capital, society enjoys a great volume of production with fewer labour inputs. Since all living beings are equal joint heirs of this immense capital, which is always increasing, all are entitled to a share of its fruits (just as was the capitalist shareholder earlier described).
We say that the employee is entitled to a social dividend and to his salary. The person who is not employed, and without a salary, is entitled to a dividend. We call it a social dividend because it is the fruit of a commonly owned social capital.
Karl Marx proposed that the work of the proletariat was the source of all wealth. Adam Smith said that capital, by the person investing money in a business, was the source. Both men developed economic theories but ignored the legacy that Douglas called the cultural heritage. This is the heritage of natural resources and inventions, etc. responsible for more than 90% of the country's production today. In fact, when we speak of the poor, it is entirely correct to call this group deprived, because these are people who have been denied their inheritance. The Social Credit (or Economic Democracy) dividend is therefore based on two rationales: the inheritance of natural resources and the inventions of previous generations. This is precisely what Pope Saint John Paul II wrote in 1981 in his encyclical letter Laborem Exercens, on human work (no. 13).
"Working at any workbench, whether a relatively primitive or an ultramodern one, a man can easily see that through his work, he enters into two inheritances: the inheritance of what is given to the whole of humanity in the resources of nature, and the inheritance of what others have already developed on the basis of those resources, primarily by developing technology, that is to say, by producing a whole collection of increasingly perfect instruments for work. In working, man also 'enters into the labour of others'."
Another reason to distribute a dividend to each citizen is a function of mathematics. The current financial system creates a gap; a chronic lack of purchasing power.
Today, goods are offered for sale at a given price. People who have money buy these goods by exchanging cash with a vendor. This method allows people who have money to choose and purchase what they want.
Social Credit would not change this system of disbursing goods. This method is both flexible and practical —provided, of course, that individuals have the purchasing power to buy the goods which will satisfy their needs.
Purchasing power in the hands of those who have needs is precisely where the present system is flawed, and it is this defect that Social Credit would correct.
Production runs smoothly when it is financed properly. Some of the money used to finance production will pay for labour costs and constitutes purchasing power for those who receive it. But bear in mind the following:
1. Industry does not distribute purchasing power at the same rate that it generates prices.
2. Production does not distribute purchasing power to everyone. It provides it only to those who are employed.
Economists maintain that production automatically finances consumption, that is to say, that the wages and salaries distributed to the consumers during production are sufficient to buy all the available goods and services. But facts prove otherwise. Scottish engineer, Clifford Hugh Douglas, was the first to demonstrate this chronic shortage of purchasing power in the A+B theorem.
The producer must include all production costs in his prices if he is to stay in business. The wages and salaries paid to the employees, i.e. the "A payments", account for a fraction of production costs. There are other costs that are not spent as wages and salaries that must nevertheless be included into prices, such as the payments for raw materials, taxes, bank charges, the maintenance and replacement of machinery, etc. Douglas calls these costs "B payments".
The retail price of products must include all costs: wages (A) and other payments (B). So, retail prices must total at least A + B. It becomes obvious that wages alone (A) cannot buy the sum of all the costs (A + B). There is therefore a chronic shortage of purchasing power in the present system.
If one attempts to increase wages and salaries in order to catch up to prices, the wage increases will automatically increase prices, and nothing will have been gained. (It's like the donkey chasing the turnip in the cartoon at the top of this page.) In order that all production be purchased, an additional income is needed from a source other than wages and salaries which will be at least equivalent to B.
This is what the Social Credit dividend would accomplish. This monthly dividend, provided to every citizen, would be financed with new money created by the nation. Best of all, it would not be generated by taxation.
Without the dividend as another source of income, there should be, in theory, a growing mountain of unsold goods. If goods manage to get sold, it is because we are faced with a growing mountain of debt! Since there is not enough money in the system, retailers must encourage customers to use credit in order to sell their goods. "Buy now, pay later" is the byword. But to delay paying for goods will not solve the purchasing power gap.
The second defect with the present system is that production does not provide purchasing power to everyone. It distributes it only to those who are employed. As productive output is enhanced by technological innovation, fewer workers are required. Productivity increases while the need for workers is reduced. There is a conflict between the effects of technological advancement, which decreases the need for human labour, and the rule which says that purchasing power is only for the employed.
Yet, everyone has the right to live! Everyone is entitled to the basic necessities of life. Earthly goods were created by God for all men, and not only for those with jobs.
That is why Social Credit would do what the present system does not do. Without eliminating the reward for work, it would disperse to every individual a periodic income, called a social dividend — an income tied not to employment but to the individual.
This is the most direct and concrete means of guaranteeing the exercise of every person's fundamental right to a share in the goods of the earth. Each person possesses this right — not as an employee in production, but simply as a human being.
The notion of the universal destination of goods has been advanced by the Magisterium of the Church, including in the conciliar document, Gaudium et Spes (paragraph 69), and the social encyclicals of Paul VI, John Paul II and Benedict XVI. Pope Pius XII delivered a radio message on June 1, 1941, on the occasion of the 50th anniversary of Leo XIII's encyclical, Rerum Novarum):
"Material goods have been created by God to meet the needs of all men, and must be at the disposal of all of them, as justice and charity require.
"Every man indeed, as a reason-gifted being, has, from nature, the fundamental right to make use of the material goods of the earth, though it is reserved to human will and the juridical forms of the peoples to regulate, with more detail, the practical realization of that right.
"Such an individual right cannot, by any means, be suppressed, even by the exercise of other unquestionable and recognized rights over natural goods."
Pope Pius XII clarified that it was up to nations, through their laws and regulations, to choose the methods that would allow each person to exercise their right to a share of the resources of the earth. The Social Credit dividend would achieve this objective. No formula proposed to date is as effective, not even the generous social security schemes provided by most western nations.
As the productive system can ensure the flow of goods, regardless of the input of workers, then too should the financial system distribute purchasing power by some means other than wages and salaries.
The replacement of men by machines in production is a positive development. If society provided an alternative source of purchasing power, such as the social dividend, material worries would end. More time to attend to other duties and interests beyond economics would enhance personal and social development. Indeed, the current financial system leads to privation.
Is technology evil? Should we destroy technology for taking our jobs? No, it is good that mechanization takes over routine and monotonous work, and thus allows men and women to invest their leisure time in freely chosen activities. This is as long as an income of sorts is provided to replace the salary lost when the machine takes over workers' jobs. Without another source of broadly available purchasing power, however, the machine is an enemy, not an ally.
In the beginning stages of industrialization, in the 19th century, men were responsible for 20% of production, animals 50%, and the use of machines accounted for 30% of production. By 1900, men were responsible for only 15% of outputs, animals 30% and machines 55%. By 1950, the figures had shifted significantly. Machines were responsible for 94% of production, and workers the remaining 6%. (Animals were finally liberated!) And we haven't seen anything yet, since we are now entering the age of computers and robotisation...
If we want to persist in keeping every adult employed in production, even if production to meet basic needs is already accomplished by fewer workers than ever before, then the economy will have no choice but to create useless new jobs and cultivate pseudo needs, so that people will have jobs to purchase unnecessary products. This is today's 'consumer society'.
Additionally, goods will be made to function for a short time only. This is so that more goods will be manufactured and sold, and more money made. Such planned obsolescence leads to a waste of natural resources, and a degradation of the environment.
Workers are performing repetitive tasks that machines can perform. In such monotonous work, creative potential is stifled and personal development crushed. Work which offers no creative side, and which can be completed by machines, is dehumanizing and is a sad prerequisite for acquiring money, which is truly the 'permit to live'.
Expecting men and women to dedicate most of their time providing for their material needs is rooted in materialism. It denies the spiritual dimension of the human person. If we are not kept busy with paid work, what will we do with our free time? We can spend our time on activities that are freely chosen that develop our God-given interests and creative talents.
Moreover, it is during leisure that men and women can attend to their religious, social, and family duties, such as raising children, practizing their faith and helping their neighbour. Raising children is surely the most important job in the world, yet the mother who stays at home raising children receives no salary and is viewed in society as unemployed and idle.
With leisure, individuals will be able to participate in activities that appeal to them. We can imagine that under a Social Credit system, there would be an explosion of creative activity. Indeed, the greatest inventions and works of art have been created during times of leisure. Douglas remarked:
"Most people prefer to be employed, but on things they like rather than on the things they don't like to be employed upon. The proposals of Social Credit are in no sense intended to produce a nation of idlers... Social Credit would allow people to allocate themselves to those jobs to which they are suited. A job you do well is a job you like, and a job you like is a job you do well."
Alain Pilote
Alain Pilote has been the editor of the English edition of MICHAEL for several years. Twice a year we organize a week of study of the social doctrine of the Church and its application and Mr. Pilote is the instructor during these sessions.
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