Let us now examine the effects of this monopoly of credit on industry and the community. We find that industry performs three functions:
(1) It produces goods and services.
(2) It distributes the purchasing power to buy its products.
(3) It establishes the prices at which its products are sold.
Industry, to be successful, must get back from the public in the prices of its goods more than it pays out to the public in the course of their manufacture. Otherwise, it could not make a profit.
Now prices consist of all money costs of production, plus the percentage loaded on as profits. Amongst these costs are such items as interest paid to the banks on overdrafts, and money set aside as depreciation on plants and buildings.
Though these costs, representing profits, interest and depreciation, are all loaded into prices, the money to liquidate them is not distributed to the public neither as wages, salaries, nor dividends.
Therefore, prices are, and must always be, greater than the money available to buy them. In other words, there is always a disparity between the flow in the generation of purchasing power and the generation of prices in any one productive period. As can be seen, this is due to accounting all costs into prices without making provision for liquidating all of them.
This is the flaw in the finance-economic system, and is the main cause of all the economic troubles in the world. It is directly traceable to the use of debt for money and to the policies and practices of the monopoly of credit. Under the present financial system, there is no sound means of bridging the gap between purchasing power and prices.
The disparity between purchasing power and prices is further accentuated by SAVINGS. If money distributed as purchasing power is not so used, but is saved and re-invested to produce more goods, its function as purchasing power is lost; it becomes capital.
The disparity thus becomes greater than ever, and this disparity is represented by goods unsold, or goods that have to be sold by another form of purchasing power than that released in their production.
As a matter of fact, the surplus represented by this disparity can only be sold by one means, and that is by mortgaging future purchasing power; in other words, by DEBT.
There are several ways of doing this.
(1) Increased borrowing from the banks for new production.
(2) Time payment, hire purchase, cash orders, bills, promissory notes and other similar devices.
(3) Spending by governments of loan monies on public works.
All these methods are based on debt to the banking system, and lead to intolerable burdens of public and private debt and ever-increasing taxation. They must eventually culminate in the breakdown of the economic system and the morale of the community.
We agree with Douglas (Scottish engineer Clifford Hugh Douglas, the inventor of Social Credit) when he states: "There is no single cause operating in the world today which is of such importance and is so fraught with the possibility of world disaster, as is the disparity between purchasing power and prices."
Let us follow logically the results flowing from this disparity. It must be evident at the outset that in every cycle of production a proportion of the goods must remain unsold.
As further cycles are completed, the unsold portions must pile up till it is useless and dangerous to produce more for the time being, so banks restrict credit, production slows down, and men are laid off.
When men are laid off, wages cease, purchasing power further diminishes, less goods are sold, credit is further restricted or called in and cancelled. There is a rush to sell below cost and bankruptcies occur.
Standards of living now fall rapidly; there is further unemployment; dole conditions and acute depression appear; governments start relief works, and the banks readily lend them the credit they refuse to industry. Debt and taxation grow apace.
Still much of the surplus goods remains unsold, and we have starvation and poverty in the midst of abundance. Goods are wantonly destroyed by deliberate sabotage, and production is forcibly restricted. With mass unemployment everywhere, we are told to work harder, save more, and spend less.
Parallel with these manifestations is the struggle to find markets abroad for the goods that cannot be sold at home. As all nations are doing the same thing, and are in the same economic plight from the same cause, this leads to commercial hostility, international friction, and finally and inevitably, to WAR.
The sum of all these results of the disparity between purchasing power and prices culminating in war is the world disaster foreseen by Douglas. Only the accuracy of the Douglas analysis could make such a prophecy possible, and only the results could so confirm the analysis.
The Social Credit remedy
Having examined the system and discovered the flaw in it, what is the Social Credit remedy? The remedy must be capable of application, and is based on the fact that the powers of production are now so efficient through science and mechanism that we have emerged into an age of potential plenty that will give a very high standard of living to all.
That is to say, it is physically possible to provide the things that will ensure absolute economic security to all. This being so, the factors to be considered are as follows:
1. That the power to produce must be balanced with the power to consume.
2. That the monopoly of credit must be terminated, and the right to issue and control all money and credit be vested in a statutory body as representing the people.
3. That savings shall not be diverted from their proper function, i.e., purchasing power.
4. That money and credit be a means of distribution only, and not a commodity to be bought and sold at interest.
5. That provision of purchasing power must be made for those not employed or displaced from industry by labour-saving machinery.
With regard to the last factor, Social Credit is convinced that science and invention will continuously reduce employment. It welcomes this development because it ushers in an age of leisure that will stimulate culture and self-development.
To resolve these factors, Major Douglas has laid down three embracing principles of social and economic reconstruction having an universal application, and out of which can be evolved practical proposals suited to the needs, conditions, and social organisation of each country that decides to adopt them.
Broadly stated, they are:
1. That there must be at all times an equation between purchasing power and prices, and that credit must be recalled only as goods are consumed.
2. That industry must be financed by credits created for that purpose, and not by savings.
3. That a social dividend shall progressively replace wages and salaries as men are progressively displaced from industry.
The application of these principles
It will be seen that these principles cover the defects in the existing system, and that within them a solution is provided that is both preventive and remedial. How can we put this solution into practical effect?
The first step will be the establishment of a National Credit Authority to take complete control of the money system and put the affairs of the nation on a proper accountancy basis. This would restore money power to the people and do away with the monopoly of credit by private interests.
The National Credit Authority would then ascertain from all available sources the financial and economic position of the nation as a business concern, and draw up a correct Trading Account and Balance Sheet of the Nation.
As we are a progressive people, with national wealth continually increasing, there would be a considerable credit balance in every accounting period, representing the profit of national appreciation of wealth over national depreciation.
Credit would be issued against the profit balance to establish an equation between purchasing power and prices, pay a social dividend, or meet any commitment deemed necessary for the safety or welfare of the people of our nation.
Once we have established the control of our national credit, the power to do things would no longer be determined by money conditions. Under Social Credit, "what is physically possible is financially possible."
Now let us indicate more definitely how this credit will he used. It is essential that it must be used to prevent inflation, and that it will be applied in the spirit of co-operation. Douglas made certain suggestions for implementing a Social Credit policy, and whilst these are shown here, there may be other ways of accomplishing it.
To ensure this co-operation, businesses would be invited to register with the National Credit Authority to trade on mutually agreed margins of profit according to the nature of the business concerned. The profit would be high enough to encourage ample production, but not high enough to permit exploitation.
This arrangement would control prices in a more scientific way than the present method of price fixing, but, in addition, the technique of Social Credit provides a regulating factor that makes price control absolutely effective.
This factor would ensure that the money or credit issued against the profit balance in the nation's books would not only increase purchasing power, but, at the same time, reduce prices.
An example will illustrate how this could be done. Supposing the price of an article was $8, and the purchasing power available was $5. The disparity is $3. Credit could be issued to reduce the price by $1.50 and to increase the purchasing power by $1.50. Purchasing power and prices would then be $6.50, and the required equation would be made.
The money to reduce prices would be in the form of a discount known as the Just Price or Retail Discount (like a sales tax or GST in reverse), and the money to increase purchasing power would be in the form of a social dividend to individuals and paid irrespective of employment. Both would come from the national profit already mentioned, and would provide the means of economic security.
The Just Price or Retail Discount would apply only to ultimate consumable goods sold by retailers. At every accounting period, the National Credit Authority would publish the discount rate, and retailers, after charging all their costs into prices, would then sell their goods, less the amount of the discount. They would actually sell them at less than their established selling price.
The retailers would then present their authorised vouchers to their local banks which could credit them with the discounts allowed. The banks, in their turn, would be reimbursed by the National Credit Authority out of the national profit. The banks would be adequately compensated for the services rendered.
A portion only of the national profit would be used in this way; the balance would be used to pay the social dividend and any other services considered expedient.
By this method of selling below the normal selling price, the consumer's money would have increased its buying power, and all goods could be sold without loss to the producers. Inflation would be impossible, and all the economic uncertainties of boom and slump incidental to the present "trade cycle" would disappear. The economic system would be stabilised.
Under Social Credit, borrowing for national purposes would be unnecessary; public works could be constructed without debt. The national debt could be gradually paid off, and taxation, as a means of revenue, eliminated.
The most effective "planning" in the world is adequate money in the hands of consumers. Having effective demand in this way, they could give the necessary orders, and industry would be enabled to function to the limit of producer capacity or to the limit of consumer demand, whichever occurred first. The standard of living would thus rise to untold heights.
With economic security assured, the struggle for markets abroad and the conditions that lead to depressions at home would be ended, and the new civilisation of freedom, peace and prosperity would be, at long last, brought to birth.
The application of science and technology to production now enables mankind to ensure a reasonable sufficiency of material needs to all, without continuing economic servitude. But the existing financial system is fundamentally flawed. It is endangering the planet through ruthless exploitation of its limited resources in pursuit of financial profit and the will for power.
Competition between ever-growing trade blocks backed by military might threatens global destruction. At the heart of this complexity of interrelated problems lies the monopoly of credit creation by the international banking system.
The prerequisite to resolution of these problems is the elimination of this monopoly of financial power, and its control by national governments through a properly constituted statutory authority, a National Credit Authority, answerable to parliament but immune from political manipulation. This Authority would maintain the national accounts of production and consumption in both physical and monetary terms (as is already done by the Bureau of Statistics in calculating gross Domestic Product and Gross National Product), and regulating the issue of credit in accordance with the performance of the economy. It would operate in the interests of the citizens, and with compatible arrangements for mutually complementary international trading.
The means to that end are known and available. There is growing international recognition that such change is necessary.