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A Brief Summary of Social Credit

on Monday, 01 August 2011. Posted in Social Credit

by Oliver Heydorn

In what follows, I intend to cover only some of the economic aspects of Social Credit. It should be noted, however, that Social Credit also comprises important philosophical, political, and historical ideas (amongst others).

In the first place, it is necessary to recognize that the true purpose of the economy is the production and distribution of those goods and services which are desired by the population with the least amount of trouble to everyone, i.e., the desired production should be carried out in the most efficient and effective manner possible. Unfortunately, this goal is not achieved in the modern world to the extent that it is physically possible (poverty and servility continue to plague us even if there are enough natural resources, advanced technology, and know-how to eliminate them). The element which intervenes and prevents the actualization of this potential is the financial system which is presently in place. This system is structured and functions as a monopoly. It is based on an artificial scarcity of money (with respect to both production and consumption), the fact that the banks create the vast majority of our money supply ex- nihilo, and, most importantly, the fact that the banks claim that the money which they create belongs to them (i.e., it is their property).

In general, the financial system may be said to have two main tasks: 1) that of catalyzing the desired production by advancing financial credit to productive organizations, and 2) that of distributing the goods and services which are the result of this process. The artificial scarcity of money that is a fundamental part of the system prevents the complete catalysis of production (i.e., there are, in certain cases, things which the population needs which are not produced) and it also prevents the efficient distribution of the resulting goods and services (i.e., distribution is subject to artificial constraints). The latter failure is due to a shortage of consumer purchasing power. This shortage is caused by a number of different factors that have the tendency of elevating prices without liberating a sufficient amount of purchasing power with which those prices might be liquidated. These include the collection of profits (including interest charges on loans), the re-investment of savings, taxes, a policy of devaluation on the part of the banks, and the A+B factor (on account of certain charges to cover the financial costs of the machines used in production, as well as their depreciation, maintenance, etc., the purchasing power distributed to consumers in the form of wages, salaries, and dividends, is always insufficient to meet the prices which are generated by the same process.)

The solutions proposed by Social Credit for these two problems are to repair the catalyzing function of the financial system and to repair the distributive function of the financial system.

The first function can be repaired by liberating the financial system from the necessity of having to create credit through the fractional reserve system of banking. Douglas always insisted that what is physically possible should be financially and, hence, economically possible. As long as there is a desire to produce certain goods, and the materials, labour, and technology, etc., to do so, the necessary amount of money to facilitate this production should be created and freely advanced without the imposition of artificial limitations. This could be arranged through the institution of a National Credit Office which would be charged with the task of creating (but not independently or arbitrarily determining) the money supply.

The second function can be repaired by introducing some changes to the system of distribution. Instead of filling the gap in purchasing power which is generated by the existing system with more money in the form of debt (through new loans to companies for expansion and new production — whether desired or not — through government loans for public works — whether desired or not — and/or through loans to consumers to purchase goods and services), Social Credit recommends that this gap be filled in two different ways by the creation of new money which is completely free of debt. Firstly, there would be a compensated price which would lower the prices of consumable goods in accordance with the observation that the just or true price of production can be determined by the cost of the consumption which that production requires. Secondly, there would be a dividend which would be received by every individual — whether he be employed or not. Together with the wages and salaries distributed to the workers who are still necessary to run the economic system, the compensated price and the dividend would be sufficient to make the financial system balanced and stable, capable of satisfying its true purpose of distributing the goods and services which the economy produces with the least amount of trouble to all.

These changes to the financial system constitute, in effect, the end of the monopoly which presently controls the financial system and its replacement with a system where the power of money has been decentralized in favour of each and every individual to the greatest extent possible.

Dr. Oliver Heyrdorn is a professor of philosophy at the University of Arkansas-Fort Smith.

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