New readers of MICHAEL may be puzzled by the new ideas contained in this paper as regards economics and finance, even though the ideas seem logical and their application would bring a ray of hope into their lives. Where do these theories, that are so different from what is practiced today, come from? What is this “Social Credit”, a term that is not even mentioned in the today’s economic textbooks? Could it be a stroke of inspiration from the editors of MICHAEL?
No! MICHAEL certainly spreads with much fervour what it considers to be an illuminating revelation and a discovery that arrived at the right moment. It would settle most of the problems of an economic and social nature that cause anguish in our world, when today’s huge progress should open new horizons. But MICHAEL is not the author of this revelation.
In regards to the birth of Social Credit, there is only one name, a man of genius, a Scot named Clifford Hugh Douglas.
Douglas was an engineer by trade, a brilliant engineer who was entrusted with important projects. He was Chief Engineer and Manager for the British Westinghouse Company in India. In South America, he was Deputy Chief Electrical Engineer for the Buenos Aires and Pacific Railway, and in England, he was employed on the construction of the London Post Office Tube Railway. During World War I, he was Assistant Superintendent at the Royal Aircraft Factory in Farnborough, England.
Douglas was also an expert in cost-price accounting. It is for this that the British Government asked him to go to Farnborough in 1916 to sort out “a certain amount of muddle” in the Aircraft Factory’s accounts.
Douglas never bore the title of economist; he would have considered this as an insult anyway because of the mountain of errors, based on false premises, in economic teaching in universities. Yet, Douglas was actually the greatest economist of all times, with his diagnosis of the major flaw in the economics of today and the proposals that he formulated to solve them.
A disciple of Aristotle in philosophy, Douglas considered the various functions of the economy in relation with their proper ends, and he subordinated appropriate means to these ends. Being first of all an enginner, he proposed ways that were honest, simple, and potentially efficient. He also has an absolute respect of natural and moral laws. There is, he said, a “canon” that cannot be violated. Douglas was also concerned about preserving individual freedom and responsibility and about restoring rights to every individual. Institutions of every nature — political, economic, social — must serve the individual and not dominate or choke him. Also they cannot hinder his freedom of choice and dictate his way of life.
These principles and concerns of the human person are the least of the worries of our present monopoly of credit and the industrial giants that created or helped to foster this monopoly. These principles would put financial credit at the service of the skills of the population. Gradually, the massive and depersonalizing methods of hiring could give way to free associations that would take on the responsibility of supplying goods and services that answer the needs of the population. The individual would regain the freedom to accept or refuse his personal participation in every undertaking that asks for his assistance.
The monopoly of money and credit, and its loyal supporters quickly saw in Douglas’s proposals a threat to their privileged situation, which they absolutely wanted to maintain, even though it was harmful to the community. They therefore made use of their powerful influence over means of communication, governments, institutions and men in high places, to boycott the teaching of Douglas. First, it was a conspiracy of silence; then a false representation of Douglas’ theories in order to discredit them. After, they threw people into confusion by degrading the term “Social Credit.” Then after this, they pushed ambitious people to use this term to start a political party.
But Douglas left writings and made disciples in several countries, including Canada. These disciples continue to diffuse his teaching. The accumulation of the bad fruits of an unsound system cannot fail to force the governments to admit, even reluctantly, many assertions of Douglas against which the whole cohort of economists rose up. Thus, the gold standard myth has disappeared from national currencies, and the monetary function of gold has become less and less important on the international level. And what did they do with the other sacred cow – the balanced budget? Governments were forced to disregard this so-called necessity, which was taught as a matter of life or death by orthodox economists. If governments did not have recourse to unbalanced budgets, all economic life would have been killed with the present financial system.
When governments are in trouble, they borrow something from Douglas’s teaching but afterwards they cook it in the sauce of the present system, just like in the case of budgets, when Keynes was the cook. And because of this manipulation, instead of having a financial reflection of reality, the creation of public wealth is expressed by an increase in public debt. This is why Douglas’s disciples must be able to distinguish what is reality and not take just any social security measure for authentic Social Credit.
A tranquilizer may relieve a suffering person but it does not cure him. The present system may have recourse to all kinds of pills but it remains sick. Social Credit would create a healthy economy, and this is infinitely better than the current situation.
It was during the First World War that the engineer C. H. Douglas, with the experience of several past jobs done in India and elsewhere, carefully examined the financial sector of the economic system. He researched its laws and worked out appropriate measures so that the economic system could fulfill its proper function. This work was completed in 1917, and the first writings of Douglas on this subject were published in 1918 in the form of articles in reviews and in the economic section of newspapers; then in the book Economic Democracy which was first published in 1919. Other books and pamphlets followed, accompanied by lectures in England, Australia, Japan, Sweden, and Canada. Douglas died on the feast of Saint Michael on September 29, 1952.
Social Credit is not a fabrication of the mind based on unrealistic expectations. It is the fruit of discovery made and analyzed by a superior mind.
Douglas was able to discover facts and defects in the working of the present capitalist system; flaws inherent in the bookkeeping of the price system, even if this bookkeeping was accurate. Also he analyzed the defects related to the perversion of the ends and means in economic functions. He was able to examine how these defects harm the smooth running of the social and economic organism. He drew conclusions and these showed how to rehabilitate capitalism and how to make it a wonderful servant of individuals and community alike. Thus it would be liberation for all and the population would accept it, instead of looking for solutions in Fabianist or Marxist socialism which are tyrannical and degrading.
Let us mention some of the discoveries that led Douglas to enunciate his Social Credit proposals.
The first discovery concerns credit. During the completion of the work he was in charge of as an engineer, he had more than once been told to postpone the work because of the lack of financial credit. These jobs were easily feasible physically and the local population needed them badly, but they had to be stopped, not because of a lack of manpower or materials, but because of a lack of money. What was the problem with money, that the presence or absence of it conditions the lives of men, as though it was an inevitable natural phenomenon?
Douglas soon discovered that virtually all the money upon which economic life depends is nothing but mere entries in bank ledgers, credited to borrowers. Not palpable money (cash), but credits that circulate through cheques, transferring sums from one account to the other. Why limit the freeing of these credits, when it is the only thing missing to make use of the productive capacity and to answer real needs?
Then, not long afterwards, he discovered that the true base of any money — either coins, cash or cheques — is the productive capacity of the nation. The establish gold as the standard for the basis of the money supply does not make sense. When someone wants to make bread, he does not dig to find metal but rather cultivates a field and sows wheat.
And since the basis of financial credit, the productive capacity, is almost limitless today, restricting financial credit to make use of these possibilities of production (as long as they are not exhausted or as long as basic human needs are not answered) is unjustifiable, odious and criminal.
A real social capital
Considering the factors of this modern productive capacity, it is obvious that its growth is more often due to the use of machines that are becoming more sophisticated, and less due to the use of human labour. The biggest real capital of production is not money but machinery. The progress made during the centuries, especially during the last two centuries, when the driving force of steam replaced workers, horses were replaced by watermills and windmills, which were also replaced by driven machines. Mankind was entering the era of motorization which has greatly expanded since that time with electric motors and internal combustion engines. We are now entering the era of automation. (Editor’s note: Since Mr. Even wrote this article, we have entered the computer age, robotics, and so on...)
But this progress, this succession of inventions and technical improvements, could never have taken place without life in society; an ordered society. This would mean a society that allows the division of labour, specialization, research and the transmission of knowledge. No one human being can pretend to be, more than any other person, the owner of all these community assets which are inherited from past generations. All the members of society are co-heirs to these assets and they must all benefit equally from them. To limit financial benefits (wages, progits, dividends) only to investors and employees, who make this great common capital yield, is an injustice towards the rest of the community.
It is from these situations that Douglas draws his proposal of a periodical dividend to every citizen, whether this person is employed or not in production. Because of progress, which is a common good that is very important in today’s production when human labour now is less required, purchasing power must be made up of dividends to all and not only to salaries linked to employment. Douglas explains: “The distribution of consumer money to individuals shall be progressively less dependent upon employment. That is to say that the dividend shall progressively displace the wage and salary, as productive capacity increases per man-hour.” The simple reason is that this increase is the fruit of progress (common capital) and not the fruit of the greater efforts of the employees.
Here is something that clashes head-on with the financial regulation that states that all distribution of purchasing power must be bound to participation in production. It also goes against the call for higher wages, which are the reward for human effort, since human effort diminishes in length and intensity because of progress.
The fact that financial credit is based on productive capacity, and this alone is due in large part to a community inheritance, suggests that the status of capitalist must be granted to every member of society, from the cradle to the grave. The practical modes of implementing this status must be adapted to the type of economy of the particular country that adopts this philosophy of distribution.
MICHAEL has often written about this dividend to all and will continue to do so. But let us point out this for now: Douglas studied the economic situation, drew conclusions and looked for solutions. He did it as a realist, in a logical way and by respecting the dignity of the human person. In presenting his principles, he did not refer to what Catholic sociologists call “the social doctrine of the Church” (Douglas himself was an Anglican but he highly respected Catholic teachings). It is nevertheless the implementation of Douglas’s Social Credit proposals that would best allow the realization of many points of the social doctrine of the Church.
One only has to think about what attention is paid today to the social function of private property: who cares about it? Yet, this function is more relevant than ever in a world where the means of production is owned by less and less people, and only 8 people out of 20 can get an income through employment in production. Will not the social dividend to each and every individual automatically ensure them a share in the fruit of private enterprise?
No wonder that Social Credit introduced by Douglas lends itself better to the principles of a just and human economy, since, as Pope Pius XI put it in his encyclical letter Quadragesimo Anno, capitalism has been vitiated by s samll group of international financiers. Douglas’ principles are more useful and are more able to coincide with natural, human and Christian principles.
Let us recall the words of Pius XII, taken from his famous Pentecost radio-address of June 1, 1941:
“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.”
Douglas does not use this text, but the development of his thesis brings him to the same conclusion: that each person is entitled to a share in the material goods that the economy of a country can provide. And his mechanism of the periodical dividend to each citizen, which he says can ensure at least the basic necessities of life, is a wonderful “juridical form” for the practical realization of that right.
This dividend has no conditions; it forgets or punishes no one. It does not harm the interest of any person. Compare it with governments who struggle with all kinds of taxes in an effort to hide the nauseating wounds, without attacking the cancerous financial system that causes these wounds.
Douglas wrote that any financial reform that ignores the price issue is doomed to failure. What would be the use of a reform that increases the revenue of the consumers if prices also increase? This would not be more intelligent than wage increases, followed by price or tax increases. Purchasing power is made up of two things: money in the hands of the consumers and prices asked by the retailers for their goods. It is the ratio between these two things that matters.
The ideal example is a ratio of one, the equality between the means of payment and the prices. This is precisely one of Douglas’s proposals: “The cash credits of the population of any country shall at any moment be collectively equal to the collective cash prices for consumable goods for sale in that country.”
Before this proposal, orthodox economists said contemptuously: “Sir, it is so, and it has always been the case; the price of any good is the sum of the money spent during its production, so the total amount of the money distributed to the consumers is always equal to the total of the prices.” (Say’s law.) Economists have been saying that for over a century, but facts have shown the contrary for over a century.
Economists do not talk about facts; they only repeat what they consider to be an axiom. Douglas, on the contrary, first considered the facts and then applied himself to finding an explanation to them. He looked for a way to correct what can be corrected. Douglas conceived a technique to prevent inflation (price increases) which is called the compensated discount. This will be the topic of a future article.