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The Chronic Shortage of Purchasing Power

on Wednesday, 01 May 2019. Posted in The Social Dividend

25. Why do you say we are “missing purchasing power”?

One must not search long to find individuals who complain about a lack of purchasing power; of not being able to pay for what they and their families need even when goods are plentiful.

As products that people want are not sold we must conclude that there is a deficient amount of total purchasing power.

In the end, it is only by indebting those who make purchases that goods are finally sold. Public institutions also borrow and accumulate debt to finance public works. All of this proves that purchasing power is collectively insufficient.

26. Do you have more examples that prove the shortage of purchasing power?

Everyday, the media addresses the problems of the unemployed. There are crucial public projects that should be undertaken but are not. Unemployment persists or becomes worse.

The answer to unemployment is for products to be sold. Goods already on store shelves must be sold in order for there to be a demand for more. This in turn stimulates employment as more products are manufactured. Even a school child knows how products can be sold: “There must be more purchasing power!”

27. Are there not economists who say that production finances consumption?

There are economists who maintain that production automatically finances consumption. Prices, they say, include money that was spent and money that was spent will eventually reach the consumers’ hands. This “eventually” does not seem to worry them, even though money might have been distributed 10 years ago to build a factory while the construction costs are included in the prices of today’s products and could be part of the price structure of products for 15 or 20 years to come.

Capital expenditure costs can be written off over several years or even decades while prices are affixed to products as they are offered for sale.

(Ed. Note: A new factory is mortgaged just as is a house. The mortgage will be paid over several years or decades by making monthly payments. Each payment will be factored into the prices of the goods that are offered for sale that month.)

Would an engineer measure a stream’s power by only considering the amount of water it carries without also calculating the time the water takes to flow from point A to point B? Engineer, Clifford Hugh Douglas, brought this omission to the attention of economists. He taught economists that water flowing downstream will not activate a turbine situated upstream.

Money that was distributed in past production cannot be used to pay for both past production and to finance production in the making. It can only be used to liquidate one of the two.

28. With such limits in purchasing power how do products manage to ever be sold?

Labour unions and other interest groups lobby for the construction of public projects, weapons manufacturing and other strategies that will not add consumer goods to the market but will provide purchasing power to workers.

29. Would asking for wage increases be a good way to increase purchasing power?

Any increase in wages will be reflected in an increase in prices. The temporary benefits gained by raising salaries is short-lived. As long as wages alone make up purchasing power, it will be impossible to correct the price-income gap.

30. What if owners reduced their profits?

It is customary for workers to keep an eye on owners’ profits. Consider that even if there was no profit margin total purchasing power would still not equal total prices. The reasons cited earlier — delays, investments, etc. — would continue to create the conditions in which there is a collective lack of purchasing power.

Furthermore, in today’s system prices cannot be lowered to the level of purchasing power without negatively affecting the producers who have costs to cover other than wages.

What is needed is additional money obtained apart from salaries. The source would not be owners. This would ensure that the additional money would not be factored into prices.

31. What if we created more jobs?

We have unemployment for the precise reason that there is a glut of goods. Why would producers make more goods? The goal of industry is not to create work but to make products.

32. How then can the problem of insufficient purchasing power be corrected and increased?

The solution must be found outside of the conventional system. We need an answer which will increase purchasing power without increasing prices.

The price-income gap demonstrates that the current system only distributes purchasing power to those who are employed.

The only way to correct the lack of purchasing power in an economy of free-flowing products is to introduce into the system the distribution of a source of money that is not factored into prices and that is not tied to employment.

33. Do you propose that the Social Credit Dividend will correct the lack of purchasing power?

Yes! Since maintaining an adequate volume of production no longer requires all available workers an increase in the Social Dividend would make up for the decrease in wages and salaries.

34. Did you say that the sum of salaries will go down?

Major Douglas, the founder of Social Credit stated:

“The distribution of cash credits 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.”3

Douglas contended this because the contribution of commonly-owned assets accounts for a greater part of production while labour accounts for a correspondingly smaller and smaller part.

If the notion of commonly-owned capital had been better understood and applied in 1917, when the concept was developed by Douglas, the total amount of wages would have gone down instead of up as the number of hours worked decreased. Meanwhile, Social Dividends would have grown considerably to everyone’s satisfaction. Taken together, wages and dividends would allow the distribution of all the goods needed in meeting real needs.

Instead, producers, wage earners and owners veered from conflict to conflict. Eventually they increased their respective incomes and added to their wages and profits that which should have been distributed as Dividends to each member of society. This theft of the Social Dividend owed to everyone added into prices what ought to have been free. We can characterize this as robbery. The resulting inflation has satisfied no one — not the thieves nor the victims.

35. What did Douglas mean by “progressively displace...”?

Over time, the volume of production depends less and less on workers’ efforts and more and more on progress, applied science and the advancement of machinery and techniques, including the increase in the use of non-human sources of energy, such as electrical, steam, oil and gas, etc.

The use of the word “progressively” implies two things once a Dividend is established:

1. An increase in the volume of production irrespective of the work done by producers, and

2. Progress in the way we understand society.

The former refers to material progress, which is expanding and will continue to expand, unless a catastrophe takes human knowledge back by centuries. The latter refers to social progress. The teaching of Social Credit contributes to social progress while the financial reforms of Social Credit would enhance it.

36. Would this harm the motivation of producers?

Douglas wrote that producers have two types of incentives today:

1. Income; and

2. The pleasure of transforming natural resources.

In a Social Credit economy, the first incentive would be less important and the second would dominate. As less human labour is required in modern production environments, the more that competency and good client service could take hold. Everyone would benefit from the fruits of production. According to Douglas, we would enjoy a society in which there was “an aristocracy of producers at the service of a democracy of consumers.”

37. Could the Social Dividend become more important than wages?

When production is owed more and more to progress and less and less to human labour, purchasing power must originate more from “free money” and less from wages. If production was completely automated, and if no wages were distributed, products would need to be purchased using free money alone.

We are headed in that direction and so free money should be placed into consumers’ hands. If not, the financial system is not consistent with the facts of progress.

38. Would this not revolutionize the production system?

No, there would be no need to drastically change production methods. It is distribution which lags behind. Only a sound social entity with authority over money can guarantee efficient distribution. It is society’s duty to organize a more efficient distribution system in which no one will be left behind.


3) Douglas, C.H. Monopoly of Credit, Bloomfield Books, 1979, p. 151.

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