In explaining the financial proposals of Social Credit, one expects to be asked: Where will the money come from? In discussing the National Dividend, occasionally the question does come up: But where would the money go?
Some months ago, writing in the Western Producer under the heading "Social Credit Dividend", W. Horner of Hesporo, Alberta, directed these questions to the author of a previous letter:
"Sir — It is with hesitation that the writer ventures for more space on the subject of Social Credit dividends, but Mr. Nichols has not answered my question.
"'The question was not about how money and credit come into existence, the old UFA (United Farmers of Alberta) told us about that long ago. The use and function of SC dividends are well understood. Mr. Nichols mentions the other method of creating extra purchasing (power) by the 'price discount system' in which case a subsidy goes to the producers, on condition that they reduce their prices.
"In either case there is a subsidy or Social Credit dividend and when this dividend is paid, all prices are frozen to avoid inflation. If hogs sell for $20 each, and machinery, whatever the price is, at time the SC dividend is paid, it is frozen at that price.
"The figure given during the depression was $25 a month for every, man, woman and child in Canada, or $4,500,000,000 of extra purchasing power.
"My question was, does that astronomical sum get back to the government or not. If it does, how?
"Mr. Nichols knows full well what my question is. Major Douglas was the same when he was before the MacMillan Royal Commission appointed by the British Labor party. Major Douglas was as evasive as Mr. Nichols is. Eventually an answer was extracted from Major Douglas: "... the repayment of the Social Credit dividend is involved in the price of the goods", and that is all he would say on the point... involved in the price of the goods... Now we know or do we?
"The point is, if this Social Credit dividend goes back to the government then there is no extra purchasing power, if a consumer is given $25 a month SC dividends and somehow or other he pays it back in extra taxes, where is the gain?
"Until this question is answered Social Credit is not explained as Social Credit dividend is the corner stone of the whole structure.".
This being a technical question, we submitted it to Mr. L. D. Byrne of Edmonton, former adviser to the Alberta Government. His response follows:
The question raised by Mr. Horner of Hespero, Alberta, in the clipping from The Western Producer, indicates the superficial knowledge on which most criticism of Social Credit technique is based.
In the first place, it is entirely incorrect to suppose that "the price discount system" of the Social Credit financial proposals provides for "a subsidy to producers on condition that they reduce their prices."
It is not merely incorrect, but fantastic, to suggest that the Social Credit proposals entail prices being "frozen to avoid inflation". Such a measure would be the very antithesis of Social Credit.
Next we come to the old chestnut: "How is the supplementary purchasing power distributed through dividends and price discounts — retired? Mr. Horner, no doubt steeped in the orthodoxy of Socialist finance, seems to think that purchasing power is retired only "if it gets back to the government'. This, of course, is a complete misconception — which has to be debunked before it is possible to get away from the "fear" that Social Credit will result in an ever-increasing volume of monetary credits "piling up". Curiously enough, those who are so concerned about this appear completely indifferent to the huge and progressive governmental and industrial monetary debits — the debt structure.
At present, purchasing power reaches individuals by wages, salaries dividends and profits. Purchasing power is retired, as purchasing power, by
(a) the purchase of goods (except for the profit element), the proceeds of which are used to replace working capital or to repay bank loans;
(b) saving and investment to finance new production; and
(c) payment of taxes for debt payments.
All savings represent immobilized purchasing power.
It has been shown mathematically that in any period of time the total purchasing power distributed in an industrialized country is insufficient to purchase the total of consumer goods coming on the market during the same period. This has been proved conclusively not only by Douglas, but also — by such independent agencies as the economic research carried out by Foster and Catchings for the Pollak Foundation, and the Economic Crisis Committee of the Southampton Chamber of Commerce.
For purposes of illustration, assume that in a period of six months the total production coming on the market was priced at $2,000 million and the total purchasing power distributed was $1,000 million. At present the shortage of $1,000 million is financed by deferred consumer credit (debt), government purchasing for defence (debt), and increasing capital development (debt) and export credit (debt). In other words, the $1,000 million worth of unsaleable goods can be disposed of only by expedients which carry forward a debt of that amount into the future.
All that the Social Credit financial proposals involve is that part of the deficient $1,000 million be distributed in the form of dividends, and the balance as a subsidy of prices to consumers — who would be the beneficiaries of the price discount. And this $1,000 million of supplementary purchasing power would be cancelled as purchasing power in exactly the same way as the other $1,000 million distributed as wages, salaries, dividends and profits.
The foregoing is, of course, a simplified explanation of the principle involved. The precise deficiency of purchasing power and the correction of this deficiency is explained with mathematical precision in the writings of the late Major Douglas, and is summarized in the formula for the correction necessary in the price structure:
total national consumption
Selling Price = price as now computed X ---------------------------------
total national production