James Leroy Wilson's blog

Sunday, January 01, 2006

Social Credit?

BillG's comment to the Plugging the Single Tax II post mentioned the Vermont project of combining "mutualist, distributist, georgist & social credit/binary theory into a unified movement."

My first reaction is, "social credit?"

The socreds, as they were called, caught some political fire on the Canadian prairie, particularly Northwest Texas (aka Alberta), during and after the Depression. And if I recall correctly, it was still electing premiers in British California into the 1980's. The
Wikipedia entry
of Social Credit theory, which may or may not be fair, states,
C. H. Douglas proposed that because the amount of money available under capitalism is necessarily lower than the total cost of goods produced, there will always be insufficient money to pay a realistic, sustainable price. He demonstrated this fundamental flaw with his A+B theorem, which states that if A is the payments made to all the consumers in the economy (through wages, dividends, and interest paid to banks) and B is the payments made by producers that are not eventually paid out to consumers (such as the overhead costs of buildings and equipment as they wear out) then the price charged for all goods must be at least A+B — an impossibility since only A is available to spend.

The solution?
Douglas believed that Social Credit could fix this problem by ensuring that there was always enough money (credits) issued to buy all the goods that could be produced. His solution is outlined in three core demands:

1. For a "National Credit Office" to calculate on a statistical basis the amount of credit that should be circulating in the economy;
2. For a price adjustment mechanism to absorb windfall profits in times of inflation, and return them to people in terms of subsidized, lower prices when the cost of goods on the market exceeds the money available to buy them;
3. For a "National Dividend" to give a basic guaranteed income to all regardless of whether or not they have a job.

I never studied this, because the idea was never attractive morally or logically to me. I never did "get it" like I do (or think I do) land value taxes (or the "single tax"). Gary North bothered to write a book against it, which I read some excerpts of, but the title itself reflects my reaction to the theory: Salvation Through Inflation. Perhaps I am anti-inflation because I believe in hard money, a gold standard, which itself doesn't mean I have "faith" in it so much as I don't understand any other position. (Kind of like me not having "faith" in individual liberty as if all humans were innately good, but rather that I don't "get" coercion as the remedy for human evil.)

I was amazed that Gary North even took the trouble to write a book against an economic theory, Social Credit, that I thought was politically dead, although I suppose I shouldn't be surpised at anything North does. Anyway, it looks like North was right: Social Credit is still alive among some Vermont activists. Maybe I should find out more. And maybe they should read North's book.


  1. I believe you would find most of the members of the board see money as a social construct not as a private commodity.

    I want to create a shire based currency system backed by land values (land bank) where you have a lien placed against appreciating land values as a substitution for taxation and dividends are paid out (not loaned) to all members of the shire.

    others have talked about currency not backed at all by anything and loaned out at very low interest rates (greenbacks) - I view this as a kinda social credit system.

    I threw social credit/binary theory in together at the end of the post you cited but I don't believe anyone has talked in a substantive way about it

  2. You mention that Social Credit was electing premiers in B.C. up until the 1980's, which is true. However, the B.C. SoCreds had long abandoned social credit theory by that point. W.A.C. Bennett took control of the party in '52, after he was spurned by the Conservative Party, and, through a brief experiment with Proportional Representation, managed to form a government. After doing so, he basically turned it into a new conservative party, and voters turned to it as the main vehicle to stop the "Socialist Hoards" (Bennett's words) of the Co-operative Commonwealth Federation (C.C.F., later the New Democratic Party, N.D.P.).
    Ernest Manning pretty much did the same thing in Alberta - turned it into a conservative populist party. Basically, actual "Social Credit" as a political movement ended with the death of Alberta Premier "Bible Bill" Aberhart in the early '40's, and the remenants of the Federal SoCreds, who won a few seats, early on in Alberta, but, by the '70's, were confined to rural Quebec.
    As I understand the theory, basically, it is "subsidization from both ends." The National Credit Office would determine what the price should be, the government would compensate half the difference to the retailer, then the other half to the consumer in the form of the National Dividend. They would pay for this by simply printing new money.
    The U.S. House actually did pass a social credit bill, I think in 1932, called the "Goldsborough Bill", but it died in the Senate Banking Committee.

  3. Hi Blogger! Ik ben op zoek naar krediet Zou Afab echt zo goed zijn als iedereen beweert? Of kan ik beter zoiets als Geldshop proberen?

    Groetjes Albert

  4. Hi Blogger! Ik ben op zoek naar krediet Zou Afab echt zo goed zijn als iedereen beweert? Of kan ik beter zoiets als Geldshop proberen?

    Groetjes Albert

  5. Anonymous8:18 PM PST

    Gary North's criticism of Doulgas' policies is that they would be inflationary. Inflation is impossible in a Social Credit economy, as prices would fall based on the scientific principle that the true cost of production is consumption in an equivalent time period. Since the ratio of consumption/production is ever decreasing, prices would fall, as consumers would be given a rebate based on this ratio.

    Prices would not be determined in any Social Credit system. Firms would be free to price their product as they see fit. The rebate given to consumers would be based on aggregate macroeconomic statistics.

    Gary North also falsely claims that Douglas was against the charging of interest. This in fact is untrue.