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A synopsis of Social Credit thought


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Douglas’ A+B theorem is probably the most simple, yet most controversial, of all of Douglas’ ideas. Oftentimes, too much emphasis has been placed on this theory amongst Social Crediters themselves, but the theory itself is essential for understanding Douglas’ monetary policies. The theorem is a truism; however, the controversy lies in the nature of the “B payments” which Douglas identified. The theorem is stated by Douglas as follows:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

Douglas was an engineer, and a cost accountant.. As a scientist, he started with an observation, and formed a hypothesis. This is different than many orthodox economists who form a hypothesis, and then try to make the facts fit their theory. Douglas’ A+B theory is a simple statement of fact, and the accounts of any business will verify this fact. The confusion amongst orthodox economists lies in the nature of the B payments, and what causes them.

The critics of the theory generally fall into two categories by arguing: 1) B payments are really income, so there is no differentiation between A and B payments or 2) B payments are either past, or future, income. Let’s address both these criticisms individually.

The first criticism, which states that B payments are income, implicitly assumes the quantity theory of money. According to this theory, all money received by firms is income and can be used to purchase other goods and services. The theorem states that the quantity of transactions, multiplied by the quantity of money, equals total purchasing power. On the surface, this theory seems to make sense, but upon further investigation, it is not a reflection of reality. In reality, firms have costs that must be repaid. These costs can ultimately be traced back to bank debt because all money originates as debt. If a company receives $10 for its product, and assuming accumulated costs of $8.50 to acquire and sell this product, then only $1.50 is actually profit to the company, and potential income. The $8.50 must be used to cancel debts, or replace working capital. All of the $10 received by the company is not income. Douglas realized the fallacy of the quantity theory of money and elaborated on it in "The Alberta Post-War Reconstruction Committee Report".

“The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ (C.H. Douglas, “The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance")

The truth is that money does not “circulate” but instead operates in an accounting cycle, and B payments are monies on their way back to the bank, thus completing the cycle. Therefore, B payments do not exist as income to anyone. Income, by contrast, is flowing from the bank, and reaches individuals through the media of wages, salaries, and dividends. The argument that B payments are income is a complete fallacy based on the erroneous assumption that the circulation of money increases its purchasing power.

The second criticism, which has more credibility, will be seen to be a complete fallacy when the concept of time is introduced. Although not all B payments represent previous, or future, income (something we will touch on later), it is true that a proportion of the B payments are represented by past and future incomes. However; income and prices must be regarded as flows, and as Douglas stated:

“The mill will never grind with water that has passed, and unless it can be shown, as it certainly cannot be shown, that all these sums distributed in respect of the production of intermediate products are actually saved up, not in the form of securities, but in the form of actual purchasing power, we are obliged to assume what I believe to be true, that the rate of flow of purchasing power derived from the normal and theoretical operation of the existing price system is always less than that of the generation of prices within the same period of time.” (C.H. Douglas, “The Monopoly of Credit”)

It is obvious that future incomes cannot be used as present incomes (excluding momentarily credit from an extraneous source, which is a mortgage on future incomes). These future incomes are profits (interest on loans representing bank profit), which become future incomes via dividends paid to individuals. The fact that profits partially cause the gap between income and prices forms the supposed justification for the socialist argument against profits. However, nobody will do something unless it in some sense of the word profits him. Also, profits only represent a portion of the gap between income and prices. Douglas did not seek to eliminate profits, instead he wanted to compensate for the gap between income and prices which profits helped create.

"The essential point to notice, however, is not the profit, but that he cannot and will not produce unless his expenses on the average are not more than covered. These expenses may be of various descriptions, but they can all be resolved ultimately into labour charges of some sort (a fact which incidentally is responsible for the fallacy that labour, by which is meant the labour of the present population of the world, produces all wealth). Consider what this means. All past labour, represented by money charges, goes into cost and so into price. But a great part of the product of his labour -that part which represents consumption and depreciation - has become useless, and disappeared." (C.H. Douglas, "The Control and Distribution of Production")

Past income used for consumption represents a substantial portion of the gap between income and prices. The belief that incomes disbursed in the past for capital production are all saved up in order to defray the costs associated with those incomes as they make their way into the cost of future consumer goods is a complete fallacy. People tend to spend their income on consumer goods in a relatively expeditious fashion. This money is recollected from the consumers by businesses through the agency of prices. The upper limit of prices being governed by the laws of supply and demand, or what the item will fetch. This income, recollected by businesses, forms a part of their profit, assuming they can sell their product above cost. These profits can be distributed as income in the form of dividends, but is most often re-invested back into the company, and therefore, do not exist as income to anyone.

“Consider the nature of these B payments. They are repayments collected from the public of purchasing power in respect of production not yet delivered to the public. If the wage earners in process ‘I’ use their current month’s, i.e. May’s, wages to buy their share of one current month’s production of consumable goods, they are using money distributed in respect of production which will not appear as consumable goods till October. They are in fact involuntarily reinvesting their money in industry, with the results previously explained” (C.H. Douglas, “The Monopoly of Credit”)

Therefore, it can be seen that the criticisms of the A+B theorem are based on the fallacy known as the quantity theory of money, or they fail to take into account the effect of time on income and prices (i.e. they are static). Incomes and prices are flows, and any analysis into their nature must account for the dimension of time. Since prices include all payments made to individuals as income "A", as well as all overhead charges "B", we must understand what causes these overhead charges in order to understand why prices rise faster than incomes when regarded as a flow.

"It is now necessary to see to what extent this conception of overhead charges can be extended, and I think that a little consideration will make it clear that in this sense an overhead charge is any charge in respect of which the actual distributed purchasing power does not still exist, and that practically this means any charge created at a further distance in the past than the period of cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included." (C.H. Douglas, "The New and The Old Economics")

The cyclic rate of purchasing power of money can be calculated by calculating the average amount of deposits held by depositors in banks relative to the amount of clearings through the banks, minus the amount of "Butcher-Baker" transactions. Douglas referred to any transaction that broke a chain of repayments as a "Butcher-Baker" transaction. When a butcher receives money for his product from his customer, he must repay debts owed to the slaughterhouse for the meat, who in turn must pay debts owed to the farmer, who pays debts to the banker (all money originating from the bank as a debt). If the butcher buys bread from the baker with the money he has received from his customer, then he has broken the chain of debt to the slaughterhouse, farmer, and ultimately the banker; and therefore, these transactions leave a trail of debt, and must be deducted when calculating the cyclic rate of purchasing power, because the monetary cycle has not been completed. Douglas calculated the average cyclic rate of purchasing power to be approximately two and a half weeks in Britain ("The Old and the New Economics”). Therefore; any cost anterior to three weeks, must form a part of the gap between income and prices. Douglas spoke of this fact when questioned before the Alberta Agricultural Commission.

"Well, that question of course is outside what I was speaking of this morning, but I have no objection whatever to answering it shortly. The best way of understanding what the speaker has referred to as the "A plus B" theory is to look at the matter in this way: The purchasing power of the general community is practically 98 per cent, I think, taken over all products, bank money. The actual deposits in banks under what are sometimes called "normal times" (I don't know what normal times are, but they are frequently referred to so we will assume that there are normal times) the deposits remained fairly constant. For instance, in Great Britain since the war they have reached around between 16 and 18 hundred millions of pounds. Now there is quite obviously a circulation of those deposits through the agency of costs. They are distributed for wages and so forth and they come back to the same source through the agency of price. That is the way the existing financial system works.

Now all business in the world at the present time is carried on on the theory of the balanced budget, including governmental business. Therefore, you must have a right, or period of cycle through which this money which starts from the banks goes out through cost and comes back again to the banks through the agency of price; there must be a time that that cycle takes. Now we have as a matter of fact means of calculating that time, and in Great Britain the average is somewhere in the neighbourhood of around about three weeks. Now, so long as a charge is incurred and liquidated inside that period of three weeks it can be liquidated by that cycle of the flow of purchasing power, starting from the banks, going out through costs and coming back again through prices. So long as the whole transaction of costs and prices is involved in a period of about three weeks, there is no difficulty involved in the prices and the costs being equal, but any item of cost which is outside that period of three weeks we will say cannot be liquidated by that stream of credit which is constantly in circulation at a period rate, we will say of three weeks.

Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale. It is frequently said, "Your theory must be absurd because we know that there are periods in which purchasing power is in excess of the price of the goods for sale, for instance at the end of a war." What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (C.H. Douglas, "Douglas System of Social Credit", evidence taken by the Agricultural Committee of the Alberta Legislature 1934)

If money disbursed for production makes its way to the bank before its cost can be extinguished in the price of the consumer goods it creates, then there is a corresponding gap between income and prices. If income is reinvested back into the productive system, then each time it is re-invested, it creates a new cost without creating new purchasing power (we have already seen that money does not circulate, but cycles, so money is only capable of cancelling one cost). The income I receive in terms of wages or salaries has been debited to the cost of some good or service. If I invest my income, then I expect to receive my investment back, with a rate of return. The only way the company I invested in can give me my money back with a rate of return is by charging the consumer through prices. Therefore; my income has created two costs: 1) the cost associated with the good or service that I helped provide, and 2) the cost associated with the investment that must be returned to me. However, my income can only cancel one of those costs. There is now a new cost created, without the creation of new purchasing power.

"But we also find that apart from this question of the distribution of purchasing power there is not enough purchasing power distributed to buy the goods which are for sale if the production of these goods has been financed by ordinary methods. There are many contributory causes to this situation, but it is probable that the main cause is due to the reappearance in prices of the same sum of money several times, a state of affairs which is rendered possible by the splitting up of production into a large number of processes." (C.H. Douglas, "Money and the Price System")

The reappearance in prices of the same sum of money several times creates a gap between purchasing power and prices. The re-investment of savings causes the reappearance in prices of the same sum of money, and the more production is split up into a large number of processes, the greater the probability that income disbursed in capital production will be reinvested. Douglas listed five causes of the gap between prices and purchasing power in "The New and The Old Economics":

"Categorically, there are at least the following five causes of a deficiency of purchasing power as compared with collective prices of goods for sale: -

1. Money profits collected from the public (interest is profit on an intangible)

2. Savings, i.e., mere abstentation from buying

3. Investment of savings in new works, which create a new cost without fresh purchasing power

4. Difference in circuit velocity between cost liquidation and price creation which results in charges being carried over into prices from a previous cost accountancy cycle. Practically all plant charges are of this nature, and all payments for material brought in frm a previous wage cycle are of the same nature.

5. Deflation, i.e. sale of securities by banks and recall of loans" (C.H. Douglas, "The New and The Old Economics")

We have already discussed at length reasons 1, 3, and 4. Reasons 2 and 5 are pretty much self-explanatory, both being a reduction in A, and not the creation of B costs. Add to all this the fact that overhead charges are growing in relation to income (i.e. B is increasing relative to A), due to the fact that capital is replacing the need for labour in the productive process, and it is apparent that the gap between income and prices is ever increasing, and this problem is ever worsening.

"At the moment the point to be borne in mind is that B is the financial representation of the lever of capital, and is constantly increasing in comparison with A. So that, in order to keep A and the goods purchase with A at a constant value, A+B must expand with every improvement of process..." (C.H. Douglas, "Credit-Power and Democracy")

What does this mean? If A+B must expand with every improvement of process in order to keep A, and the goods purchased with A ,at a constant value, and if A+B represent prices, then prices must expand with every improvement in process. This is why certain periods of time, when people have enough income to purchase most goods coming onto the market, are met with rising prices (i.e. inflation). Inflation is generally not caused by too much income chasing too few goods, but is caused by the ever increasing expansion of overhead costs via advancing technological processes. This means that inflation is inherent in our economic system, unless credit from an extraneous source is used to decrease, or stabilize, prices.

"Now any attempt, by current financial methods, to reduce prices (or even to stabilize them, as the phrase goes) is a mathematical absurdity unless the cost of this stabilization, or lowering of prices, is met from some extraneous source. Or to put the matter another way, the margin of profit which makes it possible for a producer to go on producing, disappears unless the financial cost, and consequently the price of production, is allowed to rise steadily in relation to direct labour cost." (C.H. Douglas, "Social Credit")

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Douglas’ A+B theorem is probably the most simple, yet most controversial, of all of Douglas’ ideas. Oftentimes, too much emphasis has been placed on this theory amongst Social Crediters themselves, but the theory itself is essential for understanding Douglas’ monetary policies. The theorem is a truism; however, the controversy lies in the nature of the “B payments” which Douglas identified. The theorem is stated by Douglas as follows:

Thanks for your contribution but cross posting is against board rules.

http://www.freedominion.ca/phpBB2/viewtopic.php?t=88681

Edited by jdobbin
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Wise men speak because they have something to say; Fools because they have to say something.” (Plato)
Do you mean that Plato was a creditiste?

If George Bush cited Gandhi, would that make Bush more civilized?

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The idea of "social credit" is perfectly understandable. We live better now than in the past. The question rather is who should distribute this largesse to each new generation? The government? If the government attempts to create a "social credit", society may well discover that there will be no largesse to distribute and future generations will be poorer than the present.

Edited by August1991
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Do you mean that Plato was a creditiste?

If George Bush cited Gandhi, would that make Bush more civilized?

----

The idea of "social credit" is perfectly understandable. We live better now than in the past. The question rather is who should distribute this largesse to each new generation? The government? If the government attempts to create a "social credit", society may well discover that there will be no largesse to distribute and future generations will be poorer than the present.

Precisely. I just had to say something.

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Do you mean that Plato was a creditiste?

If George Bush cited Gandhi, would that make Bush more civilized?

----

The idea of "social credit" is perfectly understandable. We live better now than in the past. The question rather is who should distribute this largesse to each new generation? The government? If the government attempts to create a "social credit", society may well discover that there will be no largesse to distribute and future generations will be poorer than the present.

The Social Credit proposals to eliminate the problems identified in Douglas' A+B theorem are straightforward and presented below.

1) The establishment of a National Credit Office to determine the nation's capital account. A countries central bank, which already exists, would work perfectly well for this purpose.

2) Once the capital account has been set up, statistics on production and consumption would be used to establish a price rebate system, where the price of an article would be determined by multiplying the financial price by the ratio of consumption/production.

3) The payment of a National Dividend to everyone who meets certain residency requirements.

The monies paid through the price rebate and the dividend would be created by the National Credit office debt free.

These policies would allow consumption and production to be in equilibrium through the price rebate, and would recognize the fact that technology is reducing the need for labour in the productive process, and would allow people to consume more leisure through the establishment of a national dividend.

The "Social Credit" Parties were never really Social Credit, and Douglas vehemently opposed the establishment of such parties. Douglas was an advisor to William Aberhart for a short period of time, but resigned when he realized that Aberhart did not have an understanding of Social Credit, and was trying to forward policies in direct contradiction to Social Credit. Under Ernst Manning all the "Douglasites" were purged from the Party, and the Social Credit Leagues were destroyed. Manning went on to write a book which said the Social Credit was a conservative movement (factually false, Social Crediters do not believe in the dichotomy of "left" and "right" in the political spectrum), and he later went on to become a director of the CIBC after he retired. The movement was destroyed from within. What's left of the Alberta Social Credit Party wouldn't know the difference between Social Credit and Socialism (Social Credit opposes all forms of Socialism).

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The Social Credit proposals to eliminate the problems identified in Douglas' A+B theorem are straightforward and presented below.

1) The establishment of a National Credit Office to determine the nation's capital account. A countries central bank, which already exists, would work perfectly well for this purpose.

2) Once the capital account has been set up, statistics on production and consumption would be used to establish a price rebate system, where the price of an article would be determined by multiplying the financial price by the ratio of consumption/production.

3) The payment of a National Dividend to everyone who meets certain residency requirements.

The monies paid through the price rebate and the dividend would be created by the National Credit office debt free.

These policies would allow consumption and production to be in equilibrium through the price rebate, and would recognize the fact that technology is reducing the need for labour in the productive process, and would allow people to consume more leisure through the establishment of a national dividend.

The problem with this theory is that it sounds inflationary. It also affects the mobility of people in ways that I don't think is very well addressed at all, especially with the residency requirements.

Edited by jdobbin
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The problem with this theory is that it sounds inflationary. It also affects the mobility of people in ways that I don't think is very well addressed at all, especially with the residency requirements.

The price rebate system actually lowers prices to consumers, as it is a price subsidy.

For example: Let the ratio of consumption to production be 3/4, and let the price of some good be $100 (for mathematical simplicity). By virtue of this example, the price to the consumer would be $100*3/4=$75, which is $25 less than the original price, so the price of the good fell by $25. The consumer would pay the retailer $100, so he would receive the full price of the good. The customers bank would credit his account by $25, and the National Credit Office would credit the bank's account at the Central Bank by $25.

The price of the good fell from $100 to $75. The retailer received the full price for his good, so he continues to cover his costs, and make a profit (if he can sell above cost). The consumer is credited back $25 so he only pays $75 for the good: the difference between what the retailer receives and what the customer pays ($25) is created by the National Credit Office debt free.

I don't see how it would effect the mobility of people at least within any country operating on this system. If a person chose to leave the country, and reside in one not operating on this system, then they would forfeit their dividends and rebates. However; once the system was operational, I'm sure most, if not all, countries would adopt the same system. Registration into the system would be completely voluntary (i.e. if you don't want a rebate or dividend, you are not forced to take them). Again, I doubt people will refuse money.

The problem with not adopting this system is that credit from an extraneous source is needed to cancel the current costs of production. Consequently; with an entirely debt based monetary system, we are forced to ever increasinly mortgage the future in order to consume current production. This means that we are sliding further and further into debt. Eventually, we will not be able to meet the interest payments on that debt (public and private).

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The price rebate system actually lowers prices to consumers, as it is a price subsidy.

For example: Let the ratio of consumption to production be 3/4, and let the price of some good be $100 (for mathematical simplicity). By virtue of this example, the price to the consumer would be $100*3/4=$75, which is $25 less than the original price, so the price of the good fell by $25. The consumer would pay the retailer $100, so he would receive the full price of the good. The customers bank would credit his account by $25, and the National Credit Office would credit the bank's account at the Central Bank by $25.

The price of the good fell from $100 to $75. The retailer received the full price for his good, so he continues to cover his costs, and make a profit (if he can sell above cost). The consumer is credited back $25 so he only pays $75 for the good: the difference between what the retailer receives and what the customer pays ($25) is created by the National Credit Office debt free.

I don't see how it would effect the mobility of people at least within any country operating on this system. If a person chose to leave the country, and reside in one not operating on this system, then they would forfeit their dividends and rebates. However; once the system was operational, I'm sure most, if not all, countries would adopt the same system. Registration into the system would be completely voluntary (i.e. if you don't want a rebate or dividend, you are not forced to take them). Again, I doubt people will refuse money.

The problem with not adopting this system is that credit from an extraneous source is needed to cancel the current costs of production. Consequently; with an entirely debt based monetary system, we are forced to ever increasinly mortgage the future in order to consume current production. This means that we are sliding further and further into debt. Eventually, we will not be able to meet the interest payments on that debt (public and private).

Sorry, I still can't see how this would not end being inflationary. You would have to curb consumer credit somehow plus limit people's choices.

Not every place in the world is going to operate this system. For a country like Canada, it would limit mobility of people which has been key to its development over the years.

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Sorry, I still can't see how this would not end being inflationary. You would have to curb consumer credit somehow plus limit people's choices.

Not every place in the world is going to operate this system. For a country like Canada, it would limit mobility of people which has been key to its development over the years.

I don't see how it would be inflationary. Prices would be falling. In the above example, the price of the good fell from $100 to $75 by virtue of the price rebate. The increase in money would go directly to the reduction of prices, and there would be no money created via the rebate unless it was used to reduce prices.

There certainly would be no limit on consumer credit or choices. People would pay for things as they do now, except they would get money back from the National Credit Authority. And producers would be free to produce whatever they wanted, and charge whatever price they can receive.

Every place in the world can chose to operate on this system or not. And people can move from any country operating within this system. That is their choice. However; once they move, they will no longer receive the price rebate or the dividend. People would also be free to move into the country operating on this system, but would have to wait to receive a dividend. The price rebate would be automatic.

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I don't see how it would be inflationary. Prices would be falling. In the above example, the price of the good fell from $100 to $75 by virtue of the price rebate. The increase in money would go directly to the reduction of prices, and there would be no money created via the rebate unless it was used to reduce prices.

There certainly would be no limit on consumer credit or choices. People would pay for things as they do now, except they would get money back from the National Credit Authority. And producers would be free to produce whatever they wanted, and charge whatever price they can receive.

Every place in the world can chose to operate on this system or not. And people can move from any country operating within this system. That is their choice. However; once they move, they will no longer receive the price rebate or the dividend. People would also be free to move into the country operating on this system, but would have to wait to receive a dividend. The price rebate would be automatic.

Every critic I've read of the system has said it would lead to inflation not price decreases. Even Social Credit supporters call it managed inflation.

The Supreme Court in Canada ruled against social credit as a policy. I don't see any change in that.

I still think that there would be a limit of capital and people and Canada would be punished as such by the WTO,

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I don't see how it would be inflationary. Prices would be falling. In the above example, the price of the good fell from $100 to $75 by virtue of the price rebate. The increase in money would go directly to the reduction of prices, and there would be no money created via the rebate unless it was used to reduce prices.

There certainly would be no limit on consumer credit or choices. People would pay for things as they do now, except they would get money back from the National Credit Authority. And producers would be free to produce whatever they wanted, and charge whatever price they can receive.

Every place in the world can chose to operate on this system or not. And people can move from any country operating within this system. That is their choice. However; once they move, they will no longer receive the price rebate or the dividend. People would also be free to move into the country operating on this system, but would have to wait to receive a dividend. The price rebate would be automatic.

I have to agree with jdobbin, as unlikely as that would seem.

The system is inflationary. The fallacy in your argument is that the "value" of a good is placed in the currency. The "value" is actually in the good itself. Increasing or decreasing the money supply does not change the value of the good. When you are talking about "price" and saying the price went down from $100 to $75 that is not possible when no other factor has changed. The value of the good must remain the same. Therefore, increasing the money supply, which is the bare bones definition of inflation, would cause an increase in the price. Producers would, as you say, charge whatever price they can receive and if there is an increase in currency, and people have more, then the producer will charge more. If there is less currency in circulation then the producer will charge less. The currency then is only a marker of the value of the good as seen by the market. Currency is no different than any good that is over-produced. An increase in the supply will decrease the value. Saturate any market with any good and the good eventually becomes worthless. So printing money will make us all millionaires but will not make us all rich.

Just as a comment, I find that economists today, are more econometricists, than economists, concerned largely with the mathematics of economies and economics than the theory of economics.

I also don't know how you dissociate "socialism" from social credit. Political management of the economy by a central authority, even if only the currency, is a part of socialistic ideology.

Edited by Pliny
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The Social Credit proposals to eliminate the problems identified in Douglas' A+B theorem are straightforward and presented below.

1) The establishment of a National Credit Office to determine the nation's capital account. A countries central bank, which already exists, would work perfectly well for this purpose....

Why doesn't something called the "free market" work better for this purpose?
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Every critic I've read of the system has said it would lead to inflation not price decreases. Even Social Credit supporters call it managed inflation.

The Supreme Court in Canada ruled against social credit as a policy. I don't see any change in that.

I still think that there would be a limit of capital and people and Canada would be punished as such by the WTO,

Every critic who has said it would lead to inflation has not understood it. It's people who believe that increases in money must necessarily lead to inflation. This assumption is at least implicitly derived from the fallacy known as the quantity theory of money. The following was written by Geoffrey Dobbs in the introduction to Douglas' book "The Monopoly of Credit":

"Another result of this treatment of money as if it were a simple 'quantity' is that the polarity in respect of time which is introduced by its creation, not as a simple quantity addition, but always as a repayable loan, is ignored. Although individuals and businesses have to balance their debits and their credits, when it comes to the economy as a whole, units of account are totted up whether they are coming or going, on the plus or minus side of the debt ledger, whether they are cancelling costs or creating them. Thus, when economists have added up all the borrowed mortgage-money paid out to maintain witless, useless, redundant, unwanted, destructive, or simply irrelevant "employment", they find there is 'too much money chasing too few' of the miserable trickle of wanted and needed goods and services actually produced and allowed to reach the consumer. They cannot understand how permanent and progressive inflation, quite as much as deflation of the 1930's, is a sign of a progressive time-lag in the generation of incomes as compared with prices, which can be neutralized only by a direct issue of credit to the consumer (whether by dividend or price discount or both).

However much it is sophisticated, the argument is essentially the simple one that, if inflation is due to too much of a homogeneous quantity called 'money', to add more 'money' will make it worse. But 'money' is not a homogeneous entity, it is a loan, which is travelling outward, creating debt, or inward, cancelling it. The best analogy is, perhaps, a chemical one. A state of inflation might be compared to one of corrosive acid poisoning, due to a gross excess of (positive, hydrogen) ions. The urgent need is to neutralize these with a base, i.e. by adding negative, basic, ions. The argument that, since the damage is due to an excess of 'ions', to add more 'ions' would make it worse, is quite analogous with that used by economists who reject Douglas' analysis and proposals as 'inflationary'." (Geoffrey Dobbs, Introduction to "Monopoly of Credit")

I don't know any Social Crediter claiming Social Credit is "managed inflation". Are you talking about members of any "Social Credit" Party?

The Supreme Court ruled that it was unconstitutional for Alberta to establish a system of Social Credit, since money and banking fell under federal jurisdiction. They did not rule that Social Credit was unconstitutional.

I'm not certain what you mean by the statement "I still think that there would be a limit of capital ", so perhaps you could elaborate?

I don't know why the WTO would penalize any country for establishing Social Credit, so perhaps you could elaborate on that thought as well?

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I have to agree with jdobbin, as unlikely as that would seem.

The system is inflationary. The fallacy in your argument is that the "value" of a good is placed in the currency. The "value" is actually in the good itself. Increasing or decreasing the money supply does not change the value of the good. When you are talking about "price" and saying the price went down from $100 to $75 that is not possible when no other factor has changed. The value of the good must remain the same. Therefore, increasing the money supply, which is the bare bones definition of inflation, would cause an increase in the price. Producers would, as you say, charge whatever price they can receive and if there is an increase in currency, and people have more, then the producer will charge more. If there is less currency in circulation then the producer will charge less. The currency then is only a marker of the value of the good as seen by the market. Currency is no different than any good that is over-produced. An increase in the supply will decrease the value. Saturate any market with any good and the good eventually becomes worthless. So printing money will make us all millionaires but will not make us all rich.

Just as a comment, I find that economists today, are more econometricists, than economists, concerned largely with the mathematics of economies and economics than the theory of economics.

I also don't know how you dissociate "socialism" from social credit. Political management of the economy by a central authority, even if only the currency, is a part of socialistic ideology.

I don't know where I stated that the value of an good is placed in the currency? Perhaps you show me where I stated that?

Increasing the money supply is not the bare bones definition of inflation. Inflation is the increase of prices, and that is how inflation is measured. You are merely assuming that by increasing the money supply, there will be an increase in prices. I demonstrated the fallacy of this belief in my previous post.

The assumption that the producer will charge more money if people have more of it assumes that the producer is not subject to competition. It also assumes there is a 1:1 correspondence between income and prices; something which Douglas demonstrated was false in his A+B theorem. The issuance of the price rebate and dividend is to give the consumer enough money to cancel all the costs of goods and services coming onto the market. Also, there is the assumption that production is at the levels of capacity. The alternative is that the producer will produce more goods and services if people have more money. Competition tends to eliminate profiteering. I find it odd that those who champion the free market and the benefits of competition are often the first to abandon it.

Printing money does not make us rich. The only thing that can make us rich is the production of goods and services which we desire. Money is not wealth, nor did I claim it was. The issuance of debt free money is to rectify an accounting flaw which Douglas elaborates upon in his A+B theorem:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

I agree with you in regards to economists being "econometricians" rather than understanding theoretical economics. I would also claim that economists have very limited understanding of accounting, and accountants themselves are merely technicians, who do not understand the philosophy behind their trade.

Douglas was an engineer and a cost accountant.

As to your comments in regards to Social Credit and socialism. The National Credit authority would not control the money supply. Banks would still create money as they see fit, and the amount of money created debt free by the National Credit Authority would be calculated based on the consumption and production habits of individuals.

Edited by socred
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Every critic who has said it would lead to inflation has not understood it. It's people who believe that increases in money must necessarily lead to inflation. This assumption is at least implicitly derived from the fallacy known as the quantity theory of money. The following was written by Geoffrey Dobbs in the introduction to Douglas' book "The Monopoly of Credit":

However much it is sophisticated, the argument is essentially the simple one that, if inflation is due to too much of a homogeneous quantity called 'money', to add more 'money' will make it worse. But 'money' is not a homogeneous entity, it is a loan, which is travelling outward, creating debt, or inward, cancelling it. The best analogy is, perhaps, a chemical one. A state of inflation might be compared to one of corrosive acid poisoning, due to a gross excess of (positive, hydrogen) ions. The urgent need is to neutralize these with a base, i.e. by adding negative, basic, ions. The argument that, since the damage is due to an excess of 'ions', to add more 'ions' would make it worse, is quite analogous with that used by economists who reject Douglas' analysis and proposals as 'inflationary'." (Geoffrey Dobbs, Introduction to "Monopoly of Credit")[/i]

I don't know any Social Crediter claiming Social Credit is "managed inflation". Are you talking about members of any "Social Credit" Party?

The Supreme Court ruled that it was unconstitutional for Alberta to establish a system of Social Credit, since money and banking fell under federal jurisdiction. They did not rule that Social Credit was unconstitutional.

I'm not certain what you mean by the statement "I still think that there would be a limit of capital ", so perhaps you could elaborate?

I don't know why the WTO would penalize any country for establishing Social Credit, so perhaps you could elaborate on that thought as well?

Geoffrey Dobbs also said that social credit was "practical Christianity."

I don't think many social credit people seem to know about inflation. The demand for some goods and the lack of or control of that supply make their price inflationary. How you would get oil producing nations on board in such a system in beyond me? The banking system can't completely take the risk out of inflation. I think social credit policy is likely to have an inflationary affect.

As far as a limit in capital, I suggest to you that if Canada adopted a social credit policy and the U.S. did not, the incentive to invest in Canada would probably be limited. Moreover, the WTO punishes any member country that attempt to protect industries. In this I would be referring to the banking industry. Do you have any examples of countries will social credit as their main system working within the WTO?

I wonder if social credit would be even possible without a constitutional amendment since it goes between federal and provincial responsibility? It is sort of like Flahertry trying to get a central securities regulator. He is stymied because it is a provincial responsibility. The Supreme Court would strike down any unilateral decision.

As for managed inflation, it was how some party members described it.

How do you anonymously go about promoting Social Credit when it is not supported by any present political party? Don't you need a party for that?

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I don't know where I stated that the value of an good is placed in the currency? Perhaps you show me where I stated that?

Increasing the money supply is not the bare bones definition of inflation. Inflation is the increase of prices, and that is how inflation is measured. You are merely assuming that by increasing the money supply, there will be an increase in prices. I demonstrated the fallacy of this belief in my previous post.

The assumption that the producer will charge more money if people have more of it assumes that the producer is not subject to competition. It also assumes there is a 1:1 correspondence between income and prices; something which Douglas demonstrated was false in his A+B theorem. The issuance of the price rebate and dividend is to give the consumer enough money to cancel all the costs of goods and services coming onto the market. Also, there is the assumption that production is at the levels of capacity. The alternative is that the producer will produce more goods and services if people have more money. Competition tends to eliminate profiteering. I find it odd that those who champion the free market and the benefits of competition are often the first to abandon it.

Printing money does not make us rich. The only thing that can make us rich is the production of goods and services which we desire. Money is not wealth, nor did I claim it was. The issuance of debt free money is to rectify an accounting flaw which Douglas elaborates upon in his A+B theorem:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

I agree with you in regards to economists being "econometricians" rather than understanding theoretical economics. I would also claim that economists have very limited understanding of accounting, and accountants themselves are merely technicians, who do not understand the philosophy behind their trade.

Douglas was an engineer and a cost accountant.

As to your comments in regards to Social Credit and socialism. The National Credit authority would not control the money supply. Banks would still create money as they see fit, and the amount of money created debt free by the National Credit Authority would be calculated based on the consumption and production habits of individuals.

You didn't have to state that "value" is in the currency. Your argument is presented from that point of view.

Firstly, the definition of inflation is: an increase in the money supply that causes a general rise in prices and wages. Or you could say, a general rise in prices and wages due to an increase in the supply of money. Either way, it is the increase or "inflation" of the money supply that causes a general increase in prices and wages. There may be other causes of increased wages and prices but there will never be another cause to an increase of wages and prices "in general".

I have had this argument before with another proponent of social credit. Part B of the A+B theorem is simply satisfied by the creation of money which is then alloted to the payment of B in the cost of production. In truth any economist knows inflation of the money supply will result in a general increase in prices and wages.

You said:

The National Credit authority would not control the money supply. Banks would still create money as they see fit, and the amount of money created debt free by the National Credit Authority would be calculated based on the consumption and production habits of individuals.

I give you the point that the National Credit authority would not control the money supply. They would simply inflate it "based on the consumption and production habits of individuals."

What will happen over time with the calculation of the cost of "B" is that it will be fixed by the market to maximize the return, as the market invariably works to do - It then sets up false pricing to allow for that to occur. In other words the payment becomes neutralized. I think the problem with social credit is in the assumption of the fact that "B" is not considered in the cost of production or in actual pricing. It may not be in some cases but over time, if it isn't, the business will become an entrepreneurial failure.

Lord Keynes, by his sophisticated econometric wizardry, and governments economic ignorance and willing embracement of anything that aided in it's ability to attempt economic control has placed us in a precarious position socially. I don't believe that any thing less than removing any ability of the government to interfere in the market, even just adding credits, will result in a healthy economy. That may not answer your question of how the free market could do a better job but I could offer my opinion on that as well.

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Geoffrey Dobbs also said that social credit was "practical Christianity."

C.H. Douglas also said Social Credit was "practical Christianity", and I tend to agree with him. Social Credit is much more than monetary reform.

I don't think many social credit people seem to know about inflation.

I don't think orthodox economists understand inflation, and that is why it is systemic in our debt based monetary system. In fact, the best economists today hope for is "managed inflation". This misunderstanding is due to their adherence to the fallacy known as "the quantity theory of money". Money has direction. It is either creating costs, or cancelling them. If the increase in the money supply is used to cancel costs, which is the idea behind the price rebate, then an increase in money can decrease prices to the consumer.

How you would get oil producing nations on board in such a system in beyond me?

Why would you need to? Consumers don't buy crude oil. The price rebate occurs at the point of retail. It is a rebate given to the consumer.

I think social credit policy is likely to have an inflationary affect.

That's because you've been taught to believe that an increase in money will automatically cause inflation. Even if you adhere to the quantity theory of money, which states that

money*velocity of circulation= prices*output

an increase in money does not necessarily increase prices, it can increase output without an increase in prices

and this is using the quantity theory of money, which I maintain is a complete fallacy. Douglas exposed this fallacy in his report to the

ALBERTA POST-WAR RECONSTRUCTION COMMITTEE REPORT OF THE SUBCOMMITTEE ON FINANCE

As far as a limit in capital, I suggest to you that if Canada adopted a social credit policy and the U.S. did not, the incentive to invest in Canada would probably be limited.

I wasn't sure if you were talking about physical capital, or financial capital. I can't see any reason why Americans would not want to invest in Canada if it adopted a system of Social Credit, but even if they didn't, so what? Do you think that Canada needs numbers from the U.S.? Do you not think that our banks can't create those same numbers? Banks create money with each loan. There is no necessity to import capital.

Moreover, the WTO punishes any member country that attempt to protect industries.

No industry would be "protected" in a Social Credit system, including banks. They would all compete like they do now. The only difference would be that consumers would receive a rebate upon purchase of goods and services, and individuals would receive a dividend, both of these would be financed by the National Credit Authority through debt free money created by the Authority for that purpose. The size of the rebate and dividend would depend on aggregate production and consumption statistics, and the ratio of capital appreciation to capital depreciation.

I wonder if social credit would be even possible without a constitutional amendment since it goes between federal and provincial responsibility?

According to the constitution, money and banking is under federal jurisdiction, so it could easily be implimented federally. Provincially may cause a battle, as was witness previously.

As for managed inflation, it was how some party members described it.

The party member did not know what he was talking about.

How do you anonymously go about promoting Social Credit when it is not supported by any present political party? Don't you need a party for that?

Any political party can implement Social Credit. Do you need a Keynsian political party to implement Keynsian economics, or a monetarist political party to implement monetarist economics. Douglas did not advocate Social Credit Parties.

"Social Credit Parties

There is at the present time an idea that we should have a Social Credit party in this country. I can quite understand and sympathise with that idea, but it is a profound misconception. It assumes that the government of the country should be a government of experts.

Let me show you that it does assume that.

If you elect a Social Credit party, supposing you could, I may say that I regard the election of a Social Credit party in this country as one of the greatest catastrophes that could happen. By such an election you proceed to elect, by the nature of it, a number of people who are supposed to know enough about finance to say what should be. done about it.

Now it is an axiom of experience that no layman can possibly direct the expert in details, and in normal things no layman is fool enough to try to do it.

If you had a Social Credit government, it would proceed to direct a set of very competent experts - the existing financial authorities, for example - how to do their job. The essential thing about that situation would be the responsibility for what was done.

Now no set of 500 or 600 men whom you could elect in this country could possibly know as much about finance as the people they would presume to direct.

You know, in all that I have said about financiers, I have never at any time said that they were incompetent, nor are they, within the limits of their own philosophy. But to elect a Social Credit party in this country would be to elect a set of amateurs to direct a set of very competent professionals.

The professionals, I may tell you, would see that the amateurs got the blame for everything that was done."

The Approach to Realityby C. H. DOUGLAS

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