A synopsis of Social Credit thought

[jdobbin]

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 tend to be leery of anything that tries to push a faith based idea onto people.

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.

I think that inflation doesn't always have to be about money. It can be about supply and demand and how you dtermine value.

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.

You see...this is where social credit doesn't seem to make sense. The demand for oil and the limited supply of oil equal inflation any way you cut it. In our society, consumers need oil.

That's because you've been taught to believe that an increase in money will automatically cause inflation.

Actually, what I have learned is that if there is demand for a product and a limited supply, inflation will ensue. We see that with oil.

You said yourself that Social Credit was a movement and an economic idea. That is why it eventually turned into a political party. Keynes was never a social movement.

[socred]

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

Not at all. Douglas referred to money as a "ticketing system".

The following is a question, taken from Douglas' testimony before the Alberta Agricultural Commission, in regards to Social Credit and whether the amount of money (or tickets) created would be unlimited:

"Q. Would the number of tickets be unlimited, or would that be regulated by the

actual production of potential production of goods and services?

A. Quite obviously there is no sense in having a ticket for something that does

not exist. There is equally no sense in having something existing for which

nobody has a ticket."

In other words, quite obviously there is no sense having money for something that does not exist. There is equally no sense in having something existing for which there is no money. The purpose of the debt free money introduced in a Social Credit economy is to eliminate the gap between income and prices Douglas identified in his A+B theorem.

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.

You can't have inflation without a rise in prices. Prices would decrease in any Social Credit system, so it is not inflationary.

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.

Are you claiming that B payments were incomes disbursed in the past? If so, I address this point in the essay I wrote which is the first post in this thread.

In truth any economist knows inflation of the money supply will result in a general increase in prices and wages.

In truth, orthodox economists don't fully understand inflation, and that is why we are forced to live with "managed inflation". Douglas realized that the only way to combat inflation was a price subsidy at the point of retail with money created debt free and that did not run through the productive system (i.e. costless money).

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.

The real cost of production is consumption. B payments represent previous consumption which has been "capitalized". We are quite rightfully charged with capital depreciation, but we are not properly credited with capital appreciation. In reality, we are building capital at a much faster rate than it is depreciating. That is why the National Credit Authority would first calculate a national capital account.

Any business has a right to charge for their capitalized costs in their price to consumers, but consumers should not pay it. The difference is made up by the National Credit Authority by issuance of debt free credit.

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 agree. Most Social Crediters believe that Keynes was the socialist response to Douglas. Keynes recognized the gap between income and prices as well, but proposed to close that gap by increased capital production (i.e. investment) or increased government spending. Not only are these methods inflationary, but they cause increased debt, because the money created is still issued as a debt, which means it creates a cost, and inflates prices. Also, tying to close the gap with this methodology never fully brings consumption and production into equilibrium, as Douglas pointed out with the following taken from his book entitled "Social Credit":

The condition which is produced by a policy of restricting the amount of money in circulation can be grasped without difficulty, if it be remembered that it must involve a numerical decrease in both the total figures of cost and the total figures of price for a given period of production. The only portion of the total costs which can be decreased without loss to the producer are those represented by wages and salaries, the remainder being fixed charges based on the capital costs already incurred. Wages and salaries costs are purchasing-power, and collectively are much less than collective prices. Imagine both collective wages and collective prices to be diminished by an equal amount x. This may be written:

Costs = purchasing-power.

Costs are < prices.

Costs

is < 1

Prices

Costs - x Costs

is <

Prices - x Prices

An addition to both the numerator and denominator of the fraction, such as is brought about by a rise of wages, accompanied by a rise in price, has, of course, the opposite effect; it brings the ratio of purchasing-power to prices nearer, though never to unity, with the result, seen in Germany in the inflation period, of immense, though unstable, economic activity, accompanied by great hardship to the professional and rentier classes, both of whom have claims to consideration, and a most undesirable concentration of economic power, resulting infallibly in the enslavement of the artisan.

C.H. Douglas, "Social Credit"

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.

It's not simply "adding credits". It's rectifying an accounting flaw which Douglas identified in his A+B theorem.

[socred]

I tend to be leery of anything that tries to push a faith based idea onto people.

Social Credit does not push any faith based idea upon anyone. There are reasons Douglas identified Social Credit as practical Christianity. One would be the following:

"It is not too much to say that one of the root ideas through which Christianity comes into conflict with the conceptions of the Old Testament and the ideals of the pre-Christian era, is in respect of this dethronement of abstractionism. That is the issue which is posed by the Doctrine of the Incarnation. " (C.H. Douglas, "Social Credit")

It should be noted that you should not confuse "practical Christianity" and "Judeo-Christianity" for they are not the same thing.

You see...this is where social credit doesn't seem to make sense. The demand for oil and the limited supply of oil equal inflation any way you cut it. In our society, consumers need oil.

Well, we could get into discussions about how much of the "scarcity" of oil is contrived scarcity by OPEC, but it does not matter. What matters is that consumers pay less for gasoline at the pump. Also, part of Social Credit is the recognition that leisure is one of the primary outputs of industry. As technology decreases the amount of labour necessary for production, individuals should be able to work less. This is the goal of the dividend. I don't know about you, but I consume most of my gasoline going to and from work.

You said yourself that Social Credit was a movement and an economic idea. That is why it eventually turned into a political party. Keynes was never a social movement.

Indeed, Social Credit is a movement, but it is not a political party, and I would argue that the Social Credit political parties have done the movement more harm than good.

[jdobbin]

Social Credit does not push any faith based idea upon anyone. There are reasons Douglas identified Social Credit as practical Christianity. One would be the following:

It should be noted that you should not confuse "practical Christianity" and "Judeo-Christianity" for they are not the same thing.

I don't. They both don't appeal to me as a guideline for economic initiatives.

Well, we could get into discussions about how much of the "scarcity" of oil is contrived scarcity by OPEC, but it does not matter.

No, it doesn't matter how it comes to be scarce. It only matters that it is scarce.

What matters is that consumers pay less for gasoline at the pump.

I think the price goes up no matter what.

Also, part of Social Credit is the recognition that leisure is one of the primary outputs of industry. As technology decreases the amount of labour necessary for production, individuals should be able to work less. This is the goal of the dividend. I don't know about you, but I consume most of my gasoline going to and from work.

Don't you do more travel with a car or plane when you are on holiday?

Indeed, Social Credit is a movement, but it is not a political party, and I would argue that the Social Credit political parties have done the movement more harm than good.

If you say so. I don't see anybody presently running who talk about social credit ideas. Will you slip out from anonymous posting to run for office so you can talk about it? If not, why not?

[socred]

I don't. They both don't appeal to me as a guideline for economic initiatives.

It is a guiding philsophy, but that does not mean that one need to be a Christian to live in a "practical Christian" society. It is a simple recognition of the fact that the culture that western civilization is based upon over the last 2000 years has been Christian (with the exception of maybe the last 40 years, since socialism has begun to take over). Douglas believed that the expression of "practical Christianity" can be found in the Magna Carta. It is the belief that the individual should be given the maximum amount of freedom possible. Practical Christianity does not seek to impose a theology.

"Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic." (C.H. Douglas, "Economic Democracy")

That is the essence of Social Credit.

Will you slip out from anonymous posting to run for office so you can talk about it? If not, why not?

I was a VP for the Alberta Social Credit Party, and I was disgusted by party politics. The people in power in the Party wouldn't know Social Credit from Socialism. There were endless debates over nonsense that was everything but Social Credit. The people who get involved in politics represent the worst philosophy known to man, which is the "will to power" (Social Credit is the embodiment of the will to freedom). I choose to remain anonymous in these threads, because there is alot of "nutballs" out there, and I don't want to be harassed. I do post in some areas with my name.

I post on these threads to spread a message. People really don't have to understand all the technical details of Social Credit to force politicans to implement it. If anyone wants to understand the technical details, that is what I'm here to put forward.

Until it is implemented, we will continue to see rising prices, rising taxes, and increasing debt. Perhaps the system will finally have to collapse before people get interested. I hope not.

[jdobbin]

It is a guiding philsophy, but that does not mean that one need to be a Christian to live in a "practical Christian" society. It is a simple recognition of the fact that the culture that western civilization is based upon over the last 2000 years has been Christian (with the exception of maybe the last 40 years, since socialism has begun to take over). Douglas believed that the expression of "practical Christianity" can be found in the Magna Carta. It is the belief that the individual should be given the maximum amount of freedom possible. Practical Christianity does not seek to impose a theology.

Some would say that socialism started off with Christian fundamentals. Many of the CCF and NDP come from the ranks of Christian ministries.

I was a VP for the Alberta Social Credit Party, and I was disgusted by party politics. The people in power in the Party wouldn't know Social Credit from Socialism. There were endless debates over nonsense that was everything but Social Credit. The people who get involved in politics represent the worst philosophy known to man, which is the "will to power" (Social Credit is the embodiment of the will to freedom). I choose to remain anonymous in these threads, because there is alot of "nutballs" out there, and I don't want to be harassed. I do post in some areas with my name.

Unfortunately, I don't see anyone presently running who talks about social credit nor mention that they are influenced by it.

Until it is implemented, we will continue to see rising prices, rising taxes, and increasing debt. Perhaps the system will finally have to collapse before people get interested. I hope not.

Taxes have not been rising for many years in Canada, government debt has been going down, consumer debt going up. Prices rise based on supply and demand.

[Pliny]

Socred: You can't have inflation without a rise in prices. Prices would decrease in any Social Credit system, so it is not inflationary.

I don't think I quite understand your first sentence. Inflation is an increase in the money supply and that is inflation. A general rise in prices is the result of inflation. Inflation and its effect on prices is something that almost all economists will agree upon.

No prices would not decrease in a social credit system. What is the incentive to decrease prices? In fact, as I understand it, the incentive is to increase prices with a resultant increase in the rebate or dividend.

You say that Douglas says money is a "ticketing system". I would argue that point but let's assume it is a "ticketing system". If I understand correctly the amount of money in circulation does not account for all the production in the society, therefore the dividend or rebate is provided to balance the unpaid for production. The result is that all consumption is equal to all production in monetary terms and there is balance in the economy. Before proceding any further, is this correct?

[socred]

Some would say that socialism started off with Christian fundamentals. Many of the CCF and NDP come from the ranks of Christian ministries.

And I would argue some are full of nonsense. Karl Marx was not a Christian, nor did he advocate religion. His philosophy was based upon dialectical materialism. As far as Tommy Douglas is concerned, I think he was "misguided" in the belief that socialists help the poor. Socialists love the poor so much that they want to make everyone poor. I believe that if Tommy Douglas had understood C.H. Douglas, Tommy would have become a Social Crediter. Socialism is the elavation of the state over the individual, and as such, is anti-Christian.

Unfortunately, I don't see anyone presently running who talks about social credit nor mention that they are influenced by it.

I agree. Even the ASCP, which says they are influenced by it, promote something quite different.

Taxes have not been rising for many years in Canada, government debt has been going down, consumer debt going up. Prices rise based on supply and demand.

Prices also rise due to the rising cost of production, which is caused by the "capitalization" of industry and leads to "B payments" rising relative to "A payments".

[socred]

Inflation is an increase in the money supply and that is inflation.

No, inflation is measured by the rise in prices.

A general rise in prices is the result of inflation

No, a general rise in prices is inflation, which may be the result of "too much money chasing too few goods".

You are putting the cart before the horse.

Inflation and its effect on prices is something that almost all economists will agree upon.

This is a tautology. Inflation is technically defined as a rise in prices. That is how inflation is measured, so of course everyone in the world should agree on inflation and its effect on prices. Inflation is technically defined as the rise in prices.

Inflation is not technically defined as an increase in the money supply. Economists tend to believe that this is the "cause" of inflation, but it is not the definition of inflation. If you don't believe me, look at how the Bank of Canada measures inflation.

No prices would not decrease in a social credit system. What is the incentive to decrease prices?

It seems to me that you don't understand the rebate system. The retailer does not decrease his price. The retailer charges the same price that he always did. The consumer pays the retailer that price, but is "rebated" a certain amount of money which is deposited in his bank account. In the example I gave, the retailer received $100 for his good, the consumer paid $75, the difference ($25) was "paid" by the National Credit Authority by issuance of a price rebate.

If I understand correctly the amount of money in circulation does not account for all the production in the society, therefore the dividend or rebate is provided to balance the unpaid for production. The result is that all consumption is equal to all production in monetary terms and there is balance in the economy. Before proceding any further, is this correct?

The amount of income being paid to individuals in any time period is always less than total prices in the same time period.

You cannot just add up money and claim that all money is income. Money is a "flow": it has direction. It is created as a debt and flows from the bank through the productive system and reaches individuals by way of income (wages, salaries, and dividends) and is taken back by the productive system in the form of prices (taxes being the goverment equivalent of prices) where it is returned to the bank to cancel the debt. Money flowing back to the bank is NOT income, and cannot be accounted as income.

The price rebate is recognition of the fact that the real/physical cost of production is consumption over an equivalent time period. The purpose of production is consumption (unless someone is advocating waste). The price rebate is designed to bring production and consumption into equilibrium.

The dividend is recognition of the fact that technology is reducing the need for labour in the productive process.

Let me give you an example of the problem. Imagine if you will that all production took place with the aid of perpetual motion robots. Obviously we are not at this stage of production, or anywhere near it, but we are moving towards it, because the goal of most technology in the productive process is to replace labour. If we lived in this world, we'd all die of starvation, because not one of us would have any income. There would be an abundance of goods and services, but none of us would have any money to buy them.

Edited January 1, 2008 by socred

[Pliny]

No, inflation is measured by the rise in prices.

No, a general rise in prices is inflation, which may be the result of "too much money chasing too few goods".

Look up the definition anywhere in any dictionary. Your phrase "Too much money chasing too few goods" even explains that. "Too much money" is exactly that. So social credit by supplying a rebate or dividend adds to the money supply. Now Social credit claims that it is necessary to add to the money supply to pay for "B", in the A+B Theorum, and balance production with cost. And continuing with the fallacy that B is not included in the cost of production it claims that the dividend or rebate created is "debt free money" because it does not exceed production.

There is a basic misunderstanding of what money is in the whole premise that social credit puts forth.

Money is something that is used in trade and satisfies the condition of the trade completely. It is not a cheque, an IOU, a bond, a bill, a government issue piece of paper, a token, or any other substitute for money. Money is not so easily made void as are the aforementioned substitutes.

I do not believe I am putting the cart before the horse. Check the definition of inflation. If you disagree with the definition and believe prices just magically rise every year for no apparent reason other than everyone producing goods believes they should rise does that change the whole concept of social credit?

You are putting the cart before the horse.

This is a tautology. Inflation is technically defined as a rise in prices. That is how inflation is measured, so of course everyone in the world should agree on inflation and its effect on prices. Inflation is technically defined as the rise in prices.

Inflation is not technically defined as an increase in the money supply. Economists tend to believe that this is the "cause" of inflation, but it is not the definition of inflation. If you don't believe me, look at how the Bank of Canada measures inflation.

It measures inflation by the general increase in prices. It does this in order to know how much currency it should add to the economy or if it should add any. If prices rise too much they know they have added too much money and that "too much money is chasing too few goods" so they will not add as much in order to keep prices from rising. Inflation is "technically" defined as an increase in the money supply causing a general rise in prices. It is sloppily defined in terms of its results only - a general rise in prices.

It seems to me that you don't understand the rebate system. The retailer does not decrease his price. The retailer charges the same price that he always did. The consumer pays the retailer that price, but is "rebated" a certain amount of money which is deposited in his bank account. In the example I gave, the retailer received $100 for his good, the consumer paid $75, the difference ($25) was "paid" by the National Credit Authority by issuance of a price rebate.

The amount of income being paid to individuals in any time period is always less than total prices in the same time period.

You cannot just add up money and claim that all money is income. Money is a "flow": it has direction. It is created as a debt and flows from the bank through the productive system and reaches individuals by way of income (wages, salaries, and dividends) and is taken back by the productive system in the form of prices (taxes being the goverment equivalent of prices) where it is returned to the bank to cancel the debt. Money flowing back to the bank is NOT income, and cannot be accounted as income.

The price rebate is recognition of the fact that the real/physical cost of production is consumption over an equivalent time period. The purpose of production is consumption (unless someone is advocating waste). The price rebate is designed to bring production and consumption into equilibrium.

The dividend is recognition of the fact that technology is reducing the need for labour in the productive process.

Let me give you an example of the problem. Imagine if you will that all production took place with the aid of perpetual motion robots. Obviously we are not at this stage of production, or anywhere near it, but we are moving towards it, because the goal of most technology in the productive process is to replace labour. If we lived in this world, we'd all die of starvation, because not one of us would have any income. There would be an abundance of goods and services, but none of us would have any money to buy them.

You say:"The amount of income being paid to individuals in any time period is always less than total prices in the same time period. " and then you say, "You cannot just add up money and claim that all money is income."

Isn't that what you have just said previously - all money is income but it is less than total prices.

[socred]

Look up the definition anywhere in any dictionary. Your phrase "Too much money chasing too few goods" even explains that. "Too much money" is exactly that.

The definition of inflation is the rise in prices, and the measures of inflation are the average rise in prices. Nowhere do they measure the money supply when trying to calculate inflation. The belief that inflation is CAUSED by "too much money chasing too few goods" is based upon the quantity THEORY of money, and this theory is fallicious as I already pointed out.

But if you do not believe me, I will quote from the Bank of Canada:

Inflation and Price Stability

INFLATION IS A PERSISTENT RISE over time in the average price of goods and services—in the "cost of living."[ Inflation and the risk of inflation encourage certain types of spending and investment decisions. A situation where inflation is low enough so that it no longer affects people's economic decisions is referred to as price stability.

The most widely used measure of inflation is the consumer price index (CPI). It reflects changes in the price of a representative "basket" of goods and services sold in Canadafood, housing, transportation, furniture, clothing, recreation, and other items that Canadians buy.

The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.

Inflation and Price Stability

It does this in order to know how much currency it should add to the economy or if it should add any. If prices rise too much they know they have added too much money and that "too much money is chasing too few goods" so they will not add as much in order to keep prices from rising. Inflation is "technically" defined as an increase in the money supply causing a general rise in prices. It is sloppily defined in terms of its results only - a general rise in prices.

It is a "sloppy" definition to add "an increase in the money supply causing a general rise in prices". The former is based upon a theory as to what causes inflation, whereas the latter is the technical defintion of inflation (i.e. a rise in prices), and that is why the Bank of Canada does not include the former, because it is "sloppy". The belief that inflation is soley caused by "too much money chasing too few goods" is based upon the fallacy known as the "quantity theory of money", which is a THEORY.

You say:"The amount of income being paid to individuals in any time period is always less than total prices in the same time period. " and then you say, "You cannot just add up money and claim that all money is income."

Isn't that what you have just said previously - all money is income but it is less than total prices.

No, all money is not income. But only income can be used to purchase goods and services, and income paid to individuals in any time period is always less than the total prices generated in the same time period.

[Pliny]

The definition of inflation is the rise in prices, and the measures of inflation are the average rise in prices. Nowhere do they measure the money supply when trying to calculate inflation. The belief that inflation is CAUSED by "too much money chasing too few goods" is based upon the quantity THEORY of money, and this theory is fallicious as I already pointed out.

But if you do not believe me, I will quote from the Bank of Canada:

Inflation and Price Stability

INFLATION IS A PERSISTENT RISE over time in the average price of goods and services—in the "cost of living."[ Inflation and the risk of inflation encourage certain types of spending and investment decisions. A situation where inflation is low enough so that it no longer affects people's economic decisions is referred to as price stability.

The most widely used measure of inflation is the consumer price index (CPI). It reflects changes in the price of a representative "basket" of goods and services sold in Canadafood, housing, transportation, furniture, clothing, recreation, and other items that Canadians buy.

The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.

Inflation and Price Stability

It is a "sloppy" definition to add "an increase in the money supply causing a general rise in prices". The former is based upon a theory as to what causes inflation, whereas the latter is the technical defintion of inflation (i.e. a rise in prices), and that is why the Bank of Canada does not include the former, because it is "sloppy". The belief that inflation is soley caused by "too much money chasing too few goods" is based upon the fallacy known as the "quantity theory of money", which is a THEORY.

No, all money is not income. But only income can be used to purchase goods and services, and income paid to individuals in any time period is always less than the total prices generated in the same time period.

If we can't get past the definition of inflation there is no sense continuing.

What does the government do when they discover from the CPI the inflation rate is too high or acceptable? What does it tell them they have done and should do to manage the inflation rate?

[socred]

If we can't get past the definition of inflation there is no sense continuing.

What does the government do when they discover from the CPI the inflation rate is too high or acceptable? What does it tell them they have done and should do to manage the inflation rate?

Like I stated previously, you're confusing the technical definition of inflation, or how its measured, with what many economists think is the cause of inflation.

Central banks attempt to arrest inflation through reductions in the money supply via interest rate policy. Not only has this methodology proven ineffective, as we are plagued by inflation, but the "quantity theory of money" upon which this methodology rests is a fallacy.

Douglas demonstrated the fallacy in "The Alberta Post-War Reconstruction Committee Report"

[jbg]

Central banks attempt to arrest inflation through reductions in the money supply via interest rate policy. Not only has this methodology proven ineffective, as we are plagued by inflation, but the "quantity theory of money" upon which this methodology rests is a fallacy.

Then how do you explain the reduction in the inflation rate from double digits to the 2-3% range between 1979 and most more recent years?

[Jerry J. Fortin]

I too was once a member of The Alberta Social Credit Party. I left the party because it wasn't about Social Credit! Social Credit is actually a theory, not a political party. The idea of making it just another partisan group to advocate partisan policy is detrimental to the actual cause of the theory. The theory deserves much debate and the fact that it is far different from the established views on economics often puts supporters of the concept into the tin foil hat club. That doesn't speak to the validity of the theory but instead to the supporters of the entrenched economic system that literally detracts from the advancement of the cause of improving the human condition.

That is the little fact that escapes many folks. What is the goal of politics if not to improve the human condition? The present perception is that politics is power and power protects itself. It is only a system, a political machine designed by man to accomplish tasks for men. Governments should not have a life of its own, it should be little more than the servant of its master. the people.

Until people realize that the only political machine capable of providing a government accountable to the people is a direct democracy, then the theory of social credit will be doomed to gather dust on the shelf because it upsets the established authority of this nation and this world.

[jbg]

The idea of making it just another partisan group to advocate partisan policy is detrimental to the actual cause of the theory. The theory deserves much debate and the fact that it is far different from the established views on economics often puts supporters of the concept into the tin foil hat club.

No, the fact that people of ordinary intelligence can't fathom what the h*** they're tlaking about puts them in that category. I have tried to decipher their views and frankly the socreds verge on incoherence.

[Wilber]

From a practical standpoint, inflation is the decrease in value of money. How do you decrease the value of money?

[Pliny]

From a practical standpoint, inflation is the decrease in value of money. How do you decrease the value of money?

Precisely! The general rise in prices that is the "result" of inflation is not a rise in "value" of goods but a decrease in the purchasing power of the currency. I think some of the confusion in the discussion so far is that supply and demand also affect value BUT that applies only to one commodity and any rise in price of a single commodity is not inflation. It is an adjustment the market makes in perceived value. The currency does not change value, it can only increase or decrease in purchasing power and that is dependent upon it's availability, like any other commodity.

Edited January 8, 2008 by Pliny

[socred]

Then how do you explain the reduction in the inflation rate from double digits to the 2-3% range between 1979 and most more recent years?

You prove my point. The best the central banks can do is "managed inflation", which demonstrates that they have no cure for inflation.

[socred]

No, the fact that people of ordinary intelligence can't fathom what the h*** they're tlaking about puts them in that category. I have tried to decipher their views and frankly the socreds verge on incoherence.

What exactly is "incoherent"?

[socred]

From a practical standpoint, inflation is the decrease in value of money. How do you decrease the value of money?

How do you decrease the value of money?

Since money's "value" is solely determined by how many goods and services it can purchase, you decrease its value by increasing prices (i.e. inflation), or conversely, you increase its value by decreasing prices.

A Social Credit system, which decreases prices, increases the value of money.

[socred]

Precisely! The general rise in prices that is the "result" of inflation is not a rise in "value" of goods but a decrease in the purchasing power of the currency. I think some of the confusion in the discussion so far is that supply and demand also affect value BUT that applies only to one commodity and any rise in price of a single commodity is not inflation. It is an adjustment the market makes in perceived value. The currency does not change value, it can only increase or decrease in purchasing power and that is dependent upon it's availability, like any other commodity.

Money is not a commodity.

[Wilber]

Money is not a commodity.

Of course it is. It is worth exactly what someone will give you for it, just like any other commodity. No more. The more of it is on the market the less it is worth. I guess you have never seen those 20's photos of the guy in Wiemar Germany wheeling his barrow full of bills down the street to buy a loaf of bread. Why didn't everyone else in Europe need a barrow full of bills to buy a loaf of bread?

I was in Brazil in the early nineties when they were changing over to the new currency. You could still use the old but you had to cross off two or three zeros (can't remember which) to give its value in the new currency. Why wasn't this happening in the rest of the world at the same time?

[Pliny]

Of course it is. It is worth exactly what someone will give you for it, just like any other commodity. No more. The more of it is on the market the less it is worth. I guess you have never seen those 20's photos of the guy in Wiemar Germany wheeling his barrow full of bills down the street to buy a loaf of bread. Why didn't everyone else in Europe need a barrow full of bills to buy a loaf of bread?

I was in Brazil in the early nineties when they were changing over to the new currency. You could still use the old but you had to cross off two or three zeros (can't remember which) to give its value in the new currency. Why wasn't this happening in the rest of the world at the same time?

Economically speaking, I believe the reason why Socred does not think of "money" as a commodity is because to him money is merely a token of no value. I doubt he will agree with that assessment but it is my observation. I believe it is his concept that "money" has no value. I do not know how it's value can be determined by the amount of goods and services and not the amount of "money" in circulation. It appears he is insisting that it makes no difference how much "money" is in circulation but then somehow a determination of the amount to be in circulation is necessary. Why would that be?

I believe, the Social Credit philosophy, although claiming to be different to our current central banking Keynesian economic system, is essentially the same thing. It adds currency annually to the supply claiming to be shoring up a hitherto unnoticed shortfall in any free economy. Of course, it can't be admitted that adding currency to the supply annually is inflation.

The real problem is in determining the correct amount of "money" from the value of goods and services. If the "money" is not a commodity it is then merely something of no value but accepted in trade. If it has no value how does one determine how many should be in circulation. The determination of the value of the goods and services is stated in terms of the "money". If their denomination is dollars how much is a dollar worth? That can only be determined by the amount of "money" in circulation but if the amount is irrelevant why even bother calculating the value of goods and services. Today's money is nothing but tokens really so I see no difference between them and the tokens that are being offered by Social Credit.

If you do not consider money a commodity it cannot have value, and from that - no value, how can its quantity then be determined? Quantity seems irrelevant and the whole argument falls apart?

I don't have any quarrel with what Social Credit philosophy is attempting to achieve but I think advocates of Keynesian economics in the thirties made the same promises of economic prosperity for all.

[adrienne]

I find this a very difficult subject – but extremely interesting. I hope that socred will give me his opinion on a few thoughts (I do not yet understand the whole scope of the matter):

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What is inflation (according to Douglas)? Imagine a movie theatre:

“Would you call it inflation to issue tickets for every seat in a hall, despite the fact that the hall had never before been filled, or more that a fourth of the seats sold, because there not being enough tickets available?

Inflation would consist in issuing more tickets than there are seats.”

(New English Weekly June 16, 1932 - according to Ezra Pound)

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How does money come into “circulation”?

As far as I understand it (simplified):

Central banks create money out of nothing and lend it to private banks, let’s say at an interest rate of 3 % --- private banks then lend the money to companies, let’s say at an interest rate of 6 % --- companies then produce and distribute products, they pay wages and salaries etc.

The consumer then, with this money, buys the products and therefore gives the money back to the companies.

The companies pay the loans back to the private banks (plus 6 %) --- the private banks pay the loans back to the central bank (at 3 %)

The central banks destroy the money (because paper money is not very durable) and issue new money, created out of nothing, as loans to private banks. The whole thing starts again.

The good thing is that therefore the money supply will not increase too much. The interest rates determine which companies or persons really expect to be able to pay back the principal plus interest. Central banks only create money (out of nothing) as long as private banks need it. Inflation is – almost non-existent?

Problems: Where does the interest come from? Money cannot “multiply” in mysterious ways. Money is issued as e.g. 100 Dollars – but it has to come back as (at least, depending on the time) 100 Dollars plus 6 %.

In other words: If fortunes grow because of interests – it automatically means that debts are growing somewhere else. (You needn’t be in debt to pay debts because debts are included in all prices, just as labour is included in the price calculations. Even large companies that have enough capital will “charge themselves” interests (earn these interests) in addition to what they earn as profit.)

Moreover, since fortunes do not stop growing if deposited in a bank at an interest rate – debts do not stop growing. Even if all countries pay back their debts – the banks will have to find somebody else to pay the growing debt. This can be done via consumer debts. However: consumers will be broke much faster than countries. Plus: who will pay taxes if everyone is broke? Who will buy the products if everyone is broke? (Look at the situation in Great Britain: Consumer debts are already higher that the gross national product! The U.S. is headed the same way in consumer debt – and the Iraq war sure is a problem for national debts. It is interesting that Keynes is usually made responsible for national debt – which is not untrue. However, it was Ronald Reagan, who made U.S. debt rise to astronomical heights – because of military. And Reagan was the first President not to follow Keynes ideas – but instead the monetarists ideas, as invented by Milton Friedman.)

More problems: Countries are not allowed to get loans from central banks without interests. Normally, they pay the “free market” interest rate and borrow money from private banks.

Fortunes are per se – at least in part – very unreal. It becomes visible every time one of those “bubbles” burst. This complex can lead the world financial system into a crisis, in the long run it will probably lead to a collapse.

Therefore I find it very important to consider the ideas of Major Douglas or, for example, the ideas of Silvio Gesell.

Edited January 18, 2008 by adrienne