A synopsis of Social Credit thought

[Pliny]

Well, Adrienne, it is an interesting subject.

Social Credit political philosophy is that the economy, run properly, can provide a Utopian prosperity for all. I think it neglects human nature and it's quest for understanding and challenge. Social credit would say that it's economic plan would allow time for people to engage themselves in those challenges and quests for understanding.

Does inflation consist of "issuing more tickets than there are seats"?

I don't know how many times I have told Socred to look up the definition of "inflation". It is in many dictionaries. Get an economic dictionary or even a regular dictionary of a decent size. Not just a pocket dictionary which are not too concise.

Socred tells me it is an increase in prices and cites the government website of the CPI which is simply a measure of inflation and tells me that is what inflation is. I want to know what causes a general increase in prices. The definition of inflation tells you what the cause is. I don't know what he believes the cause to be? If he thinks it is demand or increase in population or what but as far as I know an increase in the supply of money and credit is the cause of inflation and is more precisely what inflation is.

Is the cart before the horse as Socred says? Do prices increase and then there is an increase in the money supply? That doesn't explain why prices increase in the first place.

I hope this deals with the concept of inflation.

[socred]

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 %.

Hi, I'm sorry that I did not respond to your post sooner.

All money derives from the banking system.

In Canada, cash and coin are created by the Royal Canadian mint on behalf of the Bank of Canada. This money is known as "high powered money" or "reserve money" and comprises a very small portion of the money supply.

Most money is created by banks when they make loans. For instance, if someone goes to the bank for a mortgage, and the bank loans them $300,000 for their house, the bank is creating $3,000,000 new money. Money is destroyed when the principle of the loan is repaid (i.e. as the principle of the mortgage is repaid, the money is slowly destroyed). This is how money is created and destroyed. The process is known as deposit expansion.

All money is created as a debt.

Following are some links which help explain the process:

MODERN MONEY MECHANICS

Canada's Money Supply

Hope this helps.

[Pliny]

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 %.

Money does multiply in mysterious ways.

Here is how a thousand dollars mysteriously becomes ten thousand dollars.

The neat little cycle of banks to company to consumer back to company and returning to banks has some missing steps. One of them is savings. If there are no savings and the thousand dollars are entirely spent they go to another individual who will spend it again. If each time a person saves 10% then after ten revolutions it has bought ten thousand dollars worth of production. If no one ever saved it would continue to buy it's thousand dollars of production over and over until it is retired by the bank and replaced.

[socred]

Interest is bank profit.

I see you've seen the old "10 cannot pay for 11 argument". This is the same argument that socialists use when they argue against profit: interest simply being one form of profit - bank profit.

The truth is that the money to pay the interest comes from the principle of other loans. In an economy there is not one loan in existence. In reality, there are a multitude of loans all coming due at different times, and the money created from one loan can be used to pay the interest of another. When the principle of a loan is repaid, that money is cancelled out of existence; however, when the interest of a loan is paid, that money forms the bank's profit and is spent back into the economy.

[Jerry J. Fortin]

I must ask this question to you folks. In my opinion the ATB Financial network could be utilized to a far greater degree that it has, to the advantage of citizens. I would advocate that the government undertake an aggressive move that would see citizens dollars leveraged to a much greater degree. I propose that Alberta opt out of the Canada Pension Plan, and transfer the funds to a newly created Alberta Pension Plan administered by ATB. That revenue pool could then be utilized to fund Alberta Family Mortgages. These loans could be scaled to account for income and amortized to allow repayment at fixed rates over a far greater length of time. This would allow lower income families to own their own home.

The reason I advocate this action is simply because home ownership is key to wealth building for individuals. By providing the means of wealth creation for individuals I am suggesting that the government would be realizing the benefit of reduced expenditures for social programs and at the same time realize higher revenue streams through taxation, while the smaller municipal districts would also gain in their own property tax revenue streams. While making this extreme move, I would suggest that the government also make the mortgage interest payments tax deductible for provincial income taxes.

The idea with this proposal is to create a major diversification of the economy while at the same time providing incentives for risk and repaying with rewards to citizens at a minimum cost to the government. The goal is to provide conditions for development not to industry but through consumer spending. In my opinion the implementation of a tax deductible mortgage would cause a construction boom. That boom would require all sorts of products, that could hopefully be produced here and the cost of transportation of those products could be reduced. I think of all the construction products that could be made and used here with the advent of high demand, then I think of all the appliances and other assorted stuff we use in our homes. This kind of thing could fuel a long term growth curve that would not be a traditional boom, but instead something far different.

So my question is this; Could the Government of Alberta opt out of the CPP, and could the ATB be the administrator of the funds that could be used to provide an effect means of dealing with the housing crisis while improving our overall economic performance?

[socred]

I propose that Alberta opt out of the Canada Pension Plan, and transfer the funds to a newly created Alberta Pension Plan administered by ATB.

I propose that all of Canada opt out of the Canada Pension Plan, because there is absolutely no necessity for it:

"The persistence of the idea that monetary saving has a physical counterpart in physical accumulation will no doubt exercise the attention of historians of the present period." (C.H. Douglas, evidence submitted before the MacMillan Committee on Finance and Industry)

[Pliny]

I must ask this question to you folks. In my opinion the ATB Financial network could be utilized to a far greater degree that it has, to the advantage of citizens. I would advocate that the government undertake an aggressive move that would see citizens dollars leveraged to a much greater degree. I propose that Alberta opt out of the Canada Pension Plan, and transfer the funds to a newly created Alberta Pension Plan administered by ATB. That revenue pool could then be utilized to fund Alberta Family Mortgages. These loans could be scaled to account for income and amortized to allow repayment at fixed rates over a far greater length of time. This would allow lower income families to own their own home.

The reason I advocate this action is simply because home ownership is key to wealth building for individuals.

I don't entertain such ideas regarding government. What the government of today gives; the government of tomorrow will take away.

What I see wrong about this proposal from a philosophical point of view is that Government is the agency engineering society. And in doing so plays favorites, which is an abandonment of it's ability to deliver on it's primary mandate; that of justice.

It is very attractive from an ideological point of view. How is homeownership key to wealth building for individuals? It is under some circumstances, perhaps. Housing projects that were ideologically supposed to provide low-cost housing became slums in inner cities. For some this concept would be the blessing they have been looking for, I cannot deny that but they would not be the majority. The majority would attempt to capitalize on it in whatever manner they could dream up proving once again capitalism will prevail. Even under the USSR the underground market that formed was huge, probably greater than the legal distribution of goods and it failed economically not politically because they could have imposed totalitarianism for much longer than they did but the society was stagnant.

As you probably know I am not a fan of social engineering, especially at the federal level and agree with socred that Canada should opt out of the CPP not just Alberta.

[socred]

The following is a collaborative effort:

Introduction

The term Social Credit, as a formal name, originated from the writings of the British engineer and originator of the Social Credit movement, Clifford Hugh Douglas (1879-1952), who wrote a book by that name in 1924. Douglas, a civil engineer who had pursued his higher education at Cambridge University, had published previously, most notably in the British intellectual journal The New Age whose editor, Alfred Orage, became converted to Douglas’s ideas and, subsequently devoted The New Age and latterly The New English Weekly, after a ten year sojourn in the United States, to promulgation of those ideas until his death on the eve of his BBC speech on Social Credit, November 5, 1934, in the “Poverty in Plenty” Series. Douglas’s first book Economic Democracy was published in 1920, shortly after his article “The Delusion of Super-Production” appeared in 1918 in the English Review. Among Douglas’s other early works were The Control and Distribution of Production, Credit-Power and Democracy and Warning Democracy and The Monopoly of Credit. Of considerable interest is the Evidence that he presented to the Canadian House of Commons Select Committee on Banking and Commerce in 1923, to the British Parliamentary Macmillan Committee on Finance and Industry in 1930, which included exchanges with economist J. M. Keynes, and to the Agricultural Committee of the Alberta Legislature in 1934 during the term of the United Farmers of Alberta Government in that Canadian Province.

Douglas’s prolific writings spawned a worldwide movement, most prominent in the British Commonwealth but with beachheads in Europe and activities in the United States where Orage, during his sojourn there, promoted Douglas’s ideas. In the United States, the New Democracy group was headed by the American author Gorham Munson who contributed a major book on Social Credit titled Aladdin’s Lamp: The Wealth of the American People (New York: Creative Age Press, 1945.). While Canada and New Zealand had electoral successes with “Social Credit” political parties, the movement in England and Australia was primarily devoted to pressuring existing parties to implement Social Credit: this function was performed especially by Douglas’s Social Credit Secretariat in England and the Commonwealth Leagues of Rights especially in Australia. Douglas continued writing and contributing to the Secretariat’s journals, initially Social Credit and shortly thereafter The Social Crediter (which continues to be published by the Secretariat) for the remainder of his lifetime, concentrating more on political and philosophical issues in his later years.

Political History

In the early years of the movement in the UK there was strong pressure from trade unionists for the Labour Party to consider adopting ‘social credit’ ideals and policies. The Labour leadership proved hostile, however, essentially because its doctrines of Fabian socialism, with its hierarchical view of state-socialism, economic growth and full employment, were incompatible with such ideas as National Dividends and an end to wage/salary slavery. Certain British Labour economists expended considerable effort in an effort to discredit Social Credit. One of the leading Fabians is said to have declared that they didn’t care whether Douglas was technically correct or not—they simply did not like his policy!

In 1935 the first “Social Credit” government was elected in Alberta, Canada under the leadership of William Aberhart. “Bible Bill”, as he was also known, was a high school mathematics teacher and radio evangelist who was given a book on Social Credit, titled The Meaning of Social Credit, written by the English author and actor Maurice Colborne, and decided Douglas’s theories were exactly what Alberta needed to escape the depression. Douglas, having counseled the previous United Farmers of Alberta Provincial Government was sought as an advisor to Aberhart, but withdrew shortly after due to disagreements, or misunderstandings, in policy and strategy. Under the pressures of dealing with the extreme conditions of the Great Depression and being unable to understand Douglas’s advice Aberhart sought the assistance of a representative of orthodox finance to put the Provinces finances in order. The difficult and strained correspondece between Aberhart and Douglas was published by Douglas in his book The Alberta Experiment (London: Eyre and Spottiswoode, 1937).

The Premier wanted to balance the provincial budget, and Douglas stated that the concept of a balanced budget was completely inconsistent with the use of Social Credit, because of the arithmetic impossibility, under the existing rules of financial cost accountancy, of balancing all budgets within an economy simultaneously. (“The Fallacy of a Balanced Budget,” The New English Weekly, July 28, 1932, pp. 346-7) In a letter to Aberhart, Douglas stated, "This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit [i.e., Real Credit—the ability to deliver goods and services “as, when and where required”] in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create an issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."

Two other expert Social Credit technical advisors, L. Denis Byrne and George F. Powell, were sent from the United Kingdom by Douglas, but all attempts to pass Social Credit legislation were ruled ultra vires by the Supreme Court of Canada and Privy Council in London. In desperation, William Aberhart attempted to implement the monetary theories of Silvio Gesell by issuing a form of scrip known as "prosperity certificates", which depreciated in value the longer they were held. Douglas, however, was not impressed by Gesell's theories and openly criticized them. "Gesell's theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster. Disappearing money is the heaviest form of continuous taxation ever devised. The theory behind this idea of Gesell's was that what is required is to stimulate trade - that you have to get people frantically buying goods - a perfectly sound idea so long as the objective of life is merely trading." (" The Approach To Reality")

The Alberta Social Credit Party, under Ernest Manning who succeeded Aberhart after his untimely death, slowly departed from its roots and became popularly identified as a right wing populist movement. Meanwhile, Douglas published in the Secretariat’s journal “An Act for the Better Management of the Credit of Alberta” (The Social Crediter, February 8, 1947). Subsequently, in the same journal, he wrote a critical analysis of what went wrong with Social Credit in Alberta (“Social Credit in Alberta”, August 28/September 4-11, 1948) in which he said, “The Manning administration is no more a Social Credit administration than the British government is Labor”. Social Credit also formed governments in British Columbia, Canada, but again the party had little in common with Douglas and his theories. Social Credit Parties also enjoyed some national electoral successes in Canada, with support from Western Canada and more notably from Quebec. Social Credit parties also had some electoral successes in New Zealand.

Political Theory

Douglas opposed the formation of Social Credit Parties, because he felt that a group of elected amateurs should never direct a group of competent experts in technical matters. ( “The Approach to Reality,” Address at Westminster, March 7, 1936.) The goal of politicians should be to pressure the experts to get the policy results desired by the populace, but the experts are ultimately responsible for achieving those results. “The proper function of Parliament, I may perhaps be allowed to repeat, is to force all activities of a public nature to be carried on so that the individuals who comprise the public may derive the maximum benefit from them. Once the idea is grasped, the criminal absurdity of the party system becomes evident.” ("The Tragedy of Human Effort,” Address at Central Hall, Liverpool, October 30, 1936.) Therefore, Social Credit supported by effective public demand could be implemented by any political party, and once implemented, achieving a realistic integration of means and ends, party politics would cease to exist. Douglas defined democracy as the “will of the people”, not rule by the majority. It is the right of the individual to choose freely one thing at a time, and to contract out of unsatisfactory associations. Traditional ballot-box democracy is incompatible with Social Credit, and Douglas advocated what he called the “responsible vote”, where anonymity in the voting process no longer existed. "The individual voter must be made individually responsible, not collectively taxable, for his vote." ("Realistic Consitutionalism")

The establishment of the supremacy of common law is essential to ensuring the rights of individuals are protected from an all powerful parliament. Douglas believed that the constitution was an organism, not an organization. He also believed that the effectiveness of the British government was structurally determined by its application of the Christian concept known as Trinitarianism. "In some form or other, sovereignty in the British Isles for the last two thousand years has been Trinitarian. Whether we look on this Trinitarianism under the names of King, Lords and Commons or as Policy, Sanctions and Administration, the Trinity-in-Unity has existed, and our national success has been greatest when the balance (never perfect) has been approached. ("Realistic Constitutionalism")

Economic Theory

Douglas disagreed with classical economists such as Adam Smith and David Ricardo who divided the factors of production into land, labour and capital. He also disagreed with Marx who claimed that labour created all wealth. Douglas believed the “cultural inheritance of society” was the primary factor in production. Our cultural inheritance is defined as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization. Consequently, we do not have to keep “reinventing the wheel”. “We are merely the administrators of that cultural inheritance, and to that extent the cultural inheritance is the property of all of us, without exception.” (“The Monopolistic Idea,” Address at the Melbourne Town Hall, Australia, January 22, 1934.)

Douglas also criticized classical economics because it was based upon a barter economy; whereas, the modern economy is a monetary one. To the orthodox economist, money is a medium of exchange. This may have once been the case when the majority of wealth was produced by individuals who exchanged it with each other, but in the modern economy, where production is split up into multiple processes, wealth is produced by people working in association with each other. For instance, any automobile worker does not produce any wealth by himself ; the wealth that is produced (i.e., the automobile) is only produced in conjunction with other auto workers, the producers of roads, gasoline, insurance etc. Therefore, wealth is a pool upon which people can draw, and the efficiency gained by individuals co-operating in the productive process in known as the “unearned increment of association”—historic accumulations of which constitute what Douglas called the Cultural Heritage. The means of drawing upon this pool are the tickets distributed by the banking system.

Money originally came from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word “pecuniary” comes from the Latin “pecus,” meaning cattle. Today, the productive system and the distributive/monetary system are two separate entities. Douglas was one of the first to understand that loans create deposits, and he gave a short mathematical proof of this in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank makes a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin “credere”, meaning to believe. “The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it.” (C.H. Douglas, “Engineering, Money and Prices,” Paper read at the Institution of Mechanical Engineers, April 22, 1927, reprinted in Warning Democracy, 1935, p. 15)

Money should not be regarded as a commodity but rather as a ticket, a means of distribution of production (“The Use of Money,” Address in St. James’ Theatre, Christchurch, New Zealand, February 13, 1934, p. 11, 13.) “There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself--the money which forms the thing we call ‘effective demand’—and there is something we call a price opposite to it.” (“The Use of Money,” op cit., p. 15) Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization money should become increasingly an instrument of distribution.

Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. Douglas criticized the banking system on two counts: 1) for being a form of government which has been centralizing its power for centuries, and 2) for claiming ownership to the money they create. The latter he claimed was equivalent to claiming ownership of the nation. (“Dictatorship by Taxation,” An Address delivered in the Ulster Hall, Belfast, November 24, 1936.) Money, Douglas claimed, was merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when, and where they are required.

The first article to appear in the New Age, edited by A.R. Orage, titled “A Mechanical View of Economics” appeared in January, 1919. In this article, we get a glimpse of Douglas’s concerns in regards to the methods by which economic activity is measured when he says, “It is not the purpose of this short article to depreciate the services of accountants; in fact, under the existing conditions probably no body of men has done more to crystallize the data on which we carry on the business of the world; but the utter confusion of thought which has undoubtedly arisen from the calm assumption of the book-keeper and the accountant that he and he alone was in a position to assign positive or negative values to the quantities represented by his figures is one of the outstanding curiosities of the industrial system; and the attempt to mold the activities of a great empire on such a basis is surely the final condemnation of an out-worn method."

Just over a year later, in his book Credit-Power and Democracy (1920), we see Douglas's critique of accounting methodology as it pertains to income and prices in his famous “A+B theorem”. This was not a theory but a theorem. Quoting from the fourth, Australian Edition of 1933:

"A factory or other productive organization has, besides its economic function as a producer of goods, a financial aspect—it may be regarded on the one hand as a device for the distribution of purchasing-power to individuals through the media of wages, salaries, and dividends; and on the other hand as a manufactory of prices—financial values. From this standpoint its payments may be divided into two groups:

Group A - All payments made to individuals (wages, salaries, and dividends).

Group B - All payments made to other organizations (raw materials, bank charges, and other external costs).

Now the rate of flow of purchasing-power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A+B. The product of any factory may be considered as something which the public ought to be able to buy, although in many cases it is an intermediate product of no use to individuals but only to a subsequent manufacture; but since A will not purchase A+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. It will be necessary at a later stage to show that this additional purchasing power is provided by loan credit (bank overdrafts) or export credit.”. (C.H. Douglas, Credit-Power and Democracy, Aust. Edition, 1933, pp. 22-23)

The theorem itself demonstrates that total prices rise faster than total incomes when regarded as a flow. Douglas proposed to eliminate this problem by giving “debt-free” credits to consumers in the form of a price rebate and a dividend, called formally a Compensated Price and a National (or Consumer) Dividend. A National Credit Office would be charged with the task of calculating the size of the rebate and dividend by determining a national balance sheet, and keeping track of aggregate production and consumption statistics. The price rebate is based upon the observation that the real cost of production is the mean rate of consumption over the mean rate of production for an equivalent period of time. The physical cost of producing something is the materials and capital that were consumed in its production, plus that amount of Labor consumed during its production. This total consumption represents the physical cost of production. Since less inputs are consumed to produce a unit of output as technology advances, and total production increases relative to total consumption over time, the real cost of production is falling over time; hence, prices should be falling with the progression of time.

The price rebate (Compensated Price) is designed to realize this fact. The Dividend is based upon the fact that Labor is being displaced in the productive process due to increases in productivity. Since Labor is being replaced in the productive process, people should be free to consume while enjoying an increasing amount of leisure as machines displace them. The Dividend would give people this freedom. Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas Credit Power and Democracy, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the Phillips Curve), unless prices are reduced from debt- free monies that do not derive from the productive system.

The cause of these “B” payments, or overhead charges, is described by Douglas in his pamphlet entitled, "The New and The Old Economics" when he says, “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.” The cyclic rate of circulation of money measures the amount of time that it takes for a loan to go through the productive system and to come back to the bank. This can be calculated by determining the amount of clearings through the bank in a year divided by the average amount of deposits held at the banks (which varies very little). This number will give you the amount of times money must turnover in order to produce these clearing house figures. Douglas estimated the cyclic rate of circulation of money to be approximately three weeks. As Douglas said in his testimony before the Alberta Agricultural Committee of the Alberta Legislature in 1934, “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.” (p. 90)

We see the major consequence of the problem that Douglas identified is exponentially increasing debt. Other less noticeable consequences are that society is either forced to engage in production that the consumer does not want, or production he cannot purchase. The latter represents a “favorable balance of trade”, meaning a country exports more than it imports. The former represents excessive capital production and/or military buildup. The problem with pursuing a favorable balance of trade is that not every country can pursue this objective at the same time, since it is necessary for a country to import more than it exports if another exports more than it imports. The long-term consequence of this policy is a trade war, ultimately resulting in real war. Hence, the Social Credit admonition, as expressed by the Social Credit Party of Great Britain and Northern Ireland, led by John Hargrave, that “He who calls for Full-Employment calls for War!” Excessive capital production is only a temporary fix because the cost of the capital ultimately shows up in the cost of consumer goods, or taxes, which only goes to further exacerbate the gap between income and prices at a later date. Military buildup necessitates either it’s use, or stockpiling of weapons leading to inventory accumulation.

Philosophy

Douglas warned against viewing Social Credit solely as a scheme of monetary reform. He described Social Credit as a policy of a philosophy. He coined this philosophy “practical Christianity.” Douglas believed there was a Canon which ran through the universe, and Jesus Christ was the Incarnation of this Canon. However, he also felt that Christianity remained ineffective so long as it remained transcendental. Religion, which derives from the Latin word relegare, meaning to “bind back”, was supposed to be a binding back to reality. Christianity was only effective to the extent that it was rooted in existence. Although Douglas defined Social Credit as a philosophy with Christian roots, he did not envision a Christian theocracy. Social Credit society recognizes the fact that the relationship between man and God is unique. Therefore, it is essential to allow man the greatest possible freedom in order to pursue this relationship. If people are given the economic security and leisure achievable in the context of a Social Credit dispensation, most would end their service to mammon and use their free time pursuing spiritual, intellectual, or cultural goals leading to self-development. Douglas did not believe that religion should be thrust upon anyone through force of law or external compulsion. He emphasized that all policy derives from its respective philosophy and that “. . . Society is primarily metaphysical, and must have regard to the organic relationships of its prototype.”

Douglas said that Social Crediters wants to build a new civilization based upon absolute economic security for the individual—where “. . . they shall sit every man [individual] under his [her] vine and under his [her] fig tree; and none shall make them afraid.” (Micah iv, 4 quoted on the cover of the Douglas Quarterly Review, The Fig Tree, New Series. 1954-55.) In keeping with this goal, Douglas was opposed to all forms of taxation on real property. This set Social Credit at variance from the land-taxing recommendations of the Henry George School.

Douglas opposed what he termed “the pyramid of power.” Totalitarianism reflects this pyramid and is the antithesis of Social Credit. It turns the government into an end instead of a means, and the individual into a means instead of an end—Demon est deus inversus—“the devil is God upside down.” Social Credit is designed to give the individual the maximum freedom allowable given the need for association in economic, political and social matters. Liberty in politics is dependent on the metaphysical concept of free will, for what use is the purpose of liberty if man is not free to choose? Social Credit rejects dialectical materialistic philosophy. Douglas divided philosophy into two schools of thought that he labeled the "classical school" and the "modern school", which are broadly represented by philosophies of Aristotle and Bacon respectively. Douglas was critical of both schools of thought, but believed that "the truth lies in appreciation of the fact that neither conception is useful without the other". (C.H. Douglas: Social Credit. ISBN 0-087968-107-1, p. 6) Social Credit philosophy is best summed by Douglas when he said, “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.” (Economic Democracy, Fourth Revised and. Enlarged Edition, 1934, p 18.)

Critics to A+B and Rebuttal

Critics to the theorem argue there is no difference between A and B payments, and Social Credit policies are inflationary. These criticisms are based upon the quantity theory of money, which states that the quantity of money multiplied by its velocity of circulation equals total purchasing power. Following is a brief explanation of the quantity theory of money:

"MV=PQ:

where

M=quantity of money in the hands of the public

P=average level of prices

Q=quantity of output (that is real national product or real national income).

Thus, PQ = national product, measured in nominal (dollar) terms

And V = income velocity of money, that is, the average number of times that the money stock (M) is spent to buy final output during a year. Specifically, V is defined as being equal to PQ/M

Suppose that the money stock is $20 billion. Assume that, in the course of a year, the average dollar bill and the average chequing deposit are spent twelve times to purchase final goods and services. In other words, V is 12. Then, total spending for final output is $20 billion times 12, or $240 billion. In turn, this total spending (MV) equals the total quantity of goods and services (Q) times the average price (P) at which they were sold.

But how can the same dollar be used over and over to purchase final goods? Very simply. When you purchase groceries at the store, the $50 you pay does not disappear. Rather, it goes into the cash register of the store. From there, it is used to pay the farmer for fresh vegetables, the canning factory for canned goods, or the clerk's wages. The farmer or the clerk or the employee of the canning factory will in turn use the money to purchase goods. Once more, the same money is used for final purchases. The same dollar bill can circulate round and round." (Blomqvist, Wonnacott and Wonnacott, "Economics First Canadian Edition" ISBN: 0-07-54815-X: p. 247-248)

Douglas wrote in a committee report to the Alberta government in regards to the quantity theory of money: “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" Because all money is created as a debt that needs to be repaid, money does not circulate, but instead operates in an accounting cycle. If a retailer receives money from a customer for its product, the total sum of this money is neither profit, nor income. A retailer has debts to repay, or it must replace working capital. These sums are subtracted from revenues when determining profits. Neither is the profit entirely income; taxes must be paid, and a portion may be re-invested back into the business. Therefore, of the money received from the customer, the retailer may find that only a very small percentage is actually distributed as income that can then be spent on goods or services, the rest is either used to repay debts, replace working capital, or re-invested back into the firm. The fallacy is that the same dollar bill can "circulate round and round"; in reality, money is created as a debt that needs to be repaid. Every loan creates a deposit, and every repayment of a loan destroys a deposit. Therefore; money does not "circulate round and round" but is created and destroyed through the creation of loans and their repayment.

Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale.

Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee when he said, "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." (p. 90)

Incomes are paid out to workers during a multi-stage program of production, and according to the convention of accepted orthodox rules of accountancy, said incomes, are part of the financial cost and price of the final product when it is ready for use at the point of retail sale. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. In the real world earned incomes are largely, and necessarily, spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future –goods which must include the sum of incomes paid out during their period of manufacture in their price . Because the cyclic rate of circulation of money takes less time than the cancellation of the costs that the money created, orthodox economics can only allow access to the final products of industry by the mechanism of increasing consumer debt that constitutes a mortgage against future incomes. This does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, supply does not create enough demand to liquidate all the costs of production: Social Credit denies the validity of "Says Law" in economics.

Literary Figures in Social Credit

As lack of finance has been a constant impediment to the development of the arts and literature, the concept of economic democracy through Social Credit had immediate appeal in literary circles. Names associated with Social Credit include Charlie Chaplin, William Carlos Williams, Ezra Pound, T.S. Eliot, Herbert Read, Aldous Huxley, Storm Jameson, Eimar O’Duffy, Sybil Thorndyke, Bonamy DobrÈe and the American publisher James Laughlin . In 1933 Eimar O’Duffy published Asses in Clover, a science fiction fantasy exploration of social credit themes. His social credit economics book Life and Money: Being a Critical Examination of the Principles and Practice of Orthodox Economics with A Practical Scheme to End the Muddle it has made of our Civilisation, was endorsed by Douglas.

Summary

In Social Credit terminology, the words “Economic Democracy” do not mean worker control of industry. They mean conditions of consumer sovereignty wherein the consumer establishes the policy of production through exercise of his money-vote, fully provided with adequate purchasing power. The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. Each citizen is to have a beneficial, not direct, inheritance in the communal capital—conferred by complete and dynamic access to the fruits of industry assured by the National Dividend and Compensated Price.Social Credit is distributive and its policy is to disperse power to individuals. “The only safe place for power is in many hands.”

[jbg]

Is this the second, or third time you've run this thread?

[socred]

Is this the second, or third time you've run this thread?

1st, I just wrote that in collaboration with someone else.

[jbg]

1st, I just wrote that in collaboration with someone else.

I thought it resembled this thread (link).

[socred]

I thought it resembled this thread (link).

That is a thread specifically about Douglas's A+B theorem and monetary reform. This thread is a brief synopsis of Social Credit from Douglas's writings, to the political history, to political theory, economic theory, critics to the A+B theorem and the Social Credit rebuttal, literary figures in Social Credit and philosophy. This is a much more broad description of Social Credit than the topic you link.

[Charles Anthony]

Both of those threads have been merged.

[socred]

Both of those threads have been merged.

These threads haven't been merged, the other was deleted.

Why was it deleted?

[Charles Anthony]

These threads haven't been merged, the other was deleted.

You are mistaken.

[Pliny]

Would you like a critique on your synopsis?

Although I appreciate what Douglas is attempting to achieve with his political and social philosophy I don't find it's promises dissimilar to what was promised by the men who propounded the Federal Reserve System in the United States and snuck the act through in 1913. The promise then, as is Douglas's, was to bring economic prosperity to all.

Douglas does point out a few of the flaws of the Central Bank system that were incorporated into it from previous bad banking practices. Those practices were not eliminated as they should have been but the Central bank plan thought it could now resolve any of the problems those flawed procedures could or would create. They now had the ability to print whatever "money"was necessary to the resolution of those problems. Of course, printing whatever was needed created other problems and didn't bring economic prosperity. One thing it did for government was made going to war a lot easier - of course, all the wars were necessary.

One thing I see missing from your synopsis of Douglas's philosophy is a solution to how poor business decisions which lead to the production of unwanted consumables or lack of demand for it's products or services and how making those poor decisions are culled from the GDP. Governments under the central banking system tend to prop up these failures, banks themselves being the biggest whiners when things don't go their way. There are many things that are supported by government today that on their own would never be supported by public demand in their current state, the health care system being a prime example.

The whole economic premise of Douglas is that there is not enough "tickets" to purchase the total production of a nation. If I am not mistaken, his solution seems to be to furnish enough "tickets" to clear the production and that is done in the form of a national dividend. Of course, I see how you conceive those "tickets", which are a form of "money" to not be thought of as a commodity. That is a mistake. Anything you can trade is a commodity and if someone is short on "tickets" he will, perhaps out of expediency, trade something for them. Probably at a lesser value than he otherwise would have.

Basically, because of the nature of life, it's cycle of birth and death, the replacement of new for old, our limited knowledge, our search for adventure, our willingness to take risk, our quest for comfort, our need for challenge in our lives, and for many other reasons an idyllic economic paradise is collectively unachievable and I might add undesirable. It is only approachable from an individual point of view and even then is personal. It would be even undesirable except as one approaches death and no longer wishes to be faced with the challenges and vagaries of life. There must always be something to achieve or fight for, when there isn't there is no necessity for life.

I see the ideals of Douglas worthy but I think the philosophy has built in failures to ensure that the ideal will never be achieved. The perfect society will exist only when death itself has been conquered. Do we want this as a goal of our species? It is ok to dream about but living forever will grow tiresome. Perfection, as much as we like to portray it in our lives, is never the reality.

[socred]

Would you like a critique on your synopsis?

I'm not sure if you're referring to the synopsis, or the article on A+B which starts the thread. Unfortunately, the thread itself has be "edited" by the management of this community. The name has been changed (the original article is not a synopsis of Social Credit but merely a brief discussion of the A+B theorem, and another seperate thread which was started which is a synopsis, has merely been placed as a post in this thread). So I must ask first off, are you referring to the first post in this thread, or are you referring to post # 58 which is actually the synopsis of Social Credit? I'm certainly interested in anyone's opinion.

Although I appreciate what Douglas is attempting to achieve with his political and social philosophy I don't find it's promises dissimilar to what was promised by the men who propounded the Federal Reserve System in the United States and snuck the act through in 1913. The promise then, as is Douglas's, was to bring economic prosperity to all.

The methods are very dissimilar, so I'm not sure the analogy is correct.

Douglas does point out a few of the flaws of the Central Bank system that were incorporated into it from previous bad banking practices. Those practices were not eliminated as they should have been but the Central bank plan thought it could now resolve any of the problems those flawed procedures could or would create. They now had the ability to print whatever "money"was necessary to the resolution of those problems. Of course, printing whatever was needed created other problems and didn't bring economic prosperity. One thing it did for government was made going to war a lot easier - of course, all the wars were necessary.

One of the consequences of the accounting flaw discovered in his A+B theorem is war. This is because there is never sufficient incomes disbursed by companies to allow individuals to purchase what they have already produced. There are several policies enacted by governments and banks to alleviate this problem: excess capital development, a favorable balance of trade, and military expenditure through the use of deficit financing. The latter two policies tend to lead to war, since all countries cannot obtain a favorable balance of trade simultaneously (resulting in a trade war, which ultimately can result in real war), and military expenditure (including expenditure on the building of armaments) leads to massive inventory accumulations unless they are used. If the armaments begin to pile up, the government has a much harder task of convincing the public of the necessity of further purchases.

The reason these policies are pursued is that they distribute income without increasing the amount of consumer goods on the market. People do not consume capital (although capital will eventually become a consumer good, but this is delayed through time), a favorable balance of trade means that the country is disposing of excess production, and people do not consume armaments. However; capital goods do eventually become consumer goods, and the cost of the capital eventually shows up in the cost of consumer goods, a favorable balance of trade cannot be pursued by all countries simulataneously and deficit financing eventually has to be recovered in increased taxes. These policies are "bandaid" solutions and unsustainable. The only sustainable solution is the policy recommendations of Douglas.

One thing I see missing from your synopsis of Douglas's philosophy is a solution to how poor business decisions which lead to the production of unwanted consumables or lack of demand for it's products or services and how making those poor decisions are culled from the GDP.

Poor business decisions would lead to increased prices, or poorer quality products, and people would tend not to buy those products. If firms were unable to recoup their costs of production through prices, they would go out of business. The policy recommendations by Douglas were "macroeconomic" not "microeconomic". People would decide what they wanted. I will quote from the summary section of the synopsis:

"The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. "

Governments under the central banking system tend to prop up these failures, banks themselves being the biggest whiners when things don't go their way. There are many things that are supported by government today that on their own would never be supported by public demand in their current state, the health care system being a prime example.

The whole structure of the current banking system is unstable. This is because the ability of commercial banks to create money is dependent on their reserves. The banking system is based upon the amount of reserves the central bank creates. It is a "pyramid" scheme, and inherently unstable. In a Social Credit system, money would be based upon the assets of the nation. Douglas proposed a hypothetical balance sheet for Great Britain which is reproduced below:

"Great Britain Limited

Assets:

(Population. Education Morale) i.e. Human potential

Policy

Organization

Natural Resources

Developed Power

Plant (Railways, Buildings, Tools, etc.)

Public Services

Goodwill (Tradition, reputation etc.)

Work in Progress

Consumable Goods

Liabilities:

National Debt

Bankers (Potential creators of effective demand)

Insurance Companies (Mortgage and Bondholders)

Cash at Call

Taxation for Public Services"

The whole economic premise of Douglas is that there is not enough "tickets" to purchase the total production of a nation. If I am not mistaken, his solution seems to be to furnish enough "tickets" to clear the production and that is done in the form of a national dividend.

A dividend and a price rebate.

Of course, I see how you conceive those "tickets", which are a form of "money" to not be thought of as a commodity. That is a mistake. Anything you can trade is a commodity and if someone is short on "tickets" he will, perhaps out of expediency, trade something for them. Probably at a lesser value than he otherwise would have.

Money does not have intrinsic value (unless you're a collector). Therefore, money is not a commodity. Money is a means of distribution of production. Money's value, with the minute exception noted above, is solely dependent on the goods and services which it can command. What people value is goods and services. If there were no goods and services, money would cease to have value. You cannot eat money, you cannot live in money - money is a means to an end.

Basically, because of the nature of life, it's cycle of birth and death, the replacement of new for old, our limited knowledge, our search for adventure, our willingness to take risk, our quest for comfort, our need for challenge in our lives, and for many other reasons an idyllic economic paradise is collectively unachievable and I might add undesirable. It is only approachable from an individual point of view and even then is personal. It would be even undesirable except as one approaches death and no longer wishes to be faced with the challenges and vagaries of life. There must always be something to achieve or fight for, when there isn't there is no necessity for life.

Social Credit is not a form of idealism. What people choose to do with their new found freedom is up to them. If people choose to use their time for evil purposes, that is what will be the outcome. However; it is my belief that people do many of the evil things they do out of fear of economic security. In a Social Credit system, we would gain the economic security which advances in technology has provided. The economics of scarcity no longer apply to the modern economy. We live in a world of abundance. Firms don't go out of business because they don't have any stock on the shelves: they go out of business because they have too much stock on the shelves. The banking system has created an artificial scarcity by making money "scarce", and leading us to believe that money is "scarce". The only thing that is not scarce is money. Most money is simply a number in a bank account. This would be like saying numbers are "scarce". Labour can be scarce, raw materials can be scarce, equipment and plant can be scarce, but money is never scarce. This artificial scarcity imposed upon us is to keep us in fear. Fear leads people to do evil things.

Isee the ideals of Douglas worthy but I think the philosophy has built in failures to ensure that the ideal will never be achieved. The perfect society will exist only when death itself has been conquered.

Social Credit is not a "perfect society". Men will always be men, with all their imperfections. Social Credit merely gives men the freedom to be men, and it is my belief, and Douglas's belief as well, that man is generally good, and given the freedom to be good, good things will accrue. That does not mean that there aren't bad men, but that will never change.

Edited March 7, 2008 by socred

[Pliny]

I'm not sure if you're referring to the synopsis, or the article on A+B which starts the thread. Unfortunately, the thread itself has be "edited" by the management of this community. The name has been changed (the original article is not a synopsis of Social Credit but merely a brief discussion of the A+B theorem, and another seperate thread which was started which is a synopsis, has merely been placed as a post in this thread). So I must ask first off, are you referring to the first post in this thread, or are you referring to post # 58 which is actually the synopsis of Social Credit? I'm certainly interested in anyone's opinion.

Well, you are upset with the moderator for combining your threads so I assume the opening paragraph is addressed to him rather than myself.

The methods are very dissimilar, so I'm not sure the analogy is correct.

I find a few fundamental similarities. One - poverty is a result of not enough "money" available to consumers and the remedy is to make more "money" available. Two - money, currency, tickets, tokens, credits, etc., are all the same thing. And three - a central authority controls the supply of money - granted you think there are natural controls and parameters that must be observed regarding the amount of "Tickets" that can issued but the Central banking system also has rules, and they are often overridden by some expediency, I see no reason to believe some natural emergency or threat would not be resolved in the same manner as they would under the central banking system; meaning printing more "tickets' for government or allowing them to to run a deficit.

Where Social credit diverges is in eliminating fractional reserve banking. This is the banking practice that caused most bank failures prior to the Federal Reserve (Central Banking) System. Rather than eliminate this poor practice, which would have made the banking business a less attractive entrepreneurial venture, the central banking system propped it up and covered the losses a bank would have been subject to if there were a run on the bank. There was basically no need for there to be a run on any member bank. In my view, it basically made the banking system a cartel.

One of the consequences of the accounting flaw discovered in his A+B theorem is war. This is because there is never sufficient incomes disbursed by companies to allow individuals to purchase what they have already produced. There are several policies enacted by governments and banks to alleviate this problem: excess capital development, a favorable balance of trade, and military expenditure through the use of deficit financing. The latter two policies tend to lead to war, since all countries cannot obtain a favorable balance of trade simultaneously (resulting in a trade war, which ultimately can result in real war), and military expenditure (including expenditure on the building of armaments) leads to massive inventory accumulations unless they are used. If the armaments begin to pile up, the government has a much harder task of convincing the public of the necessity of further purchases.

Although economic reasons are often given as the cause of war they rarely are. A trade war is about protecting national economic interests with taxes and tariffs. They are protectionist and usually unfair. In the long run they fail to accomplish what they are intended to accomplish. If they result in an actual declaration of war between two nations or even a civil war it is not the fault of economics. It is the fault of government favour and privilege which it then proceeds to enforce. So you are correct but the fault of war is in the protectionist policies not in the fact there is "insufficient income disbursed to clear production" Insufficient income will result in a self-adjustment of the market towards lower prices.

Under Social credit any "savings" a person managed or cared to make would be seen as a decrease in incomes as those savings mean some production would not be cleared. There would be no incentives to save. Next you will say that there is an expiry to the "tickets" which acts as a further deterrent to saving. How will anyone get together a down payment for a house or save and pay cash for big ticket items. The answer is they won't. It makes no sense to save under your system. And it makes no sense in the long run to save under the current economic system.

Poor business decisions would lead to increased prices, or poorer quality products, and people would tend not to buy those products. If firms were unable to recoup their costs of production through prices, they would go out of business. The policy recommendations by Douglas were "macroeconomic" not "microeconomic". People would decide what they wanted. I will quote from the summary section of the synopsis:

Whether poor business decisions, high prices, or poor quality, they are still "production" and it is "production" that must be cleared. Or is it only good production that must be cleared?

"The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. "

An "aristocracy of producers" sounds eerily like the banking and governmental institutions currently extant.

The whole structure of the current banking system is unstable. This is because the ability of commercial banks to create money is dependent on their reserves. The banking system is based upon the amount of reserves the central bank creates. It is a "pyramid" scheme, and inherently unstable. In a Social Credit system, money would be based upon the assets of the nation.

I agree that the structure of the current banking system is unstable.

I fail to see how money can be based upon the assets of the nation when the value of assets and the value of money are entirely subjective. Most people will not part with any amount of money for an asset they neither need nor want.

Money does not have intrinsic value (unless you're a collector). Therefore, money is not a commodity.

Well we would have to clearly define "money". Is there a difference between money and currency?

Money is a means of distribution of production. Money's value, with the minute exception noted above, is solely dependent on the goods and services which it can command. What people value is goods and services. If there were no goods and services, money would cease to have value. You cannot eat money, you cannot live in money - money is a means to an end.

Well, not a means exactly, it is a facilitator. You are correct that people value goods and services. They value them to the degree they will trade their money for them. If they will not trade their money they do not value those goods and services at all. If they will trade their money then the amount they are willing to part with is a measure of the value of the goods and services to them. If there were no goods and services, there would be no need for trade, and money would not cease to have value, it would not exist at all.

Social Credit is not a form of idealism. What people choose to do with their new found freedom is up to them. If people choose to use their time for evil purposes, that is what will be the outcome. However; it is my belief that people do many of the evil things they do out of fear of economic security. In a Social Credit system, we would gain the economic security which advances in technology has provided. The economics of scarcity no longer apply to the modern economy. We live in a world of abundance. Firms don't go out of business because they don't have any stock on the shelves: they go out of business because they have too much stock on the shelves. The banking system has created an artificial scarcity by making money "scarce", and leading us to believe that money is "scarce". The only thing that is not scarce is money. Most money is simply a number in a bank account. This would be like saying numbers are "scarce". Labour can be scarce, raw materials can be scarce, equipment and plant can be scarce, but money is never scarce. This artificial scarcity imposed upon us is to keep us in fear. Fear leads people to do evil things.

Social Credit is not a "perfect society". Men will always be men, with all their imperfections. Social Credit merely gives men the freedom to be men, and it is my belief, and Douglas's belief as well, that man is generally good, and given the freedom to be good, good things will accrue. That does not mean that there aren't bad men, but that will never change.

Making money unscarce does not create prosperity, what creates prosperity is economic freedom. It is my belief that man is generally good as well.

[socred]

Well, you are upset with the moderator for combining your threads so I assume the opening paragraph is addressed to him rather than myself.

Both. I'm wondering if you think the original post is a synopsis, or if you're referring to post #54, which is actually a synopsis of Social Credit thought. The original post is a discussion on Douglas's A+B theorem, which is but a small part of Social Credit.

One - poverty is a result of not enough "money" available to consumers and the remedy is to make more "money" available.

The consumer never has enough income to buy all of production. There may be periods of time where he has enough income to purchase all the consumer goods coming onto the market (these periods exist during times of heavy investment in capital goods), but eventually the cost of the capital will make its way into the cost of consumer goods, so the effect is only delayed.

Two - money, currency, tickets, tokens, credits, etc., are all the same thing.

The definition of money that Social Crediters use is the same that Professor Walker used:

"money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product."

And three - a central authority controls the supply of money

Social Crediters do not believe a central authority should control the money supply. Individual producers and consumers should control the money supply. The amount of money made available would be completely dependent on individuals production and consumption habits. Centralization of authority is the antithesis of Social Credit ideology. An independent arm of the government would be given the task of creating a national balance sheet, and calculating production and consumption habit, and this in turn would determine the size of the price rebate and dividend, but the process itself would be an accounting function, not a political one.

I see no reason to believe some natural emergency or threat would not be resolved in the same manner as they would under the central banking system; meaning printing more "tickets' for government or allowing them to to run a deficit.

The necessity for government programs would wane under a Social Credit system. Many of the programs are designed for wealth distribution, and this would not be necessary once individuals were given sufficient purchasing power. Secondly, the biggest contributor to government taxation would be eliminated - the government debt.

Where Social credit diverges is in eliminating fractional reserve banking.

Social Credit does not seek to eliminate fractional reserve banking. Commerical banks would still be able create money as they do now. This is the best system available for ensuring risks are taken and new investment unfolds. The Social Credit system merely "augments" the current system. If one were to eliminate fractional reserve banking by forcing banks to hold 100% reserves, banking would cease to exist.

Insufficient income will result in a self-adjustment of the market towards lower prices.

This is the fallacy of the "law of supply and demand". Below the cost of production, firms simply stop producing, because they have no ability to change their fixed costs. These costs are "capitalized". If firms find that consumers don't have enough money to buy their goods, they initially try to lower their variable costs, which is mostly labour, by laying off workers, then they simply stop producing. This is what happens in every recession.

Economists could have saved themselves alot of headaches if they had asked an accountant how costs are determined instead of inventing their own ideas based on the theory of "maginalism" which no firm in reality ever uses.

Under Social credit any "savings" a person managed or cared to make would be seen as a decrease in incomes as those savings mean some production would not be cleared. There would be no incentives to save.

People would be allowed to save in a Social Credit society, but there would be less "incentive", because the artificial fear of scarcity would be removed.

To quote Douglas:

"The persistence of the idea that monetary saving has a physical counterpart in physical accumulation will no doubt exercise the attention of historians of the present period. Since money is normally distributable only through the agency of wages, salaries and dividends, it being assumed that the interest on Government loans is provided by taxation, the whole of these wages, salaries and dividends must have appeared in the cost, and consequently in the price of articles produced. It does not appear to need any elaborate demonstration to see that any saving of these wages , salaries and dividends means that a proportion of the goods in the prices of which they appear must remain unsold within the credit area in which they are produced and are therefore, in the economic sense wasted. The investment of the funds so saved means the reappearance of the same sum of money in a fresh set of prices, so that on each occasion that a given sum of money is reinvested, a fresh set of price values is created without the creation of fresh purchasing power." (C.H. Douglas, evidence submitted before the MacMillan Committe on Finance and Industry reprined in The Monopoly of Credit 4th edition page 143-144)

Whether poor business decisions, high prices, or poor quality, they are still "production" and it is "production" that must be cleared. Or is it only good production that must be cleared?

The ABILITY to clear all production must exist (i.e for every cost there must be income available to defray it); however, that does not mean that all production will be cleared.

An "aristocracy of producers" sounds eerily like the banking and governmental institutions currently extant.

Is your company a "democracy"? When it makes decisions, does it hold a vote by all its employees? An "aristocracy of producers" is exactly what we have now. However; we do not have a democracy of consumers, because the monetary system is controlled by a "monopoly of credit" (i.e. the banking system).

I fail to see how money can be based upon the assets of the nation when the value of assets and the value of money are entirely subjective.

Most of the assets listed have a objective value based upon GAAP. Those assets would also be depreciated according to accounting principles. Some values like Human Potential, Policy and Organization might not be easily calcuable today, but the easiest way to find out is when the productive system can no longer keep up with effective demand. Then you have found your "productive capacity".

Well we would have to clearly define "money". Is there a difference between money and currency?

"money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product."

Money can be disc of leather, gold, pieces of paper, or electronic blips on a computer screen (in fact it has been all of these).

Most money today is credit, which derives from the latin "credere" meaning to believe.

"The best definition of money with which I am acquainted is that of Professor Walker, which is that "money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product." You will see that this definition rules out any physical properties in respect of money. The properties that are left, therefore, are not physical. They can be summed up in the word "credit," which is, of course, derived from "credere," to believe. The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it. This is absolutely the only quality that it is required to possess, although, of course, certain minor attributes, such as convenience, have a bearing on the decision as to what particular description of money, if it fulfils the major requirements, is likely to come into the most general use. The cheque, no doubt, owes its popularity to this latter attribute." (C.H. Douglas, "Warning Democracy")

If they will trade their money then the amount they are willing to part with is a measure of the value of the goods and services to them. If there were no goods and services, there would be no need for trade, and money would not cease to have value, it would not exist at all.

Money does not have "intrinsic value", and is not a "commodity". It is also not a "measure of value".

"Yet perhaps the most important fundamental idea which can be conveyed at this time, in regard to the money problem - an idea on the validity of which certainly stands or falls, anything I have to say on the subject - is that it is not a problem of value-measurement. The proper function of a money system is to furnish the information necessary to direct the production and distribution of goods and services. It is, or should be, an "order" system, not a "reward" system." (C.H. Douglas Social Credit)

Making money unscarce does not create prosperity,

Absolutely not, and I agree! Making money scarce does not create prosperity either. We, and our cultural heritage, create prosperity by working in association with each other.

However; there should always be enough income to purchase all of production.

what creates prosperity is economic freedom. It is my belief that man is generally good as well.

I agree. And I will also state that you will never have political freedom until you have economic freedom.

Have a good day.

Edited March 8, 2008 by socred

[Pliny]

Both. I'm wondering if you think the original post is a synopsis, or if you're referring to post #54, which is actually a synopsis of Social Credit thought. The original post is a discussion on Douglas's A+B theorem, which is but a small part of Social Credit.

I replied to the "synopsis" post before the threads were merged but my interests are more economic because as you state, and I agree, "there will never be political freedom until there is economic freedom". So economics is primary and politics should always be looked at from an economic perspective because it is a cost to the economy and production of a nation and can only exist parasitically upon a society.

The consumer never has enough income to buy all of production. There may be periods of time where he has enough income to purchase all the consumer goods coming onto the market (these periods exist during times of heavy investment in capital goods), but eventually the cost of the capital will make its way into the cost of consumer goods, so the effect is only delayed.

Sorry, I don't see that the cost to capital goods are not included in the price of consumer goods. If they are not the business will go broke. The A+B Theorum essentially says cost and price must be made equal. The discrepancy in cost of production (A) and price to consumer is the cost of capital goods ( which isnot included in the cost of production and must be accounted for, and the tool to account for them and equalize the cost of production with the price to consumers is a national dividend and a price rebate. So an injection of "tickets" is the solution to equalizing A+B and price to consumers

The Central Bank system judges how many "tickets" to inject into an economy as well. It is not decided on a whim how many "tickets" are necessary. They have their economic indicators and their tools and attempt to keep an economic balancing act going. It is a balancing act and it is unstable. Let me suggest it is unstable because they have the same definition of "money" as you do.

Why is it necessary to buy all of production? Some production is not worth purchasing?

The definition of money is that Social Crediters use is the same that Professor Walker used:

"money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product."

The definition does not explain how a medium reaches such "a degree of acceptability that, no matter what it is made of, and no matter why people want it, no one will refuse it". You say all money is a credit, from "credere" - to believe. The word "Money" is not derived from the word "credere". The distinction must be made. Money is not essentially a credit. Credit is a credit and contains, exactly as you say, a belief, a credibility but, and more importantly, contains a future contractual obligation from someone or some agency that the credit will be honoured. Money by definition must be a finality, an end in itself requiring no future obligation on the part of anyone or any agency within a society. The trade is deemed to be final.

I would like to discuss this "belief" a little bit further. How does "money" come into use and become the facilitator of trade. There must be confidence in it, an acceptance by the individuals within a society itself not only of it's current value but it's future value within that society. There is nothing in a society that will guarantee future value. Now that requires a belief, some "credibility". So although "money" must contain some belief it is important to discern where that belief and trust is placed and where it originates.

How does social credit expect to earn the confidence of the people that their "tickets" will be accepted in trade for anything? How is that confidence imbued in a "ticket"? How does the belief in it become recognized as a "credit"? Especially since it has no intrinsic value or value as a commodity. You say that those credits, be they electronic or tokens or tickets are not a commodity but I would certainly, if they had any purchasing power, trade one ticket for two tickets, or one credit for two credits, and they are then considered a commodity.

Now, you might think there is no advantage in trading one ticket for two tickets and so that would never happen but let me explain the simplicity of trade for you. If I have a product I purchased for one ticket and someone would give me two tickets for that product then I will sell him that product and have two tickets and have doubled my purchasing power. In that sense even your tickets will be become a commodity.

So how would your credits come to be imbued with the confidence and belief of the people in it's stability?

The Central bank system does it by fiat and is accepted only on the basis of the governments promise to the people to provide safety and security to them - at least in a democracy.

Social Crediters do not believe a central authority should control the money supply. Individual producers and consumers should control the money supply. The amount of money made available would be completely dependent on individuals production and consumption habits.

Does that mean I won't get any statutory holidays? I am sorry but the amount of "money" made available would depend upon the national production and consumption habits not individual production and consumption habits. You confuse the issue by saying "individuals production and consumption habits". It has nothing to do with individuals but with the collective.

Centralization of authority is the antithesis of Social Credit idealogy. An independent arm of the government would be given the task of creating a national balance sheet, and calculating production and consumption habit, and this in turn would determine the size of the price rebate and dividend, but the process itself would be an accounting function, not a political one.

An independent arm of the government doesn't sound like an antithesis of central authority. It sounds like a central bank. Perhaps you consider it would have a different function but it sounds like the same structure to me.

The necessity for government programs would wane under a Social Credit system. Many of the programs are designed for wealth distribution, and this would not be necessary once individuals were given sufficient purchasing power. Secondly, the biggest contributor to government taxation would be eliminated - the government debt.

Social Credit does not seek to eliminate fractional reserve banking. Commerical banks would still be able create money as they do now. This is the best system available for ensuring risks are taken and new investment unfolds. The Social Credit system merely "augments" the current system. If one were to eliminate fractional reserve banking by forcing banks to hold 100% reserves, banking would cease to exist.

Yes. Banking as we know it would cease to exist. It might become something honest where your "money is safely kept". It's primary function.

This is the fallacy of the "law of supply and demand".

What is the fallacy of the law of supply and demand?

What does it promise that it doesn't deliver on? It certainly does not promise that any production has value nor does it predict the value of production.

Below the cost of production, firms simply stop producing, because they have no ability to change their fixed costs. These costs are "capitalized". If firms find that consumers don't have enough money to buy their goods, they initially try to lower their variable costs, which is mostly labour, by laying off workers, then they simply stop producing. This is what happens in every recession.

Do they stop producing for other reasons or is that the only reason they stop producing? How about no one needs buggy whips anymore?

Economists could have saved themselves alot of headaches if they had asked an accountant how costs are determined instead of inventing their own ideas based on the theory of "maginalism" which no firm in reality ever uses.

Unfortunately, Economists today are nothing but accountants. Let's not introduce another economic concept such as "maginalism", I believe you mean "marginalism". In reality they do use marginalism but they tend to compromise their decisions based upon the bottom line.

People would be allowed to save in a Social Credit society, but there would be less "incentive", because the artificial fear of scarcity would be removed.

To quote Douglas:

"The persistence of the idea that monetary saving has a physical counterpart in physical accumulation will no doubt exercise the attention of historians of the present period. Since money is normally distributable only through the agency of wages, salaries and dividends, it being assumed that the interest on Government loans is provided by taxation, the whole of these wages, salaries and dividends must have appeared in the cost, and consequently in the price of articles produced. It does not appear to need any elaborate demonstration to see that any saving of these wages , salaries and dividends means that a proportion of the goods in the prices of which they appear must remain unsold within the credit area in which they are produced and are therefore, in the economic sense wasted. The investment of the funds so saved means the reappearance of the same sum of money in a fresh set of prices, so that on each occasion that a given sum of money is reinvested, a fresh set of price values is created without the creation of fresh purchasing power." (C.H. Douglas, evidence submitted before the MacMillan Committe on Finance and Industry reprined in The Monopoly of Credit 4th edition page 143-144)

Douglas has accepted what the central bank system has foisted upon the general public.

In my opinion, the same fundamental flaws are incorporated in Social Credit economic philosophy that have been perpetrated by the proponents of central banking philosophy. The proponents of which knew full well they were playing a confidence game. I think Douglas honestly believes he has solved the problems of production and distribution but he has accepted and incorporated exactly what the central banks have deceitfully convinced, politicians firstly, in order to gain economic control by fiat, and secondly, through re-education, the general populace.

The ABILITY to clear all production must exist (i.e for every cost there must be income able to defray it); however, that does not mean that all production will be cleared.

Is your company a "democracy"? When it makes decisions, does it hold a vote by all its employees? An "aristocracy of producers" is exactly what we have now. However; we do not have a democracy of consumers, because the monetary system is controlled by a "monopoly of credit" (i.e. the banking system).

My company is not a democracy but neither is it a government.

A democracy of consumers? Anyone, any individual, can start a company. The consumers and the producers are the same individuals. Some choose, perhaps wisely, not to own the means of production but they are not limited by never being able to own the means of production.

I agree there is a monopoly of credit and I ascribe that fact to the ability of that monopoly to redistribute wealth

and perpetuate a scarcity of "money". I would never consider the inability to clear all production of a society or nation as the reason for poverty.

Most money today is credit, which derives from the latin "credere" meaning to believe.

Money today has been confused as credit so most people think money today is credit.

Money does not have "intrinsic value", and is not a "commodity". It is also not a "measure of value".

I believe I have demonstrated it is a commodity if it has any purchasing power whatsoever.

I believe you are incorrect on all three of your claims in the above paragraph but you would have to define them further.

Have a glorious day yourself!

[socred]

I replied to the "synopsis" post before the threads were merged but my interests are more economic because as you state, and I agree, "there will never be political freedom until there is economic freedom". So economics is primary and politics should always be looked at from an economic perspective because it is a cost to the economy and production of a nation and can only exist parasitically upon a society.

All production has a cost, whether the production is done by the government or the production is done by private industry.

My statement was merely a critique of "ballot box democracy".

Sorry, I don't see that the cost to capital goods are not included in the price of consumer goods.

I never said that capital costs weren't included in the price of consumer goods. I said the cost was delayed through time. It may take decades before the cost of a capital project is depreciated and consequently shows up in the cost of consumer goods through depreciation expense.

The A+B Theorum essentially says cost and price must be made equal.

That's not what it says at all. It says that prices grow faster than incomes.

The Central Bank system judges how many "tickets" to inject into an economy as well. It is not decided on a whim how many "tickets" are necessary. They have their economic indicators and their tools and attempt to keep an economic balancing act going.

The Central Bank attempts to control how many tickets are in the system by attempting to control interest rates. The Central Bank does not have direct control over how many tickets are in the system, because the Central Bank creates but a small portion of the money supply. Most money is created by commercial banks through loans to businesses and consumers.

Let me suggest it is unstable because they have the same definition of "money" as you do.

It is unstable because they do not understand the systemic cause of inflation, and it's not "too much money chasing too few goods". Unfortunately, they believe another economic fallacy known as the "quantity theory of money".

Why is it necessary to buy all of production? Some production is not worth purchasing?

It's not necessary to buy all production, but the POTENTIAL to buy all production is necessary. Otherwise, people may want the production, but are unable to buy it merely for want of "tickets".

The word "Money" is not derived from the word "credere".

90% of the money supply is "credit". Very few transactions take place with the use of cash and coin.

Money is not essentially a credit.

Not only is this statement factually incorrect, since the vast majority of money is credit, but the essential nature of money derives from the latin "credere" meaning to believe. I work for "money" because I "believe" that I will be able to go to some shop and the shop will accept my money for their goods and services. This is a question of faith, and if people had no faith in the money, it would stop acting as money.

How does social credit expect to earn the confidence of the people that their "tickets" will be accepted in trade for anything?

How do the government or the banks earn the confidence that their tickets will be accepted in trade for anything?

Especially since it has no intrinsic value or value as a commodity

What intrinsic value does money have? You can't eat money, you can't live in money. Unless you collect money for its own sake, money's only value is in relation to how many goods and services it can purchase. In other words, it's "value" is totally dependent on prices.

You say that those credits, be they electronic or tokens or tickets are not a commodity but I would certainly, if they had any purchasing power, trade one ticket for two tickets, or one credit for two credits, and they are then considered a commodity.

You would if the tickets themselves did not purchase goods and services, then the tickets would be "valueless", and it would not matter if you had 1 or 1 million.

The tickets only value is in relation to how many goods and services you can buy with them, so the more tickets you have, the more you can purchase, so of course you're not going to trade 1 ticket for 2, because 2 tickets buys more goods and services than 1.

So how would your credits come to be imbued with the confidence and belief of the people in it's stability?

The same confidence that is imbued in money now, the willingness of people to accept it in trade for goods and services. You seem to think that these "tickets" would somehow be differentiated from the current money we have now. Most money is a number in a bank account, and these tickets would be no different. The dividend and price rebate would simply be credited to your bank account, and instead of having x amount of money, you would have x + y.

The Central bank system does it by fiat and is accepted only on the basis of the governments promise to the people to provide safety and security to them - at least in a democracy.

The only "fiat" money in existence is cash and coin created by the Central Bank. As I've stated earlier, this "fiat money" comprises a very small percentage of the daily transactions in any economy. In other words, most money is NOT fiat money.

Does that mean I won't get any statutory holidays?

Not exactly sure the meaning of this question? You'd receive any statutory holidays the government wanted to create.

I am sorry but the amount of "money" made available would depend upon the national production and consumption habits not individual production and consumption habits.

Last I checked, a nation is comprised of individuals.

You confuse the issue by saying "individuals production and consumption habits". It has nothing to do with individuals but with the collective.

I don't confuse anything, it seems you're confused by virtue of being unable to see the forest through the trees. Aggregate production and consumption habits are merely compiled by addition of individual production and consumption habits. It is the individuals actually doing the consuming and producing.

An independent arm of the government doesn't sound like an antithesis of central authority. It sounds like a central bank. Perhaps you consider it would have a different function but it sounds like the same structure to me.

A "National Credit Authority" let's call it, would simply compile statistics and issue credits based upon those statistics. It in no way would attempt to 'control' production and consumption habits as the central banks do now.

Yes. Banking as we know it would cease to exist. It might become something honest where your "money is safely kept". It's primary function.

Where would money come from then?

What is the fallacy of the law of supply and demand?

I already explained it to you with the fallacy of prices based on the erroneous theory of "marginalism".

By the way, I found the attack on a typo "petty". Perhaps I should attack your post for your spelling of "theorem"?

Do they stop producing for other reasons or is that the only reason they stop producing?

I never said it was the ONLY reason they stop producing, but it certainly is A reason.

Unfortunately, Economists today are nothing but accountants.

Unfortunately, most economists don't understand the first thing about accounting.

In reality they do use marginalism but they tend to compromise their decisions based upon the bottom line.

No firm in the world uses marginalism to determine marginal costs. Costs are determined using GAAP, not through the determination of "opportunity costs".

Douglas has accepted what the central bank system has foisted upon the general public.

Which is?

I think Douglas honestly believes he has solved the problems of production and distribution but he has accepted and incorporated exactly what the central banks have deceitfully convinced, politicians firstly, in order to gain economic control by fiat

Where did Douglas talk about "fiat"?

, and secondly, through re-education, the general populace.

Where did Douglas talk about "re-education"?

My company is not a democracy but neither is it a government.

Exactly, it's an aristocracy of producers.

A democracy of consumers? Anyone, any individual, can start a company. The consumers and the producers are the same individuals. Some choose, perhaps wisely, not to own the means of production but they are not limited by never being able to own the means of production.

Money does not derive from the productive system: it derives from the banking system, and if any individual were to create his own money, he'd be charged with counterfeiting.

I would never consider the inability to clear all production of a society or nation as the reason for poverty.

Because you wouldn't consider it doesn't mean that it's not true. I've never seen a city with a vacancy rate of 0%, yet I see people without homes. There's vacant homes, and people who want to live in them, but can't for simple lack of money.

Money today has been confused as credit so most people think money today is credit.

Most money is credit, and most transactions take place with the use of electronic transfer of funds or cheques. Absolutely no cash changes hands, but are merely debit and credit entries in people's accounts.

I believe I have demonstrated it is a commodity if it has any purchasing power whatsoever.

As I've stated above, you've demonstrated no such thing.

But I do wish you well. Take care.

Edited March 8, 2008 by socred

[Pliny]

I never said that capital costs weren't included in the price of consumer goods. I said the cost was delayed through time. It may take decades before the cost of a capital project is depreciated and consequently shows up in the cost of consumer goods through depreciation expense.

I guess I am mistaken then. I thought that capital costs were included in the B part of the A+B theorem and were the reason that there was always an insufficient amount of money.

That's not what it says at all. It says that prices grow faster than incomes.

Well, pardon me. I think you should find a different way to explain it then. I understand the whole economic purpose of having a national dividend and a price rebate was to clear the total production. Am I not understanding what "clearing the total production" means? The A+B theorem is an explanation for why there is a shortage of what you call "money". It is a theory on why there is a scarcity of money and the remedy is to add more money with a national dividend and a price rebate. This seems to me to be an attempt to equalize the costs and prices.

If I have completely misunderstood, please clarify, but I think I get the gist.

The Central Bank attempts to control how many tickets are in the system by attempting to control interest rates. The Central Bank does not have direct control over how many tickets are in the system, because the Central Bank creates but a small portion of the money supply. Most money is created by commercial banks through loans to businesses and consumers.

It is unstable because they do not understand the systemic cause of inflation, and it's not "too much money chasing too few goods". Unfortunately, they believe another economic fallacy known as the "quantity theory of money".

Didn't you say at one point inflation was "too much money chasing too few goods"?

Interest rates are indeed one of the tools the central bank uses to control credit. The commercial banks ability to create credit is regulated by the central bank on a fractional reserve basis and the prime rate of interest. The central bnk is entirely in control of the money supply, although it would be better termed the debt supply.

How do the government or the banks earn the confidence that their tickets will be accepted in trade for anything?

Mostly by fiat but also a confidence game that has evolved over more than a century.

What intrinsic value does money have?

It depends upon what you are calling money. It used to be precious metals, it used to be specie, it used to be leather plugs, and now you even think it is an electronic entry. I will grant you that an electronic entry has no intrinsic value. I will grant you that a credit in your bank account has no intrinsic value. I might then ask if those things can then be honestly called "money". A piece of paper has been called money as well but that has substance and if you had a few billion maybe you could glue them together and make yourself a shelter, so they do have some, albeit tiny, intrinsic value. Now when you get to precious metals they can be used to forge utensils and fashion jewellry and art which have some intrinsic value. But value is always determined by the individual so although he could possibly find a use, and thus some value, for precious metals he could never find a personal use for an electronic credit in and of itself if electronic credits ever fell out of favour and/or became unpopular.

You can't eat money, you can't live in money. Unless you collect money for its own sake, money's only value is in relation to how many goods and services it can purchase. In other words, it's "value" is totally dependent on prices.

If you accept that electronic credits are money then I concede your point. Isn't there a value printed on Canadian currency?

It's value is totally dependent on prices? What about belief? And supply and demand in the aggregate? But before that is even considered the value of goods can only be determined by their comparative value to other things and by their availability as well as their quality and usefulness to those willing to or needing to consume those goods. That is what prices are dependent upon. If the price is too high only a few may feel it worth having. If the cost to produce a product is too high it won't be supplied.

Value is dependent upon supply and demand in the aggregate.

Even money? If there are too many dollars chasing too few goods does supply and demand figure in? No. I guess it is not a commodity. It will have no demand and thus there is no necessity to supply it. And since it is no measure of value it is nothing at all but a number on someone's bank account. I think I will pick 1,934,965,390 to put on my account. You really have me reeling.

The same confidence that is imbued in money now, the willingness of people to accept it in trade for goods and services. You seem to think that these "tickets" would somehow be differentiated from the current money we have now. Most money is a number in a bank account, and these tickets would be no different. The dividend and price rebate would simply be credited to your bank account, and instead of having x amount of money, you would have x + y.

The confidence must be instilled from somewhere. The confidence used to be in the honesty and trust of the people of a nation or society. Since the government gives the central bank sole authority to create money the confidence must then be in the government or forced by the government by fiat. Whoever created and added y to my x amount in the bank would have to have earned my confidence. Either that or forced me to use them as money.

The only "fiat" money in existence is cash and coin created by the Central Bank. As I've stated earlier, this "fiat money" comprises a very small percentage of the daily transactions in any economy. In other words, most money is NOT fiat money.

Is your bank account balance not convertible to fiat currency? That is what that number ultimately represents today. It used to represent an amount of gold you had stored in the bank. Then it eventually became the amount of fiat currency you could draw out of the bank. Money could be determined by fiat but then it would violate the definition of money which relies mostly upon confidence and the willingness of the public to use it.

I don't confuse anything, it seems you're confused by virtue of being unable to see the forest through the trees.

Yes. I will agree, you have me confused. Are there many others you find that understand? Am I just a dullard?

By the way, I found the attack on a typo "petty". Perhaps I should attack your post for your spelling of "theorem"?

I mentioned the typo and knew you meant marginalism. Someone else may not have. Sorry if you felt it is was an attack. Should I have perhaps not mentioned it? I did not use it as an excuse to discredit what you said which is what one usually sees when they bring up typos. I could have said, "You stupid idiot learn to spell and then I might take you seriously". Now that would be an attack.

No firm in the world uses marginalism to determine marginal costs. Costs are determined using GAAP, not through the determination of "opportunity costs".

On this I must admit there was a confusion on my part. I was thinking about the theory of marginal utlility and not marginalism.

Where did Douglas talk about "fiat"?

He didn't. As though it didn't exist.

Where did Douglas talk about "re-education"?

He didn't. His re-education was already a fait accomplis as he talks in terms of managing an economy rather than in terms of a free economy.

Exactly, it's an aristocracy of pro

ducers.

Money does not derive from the productive system: it derives from the banking system, and if any individual were to create his own money, he'd be charged with counterfeiting.

If you really don't want anyone to control the economy and manage the economy and you want to have economic freedom within a society then the money should be derived out of the society as that is where the confidence needs to be placed - in the people; not in a banking system. Why should someone have a monopoly to create money and if what you say is true then why are those that hold the monopoly not charged with counterfeiting?

Most money is credit, and most transactions take place with the use of electronic transfer of funds or cheques. Absolutely no cash changes hands, but are merely debit and credit entries in people's accounts.

I concede that point but only due to the fact that your definition of money differs form mine. I do not consider an entry on a balance sheet to be the actual money. I do not consider an entry in my account to represent anything other than an account of what currency I can draw or transfer. The entry is not currency itself but you are telling me it is. How handy!

You must be an accountant yourself as you consider the importance of the symbols superior to the things themselves.

As I've stated above, you've demonstrated no such thing.

From your posts, that is obvious. I have only demonstrated an inability to see the forest for the trees.

[socred]

I guess I am mistaken then. I thought that capital costs were included in the B part of the A+B theorem and were the reason that there was always an insufficient amount of money.

Depreciation is included in the B part of the A+B theorem, however; the reason there is a chronic shortage of purchasing power is not because we are charged with capital depreciation, but that we are not credited with capital appreciation. In the modern economy the ratio of capital appreciation/captial depreciation is always >1.

If you're looking for the "cause" of the B payments:

“"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")

Well, pardon me. I think you should find a different way to explain it then. I understand the whole economic purpose of having a national dividend and a price rebate was to clear the total production. Am I not understanding what "clearing the total production" means? The A+B theorem is an explanation for why there is a shortage of what you call "money". It is a theory on why there is a scarcity of money and the remedy is to add more money with a national dividend and a price rebate. This seems to me to be an attempt to equalize the costs and prices.

It's an attempt to equalize income and prices.

Didn't you say at one point inflation was "too much money chasing too few goods"?

That is one cause of inflation, but it's not the systemic cause. To quote from post #58

"Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas Credit Power and Democracy, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the Phillips Curve), unless prices are reduced from debt- free monies that do not derive from the productive system."

Interest rates are indeed one of the tools the central bank uses to control credit. The commercial banks ability to create credit is regulated by the central bank on a fractional reserve basis and the prime rate of interest. The central bnk is entirely in control of the money supply, although it would be better termed the debt supply.

The Central Banks are not entirely in control of the money supply, and the economists who advocated the use of interest rates to control the money supply (i.e. Milton Friedman) have admitted this fact. They try to control the money supply with interest rates, but they don't have an absolute control over the supply of money.

Mostly by fiat but also a confidence game that has evolved over more than a century.

Very few transactions take place with the use of fiat money (i.e. cash and coin).

It depends upon what you are calling money. It used to be precious metals, it used to be specie, it used to be leather plugs, and now you even think it is an electronic entry. I will grant you that an electronic entry has no intrinsic value. I will grant you that a credit in your bank account has no intrinsic value. I might then ask if those things can then be honestly called "money".

Businesses accept it as payment for goods and services everyday. In fact, the majority of money is just an "electronic blip", and the majority of transactions take place with the electronic transfer of funds, which merely are debit and credit entries to people's accounts.

Now when you get to precious metals they can be used to forge utensils and fashion jewellry and art which have some intrinsic value.

The gold that was used as money was not used for jewellry at the same time.

If you accept that electronic credits are money then I concede your point. Isn't there a value printed on Canadian currency?

Every economist in the world defines electronic blips as money, because they function as money. What do you mean by "value" printed on the Canadian currency? It has a number on it, but that number only has "value" in relation to how many goods and services it can acquire, which means its value is inversely proportional to prices.

It's value is totally dependent on prices? What about belief?

Belief is what makes it money, it's value is dependent on prices.

But before that is even considered the value of goods can only be determined by their comparative value to other things and by their availability as well as their quality and usefulness to those willing to or needing to consume those goods. That is what prices are dependent upon.

Prices are dependent on many things, but the primary thing they are dependent on is cost of production, because if the price falls below that, the production stops (at least in the long term).

If the price is too high only a few may feel it worth having. If the cost to produce a product is too high it won't be supplied.

Both of those things would be relative to effective demand.

And since it is no measure of value it is nothing at all but a number on someone's bank account. I think I will pick 1,934,965,390 to put on my account. You really have me reeling.

We don't "pick" how much money we put in our account. However; the number you put in your account is relative to the price level. If prices are low, that may be "a lot" of money, but if prices are high, that may be "very little" money. Compare the value of the yen to the value of a canadian dollar.

The confidence must be instilled from somewhere.

The confidence is instilled from our belief that it will be accepted as money, and our practical experience certainly plays a role in this belief. If we experience the fact that stores accept our money in exchange for goods and services, then we believe that what we posess is money.

Whoever created and added y to my x amount in the bank would have to have earned my confidence. Either that or forced me to use them as money.

You're already using x as money, which is merely a number in your bank account, why wouldn't you use the additional y? If someone said to you that I'm going to increase your bank account, you're telling me that you'd say no? However; the option to opt out would always be available.

Is your bank account balance not convertible to fiat currency?

Yes and no. Depends if everyone did it simultaneously. If everyone tried to convert their deposit into fiat currency, the banks would only be able to supply approximately 10% of your deposit with fiat currency. The banks bank on the fact that very few transactions involve the use of currency. That is how they are able to create money. Only approximately 10% of the money suppy is composed of cash and coin. The remainder is merely a number in a bank account.

That is what that number ultimately represents today. It used to represent an amount of gold you had stored in the bank. Then it eventually became the amount of fiat currency you could draw out of the bank. Money could be determined by fiat but then it would violate the definition of money which relies mostly upon confidence and the willingness of the public to use it.

Never, since the advent of fractional reserve banking in the Middle Ages has your bank account represented cash or gold in the bank. Cash, and gold previously under the gold standard, are reserve currency. Banks only hold a "fraction" of that currency in reserve. Under the gold standard, most money was a number in a bank account, and if everyone demanded gold for their deposit, the banks would be unable to supply it. This is why the banks put a moritorium on withdrawls at the outbreak of WWI.

Yes. I will agree, you have me confused. Are there many others you find that understand? Am I just a dullard?

Not at all. In fact, you seem to have a fair bit of intelligence, but most people do not understand money and banking. Not because they are stupid, but merely because they have not been taught how it works.

I mentioned the typo and knew you meant marginalism. Someone else may not have. Sorry if you felt it is was an attack.

No problem, but I have met people who try to discredit what you say because of a typo.

He didn't. As though it didn't exist.

At the time Douglas did most of his writings the world was still on the gold standard. The US did not abandon the standard until 1972, and Canada was off and on since 1919, but fully abandoned it in 1972 as well.

He didn't. His re-education was already a fait accomplis as he talks in terms of managing an economy rather than in terms of a free economy.

Managing the economy in what way? By determining the amount of credit necessary to clear all costs of production? This is "managed" in any system, whether its done by the banks or a "National Credit Authority". Or are you suggesting that banks aren't "managed"?

If you really don't want anyone to control the economy and manage the economy and you want to have economic freedom within a society then the money should be derived out of the society as that is where the confidence needs to be placed - in the people; not in a banking system. Why should someone have a monopoly to create money and if what you say is true then why are those that hold the monopoly not charged with counterfeiting?

Then everyone should be able to create money?

I concede that point but only due to the fact that your definition of money differs form mine. I do not consider an entry on a balance sheet to be the actual money. I do not consider an entry in my account to represent anything other than an account of what currency I can draw or transfer. The entry is not currency itself but you are telling me it is. How handy!

You're telling me that you make all your payments by cash?

You must be an accountant yourself as you consider the importance of the symbols superior to the things themselves.

I have taken a couple of accounting courses, but I'm a buyer with a degree in economics. I do not consider numbers to be superior to things in themselves, in fact, quite the opposite. I consider money to be merely an abstract representation of reality, and reality should always dictate the abstract. This is why I said you can have a shortage of labour, a shortage or raw materials, a shortage of equipment, but you can never have a shortage of money. Money is just an abstract way of accounting for these things. The goal of Social Credit is to allow the abstract to be a true representation of reality.

[Pliny]

These posts are getting a bit unwieldy so I would like to take a few points of contention and discuss them.

In your last paragraph you said this:

I consider money to be merely an abstract representation of reality, and reality should always dictate the abstract. This is why I said you can have a shortage of labour, a shortage or raw materials, a shortage of equipment, but you can never have a shortage of money. Money is just an abstract way of accounting for these things. The goal of Social Credit is to allow the abstract to be a true representation of reality.

I understand what you mean here. I see the point. I must indicate to you that the goal of allowing the abstract to be a representation of reality has already been achieved. The expression of this concept "Money" is an abstract way of accounting for labour, raw materials, equipment, is proof that the goal has been achieved.

You are not in the minority in your concept. Most people will argue that there is no difference between a dollar bill and an electronic credit in their bank account. The electronic credit is an abstract representation of it. The electronic credit, an abstract representation, has become the dollar bill; just as the dollar bill, a representation, albeit not abstract, became the bank deposit itself.

So if I have correctly understood the concept you wish to express, there is no difference, at least in function, between what was initially a corporeal item considered by society as "money" deposited for safe-keeping by the people and an abstract accounting representation of it by the bank.

Here is something I cannot reconcile:

You said this:

All money is debt.

I understand this in the context that "money" is an abstract way of accounting for goods and services. Money under that concept is a negative until it is exchanged for goods and services.

From your last post:

"Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas Credit Power and Democracy, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the Phillips Curve), unless prices are reduced from debt- free monies that do not derive from the productive system."

If "all' money is debt how can there be "debt-free monies that do not derive from the productive system"?

It seems that if money is as you define it "an abstract representation of goods and services' it will always be a claim upon them which makes it a debt.

The only thing that would make money not a debt would be if it completely satisfied a contract and was not a further claim on future goods and services. It is only it's convenience that lends it to the purpose of currency.

You asked if everyone should be able to create money. Under your definition of money, they do; every time they write a cheque. It is a representation of goods and services. Of course the "true" representation, and the distinction must be made, is not confirmed because the "true" representation is the abstract representation - the accounting record itself. Do I have that right?

[socred]

QUOTE

All money is debt.

I understand this in the context that "money" is an abstract way of accounting for goods and services. Money under that concept is a negative until it is exchanged for goods and services.

Before we go any further, I want to ensure that there is an understanding of where money comes from.

Central Banks create cash and coin. Commerical banks create the majority of the assets used as money. Cash and coin only represent 10% of the money supply. Commercial banks create money through loans. Everytime a bank loans somone money, they are creating money. Everytime the principle of the loan is paid back, banks are destroying money. That is how money is created and destroyed.

All money is created as a debt. Whether it's commercial banks creating a deposit through a loan (debt), or the Central Bank creating cash through open market operations, or commercial banks borrowing reserves from the Central bank. All money is borrowed into existence, and hence; is created as a debt.

This has to be fully understood before we can continue to discuss this subject.

When the world was on a gold standard, the majority of money was created by commercial banks. Gold, the reserve at the time, only represented approximately 10% of the money supply. Commercial banks create money by keeping only a fraction of it in reserve relative to their deposits. Consequently, when the world was operating on a supposed "gold standard", the majority of money was simply a number in a bank account.

The process by which banks create money is described in the following worksheet from the Federal Reserve:

MODERN MONEY MECHANICS