The Origins of Social Credit
Development of modern banking has resulted in nations losing the power to issue most of their own money. The financial system, worldwide, is based on debt.
The Origins of Social Credit


Development of modern banking has resulted in nations losing the power to issue most of their own money. The present economic system, world wide, is based on debt.

This confers immense power on the few who create money and control it, and causes economic problems for producers, other productive businesses and nations as a whole. Its effects are extreme in some situations, resulting in abject poverty while plentiful goods are denied to those needing them.

The Social Credit movement aims to reform this and provides practical means to accomplish this reform.

Its founder, Clifford Hugh Douglas , was a brilliant Scottish engineer of international renown. During the first World War the British government employed him to rationalize and improve aircraft production.

While working on the accounting system of this industry, he noticed that it did not pay out in wages, salaries and dividends the total value of its production. After the war, he studied other industries producing consumer goods, and found that the same principle applied. He formalized this study to produce what he called his A plus B "theorem", that industry had two sets of costs, those he classified as "A" costs (wages salaries and dividends) which provided "purchasing power" for consumer goods, and "B" costs such as bank interest and depreciation charges which did not. His formula simply rationalized that "A" can not equal "A plus B", i.e. consumers could not afford to buy the product of their work. Although he recognized that one industry, banking, produced no goods but did put money into consumers' hands, he still considered that there was an incipient "gap" in the economy that required a steady input of new money. Putting it another way , there are forces in the economy which tend to push prices above the level which consumers can afford to pay.

While industry was expanding and paying out wages etc. for capital goods, or while industry was producing non-consumer goods such as armaments, the "gap would be filled, or in inflationary situations, overfilled. When conditions such as this no longer applied, there would be recession and poverty among plentiful unsold production.

His opponents actively attacked this concept. His supporters became engaged in interminable attempts to prove deductively that he was right. The result was prolonged and inconclusive debate.

In modern science, such a proposition would be treated as a hypothesis, more correctly because of its tangible mathematical expression as a "model" to be tested inductively against reality. Treated this way, it is the only hypothesis that explains satisfactorily the economic events of the twentieth century . His prediction of financial collapse and "poverty amidst plenty" came all too true in the great Depression, and history shows that later prosperity generally occurred only in times of war, preparation for it, or reconstruction after it. The complete failure of orthodox thinking to explain these events suggests that, eventually, the Douglas analysis in economics may rank with major theories in the field of science.

He also showed mathematically that the banking system, rather than "on lending" money, created new credit that functioned as money. While nowadays no good school text on Economics fails to explain this, in Douglas ' time it was a revolutionary and strongly-contested idea. Even though the Charter of the Bank of England, founded as a private concern in the seventeenth century, granted it the right "to create money out of nothing".

In his time, he recommended various measures to overcome the problems he detected.

Democrats for social credit is bound constitutionally to take account of his economic analysis. Its aims and philosophy are in agreement with his strong emphasis on the rights and freedoms of individual men and women. Its main economic policies are based on updating his thinking to modern conditions.

Written by: John Rawson, Life Member, NZ Democrats for Social Credit Party

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