The Thinking 

A Genius of Economic Reform

February 6, 2018


CLIFFORD HUGH DOUGLAS (1879-1952) was one of the most important economic thinkers of modern times, and yet his plan for reform known as Social Credit is little known. The British engineer discovered a fundamental problem in industrialized, capitalist economies and he believed modern wars were caused by this “irritant,” which was the inability to provide enough paying jobs and income to citizens, who could thus not afford to buy the products produced. His discovery is as timely today as it was when he was alive — in fact, it is more relevant than while he was alive.

C.H. Douglas

The monopoly of private bankers over the control and distribution of money ultimately strangles economies. Michael Watson explains in a review of a new book on Social Credit by Dr. M. Oliver Heydorn:

This monopoly gradually transfers more and more wealth, privilege and power into fewer and fewer hands by taking advantage of a chronic gap between consumer prices and consumer incomes. The only means for consumers to acquire additional and much needed purchasing power is to borrow money from the private banks, which these same banks also create out of nothing. The aforementioned price and income gap is a recent phenomenon and is the result of the increasing displacement of human labour by technological developments resulting in fewer jobs and thus less money in wages, salaries, and dividends being distributed to consumers. There is therefore a constant need for economic “growth” for the sake of growth to fill this gap and by any means possible. … [T]his is most often being achieved by maintaining imprudently high net immigration flows into the country to provide more consumers and also the selling off resources, production, farmland and property to foreign companies and investors to pay down bank loans and fill the credit gap.

Watson writes:

Families are torn apart by financial woes. Automation is replacing more and more jobs. Average people’s buying power just shrinks by the year and yet few people, if any, seem to know why or how all this is really happening. To further exacerbate this crisis, both parents are being forced to take on work outside the home at the expense of the children who must be placed in the care of commercial day care providers. And this pressure is further intensified by the decreasing availability of stable jobs, thus leading to the spoliation of family life and leisure and the economic and social destitution of men and women. Once upon a time about fifty years ago, a father could provide for the whole of his family with just one income, i.e., without the mother having to work outside the home.

Douglas came to his theory during World War I:

It was while he was reorganising the work of the Royal Aircraft Establishment during World War I that Douglas noticed that the weekly total costs of goods produced was greater than the sums paid to workers for wages, salaries and dividends. This seemed to contradict the theory of classic Ricardian economics, that all costs are distributed simultaneously as purchasing power.

Troubled by the seeming difference between the way money flowed and the objectives of industry (“delivery of goods and services”, in his view), Douglas set out to apply engineering methods to the economic system.

Douglas collected data from more than a hundred large British businesses and found that in every case, except that of companies becoming bankrupt, the sums paid out in salaries, wages and dividends were always less than the total costs of goods and services produced each week: the workers were not paid enough to buy back what they had made. He published his observations and conclusions in an article in the magazine English Review where he suggested: “That we are living under a system of accountancy which renders the delivery of the nation’s goods and services to itself a technical impossibility.”[4] The reason, Douglas concluded, was that the economic system was organized to maximize profits for those with economic power by creating unnecessary scarcity.[5] Between 1916 and 1920, he developed his economic ideas, publishing two books in 1920, Economic Democracy and Credit-Power and Democracy, followed in 1924 by Social Credit.  [Source]

The solution?

Freeing workers from this system by bringing purchasing power in line with production became the basis of Douglas’s reform ideas that became known as Social Credit. There were two main elements to Douglas’s reform program: a National Dividend to distribute money (debt-free credit) equally to all citizens, over and above their earnings, to help bridge the gap between purchasing power and prices; also a price adjustment mechanism, called the Just Price, which would forestall any possibility of inflation. The Just Price would effectively reduce retail prices by a percentage that reflected the physical efficiency of the production system. Douglas observed that the cost of production is consumption; meaning the exact physical cost of production is the total resources consumed in the production process. As the physical efficiency of production increases the Just Price mechanism will reduce the price of products for the consumer. The consumers will be able to purchase as much of what the producers produce that they want and automatically control what continues to be produced by their consumption of it. Individual freedom, primary economic freedom, was the central goal of Douglas’s reform. [Source]

More from Watson’s review:

To bridge the gap between prices and incomes and to compensate for the automation of jobs, ‘debt-free’ money in the form of a universal citizen’s dividend would be created and issued to every citizen regardless of whether he be employed or not. The amount of this dividend would be adjusted to the nation’s total production so it remains linked to the productivity of the citizens and would diminish if too many citizens ceased work or production. It would replace the dysfunctional welfare state with a non-discriminatory dividend issued to all without any bureaucracy, means testing, or social stigmas attached. This dividend, by economically re-enfranchising the poor, the disadvantaged, and the lower income classes with free purchasing power, will provide a more level playing field and allow for a fairer distribution of wealth and property amongst the population as Chesterton and Belloc rightly call for. The physical, social and cultural benefits of this dividend would be transformative for society. The resulting greater economic security would significantly reduce poverty, crime, poor mental and physical health, stress, and other social ills related to financial stress and would instead encourage family life, the arts, free thought and individual freedom because it would make leisure financially possible. Economic security would no longer be necessarily dependent upon full employment, a policy that is no longer universally possible now in any case due to technological improvements. Private banks would also be regulated by the National Credit Office and would no longer be solely responsible for the distribution of credit. The selling off of Australia’s natural resources and the handing over of its land and properties to foreign owners would no longer be necessary to fill the price-income gap and immigration along with its accompanying demographic, cultural, and religious problems would be eliminated or reduced to a safer and more prudent level as it would no longer be necessary to provide new consumers in order to maintain perpetual economic growth. The compensatory money of the dividend and of the discounted price (another of Douglas’ suggestions for financial reform) would bridge the gap instead.

He adds:

[Douglas’s] proposal for a universal Social Credit dividend for all as a solution to the great social and economic crisis affecting … the world is certainly a radical one and will require a profound re-thinking and re-evaluation of the way we look at and value work and leisure, but it may be the only viable solution in a world of growing technological automation, increasing disintegration and inhumanity of living conditions and the resulting rise of cultural and political tension between the many demographic communities and social groups competing with each other for a piece of the shrinking pie at the behest of a corrupt financial oligarchy.


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