In response to a recent “plug” for Capital Homesteading we
inserted in a FaceBook posting about “living wage” legislation now before
Congress, somebody responded, “What
we need is Social Credit and the Universal Unconditional Basic Income
Guaranteed.”
That sounds nice, but there might be one or two problems
there. Before we go into that, however,
we should understand what “social credit” is.
As described in the Wikipedia entry on social credit,
“Social
credit is an interdisciplinary
distributive philosophy developed by C. H. Douglas (1879–1952), a British
engineer, who wrote a book by that name in 1924. It encompasses the fields of
economics, political science, history, accounting, and physics. Its policies
are designed, according to Douglas, to disperse economic and political power to
individuals. Douglas once wrote, ‘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.’ Douglas said that Social Crediters
want to build a new civilization based upon "absolute economic
security" for the individual, where ‘they shall sit every man under his
vine and under his fig tree; and none shall make them afraid.’ In his words,
‘what we really demand of existence is not that we shall be put into somebody
else's Utopia, but we shall be put in a position to construct a Utopia of our
own.’”
Douglas’s
theory is that, while anyone can own capital, the fruits of ownership belong to
the people as a whole. This is because
production is the result of accumulated human knowledge that belongs to
everyone. So that everyone can receive
the benefit of production and that purchasing power can be kept at a par with
production, the government decides how much money to create periodically and
uses it to meet costs of government, with the balance distributed to each
person as a guaranteed “National Dividend.”
This will, at one and the same time, abolish taxes and ensure that all
production is consumed, bringing the economy back into balance and ending the
business cycle.
As we said, there are a few problems here, but before we
begin our brief analysis, we should note that “Social Crediter” is not a
misspelling. It is spelled that way to
distinguish a social crediter from the ordinary meaning of “creditor.”
Hilaire Belloc’s
Analysis
Let’s start with the Chesterbelloc that, in its heyday,
struck fear into the hearts of socialists everywhere. (Today’s neo-distributism, as it must be
termed, has degenerated into another form of socialism.)
Hilaire Belloc’s take on “the Douglas Scheme” as he called
social credit in An Essay on the
Restoration of Property (1936) is that it was flawed because it focused
only on income, not on the critical issue of production and who owns the means
of production. In this, as in other
matters, Douglas’s analysis is Keynesian, while Keynes’s analysis developed out
of the “chartalism” of Georg Friedrich Knapp, and described (in English; Knapp
published his theories in German beginning in the 1880s) in The State Theory of Money (1924).
Yes, social credit would “guarantee” everyone an income, but
— especially given the fact that Douglas recognized that the purpose of
production is consumption — the income would not be tied in any way directly to
production. The disconnect between
production and income would not be restored as Douglas believed, but
exacerbated.
As we have seen recently, in a chilling replay of the
massive non-productive money creation for speculative purposes that preceded
the Crash of 1929, huge amounts of debt-backed government money are being
poured into the stock market. This gives
the illusion of “growth” as prices go up and the Dow soars.
At the same time, businesses are being starved for
credit. The productive capacity of the
country is being undermined as jobs and capital shift to other countries with
lower wages. Yes, the Douglas scheme
would provide people with a “guaranteed” income, but that income would purchase
less and less as productive capacity continues to deteriorate. Like Keynes, Douglas thought production would
take care of itself. It doesn’t.
Dr. Harold G. Moulton
The analysis of Dr. Harold Moulton of the Brookings
Institution is that Douglas took a “one-sided” view of money and credit, and
applied it to a “fallacy of composition” that equated an entire economy with a
single business enterprise; the “A + B Theorem” falls apart because it fails to
take into account that a dollar expended in one area is also a dollar of income
in another. As Moulton explained,
“The
fallacy in Major Douglas’ analysis is that he concentrates attention upon a
single business rather than upon the national economy as a whole. These ‘external’ payments to other organizations
do not involve sending the money outside the country, and hence their
disbursement is a part of the national income as a whole.” (The Formation of Capital, 1935, p. 180.)
The Natural Law
With respect to a natural law analysis, social credit redefines
what it means for something to be “owned.”
By issuing money backed only by the government’s promise that it is
worth something, the government takes away the usufruct, i.e., enjoyment of the
fruits of capital ownership. It does
this by manipulating the currency, treating “money” as a non-repayable debt the
nation owes itself, which is theoretically unsound; a “non-repayable debt” is
an oxymoron. Since property is not the
thing owned, but the right to be an owner, and the rights to control the thing
owned and enjoy the income it generates, social credit effectively abolishes
private property.