. . . social credit, that is, the brainchild of Major C.H. Douglas. Recently we received a question asking whether we were familiar with “the Douglas Scheme,” as the Anglican Christian apologist C.S. Lewis rather pejoratively termed it. Yes, we are familiar with Major Douglas and his social credit plan, which has nothing to do with what the Chinese have termed “social credit,’ although both rely on intrusive government control.
C.S. Lewis
Social credit spun off from guild socialism, which spun off from Fabian socialism, which was itself a reworking and expansion of Henry George’s agrarian socialism, presented in his 1879 book, Progress and Poverty, and of which Pope Leo XIII’s 1891 encyclical, Rerum Novarum, was in part a refutation. As James Cardinal Gibbons commented regarding Henry George’s scheme,
So far as Mr. George proposes to carry his theory into immediate practice, concludes the Cardinal, he is a mere visionary and the practical sense of the American people can be relied upon to reject his proposals. It is therefore prudent to let such absurdities die a natural death and not incur the risk of giving them an artificial importance by the intervention of church tribunals. (“Henry George: Cardinal Gibbons Does Not Believe His Writings Call for Any Action on the Part of the Catholic Church,” The Lewiston Wednesday Journal, February 1, 1888, 1.)
Major Douglas
Douglas’s basic idea was that to clear all the goods produced by industry and ensure that everyone has an adequate income, the government should create money each year equal to the annual increase in marketable goods and services produced. This would be distributed to everyone as a “national dividend,” ensuring that there was adequate consumption power in the economy to keep things running smoothly. Of course, Say’s Law would do the same thing when combined with Louis Kelso’s proposal for universal capital ownership and financing production with future savings instead of past savings, but that would mean less government power, not more, as Douglas and other socialists wanted.
Dr. Harold G. Moulton, then president of the Brookings Institution, critiqued Douglas’s “a + b theorem” in an appendix to The Formation of Capital (1935). Moulton pointed out that Douglas completely ignored the “velocity” of money, i.e., the average number of times each unit of currency is spent during the year. Douglas looked only at the level of single business entities and not at the while economy as a system.
Dr. Harold G. Moulton
Douglas didn’t realize that the total value of transactions and the quantity of money are not the same. Thus, if the velocity of money is 4, and the annual increase in production that backed Douglas’s proposed new issue of money was, say, $4 million, Douglas would have the government issue four times as much money as was needed, inflating the money supply by 400%, with a commensurate rise in the price level. Other problems are:
1. Douglas assumed that money is a commodity created by government and is essential before any economic activity can take place. That is, Douglas believed that production derives from money, not money from production, as Kelso assumed, and has been proven logically and empirically.
2. Douglas did not realize that in his scheme, money is not backed directly by production but is issued by government in the amount of additional annual production, thereby giving the State absolute power over the economy. In the Just third Way, money is created by citizens, although regulated by the government.
Henry George
3. By not providing for money to be cancelled, social credit permits money to remain in circulation after its backing has been consumed, thereby inflating the currency twice over.
4. In Douglas’s scheme, no money is created — or cancelled — for new capital investment, thereby forcing all new investment to compete for the pool of past saving, restricting ownership to the rich.
5. Social credit destroys private property by inflating the currency, so that the rich have no incentive to produce goods for sale, and by maintaining that, although the rich may own the capital that produces the goods, they do not own the goods that are produced. Douglas argued that what results from the use of knowledge that belongs to all mankind also belongs to all mankind; there is no real private property in capital because it results from the general heritage of mankind.
Louis O. Kelso
Another way of saying this is that Major Douglas did not view money and private property in the way Kelso did. Kelso viewed both the universal right to be an owner and the full rights of ownership, as well as money as a way of measuring exchange value in the free market — to be mechanisms that would enable every person to become a producer (via their contribution of labor or capital) as well as a consumer (with their income deriving from their contributions of labor or capital).
That is the only way that Say’s Law of Markets can operate — when every person relates as a worker and owner to both production (supply) and consumption (demand).
Jean-Baptiste Say
Under the Kelso-Adler system of economic justice, the properly organized institutions of private property (the universal right to and the socially determined rights of ownership) and money enable participative and distributive justice to operate in harmony. When the institutions of private property and money are not operating properly (in terms of participative and distributive justice), that is where social justice is necessary to identify those flaws or barriers and through organized action bring the defective institutions back into operation and balance.
There is a lot more, but those are the main points. Social credit is not, as Douglas claimed, “Christianity in action,” but just another form of socialism.
One thing in Douglas’s favor is that unlike most other socialists and most capitalists, he recognized that capital is independently productive. He just didn’t accept that anyone could really own it in the sense of control and enjoyment of the fruits . . . which is what ownership means. Private people could hold title, but the real owner is “the People,” meaning the State. Social credit is actually a very clever twist on or reversal of Henry George’s idea that no one could really own land, but could own capital. Douglas said that land was the only thing they could own.
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