In China, the social credit system (SCS) is a national reputation system that rates the trustworthiness of individuals, businesses, and government entities. The idea is to regulate social behavior and ensure compliance with laws and regulations. The SCS assigns a score to each entity, with higher scores leading to more benefits and lower scores leading to more penalties. High scores can lead to tax breaks, jumping the public housing queue, and easier access to credit. Low scores can lead to denial of licenses and permits, exclusion from booking flights or high-speed train tickets, and restricted access to public services . . . all based on some bureaucrat’s idea of how good a person you are. It’s a fun and easy way to have your life ruined.
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| Major C.H. Douglas |
That’s not what we’re talking about today. Instead, we recently got a question about the other, earlier type of social credit, the invention of Major C.H. Douglas, from someone thinking it might help eliminate usury from the economy.
Possibly oversimplified, Douglas’s idea was that the government would calculate the additional increment of goods and services produced in a year, and issue money to that amount, distributing it to citizens as a national dividend after deducting the cost of running the government. The underlying assumption is that everyone owns what somebody else’s capital produces, and the government is just taking on the job of seeing that they get it.
What social credit’s adherents evidently fail to see is that it abolishes private property, i.e., is socialism. This is because “property” is not the thing owned, but the absolute natural right to be an owner, and the limited and socially determined bundle of rights defining the exercise of ownership. Ownership consists of the right to control and enjoy the fruits of what is owned, i.e., exclude others from its use and the income. Clearly social credit takes away control and enjoyment of the fruits.
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| Henry George |
Purely by coincidence, we had addressed Major Douglas’s system in a discussion last week. Social credit, by any name, spun off from guild socialism, which was itself spun off from Fabian socialism. This is not our statement but is taken from Frank Podmore’s history of the Fabian Society and the Australian Social Creditor newsletter. Fabian socialism was itself inspired by the agrarian socialism of Henry George, detailed in George’s book, Progress and Poverty (1879), one of two bestselling socialist books written by Americans in the nineteenth century. (The other was Edward Bellamy’s Looking Backward.)
As such, Douglas’s proposal is based on an inadequate understanding of money, banking, credit, and finance; Dr. Harold Glenn Moulton, then-president of the Brookings Institution, demonstrated Douglas’s flawed thinking, particularly his “A + B theorem” in his 1935 book, The Formation of Capital, written to present an alternative to the Keynesian New Deal. Hilaire Belloc disparaged what he called “the Douglas Scheme” in his 1936 Essay on the Restoration of Property, claiming it was contrary to the spirit of distributism as it was concerned exclusively with income and material needs and not ownership and power, the chief point of contention between G.K. Chesterton and G.B. Shaw in their final debate in 1927. C.S. Lewis was also mildly disparaging of Douglas’s proposal, considering it a passing fad not otherwise worth considering.
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| Georg Friedrich Knapp |
In essence, Social Credit is a variation of chartalism, “the State Theory of Money,” developed by the German socialist Georg Friedrich Knapp and adopted by John Maynard Keynes as the heart of his own monetary theory which claims money is a “peculiar creation of the State,” and that government has the right and ability to alter reality by fiat by “re-editing the dictionary.” The idea is government emits bills of credit to provide all money and credit, and taxes it away if there is too much.
As for usury, contrary to what some people today say, it is not all profit. In 1746 Pope Benedict XIV issued Vix Pervenit, “On Usury and Other Dishonest Profit,” which implies there can be honest profit. Usury is not all profit or even all interest. As Thomas Aquinas made clear, when money is put to productive use, the lender is due a just rate of interest, determined by the market and representing the lender’s share of profits. For example, if a lender makes a loan of existing money in the amount of $1,000 to a farmer when the market rate of interest on such loans is 5%, and the farmer uses the loan to put in a crop which the farmer sells for $10,000, the farmer owes the lender $1,050 — the $1,000 principal and a 5% share of the profit generated by the loan.
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| Henri de Saint-Simon |
That is in a fixed interest system, which, while not unjust, is not entirely just. Under so-called “Islamic banking,” the lender would be due back the $1,000 and an additional $500: again, 5% of the profit, but this time calculated on the total profit, not just the amount of the loan. The smaller return in the fixed rate system is due to the fact the lender gets $1,050 whether the project is profitable or not, but in the “Islamic” (actually “Aristotelian”) system, there is risk sharing, and the lender gets nothing back, not even the principal, if the project doesn’t make a profit.
The main problem here is how Douglas viewed money. He thought it is a commodity, whereas it is a social tool, a means of symbolizing existing or future production, and not itself having value. He also confused the collective, an abstraction created by man, with individual human beings, an actuality created by God. This is one of the errors at the heart of the rei novae, the “New Things” of modernism, socialism, and the New Age. Douglas also failed to distinguish between the different categories of banks (deposit, issue or circulation, and discount) and the types of money (past savings, future savings, and no savings), evidently assuming all banks are banks of deposit, and all money consists of past savings.
As such, Douglas’s Social Credit may be (as he reportedly said) “Christianity in Action,” but it is the “New Christianity” (the “Democratic Religion” of socialism) of Henri de Saint-Simon, Félicité de Lamennais, and others, not what most Christians used to understand as Christianity.
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