This is a repost of a 1967 article from the Socialist Standard
These days as a result of the financial crisis many are returning to similar “solutions” as Social Credit have been offering since the Great Depression of the 1930s. The ideas of Major Douglas proved particular popular in Canada and New Zealand, perhaps for the reason these countries were alike in possessing a great number of small farmers in debt to the Big Banks.
Are They The Only Cranks?
So the Social Credit party has won a seat in the New Zealand parliament. These currency cranks have fielded a full complement of candidates at every election since they set up their Social Credit Political League in 1953. Their theories are based on the mistaken ideas of Major Douglas that at present there is a chronic shortage of purchasing power. Odd, you might think, that people can think that in a period of inflation there is a shortage of purchasing power. In any event, when the New Zealand government set up a Royal Commission on Monetary, Banking and Credit Systems, the Social Creditors decided to have a try at proving this. The Appendix to the Commission's Report which appeared in 1956, and which deals with the Social Credit witnesses, makes interesting and amusing reading. Giving "evidence" for Social Credit were Mr. Jordan of the Social Credit Association and Miss King and Mr. Young of the Social Credit Political League.
Social Creditors claim that the present monetary system is inherently defective as there is a chronic gap between the amount of purchasing power and the prices of goods and services. The chief cause of this gap is the banking system which has, they say, a monopoly of the destruction and creation of money. In place of the present system they propose that the power to issue credit should be vested in the "community." Hence the name: Social Credit. They propose to cover the gap by the issue of "debt-free money" which will allow taxes to be cut, prices to be reduced and social security benefits to be increased (Good vote-catchers these!). Further non-commercial public works could be financed in the same way – without any increase in the public debt. The ultimate aim of Social Credit is a system where all income takes the form of a national dividend, financed by debt-free money.
Douglas encouraged the myth of a chronic shortage of purchasing power with his spurious A+B Theorem. He merely took over the myth that banks create wealth from the Mystical School of Banking Theorists, as explained in last month's SOCIALIST STANDARD.
The Social Credit witnesses put up a sorry show. They refused to defend the A + B theorem; they could not even precisely define "purchasing power"; they had no idea of how banks operate; they implied that money doesn't circulate; and their statistics were exposed as frauds.
Basically, Social Credit is a conservative movement wanting to preserve private enterprise capitalism while trying to remove some of its defects by tinkering with the money system. The Commission had little difficulty in showing where such tinkering would lead:
“If made in the present circumstances, the large issue of debt-free money contemplated by the Association and recommended by other Social Credit witnesses would produce most serious and chronic inflation and gravely disrupt New Zealand's economy.”
The Commission gleefully pointed out that the Social Credit schemes for abolishing interest would in the end be incompatible with the continuance of private enterprise capitalism. This was enough to temper the witnesses’ opposition to interest.
The Commission did manage to extract some revealing confessions. Poor Mr. Jordan seems to have been convinced that there was too much purchasing power! Says the Report:
“The Association's original submissions were clearly based on the assumption that the supply of purchasing power in New Zealand has been and remains inadequate. But we can only conclude from Mr. Jordan's final address that the Association had by then come to the conclusion that New Zealand was suffering in present circumstances from excess spending and an excess supply of money. Indeed, Mr. Jordan appealed to the Commission for a recommendation 'that the war against inflation be carried on'.”
Enough said. Social Creditors are of course easy meat. But they are not alone in promising to cut taxes and prices and to increase state hand-outs. There are others who claim to be able to solve the housing problem, abolish destitution and stop war to boot. If Social Credit are cranks, what are these others?
WSP(NZ) website: http://www.worldsocialism.org/nz/E-mail: email@example.com