Social credit theory argues that society’s wealth-building power lies in preserving cultural heritage. Developed by Clifford Hugh Douglas, it suggests that existing economic structures create cyclical events that don’t benefit society. Douglas proposed a discount to balance purchasing power, funded by lending and credit activities.
Social credit is an approach to economics that argues that society’s wealth-building power lies in cultural heritage and the preservation of such. This theory was developed after World War I by Clifford Hugh Douglas, an engineer who turned to economics after observing economic patterns in a factory he supervised during the war. His theory has proved popular in some regions and has inspired a number of political parties that have worked to advance social credit-based tax policies. He also has critics, who argue that his conclusions don’t stand up to rigorous testing.
In his book on social credit, Douglas argued that in a society where consumers have the purchasing power needed to dictate production by controlling what they consume and when, there will be more social equality. He believed that existing economic structures created a situation where any attempt to raise wages would cause a corresponding rise in prices. This would lead to a decrease in purchasing power, an attempt to raise wages again and a cyclical development of events that would not benefit society.
This theory also suggests that the inheritance of technology and various approaches to manufacturing is the most valuable and important thing. Individual contributions add up to the sum of the whole, and over time the real costs of production should decrease. Technology translates into greater efficiency, for example. Even as production costs fall, consumption costs tend to rise and the economy relies heavily on loans and credit. Consumers have to borrow to cover their needs, for example, and their borrowing is facilitated by increasing the money supply and distributing the surplus to financial institutions to use for loans.
The limiting factor on production Douglas observed during the war was the amount of finance available to cover production costs such as purchasing more equipment, adding shifts of workers, and so on. This differed from more traditional theories of labor and resource limitation on production capabilities. According to social credit theory, when the focus of production is on creating wealth, rather than creating consumer goods, it can contribute to the wage-price gap. Consumers have to cover waste generated by industry and this can have cumulative effects over time.
The solution proposed by Douglas and his theory of social credit was a form of discount to lower prices for consumers and balance their purchasing power. He suggested that goods should be purchased at full price, with consumers receiving a discount to match the cost they pay. This discount would come from funds normally used for lending and credit activities. The discount would be determined by determining the real cost of production, with the assistance of a ratio comparing production and consumption.
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