Sports reporter, boozer, prime minister . . . and social credit galore … Bitter faction fights, backroom fixers and the perils of minority government shaped Australian prime minister John Curtin's early political career. It resonates uncannily with today's political scene, although the Douglas Credit Party that sprang up to help Depression-era battlers is now an irrelevant blip in history. Playwright Ingle Knight has clearly pored over Curtin's life and times to shape it into this new play. At certain moments – such as when Major C. H. Douglas's oddball social credit scheme is mentioned for the umpteenth time – it feels like a historical reading, rather than a full-blooded theatrical experience. Curtin's personal and political battles to fulfill that destiny are neatly handled in this modest production. As for the over-liberal references to the social credit philosophy that so appealed in Depression-ravaged Western Australia, they at least remind one how much times have changed in Curtin's electorate. – The Australian
Dominant Social Theme: These crank money programs are not important at all!
Free-Market Analysis: The Australian recently reviewed a play (see above excerpt) focusing on the life and times of Australian Prime Minister John Curtin's early career. While Curtin is not of special interest to us, Major C.H. Douglas certainly is, as is the statement implying "how much times have changed."
Unfortunately, times haven't changed. Depression looms around the world. As we know from experience, Major Douglas's theories have re-emerged.
His theories caught on during the Depression and the world's gradual monetary expansion after World War II. Wikipedia summarizes some of the main points thusly:
Douglas proposed … augmenting consumers' purchasing power through a National Dividend and a Compensated Price Mechanism. According to Douglas, the true purpose of production is consumption, and production must serve the genuine, freely expressed interests of consumers.
Each citizen is to have a beneficial, not direct, inheritance in the communal capital conferred by complete and dynamic access to the fruits of industry (consumer goods) assured by the National Dividend and Compensated Price.
Consumers, fully provided with adequate purchasing power, will establish the policy of production through exercise of their monetary vote. In this view, the term economic democracy does not mean worker control of industry. Removing the policy of production from banking institutions, government, and industry, Social Credit envisages an "aristocracy of producers, serving and accredited by a democracy of consumers."
Condensing this, we come up with the idea that Douglas wanted government to print money (pure fiat) and put it in the hands of consumers directly.
Douglas disagreed with another economic (non-mainstream) sage who emerged around the same time, Silveo Gesell. Gesell wanted scrip to be issued that depreciated over time in order to provide people with an incentive to spend as much as possible, believing that increasing the velocity of money would increase prosperity.
Douglas wrote about Gesell as follows:
Gesell's theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster. Disappearing money is the heaviest form of continuous taxation ever devised. The theory behind this idea of Gesell's was that what is required is to stimulate trade—that you have to get people frantically buying goods—a perfectly sound idea so long as the objective of life is merely trading. (Wikipedia)
This is an interesting point that Douglas makes. Gesell's idea of disappearing money does indeed constitute a radical tax. But disappearing money was only one of Gesell's ideas. We learn from Wikipedia that Gesell's ideas were apparently threefold. You could call them the three Fs:
Gesell's ideas are very interesting, though obviously dirigiste. But for the rest of this article, we will return to Douglas because back in 2008, the Socialist Party of Great Britain posted an article entitled "Major Douglas rides again: The revival of currency crankism." In the space we have left, we'll try to analyze it.
It begins as follows:
In the course of our nearly one hundred years of socialist activity, one of the ideas that we have had to deal with from time to time has been currency crankism—the idea that economic and social problems are caused by some flaw in the monetary system and that what is required to put things right is not to get rid of the profit system that is capitalism but mere monetary reform (of one kind or another, depending on which particular school the currency crank belongs to).
Between the wars the most popular school of currency crankism in Britain was Social Credit, based on the ideas of Major Douglas (as he was known). His explanation for the slump—of poverty amidst potential plenty, of unmet needs alongside idle factories and widespread unemployment, of piles of unsold goods being destroyed—was simple, not to say simplistic: it was due to a lack of purchasing power, to people not having enough money to buy what they needed or to constitute a market worth catering for.
The solution, too, was simplistic: distribute purchasing power free to people in the form of a "social dividend" paid by the government. Douglas believed that banks could "create credit" by the mere stroke of a pen, but that they deliberately kept money scarce so as to be able to charge a higher rate of interest. Hence his solution that the banks should be taken over by the government and their supposed power to create credit exercised but in the general interest, as "social credit".
The article finds fault with Douglas on several grounds. Its authors argue that slumps actually arise "when, because of falling profit prospects, capitalist firms choose not to spend all their profits on fully renewing or on expanding production."
The article also argues that banks cannot "create credit" as they are "essentially only financial intermediaries, borrowing money at one rate of interest from people with cash to spare and lending this at a higher rate to those needing money to spend or invest, their profits coming from the difference between the two interest rates."
Being a socialist magazine, the (predictable) conclusion reached is that the problems of capitalism "will only end when the means of production are brought into common ownership and democratic control so that they can be oriented towards directly satisfying people's needs."
Obviously, from a free-market point of view, we'd disagree with this; but as always, the socialist perspective is interesting to read because of its analysis of capitalism's problems. The most fascinating part of the article is yet to come, however, and begins with references to an article by Derek Wall entitled, "Social Credit: The Ecosocialism of Fools", in Capitalism, Nature, Socialism.
Wall's article is all about the joining of forces between currency and credit schemes and proponents of various forms of green polity!
This is just what we've observed ourselves and have been writing about recently. We've written two articles on the subject now, plus this one:
Here's more from the Socialist Party article:
The modern-day followers of Major Douglas are well ensconced in the Green Party: "Brian Leslie, whose parents were members of the Social Credit Greenshirts during the 1930s, chairs the Green Party Economics Working Group.
The newsletter, Sustainable Economics, is almost entirely concerned with social credit and Party economics speaker Molly Scott Cato advocates monetary reform… Frances Hutchinson, a former member of the Green Party left grouping, the Association of Socialist Greens, has revived the Douglas Social Credit Secretariat… Wilfred Price, a member of the Greenshirts in the 1930s, joined the Ecology Party (now the Green Party) in the early 1980s and powerfully spoke for social credit as a form of green politics."
Currency cranks find it easy to infiltrate the Green Party because of the tendency amongst its members and supporters to blame "big banks" and international financial institutions for ecological problems and the ravages of capitalist globalisation. The Green Party has, for instance, lined up alongside the Tories, the UKIP and other reactionaries in the "defend the pound" camp because it sees the euro as an international (in the sense of anti- national) currency.
Now, just because these systems are popular in green eco-communities (many affiliated with the UN) doesn't necessarily speak to their utility or practicality. In fact, we're long on the record as arguing for competing currencies.
But within a free-market context, we believe gold and silver will find their rightful place as they have throughout history's larger monetary context. Before the Civil War in the US and in Scotland there are successful evidences (as Selgin and White have argued) for free banking, wildcat banking and a variety of monetary solutions.
The bottom line is that without a free market in money, there is no way of knowing how much money is enough and how much is too much. Absent some sort of private, free-market monitor, presumably one that includes freely traded gold and silver, there is no way to judge monetary volume.