SOCIAL CREDIT THEORY

Developed by European engineer C.H. Douglas, the Social Credit theory was formed in the 1900s and was made in response to a very commonly recognized flaw in capitalism. This flaw was the idea that most people don’t have the money to buy the goods that they produce themselves. Douglas believed that wages were so unfair that even though economies produce tons of goods, consumers can’t afford them, leading to chronic underconsumption; since factories produce but people can’t purchase, there’s tons of waste, leading to recession.

There are 4 main roots of this theory. The first is post-WWI capitalism, which entailed exorbitant unemployment, inspiring Douglas’s attempts to find a solution that balanced society. The second is the moral economics tradition, which is the idea that money should serve the welfare of humans and not enslave them to debt. The third is engineering logic; because Douglas was an engineer, he viewed economics as a system that could have an equilibrium. He perceived the profits, interests, and savings as leaks in the economic system since it removed the balance of purchasing power of everyone. The final root is Christian ethics; Douglas interlinked moral duty and fairness to values that aligned with Christianity, such as human dignity.

Douglas’s solution to the unbalanced economy was a social credit. This, as discussed earlier, was the concept of more money and dividends that would go to citizens in order to bridge the production-consumption gap. As a result, since more consumers would be able to afford the products, there would be less waste and therefore the recession would be prevented. Consequently, the money in the economy would represent the real productive capacity of society since items aren’t going to waste and we’re not relying on the debt of individuals for value, as that is immoral. As a result, we would have an inherently moral economy since banks and finance would serve the community instead of trapping them in debt.