Clifford Hugh Douglas and Social Credit
In the immediate aftermath of the First World War (1914-18) Clifford Hugh Douglas was introduced to Orage. As an engineer working for major international companies, Douglas had observed that, in the case of any individual project, there was only ever one problem which could not be overcome, and that was lack of finance. If a project was considered desirable for a local community, it was always possible to find the tools, the machinery, the skills, the materials, the workers and all essential resources. But if the finance was not forthcoming, the project was invariably scrapped, or put on hold until the finance was available. In other words, policies were being determined by the availability of finance.
During the First World War, Douglas was in charge of sorting out the finances of Farnborough Aircraft Factory. He turned his engineering mind to the observation of the movement of finances through the productive enterprise, first at Farnborough and later in 100 different firms throughout the country. His observations held true. The rate of flow of
incomes, in terms of wages, salaries and dividends, did not match the rate of flow of prices of goods coming onto the market. Douglas followed his initial researches into the financial system with a study of the methods used by the Government to finance the unprecedented waste of the ‘War to End All Wars”. The technical details of his analysis of the capitalist financial system are fully explained in Douglas’ many books, speeches, pamphlets and articles, many of which are available elsewhere on this website.
For some months, Douglas and Orage held long discussions. Orage quickly recognised that Douglas held the answers to his concerns about the financing of production, whilst Douglas applied his purely financial theorising to the political philosophy of Guild Socialism. The result was a body of socio-economic theory which became known as ‘Social Credit’.
Good Work and the National Dividend
Like a great many people of his times, Douglas delighted in the potential of the Machine Age to open up the lives of ordinary people so that they could enjoy the benefits of the new technologies. However, he also foresaw the dangers of allowing economic growth to be driven by purely financial considerations. As things stood, the debt-financing of industry was leading to ever-increasing wasteful production of superfluous consumer items, and the ultimate destruction of resources in warfare. Instead of becoming free, people had made themselves slaves of the Machine, bound to work for a wage or salary as the primary means of obtaining an income. This is not a necessary state of affairs.
Adam Smith’s very early observations on the economics of the Machine Age make interesting reading. By coming together into a factory, dividing up the labour and using more sophisticated machinery, production can be increased geometrically, out of all proportion to the efforts of any single individual. To whom, therefore, should the benefit of the vast increase in output belong? Is it to the owner of the factory? To the individual workers in that factory? Or to families in the community as a whole who, after all, supply the workers to all factories and places of ‘work’ without financial charge? Social Credit literature raises many questions of this type, and provides far more satisfactory answers than can be found in conventional economics textbooks.
A central plank of Social Credit literature is the observation that no single individual can make any significant contribution to total wealth by their own efforts. No matter how talented or skilled they might be, or how much energy and time they put into their work, every individual relies upon complex networks of transport and farming systems and so on. In short, the Bill Gateses of this world could make nothing whatsoever without the massive development of tools and processes built up over untold generations. This ‘common cultural inheritance’ forms the source of all wealth in the Machine Age. It would therefore make sense for all members of the community to receive their birthright in the form of a ‘dividend’ payable, like any dividend on shares, independently of any income from employment. The case for and against the payment of a ‘National Dividend for all’ is well rehearsed in the Social Credit literature available on this website.
A Credit-driven Financial System
Douglas had no quarrel with banks or with machines. Operating efficiently and in harmony, the financial system and the new technologies had created the potential for a sane economic system, offering sufficiency for all. The new technologies, and sensible financial policies could be used to eliminate poverty and scarcity. However, as things stood during Douglas’ lifetime, finance-driven policy decisions were creating poverty amidst plenty, environmental degradation and war on an unprecedented scale. Finance and the new technologies would make excellent servants of humanity. But they were making very bad masters.
As things stand to this very day, finance dominates the lives of virtually every single person on the planet. From the moment of birth to the moment of death, the availability or lack of finance dictates what a person can and cannot do. Yet very few people can attempt to explain with any clarity exactly how it is that finance rules our lives. Clifford Hugh Douglas was one individual who, by observation and interpretation, came to a rigorous understanding of the financial system which had arisen during industrialisation.
Douglas observed, as a matter of fact and not mere opinion, that finance flows into the economic system as bank-created debt. Firms use the debt-created finance to pay their costs of production. The wages, salaries and dividends paid out by firms form incomes to households. With their incomes, households can purchase the stream of goods and services coming onto the market. As the modern economic system has developed, it has created a massive bureaucracy. Behind that bureaucracy, obscured by the very complexity of the system, financial speculation, profiteering, marketing, advertising and a whole range of growth-driven economic activities are making human existence increasingly precarious. In Douglas’ view, this is not a necessary state of human affairs. The system is there to be studied. Such study will reveal that, by using relatively straightforward accounting methodology, production, distribution and exchange – i.e., all economic activity – can be credit-driven rather than debt-driven.