Book review

10:   The Political Economy of Social Credit and Guild Socialism

Frances Hutchinson and Brian Burkitt £12.99 Jon Carpenter Publishing 2005

This book examines the history and political background to the monetary reform proposals known as Social Credit, which started life as a collaboration between its main author and proponent, Maj. C H Douglas, and A R Orage, the then-editor of the Guild Socialist weekly, The New Age, in 1919.

It shows that though the movement was mainly known as simply promoting a monetary reform proposal, its origins and aims were far wider, involving an alternative approach to social organisation to both Capitalism and Socialism/Communism. Between the two World Wars, it gained widespread support and public debate.

The book’s first section looks at the Guild Socialists’ origins, aims and history, and their changing relations to the Fabians and the emerging Labour Party. The Guild Socialists sought to emancipate the then-new industrial working classes and to abolish the wage system, aiming for self-government in industry and reduction of the power of the centralised state. It developed its ideas from the organisation of the mediaeval craft guilds. William Morris and G D H Cole had been well-known supporters of these ideas.

Douglas’s first book, Economic Democracy, published in 1920, had first been serialised in The New Age.

This introduced his ‘A plus B Theorem’, which aimed to show that the wages, salaries and dividends paid out from industry in any given period were insufficient by themselves to purchase the total of consumer-goods entering the market in that same period, and needed to be supplemented by further loans of new credit for capital investment (loans for consumption were not yet common) or from income from exports. Though observation of the realities of the situation of any period from then to the present can confirm this fact, this ‘theorem’ has led to countless debates to justify or deny its validity.

This leads to the desperate efforts to export ‘surpluses’ while many in the ‘home market’ are left in need, and to gain ‘inward investment’ to provide additional funds to pay out to the workforce to buy the currently-available goods, as well as requiring an ever-rising ‘National Debt’.

Douglas’s proposed solution, developed with Orage, was to inject additional purchasing power partly by means of a ‘scientific’ price-discount, like a negative VAT, to be funded by government-created money; and, in line with Guild Socialist ideas, also by means of a ‘National Dividend’, analogous to a Citizen’s Income, with the aim of progressively breaking the dependence on paid employment for a ‘living wage’, so freeing people to choose their occupation and ending the need for the ‘economy’ to keep growing to maintain ‘full employment’ as a principal means of gaining income.

He stressed that this was progressively to break the link between income and paid work, and allow industry to meet real needs, without financial pressure for perpetual ‘economic growth’.

In justification of the proposal for ‘National Dividends’, he argued that current productive potential was to a far greater extent due to the accumulated knowledge and infrastructure of machines, tools, buildings, roads, etc from past generations than from the efforts of the current workforce, and that this ‘cultural inheritance’ should be fairly distributed to all currently living. This mirrors the then-popular ideas of the ‘Georgists’, that the value of ‘land’ – meaning all natural resources – should be captured by the State through rent and taxes, for redistribution to the populace by government-spending on infrastructure and services.

He opposed the power of private banks to create society’s money by making interest-bearing loans of newly-created credit, and the power this gave to banks to direct the economy in their own interest. He saw this as part of the tendency in Capitalism toward concentration of power. However, he did not consider the potential effect of the creation of a permanently-circulating supply of money created and spent into circulation by the government, adequate in volume to cater for both current consumption, savings, and investment in future production without the need for loans of private bank-created money, as proposed in the 1930s by Irving Fisher and Henry Simons, and more recently by James Robertson and Stephen Zarlenga, among others.

He avoided making concrete proposals for reform, arguing that these would depend on particular circumstances, and were best left to those addressing these in any given conditions. The nearest to concrete proposals for implementation is in his ‘Draft Mining Scheme’, published in 1920, which proposed that the Miners’ Federation establish a bank which would form an integral part of the industry, with government control of coal prices for domestic use and subsidy by means of Treasury Notes. This was intended only as an initial scheme, to operate within the existing economy.

The book examines the reaction of the Labour Party to these ideas. At first there was strong pressure from its membership and many branches to examine the proposals, which were rapidly gaining popularity. However, the leadership proved hostile, and published reports which misrepresented its aims and proposals, essentially because of its own aim of hierarchical state-capitalism, ‘economic growth’ and ‘full employment’, which ideas such as National Dividends would undermine.

It then covers the period from the 1930s to 1950s, when Douglas died, and his ideas were no longer widely supported or debated. The Alberta Social Credit government, elected in 1935 with a majority of 56 out of 63 seats, is the subject of the final chapter before the Conclusion, with its failure to implement Douglas’s proposals both because of political inexperience and, mainly, through the Canadian Provincial Government disallowing its Bills to introduce them.

The authors conclude that the ‘Douglas/New Age texts provide a valid critique of Capitalism and offer a route to ‘a socialist economy in which economic conflict is minimised’. Their critique, and its predictions of the results of continuing with the debt-financial system, have since been tragically borne out to this day.

Orage and Douglas insisted that ‘social credit’ was more than just a proposal for monetary reform; the wide redistribution of wealth was also essential, to end the dependence on paid employment as machines took over as producers, and to allow production for need to replace debt-driven production for profit and economic growth; the mainstream socialist aim of ‘full employment’ was unacceptable, and served to prop up (Finance-)Capitalism and the drive for ever-increasing production.

The Green Party’s support for Citizens’ Incomes, LVT and resource taxes lacks only the addition of monetary reform to be offering the means to the radical reorganisation of society that Douglas and Orage sought.

Brian Leslie