42 — For a Better
article of Alain Pilote, first published in the January-February, 1995
issue of the Michael
No inflation with Social Credit
is not unusual to hear some people, especially so-called “learned”
people, say that money issued by the Government, as proposed by the
Social Credit system, would bring about runaway inflation. And when they
say this, they think they said it all, whereas they know nothing about
Social Credit, nothing about the circuit of money in a Social Credit
system, nothing about the compensated discount, and nothing about the
“learned” people, please think about it for one moment: which method
will increase prices – 100 dollars issued without interest by the
Government, or 100 dollars borrowed at interest from private banks? Even
a 10-year-old kid would find the right answer immediately: it is the
interest that makes prices inflate. A 10-year-old kid would also tell
you that it is absurd for the Government to borrow money at interest,
when it could issue it itself, without interest.
it seems that for people covered with diplomas, the answer is not so
obvious. Why? Because they have a false notion of the problem,
reminds us of the guy who had met Gérard Mercier, the present Director
of the “Michael” Movement, and said to him: “Your Social Credit
theory doesn’t make any sense! Come on, the Government cannot just
print a wholesale quantity of paper money like that. It will bring about
runaway inflation!” Mr. Mercier replied: “You are quite right.”
guy, surprised, added: “What? You, Mr. Mercier, are against Social
Credit?” – “Not at all; I will explain it to you. There are two
kinds of Social Credit: the real Social Credit and the false one. The
one you have just explained to me is the false one; the one spread by
the Financiers. I totally agree with you that the kind of Social Credit
you have just explained to me doesn’t hold water, but what you
explained has nothing to do with real Social Credit. I am going to
explain real Social Credit to you, the kind of Social Credit you
obviously never heard of.”
Mr. Mercier explained to him the Social Credit technique, with Louis
Even’s two brochures, What Do We
Mean By Real Social Credit? and
A Sound and Effective Financial System.
The following article aims at giving a good idea of what real Social
let us define the words “social credit”: instead of having money
created by the banks at interest – a
banking credit, one would have money created without interest
by society – a social credit. The Social Credit
system aims at nothing but to have money be the exact financial
expression of economic realities. So there is no question whatsoever in
Social Credit of issuing or printing money anyhow, without limits and in
an irresponsible way (as the Financiers would like the population to
think). Here is what is actually proposed by the Social Crediters:
Government would appoint a commission of accountants, an independent
organism called the “National Credit Office”, that would be charged
with setting up an accurate bookkeeping as regards our currency: money
would be issued as new goods are made, and be withdrawn from circulation
as these goods are consumed. Thus there would be a constant balance
between the capacity to produce and the capacity to pay, between prices
and purchasing power.
because wages are not sufficient to purchase all of existing production
(wages being just one part of the production cost of any item), the
National Credit Office would give every citizen a monthly dividend, a
sum of money to fill the gap in the purchasing power (and make it equal
to the collective prices for consumable goods for sale), and to ensure
each and all a share in the goods of the nation. This dividend would be
based on the two biggest factors to modern production: the inheritance
of natural resources, and the inventions of past generations, which are
both free gifts from God, therefore belonging to all. Those who would be
employed in production would still receive a salary, but everyone,
employed as well as unemployed, would receive his or her dividend.
dividend formula would be infinitely better than the present social
programs like welfare, unemployment insurance, etc., since the dividend
would not be financed by the taxes of those who are employed, but by new
money created by the National Credit Office. No one would therefore live
at the expense of the taxpayers; the dividend would be a heritage that
is due to all Canadian citizens, who are all stockholders in “Canada
contrary to welfare, this dividend would be given unconditionally,
without means tests, and would therefore not penalize those who want to
work. Far from being an incitement to idleness, it would allow people to
allocate themselves to those jobs to which they are best suited.
Besides, if people stopped working, production would go down, and so
would the dividend, since it is based on existing production. Without
this income not tied to employment, progress is no longer an ally of
man, but a curse, since, by eliminating the need for human labour, it
makes people lose their sole source of income.
tie income to work is to distort means and ends. If all the necessities
of life can be provided without everyone having to work, it is sheer
stupidity to create useless work in order to keep everyone employed (and
not to mention all the waste in resources and human energy it
represents!). As John Farina, a professor in the faculty of social work
at the Wilfrid Laurier University in Waterloo, Ont., put it, in 1982:
“Man invented machines so man would not have to work,
and we've succeeded to the point of one and a half million unemployed.
To me that is sheer, raging idiocy.”
Financing public works
would public works and services be financed in such a social money
system? Whenever the population wants a new public project, the
Government would not ask: “Have we the money to build this project?”
but “Have we the materials and the workers to realize it?” If it is
so, the National Credit Office would automatically create the new money
to finance the new production.
us suppose the population wants a new bridge, of which the construction
will cost $50 million. The National Credit Office therefore creates $50
million to finance the construction of this bridge. And since all new
money must be withdrawn from circulation as the new production is
consumed, the money created to build the bridge must be withdrawn from
circulation as this bridge is consumed.
can a bridge be “consumed”? Through wear and depreciation. Let us
suppose the engineers who built this bridge expect it to last 50 years.
This bridge will therefore lose one-fiftieth of its value every year;
since it costs $50 million to build, it will depreciate by $1 million
every year. It is therefore $1 million that will have to be withdrawn
from circulation every year, for 50 years.
Will this withdrawal
of money be done through taxation? No, this is not necessary at all,
said Clifford Hugh Douglas, the Scottish engineer who conceived the
Social Credit system; there is another way, that is much simpler, to
withdraw money from circulation: the method of the adjusted price (also
called the compensated discount). Douglas said in London, on January 19,
“The immense, complex, irritating and time-wasting
taxation system, which keeps hundreds of people busy working, is a
complete waste of time. The whole of the results that are supposed to be
achieved by the system of taxation could be achieved without any
bookkeeping at all; they could be achieved entirely through the price
The adjusted price
would this adjusted price work? The National Credit Office would be
charged with keeping an accurate bookkeeping of the nation's assets and
liabilities, which requires only two columns: one to write down all that
has been produced in the country during the given period (assets), and
one for all that has been consumed (liabilities). The bridge's $1
million annual depreciation mentioned above would be written down in the
“consumption” column, and added to all the other kinds of
consumption or disappearance of wealth in the country during the given
also points out that the real cost of production is consumption. In the
example of the bridge, the cost price is $50 million. But the real cost
of the bridge is all that had to be consumed in order to build it.
Whereas, on the one hand, it is impossible to know the real cost of
every article produced, one can easily know, on the other hand, what the
real cost of the total production of the country was during a year: it
is all that has been consumed in that country throughout the given year.
For example, if Canada's national accounts show that,
in a year, the total production of consumer goods for sale was $500
billion, and that, in the same year, total consumption was $400 billion,
this means that Canada was able to produce $500 billion worth of goods
and services while consuming only $400 billion worth of goods and
services. What the bookkeeping price shows at $500 billion actually cost
$400 billion to produce.
real cost of the production that is priced at $500 billion is therefore
$400 billion. The population must therefore be able to reap the fruit of
its labour — the $500-billion production — by paying only $400
billion for it. Besides, we have seen before that money must be
withdrawn from circulation as goods are consumed: if $400 billion worth
of goods and services are consumed in the country during a year, it is
$400 billion that must be withdrawn from circulation, no more, no less.
A discount on prices
How can Canadians get $500 billion worth of goods and services while paying only $400 billion? That is quite simple. The retail price of all goods and services only has to be reduced by 1/5 — a 20% discount. The National Credit Office would therefore decree a 20% discount on all retail prices during the following term. For example, if an article was priced at $500, I would pay only $400 for it.
if the retailer wants to stay in business, he must recover $500 for the
sale of that product, for this price of $500 includes all the costs of
the retailer, including his profit. This is why Douglas speaks about a
“compensated discount”: in the example mentioned above, the retailer
would be compensated by the National Credit Office which would pay him
the $100 that was discounted.
each one of his sales, the retailer would only have to present his sales
voucher to the National Credit Office, which would reimburse him the
discount granted to the consumer. Thus, nobody would be penalized: the
consumers would obtain the goods which, otherwise, would have remained
unsold, and the retailers would recover their costs.
would be impossible
Thanks to this mechanism of a discount on prices, any
inflation would be impossible, since the discount actually lowers
prices. Inflation means rising prices, and the best way to prevent
prices from rising is to lower them! Moreover, a discount on prices is
exactly the opposite of a sales tax: instead of paying more for goods
because of taxes, the consumers would pay less because of the discount.
Who would complain about it?
now clearly sees that those who claim that Social Credit will cause
inflation talk through their hats, for they ignore the existence of the
compensated discount. Of course, if there was only question in Social
Credit of printing money, and nothing else, the fear of inflation would
be rightly justified. But Social Credit does have this technique to
prevent any danger of inflation.
are three fundamentals in Social Credit: 1. Money must be issued without
debt by the Government — the representative of society — according
to production, and withdrawn from circulation according to consumption;
2. A monthly dividend to every citizen; 3. The compensated discount. All
three are necessary; if you remove one of them, the system cannot work
of this technique of Social Credit, as explained above briefly, aims at
nothing but to finance the production of goods that answer needs, and to
finance the distribution of these goods for them to reach these needs.
If you look at the diagram below (the circuit of money), you will notice
that money never piles up anywhere; it only follows the flow of goods,
being issued as goods are produced, and returning to its source (the
National Credit Office) as goods are consumed (sold). At any moment,
money is an exact reflection of physical realities: money appears when a
new product appears, and disappears when the product disappears (is
and Social Credit
would become of today’s taxes in a Social Credit system? All taxation
would be reduced drastically, and in time could be entirely abolished.
The guideline would be to have people pay only for what they consume.
The consumption of public goods (like bridges) would be paid for by the
adjustment of prices, as it was explained above. However, it would be
unfair to have all of the citizens of the nation pay for services that
are offered only to certain cities, like the water supply, sewerage,
etc. It is those who receive these services who would have to pay their
municipalities for them.
public administration would no longer drag public debts, that are
mathematically unrepayable, and that are serviced every year by a large
slice of the tax revenues (for the Canadian Government, servicing the
public debt costs over one-third of all taxes). We would neither have to
pay for all the social programs (welfare, unemployment insurance, etc.),
which would be advantageously replaced by the unconditional monthly
dividend to every citizen.
circulation of money
Money is loaned to the producers (industry) by the National Credit Office, for the production of new goods, which brings a flow of new goods with prices (left arrow). Since wages are not sufficient to buy all of available goods and services for sale, the National Credit Office fills the gap between the flow of purchasing power and the flow of total prices by issuing a monthly dividend to every citizen. Consumers and goods meet at the market place (retailer), and when a product is purchased (consumed), the money that had originally been loaned for producing this good returns to its source, the National Credit Office. At any moment, there is always an equality between the total purchasing power available in the hands of the population, and the total prices of consumable goods for sale on the market.
* * *
this opens up undreamt-of horizons and possibilities. For these
possibilities to come true, all must know and study the Social Credit
system. And for that, all must be subscribed to the “Michael”
Journal. Dear friend who reads this article, here comes the part you
have to play in all of this: you have understood Social Credit, so it is
your duty and responsibility to make it known to others, by soliciting
around you subscriptions to the “Michael” Journal. Good luck!