Posted on: November 07, 2014 by M. Oliver Heydorn

Category: Social Credit Views

Social Credit and Usury

     One of the most common misunderstandings where Social Credit is concerned is the notion that the Social Credit diagnosis can be adequately summarized along the following lines: "The problem with the existing financial system is that the banks create money out of nothing in the form of bank credit and then proceed to charge interest on the money that they loan out. Unfortunately, they do not create the money to pay the interest and this leads to a continual build-up of unrepayable debts, etc., etc." This popularized interpretation of Social Credit is erroneous.

     It is absolutely vital for people to understand that, in contradistinction to those monetary reformers who would focus all of our attention on the private creation of money and on the question of usury (however defined), the Social Credit diagnosis points in another and much deeper direction. While it is true that banks do indeed create the bulk of the money supply ex nihilo and in the form of interest-bearing debt, and while it is true that these practices can be problematic (largely on account of the de facto monopoly on money creation which the private banks, for all intents and purposes, currently possess), the financial system's most fundamental flaw has nothing to do with the private creation of the money supply nor with the charging of interest as such.

     The core problem according to Douglas' analysis is that the financial system is inherently or structurally unbalanced; it generates prices at a faster rate than it distributes income. This difference in rates between total prices and total incomes typically manifests itself as a gap between consumer prices and consumer incomes, a gap that must be bridged in one way or another if the economy is to attain to a state of financial equilibrium and continue in operation.

     The gap in question is not exclusively or even primarily caused by the charging of interest on bank credit. Indeed, if you were to restore the creation and issuance of all money to the state and forbid the charging of interest, the gap between consumer prices and incomes would still remain just so long as the standard conventions governing the financing of production and industrial cost accountancy were in place. While the charging of interest can exacerbate the gap between consumer prices and consumer incomes (insofar as bank profits may be held in reserve, re-invested, or used to pay down debts, or insofar as the money needed to pay the interest factor in bank profits cannot be easily or quickly redirected from other expense claims, etc.), the chief cause behind the gap has to do with real capital. The acquisition of real capital under existing financial conventions results in the building up of costs in the productive process for which no or an insufficient volume of consumer purchasing power has been distributed. By the time these capital costs come forward to be liquidated by the consumer in the prices of consumer goods and services, he does not have sufficient income derived from their production to be able to pay for them.

    Furthermore, while it is likewise true that under the existing system the charging of interest can be a) onerous (insofar as having to pay interest may divert so much of one's income that day-to-day living becomes burdensome and one's legitimate needs cannot be adequately or easily met), b) exploitative (insofar as being forced or heavily pressured to borrow money under asymmetrical terms would not even exist if the economy and hence individuals automatically enjoyed adequate levels of consumer purchasing power), and c) excessive (insofar as one may be required to pay large, even incredibly large sums in interest that may exceed the amounts originally borrowed should one be unable to pay off one's debts relatively quickly), it is also true that the restoration of an automatic and self-liquidating balance to the financial system along the lines that Social Credit proposes would do much towards eliminating these objectionable, i.e., usurious, aspects of the practice even if the charging of interest were to continue in a Social Credit economy. Distributing the compensatory flow of debt-free money to the consumer (via the National Dividend and the National Discount) would help to do away with the undue centralization of economic wealth and power that are associated with the present monopoly of credit by putting an end to this monopoly. In other words, in a balanced financial system, the charging of interest would cease to be the kind of issue that it is today. Since it would cease to be the same kind of issue and since it is not the underlying problem in any case, the focus of monetary reformers should be on restoring a due balance to the circular flow and not on eliminating usury.

     At the end of the day, private banks (which would continue to operate as the community's financial book-keepers and as regulators of private production under Social Credit) must be able to cover their legitimate costs and to make a profit in exchange for successfully promoting the real interests of the community by financing desirable (i.e., remunerable) production. They must therefore be entitled to levy fees in one form or another for their services.


Addendum: As noted by Wally Klinck in his comment to this article (see below), the fundamental crime of the present banking system does not consist in the charging of interest on monies created out of nothing as such, but rather in the fact that the recurring gap between consumer prices and consumer incomes (which would not exist if the financial system were an honest system, i.e., if it accurately reflected reality) allows the banks to lay an illegitimate claim to the beneficial ownership of real capital.

     As we have seen, the gap is mainly due to the existence of real capital. Under current conventions we rely (in large measure) on the private banks to fill that gap by issuing additional loans to governments, businesses, and consumers. The increase in liquidity that the economy requires means that these compensatory loans will tend to be paid back more slowly than they are contracted, thus leading to an unrepayble and increasing mountain of debt upon which a tribute of steadily compounding interest must be paid. The tacit or implicit claim which the banks regularly make to the ownership of the credit that they create (by demanding that it be paid back) is, in this particular case, transformed into a kind of long-term, secure, and wholly illegitimate investment. To summarize: the debt-system has allowed the banks to indirectly appropriate the real capital for their own benefit since they are, given their monopoly on credit creation, the only ones who can compensate for the gap. In truth, the beneficial ownership of real capital (as opposed to the administrative ownership) actually rests with the aggregate of individuals who compose society since communal factors of production such as natural resources, the unearned increment of association, and the cultural heritage, are what have made the real capital possible. For this reason, Social Credit proposes that the additional bank debt that is presently used to fill the gap should be replaced with debt-free money that would be issued to the true beneficial owners of the real capital: the common citizens.

Addendum #2: On the principle that the financial system should reflect the physical reality of the economy as accurately possible, it would be eminently fitting if the fees that banks would charge under Social Credit on production loans (in order to meet their costs and to make a reasonable profit) would be referred to as 'service charges'. This would make it clear that the banks are being paid for their services and not for the money which they lend, as if that money had a value in and of itself. Money is not to be treated as an artificially scarce commodity under Social Credit, but rather as a mere numerical instrument, a ticket.


Posted: November 07, 2014

By: Wally Klinck

Good comment, Oliver—clarifying an issue that is not well and widely understood. I think that the argument would be enhanced by stressing clearly that in claiming ownership of the credits which they create the banks have actually appropriated the communal capital and that this appropriation is the fundamental crime of modern banking.

Posted: February 10, 2015

By: Giselle

I see what this article is saying, but I still don't agree. It's a gimmick, trying to convince us nothing is really wrong. No one is asking to change classes here, or even eliminate personal debt. Comer vs BOC is about eliminating our exponentially increasing debt which is completely fallacious even criminal, and clearly destroying our Canadian dollar-- which is the bottom line.
It's just not reasonable for the government to continue making cuts in order to pay an abstract debt that can be written off as simply as it was created, just by allowing the Bank of Canada to create the money to clear the debt, and allowing Canadians and companies in Canada to deal with BOC as its major creditor... It's as if the government of Canada is cheating on its people with the corporation, and is too slimy to tell us the truth, and we're too in denial to admit the obvious.
- The CN rail is two-thirds American owned.
- 407 ETR, Austrian and Spanish ownership.
- Largest 3 breweries in Canada, are not owned by Canadians, even though it's produced and consumed in Canada, HA!
- Tim Horton's, 85% American owned.
- Dofasco, MacMillen Bloedel,CPShips, PK, Alcan, Falcon Bridge, Ultramar, Seagram, The Bay... None owned by Canadians.

Anyone else spot a terrifying trend emerging? How about we get Canada back to democracy and spend some time sorting out this mess before we talk ourselves out of acting in anyway. This is a crime. The case needs to be heard.

Posted: February 11, 2015

By: Oliver Heydorn

Hi Giselle,

No one is saying that the Comer vs. BOC case should not be heard. The point of this article is to show that the more basic problem with our economic system is the excess of debt. Eliminate the need for compensatory debt and you eliminate the interest that is charged on it.

Just as a point of clarification, the money supply is largely dependent on private borrowing from private banks. That is, not all of our debt is public. Eliminating interest on public debts (undoubtedly a good thing) does not address the gap between prices and incomes. Excessive private and public borrowing would have to continue in order to fill it.

Posted: February 13, 2015

By: Giselle

Hi Oliver,

Thanks for the reply, very unexpected.

I felt the article put a hopeless spin on this unprecedented case.
The Greenback (if that's what you're suggesting) could be what comes of this pandora's box of a case, anyhow! It's not even in the media yet, and that's because it's so big, no one wants to be the first to touch it. Who knows it might divide us.

The government makes cuts to an already failing school system, cuts to hospitals, cuts to the elderly's pensions, all in the name of paying a deficit. So when you say that it won't have an impact, I tend to disagree... And that's really just skimming the surface in my opinion, when you think about where all this consumerism is leading us, not to mention the much worse off nations, which there should at least be a fear of us becoming, if one's ability to empathize isn't enough. If we keep selling off all of our best economical assets, auctioning them off to the German, Chinese, and American while we become the subsidararies, in our own country, we will be no better off in the near future.

If this case won, it might have a trickle down effect, and lead to a shrinking of the gap... If this case wins, it will prove we live in the corporate dictatorship that we do.... You can't define an orange as an apple. I guess I see the revolutionary potential of this case, but maybe I'm just stupidly optimistic.

Posted: March 30, 2015

By: Henryvoit

Hello Readers
Why do you complicate the problems to find out why life in Canada is worse and worse, Currently in Ontario 100% of personal tax is going to service the debt. $CAD5000.00 per head. To solve the problem, problem has to be found first. Supportive question: Can TTC using the current fleet of X cars send on the streets during incoming games X+ 20% cars? NO!, math from grade 4 proves that X +20% of X equals 1.2X and 1.2X is more than X. This example shows that private banks should not emit more MONEY they have. They should not, but they do by corrupting law makers and reserving themselves THE LAW OF FRACTIONAL banking. They do create MONEY from the vacuum and want borrowers to repay them REAL MONEY with with interest >>> USURY SHORT HISTORY To simplified the trading system based on barter (exchange of different goods at agreed coefficient- for example 20 chicken for pair of shoes) someone introduced UNIVERSAL equivalent to some popular product and named it MONEY. 1 MONEY= 1 chicken. 20 MONEY= 1 pair of shoes. 20 MONEY is the confirmation of existence of 1 pair of shoes or 20 chicken etc. >>>> MONEY is CONFIRMATION of the physical of the existence of PRODUCT If PRODUCT does not exists MONEY can not exists too. Time was passing by. Population was growing. Societies started to be organized in much bigger groups. Chief of the group had a title KING, group was called KINGDOM Smart, knowledgeable KING decided than exclusively he will issue (emit) MONEY on behalf of ALL members of the KINGDOM equivalent to goods and services provided for the KINGDOM (to benefit all members of the society). YES, did not have to borrow any MONEY from anybody. MONEY introduced to the society was used as to trade between members of the society. Falsifying of the MONEY was penalized by the cutting off head(s) of the member or members of the group who tried to be above the KING. System worked well. In England for 721 years MONEY was represented by squared stick chopped in length by half with the equal nomination on two pieces. One of the piece was in circulation second one was sitting in the KINGDOM's TREASURY. Real value of the material of MONEY(tally stick) was almost ZERO (some calories when burned). No diamonds, no gold, no silver was needed. USERY (creation of MONEY from vacuum) was impossible. Financial system was very stable!
Some individual members of KINGDOM wanted to have plenty of MONEY the easiest way: they wanted to emit MONEY themselves. They hired mercenaries (well paid or even ideological for free) to kill all KINGS. They were very successful , And these PERPETRATORS became KINGS of THE MONEY. To have assurance that population will like the system they acquired ALL MEDIA and are injecting success stories into DAMAGED brains of the members of the society by legalizing the worse narcotic and promoting it by MEDIA. Narcotic is called Whiskey, Bourbon, Champagne, Beer, Vodka (water) and 1000 more names to cover up ALCOHOL. This legal narcotic is causing 100x more DAMAGE to society than all others ILLEGAL natural and artificial narcotics. To make even more money, THE KINGS of THE MONEY are financing all different group of PEOPLE to kill each other. The winning group receives cheap Medals Of Dead Heroes and .... has to re-pay loans of the looser with hefty interests as well.

Dear Reader

You are smart. THE PROBLEM is identified above >>> solutions are simple. What is your solution?


Posted: March 30, 2015

By: Henryvoit

Anyone else spot a terrifying trend emerging? How about we get Canada back to democracy and spend some time sorting out this mess before we talk ourselves out of acting in anyway. This is a crime. The case needs to be heard.

What is Canadian democracy?

Posted: June 01, 2015

By: Stephen Jones

As a New Zealander it is interesting to see you Canadians facing all the same nonsense we are. Recently our second largest city was severely damaged in an earthquake. You would think the sensible solution would be for our government to contract a firm to rebuild the city for x amount of money, and print the money. After all this printed money is being immediately converted into real concrete and steel assets with capital values exceeding the amount of money printed. Furthermore, the government could have pocketed the insurance pay out as they would be covering the cost insurance would otherwise pay. Which payout furthermore would have offset the real damage the global financial crisis did to our largely blameless economy. But apparently what is rational is not allowed when you are a small country looked upon by the power(s) that be. And so we find ourselves a sovereign country without sovereignty living under an economic rational that defies reason.

Posted: June 13, 2015

By: Wallace Klinck

I offer the following comments to clarify the actual nature of Social Credit and how it relates to our ongoing financial, economic and social problems:

Increasing centralization of power is indeed the critical issue facing society. The primary obstacle to it’s decentralization is an almost universal ignorance of the manner in which the existing financial system renders the price-system evermore non-self-liquidating–making impossible the recovery of industrial production costs through sales. We attempt to resolve this problem by contracting bank debt so to provide access to the products of industry by the foolish expedient of mortgaging our future by transferring these costs as an exponentially growing debt charge against future cycles of production and by engaging in an orgy of wasteful and destructive activities culminating in continuous war. Neither Finance-Capitalism nor any form of collectivist organization (e.g., socialism, communism or fascism) can resolve this problem. A solution can only be achieved by an appropriate modification of the existing financial credit and price-system so as to properly facilitate distribution of the out-pouring of modern technology-based industry–in the context of expanding leisure.

Socialism calls for State ownership and administration of the means of production—the central planning of the economy and of human activity. The key feature of socialism is centralized power exercised by mandatory employment in projects determined by the State. As such the suppression of individual initiative is an inevitable result. This applies to all forms of “socialism”—national or international in nature.

Social Credit is the inverse of socialism. People have this notion in their heads that a sharing society is socialism, presumably because of an assumption that the sharing will be accomplished by re-distributing existing wealth by various confiscatory forms of taxation. It must be made absolutely clear to all and sundry that Social Credit stands for distribution of consumer goods at source as they emerge from the production line and not for re-distribution of earned incomes. Production and Consumption have no meaning, one without the other. The two must be matched and balanced. Producers’ costs cannot be recovered without money received from consumers, whose incomes alone provide business its only means to liquidate all financial costs of production.

National (Consumer) Dividends and Compensated (lowered) Prices at point of retail sale must be provided and financed by a Government Agency (created or existing, whatever is most efficient and convenient) with funds not derived from taxation but drawn down from a properly constructed National Credit Account which would be merely a continuously updated actuarial accounting of the nation’s real credit, being an inventory of all those resources which are available to be used for production and which, if so used, may result in the making of financial prices.

Unfortunately, the minds of the public are conditioned by a false assumption that the economic “pie” is limited to the financial incomes paid out in production and they perceive this as the only source of funding. This assumes, erroneously, that the price-system is self-liquidating, i.e., that incomes paid out as wages, salaries and dividends are not only equal to, but available, to meet the total financial costs of production. This is a major fallacy which is readily proved by the enormous amount of accumulating inflationary private and public debt created as loans by the banking system, which allows goods to be purchased after a fashion but does not liquidate their financial costs of production because these loans merely transfer these costs to be recovered from future cycles of production.

The physical (i.e., real) costs of production are met as production takes place. Obviously if this were not the case, production could not proceed. That is self-evident and axiomatic. When goods are produced in finished form they are meant to be used and should be available to the overall consuming public in total and without any residual financial debt. Those persons whose services are actually needed deserve to be paid for those services but the money they earn is increasingly inadequate to claim all of the producers’ output. That is why we resort currently to new money created as debt by bank loans in order that we might carry on producing and consuming. This new bank-created money does not remain in circulation but is cancelled when used to purchase the goods in respect of which the loan was contracted. This accumulating debt is bogus and is required only because price increasingly includes, as real capital replaces labour as a factor of production, allocated charges in respect of real capital which are not distributed as income in the same cycle of production.

Consumer income is cancelled prematurely, leaving a growing deficiency of income relative to total prices of goods awaiting purchase. The flow of final prices increasingly exceeds the flow of effective financial purchasing-power. We can simply forgo acquisition of these goods, leaving the producer no option but merely to warehouse or destroy them and go bankrupt—making the whole exercise of production with the objective of consumption a mindless exercise in futility. Or, we can assure that, while required remaining actual workers continue to benefit from their earnings, all citizens, workers included, benefit by gaining access to the full output of industry by being provided adequate purchasing-power to make this possible. In a Social Credit dispensation, Inheritance would be generalized. Socialism typically wants to destroy inheritance.

Social Credit stands most definitely, un-ashameably and un-abashedly, for a sharing society—and as labour is increasingly reduced by technology it would become more sharing with the passage of time. It does not involve State ownership, planning or administration of the economy or of social organization as such. It is highly decentralizing of power to individuals to the extent that economic independence is made possible by full access to the increasing abundance made possible by technology. It is appropriate that acquisition of goods and services is available to those with earned incomes, but to limit distribution of goods and services to those with earned incomes when human work is increasingly eliminated as a factor in the production of such real wealth, is totally irrational.

The abundance which technology makes possible should set men and women free from physical want, increasingly to choose independently and without duress their preferred activities in life. Social Credit gives real meaning to the concept of economic democracy as a consumer-motivated system of production—as opposed to the counterfeit socialist concept of economic democracy as a centralized proletarian Work-State.

From a metaphysical standpoint Social Credit would be a practical, physical incarnation of the Christian Doctrine of Salvation by Unearned Grace—in contradistinction to the prevailing Judaic conception, and system, of Salvation through Work.

I hope that the above comments may help to clarify the issues which you have raised.

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