III.) The Diagnostic Difference: Administration versus Finance.
'Don't touch! - There are terrible people who instead of solving a problem, bungle it and make it more difficult for all who come after. Whoever can't hit the nail on the head should please not hit it at all.'
(Friedrich Nietzsche, The Wanderer and his Shadow, 326 )
As we have seen, radicals agreed that the economic system was at fault: they differed as to where the fault lay. In order to properly appreciate their differences, it is necessary to explore the economic system in greater detail.
Though in popular parlance, the economic system is called 'capitalism', and often treated as a singular, undivided entity, closer academic analysis - most notably by Thorstein Veblen - distinguishes three systems, (or sub-systems), within the economy that account for how it functions - and malfunctions. These are:
1) The System of Machine Industry: The organization and utilisation of machinery, men and materials for production. Simply put, this system is concerned with generating goods and services.
2) The System of Business Enterprise: The organization and utilisation of men, materials, etc.. for the purpose of selling products. In short, this system is concerned with generating money from goods and services.
3) The System of Debt Finance: The organization and utilisation of money for the purpose of financing production. In other words, this system is concerned with generating money from money.
Luddites and medievalists attacked the system of machine industry, holding it responsible for modern misery. Whilst these views have gained very little traction outside primitivist circles, (although recent environmental agitation may change that), they were significant in reminding men of a prosperous, pre-industrial past - thus countering capitalist propaganda that portrayed previous history as poverty, famine and strife. Nonetheless, both Socialists and Social Crediters reckoned that the system of machine industry had the potential to generate abundance, and the root cause for the failure of the economic system must be found elsewhere.
Socialists targeted the system of business enterprise, and in particular, three institutions associated with it: competition for markets, production for profit and private ownership of the means of production ('private property'). Competition was held responsible, not just for wasteful duplication of effort, but also for the regular crises of overproduction, since firms competed to sell more while needing to keep prices - i.e. costs such as wages, down in order to do so. Production for profit, for its part, was regarded as responsible, not just for income inequality, but also for causing artificial scarcities, and for under-consumption, since workers could not purchase what they had produced, due to the profit component in prices. Private property was also denounced since it not only enabled some individuals to live without working, but reduced production below its potential and diverted it from socially desirable channels. In the words of Peter Kropotkin:
The Socialists have said it and repeated it unwearingly... It is because all that is necessary for production - the land, the mines, the highways, machinery, food, shelter, education, knowledge - all have been seized by the few in the course of that long story of robbery, enforced migration and wars of ignorance and oppression, which has been the life of the human race before it had learned to subdue the forces of Nature. It is because, taking advantage of alleged rights acquired in the past, these few appropriate to-day two-thirds of the product of human labour, and then squander them in the most stupid and shameful way. It is because, having reduced the masses to a point at which they have not the means of subsistence for a month, or even a week in advance, the few can allow the many to work only on the condition of themselves receiving the lion's share. It is because these few prevent the remainder of men from producing the things they need, and force them to produce, not the necessaries of life for all, but whatever offers the greatest profits to the monopolists. In this is the substance of all Socialism.'
(Peter Kropotkin, The Conquest of Bread, page 4.)
While the Luddites sought the destruction of machinery, Socialists sought the destruction of private ownership of machinery - and its use for public, rather than private, purposes. How such public ownership was to be achieved was a matter of serious dispute between anarchist and State socialists - but over the course of time, the latter triumphed and public ownership became synonymous with government control. This in turn was challenged by Major Douglas:
'The radical difference - and I would commend it to your most serious consideration - is that State Socialism is based on the premise that, firstly, the control of policy is resident in administration, and, secondly, that it is possible to "socially" control administration, and, thirdly, that the State should be able to supply economic pressure to the individual; whereas I suggest to you that the control of policy is resident in credit... and while administration is a technical and expert matter not susceptible of being socialised, and, lastly, that the only possible method by which the highest civilisation can be reached is to make it impossible for either the State or any other body to apply economic pressure to any individual.'
(Major C. H. Douglas, The Control and Distribution of Production, page 43.)
Monetary reformers, for their part, took aim at the system of debt finance. They argued that it was not the case that the poor have too little because the rich have too much (as many Socialists would claim), nor was it the case that the poor have too little because production capacity is insufficient (as liberals and conservatives are wont to think). Rather, widespread poverty and economic insecurity were the outcome of an inadequate money supply - and attempts to rectify this problem through increased borrowing worsened the situation by generating boom-bust cycles, inflation (both demand-pull and cost-push), international economic and political crises, and ever-growing debt. The solution was simple - almost childishly so. Instead of a Luddite war on technology or a Marxist war on business, all that was required was the creation and supply of debt-free credit.
Thanks to the cost analysis of Major Douglas and the consequent demonstration of the price-income gap, Social Credit was able to incorporate and refine insights from all three critiques. The use of machinery entailed depreciation charges that added to costs (and thus prices) without raising incomes at the same time: thus, the system of machine industry contributes to the problem. Profit margins raise price before they raise anyone's income: therefore the system of business enterprise is also partly responsible for the situation. Interest and debt repayment also entail an increase in prices prior to any increase in income: the system of debt finance thereby plays a major role in generating our current plight.
Major Douglas went on to solve the problem he'd identified by proposing three measures: the creation and supply of debt-free credit to the consumer directly (as a National Dividend), as well as indirectly (as a National Discount), in quantities sufficient to cover the price-income gap, and to raise production to the optimum level, by a National Credit Commission, which would have the power to withhold the discount from any product deemed socially undesirable.
Had the intellectual perspicacity of Social Credit fused with the revolutionary zeal of Socialism, the history of the twentieth century would have been much happier. However, it was not to be: the diagnostic difference was too great and by the time Social Credit arrived on the scene, Socialism had already been subverted.
