Podium: A new model for the world economy

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The Independent Culture


From a talk by the secretary of the Christian Council

to a `Seeds of

Change' forum

THERE ARE two powerful reasons for reopening the Social Credit debate. First, Social Credit was one of the many "monetary reform" movements of the Thirties that questioned the role of banking in the economy. As one nation after another succumbs to the spreading global financial crisis, the claim that it is not so much that these economies suffer from occasional "weak fundamentals", but that all modern economies share a fundamental weakness in their financial system, is strong.

The second reason is that the "lost debate" of the Thirties was in fact far more wide-ranging than mere monetary reform. CH Douglas and his Social Credit followers warned that man was in danger of becoming a slave to his economy and made proposals - such as a basic income - that were intended not only to stabilise the financial system, but also to establish a new balance between work, leisure and economic growth.

This ultimately involved a radical decentralisation of power within society, defined as Economic Democracy.

Current statistics emphasise the astonishing exposure of modern economics to banking - even the most apparently wealthy. In the UK, outstanding mortgage debts total pounds 420bn, commercial debts total pounds 380bn and the National Debt stands at pounds 400bn. As for the United States, mortgages are currently in excess of $4.2 trillion and the national debt has reached $5.3 trillion - doubling in the last decade.

This is hardly surprising. Under a bank-based financial system, the process of going into debt is relied upon to create money. Bank of England statistics show that a staggering 97 per cent of the entire UK money stock now consists of bank credit, created by the action of lending to borrowers. Government- created currency in the form of notes and coins, at 3 per cent of the money stock, is now so trivial that the entire economy functions on money created by bank lending. Globally, more than 90 per cent of all money is now created by the process of fractional reserve banking - paralleled by an equivalent total of debt.

This matter of supplying money in parallel with debt brings us to the reason why the monetary reform debate was brought to an end, and yet another reason for re-examining the concept of Social Credit.

The world escaped from the throes of the depression as Keynesian deficit financing was adopted. But in choosing Keynesianism, the world chose yet more debt and more banking. An economy's tendency to periodic recession would be countered by recourse to the national debt, the process by which governments supply money to an economy by creating it themselves - by allowing banks to create credit against the sale of government debt bonds.

It was argued and expected by Keynes that such a government deficit would be a cyclical phenomenon - the debt would be run up during a slump and paid back during a boom. Half a century of deficit financing, during which national debts around the globe have continually escalated, has shown the terror of Keynes's monetary analysis. National debts are not cyclical; they are unrepayable.

The cost of half a century of applying Keynesian deficit financing is that nations now pay billions of dollars of interest on their national debts - sums that eat deep into tax revenues for public spending.

Clearly, we ought to be re-entering the fundamental monetary debate of the Thirties. Instead, whilst Keynes's monetary theory has been largely dismissed, his major policy is still adhered to. We therefore have a major economic policy, acknowledged as essential to maintain the function of an economy, without any rationale whatsoever. One week there can be no money; the next, Gordon Brown has pounds 35bn of additional revenue which, it has been "decided", can be "afforded" under the deficit that no one can explain.

The Monetary Reform debate of the Thirties involved the search for a stable financial system supporting a balanced, diverse and just economy. There were many notable figures, such as the Nobel Laureate Frederick Soddy, and the eminent American economist Irving Fisher, who made proposals for reforming the financial system. However, Social Credit was the one scheme that developed a popular following.

There are still many enthusiasts for Social Credit.

Its penetrating financial analysis, its creative welfare solutions, and the claim by its supporters that it constitutes a reconciliation between socialism and capitalism, should interest all those who are searching for a Third Way in these days of jaded political and economic aspirations.