SOCIAL CREDIT FACTORS THAT LED TO ALBERTAN EXPERIMENT

Press, Volume XC, Issue 27439, 27 August 1954, Page 10

SOCIAL CREDIT FACTORS THAT LED TO ALBERTAN EXPERIMENT

[By

RICHARD DENMAN

of the "Economist”]

(I)

* This is the first of two articles in which Mr Denman discusses the experiment in Social Credit in the Canadian province of Alberta.

It is 20 years since an envangelical lay preacher in Calgary, Alberta, announced that at the next provincial election non-party candidates would be put up in every constituency to support a strange economic doctrine called Social Credit. And in the following year, 1935, those candidates were to sweep the board, gaining 90 per cent, of the seats in Alberta’s legislature. Social credit was a plant of British growth, but it never flourished in British soil as it did when transplanted to Canada, or even to Australia and New Zealand. In Alberta the government is still based on the Social Credit League—although its principles, and still more, its practice, are far removed from those originally put forward by the founder of the movement, Major C. H. Douglas. What w«>re those principles, so attractive at the time and so discredited today? They formed a theory deceptively convincing in its simplicity, and deceptively smattered with* truth. Major Douglas’s analysis, first propounded in 1920, was that free development of individuality is the highest good, and any exercise of power that frustrates that development, whether by the State or any other agency, is wrong. He denounced the collectivism preached by the Fabian socialists of the time as leading to the enslavement of the masses, and Soviet communism as xhe logical development of this evil. He supported the capitalist system and private enterprise. But he thought that the system was at present perverted by international bankers and financiers, who deprived the people of their due rewards and’ of their essential freedom. A and B Theorem These financiers. Major Douglas taught, used their power to create credit to gain control over the masses. They saw to it that the amount of purchasing power in the hands of the workers was never enough to pay for the goods they produced. This proposition he embodied in his “A and B theorem.” A manufacturing firm, he argued, has two kinds of costs—wages costs, which he called A payments, and .other such as raw materials, capital goods and so on, which he called B payments. Now the price at which the firm sells its products will be enough to cover both A and B. But as ft has paid out only A in wages, the amount of purchasing power thus created is not enough to buy the goods that have been made. And as this is true of all firms in the country simultaneously. the result is a chronic

shortage of purchasing power, which forces the worker to slave away to maintain a standard of subsistence or else condemns him to unemployment and penury. This proposition was bound up with another—that of the “cultural inherj. tance.” Major Douglas asserted that the product of industry is due not only tomanagement and labour, but also tn technological development. No-one would deny that. But the new element in this theory was that the technologi. cal development arises, not from the efforts of any particular persons or firms, but from the development of ■ people as a whole—a sort of lever Within them. It is the people as a whole, therefore, who should keep its rewards, and not any particular coj. cern or group of workers. An “Attractive Proposal” All this led up to Major Douglaft proposal for a new financial syston designed to see that there was always enough purchasing power in the hands of |he people; and very attractive this proposal was. A “national dividend” would be paid to every member of the community and this would be financed, not out of loans or taxes, but by credit.

Here was a strange hotch-potch of economic theory—a bit of Marx, a bit of Keynes, and a lot of nonsense. But it was difficult at first to shoot it® because it was so imprecise, in spite of its simplicity. Essentially, of course its fallacy is that it fails to regard production as a continuous process, Tne firm making consumer goods pays enough out in wages to cover only part of the price of the goods it produces But the B payments have been covered by the wages paid by firms that made the capital goods used in the process, as well as those paid for transporting and perhaps mining the raw materials. The total amount of wages paid out can therefore be enough to buy all the goods on the market. A shortage of purchasing-power may develop, of course, because saving may be too great or because investment may have been too little. But it need not necessarily do so. If Major Douglas were right, production would have ground to a halt long ago. If the fallacies in his argument were so apparent, why were his followers swept into power in Alberta in 1935, and why, in very modified form, are they in power still? The answer lies in the peculiar economic and political conditions in Alberta at that time, and in subsequent developments. But that must the subject of a second article (To be concluded.)