Social Credit reservations

Press, 28 May 1981, Page 17

Social Credit reservations

Has Dr McCann put his finger on a new, more orthodox economic trend in Social Credit's thinking? His interpretation of the party’s latest monetary policy was put to Mr .L. W. Hunter, Social Credit's finance spokesman, who commented: "In claiming that .Social Credit will regulate the money supply to output, Dr McCann is applying an orthodox theoretical yardstick which the league only partly accepts. "We want to balance incomes with the value of ‘real’ output. This is quite different from balancing the quantity of money with output. Income is derived from the quantity of money available as working funds times its turnover.

"It is Social Credit policy slowly to increase the stock of working funds while at the same time gradually reducing the speed of turnover. We want better balance between incomes and output achieved this way instead of just concentrating on the quantity of money.

"The dual attack on inflation will reduce interest rates and their compounding effect on rising prices. "Social Credit does not accept that continually reducing the supply of working funds, relative to the value of output, will control inflation when 20 years of experience shows just the opposite. Maintaining the supply of working funds at its present relations’ with even?rising

output will hold cost inflation at its present level. Reducing the relative supply will make the problem of cost inflation worse and has very serious side effects as well. Falling investment in real assets is the most obvious.

"Social Credit sees as nonsense the theories behind the monetarist policies propounded by Milton Friedman. It is Friedman policies which have brought the British economy to its knees.

"Friedman advocates reducing the-money supply as the way of controlling inflation. His ideas ignore the turnover factor. Necessity to increase the turnover of money drives up interest rates which in turn fuels cost inflation..

"New Zealand Social Credit accepts that ‘demand deficient’ theories propounded in the 1920 s and 1930 s have greater relationship to reality than competing theories. In this we are on common ground with Dr McCann and in agreement with him in his opposition to the Friedman line which denies this reality.

"Social Credit's financial policy’ has developed from an analysis of facts first and theory second, which is the method used by Douglas in relation to economics. We see little value in either praise or criticism of modern Social Credit policy when this is based upon putting theories first and facts second.”