Letter: Socialists and Social Credit

As a member of the Green Party, I was greatly impressed with the August issue of the Socialist Standard, particularly with the fair and balanced interview with Jonathon Porritt. At least on this occasion you seemed to have dropped the customary “we have an answer to everything” boast which has turned so many otherwise sympathetic potential socialists away from the SPGB before now. I was sent the August issue by a union colleague who is a SPGB member, and if this change is not just a one-off, I may become a regular reader or even subscribe.

The article on Ireland was similarly refreshing in its balance, but Ivan’s piece on Parliamentary Rituals was an absolute classic. It should be distributed outside the TUC and Labour Party conferences as a leaflet, and at the next General Election. Great stuff. And now my question. What is your attitude to social credit? You must be against it because everyone else seems to be. Even the Green Party will not mention it by name. I am assuming that you know what it is as the SPGB pre-dates it by sixteen years.
Bill Whitbread
London N22.

Reply
We are pleased that Bill Whitbread enjoyed the August Socialist Standard and we hope that he will not only take out a subscription but decide, as a person who is concerned for the future of the world and its population, that his place is with us socialists in the work to replace capitalism with socialism.

Social Credit was a proposal by a Major Douglas to pay everyone a “social dividend” to make up for the chronic lack of purchasing power which, he alleged, was built into the financial mechanism of capitalism. It was one of a number of “under-consumptionist’ theories that flourished during the 1930s.

All such theories assert that not enough money is distributed to enable people to buy all that has been produced. If this were true, capitalism would be in a permanent state of depression, whereas in fact it goes through alternating periods of boom and slump; indeed it would be difficult to see how capitalism could ever have come into existence in the first place.

While the Green Party does not mention Douglas by name, their manifesto for the last election bears evidence of the influence of his mistaken ideas:

“The Green Party would take steps to end the monopoly of private banks over money creation (. ..) Community banks would be encouraged, subject to licence and with the power to create money, a power which would be withdrawn from private banks. Community banks would invest local savings in local enterprises, and invest newly-created money in those enterprises.”

Closed factories alongside mass unemployment suggest that if only people had more money to spend boom time would return. But at no stage of the business cycle is there a shortage of purchasing power; there is however a difference between having the power to buy something and actually using that power. In a slump some capitalists choose not to invest all of their money in productive activity, as they would in a boom. Rather than being hoarded it is lent out at interest on the money market. This is the situation today and explains the paradox of the growth of financial institutions — evident from a stroll down any High Street — in the middle of a depression.

Douglas also believed that the banks had the power to create purchasing power, in the form of credit, by the stroke of a pen. If they had this power, why would firms ever go bankrupt, or make losses, or resist wage claims from their workers? Banks are in fact one of a set of financial institutions which make a profit out of the difference between the interest they charge borrowers and the interest they pay their depositors. The amount they can lend is thus limited by the amount they borrow from depositors as also applies (and nobody contests this) to building societies. In fact, due to the need to hold some money as ready cash, banks can only lend less than their deposits.

The solution to problems like unemployment does not lie in the reform of capitalism’s monetary system but in the abolition of capitalism with its class ownership and production for profit, which involves the complete disappearance of money, banks, credit and all the rest of the financial system.
EDITORS