While it is well known that the founder of the Social Credit philosophy was a Scot by the name of Clifford Hugh Douglas, it is not so well known that he was actually a very sharp engineer. Because of this he viewed economic subjects from a completely different viewpoint; and not surprisingly, came to dramatically different conclusions.
The engineering approach is to firstly identify and detail the specific
final objective, and then tabulate and assess all the alternative methods
of achieving the specific objective. Late in World War 1, the U.K. Government
invited him to investigate a problem within the aircraft industry, because
of his reputation for analysing problems.
The concern was to explain why the companies in the aircraft industry were going into recession while the world was calling out for planes in all directions? Why was the industry not enjoying a prolonged boom?
In every factory his analysis of the books showed that there was a consistent and substantial disparity between the wages paid and the total prices for the same period. The books of other businesses also showed there was an ongoing disparity or shortfall between wages, salaries and dividends, or what could be called spendable incomes or cash, and total product prices.
The deficiency or shortfall included items like depreciation, bank charges, and payments to other companies, none of which were fully and immediately available in a cashable form to liquidate the prices of products produced within the same time span.
Regardless of the extent of it, the Douglas Analysis showed that in every firm, and every industry the flow of wages was lower or less than the flow of prices, creating an ongoing shortfall or deficiency.
Furthermore, the mushrooming of debt throughout the whole economy was visible evidence, which reinforced the existence of an ongoing gap or shortfall. Douglas postulated that this quantifiable growth in debt, not only showed that a gap existed, but that it was being filled with freshly created credit, showing as a debt to the banks.
From there, it followed that how fully or otherwise, the administration allowed the continuous filling of the gap to occur, would determine the frequency and severity of the then common "Trade Cycles". To that time all sorts of weird explanations for trade cycles had been suggested, to even include sunspots and positions of the constellations, so the Douglas analysis evoked very serious discussions.
Douglas postulated that industry is ONLY indefinitely sustainable, if a sufficient stream of new purchasing power (money, or credit) is added to total incomes to balance total prices. This equilibrium would enable the community's resources to be kept fully employed; naturally producing what is called a booming economy.
However, he also warned that if that credit stream is from an outside source, such as the privately owned banking system, at interest, then sooner or later the build-up of debt to the banks would reach crisis point and industrial strangulation. Either ownership of all productive assets could be acquired by the banks to liquidate the debt; Or the debt would need canceling by a massive devaluation as done by both France and Germany at different times; or an excuse would be manufactured justifying going to war.
At a lower level of financial pressure, it has long been observed that a shortfall of purchasing power in countries is greatly improved by exporting more than is imported. That is why it is referred to as a "favorable trade balance". The economic lift associated with concurrent removal from the local market of the goods exported, combined with the acquisition of some of the victim country's domestic currency, is further confirmation of the validity of the Douglas Analysis.
Were there NOT a deficiency of purchasing power or so-called money, then the increase in money supply, at the same time as reduced volume of goods on the local market, would automatically produce "demand pull" inflation. But it doesn't. It causes a "favorable" economic boom, and that is the reason why every country so badly wants favorable trade balances that if pushed hard enough, they will go to war to achieve it (The trade war).
Douglas then scrutinized the mechanics of so-called bank lending and some decades ahead of the various "Monetary Commissions" showed that the ostensible lending of "deposits" was really just a charade or deception to fool the public and allow the continuation of a sophisticated racket or scam.
Monetary Commissions in England, under (ex) Chancellor of the Exchequer Reginald McKenna, in Canada, and then in N.Z. have reluctantly but quite unequivocally confirmed that banks cannot, and do not, lend their deposits (which are really their liabilities), but instead, whether extending overdrafts or purchasing assets or Treasury Bills or Treasury Bonds, create new credit out of nowhere and use that. Furthermore, as soon as those figures enter a Current Account, they become spendable money, and increase the M1 or national Monetary Pool in exactly the same way as funds brought in from overseas.
From there, C.H. Douglas postulated that sovereign governments would
need to take control of the "money power", reclaiming to itself the right
to expand the money supply as necessary. This would allow it to be used
in the interests of local and national communities, and for their benefit,
rather than the eventual taking over of everything by the privately owned