Social Credit Solutions by M. Oliver Heydorn Ph.D.

"It is of crucial importance that any monetary reform decentralize power over policy rather than centralize it even further in the hands of an elite few; the easiest and most effective way of achieving that decentralization is to enfranchise the individual citizens as the ultimate beneficiaries of any change in the economy’s financial infrastructure. Indeed, this is the whole aim of the Social Credit reforms."

The Social Credit economic model maintains that the most urgent economic reform, the one that goes to the very heart of our tangled web of economic problems and perennial dissatisfactions, is the need to re-engineer the economy’s financial infrastructure. Changing the financial system along the lines that Social Credit indicates is not only necessary for a substantial improvement in our economic affairs, it may also prove to be sufficient for significantly reducing, if not eliminating entirely, most of the chronic symptoms of dysfunction with which we are familiar. I am thinking here of various distinct but intimately interconnected phenomena such as: poverty in the midst of plenty, servility in place of leisure, economic instability, inflation, and heavy taxation, ever-increasing and unrepayable debts, waste, inefficiency, and economic sabotage in all its forms, forced economic growth, the centralization of wealth, power and privilege, social breakdown, environmental damage, and international economic warfare leading to military war.

The specific re-engineering of the financial system that is at issue here is no arbitrary or doctrinaire alteration, but is firmly grounded on the principle that the financial system, like any system of weights and measures worth its salt, should at all times provide a symbolic representation of the physical economy that scrupulously corresponds to the actual reality. This is a functional necessity. If the money system is to adequately fulfill its purpose, the purpose for which it was invented, it must be an honest system; that is, it must provide an accurate reflection, an accurate picture, of all of the relevant physical economic facts.1

Social Credit

What this means is that sufficient producer credit must always be available to catalyze the production of any useful good or service. The incessant cry that ‘there is not enough money’ to achieve some productive end when the raw materials, technology, and labour are all present in conjunction with some real demand on the part of consumers must cease—we can no more be short of money for useful production that we can be short of kilometres for building roads! What it also means is that sufficient consumer purchasing power must always be available to distribute whatever we produce in full while completely liquidating, i.e., cancelling once and for all, all of the financial costs of production. Since the catalytic function of the financial system can only be successfully actualized to an optimal degree once, or insofar as, the distributive function has been properly supported, we will focus our attention here on how Social Credit proposes to re-engineer the distributive function.2

To recap the Social Credit diagnosis, the heart of the problem with the consumption side of the existing financial order was once described by C.H. Douglas in his BBC debate with Dennis Robertson as follows:

The present financial system claims payment in money for the creation of money itself.  Since it creates all money, payment in money for the use of money can only be made by creating fresh debt. In addition to this claim by the bank for the use of its money, the industrialist, with much more reason, claims payment for the use of his real plant and buildings; and he claims it also in money. Neither he nor the banking system, however, recreates the necessary money to enable this payment to be made by the public.

This situation is progressively serious, since modern production is machine or capital production rather than hand or labour production, so that the proportion of wages and salaries to capital charges is progressively less. We have, therefore, two problems to solve: first, to make it possible for the general population to buy the goods which are produced by a diminishing number of people, and an increasing amount of machinery, without going deeper and deeper into debt; and secondly, to do this by a method which does not require the whole of the population to be employed.3

In other words, primarily because of the way in which real capital (machines, equipment, etc.) is financed and the way in which its costs are then accounted for under existing conventions, the rate at which costs and hence prices are built up in the course of the production of any industrial good or service exceed the rate at which consumer purchasing power in the form of wages, salaries, and dividends, etc., is distributed to consumers.4

The problem arises because when money is borrowed into existence from the banks for production and expended on the manufacture or the purchasing of capital goods (computers, machines, equipment, buildings, etc.) both a debt and an asset bearing a cost are created, but the charges to cover both of these claims against the public (since it is the consumer who must ultimately extinguish all costs) are levied contemporaneously or at least independently of each other as capex and opex charges. Even if all of the money spent on manufacturing or purchasing real capital were converted into consumer incomes, the money issued  is not sufficient to meet both claims (i.e., the debt and the cost of the asset), but only one of them.5

This is in sharp contrast to what happens when producer credit is borrowed and spent on hand production or merely on producing consumer goods or services with existing capital. In these latter cases, both a debt and a cost are created, but they are not charged as two entirely separate costs, rather they are charged sequentially. That is, once the money is collected from the consumer to meet the cost of the production, the retailer then pays back his bank loan or pays down his revolving line of credit. The same sum of money can meet both of the claims that had been made against it.

The situation is even more dire, however, when one considers that all of the producer credit expended on the manufacture or purchase of real capital is not transformed into consumer credit. Some of it is used to cover the various B charges or external costs of other firms and that money is either destroyed in the repayment of their bank loans or is placed to their reserves in view of future production. It is not available as consumer income relative to the cycle of costs associated with its creation. Thus, the volume of consumer income released vis-à-vis the acquisition of real capital is not even sufficient to pay the costs of that capital even once, let alone twice.

The existing financial system, because it is a debt-money system, i.e., a system in which all or virtually all of the money supply is issued either as a debt or as a debt-equivalent by the private banking system (and is destroyed whenever these debts or debt-like claims are cancelled), can only fill this gap between prices and incomes by creating and issuing new debt-money for new production, whether private or public, or for consumer loans. Beyond the tremendous misdirection and inefficiency or waste of economic resources which this method of dealing with the imbalance implies, the most fundamental problem is that even when it is successful in completely filling the gap, issuing additional debt-money never liquidates or cancels once and for all the unprovided for costs in the price system; it merely transfers them as outstanding and ever-growing debt-claims against future production activities.

What Social Credit proposes is that the gap should be filled instead via the creation of ‘debt-free’ credit and its distribution to or on behalf of consumers. The money system would cease to be a ‘debt only’ system and incorporate the issuance of a certain proportion of ‘debt-free’ credit as part and parcel of its normal operations. By continually issuing just enough ‘debt-free’ credit, the flow of consumer purchasing power can be brought into balance with the flow of consumer prices, and an automatic, self-liquidating equilibrium can be restored to the circular flow. To this end, Social Crediters have recommended that a National Credit Office or National Credit Authority be established as an organ of the State, free of all political interference, to assess, on the basis of the relevant and publicly published statistics, the volume of ‘debt-free’ credit that is required to offset the flow of unfunded costs in the price system. The vast majority of those unfunded costs will be in the form of debts to the private banking system as many day-to-day business operations are financed on revolving lines of bank credit. When the ‘debt-free’ credit is received by retailers and they use this money to repay their bank advances, both the credit and the debts will cancel each other out of existence. There is no danger that the compensatory credit will pile up and cause inflation.6

This compensatory ‘debt-free’ credit would be issued, as I said, in favour of the consumer and with no strings attached. It is of crucial importance that any monetary reform decentralize power over policy rather than centralize it even further in the hands of an elite few; the easiest and most effective way of achieving that decentralization is to enfranchise the individual citizens as the ultimate beneficiaries of any change in the economy’s financial infrastructure. Indeed, this is the whole aim of the Social Credit reforms.

The indirect payment to the consumer would take the form of the National Discount, a rebate on retail prices at a fixed percentage across the board. In exchange for discounting their prices at the stipulated level (which would change as conditions change), the National Credit Office would make up the difference to the retailer by granting him the equivalent in ‘debt-free’ credit so that he could cover the rest of his costs. The discount would assist the consumer by bringing the general price level into closer reach of his income.

The remainder of the compensatory credit needed to effect a balance between the flow of prices and the flow of incomes would be distributed in equal allotments as an income to each citizen on a periodic basis. In addition to further increasing consumer buying power, this direct payment to consumers, otherwise known as the National Dividend, would provide an independent income, untaxable and inalienable, to each citizen, whether he was employed in the formal economy or not. The dividend would thus allow us to jettison the archaic and unrealizable policy of full employment. As technology replaces labour in the production process, unemployment will be transformed into paid leisure. The people whose labour is no longer required by the economic machine will retain access to goods and services, and this without taxing or penalizing anyone else.

The overall effect of the dividend in conjunction with the discount would be to transform the whole of society into a gigantic profit-sharing co-operative, in which the benefits of economic association are continually shared on an equitable basis with each citizen. Let it be clear that this sharing would not require redistributive taxation, nor an increase in public indebtedness, nor excessive government regulation or interference with business, nor any socialist measures whatsoever. It is made possible by a re-engineering of the financial system so that the economy’s ‘surplus’ production, i.e., that proportion of production for which insufficient income is distributed in the course of manufacture, will be monetized or represented by a sufficient flow of ‘debt-free’ credit.

But how much money should be distributed in the form of the National Discount and how much in the form of a National Dividend?

This is where one of Douglas’ greatest economic discoveries comes into play. Douglas observed that, on a physical level, the true price of production is consumption. That is, what something costs in physical terms is necessarily what was consumed in the making of it. Hence, in a financial system that accurately reflected reality, the financial cost of production must reflect the financial cost of what was consumed in the course of that production and nothing more. The inclusion of capex charges (or capital loan repayments) as separate or additional costs in production elevates the cost of production as measured in financial terms above what is indicated by the corresponding consumption of raw materials, machines, labour, etc. Furthermore, the consumer is not automatically provided with any additional purchasing power with which the capex component of costs might be met. Since the capex charges do not reflect any physical reality or any consumption costs in the course of production, they are, as a purported representation of economic reality, completely illegitimate.

This provides the justification for determining the level of the National Discount, also known as the ‘just price’ or the compensated price in Social Credit literature. By regulating retail prices in keeping with the overall consumption/production ratio of the economy (as measured in conventional financial terms), prices could be reduced so that they would reflect the true or physical costs of production. In this way, the National Discount would effectively remove the capex component of cost from prices. Thus, if the overall consumption/production ratio was 70:100, then a discount of 30% would be declared. A retailer who would normally have to sell a chair for 100 dollars in order to meet all financial costs would sell it for 70 dollars to the consumer instead. The National Credit Office would then make up the difference to the retailer by issuing him a 30 dollar, ‘debt-free’ credit. When this ‘debt-free’ credit, in addition to the 70 dollars collected from the consumer, is used by the retailer to pay down his revolving line of bank credit on which is business is conducted, credits and debts will cancel each other out of existence.

As far as the volume of the National Dividend is concerned, this would be determined by how much compensatory ‘debt-free’ credit would still be required, after the application of the just price mechanism, to bring the flow of consumer purchasing power into balance with the flow of prices. It would represent the operating costs of the machine for which insufficient income had been distributed. The ‘wages of the machine’—if it made any sense to pay wages to a machine – would be created and paid instead to the rightful heirs of society’s cultural heritage: the common citizens.



  1. The intimate connection between the structural dishonesty that characterizes the existing financial system and the tremendous dysfunction which it occasions, what I have described here as a ‘tangled web’, brings to mind the famous lines from the epic poem Marmion by the Scottish poet Walter Scott: “Oh what a tangled web we weave, when first we practise to deceive!”
  2. Readers who are interested in learning about how Social Credit would remodel the financial system’s catalytic function are referred to my book Social Credit Economics, especially pages 343-366.
  3. C.H. Douglas and Dennis Robertson, “The Douglas Credit Scheme”, The BBC Listener IX, no. 233 (June 1933): 1006.
  4. This particular discrepancy between prices and incomes is entirely independent of questions of profit (whether industrial or bank profits). Profit-making, savings, the re-investment of savings, and deflationary bank policies amongst other factors can exacerbate the underlying deficiency in consumer buying power, but they are not its main cause.
  5. Money that is used to pay down the debt before or independently of the price value of the asset is immediately destroyed and so cannot be used for further cost liquidation. Money that is being collected in view of the replacement, maintenance, and other operating costs associated with real capital obviously cannot be used to pay down a debt without forsaking its purpose.
  6. Let it be stressed once again that, under Social Credit, this ‘debt-free’ credit will be issued in lieu of all of the existing conventional palliatives that are designed to increase consumer purchasing power. Excess public debts to fund physically unnecessary government projects, social programmes, or make-work plans, excess business debt for growth and exportation as ends themselves, and all consumer loans involving the creation of new debt-money, whether in the form of mortgages, car and education loans, lines of credit, credit cards, etc., would be entirely prohibited or otherwise rendered pointless. We are not adding to the money supply so much as replacing, on a proportional basis, a certain segment of the debt-based money supply with ‘debt-free’ credit. Once again, the fear of demand inflation under Social Credit is unfounded.




Dr. Oliver Heydorn
M. Oliver Heydorn, Ph.D., is the founder and director of The Clifford Hugh Douglas Institute for the Study and Promotion of Social Credit. He is also the author of Social Credit Economics, The Economics of Social Credit and Catholic Social Teaching, and a soon to be published work entitled Social Credit Philosophy.


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Thursday, 18 July 2024

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