On Social Credit

I see that DBC has been recommending Social Credit as a cure for our economic ills.

Unfortunately this fails for the same reason that most engineers fail at economics.

For they assume that the economy in aggregate is sufficiently calculable (as with an engineering scheme) that we can determine what prices \”should\” be rather than what they are.

Hayek showed us that this is not so: in order to calculate, to model, the entire economy to that level of detail we must use the entire economy as our calculating engine. True prices are thus market prices for the only possible method of estimation is that entire economy.

At which point Social Credit all falls down.

This isn\’t to say that there aren\’t interesting ideas within it all: the emphasis upon acumulated human capital (knowledge perhaps) is very interesting indeed and is something that mainstream economics does struggle to model: it\’s really what everyone is talking about when they mutter about \”institutions\”.

But containing some interesting ideas is not the same as having a decent plan to run the economy.

(Indeed, I would go further. My not very original idea is that no particular or specific branch, style or school of economics has such a decent plan. None of them contain or reveal the total truth necessary: all however provide interesting windows onto this or that part of the larger whole. Yes, there\’s very good stuff in Marx, Keynes, Smith, Mill and so on, in Sraffa, DeLong, Krugman, Friedman, Buchanan, Tullock etc. The school which I think comes closest to actually having a real plan is Hayek, in that we don\’t and cannot know enough to have such a total plan yet we do indeed need to have partial plans in certain areas and times and we just have to struggle on to design and implement those as best we can. All the while reminding ourselves that while we can indeed design a market to reduce So2 pollution (to take one successful example) this is only a partial solution, the grand and complete one is not available to us.)

6 comments on “On Social Credit

  1. Aye, people have too much damned certainty. So Hayek, who teaches about unavoidable ignorance, is pretty wise.

  2. “Hayek showed us … in order to calculate, to model, the entire economy to that level of detail we must use the entire economy as our calculating engine.”

    I don’t know why but Deep Thought (HHGTTG) comes to mind. 😉

  3. Dunno about ‘most engineers’. We’re generally pretty much aware of the limits on how far pure cerebration can take you. One very brilliant engineer of my acquaintance had three trays on his desk rather than the traditional two. They were labelled ‘In’, ‘Out’ and ‘Too Hard’. The ‘Too Hard’ tray would accumulate over time and when it got about three inches deep he’d bin the contents, on the assumption that anything important that was buried in the pile would have started to stink by then. No-one ever complained.

  4. Interesting that “most engineers’, at least myself and those others I know who have similiar interests, tend to share your opinion of Hayek.

  5. I only suggested the Douglas scheme of credit for one specific problem: highly mechanised production where the predominance of machines reduces the amount distributed as wages ,so decreasing purchasing-power. I thought this might be relevant to the debate about the falling share of wages in the economics of modern production. It is pretty clearly relevant, although it may not be everyone’s cup of tea.
    BTW the idea you like so much ,Douglas’s stress on the sum total of human capital, is referred to by him and his supporters as “the increment of association”.This term serves to clarify the issue of who produces goods and deserves payment in a factory .The present workers are n’t solely responsible for the production: the people who designed and made the machines deserve credit (in both senses of the word); as also do the engineering and scientific tradition in general.Ultimately a lot of work,or energy expended,comes from the sun ,growing forests compressed to produce oil and coal,raising moisture to produce hydro-electric.It would be very narrow to credit only the workers presently employed and to distribute purchasing-power through them alone.
    Your criticisms of the over complication of methods of calculating the National Dividend may or may not apply : the Guv has a pretty clear idea of national productivity so handing out an unearned income for all to spend ,so to bridge the gap between the value of full production and total incomes everybody actually has should n’t be impossible.Also there was a move in Social Credit to replace the National Dividend with a Discounted Price mechanism whereby producers sold goods at cost and got given a profit by the monetary authorities who had,of course, nationalised the credit-creating process.This presented simple accounts of completed transactions not speculative projections and was strictly non-inflationary because all the money created was matched or covered by goods.
    Something radical is definitely required now because many punters are well loaded saving hundreds of pounds a month off their tracker mortgages.Keynesian economic does n’t provide a stimulus for them to spend in the shops.The answer to this is maybe Silvio Gesell’s stamp money which demonitises after a strictly defined period.( Keynes idolised maybe plagiarised Gesell but ,if he did steal his ideas,stole the wrong ones: he did n’t steal what he called the Henry George ideas on land values for starters.)
    If you see the economic future in a pic’n’mix , I would throw in Stamp money, Resale Price Maintenance, the JS Mill land tax not the later (possibly plagiarised) Henry George Single Tax ,bits of Distributism ,communist
    schemes for full employment and a few others.
    It is very wearing supporting so many lost causes.

  6. My evolving project on Transfinancial Economics can be seen as being a modernization of Social Credit. However, it also allows for the free market price in most cases to rise, or fall.

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