Municipal Social Credit
by Michael Lane
[About one thing I have changed my mind. I no longer
believe that the compensated price (and accompanying price schedule) is
necessary for social credit either at the municipal level or nationally.
The broad sowing of the consumer dividend itself should be enough to empower
the consumer and compel competitive pricing. --M.L., 2003]
The European nation of San Marino has a population
of 27,000, Monaco 32,000, Liechstenstein 32,400, and Andorra a whopping
65,800. If it is economically possible to implement social credit in these
nations, it should also be economically possible in a municipality.
Sitting down to write a plan
for the actual implementation of social credit forces one to address several
difficulties that breezy theory takes no note of. Three areas of social
credit, in particular, have been inadequately specified: (1) foreign trade,
(2) price-setting, and (3) terms of business financing.
1. Ultimately, there are only two factors of production,
man and nature. Man takes the materials of nature and works them up into
more useful forms. He invests his labor, and labor fully describes the
cost of production.
2. Some products, like food, are consumed immediately. Others, like a
tool, are longer lasting; and still others, like the knowledge of how
to make a tool, last forever. In this way, civilization is cumulative.
Another way to say this is that part of the work is already done, part
of the cost already paid.
3. Multistage production (e.g., logs, boards, furniture) is just the same
process in miniature. The carpenter can make furniture because part of
the work is already done.
4. In a money economy, labor is measured by payments to individuals ("A"
payments). Therefore, we can analyze the cost of any consumer good or
service as a simple addition of payments to individuals over the time
involved in production. Whenever such payments are reimbursed from one
company to another (e.g., the carpentry shop buys lumber), that is a "B"
payment, which represents "all costs to date." If all stages
were performed by one company, there would be no "B" payments;
but the cost would be the same--payments to individuals over time.
5. Advance in the art of making things means they require less labor.
In a money economy that means (1) less money paid to individuals and therefore
(2) a cheaper product. This leads to a perfectly natural price fall.
6. The visible economy shows symptoms of compulsive growth and waste on
a massive scale. Douglas cites the statement that the U.S. economy was
5% efficient, 95% waste. This fact calls for an explanation.
7. Hypothesis - The sawmill can dispense with someone's labor and make
a cheaper board today, but the cheaper board won't become a cheaper chair
till tomorrow. As a result, prices fall, but income falls ahead of prices:
income is chronically short of prices, and markets do not clear.
8. The actual economy cannot tolerate this situation and reacts spasmodically
in compulsive growth and waste (which can also be analyzed as purposive
on some level). Pay for something, the economy says-anything-in order
to keep income up with, or even a little ahead of, prices.
9. Thus, a huge potential energy of production is sabotaged-turned to
waste-in order to enable markets to clear. In the Alec Guinness movie
The Man in the White Suit, labor and management in a textile factory put
aside their bitter differences to suppress a fabric that wipes clean and
lasts forever. Lots of real inventions have met a similar fate.
10. If we take the money-and-price system in hand and make adjustments
for income falling ahead of price, we can enjoy the natural price fall.1
The purpose of social credit is to release the huge energy of production
that is already there, to release innate human creativity that is stifled
by compulsive growth and waste.
11. Every municipality has people living and working within its bounds.
Their work has a price on it, as do the goods and services they buy.
12. Individuals in every municipality, through mail order, the internet,
and in person, purchase consumer goods and services from outside the municipality.
Businesses in every municipality purchase capital and wholesale goods
and contract for services from businesses outside the municipality. They
may also pay individual employees and contractors outside the municipality.
13. Tit for tat, individuals outside the municipality purchase consumer
goods and services from businesses within the municipality; and businesses
outside the municipality purchase capital and wholesale goods and contract
for services from businesses in the municipality and may also pay employees
and contractors within the municipality.
14. Municipalities are typically in debt.
15. Many of a municipality's businesses and consumers are also in debt.
16. Insofar as these loans represent money created for the purpose, they
are simply the confiscation, by means of credit instruments, of the borrowers'
1. Municipality to issue an Economic Declaration
of Independence. Municipal government to create a credit office to issue
credits good for all goods and services produced by all businesses within
the bounds of the municipality and to facilitate exchanges between these
credits and the national money at a rate based on ratio between consumer
price index (cpi) inside the municipality and cpi in the country as a
whole. Staff and funds to be reallocated accordingly.
2. Employees of businesses within the municipality to receive their pay
in municipal credits, exchangeable for the national money at a rate based
on cpi, subject to point 4.
3. "Export" - When a local business selling goods or services
outside the municipality or a resident employed or contracted outside
the municipality wants to be paid in municipal credits, the purchaser
will pay the municipal credit office in the national money, and the municipal
credit office will create the equivalent in municipal credits at a rate
based on cpi and pay the seller with them. In this way, the municipal
credit office obtains the national money. The credit office does not release
municipal credits except as part of bona fide transactions. Municipal
credits, as such, are not for sale.
4. "Import" - When a local business purchasing or employing
outside the municipality or a resident ordering goods and services from
outside the municipality wants to pay in municipal credits, the purchaser
will pay the municipal credit office, and the municipal credit office
will pay the seller with the national money at a rate based on cpi. Obviously,
the municipal credit office can only do this to the extent that it has
the national money. In short, "imports" are dependant on "exports."
5. Municipality to separate its own creditors and creditors of its businesses
into two groups: those who lent their own money and those who lent money
created for the purpose (banks and companies or agencies that are little
more than fronts for banks). The former to be paid.
6. The latter "debts" to be repudiated as specious. If taken
to court, the municipality on behalf of itself and its businesses to argue
that these "creditors" merely translated the municipality's
and its businesses' own credit into instruments. They "lent"
the municipality its own credit and business its own credit under false
pretenses. The case to be publicized as widely as possible.2
7. The municipality itself, backed by the businesses, to take over all
of the latter loans. Every business to have an account with the municipality.
8. Credit card balances (and other personal bank-debt) of residents to
be treated in the same way: If taken to court by Visa and Mastercard,
the municipality on behalf of its residents to argue that these companies
merely turned the individual's own credit (his earning-power) into instruments,
lent him his own credit under false pretenses.
9. These loans, too, to be taken over by the municipality. Every resident
to have an account with the municipality.
10. At the onset of economic independence and thereafter quarterly, all
businesses within the municipality to report costs of their goods and
services for sale, on a standardized format. Part of the cost is external
(i.e., payments in the national money either through the credit office
or directly), and part is internal (i.e., simple payments in municipal
11. One time only, these costs to include total bank-debt (now owed to
the municipality). One time only, costs of consumer goods and services
to be recalculated based on costs of capital goods and services on which
12. One time only, residents' total savings to be calculated, and total
outstanding personal debt (now owed to the municipality) to be deducted
13. Total internal costs including reappropriated bank-debt is Prices
(a high number). Total savings less reappropriated personal debt is Purchasing
Power (probably a negative number). One time only, the difference between
these two numbers to be met by the creation of the equivalent in municipal
credits by the credit office.
14. Half that sum to be credited in equal amounts to the accounts of every
resident. Any positive balance remaining to be at that person's disposal.
Any debt remaining to be the responsibility of the debtor.
15. The other half to be credited to the accounts of every business in
proportion to its contribution to final consumer products sold in the
municipality. Any positive balance remaining to finance a Sale at the
business. Any debt remaining to be the responsibility of the business.
16. Quarterly, all businesses within the municipality to report costs
of goods and services for sale, on a standardized format. Part of the
cost is external, part internal.
17. The municipal credit office, in conjunction with businesses, to create
a schedule pricing various goods and services at various percentages above
cost (cost as defined in the quarterly report).3
This schedule to include capital goods and services, as well as consumer
goods and services.4
18. Total internal costs of consumer goods and services for sale during
the quarter is Prices (this number reflects costs over the time involved
in production). Total payments to individuals in the municipality for
the quarter is Purchasing-Power (this reflects current costs). Improved
efficiencies means that present costs will be lower than past costs, or
Purchasing-Power lower than Prices. The excess of Prices over Purchasing-Power
to be matched by the creation of the equivalent in municipal credits by
the credit office.5
19. Half of those credits to be paid as an equal quarterly municipal dividend
to all residents.6
20. The other half to finance an across-the-board, quarterly percentage
price discount on all goods and services offered by all retail businesses
within the municipality that agree to the pricing schedule. The across-the-board
price discount is a discount on the price as thus defined. To put it another
way, the municipality offers a sort of fractional matching fund for retail
21. A business that does not honor the percentages agreed on is automatically
withdrawn from the plan and will lose its financing terms (see below)
but suffers no legal penalty. The object is to create a schedule that
will, with the "matching fund" attached to it, induce wide participation.
The effect of the compensated price will be to reduce the consumer price
index of the municipality and therefore strengthen the municipal credit
unit in exchange against the national money.
22. Municipal credit office to provide both capital and retail businesses
access to municipal credits in return for (a) a percentage of their net
earnings and (b) their agreement to the pricing schedule.7
These conditions replace interest. This is not really "lending,"
for if the business fails, there is no debt, while as long as the business
succeeds, the "loan" is indefinitely renewable. The credit office's
function is to keep credits in circulation to the full extent that they
can be used, not to exploit them for leverage. Such financing could even
be used by a successful business to open new branches in other municipalities.
23. Municipal government to end all municipal taxation and get its revenue
from (a) financing businesses for a percentage of their net earnings and
(b) credits taken out of the municipal dividend/compensated price before
it is paid. The huge energy of production and creativity released by the
whole credit system should make the former considerable and generate a
24. Municipality to create a publicity office and news-center to serve
its producers, publicize its Economic Declaration of Independence, and
encourage kindred movements in other municipalities. A movement confined
to one city can be crushed, but a movement liable to spring up anywhere
cannot. Staff and funds to be reallocated accordingly.
25. Municipality and its businesses to refuse to pay state or national
taxes on transactions solely involving municipal credits. We do not admit
that this is an alternate currency: it is a ticket system. If I buy a
theater ticket with money, I might pay a tax on it. But when I hand it
to the usher, it isn't taxed again on the grounds that I am now making
a purchase with "alternate currency." If the state or national
government attempts to tax municipal credits at point of use as if they
were money, every issuer of tickets will be vulnerable and will have a
stake in the ensuing court case, which will be publicized as widely as
Thanks to Bill Daly and Jeremy Lee for valuable
comments on the first draft of this essay.
1. "Falling prices, by themselves, are the most perfect method of
passing improvement of process on to consumers" (Douglas, Brief
for the Prosecution, p. 66).
2. A nation with a foreign debt stands in the same situation and will
need to adopt a similar strategy.
3. The Draft Mining Scheme says Capital "shall continue to carry
with it all the ordinary privileges of Capital administration other
than Price-fixing" and that industrial users of coal shall pay
"Cost plus an agreed percentage" (Credit-Power and
Democracy, pp. 149-51, my italics). The Draft Scheme for Scotland
says that participating businesses must declare their average "profit
on turnover" and "as far as practicable" maintain that
average "where this is agreed as equitable for the type of business
concerned" (Social Credit, p. 208f.). A discount on a price
that is at the whim of the seller is no discount.
4. An alternative worth exploring would be to have a capital business
release its goods at cost and take its percentage later from final consumer
5. Under the present system, no one dares to work himself out of a job.
Under social credit, the more people work themselves out of jobs, the
more consumer credits can be created for all. The best physicians will
have few patients.
6. Louis Even once said, "Even if there were no gap between prices
and the purchasing power, each citizen would yet be entitled to his dividend,"
because "there is always a percentage of this production which is
due to the real community capital" (A Sound and Effective Financial
System, p. 26). How can this be? If we really counted all costs, we
would have to count back to the dawn of time. Real costs would then be
higher, and the dividend correspondingly larger. What has happened instead
is that wars, revolutions, invasions, natural disasters, and bankruptcies
have repeatedly wiped the slate clean. While the present proposal follows
the usual social credit prescription of half dividend, half compensated
price, the above consideration makes me think that as long as the pricing
schedule is preserved, it would be better to release 100% of the new credits
as dividend, and none as a price discout.
7. Taking a percentage of net earnings gives the municipality a stake
in the fortunes of the business and an incentive to perform other services
for it. For example, it could help the business find and contact the most
advantageous suppliers, and it could publicize the business's product.
If it did this, it would be performing a role analogous to that envisioned
by Charles Ferguson for the "capital college." Also note that
if the suggestion in note 4 were adopted, credit office, capital producer,
and retailer would all be taking their percentage out of the same sales.