I wasn’t planning to comment on Obama’s idiotic “you didn’t build that speech.” I mean, after all, it’s idiotic. So I ignored some of the push back and response from the conservative blogosphere. It was minor anyway compared to MSNBC’s “All Bain, All the Time” news coverage that has been inflicting the network for weeks? Months? But it must have been stuck in my brain somewhere, even if covered by Romney’s tax returns and financial disclosure statements. Sometimes I’m sure that my brain is processing things even when I’m not aware of it. Or at least that’s what I tell myself to justify hours of mindless television; my brain is busy processing something.
So sometime this morning, between deep sleep and my second cup of coffee, I realized a few exceptions to Obama’s idea that government makes all things possible. One of them was my grandpa’s road. Decades ago my grandfather built and maintained a road coming off of a county road in order to get to his property. It was all on property he owned and over the years he sold parcels all along the road he had made. Eventually there was quite a cluster of homes coming from this private road, and when my grandfather died, in his will he left the road to the county. So there was a clear case of infrastructure being built by private hands and the government picking it up after all of the hard work had already been done.
Of course in the United States that had been the norm. Settlements popped up long before there were local governments to build roads and other infrastructure. By the time government showed up, the town and infrastructure were already there. That still goes on today. New communities and subdivisions built by private interests pay for and build their own infrastructure; which local governments end up inheriting.
But there was something else, about the speech, something familiar, and no, it wasn’t that it was basically cribbed from Elizabeth Warren’s rant against’ producers. It took me a bit to place it but then it came to me why I was familiar with the philosophy of that speech.
Science Fiction.
Cover of For Us, The Living: A Comedy of Customs
One of the earliest works by Science Fiction author Robert Heinlein was a book called, For Us, The Living. Although it was written in 1938 it was an incomplete work and never finished or published until after Heinlein’s death, when it was found and finished up by another SF writer, Spider Robinson. As a Heinlein fan I was anxious to read it when it was first published in 2003, but this isn’t the libertarian Robert Heinlein I was familiar with from such novels as, The Moon is a Harsh Mistress, or Time Enough for Love. This was the Robert Heinlein in the midst of the Great Depression, who worked on the 1934 California Governor’s race for Socialist Upton Sinclair.
So it was a very different Robert Heinlein who wrote this book. A socialist one to be sure, and a writer more influenced by the works of the turn of the century than what passed for science fiction in the 1930’s. In fact, For Us, The Living, is less a novel and more an exposition of what was then a popular socialist idea, Social Credit. Heinlein’s hero is a 1930’s engineer who after having a traffic accident, somehow ends up in the late 21st Century. How he got there is never really explained, and although a gaping hole in the plotline that big is enough to kill interest in a plot, there isn’t really that much plot. The car crash is just a device to get Heinlein’s hero to the future where he can listen to endless lectures on how great the socialist future is.
So as an entertaining romp, it blows. It’s more like Edward Bellamy’s Looking Backward. This is the socialist future; let me explain how great it is and why your time stank, the end. But if anyone is interested in an archaic socialist theory from the 1930’s, this is the book to read. Social Credit seems to have fallen out of favor as far as wacky socialist theories go, but its implementation sounds attractive. A nations’ cultural inheritance, is considered a factor of production under this theory. So it’s not just the infrastructure like roads that’s a factor that government provided, it’s the accumulated knowledge that lead to knowing how to build the roads, and the fact that we have a network of roads crisscrossing the country. Since each generation doesn’t have to build the nation up from scratch, there is a “surplus.” The long and short, and if you know socialism you could guess this already, is that the “surplus” is distributed in payments to citizens. Nobody has to work if they don’t want to, since they can live off the “surplus.”
So you can see why Heinlein never had this published in his lifetime. Shame. But I can forgive him for his socialist past; that was quite common in the 30’s, when the only competing philosophies were some version of Socialism and Fascism, or as a distant third way, Keynesian Social Welfare Democracy. There was no William F. Buckley standing athwart history yelling stop in the 1930’s.
And in fact it’s not uncommon for people to experiment with communism or some variation of socialism in their youth, particularly in college. Just listen to the rantings of the few remaining Occupy protestors. Blather right out of Mao’s little red book. Probably most of your major big time Democrats were some type of socialist in college, and quite a few Republicans for that matter.
But people grow up and in time, put aside childish things. Well not Elizabeth Warren, but she’s an academic who never really left college. And apparently not Barack Obama. I’ve never really joined in the chorus of those calling the President “Socialist” since, when I use the word, I mean it to be descriptive, not a pejorative, but in this situation, the case Obama is making in this speech is Social Credit Socialism.
So Obama never outgrew his youthful socialist past. After all, what grown man would want to be friends with an actual for-realsies terrorist like William Ayers? Of course, every time he goes off script he drops hints, going all the way back to his run in with Joe the Plumber. But America has had almost 4 years to get used to the idea, and apparently it’s not a deal breaker. Who would have ever thought that?
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Mike Street Station 
I’m thinking, your grandpa was a mini Henry Flagler?
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Actually he started out as a sharecropper. He worked his way up.
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So, if successful business people owe more because government infrastructure is responsible for their success, what about unsuccessful business people? Does the government owe them? I mean, the infrastructure failed them, right? Should they get a check? That being the case, I’m feeling the desire to start a business. Maybe a video store that rents VHS tapes. Or Betamax. Or both. Gotta be flexible, right?
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I’m sure the President has not thought that far into his philosophy. Maybe the unsuccessful businessman should bill the government for causing his failure.
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So now you’re full-on “Obama’s a Socialist”, huh? My, my, my…how the mighty have fallen.
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I gave Obama the benefit of the doubt for a very long time. But here we are in his 4th year of his Presidency and I think the evidence is sufficient to say that yes, he’s a socialist; at least of the European type. Again, I’m not using it as a pejorative. I mean it as a description of his social, political, and economic worldview.
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In a lot of ways, the social credit philosophy is just as libertarian as it is socialist.
(Crazy that libertarianism and socialism don’t always have to to be at odds?)
The reason being, is it gets government out of taxing people… leaves people’s money alone, and does less interference with people’s lives in general (a very libertarian ideal), but in doing so, encourages communal growth, and assistance for those who need it (a very socialist ideal). In essence, government becomes less intrusive, but becomes more “a useful thing that just helps facilitate you in doing whatever you’re already doing”.
Just an interesting thought to chew on…
I wonder what a fully libertarian-socialist government would be like to live in?
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Ultimately, I think the a socialist-libertarian fusion is a pipe dream. I can see the attractiveness of social credit. We get subsidized for the efforts of those who’ve gone before us, but I eventually realized that the real”surplus” that society provides is the fact that we have a pre-provided infrastructure, culture, capital, and standard of living just waiting for us when we are born into our societies. That is our surplus. Since the surplus would have to financed just like any other government expenditure, it turns out there really isn’t one.
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I have no idea if you’d read a comment this late (two years!) but, I did wish to make a comment about Social Credit.
Social credit is based upon the idea that there is an insufficiency of income when you compare incomes against the total of all costs that are either making up prices now, or are outstanding, and will become prices later. Its particular financial reforms were to create money and use it first for a basic income, and secondly as a universal price subsidy on consumer goods. Both of these together would make prices equal incomes at all times. The idea is that the build up of capital, and the replacement of labor by machines, generally increases this gap between total incomes and total costs. The particular definition of what causes this gap is a bit complex, I’ll put it in another reply.
So the validity of social credit’s vision pretty much rests on the validity of this economic idea. The cultural inheritance and such is philosophy enabled by the economic theory.
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As promised:
So far as I have gathered, social credit says this gap is caused by two things:
1. A time lag between when incomes are distributed and when prices are made-
Income distributed in respect of, say, a generator is likely to be absorbed by inflated prices long before the associated costs of that generator are charged to the consumer as such. So when the consumer is actually being charged for the generator, in the guise of say, electricity, or as part of the price of a good, there is no automatic mechanism to ensure that the money will be there to pay the charges.
The same applies to profit and reserve charges in many cases. The profit-charge is made before the incomes from the profit are distributed. Depending on how far away the profit-charge is from the consumer, it may have the same effect as the generator, except the incomes were never distributed beforehand. When the profit is collected, it may then take a good while for it to be distributed as income. That is, if it is distributed at all, such as with banking reserves; profits are held in reserve, never spent, but they were collected.
2. The reinvestment of income-
Any distributed income creates a cost. If, say, $100 of income is saved, that means there is $100 costed into goods somewhere. Now this $100 is applied to paying the wages of a workman; another $100 of costs has been created. There are now $200 of goods, but only $100 of income with which to buy it. Once the good has been bought, the only way that money can become income again is if it is distributed as wages, salaries, etc., and forms an equivalent cost.
I figure that bank loans being paid down faster than they are being taken out figures in somehow, but I haven’t got the language down yet. So I must leave without an explanation for that.
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Key to a lot of the various theories involving the many different types of socialism (of which Social Credit is just one) is the gap between income and the totality of the other costs (like production). But I think you dismiss too quickly the “philosophy” of the economic theory. When you are selling a new economic scheme to the public, You’re selling the philosophy, boiled down to a quick phrase, not the actual theory itself. The selling point of social credit was that someone was going to get something for free via cultural inheritance, it had already been earned.
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Social Credit is not a form of socialism. It is opposed to the command economy, to the collectivization of the means of production, to redistributive taxation, and to excessive government regulation. It supports the free market, private property, and the profit motive, but within the context of a financial system that is balanced, where consumer prices and consumer incomes are automatically in balance. If Social Credit may be described as anything, it is the universalization of capitalism, a system in which we all profit from the ordered progress of society because we are all recognized as the beneficial owners, via the cultural heritage, of the real capital of a modern, industrial economy.
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I’m open to Social Credit making it’s case, but the relative decline of the economic theory from the 1930’s till now does make me question it’s actual practicality in the real world. The money still has to come from somewhere. You can’t simply say it comes from a “national account.” I’ve just not seen how it would apply to the real world economies of any particular nation, whether the USA and Canada, or one of the EU countries.
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Money is (or should be) simply a matter of accountancy. The vast majority of the money supply exists in the form of bank credit – virtual numbers. There is no good reason why sufficient numbers cannot be provided by the financial system to facilitate the production of whatever goods and services people can use with profit to themselves and to effectively and efficiently distribute these to consumers. Whatever is physically possible should be financially possible. Social Credit holds that the financial system should fulfill its purpose and provide us with an accurate reflection or recording of what is going on in the physical economy. At present, money for production and consumption is artificially scarce because of the conventions that govern its nature, use, and terms of issuance. Instead of facilitating whatever it is that we want to do with our economic potential, the financial system limits and controls our economic choices. It treats money as a commodity and the monopoly which (for all intents and purposes) private banks exercise over the money supply allows them to leverage the resulting scarcity in order to serve their own anti-social purposes. There is nothing magical or mystical about money. It is simply a tool that should function well rather than badly in helping us to organize economic life so that goods and services can be delivered as, when, and where required with the least amount of trouble to everyone.
The fact that Social Credit has declined in popularity from the 1930’s onwards is largely explained by the fact that Keynesian policies (which are a direct – and probably intentional – inversion of Social Credit) have managed to mitigate the effects of an unbalanced financial system which Douglas warned about, while, unfortunately, centralizing power in the hands of the few even further. In any case, the truth of any position or theory is not a function of its popularity. Yes, Social Credit has never been tried. All the more reason to test it in practice. What’s the alternative? The US is now something like 60 + trillion dollars in debt (public, corporate and private debt) while the money supply is only around 10 trillion dollars – the discrepancy is explained by the fact that debt-money is routinely used to bridge the recurring gap between consumer prices and consumer incomes in the modern, industrial economy. Pay off as many debts as you can with that money and you would have no money supply and yet 50 trillion in debt would remain. This, in the richest country (physically speaking) in the entire world. Clearly, the financial system that we have got does not accurately reflect reality. It says that the US is poor, when in fact it is incredibly rich. You should be as rich in financial terms as you are in physical terms – anything else is simply asinine.
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Generally in the US, when the Federal Reserve creates money, this new money doesn’t increase the amount of money in the economy. Instead, the new money increases the size of the Fed’s balance sheet. When the Fed creates a billion dollars, it uses this money to buy bonds; US Treasuries and Mortgage Backed Securities. When the Fed creates and gives a billion in reserves to its member banks, it removes a billion worth of bonds, considered assets in this case, from the balance sheets of those banks. The result is that no new financial assets enter the economy. I don’t know how it works in Canada but I imagine it’s a similar process.
What you seem to be talking about is a situation in which the Fed just “prints” money, based on whatever the “National Accounts” formula has determined, and splits it with every household in the country. I don’t see how that isn’t inflationary. Regardless of how you determine the amount, based on whatever formula, it’s still printing free money with all of the bad effects that has on the economy.
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95% + of the money supply in any industrialized nation exists in the form of bank credit. Only 5% or less exists in the form of bills and coins. That bank credit is typically issued entirely by private banks. Every bank loan or purchase of securities creates a deposit (money) and every repayment of a bank loan or selling of a security destroys a deposit (money). In other words, the bulk of the money supply is private, not public in origin. In the US, the only thing that is public are coins which are minted by the government. The Federal Reserve is neither federal nor a reserve, but a private entity. In any case, Social Credit does not object to private banks issuing bank credit to finance private production. The problem is that as producer credit moves through the production system it, because of the way in which real capital is financed and the way in which its costs are subsequently accounted for, generates prices at a faster rate than it generates incomes Cf. http://www.socred.org/blogs/view/the-core-of-the-core-of-douglas-a-b-theorem-and-hence-of-social-credit-s-economic-diagnosis. The current financial system deals with the resulting gap between consumer prices and consumer incomes by relying primarily on increased debt for expanded production (in order to distribute incomes – so the question as to whether the expansion is really needed or not is secondary), increased government debt for public works, or worse, warfare (which also increase incomes without increasing consumer prices in the same period of time) and consumer debt in all of its forms (mortgages, car loans, education loans, lines of credit, installment buying, credit card, etc.). We have to work more and become more indebted in order to fully consume what we have already produced and have a right to in strict justice and, to make matters worse, the reliance on debt-money to fill the gap is inflationary in the form of cost-push inflation. This is why the US dollar has lost 95% of its value over the last 100 years. Social Credit says: fill the gap between consumer prices and incomes with a sufficient volume of money that is created debt-free. The creation of sufficient money-numbers to move the remaining ‘surplus’ production out of the producing system and into the hands of consumers is justified by the fact that the goods exist and have already been paid for in physical terms. An honest financial system would simply mirror or reflect reality. If the goods exist, the money to purchase them in their entirety should also exist. If money in the form of consumer income is lacking, more consumer purchasing power should be created without additional costs attached (debt-free as it were) in order to effect an equation. This is to be done in lieu of expanding production unnecessarily, increasing government spending, or the contracting of consumer debt from private banks. So long as the rate of flow of consumer prices coming on to the market is equal to the rate of flow of consumer purchasing power there can be no inflation. This is what Social Credit proposes: the establishment of an inherent or automatic equilibrium in the financial circular flow. The compensatory debt-free money will be destroyed when production loans are paid off or else they will be sequestered in capital reserves (from which they will only re-enter the economy alongside a new set of production costs).
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It does come from somewhere! It comes from the same place the banksters draw it from – an ink well! The difference – and it is a very big difference – is that the money banksters create is debt that requires interest (a deflationary force) while the money Social Credit would create is equitably distributed to everyone and no interest is required so it is not issued as DEBT.
How much “social credit” gets created? Only enough to fill the GAP that Keynes himself acknowledged (he learned about it from Douglas) when he wrote “Consumption is satisfied partly by objects produced currently, and partly by objects produced previously, i.e., by disinvestment. To the extent that consumption is satisfied by the latter there is a contraction of current demand, since to that extent a part of current expenditures fails to find its way back as a part of net income. Contrariwise, whenever an article is produced within the period with a view to satisfying consumption subsequently, an expansion of current demand is set up. Now all capital investment is destined to result, sooner or later, in capital disinvestment. Thus the problem of providing that new capital investment shall always outrun capital disinvestment sufficiently to fill the gap between net income and consumption, presents a problem which is increasingly difficult as capital increases. New capital investment can only take place in excess of current capital disinvestment if future expenditure on consumption is expected to increase. Each time we secure today’s equilibrium by increased investment we are aggravating the difficulty of securing equilibrium tomorrow.”
This is not socialism. Socialism does not give a dividend on the collective increment of association that is the property of all humanity. It takes the means of production and puts them into the hands of the state – supposedly the trustee of the people – but over a century of practical application has revealed what a colossal failure socialism is. Meanwhile, social credit has NEVER been tried ANYWARE and ANY TIME. By what line of reasoning do you conclude that it is unworkable? If you are truly interested in seeing how it might be applied, check out http://www.economiccures.com and find out a PRACTICAL way to achieve this. You might just change your mind.
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First, let me agree with your assessment of, “You didn’t build that.” Complete idiocy. Not unexpected from someone who never did and still has never built anything. Having myself built barns, decks, houses, missile guidance systems, companies and lots of other things, I wanted to run right up there onto that stage, and say straight to his face, “I DID BUILD THAT!”
Having just received #1017 of The Virginia Edition and started reading with “We The Living”, it was with raised eyebrows that I realized that he was exploring, perhaps promoting Social Credit as an operational economic principle. This, from the man who wrote “Farnham’s Freehold”?
In my early college years, I met those expressing “It is not what your country…”. But, I had by that time already spent four years in the Navy and had learned that doing for my country and doing it well would do well for me, too. Meanwhile, they were leaving for Canada to avoid “doing for their country.” No one owes me anything, most of all my fellow Earthlings.
Having ridden this blue orb in its path around Sol for 78 1/2 years, I feel some kinship with RAH. But, I am setting aside surprise and I intend to follow his development from 1938 to 1988. I look forward to learning with him and seeing how he, too, got to where I am.
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