Salvation through Inflation (Gary North)

North, Gary. Salvation through Inflation.  Institute for Christian Economics.

This book has an autobiographical element for me.  While I cut my teeth as a student of the Austrian school–and am today a free market proponent–I did have a “fling” with Social Credit, though I didn’t call it that at the time.  Many of us, seeing some Enlightenment presuppositions with what we called “capitalism,” and knowing that Marxism and State Socialism were off limits, found in movements like Social Credit and Guild Socialism something of an alternative.  It can’t work, though. It can’t account for pricing. It’s also theft.

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There might be another attraction to this movement.  I think some in the Alt Right will go to it. The Alt Right, like Major Douglas, is Darwinian and Nietzschean.  North responds that while there are legitimate concerns to global banking schemes and “The Elite,” any such plan of action cannot come at the expense of biblical, worldview-level analysis.

Social Credit: the claim that capitalism does not “create sufficient bank credit that allows consumers to buy the entire output of industry” (North xv). The State replaces the bankers. As North nicely summarizes, it is a conservative movement that relies on a left-wing critique of capitalism (2).  It’s goal is for the state to create fiat money so that the economy won’t be underconsumed.

Basic tenets of social credit:

* Nature is inherently bountiful
* Human institutions are the cause of scarcity (Social Credit, 77-79).
* The community creates credit (North 59).
* No distinction between public and private property (Douglas, Social Credit, 205).
* You can’t buy or sell real estate (206).
* Falling prices are bad for the economy (Douglas, The Monopoly of Credit, 28). The money supply is never sufficient to clear the market.

Scarcity and Wealth

Biblical view of wealth: Scarcity is an example of negative sanctions in history (Genesis 3:17-19).  Scarcity is defined as “At zero price there is greater demand for something than there is available supply to meet all the demand” (North 45).  Economic growth, accordingly, is when we increase the number of our options.

Biblical view of money: surprisingly, the bible doesn’t mandate that silver and gold be the only kind of money.  It just acknowledges them as valuable. And scarce. And durable and portable and divisible. Nevertheless, the Bible condemns debased metals (Isaiah 1.22).

Debasing money is counterfeiting it, plain and simple.  God condemns this (since it is deception). If it is easy to counterfeit gold, how much more so paper and credit?  You see where this argument is going, don’t you? Social Credit relies at heart on a system of counterfeiting. Counterfeiting then inflates the prices.

Interest is related to time.  One of the problems with anti-interest policies is that they try to escape the reality of time.  That is Gnosticism. Interest doesn’t have to be nefarious. Indeed, it’s unavoidable. North notes that paying is simply paying “an extra quantity of future goods to gain access to the lender’s supply of present goods” (North 179).

Problems with Social Credit:

+ Profit and loss are sanctions that guide production.  This is inevitable since men have imperfect knowledge about the future (Mises, Human Action, 291).

+ If the government issues paper money on the basis of this statistical number, the new money will” raise prices. When prices rise, the value of the “community’s” capital rises (North 63).

+ Douglas’s injunction against falling prices is refuted by the computer revolution.

+ Douglas thinks money disappears (“a week after”) but it doesn’t.  It either remains with the consumer in his hand, under his mattress, or in the form of credit. I guess it could disappear if the Joker burns it all, like in The Dark Knight Rises.

+ It is possible to cut prices below the costs of production and increase profits, which is what Henry Ford did. If it leads to more output, then it works.

+ How do you explain the historic productivity of capitalism precisely when Social Credit problems have never been adopted?
+ Tito’s Yugoslavia adopted something similar in the sense of work tickets.  While it functioned better than the USSR, it had the opposite effect of Douglas’s proposals: the time needed to work multiplied exponentially.

+ The main problem is the most obvious one: Social Credit wants to replace Bankers’ control over credit with the State’s control.  In other words, Congress. Yet both Republicans and Democrats hate Congress.

+ Per Douglas’s A + B theorem, the money paid to B (organizations) is always paid to peopled organizations. He seemed to think they were paid to empty organizations.  This means, pace Douglas, that A can buy back the product. North destroys his argument in one sentence: every unit of money is owned by someone at all times, unless someone has inadvertently lost it (253).


Review: Mises, Human Action

Von Mises, Ludwig.  Human Action.  Scholar’s Edition.

All deductive systems are dangerous if formulated incorrectly. Their appeal lies in their power, and Mises’s system is powerful indeed. Mises advances Praxeology, an economidoctrine emerging from the Classical School when it was realized that human action and not the inherent value of an object is what drove economics (Mises 3). Since our knowledge is limited, our choices will always have an element of uncertainty.

Thus, Mises can advance his main theorem: Human action is purposeful action. And the second is like unto it, “All action aims at a removing or lessening a present uneasiness.” Action does not measure utility or value; it chooses between alternatives. When I choose between unit a and unit b, I am not choosing between the total stock of either, but simply between the marginal values of both a and b. And this leads to the key gain of the Austrian school: the doctrine of marginal utility. The marginal utility of a good decreases as its supply increases. Whenever I get a good, I devote it to the most important end. As I get more goods, I devote them to lesser ends. Obviously, this applies to subjective-use value and not a thing’s perceived objective value. This allows the Austrian School to avoid the hang-ups which plagued all of the Classical Economists from Smith to Ricardo to even Marx.

Not directly, but indirectly related to the above is another axiom: Because man is an acting man, situations change. Prices will change. There cannot be a universal “set price.” Past prices are a guide to future prices.

Another axiom

Mises has several challenging chapters on interest and the Industrial Revolution. He argues that interest is the price men pay for valuing present goods more than future goods. It is a ratio of commodity prices, not a price itself.  Can we get rid of interest?  Mises argues that as long as there is scarcity, there will be human action, and hence, interest (525). Originary interest: the discount of future goods as against present goods (521).

Ricardo’s Law

Society accomplishes more when one group produces more of what it is good at.  If Group A is superior at producing everything, it still benefits from cooperating with an inferior partner. If Time = Money, then outsourcing frees up valuable time for A to produce what is more valuable.  Mises writes, “ If the surgeon can employ his limited working time for the performance of operations for which he is compensated at $50 per hour, it is to his interest to employ a handyman to keep his instruments in good order and to pay him $2 per hour, although this man needs 3 hours to accomplish what the surgeon could do in 1 hour.”


Mises’s Utilitarianism is subject to some devastating defeaters, mainly Betrand Russell’s: the only way to justify an action is in light of its consequences, but the only way to justify whether those consequences are good are in light of the consequences’ consequences, and so on to infinity.

Fortunately, most of his system is salvageable from that.