by Eric D. Butler
I II III
Social Dynamics is the science of applying social power to
social organisations in order that individuals may obtain the
results they desire. Social power derives from the belief - faith
- that individuals in society can in correct association get
what they want.
One of the basic principles of war is the necessity to secure a firmly
established base. The Free World cannot defend itself successfully,
still less initiate any type of political, economic or psychological
offensive against its enemies, unless it has a stable and secure
base. This means nations with stable and successful social
institutions. A successful social institution is one which the
individual strongly supports because it serves his requirements.
An unstable social structure provides Communists and other subversives
with the opportunity of eroding the basis of the Free World. Once this
erosion proceeds beyond a certain stage, resistance to subversion and
policies of destruction becomes almost impossible. An effective Free
World defence system therefore requires much more than adequate military
defence; it also involves all aspects of the Free World's political,
economic, financial, social and constitutional systems. If these systems
are being used to impose disruptive policies in a society, then it
is the task of the trained Social Engineer to show his fellows how
they can act to have these policies replaced by those which result
in individual satisfaction and stability.
Policies Rooted in Philosophies
Before we can study any type of policy,
irrespective of whether it be political, economic or financial,
it is first essential to understand that all policies stem from
It is interesting to note that the words policy, politics and police
have a common root, each stemming from the word “power".
“Policy” might therefore be described as the purpose to
which power is directed. The question of the purposes to which power
might be directed, and whether the individual should have real independence
to make choices concerning the use of power, goes right to the very
core of the problem of the individual living in society. How power
should be used involves the question of philosophy. An individual’s
philosophy is what be believes, his conception of reality, what he
believes about the nature of man, his purpose, his relationship to
his fellow man and the Universe. An individual’s
policies stem from what he believes. “By their fruits ye shall
know them.” We judge a man’s philosophy of life
by his actions—his policies—not necessarily by his words.
Satisfactory policies are those rooted in a philosophy of truth,
of realism. An unrealistic philosophy, one which is a faulty conception
of truth, gives rise to unrealistic and unsatisfactory policies. It
is still impossible to get figs from thistles.
The following simple example demonstrates the relationship of policy
to philosophy: If a person crossing a street believes that the street
is free of all traffic, then he proceeds to cross confident that he
may do so safely. His policy is based upon the situation as he sees
it. But should his concept of the situation be faulty, and he has
not seen a fast-moving car, then his policy will bring him into violent
conflict with reality as it is.
So many of man’s policies today are producing disastrous results
that it is clear that they are rooted in a false philosophy. Much of
the major causes of the failure to grasp a clearer concept of reality
is the result of materialism, one feature of which is to insist that
human life consists of purely material factors. There is much loose
talk about “the age of reason”, and an insistence that
man’s problems can be solved through logic. But logic is like
a slide-rule. It can only provide the total of all the factors fed
into it. If some vital factors are left out, then the answer
will be faulty.
Planners of all types, including the Communists, ignore the spiritual
nature of man, and are superbly confident that because they can produce
in their heads a most carefully devised plan, then it should work.
We have the example of planners advocating the “reconstruction”
of rural communities in the West arguing that the basic cause of the
failure of collectivized farming in the Soviet Union was not this concept
of “scientific” farming, but the “stupidity of the
backward, superstitious peasants”.
The planners ignored the reality of people with such a deep “feel”
for their own soil, for a particular way of life, that they prefer
death to relinquishing it voluntarily. Most of the arguments concerning
politics, economic, finance and associated subjects are futile because
those arguing usually do so from fundamentally different points of
view. And even though two people use the same terms, this does not
necessarily mean that they have the same concept of reality. Socialists
speak about “democracy” and “freedom”, but
a little questioning soon reveals that they usually mean the very opposite
of what those terms mean to others. Confusion arises out of looking
too closely at labels,
instead of the reality behind the labels.
If an individual swallows a pink powder known as strychnine, the results
will be disastrous even though the bottle containing the powder is
labelled “icing sugar”. Conflicts between groups does not
always mean that they hold diametrically opposed viewpoints or philosophies.
After the Second World War a large number of Nazis (Nationalist Socialist)
officials had no difficulty in becoming officials in the East German
Communist regime. The explanation is simple: the basic philosophy of
the National Socialists, their viewpoint concerning the relationship
of the individual to the State, and the use of power, was similar to
that of the Communists. An individual who believes in the centralized
planning of individuals may describe himself as an antiCommunist.
But his philosophy is that of the Communists.
Reality is not affected by words, or by abstract theories bearing no
relationship to reality. If the word gravitation” had never been
known, this would have no bearing whatever on what happens when an
individual falls from a height.
The Philosophy of Totalitarianism
Broadly speaking, there are two philosophies in the world, and because
these two philosophies are diametrically opposed to each other,
they give rise to conflicting policies. The first philosophy, and
one which has gained increasing acceptance under a variety
of labels, is that which conceives of all power arising from a
point outside, or EXTERNAL, to the individual. The individual is regarded
merely as the instrument of power wielded by someone else. This
is the essence of all forms of totalitarianism. This philosophy
gives rise to policies which necessitate a certain type of organization
to impose them upon individuals who in the nature of things resist
them. This philosophy leads to the conception of individuals
as “masses”, statistics, so much raw material to be planned
by those claiming superior knowledge of what is best for the individual.
In many cases those claiming to know what is best for their fellows
present a picture of “sincere idealists”. But behind this
picture is the inescapable reality: they are the Utopians who
wish to force all other individuals to accept their particular brand
of Utopia. They distrust their fellow human being to be able to evolve
his own particular Utopia. And because they distrust him, they must
have sufficient power to control him ”for his own good” of
This philosophy has been primarily responsible for the growing evidence
of collapse, confusion and friction inside the Free World. It has resulted
in the individual being progressively subordinated to the power of
those speaking in the name of the State, the group, or some other system.
It should be carefully noted that man is not threatened by systems.
Like nuclear weapons, systems cannot threaten anyone. It is those who
threaten to use nuclear weapons, who do use systems to exercise power
over others, who are the threat. What we have to fear is some men exercising
irresponsible power over other men. The nature of man has not
changed very much over thousands of years. Under given circumstances
he can always be relied upon to act in the same way.
The lessons of history dramatically confirm the fundamental law enunciated
by the great British historian and philosopher, Lord Acton, who said
that all power tends to corrupt, and absolute power corrupts absolutely. Centralized
power in the hands of the few means little or no power in the
hands of the many. Centralized power not only tends to corrupt those
exercising it; it also has a corrupting, a degrading, influence on
those who become the passive creatures of power used by others. In
the absence of power, they cannot freely fashion their own policies.
Christian theologians observe that the famous New Testament incident
when the Son of God was taken up on to the high mountain and tempted
with complete power demonstrates that God Himself rejected the
concept of complete power. The lesson was that the individual must
be left to make free choices, and to accept the personal responsibility
for the choices made. Only in this way can the individual make
real progress, which is moral progress. This means organic growth as
opposed to rigid and sterile planning.
The philosophy of centralized
power always produces the same destructive results. It is a false
philosophy because it conflicts with reality, one important aspect
of which is the nature of individuals. The inevitable result is
more and more compulsion, even if the policies of compulsion are
made more sophisticated, and the individual subjected to intense
propaganda in an endeavour to persuade him that while he may
not like what is happening, it is all part of an “inevitable
The Philosophy Of Freedom
The alternative philosophy conceives of all power arising from WITHIN the
“The Kingdom of God is within ye”.
This philosophy conceives of the individual possessing both the intelligence
and the free will to seek out, to discover the laws governing
the universe, the principles necessary for satisfactory human
associations, and then to apply what is discovered. The individual
is seen as possessing the attribute of creative initiative, and the
capacity for self-development. Through self-development in different
spheres the individual spiritualizes his life. The second philosophy
conceives of the individual as having certain inviolable rights, which
cannot be taken from him by either “the State” or
“majorities”. The right to life is the most fundamental
right. Because of the importance which this philosophy attaches
to the right of the individual to self-development, it naturally stresses
that institutions and systems exist to serve the individual.
“The Sabbath was made
for man, and not man for the Sabbath”
It was the coming of the explosive Christian revelation which resulted
in the progressive freeing of the individual from the domination of
Christianity stressed the uniqueness of each individual, resulting
in a much more highly developed concept of personal dignity and worth,
while the fundamental Christian law of love provided man with a new
concept of living together and of minimizing the corrupting threat
of power. So far from being a piece of sentimentalism, the great Christian
Commandment enunciated a fundamental principle for successful co-operation
between individuals in society. The modern pseudo-intellectuals sneer
at the Law of Love because it cannot be measured “scientifically”.
But the fruits of the application of the law were to be seen in the
flowering of Western Civilization—chivalry, culture, the concept
of the gentleman, ethical standards in man’s conduct. True,
the ideal was never completely fulfilled. But it did exist and
large numbers at least strove towards it. Even wars were fought with
some reference to the ideal. Civilians were respected.
“Total war” was a return to barbarism. But the truths governing
the Universe existed from the beginning of time, and what is termed
Natural Law Philosophy preceded Christianity. The early Christian philosophers
like Thomas Aquinas borrowed heavily from the early Greek and Roman
philosophers. The great Roman, Cicero, provided the following clear
exposition of Natural Law philosophy in his book, De republica, published
in 43 B.C.
“True law is right reason in agreement with nature.
It is of universal application, unchanging, everlasting...
We cannot be freed from it by Senate or people... The
law is not one thing at Rome and another at Athens, but is
eternal and immutable, valid for all nations and for all
times. God is the author of it, its promulgator, and its
enforcing judge. Whoever is disobedient to it is abandoning
his true self and denying his own nature.”
In his famous classic "Man, The Unknown", Alex
Carrel wrote than man has been the victim of “a disastrous
illusion" the illusion of our ability to emancipate ourselves
from natural laws. We have forgotten that nature never forgives. In
order to endure, society, as well as individuals, should conform to
the laws of life.” Those who accept this type of philosophy
reject the concept of man being a law unto himself, his own God. With
proper humility, they accept the truth that the rules of the Universe
transcend human thinking, cannot be altered, and therefore should be
carefully observed and obeyed in order to produce harmony in
The Natural Law and Christian philosophy found expression in perhaps
its highest form in the type of social structure and institutions evolved
by the British and taken to other parts of the world, including the
United States of America. The essence of the policies developed was
decentralization of power, with emphasis on voluntary co-operation
and the acceptance of self-discipline as opposed to imposed
discipline and regimentation. To the extent that policies of
decentralization were developed, there was satisfaction through both
diversity and harmony. As these policies have been replaced with those
rooted in the philosophy of totalitarianism, there has been increasing
friction and dissatisfaction. There will be further friction and more
disasters if these policies are persisted with. This can be predicted
with complete certainty.
Policy And Administration
Most of man’s policies, the results he desires, can only be obtained
through organisation. Organisation involves what is termed administration.
The specification of results is termed policy making, and policy making
is the correct function of individuals in a genuine democracy. But
while individuals are competent to express their desires concerning
the results they want, they are not necessarily competent to express
opinions on matters of administration, on how best to obtain the results
'desired'. Women are the greatest authorities on the type of shoes
they want to wear, but they are not authorities on the best way to
run shoe-manufacturing factories. The individuals of a community can
be united in wanting roads without more than a few of them knowing
anything about roadmaking. Their political representatives are
not experts on roadmaking either, but they can engage engineers who
Real democracy is concerned with formulating policy and directing appropriate
experts to devise the ways and means of implementing policy. The experts
are made personally responsible. In a genuine democracy, with power
concerning policy making in the hands of the individual members of
the community, experts are "on-tap, not on top". They are
left free to devise the most efficient methods of implementing policy,
and are held personally responsible. Only by proper division between
policy and administration, between ends and means, is real democracy
The Socialist concept of “democratic administration of industry”
is about as realistic as talking about the members of a sports team
having a committee meeting every few minutes to decide what is to be
done next. Once the game is under way, the captain is in charge. There
can be consultation, but in the last analysis the captain makes the
decisions. The same applies in industry.
The democratic form of organisation can be visualised diagrammatically
as a circle, the circumference representing individuals with the necessary
power to make decisions concerning policy making in different spheres.
The centre of the circle represents the administration, staffed by
individuals accepting the responsibility of devising the best ways
and means of obtaining policies required.
By virtue of their position individuals decide on results whether or
not the administrators remain at the central position of responsibility.
For efficient administration a different type of organisational structure
is necessary. This can be shown diagrammatically as a pyramid. In this
type of organisation supreme authority at the top imposes its will
and decisions on the whole structure through a series of subordinate
authorities. If administration is left to those persons best qualified,
then administrators must be placed in positions of complete
authority so long as they provide the policy makers with what they
want. Effective control of policy requires that individuals, considered
as electors, consumers, or members of any type of sporting or cultural
organisation, have the power to discipline administrators if they are
failing to produce the results desired and specified.
Successful Associations Must Reflect
All organisation has to do with the association of individuals.
Just as certain principles govern the associations necessary for bridge
building, so do principles govern associations necessary to achieve
political, economic, financial or other objectives. The principles
governing bridge building have been discovered and tested over a long
period of time. Each new generation of engineers inherits knowledge
from the past. They know that to build successful bridges they must
adhere rigidly to principles which cannot in the nature of things be
altered. Those who insist that there are unchanging absolutes which
can only be ignored at great danger, are often charged with being
The original dictionary meaning of extremism is the taking of painstaking
All those who travel in aeroplanes feel much more at ease when they
realise that “extremists” have built their planes; men
who have carefully built the planes in accordance with the natural
laws governing the flying of planes, including the use of materials
in the correct association which will withstand stresses and strains. If
planes were built by men in accordance with theories which they thought ought to
be satisfactory merely because they had thought them up, there would
be plenty of disasters.
The principles governing human associations have been tested and observed
over many thousands of years. Tradition is, in part, the accumulated
wisdom of the past.
The attack on tradition tends to cut man off from a knowledge
of those fundamental truths essential for an understanding of principles
of human association essential for satisfactory results. The major
constant in human history has been human nature, which contrary
to the theories of the various schools of idealists, has changed very
little, if at all. A study of the collapse of the Roman Civilization
reveals many disturbing similarities to what is happening today, including
heavy taxation and monetary inflation. The many theories of the “scientifically”
planned State could only have a chance of working if human beings were
less than human perhaps like ants.
The fundamental nature of humans being what it is, it can be predicted
with certainty what will happen under given conditions. The individual
reacts very much differently in a big crowd, stimulated by the spectacle
of a thrilling game, or the oratory of a demagogue, than he does in
a small group. The bigger and more concentrated a group becomes, the
more it becomes a mob in which the individual loses control of himself.
The more the individual is organised into big, centralised groups,
the further down the scale of existence he is driven, losing his most
divine attribute, creative initiative.
The Communists and other totalitarians are experts in the art of creating
and using mobs for revolutionary purposes. The lessons of history teach
that the concentration of power into few hands invariably tends to
produce corruption. The bigger and more highly centralised any human
association becomes, the fiercer becomes the struggle for place and
power, the greatest intensity "being near the top".
The worst, not the best, features
of man are manifest.
No sophisticated theorising can alter this truth. The realist faces
the truth about man and seeks to ensure that human associations are
based on principles which when applied produce the most satisfactory
results in terms of human satisfaction.
Why do individuals associate?
Because they desire to gain benefits which would be impossible or very
difficult for them to attain if they worked for them separately. The
conviction, the faith, that by association they can gain the results
they desire, brings individuals together as a group, co-operating to
a pre-determined end. The starting point for association is the belief
that the individuals can obtain benefits from association; that there
is an increment of association, a profit.
To the degree that the individuals forming an association are convinced
that they are attaining the benefits for which they are associating,
the association will function vigorously. It will be successful. But
if individuals find that their associations are not producing desired
results, they lose their faith and the association starts to disintegrate.
Successful organisation cannot be a haphazard affair. A study of the
principles of organisation are therefore absolutely essential for the
social engineer. Organisation for playing games provides an example
of the principles of successful human association.
A group of people decide that they would like to play golf. The first
necessity is the formation of a golf club. The creation of the club
is not for the purpose of having a club, but to enable the individual
to achieve in the correct association what would be impossible on his
own. After agreeing to form the club, the next step is to make rules
for the club. These rules are a constitution, laying down in advance
such matters as members’ rights, how the committee shall be elected,
how the committee shall be controlled, and similar matters. The committee
is elected by the members for the general task of ensuring that the
policy of the members is carried into effect. The committee is the
servant of the club’s members. It ensures that the appropriate
experts are engaged to ensure that adequate facilities are provided
for the playing of golf and for the social amenities such as a club
house. The money required for these activities is voted by the members
of the club. Within the framework of the club organisation and its
rules, including of course the rules governing the actual playing of
golf, the individual members are free to act in accordance with their
inclinations. There is no compulsion that all individuals must play
so many hours every day. The business man can treat golf as a form
of relaxation and a means of obtaining exercise. The women members
can treat it as a form of social activity. Those who are really keen
on improving their golf, either for self-satisfaction or for competitive
reasons, can apply themselves to practising much more diligently than
others. So long as the committee ensures that the club is running smoothly,
individual members spend little time concerning themselves about the
committee. It is important to stress that associations like a golf
club are not only governed by rules, including the rules for the actual
golf playing, but by an ethic. The well-known British statement,
“Play the game”, is a manifestation of an ethical concept;
that trying to take an unfair advantage of an opponent is “unsporting”.
Successful associations therefore require something more than rules;
they require that individual members treat one another as persons entitled
to respect and dignity. The major feature of a successful organisation
is the correct relationship between the individual members and their
committee representatives. Imagine what would happen if upon arriving
to play golf one day, members were informed by the committee that they,
by virtue of their superior wisdom, had come to the conclusion that
all members would obtain much more benefit from playing baseball, and
that they were going to insist upon this! The members could do one
of two things: they could -either make use of the club’s constitutional
provisions to call a special meeting of members to vote the committee
out, or, presuming that this was too difficult. They could contract
out of the club, automatically bringing it to an end. The right
of the individual is to contract-out of an association which no longer
serves his requirements, is the most effective means available to the
individual to protect himself against power-lusters seeking
to use his associations against him.
Associations, like systems, exist to serve individuals. Most attacks
on the individual are camouflaged by appeals to the “national
good” the supremacy of the State, or similar abstractions. The
“national good” is only a reality when the individual is
obtaining satisfaction through that complex form of association termed
society. Demands that the individual sacrifice for “the good
of the State” usually means that the individual surrenders more
control over his own life to the all-powerful officials who are in
reality the State, as the victims of Communist governments are so painfully
The Basis of Real Freedom
The growth of a civilisation is the development of many different forms
of human associations through which the individual has been able to
do things which were impossible for his fore-fathers. It is true that
man does not live by bread alone, but self-development by man is only
possible when he has freed himself from the necessity of spending
nearly all his time and energy on obtaining the bread of life. It is
unrealistic to talk about cultural and spiritual development unless
the individual has sufficient free time from the necessity of obtaining
the food, clothing and ‘shelter to sustain life.
The basic essential of real freedom
is economic freedom. Primitive natives have little
real freedom because nearly all their energies are applied
to obtaining sufficient food to keeping themselves alive.
Early in man’s history he was generally a nomad. His
first associations were into tribes, but they had to continue
moving their flocks and herds to where the food supplies
were growing naturally. The development of civilisation really
dates from the time when man found that a secure supply of
food was possible in one area by the growing of crops. The
whole basis of man’s development changed dramatically.
The growth of stable societies, increasing the time available
to individuals to devote to reflection and culture in its
many forms, resulted in the development of social institutions
necessary in the changing circumstances. Increasing free
time resulted in man improving the simple tools he was evolving,
and in discovering new sources of energy other than his own
and that of his domesticated animals. By applying the correct
principles of association, wind could be used either to drive
windmills to grind corn or to move ships across the seas.
Running water could also be used to drive simple machinery.
But although man was steadily increasing his productive
capacity, he was still limited by the energy at his disposal.
He could not use it at will. When the wind died down. His
sails drooped motionless and his mills stopped turning. When
the water stopped running. His water wheels stopped turning.
It was just over two centuries ago, in 1765, that man took a momentous
step forward in harnessing energy to his use, and revolutionised the
whole basis of his civilisation. When James Watt devised a means of
making practical use of the steam engine. The latent energy in coal,
originally derived from the supply of energy provided by the sun was
now harnessed at will by man, and the Industrial Revolution developed.
The greatly improved methods of using solar energy through highly sophisticated
machinery have dramatically changed the whole basis
of social life. But they have not
changed the fundamental principles governing human association. However,
they have created a world in which there is desperate need for an
understanding of the application of the principles of successful
association if civilisation is to avoid a major disaster. The fact
that man has at his disposal unlimited sources of energy compared
with his forebears in previous civilisations, does not mean that
this will of itself enable him to avert the disasters which the historian
s state have overtaken some 20 civilisations. The misuse of enormous
energy through incorrect principles of association can only result
in greater disasters than any experienced in the past.
Society - A Complex Association
Society is a complex form of association which can only work satisfactorily
so long as its individual members believe they are obtaining benefits
from it. It is obvious that in all the Western nations there is, in
spite of tremendous technological advances, growing individual dissatisfaction,
these expressing themselves in different ways, some of them violent.
There is not only conflict within societies, but conflict between societies.
Those societies organised under Communist domination are clearly violating
the principles of satisfactory association to the point where millions
would contract out of their associations - if they could. Berlin Walls
and Iron Curtains were attempts to prevent the victims of perverted
associations from destroying them by moving to other associations which,
a s yet, are not as perverted as those under Communism. In their strategy
for complete world power, the Communists are relying upon non-Communist
societies progressively disintegrating from within. The Communists
can only foster this disintegration because members of the non-Communist
societies are increasingly ignoring the principles for successful association.
Society can be divided broadly into three main spheres, even though
there is a close meshing of activities between these spheres. These
three spheres are the Economic, political and Cultural. Originally
derived from the Greeks, the term economics means social housekeeping.
Economics have to do with providing man's material requirements, with
the "bread and butter" side of life. It is in the economic
sphere that man associates to provide food, clothing and shelter and
services. Services being the general term covering such benefits of
communal activity as transport, sanitation, water supplies and roads.
If systems exist to serve individuals, and not individuals to serve
systems (which means serving those controlling the systems) then the
purpose of the economic system is to provide the individual with the
results he wants in order of his priorities. The economic system is
not an instrument of government, something to be used to control the
individual. The persistent claim that the economic system exists to
provide "full employment" is a perversion of "means
into ends". The scientist and the engineer has been striving for
thousands of years to lift "the curse of Adam" from the backs
of men to that of the solar-powered machine. What is meant by "full
employment" is that the individual should work "as directed".
The Socialists of all types openly advocate this policy, which runs
contrary to man's persistent efforts over the centuries to reduce the
amount of time necessary to provide himself with the basic requirements
of life so that he could develop himself through other forms of voluntary
activity. Experience has demonstrated that the only economic system
which can really serve the individual, is one where free enterprise
competes to provide the individual with what he wants. The individual
consumer exercises control through his "money vote". The
"money vote" is the most flexible form of voting ever devised
by man. It permits the individual consumer to "vote" for
the goods and services he requires, to penalise those producers whose
goods and services he does not want. A genuine economic democracy,
that is, consumer control of production. is only possible when the
individual has adequate "money votes" to obtain from his
economic associations the results he wants, and there is genuine
All policies of monopoly tend to undermine economic democracy. Monopoly
exists where the individual does not have a genuine alternative. Socialist-inspired
propaganda has convinced many people that the free-enterprise system,
based upon what is claimed to be the "wicked profit motive",
inevitably leads to monopoly. A clever but misleading propaganda argument
is that the profit motive must be replaced with the "service motive".
Profit can be best defined as the result which accrues to individuals
when they make the proper associations. When a seed is planted in fertile
soil, and there is sufficient sun and water, the unseen forces of nature
operate and, for example, a fruit tree results, a tree from which a
harvest can be taken every year. One grain of wheat produces a hundred
The difference between a man's effort and the ultimate result he obtains
can be termed profit. When the proper associations are made in the
free enterprise system of production and distribution, a financial
profit is made. It is the inducement of the financial profit which
stimulates manufacturers to make the goods which they believe consumers
desire. There is no irreconcilable antagonism between profit and service.
It is obvious that no profit can be made unless first a service is
given. It is only when the "farmer" has gathered his real
profit in the form of his grains of wheat or other products that he
can give service to the community. The manufacturer must produce goods
before he can make a profit. The best products of civilisation have
been the result of the "profit motive". Unless insane, no
individual does anything without the anticipation of some return, or
satisfaction, even if in most cases it is psychological satisfaction.
It is only under a system of profit inducement, profits obtained from
services rendered, correct relationships established, that that wonderful
aspect of man, individual initiative, can be expanded.
Financial profit in a system of free enterprise can be termed an economic
calculator. The amount of profit made indicates clearly and automatically
what consumers want, and in what order of priority. With the consumer
in control of the policy of industry through his "money vote"
or it might even be termed an "order system" the size of
industry will be automatically governed by efficiency and natural competition.
The concentration of economic power, the policy of monopoly, now so
obvious in both primary as well as secondary industries, is not because
mammoth units are genuinely more efficient, but because of the correct
function of Government being perverted, as will be demonstrated later.
The Governmental System
No matter whether the society they are associated in is large or small;
individuals require, in principle, the equivalent of the committee
of a sporting association. Government might be described as a type
of general committee essential to help ensure that individuals
can live harmoniously together. Stemming from the totalitarian
philosophy, there has in recent times been a careful fostering
of the Big Brother concept of Government. The traditional British
concept of Parliament was that it was representative of interests
rather than of mere numbers, and that government was like fire:
a good servant but a very bad master. Constitutional safeguards
were therefore necessary to curb the tendency of all governments
to increase their power. This tendency is a type of natural law.
The more highly centralised government becomes, the more difficult
it is for individuals to control the government. If governments
take over more and more power from the individual, doing things
for the individual which in a genuinely free society the individual
should do for himself, then it is inevitable that the major part
of government progressively becomes a swollen bureaucracy, a type
of army of occupation whose top officials become the real policy
makers. Politicians are reduced to the role of rubber stamps, legalising
what the permanent officials lay down. The perversion of the parliamentary
system is being perverted along the lines laid down by the Communist's
"spiritual bedfellows", the Fabian Socialists.
More and more power is being delegated to the permanent official who
makes his own rules and regulations which have the force of law. A
former Lord Chief Justice of England, Lord Hewart, very aptly described
this as "The New Despotism".
The development of representative government in the English-speaking
world was originally based upon the conception of the individual possessing
basic inviolable rights which no government could take away from him.
The philosophy underlying this concept is Christian. It is significant
that one of the leading figures at the Island of Runnymede, England,
when King John was forced to sign the famous Magna Carta, was Bishop
Stephen Langton, who insisted that even the King must obey a rule of
law rooted in the Christian philosophy. The famous English constitutional
authority, Sir William Blackstone, pronounced upon Magna Carta as follows: "It
protected every individual of the nation in the enjoyment of his life,
his liberty, and his property, unless declared forfeited by the judgment
of his peers or by the law of the land."
It was also Blackstone who wrote in 1760 that "Herein consists
the true excellence of the English Government; that all parts of it
form a natural check upon each other."
The division of power in the governmental system was developed to prevent
the tyranny of government. The concept of a government, once elected,
being able to do as it likes unchecked for a number of years, is a
modern and totalitarian concept. Under the British constitution, the
trinitarian concept of government has been reflected in the House of
Commons, the House of Lords as a house of review, and the Crown possessing
the right, in a crisis, of exercising a veto and forcing legislation
to receive further consideration. The underlying concept of Upper houses
is that they help to divide political power and act as Houses of Review.
When the predominantly British population in the American colonies
revolted against the British government of the day, they were revolting
against a government which was denying traditional principles of British
constitutional government. In his "Origins of the American Revolution"
John C. Miller observes: rejecting natural law, Englishmen also denied
the colonists contention that there were metes and bounds to the authority
of Parliament. The authority of Parliament was, in their opinion, unlimited:
the supremacy of Parliament had come to mean to Englishmen an uncontrolled
and uncontrollable authority. Indeed the divine right of kings had
been succeeded by the divine right of Parliament
It was the refusal of Americans to bow before the new divinity which
precipitated the American Revolution.
A study of the history of how the American Constitution was evolved
reveals the thinking of men who knew the lessons of history, and were
concerned with attempting to ensure by a carefully framed constitution
that their own governments could not become dictatorships. Every attempt
was made, as was the case in Australia when Federation was being formed,
that the power of the central Federal Government was limited; that
there was a division of power between the States and the Federal Government,
with the Senate acting as one of the counterbalances against
the monopoly of power.
Individuals living together in society must have a system of justice
governing their relations one with the other. Individual rights must
be protected, private property rights, the right to life, the right
to walk the streets in safety, protection against libel and slander.
Successful human associations are impossible unless these and similar
rights are protected. Violations of these rights require an independent
judiciary, whose members are really a type of umpire adjudicating impartially.
Although governments are responsible for ensuring that there is an
independent judiciary, it must be free of all political influence.
One of the major functions of government is to maintain a strict Rule
of Law. It is often claimed, falsely, that all law is an infringement
on the freedom of the individual. Real freedom is impossible except
inside an agreed Rule of Law.
The rule of law means that the individual, as well as government, is
bound in all his actions by clearly defined rules announced beforehand.
Road laws are a good example of the rule of law. Particularly since
the advent of the motor car it has been most essential for road laws,
which enable individuals to use a common service, to be designed to
protect all individuals. So far from the rule of law concerning the
roads being an infringement on the rights of the individual, so long
as there is general respect for that rule of law,
it increases the rights of the individual.
Individuals who insist that they should have the "freedom"
to drive how they like on the roads, would produce chaos. The rule
of law as applied to the roads lays down that all shall travel on one
side of the road, they shall stop at red lights and proceed on green
lights. If the motorist violates the rule of the law and is detected
by police, then he is penalised. To the extent that motorists obey
the rule of law there is the maximum security and freedom for all individuals
using the roads. The sole responsibility of government is to produce
a rule of law which has the respect of all members of the community.
It is certainly not the correct function of government to insist on
how individuals shall operate within the rule of law. As one individual
has so aptly put it, "within the known rules of the game the individual
is free to pursue his personal ends and desires".
Another example of government correctly upholding the rule of law can
be studied in the important sphere of weights and measures. The appropriate
governments have inspectors whose responsibility it is to ensure that
various weights and measures are absolutely correct. It is often said
that most of the man's problems would be resolved if there are "changes
of heart". But irrespective of the state of mens' hearts, if,
for example, a retailer is unconsciously using scales which are faulty,
either he is robbing his customers, or they are robbing him. Correct
relationships are only possible when the scales are weighing accurately.
The rule of law ensures that one gallon of liquid is always exactly
the same. Motorists purchase gasoline confident that if they buy eight
gallons, they get eight gallons. In the English-speaking world 12 inches
always makes one foot in the field of measurement. It is easy to imagine
the chaos which would result from a system of measurement which was
like a piece of elastic, constantly being stretched.
Where government does ensure that the rule of law is strictly upheld,
individuals obtain real benefits. But in the all-important sphere of
monetary policy, modern governments not only fail to uphold a rule
of law, but by their open support of inflationary policies, thus progressively
reducing the value of the unity of money, they are endorsing a policy
which is eroding the very foundations of the free society. The disastrous
results of progressive monetary inflation can be readily seen in all
Western nations. They will be studied in some detail later in this
Societies also require government to regulate their relationship with
other societies. National governments are therefore necessary to deal
with what are termed foreign affairs. And they are also logically concerned
with the military defence of the society they represent. If governments
at all levels were confined to legislating only on the preservation
of the Rule of Law in all spheres of man's activities, then individuals
in free association could look after themselves. But modern governments
are increasingly violating the rule of law. They are like a golf club
committee not being content to provide facilities for playing golf,
but insisting on telling the individual golfer how he shall play each
The Cultural Division
The third division of society is what might be termed the cultural.
In this division there is man's Churches and similar organisations
developed to serve man's spiritual needs. There are the numerous arts
such as literature and music. And there are man's varied sporting activities.
It is in the cultural field that man really strives to develop and
fulfill himself. In this field his associations are generally most
satisfactory because the correct principles of association are observed.
There is "voluntary association" for clearly defined objectives.
There is effective control of organisation by individual members. Individuals
readily submit to the highest form of discipline, which is self-discipline.
The basic difference between individuals working in some economic activity
which they find quite meaningless and frustrating, and enthusiastically
getting knocked in the mud on a playing field, is that in the case
of expending energy on a sport which may be much more physically uncomfortable
than the industrial activity, they enjoy it because they find some
real purpose and enjoyment in it. If the spirit displayed in sport,
or similar activities, could be engendered in the field of economic
organisation, what a transformation there would be! But the first essential
is that economic activities be directly related to genuine individual
requirements. This necessitates appropriate action through the governmental
system. Political democracy must first be made a reality.
Man's concept of his own nature and the Universe; his concept of Truth.
Action taken to obtain desired results, based upon philosophy.
Concrete evidence of that which is unseen.
The implementation of policy.
As all Policies Are Rooted In Philosophies (Figs Are Not Obtained From
Thistles), Conflicting Philosophies Produce Conflicting Policies.
("By Their Fruits Ye Shall Know Them.")
Diagrammatic Expression Of All Power To Decide Policies (Democracy)
Decentralised at Circumference of Circle, Exerting Pressure On
Where Administration Is Expressed Diagrammatically As A Pyramid.
SOCIETY - A COMPLEX FORM OF ASSOCIATION
THREE MAJOR DIVISIONS OF SOCIETY
Consumer control of production
The "Money Vote"
True profit and dividends
Limited Constitutional Government
Decentralised political units
Division of powers
Rule of law
Justice. Independent Judiciary
Defence and foreign policy
A healthy and successful Society is one which reflects the true nature
of man. This can only be expressed through a diversity of interests.
This requires a proper balance between man's economic, political and
It has been observed that economic
independence is the basis of real freedom for the individual. Individual
freedom for the individual, enabling him to spiritualise it through
self-development, is a basic feature of Christian doctrine. Unless
able to exercise free will, and be personally responsible for the
choices made, the individual cannot rise above the animal level.
The Christian God is one of love whose abundant universe offers the
life more abundant. But the life more abundant is only possible through
the discovery of the truths governing natural laws and their correct
application in the production sphere. When the Communist insists
"labour produces all wealth" he is logically expressing his
own underlying philosophy. But the great majority of people who call
themselves anti-Communists will at the same time agree with the widely
accepted view that "labour produces all wealth". They are
philosophically confused. The philosophy underlying the doctrine that "labour
produces all wealth" logically elevates man into his own God and
infers that he alone is responsible for the basis of life, that he
is self-sufficient. The truth is rather different.
Economic freedom depends upon productive capacity. And a nation's productive
capacity can be described as its real credit. The following
are irrefutable facts concerning a nation's real credit:
The basis of all wealth is sunshine, solar energy, minerals, including
oil, water and the soil. It is self evident that no individual or group
of individuals, produced this wealth. The Christian could put the position
as follows: Sunshine, solar energy, water, soil, are a part of God's
capital. They were a gift to the human being in the same way that a
father gives a property to his son. The fact that some individuals
might use an inherited asset, one towards which they contributed
no labour whatever, in a wasteful or immoral manner, is not a legitimate
reason for abolishing the principle of inheritance. It is simply an
argument in favour of developing a greater sense of responsibility
and morality in individuals inheriting wealth. Thousands of years of
human history have clearly demonstrated that collectivism encourages
a far more irresponsible and anti-social attitude towards wealth of
any kind than does private personal control.
Not only has the human being inherited the basic capital wealth mentioned;
he has also inherited the truths of the Universe. Labour did not create
the truth which man has termed the "mechanical advantage".
Man discovered this truth when he found that by using a log as a lever
he could easily lift a weight which he could not even budge with his
own muscle-power. The mechanical advantage and many other similar truths,
provided the very foundations of the modern industrial system. Having
been discovered by earlier generations of men, knowledge of these truths,
and how to use them, was passed down to succeeding generations. This
is called the cultural heritage. It is this cultural heritage, making
use of the vast capital resources of the Universe, which has made possible
not only higher material standards of living for present generations,
but which has made it possible for individuals to have greater time
to devote to activities, cultural and otherwise, other than those forced
upon them by economic necessity. The development of automation is the
end product of the process of using solar energy to power automatic
or semi-automatic machinery. The claim that "labour produces all
wealth" is not only false; it becomes progressively more false
as the cultural heritage is expanded with the result that labour as
such is a diminishing factor in production.
A nation's productive capacity,
its real credit, is based upon applying discovered natural
law truths to basic capital. Once again the importance
of establishing correct associations can be seen. There is
one further important aspect of the principles of association
which has made a vital contribution to a modern nation's
real credit. This is the division of labour.
A simple example demonstrates the principle underlying this type of
association: In the early days of nail making, one individual, working
on his own, drawing the hot metal into lengths, cutting into required
sizes, sharpening a point at one end and creating a head at t he other,
was perhaps capable of making, say, 50 nails in a day. But when the
total process was divided between four individuals, one drawing the
metal, one cutting it into lengths, one sharpening points and one creating
heads, then the total result was not simply four times 50, 200 nails
per day, but an enormous increase on this total. For the sake of demonstration,
assume that the total was 300. Clearly the increment of association
resulting from four individuals associating in this manner has produced
a profit of 100 nails. No logical person can dispute that each of the
four nail makers would be entitled to an equal share of their increment
of association. The division of labour principle is a major feature
of modern production. It is the application of an important natural
Two hundred years ago a farmer was hard pushed to farm up to ten acres
on his own. Today one farmer can farm hundreds of acres, not because
he is capable of more labour than his forebears (he may be less capable)
but because his tractor, for example, is a concrete expression of the
cultural heritage, embodying "know-how" in bringing metals
and other materials into the correct relations, produced on the assembly
line (the division of labour) and powered by oil taken from the earth
and transported by the application of the same cultural heritage. It
is a fact that as a result of his heritage modern man has an economic
basis for an expansion of individual freedom. The problem of producing
man's physical requirements has been solved, primarily by the discovery
and application of Truth. Why, then, is the individual not gaining
full access to his heritage? This question can only be answered by
examining the vital role of money in society.
The Creation And Control Of Money
Farmers and businessmen talk frequently
about "making money". But this common statement is most
misleading. When a farmer grows a bag of potatoes he does not at
the same time create a money equivalent.
Farmers and businessmen obtain money from someone else in exchange
for what they have grown or produced. It is true that some people attempt
to make money in the form of notes, but if caught they finish in prison
for counterfeiting! Who, then, does make a community's money? How is
it made and controlled? A modern economy is controlled almost completely
by financial policy. There is practically no barter. All exchanges
of goods and services take place through money. No understanding of
the problems of an economy, including inflation, is possible without
an understanding of the creation and control of money.
The essential feature of any form of money is its acceptability. The
psychological factor is all-important. Counterfeited $20 bills act
as money just so long as they are accepted by those handling them.
Throughout history many different forms of money have been used by
different people - shells, different types of stones, metals made into
different types of coins, paper money of numerous sizes and types.
But so long as people believe that they can at any time obtain goods
and services for any type of money, then they accept it and it acts
Money has no value in itself at all. A million dollars is useless on
a desert island. The first essential in examining the money question
is to stop regarding it as an end in itself, to realize that money
is a man-made system and that the system can be changed by man. To
worship a man-made money system is a form of superstition. It is not
money which is the root of all evil, as some maintain, but the love of
In order to understand the modern money system, an understanding of
the history of that system is of great value. Originally the wealth
producers of the world issued their own money tickets-generally
leather discs-in the same way that railway organization s issue
their own tickets. It might be observed in passing that no railway
organization permits a train to run half empty with people requiring
seats, because insufficient tickets have been printed! Cattle were
at one time, and still are in some primitive societies - regarded as
the most important form of wealth. It is interesting to note that the
Latin word for money is pecus, and the use of the modern word
pecuniary, provides historical proof of the origin of the earlier form
Instead of the cumbersome method of exchanging cattle for supplies
from merchants, a major development took place when leather discs, representing the
cattle were issued. It is important to note that the owner of the wealth
was issuing the money representing his wealth in the same way that
a railway makes its own tickets, but not in the same sense that the
farmer of today makes money when he says he does. Coming down
through history, a new type of money was evolved. Rare metals like
gold and silver were regarded as wealth. Those holding these metals
in plate or other forms started to deposit them with the goldsmiths
for safe keeping. The goldsmith issued receipts against these deposits.
It was not long before the owner of the receipts found it much more
convenient to use these receipts to do his business rather than draw
his gold or silver out of the goldsmith's safe, pay it to someone else,
who would then re-deposit the metals with the goldsmith. The goldsmith's
receipts were a great convenience for all. They were the lineal ancestors
of the modern bank note. They acted as money because everyone had faith
that those holding the receipts could at any time draw gold or silver
to the value of the receipts from the goldsmiths. It is important to
grasp that now it was the custodian of wealth who was creating
money, not the owner of the wealth, as was originally the case.
The next major development in the evolution of money took place when
some goldsmith observed that his clients left their gold and silver
with him indefinitely, and that it would be safe for him to issue more
receipts than the wealth deposited with him. It was extremely unlikely
that all his receipts would be presented at the one time. What started
as a dishonest practice became convention, and the more flexible form
of money helped immeasurably with the development of trade and commerce.
The goldsmiths were the forerunners of the modern banking system. As
will be seen, modern banking is based on the convention that for every
dollar of legal tender - money created in the form of notes and coins
by Government authority -possessed by the banks, they can create and
issue approximately nine dollars of credit money in exactly the same
way that the goldsmiths issued more receipts than wealth deposited.
The modern money system has made the modern complex economy possible,
and has been a great boon to man. The fact that it developed by fraudulent
practices does not alter this fact. Up until the beginning of the First
World War the convention prevailed that bank notes and cheques could
be cashed at any bank in exchange for gold sovereigns. There
used to be a lot of bank failures when people suddenly decided all
at once that they wanted to draw out of the banks the tangible wealth
which they had believed was available.
Statements By Banking Authorities
A large number of eminent authorities could be quoted on the subject
of the creation of most of a modern community's money supply in the
form of financial credit, but the following selection will be sufficient
to demonstrate the truth:
As far back as 1882, Professor H. D. McLeod, lecturer on political
economy at the University of Cambridge. and the most outstanding authority
on banking in Britain at that time, gave his famous lectures on Credit
and Banking to the Institute of Bankers of Scotland. The following
extracts from the lectures outline the process of credit creation with
The way a Banker trades is this: He sees that $1,000 in cash is sufficient
to support $10,000 of liabilities in Credit; consequently he argues
that $10,000 in cash will bear liabilities to several times that amount
in credit ... Thus we see that the essential and distinctive feature
of a Bank and a Banker is to create and issue Credit payable upon demand;
and this Credit is intended to be put into circulation and serve all
the purposes of money. A bank, therefore, is not an office for borrowing
and lending money, but it is a manufactory of credit. (Emphasis
In his book Elements of Banking Professor McLeod wrote: "When
it is said that a great London Joint Stock bank has perhaps $25,000,000
of deposits, it is almost universally believed that it had $25,000,000
of actual money to "lend out" as it is erroneously called....
It is a complete and entire delusion. These 'deposits' are not deposits
in cash at all. They are nothing but an enormous superstructure of
The Rt. Hon. Reginald McKenna, one-time British Chancellor of the Exchequer,
and Chairman of the Midland Bank, addressed a meeting of shareholders
of the Bank on January 1924, and said, as recorded in his book Post-War
Banking: I am afraid the ordinary citizen will not like
to be told that the banks can, and do, create and destroy money. The
amount of finance in existence varies only with the action of the banks
in increasing or decreasing deposits and bank purchases. We know how
this is effected. Every loan, overdraft or bank purchase creates a
deposit, and every repayment of a loan, overdraft or bank sale destroys
Davenport's Economics of Enterprise states: 'Banks do not lend
their deposits, but by expansion of credits, create deposits.'
The following is from the MacMillan Commission report on Finance and
Industry, presented to the British Parliament in June, 1931: "It
is not unnatural to think of the deposits of a bank as being created
by the public, through the deposit of cash representing either savings
or amounts which are not for the time being required to meet expenditure.
But the bulk of the deposits arise out of the action of the banks themselves,
for by granting loans, allowing money to be drawn on an overdraft or
purchasing securities a bank creates credit in its books, which is
the equivalent of a deposit."
A simple illustration in which it will be convenient to assume that
all banking is concentrated in one bank will make this clear. Let us
suppose that a customer has paid into the bank $1,000 in cash and that
it is judged from experience that only the equivalent of ten per cent.
of the bank deposit need be held actually in cash to meet the demands
of the customers; then the $1,000 cash will obviously support deposits
amounting to $l0,O00. Supposing that the bank then grants a loan of
$900, it will open a credit of $900 for its customer, and when the
customer draws a cheque for $900 upon the credit so opened the cheque
will be paid into the account of another of the bank's customers. The
bank now holds the original deposit of $1,000 and the $900 paid in
by the customer. Deposits are thus increased to $1,900 and the bank
holds against its liability to pay out this sum (a) the original $1,000
of cash deposited and (b) the obligation of a customer to repay the
loan of $900 . . . The bank can carry on the process of lending, or
purchasing investments until such time as the credits created, or the
investments purchased represent nine times the original amount of the
deposit of $1,000 in cash.
Professor A. L. G. Mackay, the well-known Australian economist, has
stated in his text book on Economics, that: " In this way, by
means of a loan, an advance, an overdraft, or by the cashing of bills,
the banks are able to increase the volume of deposits in the community,
and because of this process it is not correct to say that a bank loans
out deposits which people make with it. It is clear that it creates
the deposit by the issue of the loan; the loan travels back to the
bank or to another bank and assumes the form of a deposit (Emphasis
Sir R. Kindersley, C.B.E. (Director of Bank of England), in "Harmsworth's
Business Encyclopedia": " Deposits- Deposits of the commercial
and private banks amount to about $2,000,000,000, but this large total
has not, of course, been created by the deposit of actual cash, but
has resulted in great measure from Credit created by the banks by the
lending of money. The difference between actual cash in its own till,
plus its balance at the Bank of England (i.e. Bank reserves ten percent
to fifteen percent of its deposit liabilities) which are Bank reserves,
and the total of the deposits, represents approximately the extent
to which the Bank may be said to have manufactured deposits by the
creation and sale of Credit (Money)"
Governor Eccles, one-time head of
the Federal Reserve Bank Board of the United States, said: "The
banks can create and destroy money. Bank credit is money. It's the
money we do most of our business with, not with that currency which
we usually think of as money."
(Given in evidence before a Congressional Committee.)
Mr. R.G. Hawtrey, previously Assistant Under-Secretary to the British
Treasury, in his “Trade Depression and the way out,” says: "When
a bank lends it creates money out of nothing."
In his book, The Art of Central
Banking, Hawtrey also wrote:
" When a bank lends, it creates credit. Against the
advance which it enters amongst its assets, there is a deposit
entered in its liabilities. But other lenders have not this
mystical power of creating the means of payment out of nothing.
What they lend must be money that they have acquired through
their economic activities."
Lord Keynes, the economist, and wartime
Governor of the Bank of England, states:
"There can be no doubt that all deposits are created
by the banks."
Giving evidence before the Canadian
Government's Committee on Banking and Commerce before the Second
World War, Mr. Graham Towers, Governor of the Central Bank of Canada,
frankly admitted the basic functions of the modern banking system.
The following are extracts from the Minutes of Proceedings and Evidence
Respecting the Bank of Canada, Committee on Banking and Commerce,
Question: But there is no question about it that banks create the
medium of exchange?
Towers: That is right. That is what they are for... That is the
Banking business, just in the same way that a steel plant makes steel
The manufacturing process consists of making a pen-and-ink or typewriter
entry on a card or in a book. That is all (pages 76 and 238).
Each and every time a bank makes a loan (or purchases securities),
new bank credit is created new deposits
brand new money (pages 113 and 238).
Broadly speaking, all new money comes out of a Bank in the form of
loans (page 461).
As loans are debts, then under the present system all money is debt
Mr. Towers continued: A government can find money in three ways;
by taxation, or they might find it by borrowing the savings of the
people, or they might find it by action which is allied with an expansive
monetary policy, that is borrowing which creates additional money in
the process (page 29).
Questioned on the subject of Government bonds, and whether the purchase
by a bank of $1,000,000 worth of bonds resulted in a million dollars
of new money or the equivalent being created, Governor Towers said Yes
. The questioner then asked, "It is a fact that a million dollars
of new money is created?,
and Mr. Towers replied,
That is right (page 238). Because many bank managers deny
the mechanics of the system they operate, does not mean that they are
dishonest. They simply follow convention without understanding clearly
what they are doing.
Giving evidence before the New Zealand
Royal Commission on monetary systems in1955, Mr. H. W. Whyte, Chairman
of the Associated Banks of New Zealand, stated in answer to questions
that banks create new financial credit when making loans and advances.
Mr. Whyte added: "They have been doing it for a long time,
but they didn't quite realize it, and they did not admit it. Very
few did. You will find it in all sorts of documents, financial text-books,
etc. But in the intervening years, and we must all be perfectly frank
about these things, there has been a development of thought, until
today I doubt very much whether you would get many prominent bankers
to attempt to deny that banks create credit. I have told you that
they do; Mr. Ashwin (Secretary to the Treasury) has told you that
they do; Mr. Fussell (Governor of the Reserve Bank) has told you
that they do".
The creation and loaning of credit by all banks, except Central
Banks, is governed by what is described as the liquidity of the
banking system. This and similar jargon is used to obscure the reality.
"Liquidity" simply refers to the amount of legal tender held
by the trading banks. As banking practice dictates that credit should
not be expanded substantially beyond ten times the amount of what is
called "cash at call". Now "cash at call"
is not only governed by the amount of legal tender manufactured by
authority of the Central Banks, but of the greatest importance is the
fact that Central Bank credit is also treated as cash by the trading
banks when deposited with them. Through their control of the creation
of notes, coins, and central bank credit, Central Banks dictate the
credit expansion, or restriction, policies of the trading banks.
During the Second World War centralised control
of credit policy was rapidly extended as a result of Governments
making use of enormous quantities of new central credit. Although
slightly varying in technique, all Governments then introduced banking
legislation which enabled the Central Banks to periodically "freeze"
portion of the central credit in the possession of the trading banks,
thus ensuring that the trading banks cannot use at will the central
credits deposited with them as the basis for further credit expansion.
The major feature of present day politics is
the ever-increasing activities of the State with the correspondingly
greater increase in Government expenditure. This increased expenditure
is more and more in the field of immense capital works which call
for enormous capital expenditure. To finance these activities Central
Banks create new credits against Government Securities. Central Bank
control of these credits when they come into the possession of the
trading banks, ensures that the trading banks will be always limited
in the amount of credit they can advance for non-governmental purposes.
In this manner all nations are being pushed further along the Socialist
road. One of Marx's ten steps for communising a State, was
to centralise control of financial credit.
Marx never once attacked credit policy.
The essence of the technique of money creation, most
of it in the form of financial credit, is that those issuing
it do so against a nation's real credit and assets. Control
of financial credit policy means control of a nation's real
credit. The more centralised that control becomes, the more
centralised the control of all productive capacity. Those
issuing, at little physical cost to themselves, a nation's
financial credit on the basis that it is their right to do
this, on their terms, is a claim to dictate to the individual
how he shall gain access to his own productive capacity -his
real credit. It would be just as logical as the printers
of railway tickets to loan these, at full face value, to
railway organisations to charge them interest on the tickets,
and to dictate the terms under which the railways could obtain
Debt And Inflation Steps To World State
An examination of how the present finance-economic
system operates reveals that it is forcing the individual to submit
progressively to more and more centralised control of his life.
No sensible person offers any opinions on any
type of a system until he first understands how it works, or is supposed
to work. Mechanical engineers are capable of correcting faults in
motors because they understand the principles upon which they operate.
A trained Social Engineer must have at least a general grasp of how
the present finance-economic system operates before he can offer
realistic advice for how to make it operate satisfactorily on
behalf of the individual.
The basic feature of industry is that there is a constant
flow of two streams, the first being a stream of goods with
prices attached to them, and the second being a stream of
wages and salaries. As industry generally finances its operations
out of loan finance produced by the banking system, in theory
industry should distribute sufficient purchasing power to
meet at the retail counter the prices of the goods produced,
so that the loan finance can be repaid. The following excellent
outline of how the present finance-economic systems operates
is provided in a Report on Post-War Reconstruction Policies, issued
by the Vancouver (Canada) Board of Trade in 1943:
"In order to assess the merits or otherwise of the manner in
which our present monetary system operates it is necessary to consider
its place and function within the national economy. For instance, reference
has been made earlier to the primary function of the monetary system
as being an economic voting mechanism while this may be readily conceded,
its full significance cannot be appreciated unless this comparatively
novel concept is related to the accepted ideas of finance.., how can
the production of... goods be organised under a system which will give
the individual the greatest possible scope for freely associating with
others in the common effort, how will a correct accounting be kept
of the goods produced, and how will their distribution on an equitable
basis be organised? ...these important functions come within the scope
of the monetary system . . . money is essentially a generally accepted
claim to goods and services. It is a ticket system which entitles the
holder to obtain the goods and services he wants from the supply available
" This means that money can be issued only against goods and
services: further, that the money must be related to such goods and
services both in regard to the number of '‘money tickets'’
issued and the relative relation of each ticket to the different
types of goods and services. The system which has been evolved and
which is in use at present is basically sound. In order to induce
individuals to co-operate in the production of goods, money is created
and issued to them as incomes for their services. The sum total of
all money paid out in all stages of the production of an article
constitutes its cost. In this way units of money are related to goods
and the other material wealth of a community.
Thus the individual is provided with an inducement to join in the
co-operative effort of production, being left free as to what part
he takes in this according to ability and so forth. As prices are
created in the process of production, so an accurate record can be
kept. The individual then has a claim on any of the available goods
and services he may choose ...
" From the foregoing, it will be plain that money should be
issued as goods are produced, and it should be withdrawn as
goods are consumed, for it would be a falsification of the
records if 'tickets to goods' were in the hands of the people when
the goods were no longer in existence".
"The efficacy and simplicity of such
an arrangement in the organisation of a democracy would be valid
(a) The amount of money
issued to finance production was controlled by the extent to which
the people wished to use their productive resources (their real
credit) in supplying themselves with the goods and services they
(b) the total amount of
money in the hands of the people at any time was sufficient to
enable them to buy all the available goods and services.”
The important question to be discussed now,
is "Does industry distribute sufficient purchasing power
over any given period to meet the prices of the goods produced?" Like
a number of business organisations which have examined this question,
organisations like the London Chamber of Commerce and the Southampton
Chamber of Commerce, the Vancouver Board of Trade pointed out that "the
system generates a chronic and increasing shortage of purchasing
power in relation to the prices of goods coming on the market".
Major Factors Causing Deficiency Of Purchasing
The system would only operate if total prices
represented total wages and salaries paid. But even assuming that
total wages and salaries equalled total prices, it is elementary
that if some of the wages and salaries are saved, there will be an
immediate deficiency. For example, if $200 of wages and salaries
are issued against $200 of prices, and $50 of the wages and salaries
are saved, then it is obvious that $50 worth of goods must
remain unsold. If the $50 is brought back into circulation
by the investment in some new capital production, then this means
that when this capital unit starts producing consumer goods,
it will have to try to recover this $50 through prices.
Theoretically it is possible for one unit of money to be used
to generate a number of costs for which there are no equivalent money
units. The use of savings to finance new production is a contributing
factor to the deficiency of purchasing power.
Everyone responsible for operating an industry knows that he has far
more than wage costs. He must allocate a charge for interest on the
money he has borrowed. Every industry, irrespective of size, must allocate
charges for the depreciation of plant and equipment. As industry develops
towards near-automation, depreciation charges become progressively
greater in relationship to wage costs. But these plant-charges are
not income for anyone. It is the same with profits, which, of course,
every industry is entitled to make.
And finally there is taxation. Industry legitimately
regards it as a cost which it attempts to recover through prices,
helping to force them up. Taxation levied on incomes has the direct
effect of reducing purchasing power. An enormous proportion of taxation,
including municipal rates, is used merely to repay mounting debts
and is cancelled out of existence. The flaw in present financial
rules, and the exploitation of that plan by powerlusters, is
one of the most explosive factors threatening civilisation today.
Growing Mountain Of Debt
The immediate reaction of many to the above
is that it cannot possibly be true, because this would mean a growing
mountain of unsold goods. But in place of the unsold mountain of
goods there is another mountain: one of rapidly expanding financial
debt! It is beyond dispute that the flood of production for sale
in the retail stores can only be removed by increasing resort to
various forms of credit buying. Unable to buy what they have produced
out of their current wages and salaries, individuals in modern communities
are compelled to mortgage their future incomes by borrowing against
them. Most of the finance for credit buying schemes must originally
originate with the banking system. All these schemes operate at high
rates of interest and contribute towards inflation. Any finance provided
to lending organisations for credit buying by genuine savings, merely
aggravates the problem of the deficiency of purchasing power as already
But as credit buying schemes do not of themselves solve the problem
of a deficiency of purchasing power, other policies are also adopted.
There is growing stress upon the necessity for increased capital production,
irrespective of whether any great expansion is necessary to produce
required consumer goods. The only realistic purpose of building more
industrial plant, more power units, or more water schemes, is because
they are genuinely necessary to produce required consumer goods. Financed
directly or indirectly out of new interest bearing debts created by
the banking system, capital works do increase the amount of money in
the hands of consumers without, at the same time, increasing
the supply of consumer goods for sale. But as production is a continuous
process and new capital equipment does eventually produce goods for
sale, into the price of these goods must be charged all the costs incurred.
The result is that the rate of capital expansion must be progressively
increased in order to attempt to avert a major break-down in the economy.
At one time all Socialists insisted that industry does distribute adequate
purchasing power to buy its own production, and that the problem was
that the 'greedy rich' had too much purchasing power, leaving insufficient
for others. The solution was therefore to use the power of government
to take from the rich and to give to those with insufficient purchasing
power. While this argument is still often used, generally for crude
propaganda purposes, Keynesian (Fabian Socialist) financial and economic
teachings stress the importance of financial 'pump-priming' by governments
to make the economy work. This means increasing governmental activities,
with a progressive undermining of the private enterprise system as
it becomes directly and indirectly dependent upon government financed
activities to survive. Keynesian financial and economic teachings dominate
in most Western universities today, and in practice are a major contribution
to the world-wide Marxist advance, as shown in The Fabian Socialist
Contribution To The Communist Advance.
The Reality Of The “Favourable Trade
Examined in the context of current international
power politics, one of the most disastrous aspects of the flaw in
the financial rules of modern nations is the intense drive for export
markets under the dogma of achieving “a favourable balance
of trade”. The drive for export markets is further evidence
of the deficiency of purchasing power in any modern country to meet
the prices of total production. The 'favourable balance of trade'
simply means that a nation sends more production out of the country
than it receives in exchange. Any boy who plays marbles knows that
if he 'swaps' ten marbles for six marbles, he has suffered a loss
of four marbles. But when he grows up and studies modern economics,
convinced that when a nation exports ten units of production and only
receives back six units of production, this is a highly desirable situation!
The true purpose of international trade should, of course, be simply
an exchange of real surpluses between nations to their common advantage.
But a drive for export markets in order to help solve domestic problems,
can only lead to increasing disasters.
Obviously not all nations can have a 'favourable balance of trade';
some must have an 'unfavourable balance'. The unnatural fight for export
markets brings the nations of the non-Communist world into increasing
friction with one another as they impose tariff and other restrictions
against one another. Confirming the famous prediction of Lenin, the
non-Communist nations compete with one another to send increasing exports
to the Communist nations. Lenin prophesized that the time would come
when the 'capitalist' nations would be competing to supply the Soviet
Union with production, and that they would also provide the loan credits.
A number of studies have shown how nations like the U.S.A., Britain,
Canada and Australia have financed enormous production to the Communists.
In this way they attempt to overcome their own internal deficiency
of purchasing power. The Communists are delighted. Only a mesmerised
people would agree to sending more production out of their country
than they receive back in imports, and use the finance issued against
the 'favourable balance' to help buy the production left in their
country, and believe that this is a sane thing to do.
It is true that prosperity does appear to accompany 'a
favourable balance of trade'. This was true, for example,
during the Second World War, when nations like Australia
and Canada mounted a tremendous 'export drive'. Suddenly
the shortage of finance associated with the Great Depression
was overcome. Thousands of millions of new credits were made
available 'as an interest-bearing debt' through the banking
system to ensure that there was total production. But an
enormous amount of this production, in the form of bombs
and shells, was being 'exported' to the Germans, Italians
and Japanese! This 'export' drive was, of course, essential,
for military victory, but it did distribute purchasing power
which otherwise would have been unobtainable. Comparative
prosperity replaced depression conditions.
Soon after the Americans started competing with the Soviet Union in
the space programmes, two American economists seriously suggested that
the main virtue of America's space programme was not only the possible
technological 'fall out', but the offer of an unlimited export market!
Realistically, this meant that the American community could 'export'
enormous quantities of their production into outer space without anyone
trying to send anything back. Increased financial incomes can be distributed
against the 'exports' into outer space and used to help buy production
for sale in the U.S.A.
The present finance-economic policy can only operate with an ever-increasing
mountain of debt, expanding capital production, irrespective of whether
required or not, and 'export drives'”. One of the major results
of this policy is progressive inflation. The propaganda slogan has
it that 'Inflation is the price which must be paid for progress'. And
of course increased wages are blamed as a major cause of inflation.
WAGES AND INFLATION
It is a major fallacy that increased wages and
salaries are the basic cause of inflation. But increased wages and
salaries certainly stimulate inflation. The basic cause of
inflation is the present type of financial policy, with increasing
debt and increasing taxes. Trade Union members, and wage and salary
earners generally, have been misled by Marxist propaganda to believe
that the steady increase in prices which erodes their purchasing
power, is because of the 'profiteering' by the 'greedy capitalists'.
Generally a few carefully selected monopolistic economic organisations
which appear to be making comparatively large profits, are used as
examples for the claim that either industry generally could reduce
prices with lower profits, or that the profits could be used to finance
wage and salary increases without further price increases. An examination
of the facts in any modern community will show clearly that the total
profits of industry, both primary and secondary, could only pay a
very small increase in wages and salaries to those who work in those
industries. And this small increase could only be paid once, because
industry could not then continue to operate. There would be collapse,
something which the Marxists would, of course, welcome.
The attempted use of all profits to finance wage and salary increases
would also deprive shareholders in industry of legitimate dividends
on their investments. Their purchasing power would, therefore, be reduced.
A basic feature of the Marxist war against the free society and the
free enterprise economic system, is the claim that class warfare is
'inevitable', that conflict is inherent in the free enterprise system.
The quite unnecessary conflict between the employer and the employee
is a major contribution to Marxist strategy. The Marxists foster this
in many ways. They encourage wage-earners to scorn, not only their
'capitalist bosses', but the 'wealthy land-owners', who are charged
with charging excessive prices for food. They point to examples of
farmers dying and how their assets have been valued for death duties
at perhaps hundreds of thousands of dollars. No mention is made of
the fact that the farmers' assets, built up over a lifetime of work,
have been inflated in value by progressive inflation, that against
these assets he probably has substantial debts, and that the imposition
of death duties, a most immoral and Marxist-type of tax, may force
the farmer's descendants either to sell the property to meet the death
duties, or to go further into debt.
On the other hand, farmers and employers who talk loosely about the
'lazy workers', and blame them for all their problems, are also falling
into the Marxist trap. Strikes, including those fostered by the Communists
in Trade Unions, are generally designed to obtain increased wages to
offset the erosion of purchasing power by inflation. Different countries
have different methods of adjusting wages, but the basic problem is
Pressure builds up from wage-earners as their purchasing power decreases
with inflation. They may use whatever bargaining machinery there is,
or they may first strike to force employers to bargain with them, or
in countries with an independent arbitration system like Australia,
the wage-earners' representatives put their claims before the arbitration
judges. The fact that independent judges, after studying the facts,
progressively grant wage increases, is irrefutable proof that wage-earners
generally have a strong case for an increase in their wages. Resistance
by the employers' representatives is not because they are opposed to
wage justice for their employees, or are simply 'greedy exploiters',
but simply because of their own financial pressures.
What happens when a wage increase is granted? For the sake of demonstration,
a total wage increase for industry of $50 million per year is
granted, that is, approximately $1 million per week. Employers must
start to pay immediately the award is arranged. But how are they to
obtain $50 million? They do not have reserves which can be used.
Most of them are operating on bank overdrafts. There is only one source
from which this increased wage bill can be obtained, and that is from
the banking system. Increased short-term loans are necessary. These
are provided by the creation of new financial credit as already explained,
and loaned to industry as an interest-bearing debt. A $50 million increase
in industry’s wage bill therefore demands that industry increases
prices by at least this amount in order to recover it for repayment
to the banking system. But added to the $50 million must be the interest
charge which, at say, a conservative five per cent, is another $250,000.
The total result of the wage increase is simply to increase general
prices still further and to increase the indebtedness of industry.
Within a comparatively short time the wage-earner finds that the short-term
improvement he gained has disappeared, and so the cycle starts again.
It is beyond argument that progressive wage increases financed through
expanding new credit foster a programme of increasing inflation, with
all its disastrous economic, political and social results. The Marxists
of all kinds know that so long as this type of financial policy is
pursued, no genuine co-operation for their mutual advantage is possible
between the different members and sections of society. There is the
opposite: increasing friction, resulting from the violation of correct
principles of association.
The Marxist support for inflation was put very clearly by the eminent
Marxist theoretician, John Strachey, the man who had been first a member
of the British Communist Party and later a member of the Fabian Socialist
Society. In his book, Programme for Progress, Strachey wrote
that he had come to believe that inflationary credit expansion policies
were 'an indispensable step in the right direction'.
He went on to say, "the fact that the loss of objectivity,
and the intrinsic value of the currency which is involved (i.e., inflation)
will sooner or later make necessary, on pain of ever-increasing dislocation,
a growing degree of social control.., for the partial character of
the policy will itself lead on to further measures. The very fact that
no stability, no permanently workable solution can be found within
the limits of this policy will ensure that once a community has been
driven by events to tackle its problems in this way, it cannot halt
at the first stage, but must of necessity push on to more thorough-going
measures of re-organisation."
This frank statement is similar to that of Karl Marx when he
was introducing his famous ten points for Communising a State in
the basic Marxist text-book, The Communist Manifesto. Marx
said that his steps were not an end in themselves, only means to
an end. Marx said that while the ten steps 'appear economically insufficient
and provisional', they will "in the course of the movement....
necessitate further inroads upon the old social order."
The structure of civilisation is undergoing major revolutionary
changes under the pressure of the present finance-economic policy.
Rising financial costs, of which heavy taxation is a major feature,
are the basic cause of a disastrous centralisation of power in all
spheres. Even though in most cases, smaller and medium-sized businesses
are more genuinely efficient than bigger businesses, they have been
steadily driven out of existence or into amalgamations. The 'take-over'
business has become a way of life. Ethics have become a thing of the
past in many spheres of business. The struggle for power brings out
the worst in the individual. Monopoly is developing across national
boundaries. Now the rural communities of the non-Communist world are
under heavy attack.
These nurseries of the best virtues of civilisation are being ruthlessly
pressurised to submit to the gospel of 'getting bigger or getting out'.
Farming as a way of life is being derided. As the rural communities
are driven into the swollen big cities, this in turn helps to produce
increasing social as well as economic problems which are the inevitable
result of an over-concentration of human beings.
There is growing economic as well as human sabotage. Quantity, not
quality, is the new gospel. No longer is production made to last. There
is 'built-in obsolescence' so that washing machines, motor cars and
electric light globes only have a limited life. It is a far cry from
the days of the first Henry Ford, who said that the aim of the car
manufacturer should be to produce a motor car which would last the
owner a lifetime. Today there are instead 'the waste-makers'”.
Modern advertising has become a type of excrescence which seeks, not
to inform, but to stimulate an artificial demand with propaganda which
in many cases is blatantly dishonest. Growing financial and economic
centralisation is used to justify political centralisation. Municipalities
are urged to amalgamate because small political units are 'uneconomic'.
The reality is that they cannot stand the pressure of debt and inflation.
Most of their rates are used merely to service debt.
State and Provincial Governments everywhere are slowly being strangled
by the same process. Centralisation in Government intensifies the growth
of the bureaucratic army of occupation, whose directors are in fact
the real policy-makers in modern communities. Members of Parliament
provide a 'democratic' facade behind which the real policy-makers legally
operate. Hundreds of thousands are engaged in useless, soul-destroying
activities such as putting marks on pieces of paper to record how many
others are also putting marks on pieces of paper. Trade Unionists are
encouraged to believe that the 'capitalist' employer is the natural
enemy, and that the less work done the longer the work takes, which
distributes financial incomes, the better. The so-called shorter working
week is a joke, with many taking two jobs to maintain incomes progressively
eroded by inflation, and with their wives being driven from the home
into factories and offices to supplement the family income. Juvenile
delinquency increases. Numerous techniques of escapism become more
and more prevalent. A sick type of culture reflects the growing decay.
The individual feels that he no longer counts, that he has no real
control over his own destiny.
Not only is centralisation making its destructive progress inside nations;
the amalgamation of nations is being advocated. The 'Common Market'
in Western Europe is the prototype. Once again the drive for centralisation
stems from the insistence that the present finance-economic policies
demand progressively bigger units. The fact that the 'Common Market'--The
European Economic Community-- has solved no real problems, but has
produced many new ones, does not deter those who claim that problems
can be solved by making them bigger. All of this stems from a false
philosophy. Rather than repent, those projecting this philosophy seek
to use each new problem their policies produce, to further policies
rooted in the same philosophy. The end result of the policy of progressive
centralisation is, of course, the World State.
Irrespective of what label is used to describe such a World State,
in reality it must be a World Dictatorship, with power in the hands
of the permanent international bureaucracy. Already the foundations
of this world tyranny have been established with the creation of the
'United Nations Organisation' and its associated international organisations,
The Food and Agricultural Organisation (FAO), The United Nations Educational
Organisation (UNESCO), The World Bank and The International Monetary
The World Bank and The International Monetarym Fund were the products
of the work of Harry Dexter White, the top Soviet agent in the American
Treasury Department during and after the Second World War. Both organisations
are being used to centralise the creation and control of financial
credit on a world scale.
Press reports on October 4, 1969, carried the heading, MONETARY
LEADERS APPROVE INTRODUCTION OF PAPER GOLD, and read: "The
International Monetary Fund at the final session of its annual meeting,
overwhelmingly agreed to create $9,500,000,000 in new assets
over the next three years ... Participating countries will receive
allocations of paper gold in the form of Special Drawing Rights (S.D.R.s)
in the fund in proportion to their economic wealth . . . Paper
gold . . . will not circulate in the form of currency .
. . It will be bookkeeping money ·.·“"
With the stroke of a pen, a group of powerful
internationalists can now bring into existence international
financial credit which they are pleased to call paper gold. This
international credit is created against the assets of the member
nations of The International Monetary Fund, without which it would
be useless, and is a major step towards the complete world centralisation
of all power.
THE BASIS OF A COMMUNITY’S REAL CREDIT
A Community’s Real Credit Is Its Productive
Two Major Aspects Of Real Credit
I BASIC CAPITAL: The soil, a source of
both food and minerals, including oil and natural gas. Sunshine.
Solar energy. Water. Wind. Natural laws, e.g. Mechanical advantage
and the division of labour.
II CULTURAL INHERITANCE: The 'know-how'
of applying natural laws to basic capital, passed down and
increased from generation to generation, under the general heading
of the industrial arts.
Contrary to the Socialist-Communist claim (repeated
by many others) that 'labour produces all wealth', semiautomatic
machinery powered by solar energy has made human energy of relatively
little importance in modern productive capacity.
Modern man's actual and potential economic freedom
is based upon an inheritance, a profit built up over past generations.
He is therefore entitled to some type of dividend. In a money economy,
this dividend can only be distributed by providing the individual
with the necessary money 'votes'.
FINANCIAL CREDIT — CREATED BY
AGAINST REAL CREDIT.
If industry is to function satisfactorily, the
flow of purchasing power to the market place must be equal to the
flow of the total prices at the market. But total prices must include
(1) Interest charges, (2) Capital depreciation, (3) Profits, (4)
Reserves, (5) Allocation for taxation, for none of which
has purchasing power has been distributed. If portion of the wages
and salaries is saved to finance other production this aggravates
the deficiency of purchasing power. Attempts to overcome the deficiency:
More debt for capital works, credit-buying schemes, and “export
drives”. Overall result: Growing mountain of debt, high taxation
and inflation, all fostering centralisation of power.
With an understanding of how
the present finance-economic system is being used to attempt to
express a philosophy which runs contrary to reality, it is now
possible to consider appropriate policies and action necessary to
free the individual from the threat of centralised tyranny.
Broadly speaking, what is required is a progressive retreat from centralisation
of power. But this is not going to happen simply because a number of
individuals understand the nature of the power problem. Those who have
usurped the power which the individual should be exercising, are not
going to voluntarily relinquish this power. Many of them consciously
seek even greater power. The arguments advanced in favour of this centralisation
are many, including that of those Utopians who want to impose their
particular concept of Utopia upon everyone else. Any decentralisation
of power will only take place through those exercising the power being
compelled to relinquish it.
This means conflict between those who would be free and those who operate
policies denying freedom. There is no way of those standing for freedom
to avoid this conflict. Genuine decentralisation of power is impossible
without decentralisation of financial or credit power. A start must
be made with modifications to present credit policies. But these policies
can only be modified through political action, through government.
The first essential for correct action is to
sweep away the modern totalitarian conception of government. This
conception implies that individuals belong to governments, whereas
governments should belong to individuals. Members of Parliament are
the servants, most of them well-paid, of the electors. Their primary
purpose is to represent and insist upon the implementation of their
electors’ policies inside a generally agreed Rule of Law as
There is a widespread myth, which governments like to foster, about
the good governments do, or are going to do for the individual. All
government is necessarily restrictive, and there is much truth in the
saying that 'That nation is governed best which is governed least.'”
The famous English historian, Thomas Henry Buckle, provided a refreshing
dash of realism when he wrote in 1867:
"No great political improvements, no
great reform, either legislative or executive, has ever been originated
in any country by its rulers. The first suggestions of such steps
have been by bold and able thinkers, who discern the abuse, denounce
it, and point out how it can be remedied . . . At length,
if circumstances are favourable, the pressure becomes so strong,
that the government is obliged to give way; and, the reform
being accomplished, the people are expected to admire the wisdom
of their rulers, by whom all this has been done..."
Buckle also said, "The world has been
made familiar with the great truth, that one main condition of
the prosperity of the people is that its rulers shall have very
little power." That power should be merely adequate
to uphold the correct function of government, which is to maintain
law and order in all spheres.
Order in the field of monetary policy requires a rule of law which
would enable the individual to run his own affairs without the increasing
bureaucratic economic despotism so much in evidence today. In one sense
there is much truth in the widespread complaint that politics are taking
up too much of the individual’s time. But this is because governments
and their agencies are forcing their way into more and more activities
which should be decided freely by individuals. The essence of the
situation is that government must be compelled to disgorge much of
the power it has taken from the individual, and government itself must
Individuals must associate to force this procedure. Responsible
government is only possible if there are responsible electors. Genuine
self-government requires individual electors to play a much more
active role than merely putting a mark on a ballot paper every few
years, generally in favour of a candidate regarded as the least of
several evils, and then going home to do nothing—except, perhaps
to make an occasional complaint about, for example, how the cost
of living continues to go up.
Political democracy cannot be made a reality unless electors initiate
policies. Servants can only fulfill their proper role if they are given
instructions by those who pay them. What type of policies might be
demanded from government? Bearing in mind the facts concerning the
present finance-economic system, the type of policy required to prevent
the continued subversion of society, is reduced prices, progressive
reduction in all taxation, both direct and indirect, less bureaucracy,
and a progressive reduction in financial debt. These would be major
steps in the right direction.
It is not the responsibility of individual electors to suggest technical
methods for implementing these policy steps. But broad principles can
reasonably be suggested, and elected representatives required to support
them. The correct relationship of the individual to his governments,
and the correct role of government in relationship to financial policy,
cannot be overstressed. It is the key to the problem confronting those
who would serve the cause of freedom.
The first essential is that the individual members of the association
called society have a clear understanding of the realistic purpose
of government. It is not only a type of General Committee, but can
be described as a Board of Directors representing the interests of
shareholders in an association from which, as has been demonstrated,
they can legitimately expect to obtain dividends. The amount and the
method of distributing the dividends is a question of policy, to be
determined by the shareholders in association with their government
representatives. But policy must be based upon the same type of
information which a Board of Directors of a Company is required by
law to provide for shareholders. Any Board of Directors which provided
their shareholders with the type of financial information provided
by governments, would find themselves in the Courts charged with failure
to discharge their proper responsibilities.
As the real credit of a Society is its productive capacity, and, as
has been demonstrated, is increasingly based upon a cultural heritage,
which includes the principles of complex associations which make available
to man unlimited sources of energy, a non-political organisation, which
might be termed the National Credit Authority, is essential to make
available all the relevant information concerning a Society's real
credit. This Authority would bear the same relationship to Government
as does the Accountancy Branch of a business to the Board of Directors.
One of the major responsibilities of a National Credit Authority would
be to provide regularly a National Balance Sheet. All the relevant
data is readily available, much of it already provided by Government
Statisticians, and with modern computers could be continuously processed
without any difficulty as the basis for financial policies serving
the true purposes of the individual member of Society. A realistic
National Balance Sheet would indicate in financial terms the real profit
of a Society.
National Balance Sheet
A National Balance Sheet would show on one side the figures
of Total National Production and on the other side Total National
Total Consumption includes: Goods and
services consumed, goods exported, depreciation. and wastage of population
(human wealth) by deaths and emigration.
Total Production includes: Goods and
services produced, all goods imported, capital appreciation, all
gains in births and immigration.
The relevant figures would indicate whether
a profit or a loss had been made over any given period. In modern
nations like Australia and Canada, the annual profit is enormous.
The item of national appreciation would show the tremendous expansion
of industrial plant, the building of roads, bridges, harbours and other
real assets. A realistic balance sheet must include human beings. It
is elementary that a Society which lost all its population would cease
to exist. Every new human being in a Society must be regarded as an
asset, eventually, after obtaining an education, increasing still further
the increment of association and the real profit of Society.
No drastic changes are necessary to start implementing, step by step,
financial policies reflecting economic realities. The trading banks
would continue operating their most efficient system in exactly the
same way as they do now, but on the clear understanding that they would
be doing the financial book-keeping for the community against the community's
real credit, and would be entitled to charge only a legitimate profit
for their services. It has been estimated that something less than
two per cent would be quite adequate. They could be licensed with the
National Credit Authority and credit policy based solely on the requirements
and real credit of the community with no further nonsense about 'cash
The trading banks could compete to serve producers
and business organisations as they do at present. They would be genuine
service organisations and no longer instruments used for progressively
Realistic Financial Principles
Based upon the national profit revealed by the
National Credit Authority, all pensions and child endowments could
be financed by new financial credits, these created and issued by
the Authority itself at the cost of issue, or by any other appropriate
method. These payments would be regarded as a social dividend. Rather
than attempt to substantially reduce working hours for those in industry
(which could easily be done), it would be preferable to get the maximum
results from the modern, highly complex, industrial plant by maintaining
working hours at approximately what they are now, and start to reduce
the retiring age. Most individuals by the time they reach 55 years
of age are responsible and matured, many of them with grand-children.
With a minimum security provided by an adequate social dividend, and
no fear of the value of their money incomes being eroded by inflation,
this section of the community would be free for many years to make
a valuable contribution to community life in numerous ways. We would
anticipate a flourishing of numerous cultural and associated activities.
By reducing the retiring age and paying dividends from the nation's
profits (to which the recipients would have made their contribution
for some 30 years or more) this would be an organic development of
the dividend principle in a realistic manner.
The payment of child or family endowments to parents up to the
age their children finish their education, and can take their place
in the community's economic activities, would be another extension
of the dividend principle, based upon the reality that the growing
child and his education increase the real credit of the community.
Adequate family allowances would reduce the present pressure on mothers
to work outside the home in order to increase the family income.
The basic cause of many social problems would be removed.
The meagre pensions and family allowances paid at present are a perversion
of the dividend principle, being financed out of taxes and serviced
by a swollen bureaucracy. These taxes help increase prices. They do
not increase the total amount of purchasing power in the community. The
use of taxation to pay pensions and family allowances tends to produce
social friction. The payment of adequate pensions and family allowances
by new credits would immediately enable taxation to be reduced, this
also tending to reduce prices.
Scientific Price Subsidisation
Price is an essential feature of money. Measured realistically
in terms of human energy expended, the real cost of production is
falling. There should therefore be a falling price level to reflect
this fact. A simple example demonstrates the reality of what is called
the cost of production. If coconuts represent the total food supply
of a group of natives living on an island where money has never been
seen, then it can readily be seen that the real cost of producing
coconuts is the number consumed. If, for example, by consuming one
coconut, the islanders obtained just enough energy to get another
coconut, then clearly the cost of one coconut is one coconut. Expressed
as a ratio this would be 1:1. If there is an improvement in technique
which enables the islanders to obtain four coconuts from the energy
derived from consuming one coconut, then the real cost of production
has been substantially reduced. As a ratio it is now 1:4.
As has been shown in this Course, the real cost of production in modern
Societies has been reduced dramatically as the result of the application
of the cultural heritage to basic capital. Proper national book-keeping
would show the real national cost of production measured in terms of
total production to total consumption. A falling price level would
not only reflect this reality, but would pass to the individual a most
effective type of social dividend. Portion of the community profit
as revealed by the National Balance Sheet could be used to finance
a scientific price subsidy mechanism, this applied at the retail counter
so that new credits for subsidies were paid only on production clearly
desired by the consumer, is ensuring effective consumer control
All that is required is the Sales Tax in reverse. At present the customer
walks into a retailer’s store and requests a certain item. The
retailer immediately inflates the real price of the item by the amount
of Sales Tax (now GST). He keeps price records and periodically (now
quarterly) sends the taxation to a Government Department. Sales Tax
could be abolished and, instead, when the customer requested a certain
item, the retailer reduces the price by the amount of an agreed price-subsidy,
keeps records in exactly the same way as previously, but now sends
them to the National Credit Authority and receives the amount of the
subsidies. Everyone benefits.
Those who try to argue that it is impossible to expand credit without
inflating prices conveniently forget what happened in the English-speaking
countries during the Second World War, when a crude type of subsidy
system did hold price levels comparatively stable in spite of the enormous
production for war which was of economic benefit to the individual.
The war emergency forced the introduction of a new financial technique.
The suggestion that it is impossible to alter man's finance--book-keeping to
reflect economic realities' is astounding in the computer age and one
in which man has reached the moon. Most of the effective opposition
comes from those who are either philosophically opposed to the individual
obtaining access to his heritage of potential freedom, or those who
have a vested interest in growing social friction resulting from present
inflationary financial policies.
A falling price level with both consumers and producers benefitting,
would have the most powerful and beneficial psychological effect in
society. The spirit of class warfare and sectional divisions would
be replaced with a spirit of growing cooperation.
The spirit of co-operation could also be extended internationally,
as trade served the true purpose of exchanging genuine surpluses. Trade
warfare would be eliminated. No longer would it be argued that it was
necessary to finance exports to the Communists in order to try to make
the internal economy operate.
The Second World War provided graphic evidence
of the real credit of modern nations.
The enormous productive capacity — real
credit —devoted to the Second World War has been measured
in financial terms. It would have provided:
· $24,000 house
· $8,000 of furniture
· $40,000 cash
for every family in the United States, Canada,
Australia, Britain, Iceland, France, Germany, the Soviet Union
In addition, each city in these countries
with over 200,000 population could have been given a cash donation
of $150 million for public needs such as hospitals, schools and
libraries. (Quoted in Facts, February-March,
1968, issued by The Institute of Public Affairs, Melbourne.)
These payments could have been made without
the war--because the war demonstrated the enormous productive
capacity available but not being used. But the controllers of credit
policy refused to enable individuals
to gain access to their own real credit for peaceful pursuits. However,
in spite of the destruction of the Second World War, there was an enormous
expansion in the productive capacity of nations like Australia, Canada,
the U.S.A., South Africa, and even in Britain, where much capital plant
was destroyed through bombing.
Bearing in mind that the basic factor in the
productive capacity of a modern economy is the cultural heritage,
in which all should share, it is obvious that the dividend system
must, with every improvement in the industrial arts, progressively
supplement the wage system, enabling the individual to be able at
all times to meet the total prices of goods and services produced.
The flow of finance would be determined automatically by the facts
concerning production and consumption, not by Governments, financiers
or bureaucrats. The flow of drinking water to a farmers' cattle is
not governed arbitrarily by the farmer. He puts a ball-valve on a
drinking trough, and this automatically adjusts the flow of
water to meet the requirements of the cattle. The consumers--the
cattle-- dictate the flow of water.
The application of the ball-valve principle to the finance-economic
system would lead to a re-orientation of society away from
the centralisation threatening it. Employment (most of it
useless and sabotaging of both human beings and materials)
under central direction would be progressively replaced by
self-employment. The economic and governmental aspects of
society would be the servants of an expanding freedom in
which the individual would have more time and opportunity
to develop himself. The basis of education would be modified
to prepare the individual for greater concentration upon
numerous cultural pursuits, and the various forms of voluntary
The Golden Age of Ancient Greece provides an
example of what might be expected when the flowering of the human
personality is freed from the domination of economic considerations.
It is true, of course, that this Golden Age was only possible because
of human slavery. But today the individual has solar-powered machinery
to serve him. Those who express fears about individuals entering
progressively into an age of expanding freedom, manifest the philosophy
of those who do not trust their fellow-man, who do not believe in
the Christian concept of voluntary inducement, and who therefore
seek the power to control their fellow-man.
Man was told a long time ago that he cannot
serve both God and Mammon. In order to serve God, man must have freedom.
God has provided man with the basis for that freedom. The major barrier
to man enjoying the freedom now available because of actual or potential
material abundance, is man's worship of Mammon, the elevation of
a financial ticket system, an abstraction, into an end instead of
a mere means to an end.
Genuine Political Democracy Must Precede
The actual administration of these principles
is not the business of the electors, nor is it the business of their
representatives. There are appropriate government experts who should
be firmly instructed by government, representing their electors,
what policies are to be implemented. Those permanent officials, particularly
those indoctrinated with Keynesian-Socialist economics, who say that
they cannot or will not implement the policies required, should be
immediately removed from their positions and replaced with those
who will implement policies laid down by the electors' representatives.
An effective policy of decentralising all power through decentralising
financial power will meet with the most bitter opposition. Such a
policy would run counter to the drive towards organising man into
the World State. But it must be implemented if civilisation is to
The problem is one of the electors applying
sufficient social power to force a change. The major sanctions available
to electors are their political votes. Politicians who will not work
to advance the policies put forward by their electors must be penalised
in the same way that consumers penalise business organisations who
will not, or cannot, provide what is required: they must be deprived
If electors will not make the effort to insist upon the policies they
require, they cannot logically complain if they have disastrous policies
imposed upon them.
A New Type Of Political Movement
How can electors resist the policies of centralisation being
imposed upon them, and reverse these policies? Only by using the
social power they can still exercise by correctly associating to
make their will prevail. Political democracy can only
be a reality when a Member of Parliament is primarily responsible
to his electors, not to party bosses. But electors cannot expect
their elected representative to move openly against the forces of
centralised power unless they make it clear that they will support
him. It is a fundamental truth that in a democracy, electors get
the government, and the representatives they deserve. The basic problem
is not going to be solved by creating still more parties, seeking
to persuade the elector that all he has to do is to vote for them
and all will be well. What is required is a new type of political
movement, a type of voluntary civil service staffed by trained Social
Engineers seeking to advise and guide electors on how to initiate
constructive action in all political spheres.
This type of movement has come into existence with the development
of The League of Rights.The League seeks both to provide a service,
and a form of association through which individuals wishing to implement
self-government, can unite for effective action. The basic feature
of this type of association is the reflection of reality in a structure
consisting of comparatively small, decentralised groups of individuals,
in which the individual can gain benefits from the increment of association.
The co-ordination of League of Rights group activities results in unity
of purpose with a diversity of individual effort.
There is a vast difference between a group and a crowd. A group consists
of a few people; a crowd is a lot of people.
Aldous Huxley has written: "A crowd has a mental life inferior
in intellectual quality and emotionally less under voluntary control
than each of its members in isolation. The mental life of a group is
not inferior, either intellectually or emotionally, to the mental life
of the individuals composing it and may, in favourable circumstances,
actually be superior".
Through regular association two individuals in association
will achieve more than they will working in isolation. The increment
of association increases as the group grows until it becomes approximately
six up to twelve. But growth beyond this stage results in the operation
of the natural law of diminishing returns. One hundred electors,
working in twenty groups of five members each will be far more effective
than four groups of twenty-five. One hundred individuals in one group
would be a crowd in which individual development and effective action
would be extremely difficult.
The League of Rights exists to advise and guide
electors who wish to participate in self-government in all spheres,
who wish to initiate policies they desire instead of apathetically
accepting policies imposed upon them. But political democracy cannot
become a reality until sufficient electors actually take action,
however faltering and uncertain they may be at first. But it is in
the taking of action with their fellows that they begin to realise
the influence and power they can exert.
A physically flabby individual does not build himself up by merely
going into a gymnasium and passively watching a superbly fit manager
exercising. The gymnasium offers the facilities, including advice,
on how the individual can build himself up. But he makes no progress
until he actually starts to make use of these facilities, starts to
exercise his muscles. He must start by using his will. The more he
makes the effort to exercise, the stronger he becomes.
The League of Rights can in some ways be compared with a gymnasium;
it offers facilities and expert advice to those individuals who wish
to play a meaningful role in their numerous associations. The League
is not just another political organisation suggesting to bewildered
and frustrated individuals that it has a neat blue-print for solving
all their problems, and that all they have to do is to sign on a dotted
line, pay a membership fee, and then go home to await results from
the League. This is what modern political parties tend to do. They
encourage the individual to abdicate his responsibilities by permitting
others power to make decisions in his name.
The League is not competing for power; it is seeking to
encourage the individual to develop his own power, multiplying
it in association with other individuals, so that he has
control of his institutions and the policies they pursue.
An individual does not become a good golfer merely by
reading books on golf or listening to lectures on the game.
Confidence and proficiency grow from actual practice and
playing. Those who would control their political servants
must develop their abilities by applying themselves to expressing
their viewpoint, either orally or in writing, either as an
individual or as a member of an organisation. Confidence
grows with experience.
Power in many hands means power in safe hands. There is an old saying
that knowledge is power, and that without knowledge one is powerless.
It is more correct to say that individuals with knowledge have a greater
capacity for using power than those who lack knowledge. The obtaining
of knowledge means individual effort. The League is a special type
of association through which individuals can increase their knowledge,
and therefore their power. Equipped with knowledge concerning their
different institutions and systems, financial, economic and political,
individuals can then work effectively within the organisations of which
they are already members.
In a world of growing tensions, the great
majority of individuals tend to look to someone who can speak with
authority and help provide an answer to their problems. A sprinkling
of competent Social Engineers in any organisation including a political
party, can have a tremendous impact. A thousand angry but relatively
uninformed individuals, for example farmers concerned about the pressure
of rising financial costs, can be quietened by a smooth talking politician.
But introduce only half a dozen competent Social Engineers into
that audience to challenge that politician, and the situation is
There are different methods which can be
used by electors to instruct their political representatives on
the policies they wish him to support, or policies they wish him
to oppose. There can be a flow of letters, petitions can be organised,
resolutions carried at meetings and similar activities. The League
of Rights seeks to foster the creation of non-party electoral organisations
which would ensure that there is a close and permanent relationship
between electors and political representatives, with the representatives
required to meet with and report to his electors regularly, or
on special issues.
Those who reject the concept of the individuals
of society initiating policies through their political institutions,
and controlling their Members of Parliament, are rejecting self-government.
It is true that many
Members of Parliament will attempt to resist their electors' instructions
to press for financial policies which will place the individual in
control of his own financial and real credit.
Electors who mean to win the fight for freedom will have to use their
electoral sanctions to remove these Members from Parliament. As electors
demonstrate their determination and power to defeat all policies of
centralisation, better candidates will come forward and offer
to serve their fellows. It is interesting to recall that democratic
government was pioneered in early Greece in the City States, where
the representatives of the people were chosen by drawing lots and held
responsible for satisfactory results with the threat of death if they
were judged failures!
The political, financial and economic proposals put forward in this
Social Dynamics Course are not revolutionary in the sense that they
threaten the traditional basis of societies like Australia, New Zealand,
Canada, the United Kingdom and the U.S.A. The institutions of these
Societies have been evolved over long periods of time and reflect enormous
experience and wisdom. The development of the industrial arts has reflected
the discovery and successful application of Truth.
All that is best in Western Civilisation has found its most complete
expression in the English-speaking world, where the Greek contribution
of the idea of liberty, and the Roman concept of the Rule of Law, have
been fused with the inspirational Truths of Christianity. Generally
speaking, these Societies were, before the First World War, evolving
in the direction of providing increasing satisfaction for their individual
members. Given time and the opportunity for further organic development,
there was justification for the view that Western man was on the eve
of a new Golden Age in which the personality of man could flower as
never before; in which the best in man would develop. But the s
tart of the First World War marked the beginning of a movement of revolutionary
convulsions which now threaten the very existence of Civilisation.
Although its philosophical roots go deep back into history, and much
of its organisational programme was being shaped last century, the
movement called Communism had to await the event of the First World
War before it emerged into the open as an international force. This
subversive movement was given a tremendous impetus by another international
convulsion, the Great Depression, even more destructive in many ways
than the First World War. The fundamental credit of nations, the faith
of their individual members in their Society and its institutions,
was badly shaken. Skilful propaganda was directed at the individual
in an endeavour to persuade him that his desperate plight could only
be alleviated by submitting to a policy of increasing centralisation
of power. This was a deadly attack upon the philosophical base of the
free society and its institutions.
As the Great Depression of the thirties was directly caused by a drastic
restriction of the rate of financial credit creation, starting in the
U.S.A. with the action of the Federal Reserve Bank, those who used
their enormous power to produce mass unemployment and economic chaos
overnight must be held responsible for the increased Marxist revolutionary
activities which resulted from their policies. No realistic study of
international power politics of this century is possible without an
understanding of the nexus between power exercised through centralised
finance-credit and power exercised through revolutionary political
The Second World War and a further undermining
of Civilisation was the logical and inevitable outcome of the policies
which had produced the First World War and the Great Depression.
The major outcome of the Second World War saw a tremendous expansion
of the Communist Empire and the undermining of the British Empire
as a stabilising force in world affairs. Convulsion after convulsion
has followed, with increasing dissatisfaction in every Society. One
striking manifestation of this dissatisfaction is the growing
revolt of youth, many of whom have become persuaded that their Societies
have produced such appalling results that they either seek to contract
out completely ("Stop the world, I want to get off"), seek
escapism with the aid of drugs, or join forces with those revolutionaries
who urge that their Societies should be completely destroyed as a
necessary preliminary to replacing them. Probably nothing so demonstrates
the sickness of Society than the loss of faith in it by the younger
members. Negative criticism of youth ignores the basic cause of unrest:
departure from the correct principles of association. A major role
of the Social Engineer is to demonstrate to youth that the basic
institutions of his Society are sound, that he is heir to a
heritage of which he is being robbed through a perversion of his
So far from living in a world passing into the deepening darkness of
despair and collapse, he could be on the eve of the finest Civilisation
yet produced, a world in which the threat of Communism (or totalitarianism)
would pass away like a bad dream.
The decisive factor in the crisis threatening Civilisation will be
Faith. If sufficient individuals have sufficient Faith that they do
possess the capacity to change the course of events from their present
disastrous course, then the mountains obstructing man from entering
into his rightful heritage will be removed. Politics and economics
will be reduced to their proper role in the scheme of life, while the
individual enters into that life more abundant which he was told would
come through the pursuit of Truth.