"All that is necessary for the triumph of evil is that good men do nothing"
Edmund Burke
From DEBT to PROSPERITYThe Proposals of Social Credit by J. Crate Larkin We Must Choose Between Two Creeds: "OUR REAL CREDIT" FROM DEBT TO PROSPERITY 1. The establishment in the United States Treasury of a National Credit Account in which the nation is credited with the production of real wealth and debited with its consumption. 2. The sale of all consumers' goods at the Just Price, by means of a Retail Discount determined by the true cost of production. 3. The issuance of monthly Dividends to every American citizen. Social Credit very properly comes under'the heading of "THE NEW ECONOMICS," which approaches our present-day business problems from the practical viewpoint of a civilization equipped with every modern device of science for satisfying the needs and desires of its members. In answer to the problems of Poverty and Depression Social Credit proposes a definite solution, the most sensible and least difficult way out of our financial confusion. Social Credit points the way from depression to permanent economic security, achieved through the true financial valuation of America's Real \'Vealth and the provision of adequate buying power to American citizens. Social Credit is founded on two propositions: First, that money must accurately reflect the true facts of our Real Wealth. Second, that in any civilized nation where the moneysystem reflects the facts and performs its function of distributing goods and services for consumption, in that nation prosperity and permanent economic security will be achieved, and poverty, paralyzing debt, and depression banished. Yet Social Credit is neither Socialism, Fascism, nor Communism, for it involves no confiscation and would sacrifice neither the liberty nor property rights of anyone. More than anything else it means every day common sense applied to money and business. Should the principles of Social Credit be put into operation today by the President and Congress of the United States, within six months the economic security of every American citizen would be won, and the nation could enjoy the prosperity of plenty warranted by its rich resources. 1. FACING THE FACTS OF TODAY In recent years
we have suffered from a world-wide depression. Everyone wants business
recovery. Yet millions are hungry while kneedeep in wheat, lacking clothing
when cotton is plowed under, homeless while houses stand vacant. Surrounded
by an abundance of the things we need, we experience want in the midst
of plenty. What a sad contrast! But this sorry spectacle becomes even
more vivid when we contrast Producing-America with Consuming-America.
When we compare America the manufacturer with America the shopper we
find that the manufacturer can produce but the shopper cannot buy. In
this situation the machinery of business is stalled. Business recovery
means economic recovery. Economics is a matter of everyday business
experience for it is only the business housekeeping of society. Everyone
in business is familiar with econon'lics by practical experience. \Ve
needn't fear economics as something that is difficult to understand
for we can talk about it in simple everyday words. Instead of struggling
to grasp a mass of abstract ideas it is much better to think of economics
simply as everybody's business. If we are to talk about business we
had better begin by defining it so that we may know just what business
is. The process of satisfying desires with goods in exchange for money
is called trade or business. Business m.ust be carried on because its
transactions actually do satisfy our desires for goods. We know that
we have constant needs for goods and abundant means for producing them.
So to understand the meaning of any sort of economic recovery requires
first that we know what is the purpose of the economic system. Purpose
of the Economic System Let us picture in our imagination a vast plate
glass shopwindow, reaching all the way across the continent from New
York to San Francisco. Inside that window are all the goods that America
makes. Outside it are 125 million of us. would-be shoppers, all of us
with our noses flattened against the window just as we used to do when
we were children. Let's go into the shop and see what we find there.
The first thing that impresses us is the amazing variety of goods that
are on sale in the 3 shop. There are almost a million items offered
for sale-everything that we need in order to live in comfort and convenience
and satisfaction. Suppose we ask the shopkeeper how he can maintain
this supply of goods? He will show us warehouses bulging with goods.
Behind the warehouses is a chain of factories and behind the factories
are farms and mines, and behind those, laboratories and schools, and
back of all these things the American people themselves with their ambition,
their enthusiasm, their inventiveness and their history. With these
resources the shopkeeper can guarantee to provide us with a supply of
goods beyond the limits of imagination. That supply of goods and services
is America's Real Wealth. The ability to produce and deliver these goods
and services is the only true limit of our Real Credit. Recent surveys
show that our present productive capacity can supply goods and services
to every family in the nation at the rate of at least $2500 a year.
So there is no question about the abundance of our tangible Real Wealth.
As we look around in this workshop of wealth, we remark how few people
are working in it. Everywhere we look we see labor-saving machinery
that has been designed and installed purposely to eliminate human drudgery.
Thanks to Science, the curse of Adam has been lifted from the backs
of men and transferred to the broader backs of N ature's forces by means
of power: steam and electrical energy. Our control over these forces
can keep the shopwindow filled with goods, yet we have just begun to
use our servants efficiently. The sight of all the goods they can produce
in the store of plenty should make us feel very wealthy. Now let's join
the 125 million shoppers outside the window. What a change we find here!
Instead of the orderly scientific cooperation of the productive system
and all the abundance of goods created by it, when we get outside we
find a struggling mob of worried people. Everybody is fighting everybody
else and most of us seem to be getting the worst of it. All of us are
shoppers and consumers of goods. We need food, clothing and shelter
in order to live. We have besides many other desires we would like to
satisfy. \'Vhy have we built up this vast store of wealth and all the
activities necessary to maintain its supply? As shoppers and consumers
of goods, if we ask ourselves this question the answer is obvious. We
produce goods in order that we may consume them. The purpose of production
is consumption. All of us know from experience that there are many goods
and services that we must obtain from others who are better able to
supply them than we are. Some systematic process for the production
and distribution of these goods is necessary if we are to work together
in an orderly and intelligent fashion. So modern business developed
and its enormous capacity to produce goods and render services is now
highly specialized. Briefly, we may define the purpose of the economic
system by saying that it exists to deliver goods and services as, when,
and where they are required for consumption. With this purpose clearly
in mind, and remembering that we are to contrast America the manufacturer
with America the shopper, let us look at our economic system of today.1
The general facts of our present difficulties are painfully familiar
to all of us by personal experience. They may be classified in four
main groups: Poverty, Debt, Taxation, and Depression. Of these it is
hard to say which is the heaviest curse on our 20th century civilization.
But it is significant that all four are found together in the greatest
age of science and power over nature that man has ever known. The Paradox
of Plenty Thanks to science we have at last achieved the long-desired
age of plenty. Inventions and technological advances have, almost unbelievably,
increased our capacity to produce real Wealth in the United States,
yet we cannot distribute the consumable goods that even now we produce.
And at least half of this immense productive ability lies idle. Producers
wish to sell. Their salesmen offer goods to distributors, who dare not
buy because they cannot sell to consumers. Shoppers are eager to buy.
Many are hungry and cold and homeless. But they cannot eat or clothe
themselves or find shelter, for they have no money to purchase what
the producer wishes to sell them. This is the famous paradox, "poverty
in the midst of plenty" of which we have all heard-a humiliating state
of suffering and misery in the richest nation on earth. The Rt. Rev.
C. E. Riley, Dean of Niagara, has referred to this paradox as a "damned
blasphemy." Those 1The author wishes to acknowledge ;ndebtedness to
A. R. Orage for the picture of the shopw1l1dow and other material contained
in Orage's Social Credit broadcast LondOll, Nov. 1934. ' 5 7 IFebruary
1935. The Stupidity of Sabotage We also have the surprising spectacle
of an organized and government- sanctioned plan of sabotage-the deliberate
destruction of agrimust eventually be retired out of taxation. Weare
merely piling future debt upon present debt, mortgaging the future to
pay for today's confusion. The efforts of the g.overnment to distribute
additional purchasing power through loans, civil and public works programs,
relief measures and the requirements of the NRA, have increased employment
and stimulated some producers, but the buying-power reaching the hands
of the nation's shoppers has been insufficient to absorb the total of
this production. Admittedly the NRA has reduced unemployment but many
of the people thus employed are working part time, on hours so short
that they do not actually receive half of the total NRA minimum wage
requirements. The steady march of technological progress cannot be halted
simply by limiting hours of work and over-burdening the payrolls of
business. In December 1934 there were 19,018,503 persons in the United
States receiving relief from public agencies. Approximately one out
of every seven of our population is dependent on welfare and relief
funds. It has been estimated that the sum spent on the government Recovery
Program equals the stupendous figure of $12,000 per minute. This money
is being borrowed, mainly from the banking system through government
bond issues. At the same time statisticians estimate that more than
85;/0 of the business assets in the United States are mortgaged to the
banking system. Business cannot borrow, banks cannot lend, consumers
cannot buy. In this vicious circle recovery is stalled. Every man, woman
and child in this country today is $226.00 in debt for Federal Government
indebtedness alone and that figure is going Up.I How can it ever be
repaid? Yet the attitude prevails that .pay- IJ:l'entof our debt is
a small thing to worry about at the moment and we can go right on borrowing
and enjoy spending ourselves rich. This is planned as the practical
way of our present poverty! How can more debt be the way out of our
present indebtedness? We might as well try to stop the weather from
getting cold by taking off more clothes. Taxation And Debt-and More
To Come Meanwhile business stagnates for lack of sales, and we struggle
under an increasing burden of heavy taxation and debt. In 1932 our taxation
exceeded 13 BILLION dollars which means that in that year every person
at work gave one day out of each two-and-a-half for the payment of taxes
alom. In 1933-34 taxes continued to climb. The promise of still higher
taxation is fast becoming a painful actuality. Increasing governmental
expenditures for relief and recovery must be paid principally out of
more and higher taxes. As tax-payers we are all headed for the day of
drawing our belts still tighter over an already empty stomach. For the
skyrocket of climbing taxation is on the way up, and the zenith of its
course will bring an explosion of national bankruptcy. Must we patiently
sit by waiting for this to happen? Growing welfare and relief funds
add to the burden of those who are employed. And already these funds
are proving insufficient to provide a decent share of food, clothing,
and shelter for the unemployed and their families. The total number
of persons now unemployed in the United States is estimated at about
eleven million. Most of these are willing and eager to work, but we
cannot find jobs for them. Yet somehow they must live. So to supply
them with food, clothing, and shelter, we draft young men into camps,
plan unnecessary building projects, and use hand labor when a steam
shovel would do the work better and quicker. All this out of public
funds, in the name of relief from unemployment. ~~Theredo these funds
come from? The Government derives them mainly from taxes, so that in
effect all of us taxpayers are employing the unemployed. Even though
the funds immediately necessary for relief are raised through bond Issues,
taken up mostly by banks, the bonds themselves 6 Jre strange words from
a clergyman. But stranger still, it seems that all this suffering is
due to a glut of goods, to the very surplus of wealth itself. Ninety
percent of the population of the United States d.oes not manage to get
enough to live in decent security . Worse than thIs, ~ore than thirty
million people, nearly one quarter of our total populatIOn, are living
on a mere subsistence level, with ba~ely enough foo~ to k~ep them alive,
a roof over their heads, and clothmg to cover theIr bodIes. II I I I
I Ii I ______ 1 "" __ cultural wealth to restrict production to the
level of current consumption. How can wealth be made available to needy
consumers by destroying it? Obviously the destruction of wealth also
destroys corresponding human satisfactions. Economic Confusion \'Vriting
in the Saturday Evening Post of man's age-long dream of plenty for all,
and his present inability to manage his own affairs, Garet Garret says,
"In the very act of seizing the reality of unlimited plenty he is frustrated,
not by anything that happens untowardly to the dream itself, but because
the dream comes true. Plenty overwhelms him. He cannot manage it. And
when he tries to say why, what he says does not make sense to his own
ears. Because people can produce more than they can consume, they cannot
consume as much as they want. Does that make sense? Yet he must behave
as if it does, unable to think what else to do." "With paper money out
of the public treasury, which is his own pocket, he pays himself to
plow up his cotton because there is too much cotton, hires himself not
to grow wheat because there is a surplus of wheat, buys for himself
young pigs and sows and kills them to be rid of them; with the same
paper money out of his own pocket he pays himself to limit his hours
of labor; and none of this makes sense, for obviously, by these means,
if continued, he will make the world poor o •• Never was worse confusion.
The wonderful economic mechanism we had been boasting of goes absurdly
wrong." Plain Facts Certainly our rich natural resources, our fields
and mines and factories, with all their productive ability, exist today
as they did in 1929. And with still more certainty we know that the
needs and desires of our 125 million people for food, clothing, and
shelter, to say nothing of such things as radios, warm blankets, and
automobiles, are as great, if not greater, than they ever were. Yet
we are told now that we are in debt. Since 1929 the value of our national
wealth, measured in money, has shrunk by more than 100 billion dollars-nearly
one-third of its total 1929 value.! The "financial ,experts" report
that in terms of money almost one-third of our wealth has vanished into
thin air. lFigures of National Industrial Conference Board. 8 Now, if
one-third of our country had been destroyed by earthquake, fire, or
flood we could understand how one-third of our wealth might have been
destroyed. But there has been no such catastrophe. Nature has been kind
to us. America is here as beautiful and plentiful as ever with her rich
crops and her factories filled with machinery. What has happened to
this wealth that has made it lose its value? Nothing at all. The wealth
itself still exists, but its value in terms of money has been destroyed.
We have made the fatal mistake of confusing our WEALTH with MONEY, and
we have thus deprived ourselves of the wealth we need. Outside the shopwindow
of plenty we stand looking in and wishing for more money, for more buying-power.
Discouraged and bewildered, we yearn for the wealth of goods in the
window when it is denied us simply by the limitations of our own creation,
the Money System. What a tragic absurdity! And it is doubly stupid because
it can be changed whenever we decide to change it. Bewildered Business
Let's try to put the problem simply and precisely. Working from the
known facts will perhaps give us a clue to the answer. Industrial engineers
testify that we are able to produce in abundance all we require to satisfy
our needs. Then why don't we do so? Plainly it must be because we have
already produced more than we c.m sell. Our clue must lie somewhere
in this so-called "over-production." Why can't we sell these "surplus
goods?" Because there is not enough buying-power in the country to equal
the prices of the goods we have produced. That is plain to everyone.
"The trouble is clearly not lack of desire but lack of purchasing power."!
This shortage of buying-power in the hands of would-be shoppe;-5 is
rooted in our money system,. Yet money has been devised by man himself
as a measurement of value for convenience in carrying on business. Is
it possible that as business operates today there must al71ays exist
tl-~s unsaleable surplus, which we have absurdly dignified by the lDigest
of America's Capacity. to Cunsume, Brook.il~gs Institution studies p.
57. General Hugh Johnson, former NatIOnal Recovery Adrll1111strator
stated in 1933 "The· ability of the people to buy is not so great as
the total cost of wh~t there is to sell." 9 name "over-production?"
Surely it is ridiculous to talk of over-production so long as consumers
need goods and wish to buy them. The very idea of over-production is
a stupid falsity so long as there is unsatisfied demand.1 Under-Consumption-And
Why Now we are getting close to the heart of the problem. Very apparently
our difficulty is concerned not with over-production but rather with
zmder-colZSumption. To be able to buy goods consumers must have buying-power.
But there is a shortage of this necessary buying- power. Under-consumption
exists because we have not sufficient purchasing-power to buy the total
of the goods ZlJe produce. There is ample provision for financing production
but little and faulty provision for financing consumption. Producers
can produce but consumers cannot consume. And why do consumers lack
buying-power? The answer is to be found in the financial system itself.
This constant lack exists because the money system, which was designed
to accomplish the smooth flow of goods from producer to consumer, has
inherent in its nature TWO FUNDAMENTAL DEFECTS so serious iliat the
system has bro/::.en down. These disastrous defects are the root causes
of depression, poverty, debt, and taxation, because they give birth
to a chronic shortage of buying power. The shortage has been with us
both in time of "depression" and of "prosperity."2 The Failure of Finance
There must be no quibbling about the breakdown in the functioning of
the money system. It is a fact. This is a serious charge, but there
is ample evidence that it is well founded. The evidence is apparent
not only in the records of what has happened; it is vividly demonstrated
in our every-day experience. l"The United States has not reached a stage
of economic development in which it is possible to produce more than
the American people as a whole would like to consume." Digest of Brookings
Institution Studies, p. 57. 2"Those who are most concerned about the
existing economic situation are thinking of something more deep-seated
and basic than the mere fluctuations of the business cycle. They observe
that although we have great powers of production, some of which remain
unutilized even during periods of prosperity, large sections of the
population continue to have unfulfilled desires and needs. This paradox
of want amidst what appears to be potential plenty had suggested that
there may be a basic maladjustment which seriously impedes the functioning
of the economic system." Digest of Brookings Institution Studies, p.
1. 10 The _failure of the money system is felt by everyone even little
children though they.do not understand why they suffer. For the facts
of modern money are quietly hushed in the newspapers, and the atte!1-
tion of the public distracted from the cause of its privations. Yet
these facts are evident in the failure of nearly half of the ban/::.sin
the United States during the past ten years, involving the loss of use
and ultimate partial destruction of deposits amounting to $4,885,000,000.
If this is not evidence enough of the collapse of our money system,
we may well remember the 1929 crash and its sudden destruction of financial
values, when our national income shrank from 81 billion in 1929 to 48
billion in 1932. Or we may recall the "bank holiday"-what a happy name
for it!-of March 1933 with its freezing of deposits, and the subsequent
withdrawal from ci~culation of all the gold upon which our money is
supposed to be based; the international failure of the gold standard;
the necessity of the government's present deposit insurance guarantee
plan, designed purely to stimulate confidence in the banking system;
the wholesale default of bonds and mortgages; the failures of insurance
companies and investment houses; and a long list of personal failures
resulting in newall-time highs for suicide. We know personally the pressure
of the present scarcity of money and credit both for business and consumers,
and the prevailing misery of our mortgaged and debt-ridden population.
Awakened by suffering, public interest has at last begun to focus upon
this shortage of buying-power. The failure of the money system to accomplish
the smooth flow of goods from producer to consumer can no longer be
concealed. Let us face the facts. What has caused the fall of our financial
structure? With the coming of Power, Money has failed man. So long as
production remained difficult, and goods were relatively scarce, our
antiquated money system could operate well enough to enable business
to continue. New markets were constantly being opened up to absorb the
surplus of our production. But today, when we are able, through the
use of power machinery, to produce on the greatest scale in history,
the money system has not been adjusted to these new conditions. Science
and invention have outgrown our old ideas of money. To understand why
this has happened, and to see clearly the basic cause of our chronic
shortage of buying power, we must first know how the money system works
in practical operation. Since its operation 11 has resulted in failure
we must discover the facts behind this failure. We have seen that the
lack of buying-power is responsible for underconsumption. Now let us
determine what causes the chronic shortage of money. n THREE IMPORTANT
WORDS In every discussion about the money system we find three words
frequently recurring. These three words are put to a great deal of abuse.
And if we are to understand clearly why the operation of the money.
system produces a chronic and increasing shortage of purchasing-power,
we must first have a definite understanding of these three words. They
are all vitally related to each other. But their meaning has become
confused. The Meaning of WEALTH The first of these words is Wealth.
Wealth has been defined by Webster as "Large possessions, a comparative
abundance of things desired, especially of worldly estate." From this
definition it is apparent that wealth consists largely of goods. "All
things possess the attribute of wealth if they can be used directly
or indirectly for the satisfaction of human desire." The term wealth
is thus a word used to express the total of goods which can satisfy
human desire, as well as the means of producing such goods. In considering
our \'Vealth as a nation we must include as a very important part the
great cultural heritage that has been handed down to us by our forefathers.
The rich natural resources, the farms and fact Xl ~s which make America
wealthy, would be of little use and could never have evolved were it
not for the organized scientific knowledge bequeathed to us by our ancestors.
This part of our wealth is an asset belonging to the entire nation.
"The modern economic production system is not a system. of individual
production and exchange of production between individuals. It is more
and more the synthetic assembly, in a central pool, of wealth consisting
of goods and services which are preponderatingly due to the use of power,
to modern scientific processes and all sorts of organizations-." l THE
REAL WEALTH OF ANY PERSON, OR OF ANY NATION, MAYBE MEASURED BY HIS OR
ITS ABILITY TO DELIVER WANTED GOODS AND SERVICES. Ie. H. Douglas, Oslo,
Norway, Feb. 1935. 13 It is not always easy to measure wealth, for the
value of anyone article of Wealth depends directly upon the desire that
people have for that article. But since we must all deal in w:ealth
to satisfy our desires, it is essential to have some means of measuring
its value in relation to our desires for the goods which compose wealth.
The necessity for dealing with wealth leads directly to the second of
the words we must define in order to understand the money system. This
word is Credit. CREDIT-Real and Financial "Credit is the vital air of
modern commerce."! The word Credit comes from the Latin "credere" meaning
to believe." "Credit ... is something founded on belief."" All of us
use the word "credit," and when we say a man's credit is good we mean
simply that we have confidence in his ability to make good on his promise
to pay. In other words credit rests upon the ability to payor to "deliver
the goods" as promised. But it is not generally realized that there
are two different and distinct kinds of credit, known respectively as
REAL Credit and FINANCIAL Credit. "Real Credit lnay be defined as the
rate at whicb goods and services can be delivered as, when, and where
required. Financial Credit may similarly be defined as the rate at which
mane)' can be delivered ... The inclusion in both definitions of the
word rate, IS of course, important."" Thus Real Credit depends upon
the ability to deliver goods or services. Financial Credit depends upon
the ability to deliver money, as required. This distinction is very
important, and we must have it clearly in mind as we consider the monetary
system. Let us note it well, for we shall refer to it later. What is
MONEY The third word we must understand cleariy is Money. Money is the
title to life in modern society. But there is probably no other word
in our language about which there is so much confusion and muddled lDaniel
Webster. 2e. M. Hattersley, This Age of Plenty, p. 170. Be. H. Douglas,
The Monopoly of Credit, p. 21. 14 thinking. It is no exaggeration to
say that most of the wreckage in our stalled economic machinery is due
to misunderstanding of the true nature and function of Money. Therefore
it is vital to understand IvIoney itself, even though this may require
some revision of our former notions. Money has been defined as a "medium
of exchange, a means of expressing an effective demand for goods." In
these days of economic hysteria this simple definition will remove much
of the confusion that shrouds money in mystery.l We read and hear a
great deal about "Sound Money." What is this "Sound Money" the experts
talk about? Certainly it is sensible to say that a sound money system
is a system that works-a system that makes effective the existing demand
for goods. Money and Gola The origin of the use of money is lost in
the beginning of history. Originally men satisfied their desires by
barter, exchanging goods for goods. "As time went on however it was
found a convenient practice to effect exchanges directly by means of
some sort of currency tokens, which tokens were themselves objects of
value such as cattle, hides, or gold."2 Later these gave way to metal
discs, and eventually coins, serving the purpose of tokens as accepted
measurements of value, were issued by governments as currency or government
money. Because gold was both scarce and easy to measure, it was used
for coins and gradually became accepted as the basis of the value of
money. Gold, which is simply one commodity, thus grew to be considered
the foundation of the early monetary system. "When merchants, in the
later Middle Ages felt the need of some safe place in which to store
their money ... the only people inspiring them with sufficient confidence
were the goldsmiths, and the practice arose of depositing money with
them. At first when a merchant had payments to make he would withdraw
his money to enable him to do ·so. Later on he merely gave an order
to the goldsmith to pay over the necessary sum ..• "3 lProfessor Walker's
definition is as concise as any, "Money is any medium which has reached
such a degree of acceptability that no matter what it is made of or
why people want it, no one will refuse it in exchange for his product."
Money is thus a .claim on goods and servIces. 2e. M. Hattersley, This
Age of Plenty. p. 35. Be. M. Hattersley, This Age of Plenty, pp. 37-38.
15 But as the trading of wealth increased, paper money or notes gradually
supplanted the handling of gold. Metallic money gave way to paper notes
about 1700 A. D. and the goldsmiths went into the banking business.
From this we have evolved a still more convenient system: our banks,
by extending credits, enable their depositors, by signing cheques, to
issue bank-money which circulates so acceptably that it is now used
for most of our transactions. Today this bank-money amounts to more
than eleven times the currency-money issued by the Government. One important
point here deserves our consideration. BeiNe cheques came into use gold
was the chief measure of value upon which money was issued. Now that
we use cheques, and gold is out of circulation (most of the countries
of the world having "gone off the Gold Standard" and our dollar having
been devalued or "clipped"), the money system has become more and more
a boold:cee Pin g method t~ record values exchanged, and less and less
dependent upon gold. Some people still maintain that the price of gold
is the only st"ndard of value, but both history and present experience
challenge this belief. On this point even the Supreme Court has been
called into controversy! But for two good reasons we need not waste
time on this conflict. In the first place, we are concerned chiefly
with the practical workings of the money system, and gold is now out
of circulation. And secondly, we have defined money simply as the medium
of exchange" "nd we are observing the actual operation of this medium
in business. lti III THE NATURE OF MONEY We know then that goods are
conveyed from Producer to Consumer by means of money. Money is thus
the connecting link between production and consumption. It acts as a
bridge between the desire for goods on the part of the consumer and
their supply on the part of the producer. We might say that money is
the equalizing medium between desire and goods, enabling the one to
be satisfied in terms of the other. It functions as a force which, like
electricity running a motor, is invisible, and we see only its effects
transforming desire, which is mental, into physical goods which represent
the satisfaction of that desire. From this it should be plain that money
is something numerical, not a material substance. Money is not wealth,
but a symbol of wealth and a means of measuring its value. Money gives
us a method for applying number values to goods. If we stick to our
personal experience, we cannot fail to realize that money is only a
ticket, a ticket authorizing us to go shopping in the Nation's store
of 'YIealth. Money entitles us to claim the wealth of goods in the store.
A money-ticket is exactly like a railroad ticket except that a railroad
ticket is only good for transportation while a money-ticket is good
for anything in the store up to its stated value in pnces. "We thus
arrive at a true conception of the nature of money; money is simply
a social mechanism designed to facilitate orderly production and distribution.
The money system is to all intents and purposes merely a system of tickets
entitling the holders to goods and services. Above all, money as such
is not a commodity; it has no intrinsic value apart from the function
it performs, and to regard money as a commodity is proof of a radical
misunderstanding of that function." 1 Money is NOT a commodity with
scbstance, size and weight, like wheat or steel. Thinking about money
as a commodity, such as gold, instead of as a measure of value, has
caused much of our confusion today. For even "financial eXferts" agree
that commodities fluctuate in value according to supply and demand,
and thus no one commodity by itself is suitable as a single absolute
measurement of value for all others. Ie. M. Hattenley, This Age of Plcnt}',
p. 37. 17 Prof. Frederick Soddy says, "Gold is in all respects about
the worst commodity to choose as a money standard."" Money is so important
in our lives that we may well think of it as the keystone which holds
together the whole of our economic structure. The reason why money is
so important that people quarrel about it, is that these money-tickets
are indispensable to our shopping. Money-tickets are just as necessary
to our shopping as shopping is to our lives. In civilized society our
lives depend on money and the money system. For without money that works,
that is "sound," we cannot touch any of the wealth that fills the shopwindows
of America. But to deserve the name "sound," money must possess two
important qualifications. For one thing it must have acceptability,
which means simply that everyone who uses it has confidence that it
can be exchanged for wanted goods or services. And secondly since it
is the medium of exchange, we should expect to find money accurately
expressing the current demand for available goods. Any sort of a sound
money system, in short, must reflect the true facts of production. It
must provide enough of the means of exchange to keep goods moving from
producers to the shoppers who consume the goods. Two Kinds of Money
As we have already seen, there are mainly two kinds of money in use
today. The first of these is currency, or tangible government money
which circulates as coins; pennies, nickels, dimes, quarters, and dollar
bills. The second is credit-money, or bank deposits circulating in the
form of cheques. Currency is only the pin-money of business. Credit-money
(or cheques) is used in practically all large transactions, where coins
or bills are not convenient. In fact, more than 90 % of our business
is done with cheques, or credit-money. We know that currency is issued
by the government as coins or printed bills, but many people do not
know just where or how creditmoney comes into existence. We use cheques
because they are safe and handy, they can be written for paying an exact
amount to specific individuals, and so long as they are acceptable we
think no more about it. IProf. Frederick Soddy, Money versus Man, p.
53. 18 The Birth and Death of Credit-Money Suppose we look into the
source of this credit-money with which we do at least 90 % of our buying
and selling. Whe-re is it born? We know that a cheque is an order against
a bank balance. The bank balance consists of deposits credited to an
account. These deposits themselves may be in the form of cheques drawn
upon other accounts. No currency actually changes hands in paying for
goods or services with this kind of money. Complicated transactions
involving immense sums of money are handled purely by means of the bookkeeping
carried on by the banks, entering credits and debits on their books.
In their bookkeeping the banks credit and charge the accounts of their
customers. It is clear from this that whatever money was once intended
to accomplish, by means of currency, it is a different story now that
we write cheques. The cheque system today is simply a series of bookkeeping
entries, and our monetary system functions mainly as the circulation
of these cheques. \'Ve do almost all our business by means of bits of
paper, which are evidences of Financial Credit. And tbis credit is itself
created or destroyed in the bookkeePing process of the banks. "The cheque
system is in itself a great advance upon the use of tokens in many ways.
But its invention has resulted in the banks, not indeed coining money
as that is quite unnecessary, but creating 1J'tOney without even the
issue of printed notes ... "" "The method by which the banker makes
money is ingenious and consists largely of bookkeeping."2 This kind
of money is born in a bank and dies in a bank. And the bank is responsible
both for its birth and its death. "The banker creates the means of payment
out of nothing. "3 The fact that banks create and destroy money by the
bookkeeping process of issuing or cancelling credits is illustrated
by any ordinary bank loan. Suppose we go to the bank to borrow $1,000.
The banker passes judgment on our credit rating, accepts our note, and
grants the loan, crediting our account exactly as though we had deposited
this sum in cash. We are now "in debt" to our friend the banker . We
owe him the $1,000 we have borrowed, plus the interest he charges for
its use. We can then write cheques against our new account, and these
cheques are acceptable as money. IProf. Frederick Soddy, l\iJoney versus
Man, pp. 31-32. 2C. H. Douglas, Oslo, Norway, Feb. 1935. 3R. G. Hawtrey,
Currency and Credit. 19 Now the banks are permitted to lend up to ten
times their actual cash reserve, and in so doing the banker "creates"
in the case of our loan, $1,000 (less interest) in new money. But when
the time comes to repay this sum the credit he has extended to us is
destroyed. \'Ve can no longer write cheques against it. Indeed, we must
pay the banker promptly or forfeit whatever security has been placed
with him as collateral. If we cannot pay, our security then passes into
his hands. In other words, every bank loan creates a deposit and every
repayment of a bank loan destroys a deposit. Loans are made and deposits
created by crediting the borrower's account in the banker's book. And
the money thus created is destroyed in the same way, by debiting the
borrower's account. What has it cost the bank to lend us $1,000? Nothing
but thr: expense incurred in its bookkeePing. As a result of the bookkeeping
process of the banks, new money is constantly being created and destroyed.
And this money, said by the Encyclopedia Brittanica to be created "out
of nothing," is really being manufactured out of little more than pen,
paper, confidence, and a bottle of ink This bookkeeping process, the
banking method governing the birth and death of money, is clearly described
by Reginald McKenna, Chairman of the Midland Bank of London and former
Chancellor of the Exchequer: "The amount of money in existence varies
only with the action of the banks. Every bank loan creates a deposit
... and further, "there is only one method by which we can add to or
diminish the aggregate amount of our money ... The amount of money in
existence varies only with the action of the banks in increasing or
diminishing deposits. We know how this is effected. Every bank loan
and every bank purchase of securities creates a deposit, and every repayment
of a bank loan and every bank sale destroys one.m When we think of our
own hard-earned personal bank accounts we perhaps imagine that our deposits
are used by the banks to create new credit-money. But the banks do not,
as many people believe, lend such deposits. By virtue of their privilege
of lending up to ten times their cash reserves, ban!?s create Pinancial
Credit which u. their bookkeeping becomes a DEBT against the borrower.'
"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 lSpeech
at General Meeting, Midland Bank, Ltd., Jan. 25, 1924. 20 expenditure,
but the bulk of the deposits arises out of the action of the ban!?s
themselves, for by granting loans, allowing money to be drawn on an
overdraft or purchasing securities a bank creates a credit in its books
which is the equivalent of a deposit.2 "Although, then, we are stressing
the function of the banking system as a manufacturer of money, it is
far from our object to impress the reader with any suspicion that such
manufacture is criminal. -Our object is to impress the reader with the
importance of the fact that it is a private body, not responsible to
the nation, which actually manufactlires and controls the manufacture
of money, and by so doing controls the nation's means of life.,,3 Our
Economic Blood Money circulates. This is a fact familiar to everyone.
In the economic system money may well be compared to the blood of the
human body. Money in business is equally as vital as the blood in our
bodies. It circulates, carrying life and vitality in its flow. Money
is the me: dium of exchange. Business cannot survive without exchange.
Exchange implies activity, and this activity is the flow of money, its
circulation. The flow cannot cease, for money satisfies desire only
when it is exchanged for goods and services. It has no inherent value
in itself. Money itself cannot be worn or eaten but it can buy clothing
to wear and food to eat. When money ceases to flow, its power to satisfy
desire dies, exactly as we die when our blood stops circulating. Only
so long as money circulates is business alive and healthy. l"One of
the greatest authorities on banking, H. D. McLeod, tells us in his book,
The Theory and Practice of Banking. that-"The essential and distinctive
feature of a 'bank' and a 'banker' is to create and issue credit payable
on 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."
"In the language of banking a d'eposit and an issue are the same thing."
"It is commonly supposed that a banker's profit consists in the difference
between the interest he pays for the money he borrows, and the interest
he charges for the money he lends. The fact is, that a banker's profits
consist exclusively in the profits he can make by creating and issuing
credit in excess of the specie he holds in reserve. A bank which issues
credit only in exchange for money, never made, and can by no possibility
make, profits. It only begins to make profits when it creates and issues
credit in exchange for debts payable at a future time." 2Report of the
MacMillan Committee on Finance and Industry, presented to Parliament,
June 1931, ParagraPh 74. 3Maurice Colbourne, Economic Nationalism, p.
138. 21 We know the time blood takes to circulate through the human
body. We measure its circulation by our pulse rate. And in just the
same way it takes time for money to circulate through business. Time
and flow taken together give us a rate of flow, and this rate of flow
is the way we measure the speed of the circulation of money. But the
likeness between money and blood is stilI closer. For both of them circulate;
that is, the course of their flow is circular. Money tends to flow in
a circle through business. Its circulation begins in a bank, since it
is in the bank that most of our money is born. The banker, for example,
makes a loan to a producer. The producer pays his workmen, executives
and shareholders, who presently appear as shoppers, consumers of goods
in the retail market. The retailer then pays the wholesaler, who in
turn pays the producer, who at length repays his loan to the bank. Whereupon
that amount of credit is destroyed until the bank makes a new loan,
when it creates more new credit.1 Then the circle is repeated. And business
is dependent for its existence on this life-blood circulating in its
economic body. Business Versus DEBT N ow our study of money grows excltmg,
for here we come face to face with Debt. We know debt well, for it is
always at our door. And it poses as our friend credit, a wolf in sheep's
clothing. More than that, Debt plagues us always, since every bank loan,
in creating a deposit, at once puts the borrower into the clutches of
debt. Banks, it is true, create "credit," which they are said to extend
to borrowers. But the bank's "credit" becomes the borrower's debt. Strictly
speaking, therefore, most of our business is done on debt, because the
money thus created is issued as loans which must be repaid with interest.
The Deluge of Debt The old Biblical tale of Noah and the Flood has its
modern parallel. We are told that in Noah's day the world was submerged
under great waters. But our modern flood is even greater than Noah's
and just as real. For in our day we are steadily sinking under a deluge
of debt. "We are not thinking of \'Var Debts, or of International Debts,
or of any relatives of these which may be in the limelight at any given
l"Credit originates in production and is extinguished in consumption."
R. G. Hawtrey, Currency and Credit. 22 moment, but of the system itself
by which all money is debt. It is a debt to the banking system.m Struggle
against this as we may, so long as money comes into being as a debt
to the banking system we are its slaves. As Colbourne says, "Even our
vocabulary is perverted. When a bank is said to extend you credit it
is doing nothing of the kind; it is extending you debt."2 It may be
a disturbing thought to realize that the bulk of our money is debt-money,
created by the banking system on the basis of the country's resources
and its ability to deliver wanted goods. But however disturbing it may
be, it is nevertheless true. Our money is a circulating evidence of
debt to the banking system. This is the solid fact which we must grasp:
The bulk of our money is Debt-Money. Unpayable Debt Is it any wonder
that we sink in a flood of debt when every article of wealth we buy
mnst be paid for with money which itself is debt? Debt surrounds us
from birth to the grave. We cannot be rid of its grip because of the
ingenious financial device called INTEREST. The deluge of our present
debt can never be drained away because interest requires that the debtor
repay l110rethan has been loaned him. The process by which Debt-Money
is created is cumulative-it grows. The debt cannot be liquidated because
it grows faster than business can repay it. It can never be repaid,
now or at any other time. Thomas A. Edison is authority for the statement,
"In all our great bond issues the interest is always greater than the
principal." The total of principal and interest, which is more than
the original loan, can be met only by the creation of fresh debt. Thus
debt breeds more debt, and the more we struggle the deeper we sink.
But our situation, bad as it appears now, is growing worse. For example,
when we try to use this borrowed money to draw wealth from the shopwindows
of the nation it becomes impossible, at the same ti1Jte, to use the
mone)' to draw wealth from the shopwindow and to repay the debt. If
we borrow $ 5.00 to buy a pair of shoes, we have to choose between buying
the pair of shoes and repaying the debt. If we choose to buy the shoes,
we still owe the debt of $ 5.00. We can either have the shoes or pay
the debt but we can't do both at once. lMaurice Colbourne, Economic
Nationallc,m, p. 146. 2Economic Nationalism, p. 147. 23 But this is
not the whole story. Business depends upon the debtmoney of the banking
system. Every dollar loaned to business must be recovered in prices.
"Now, money is never borrowed except to be spent; but, as it must subsequently
be repaid, the borrowers have to spend it in producing, or inducing
the production of, something that can be sold; which means that the
harder the community works and the more It produces, the deeper it goes
into debt to the banks."l So debt mounts at the expense of our ability
to buy goods. "It must, I think, be quite obvious to anybody that, if
the world as a whole is consistently getting further and further into
debt, it is not, as the ordinary business man would say, paying its
way-The public is paying all that it can, and buying what it can. The
failure to pay more is therefore forcing the destruction of some of
it and at the same time it is piling up debt ... "" How fast does debt
grow? "In the 17th century, that is to say, in the century in which
the Bank of England was founded, the world debt-and we have plenty of
accurate figures with regard to these matters- increased 47 per cent.
The Bank of England was founded only at the end of the 17th century."
"By the end of the 18th century the world debt had increased by 466
per cent, and by the end of the 19th century the world debt, public
and private, had increased by 12,000 per cent; arid, according to some
very exact calculations which have been carried out by a quite irreproachable
professor of industrial engineering of Columbia University, Professor
Rautenstrauch, taking the year 1800 as the origin and taking one hundred
years as the unit, the world debt is now increasing as the fourth power
of time; that is to say, increasing as time goes on, not as the square
of time and not as the cube of time, but as the fourth power of time;
and that is in spite of the numerous repudiations of debt, the writing
down of debts which takes place with every bankruptcy, and other methods
to write off debts and start again."3 The Douglas Key to Deliverance
from Debt But we must not miss the one vital point which gives the key
to this dilemma. The Debt-Money created and destroyed by banks is called
"Financial Credit," and in this term it is the word "financial" that
de- IH. M. M., An 01tfline of Social Credit, p. 25. 2C. H. Douglas,
Oslo, Norway, Feb.rua1'y 1935. 3C. H. Douglas, Oslo, Norway, February
1935. 24 serves our attention. The deluge of debt is purely financial
debt since it is based upon what the banks call the "credit" they create.
Now we have already seen that there are two kinds of credit: Financial
Credit and REAL CREDIT, and herein lies our key. It was to make this
point clear that we defined both Financial Credit and Real Credit before
we began to examine the money sys~em. Later on we shall have occasion
again to return to our definition of Real Credit. Our Findings Thus
Far At this point we may well pause for a moment to sum up what we have
found in the money system, and see what conclusions are possible. We
can list our findings as follows: 1. Money is NOT wealth. Money and
wealth are two separate and distinct things. 2. Our modern money system
has outgrown its former metallic coins, and become a system of bookkeeping.
3. More than 90 % of our money is created and destroyed in the bookkeeping
of the private banking system.1 4. Money comes into being as a debt
which is loaned to us at interest by the private banking system. The
economic blood circulating in the veins of business is the blood-money
of debt. The first conclusion that stands out from all of this is that
a money system built on debt and interest can function in the long run
only to create lnore debt. And this is precisely what has happened.
The facts of experience confirm our findings. It is worth pointing out
that this curious device of interest is peculiar to finance alone. It
has no parallel in nature. It is one of man's inventions, and certainly
not his happiest. The second conclusion, which is perhaps not quite
so easy to see, is that under this system a shortage of money is inevitable,
making it increasingly difficult to buy goods. There are two fundamental
reasons for this and we shall begin with the simpler of the two. 1"
(1) Practically all purchasing power comes into existence in the form
of a bank credit. (2) Bank credits are created by the banks out of nothing."
H. M. M., An Outline of Social Credit, p. 20. IV THE ILLUSION OF SCARCITY
We have already touched on the old idea that gold is the basis of money.
It is true that gold, itself only one commodity among many, was used
as money for centuries before the present Age of Power was ever dreamed
of. But it is indeed strange to find financiers today still believing
that this one commodity is the only basis of money in our complex twentieth
century world of business. "Money is gold, and nothing else," said J.
P. Morgan.1 Despite the absurdity of this statement many people have
accepted it, and its acceptance has serious consequences. Gold is a
commodity whose supply is strictly limited; indeed, it is distinguished
chiefly by its scarcity. Compared with the needs of industry and business
gold is too scarce to be practical as money. In fact in this country
it is legally a criminal offense for individuals to own coined gold.
But if the value of money is based on gold alone, it is an easy step
from thinking of the commodity, gold, to thinking of money itself as
a commodity. And the real scarcity of gold can easily persuade many
of us to accept quite naturally a corresponding scarcity of money. If
all the world's gold were sunk tomorrow in the middle of the Atlantic
we could still write cheques. How long will people tolerate this illusion
of gold and money? "Do you think that civilized countries have from
experience and knowledge of economics reached a stage where they could
drop the fiction, unreality, and chaotic state of a currency based on
gold, and adopt a money back of which is real useful wealth ... ? This
gold money ... is a fiction."2 How is this fiction transformed into
a fact of painful reality? We must remember that financiers today deal
in money just as most of us deal in goods, except that they need very
little raw material to manufacture it. We regard the flour or coal we
deal in as a commodity, and when it is scarce we know that its value
will rise. Just so financiers have come to regard money, and today that
means credit, as their com111odity, and quite logically they wish to
keep it relatively scarce. For only so will it command great power over
goods. 18, 1~~5~timony before the Pujo Committee, 1912. Cf. Supreme
Court decision, Feb. 2Thomas A. Edison, quoted in TODAY, Jan. 13, 1934.
26 Since the value of money as a commodity is thus raised by limiting
its supply, financiers naturally frown on any suggestion that it could
be more plentiful. The supply of money is limited by the self-made rules
of our existing financial system, but this is concealed from the public.
On the contrary, the financial fraternity has woven in the public mind
a deceptive illusion about the scarcity of money. We are beginning to
realize something of what has happened. " ... Arising out of this it
would seem that financial credit is restricted because, at the present
time, money is dealt in as a commodity, and by keeping money in short
supply its value as a commodity is enhanced. For this reason it seems
undesirable that financial policy should be in the control of a private
monopoly whose interests are not identical with the interests of the
community as a whole.'" The fact that this scarcity is a pure illusion
has been repeatedly . proven. We know by the testimony of bankers that
banks create and destroy 90 % of our money by a method that in essence
amounts to nothing but bookkeeping. They are dominated in this process
by private gain. But because money is issued as debt and kept in artificial
scarcity by this singular illusion, it is not available in sufficient
quantity to express the demand for goods which, as we have seen, is
its prime purpose. The illusion of scarcity thus frustrates the fulfillment
of the purpose of money. A constant shortage of purchasing power inevitably
follows and the needs and desires of all of us as consumers must to
this extent go unsatisfied. So long as the subtle illusion of scarcity
is sust~ ined by financial power this scarcity will continue. A very
interesting sidelight on this situation is given by the confidential
circulars issued in 1877 by leading N ew York bankers to all national
banks. "To repeal the law enacting national bank notes or to restore
to circulation the government issue of money," the banks were told,
"will be to provide the people with money and therefore seriously affect
your individual profits as bankers and lenders." .And again: "Yau will
at once retire one-th~rd of your circulation and call in onehalf of
yeur ~Mns. Be careful .0 mab a money stringency felt among your patrons,
especially among influential business men."2 lReport of the Economic
Crisis Committee, Southampton Chambre of Commerce, England, 1933. 2Arthur
Kitson, Industrial Depression. 27 Well, the stringency has many cimes
been felt. We know its painful power. But it has been a boomerang hastening
the downfall of finance itself, to say nothing of its devastating effect
upon the personal pocketbooks of the nation's shoppers.1 IDestroying
Credit Money . Issuing, it as a .debt, the banking system can recall
and destroy credit-money at WIll.. ExerClse ?f thIS power produced the
panic of 1929. Deposits produced by bank creat~ons of .pnvate money,
lent as created, were contracted by wholesale. This started ~ shnnkage.
III demand back loans and deposits of 20 billions of dollars. It has
resulted III a reductIOn of the volume of check-money turnover from
1200 billions in 1929 to less than 400 billions in 19~3. This amounts
to an annihilation of two-thirds of the money for the transaction of
business .. Such deliberate shrinkage of private money by the contraction
of credit a!1d bank. loans and ban!, deposits, produced the depression
of 1907. Again in May, 1920, a meetlllg was .held III secret by members
of th", Federal Reserve board, the Federal Re~erve AdVIsory Council,
and 36 Class A directors of the Federal Reserve banks whI~h ar~ owned
by th.e private member banks; in this meeting, after an all-day dis-
CUSSIOn,It was determ111ed to contract the nation's credit and currencv.
f As a consequence, beginning in July, 1920, the commodity price' level
declined brom 166 to 93, as compa~ed with the price level of 1913. Agricultural
products fell y more ~h~n one-half whIle the value of farms declined
from a 0TOSSof 79 billion to S8Y:; bIllIons. b 28 v THE MONOPOLY OF
CREDIT Any attempt to portray the facts of our monetary system would
be incomplete without some specific mention of the monopolistic nature
of the control over Money. Let it be said plainly that we are dealing
only with facts as we find them. There is much disgruntled "bank-baiting"
today, and we must never let ourselves engage in that stupid sport.
Above all our attitude must be open-minded. But we cannot appreciate
the need for a 20th century scientific money system without knowing
where the faults lie in the broken-down financial failure that now impoverishes
us. We have seen how the banks, in the process of their bookkeeping,
create and destroy the money underlying our use of cheques. And we have
seen how more and greater debt is the necessary consequence of this
bookkeeping process. \'Ve may justifiably conclude that "The power of
the banking system, through its functions of creating, expanding and
contracting, regulating and destroying money, is incalculable, unparalleled
and sinister."l " ... over 97 per cent of the total money owned by the
individuals of the nation is privately issued, and by far the larger
part of it has no tangible existence whatever. It represents a debt
owed to the individuals who own it, by the nation, enforceable by the
law, which has, without the sanction of any national authority, been
quietly added to the burdens of the nation by methods that resemble
the tricks of the conjurer."2 President Wilson, speaking in 1916, pointed
out that, "A great industrial nation is controlled by its system of
credit-our system of credit is concentrated. The growth of the nation,
therefore, and all our activities are in the hands of a few men who
.•. chill and check and destroy genuine economic freedom." Taxation
and The Money Monopoly "If you investigate the facts as to the ownership
of these world debts and war loans you will find them preponderatingly
held by large financial institutions. You have at once a very good business
reason for large quantities of tax?,tion if half of it goes to the service
of na- 1Maurice Colbourne, EconolIzic N atianallsm, p. 1S1. 2Prof. Frederick
Soddy, Money versus Man, p. 19-20. 29 tional loans which are held by
large financial institutions: that, as an ordinary business proposition
is obvious. It is still m~re obvi~us when you consider that tbese debts
were actually created Tn tbe fzrst place by financial institutions,
by the lending of that m?ney to go:~rnme~ts, and the receiving in return
of large blocks of natIOnal secuntIes which the financial institutions
receive for nothing.m Borrowing Our Own Credit We read a great deal
in the newspapers about "government financing" and the National Debt.
What is the meaning of these terms? A personal experience can best explain
them. "Some years ago I happened to be in conference with the President
when the Secretary of the Treasury came in, and, with tears in his eyes,
expressed doubt that a necessary loan could be floated. Then the thought
came to me, what an astounding situation it is for tbe Govermnent to
borr~w money from banhs tbat tbe banhs do not bave, and then, by redeposIting
the money, loan the same money back to the banks and pay tbem interest
on it." "The Treasury of the United States, because of the so-called
"national debt" has been largely under the control of the great banking
houses of the country ever since the Civil War. The national debt now
amounts to something over $26,000,000,000. The interest payments on
the national debt amount to about $750,000,000 a year." "Now, the total
capital, surplus and undivided profits in all the banks of the United
States is less than $7,000,000,000. The total amount of private loans
borrowed from all banks is about $34,000, 000,000 or $27,000,000,000
more money than the banks have to loan. In addition to that, of this
$26,000,000,000 of Government debt, the banks hold $13 ,000,000,000.
You understand they only have less than $7,000,000,000 to loan. They
have loaned to private enterprise $34, 000,000,000 or $27,000,000,000
more than they have, and then they are loaning to the Government $13,000,000,000
of nothing in God's world but blue sky."2 Responsibility and Where it
Rests Surely a great responsibility is assumed by any grou~ ?f men who
exercise dictatorship and control over the monetary polICIes of a na-
Ie. H. Douglas, Oslo, Norway, February.1935 .. 2Hon. T. Alan Goldsborough,
Representative from Maryland, Speech m House of Representatives, January
7, 1935. 30 tion. And more than that, when this dictatorship involves
a monopoly over the creation and supply of money, then the administration
of this power, which affects the lives of millions, is a task requiring
little less than superhuman wisdom. The life of every citizen rests
in the hands of those who control money. "Control of the money system
means the control of civilized humanity.m Rothschild's remark, "Permit
me to issue the money of a nation and I care not who makes its laws"
is filled with human importance. Since money is the medium of exchange
for goods, the control of money means in practice the control of Wealth
itself. Moreover this control of money involves a parallel power of
command over politics and business, influencing the economic destinies
of producers and consumers alike. "Being now in a position to realize
the extent to which a modern industrial community depends for its well-being
on a wise and disinterested money policy, we see that the real rulers
of any country are those who hold the power of money issue and money
restriction."" There is an old axiom in banking and investment circles,
"It takes money to make money." The inevitable result of the monopoly
of money is the concentration of \vealth and Power in the hands of those
who own and operate the monopoly. "The monopoly of the control of t.1r~money
system is the greatest over-riding monopoly of the world as it is worked
at the present time."3 The Attitude of Common Sense The monopoly over
money is controlled by private individuals. This fact deserves careful
consideration. That the private banking system has the power to create
and destroy the credit-money which constitutes the greatest part of
our money supply has been publicly acknowledged, but the shopping public
generally does not realize how its pocketbook is thus pinched. Yet this
is the plain fact and we must be guided by common sense in our attitude
towards it. As Mr. Maurice Colbourne says " ... criticism is not directed
against the creation of money, but against the monopoly of the power
to create it, a monopoly held by the banks."4 Ie. H. Dougles, Social
Credit, p. 132. 2e. H. Hattersley, The Age of Plenty, p. 110. 3e. H.
Douglas, Oslo, N or'il'aY, Feb. 1935. 4Maurice Colbourne, Economic Nationalism,
p. 141. 31 Right here we must understand a very important point. WE
ARE NOT IN ANY SENSE CRITICIZING BANKERS AS INDIVIDUAL BUSINESS MEN.
Above all let us keep malice out of our attitude toward this question.
Knowing the facts we must appraise them wisely, in order to reach a
true estimate of their consequence. Let us agree therefore that bankers
as individuals are by no means so inhuman as to desire the evil effects
of the system in which they work. We all know many of them, honest capable
men. They are clearly not the s~lbject.of our criticism. They are the
unwilling victims of the system m whlch they work. And the debt formulas
of the goldsmiths govern the system.1 It is the peculiar defects in
the banking system itself that command our attention. In these defects
and their consequences, through which the money-power controls every
phase of our economic life, lie the main causes of our present privation
and suffering. And these defects must be repaired before money can accomplish
the purpose for which it is designed< l"It is not necessary to assume
that the bankers set out deliberatel:y to ,,:ill bad trade, unemployment,
poverty, revolution, or war. They .are pr<;JbablyI? theIr way, humane
men, good husbands and fathers, and hate these thmgs qUIte genumely.
Neve~- theless. they will the policy that brings them a:oout, and must,
t~erefore, acce1?t.r~sponslbility for them. At present they have power,
supreme power, WIthout responsibilIty; and the blame for the evil results
of their policy is successfully thrown ?n the Gov:ernment, or the employers,
or the workers, or t~e Communi~ts, or on foreign competlto!"s -on everybody
in fact, but those on whom It properly lIes: themselves. The trut~ IS,
their operations are so hidden from view that the bulk of the people,
n~t bem&,gIven to the practice of hunting for ultimate caus.es, ~o ,not
connec~ ~~em With theIr own misfortunes. But if the bankers persist
in dlsclalmmg responsibilIty they must make way for men who are prepared
to accept it." H. M. M.-An Outline of Social Credit, p. 51. 32 VI THE
SHORTAGE OF BUYING POWER ARISING FROM PRICES So far we have dealt mainly
with money. "Practically all purchasing power comes into existence in
the form of credit, and though it may be transmuted into cash in its
passage through the hands either of poor men who have no banking account,
or of rich men who require pocket-money, it resumes the form of credit
to be extinguished.'" We have seen that the first fundamental defect
in our money system is an artificial scarcity of money resulting from
the monopoly over its supply and its creation as debt. The second defect
is more subtle and, if possible, even more disastrous than the first,
for it concerns the direct relation of money to goods. Its pinch is
felt in every purse, from beggar's to millionaire's, since it involves
the prices we must pay for the goods we need to live. It is generally
agreed that our trouble is not over-production but under-consumption,
which results from a chronic shortage of buyingpower. We must note carefully
the word "chronic" for at any given moment the amount of money in our
pockets is bound, under the present money system, to be insufficient
to buy the total output of industry. \'Vhy is this so? Let us recall
again our picture of the shopwindow through which we looked at America's
great store of wealth. On our visit to the store we were impressed with
the million different items offered for sale, and the part which Science
plays in producing them. As we look at the goods in this shop, we cannot
help noticing the fact that every article on sale carries a price tag.
Where do these prices come from? They are manufactured, just as goods
are manufactured. We find in the shop two simultaneous processes of
manufacture going on together. The first of these processes is a stream
of real visible goods, articles of wealth we need and desire. The second
is an almost invisible stream of figures in the form of PRICES. And
these two streams -goods and prices-flow together side by side, uniting
in the shopwindow as goods for sale, with prices attached. Bearing this
picture in mind let us see how prices become attached to goods. lR.
G. Hawtrey, Currency and Credit. 33 Buying Power and Prices Every factory
is more than just a producer of goods. The goods it manufactures must
sell at a price. And the price at which they sell must cover all the
costs involved in their production. From the viewpoint of money, therefore,
every factory produces not only goods but also prices. So that for every
article of goods produced a price is produced also. N ow how do we,
as shoppers and consumers, get the money to equal the prices of the
goods we wish to buy? In the workshop of wealth we found two streams
flowing together, the first one a stream of real goods and the second,
a parallel stream of prices attached to these goods. Now to complete
the picture we have to add a third and last stream of money-tickets.
The stream of real goods and the stream of prices both flow out of the
productive system. So also do all the money-tickets with which to buy
goods come from the productive system. They come to us, the shopping
public, as salaries, wages, dividends and fJrofits. And the total of
all of these payments to us is what we call the "BUYING POWER of the
Nation." That personal income, derived from the productive system in
return for services rendered, is the only shopping fund that the nation
as a shopper possesses. It is all the money that the nation as shoppers
has received to buy the price-values that the nation as producers has
created. So our incomes depend on business. Naturally we receive more
money when the nation is busy producing and less when business slows
down. But the most important thing that interests us is to compare,
over any period, tbe number of money-tic/:cets tric/:cling out of industry
to tbe sbopping-nation witb tbe price-values created in tbe sbop over
tbe sante period. If the money received by Shopping-America were always
exactly equal to the price-values created by Producing-America, then
we could purchase all the goods we can produce. We might perhaps dispute
about the distribution of the tickets but we would certainly have enough
of them to buy our total production. But we don't find this. Experience
proves that it isn't true. What we find in fact is that the buying power
of the Nation, flowing from the productive system as wages and salaries
and dividends, is much LESS than tbe price-values created in tbe same
period. The two streams, 34 buying-power and prices, do not move together,
either in volume or in rate of flow. Tbe stream of prices moving to
tbe sbop window flows mucb FASTER than the stream of shopping tickets
to the shopping public. And the result is that our buying power lags
chronically behind the price-values of the goods in the shop. Now, the
only title to go shopping, and that means to live, is the money payments
distributed as buying power to shoppers. But the money distributed amongst
all of us at any time is only enough to equal about TWO-THIRDS the price
values in the shop. That is a matter of fact and not a matter of theory.
It can be proved by simple arithmetic. And it is confirmed by experience.
We can see it in any business operating statement. Beginning in 1920,
it was Major C. H. Douglas who originally pointed out the gap between
buying power and prices. He discovered the constant lagging of buying
power behind prices. He has revealed to us why we are poor in the midst
of plenty. He has shown us the gap separating us from the wealth of
goods we can produce. In that gap between Bttying Power and Prices lies
the root cause of depression, of poverty and I:JUman suffering, of stri/:ces
and riots, of ban/:cruptcy and business failures. On one side of the
gap is plenty of goods. On the other side is a chronic shortage of money.
No wonder then that there are always more goods than there are buyers!
No wonder we fight each other for these precious money-tickets! No wonder
everyone has to look for employment in the shop in order to live. Those
who can't work in the shop have to be supported by the rest of us through
relief programs and charity. And so long as the gap separates buying
power and prices, permanent business recovery is hopeless. An Everyday
Example For example, we can easily understand this chronic shortage
from an illustration showing how modern business operates. Let us consider
a radio factory which has been in business for the past five years.
The owner of the factory finds that his competitors are installing new
labor-saving machinery, which reduces their costs below his own figures.
He must have these new machines in his plant in order to continue business.
He calls on his banker and asks for a loan of $10,000 to buy the necessary
machines. The banker, who considers the plan a sound one, grants the
loan, incidentally creating the $10,000, which 35 our radio producer
now owes him. The latter hopefully buys his machinery and installs it.
He finds that the new machinery will replace ten men, who are no longer
needed. So he lays them off. Their place is taken by the new machinery,
which costs him only its depreciation and power ch~rges. He saves the
pay of these ten men, who lose their jobs and their wages. Here is a
real loss of buying power, arising out of the replacement of men by
machines. H01l1 Prices are Made The process of price building extends
all the way from raw materials to the shop window, but we can look at
a cross-section of it right here in t?e radio factory. The first thing
we see is that every cost, including profit, which enters into the production
of a radio must be charged into the retail price paid by the consumer.
Otherwise the factory cannot keep operating. All costs must be recovered
in prices. That is a fundamental business principle. If the radio manufacturer
fails to recover all his costs he will soon be out of business. In his
operating statement which records all his costs and payments, there
are two different and distinct kinds of costs. Therefore we will divide
his total costs into two groups, calling the first group "S" or Shopper's
costs and the second "B" or Business Costs. "S" costs will be all payments
that the factory makes direct to individuals, such as wages, salaries,
bonuses, dividends, and profits. "B" costs will be all payments made
to other organizations, for such things as raw materials, machinery,
light, heat and power, insurance taxes, bank charges, advertising expense,
and all the other external costs that appear in a business operating
statement. N ow all the "S" costs are payments directly into the hands
of individual consumers, who can use them for shopping. These "S" costs
therefore represent actual and immediate BUYING POWER. For the persons
who receive them as salaries and wages, they are shopping tickets that
can be used immediately to buy wanted goods. But the "B" costs are payments
to other businesses which in turn distribute them. It is of course true
that eventually most of the "B" costs will some time reach the hands
of individual consumers, but in the radio factory which is the particular
cross-section we are observing at the moment, only the "S" payments
actually reach individuals who can use them for shopping. 36 However,
all the "S" costs and all the "B" costs 1nust be charged into the total
selling price of the radios if the manufacturer is to recover his total
costs, plus a reasonable profit. Consequently, the total selling price
of the radios he produces must include all the "S" costs as well as
all the "B" costs. Therefore his selling price must be "S" plus How
the Shortage Arises Now we have an interesting picture. The only immediate
BUY- 1NG POWER so far distributed in the production of the radios is
"S," and obviously "S" alone is less than "S" plus "B," which is necessarily
the price. Therefore "S," representing salaries and wages which are
b "S" I "B" money payments to individual consumers, can never uy pus
which is the price of the finished radios. As A. R. Orage writes, "It
is a fact of present financial practice that industry cannot distribute
enough money to consumers by wages, salaries, etc., to enable them to
buy and enjoy the goods it produces.'" Now when we, the shopping nation,
want to buy a radio we must pay in its price all the costs involved
in producing it. We pay not only for the radio but also for part of
the costs of the machinery and other overhead charges of the radio factory.
In fact we buy not only the radio alone, but also a part of the factory
that produced it. In the price we must pay all of the costs involved
in its production bu~ we have only the money represented by the "S"
costs to spend. That IS all we receive for shopping. So the situation
under our present price system comes down to just this; there is a chronic
shortage of shopper's buying power generated in the flow of business.
The figures of research indicate that over a given period of time, out
of the total costs of industry, the 1noney available as purchasing powcr
aJnounts to only TWO-THIRDS of the valuc of the total output.2 This
shortage of buying power is inherent in the process of price building.
What makes this gap between buying power and prices? "Now while the
fact of the gap is the important thing, the explanation of the gap offered
by Maj. Douglas appears to me to be convincing. He says that much of
the money put into the productive system as bank loans never, in fact,
gets out as income during the same period in which it is lEconomic Nationalism,
by A. R. Orage, Fortune, November 1933. 2C;ee Maurice Colbourne, U'zemplo)lment
or War, pp. 174-176. 37 put ~n. It is used simply to transfer capital
goods from one factory to ahno: er, and thus while it adds to the price-stream,
it does not add to t e Income of us shoppers."l From the shopper' .
f' " . h 11 h s pOInt 0 VIew, retaIl pnces come to us loaded WIt aft
e costs of ?roduction and distribution. They include repayment 0 bank
loans, Interest, depreciation charges on plant and equip- ~enht, and
.alllo:her costs of production. All these costs must be paid for In
t e retal pnce we pay t b h d . '1 bl 0 uy t e goo s. But agaInst them
we have a.val a e as BUYING POWER only the thin trickle of shop in tIckets
that reaches us as salaries, wages, dividends and profits. SoPth: more
we borrow from the banking system to produce wealth the w'd g~IOWSthe
gap b~tween buying power and prices. And mean'while ~e~~ pI es up to
new hIgh peaks.2 The Time-lag \Vh B~t if ttis gap has always existed,
why have we not felt it sooner? y ave t e effects of the chronic lag
of buying power become so apparent only recently? I The very word SOoner
points out the answer to this question. It is arg~ y a m.atter of TIME.
The ,,"ord "chronic" comes from the Greek war. meanIng ."time." The
flow of money in exchange for goods and se~vlces t~kes tIme. 'vVehave
been looking only at one cross-section of thIS flow In the radio factory.
But the flow is as continuous as time it- ~:. R. Orage,. Soc{aZ Credit
Broadcast, London, Nov. 1934. All the creda that the community get d
. saves is manufactured bv the banks out of n s ~no' c0t;verts mto money
and spends or and others who recjuire- it for thel' b . othm". It IS
!ent to manufacturers, dealers tl' r usmess and I' CIrculated b th 1
h' 1e commumty. Some of it o-oes d'r t . t' h 0 I y em tJroug out salaries,
or dividends' and in l~eino- 1 ec ;n 0 t e poc ,ets of consumers, as
waO'es or retailer to .the con~ume~-that ;;, irsef~;d~tJ~~n~1? g~od~X01~1
t~e ultimate ven~o; and the cOsts It creates "consumer costs" th .'
IS \\ e \\ I c': consumer credit," 111 the consumer's hands ~osts h
---;; at IS, costs representmg purchasing power ., '., ~ e can pav "The
rest of the credit issued is .d t t f sumer, but from one business firm
use 0 rans. er goo~S, not Jrot;1 retailer to conthe costs it creates
"b .' t "to another. ThiS we will call busmess credit" and usmess cos
s. ' "The distinction is purely one of fun t" d ... So far as the business
world is concerned :0t;, an IS made for elu~ldatlOn purposes. economic
problem would probab1 h b It IS, not perceived to eXIst. If it was,
the forn;, either function." ,y ave een so \ ed long ago. Any bank credit
will per- Busmess credit I f' d the disti f s: • as ce me , .are nobody's
income-that is the imj10rtance of nc Ion made aoove-so busl11ess costs
ar t I to meet and cannot th or f " .. e cos s t 1e consumer has no
money ". e e ore pay. ~ Busl11ess credits are mer r I . d' _ .. sumer
credit which hav h e ep ac~ment CI~ 110, replacmg earher issues of conone
stage of the rd'. e ,.ee~ spent an ext1l1gu!.?hed; tor what is a consumer-cost
H. M. M., An OPutOZ'I·Jluecotf1\. Sep, ?CZE"CSS bdecomesa bl15l11ess-costat
all subsequent stao-0s "at OC/a re 11, pp. 20-21. ,,' . 38 s~1f. It
never stops. And as soon as we look beyond this cross-section, apd take
in a longer period of time we shall see the same thing repeated oiver
and over again . I At every point, just as we saw in the radio factory,
the "s" costs ate LESS than the total "s" plus "B" prices, so that over
any given period of time the total prices (S plus B) must always be
greater than the total ~hopper's buying power (S). The payments of money
to individual consumers who use the money for shopping are always lagging
behind the prices of the goods that shoppers want to buy. And the longer
the time the greater the lag. 1£ we go back of the radio factory to
the maker of its machines, we find the same situation that we saw in
the radio factory itself. And if we go still further back to the foundry
that made the parts of the machines and even to the mining of iron are,
it is again the same story. All along the line the amounts of money
distributed by industry as buying power are less than the price of the
finished product .. At the root of this lies the factor of time. The
lagging of buying power behind prices is a time-lag. Time and money
taken together give us a "rate of flow of money." Tbe l'ate of flow
of money payments to shoppers always lags behind the rate of flow of
tbe price of goods. All Along the Line At any given moment there is
a shortage of the buying power necessary to equal prices. And this shortage
is cumulative, it keeps growing larger. The flow of costs into price
starts with the prime producer and builds up to the retail selling price
which shoppers must pay for the goods they consume. These goods tend
to flow through business in a straight line from the raw material producer
to the consumer. It takes time to move ogoods from one step to the next.
At every step along the line all the costs involved in this step, plus
a reasonable profit, are added into the price of the goods. As shoppers
we must pay the total of all these costs. But we have only the "s" payments
to spend and therefore when the goods come on the market we can never
pay "s" plus "B," the price of the goods we need. Even if no profits
are added, we are always short of b1l'ying p01£!er.1 IIn addition to
this fact we must remember also that profits and dividends distributed
are themselves BUYING POvVER because they are payments to individuals
who can use them to buy goods. 39 The importance of this lagging of
consumer buying power behind the flow of prices is especially noticeable
when we consider the time !it takes to produce and distribute any article
of merchandise. For e*- ample, we may assume that a period of eight
weeks is required to a~- semble a radio from raw materials and to complete
its construction in the factory of a producer. A week later the producer
sells the radio to a wholesaler. Finally after another week, the radio
is sold to a retailet who is now ready to deliver it to a shopper. At
every step along this ten-week line of production and distribution,
salaries and wages (S costs) are paid to consumers. The wages paid during
the first week are sp~nt fo: food, clothing and shelter during the second
week, wages paId dunng the second week are spent during the third week
and so on to the end of the ten weeks when the radio reaches the retailer.
At every point along the line the wage payments (S) are spent soon after
t~ey are received. Yet at every step the costs (S plus B) progressively
pIle up and when the radio reaches the retailer most of the salaries
and wages out of which it must be bought have already been spent. As
shopp~r:s buying power they are no longer available. They have gone
back mto the bank accounts of business again where they are again divided
into "s" and "B" costs. So buying power continues to lag behind prices.
1 The Vicious Circle .. No~ let us remember how money circulates through
business, begmnmg m a bank with a loan and ending with the repayment
of the loan to the bank. The radio producer in our example has borrowed
$10,000 to install his new machines. This $10,00 0 must be paid back
to the bank plus accumulated interest. The producer must recover this
money by including in the price of his radios not only repayments on
the loan but also interest. So the public has to pay more than the producer
has borrowed! b f l"If all the costs of production were traced back
to their original source it would de ~und that !hey ~onsist of payments
made to somebody or other for ser~ices rene~ e , real or Imagmary; so,
at a first glance, it might seem obvious that no matter ili at the co~t
?f production may be, there is always bound to be sufficiedt money in
e commul11tys hands to buy the whole product. That is far from being
the case" "WI' . Ht IS overlooked is that the various items appearinO'
in costs today represent paymelnts made over a long period of time.
Some were made I~st week some last month some ast year some man y'"
' t t b ff' h .' , the Id h ' y. _ars ago; DU 0 e e p.ctlVeas purc asmg
power now-as YI~VhU aye to be in order to buy today's pronucts-every
penny of those payments wou, lve to be saved. We know, however, that
most of the money was spent as it was rehcelye-had to be spent by the
recipients in order to live-and no longer exists as purc asmO'power'
for a h 11 I t h ... bu' b d ' .' s we s a see a er, money, nr purc
asmg power, ISextmguished in ymg goo s for fmal use or consumption."
H. M. M. An Outline of Social Credit, p. 12. 40 I ii I I Now when the
producer repays his loan, that $10,000 goes out of ekistence. It has
disappeared although it is still charged in prices against the shopping
public. That amount of money has been destroyed and the sropPing public
is left without a corresponding buying power. There is no way of putting
into circulation again the money represented by the loan except by another
loan from the bank for further production. When this occurs, the whole
vicious circle is once more started. Even if bank loans are renewed
instead of repaid, the money payments reaching the pocketbooks of shoppers
keep lagging behind the price value of goods.2 Thus we go round and
round the circle of money and over and over the path of production.
But OUR INCOMES NEVER CATCH UP WITH THE PRICES OF THE GOODS WE NEED
AND DESIRE. We are like squirrels in a cage-we can make the cage go
round but we can't get anywhere. 1 Sayings and 11l'vestment Our plight
is still more serious when we remember that all of salaries and wages
cannot be used to purchase goods. Some salaries and wages must be held
as savings against emergencies and inevitable old age. Money used for
investment cannot be used for consumption. Investment diverts it back
into further production thus creating a new set of costs with lessened
buying power to equal them. So investment results in widening the gap
between buying power and prices. Whatever savings we can scrape together
reduce our present buying of goods for consumption. As for hoarding,
hoarded dollars are idle money, simply withdrawn from circulation. The
Gap is Growing As we have seen, the more automatic machinery replaces
men, the wider becomes the gap between buying power and prices because
salaries and wages are thus reduced, leaving other cost items proportionately
increased. When we stop to realize that the gap is constantly 2vVhat
actually happens is that the money or credit received by consumers in
connection with cycles of production not yet completed-that is, not
yet materialized in final (con.sumers') commodities-is taken from them
~'ia the prices charged for goods be- 10ngl11gto cycles which are completed.
H. :\1. M. An Outline of Social Credit, p. 23. IT HE DIFFICULTY IS THUS
TWOFOLD. It centers in the fact that BUYING PO\VER 1S not in the right
hands at thc right time, that is, in the hands of shoppers when they
need it to buy wanted goods. 41 widening as efficient machine-power
rapidly replaces. inefficient man] labor in doing the work of the world,
it becomes eVident that we ar, reaching the senseless absurdity of a
maximum production and a mini~ mum of consumption. Yet we wonder at
the paradox of poverty in the midst of plenty! What Keeps Business Going?
"If you ask, quite naturally, how in that case the goods are ever sold
at all, the answer is that there are more ways of killing a cat than
choking it with butter. The gap can be artificially bridged even if
it is not actually closed."l Here we find the final answer to our question-"Why
haven't we felt the gap sooner? If this chronic shortage of buying power
was always present why did its effects only become so apparent in 1929?"
To begin with, we must first recognize a fact necessary to supply the
background for our understanding. Briefly, it is "that in the modern
economic system the industrial side is subservient to the financial
or money side."~ A number of artificial stimulants have enabled our
ailing financial system to conceal its weakness. "For instance, goods
can be wilfully destroyed. Or they can be practically given away under
the compulsion of bankruptcy. Or they can be disposed of in return for
acknowledgement of debt, that is to say, by mortgaging our future income
of money-tickets."3 But we shall have to content ourselves with listing
the chief drugs that have postponed the breakdown of finance for adequate
comment on them would require a volume in itself. New Bank Loans to
Finance Production The extension of so-called "credit" from the banking
system furnishes the main motive power in keeping money flowing through
business. \Vithout the extension and renewal of loans, the lag in buying
power would soon become directly noticeable. Naturally, as we have seen,
new production distributes fresh buying power to consumers. But it also
creates additional goods beyond the reach of this purchasing power.
Eventually we get a glut of goods and insufficient buying lA. R. Orage,
Social C,'edit Broadcast, London, Nov. 1934. 2C. M. Hattersley, This
Age of Plenty, p. 34. 3A. R. Orage, Social Credit Broadcast, London,
Nov. 1934. 42 Rower in the hands of shoppers to claim them for consumption.
'These loans are like a drug; the more we take the more we have to take,
until in a short time we pass completely into their power."" Over-Expansion
in Capital Goods Industries Industry is engaged in the production of
two kinds of goods; consumer's goods and capital or non-consumable goods.
During and after the war vast sums of money borrowed from the banks
were poured into the capital goods industries, engaged in producing
non-consumable goods (machinery, etc.). This production greatly increased
our productive capacity. While these industries were producing rapidly
an apparent prosperity boomed. But the resulting expansion of plant
and equipment (the cost of which must be recovered in prices) only widened
the gap between buying power and prices. Now with idle factories, restricted
production and shrunken incomes, we are paying the piper. Sabotage and
Restriction of Production We have already referred to the stupidity
of sabotage and deliberate restriction of production. Yet in our own
country these are going on every day, both in industry and agriculture.
Most obviously we see them in agriculture, where food-stuffs, cotton
and other products desperately needed by millions are destroyed on a
vast scale. In industry, machines stand idle or are scrapped. And all
this in an effort to cut production to fit a dwindling buying power.
How long can we go on destroying our real wealth instead of using it?
Business Failures, Liquidations and Bankruptcies Business men have swallowed
a strong dose of these bitter medicines in the past five years. Liquidations
and mark-downs on merchandise are ruinous to business. Nevertheless,
by lowering prices they give a temporary increase in the buying power
of the shopping public. But the gap continues between buying power and
prices because the benefits to buying power thus gained are counterbalanced
by unemployill" 1},':, the failures of banks and similar losses caused
by bankruptcy. 3:Maurice Colbourne, Economic N atiolla/isll1, p. 169.
43 The Export Market In the past, exports absorbed much of the domestic
productioJil which American buying power was unable to purchase. Exports
are largely financed by foreign loans, once easily arranged but now
increasingly difficult. Our own shortage of buying power requires th~t
exports increase as machines increase our productive capacity. But the
possibility of exports diminishes as mounting tariff barriers, unpaid
international debt, and competition between nations prevent us from
dumping our surplus abroad. Worst of all, competition for survival in
the export market breeds economic conflict which is the forerunner of
military war itsel £.1 "Peace? Why ... is there any man here or any
woman ... any child-who does not know that the seed of war in the modern
world is industrial and commercial rivalry? The war was a commercial
and industrial war. It was not a political war."2 One More War? \\7hen
war comes, the necessity of national preservation sets aside the old
rules of finance. Production has the right of way. Salaries and wages
are thus distributed, but for producing munitions that are to be blown
up and other goods to be consumed by the fighting forcesfor goods, in
short, which never appear in the shop window to be sold to the shopping
public. The nation pays the bill, and the buying power of consumers,
enriched by these new wages and salaries, is enabled to absorb a greater
proportion of the goods that are for sale. Temporary prosperity reigns."
But then, when the war is over, the inevitable debt to the international
banking system that financed it must be paid. The outlet for l"As th!ngs
are, one nation can only expand its foreign market at the expense of
other natIOns; and, as an expanding market is a matter of life and death
for all of them, the end of the scramble is, clearly, war." "War, in
our day, whatever it may have been due to in times past is an outcome
of the efforts of industrial nations to avert excessive unemployment.'
since that endangers their existence." H. M. M. An Outline of Social
Credit, p. IS: 2Woodrow Wilson, Sept. 1919. 3"vVar cures unemployment
by providing millions of men with jobs in the army and navy ; a~1dthe
rest of the nation is kept husy supplying them with munitions. Credit
lr;ay be diffIcult to get in peace time; but in time of war it flows
like water ensurinry p.e.nty of. money to spend. Plenty of money to
spend means a ready sale of goods, and nshmg l?nces; and what is not
sold for peaceful consumption is blown into the air or ot erWlse destroyed.
Production is at a maximum; but the market never becomes overstocked."
H. M. M., An Outline of Social Credit, p. 16. 44 gbods is once more
restricted, productive capacity is greater than ever, and depression
ensues. The horrid memory of the war is still fresh in our minds. The
price of death and destruction is too high to pay for wartime prosperity.
We are told that the next war will be many times more destructive than
the last. Can any sane man look forward without a shudder to the blotting
out of civilization? How Debt Develops Depressions Looking over this
list of futile palliatives it is easy to see that every item in it,
except perhaps sabotage, is tainted with the disease of debt. Altogether
they are a hopeless lot of remedies to combat the spread of this disease.
Slowly and surely the poison of debt-money infects the blood of business
until the breakdown is reached and financial collapse follows the ravages
of the debt-disease, as it did in 1929. To save themselves the banks
are forced to sell securities and recall loans thus cancelling credits
and destroying the very money they ha~e created. Falling prices, business
paralysis and unemployment follow. The sequence is familiar to all of
us in business. Surely "such attempts to cope with the strains and stresses
of a modern economy by a money system which has been proved unable to
sustain them is repugnant to both science and common sense."l To sum
it up, business goes on despite the shortage of buying power because
it must go on. \\7e need its goods and services in order to live. But
the economic system is burdened with debt, chronically crippled by the
lag of buying power behind prices. It hobbles painfully along delivering
only a fraction of its potential goods and services. We pay the price
of its progress in poverty and suffering. Adequate buying power would
prevent our paying this price. But we keep on paying the price of poverty
because the money system as it operates in prices is 110t self-liquidating.
And the burden of debt grows heavier year by year. IA. R. Orage, Fortune,
November 1933. 45 VII REVOLUTION OR EVOLUTION? So long as the present
gap separates buying power and prices what good can be expected from
international Peace Conferences? And what relief can be accomplished
by new and greater government bond issues to finance a "relief program"
based on more and bigger debts? With increasing speed we are being driven
to make a choice. Will we deliberately choose to continue in debt and
poverty while we follow the lead of Russia to a revolution of senseless
violence in this country? Or will we choose instead prosperity and plenty
following a necessary, orderly, and peaceful EVOLUTION in the bookkeeping
of our money system? This is the choice America must make. This choice
is inevitable because all our productive machinery is worse than useless
unless we can use its products. Its sole purpose is to produce and deliver
wanted goods and services for consumption. These wanted goods and services
together with our ability to produce them, constitute our real national
wealth. Furthermore this wealth is the only real basis of our National
Credit. But we cannot use that Real Credit today because the perverted
bookkeeping of our broken-down money system shows it as unpayable debt,
NOT as a CREDIT. The burden of that debt will continue to paralyze business
until we realize that the credit of the United States is a national
asset. It is only common sense and good business to show in our bookkeeping
the ability to produce as a CREDIT, not as a debt to the bookkeeper.
\Ve have still the opportunity to choose. Why should we wait for another
bookkeeping failure to force us into national collapse? \Ve have seen
that a sound money system must provide circulating money, free of debt
as the condition of its issuance, in sufficient quantity to express
the effective demand for available goods. With the supply of money in
the hands of men who must be interested primarily in their own profits,
how can we expect money to be reasonably related to the supply of goods?
A financial monopoly from which money is born as debt can only result
in a money system that ignores the needs of consumption. It is simply
common sense that such a system should result in a chronic shortage
of purchasing power. The dangerous illusion of scarcity, with the power
it gives over human life, exists because, in the past, it has worked
to the advantage 4(, of those who control Finance. Few people realize
how subtly they have been involved in this deception. The world's money-masters
and their paid economists have practiced their craft for so long that
the illusion appears to most of us as a fact, instead of a transparent
sleight-of-hand trick, or as Prof. Soddy terms it "Ie (d) gerdemain."
The evidence is clear that so long as we tolerate the artificial illusion
of scarcity, with which the popular idea of money has been surrounded,
Financial Credit can never be a true reflection of Real Credit. Yet
by its very nature no money can be sound unless it adequately expresses
the demand of the shopping-nation for existing goods and goods that
can be produced. "But so long as private people can get money created
for them and destroyed again when they have done with it, money must
be capricious in its value and business a game of chance.'" We need
hardly wonder that the monopoly over money has broken down. We might
better wonder how the monopolists have been able to operate it so long.
So schooled have they been in sustaining the strategy of their illusion
that they have become the victims of their own creation. It is a curious
paradox that to the international banker the Wealth of a nation appears
as something on which he may place a mortgage to issue money as an evidence
of debt; while to the shoppers of the nation, its consumers of goods,
that same Wealth represents the satisfaction of vital needs and desires.
Yet freedom from poverty is frustrated by the shortage of money-tickets.
The obvious necessity for clean-cut changes is everywhere evident in
the banking system. "The whole financial system of this country is so
rotten that it cannot face a genuine inquiry."2 Many broadminded bankers
are aware of this fact, but Finance cannot save itself one. Too many
of its own executives have fallen under the hypnotic spell of the power
they must have wielded. The necessary changes in the banking system
1nullt C011tefrom outside the system itself. The Choice is Ours Strange
as it may seem the monopoly over money exists simply because we have
allowed it to continue. In terms of human suffering we know the miserable
consequences of its power. Who chooses blindly to t~lerate poverty?
The public can close any bank it wishes to close at any tIme, by refusing
to do business with it. An actual demonstration of this IProfessor Frederick
Soddy, Money versus Man, p. 59. 2Professor Frederick Soddy, Money versus
Man, p. 112. 47 occurred in 1933, when public fear and distrust closed
every bank in the country. The money-monopoly can dominate our lives
only so long as we continue to allow it to do so. But there is still
a stranger fact about the private control of the supply of bank-money
in circulation. While the total amount of money issued by the banks
varies only in accordance with their own action in increasing or diminishing
deposits, yet the Constitution of the United States explicitly provides
that Congress shall have exclusive power to issue lnOll.?y and regulate
its value. "The cre;:tion and circulation of money by the banking system
is a direct usurpation of the essential prerogative of government, giving
to that system paramount influence over the national well-being."1 The
Government, in allowing the banking system to enjoy a practical monopoly
of this power, has forfeited a duty which now it must resume. In the
present abundance of goods the artificial illusion of the scarcity of
money is a prime cause of human misery. And we ourselves as citizens
and taxpayers are responsible for this situation. The time has come
for the Government to assert its constitutional right to control the
issue of money for the benefit of every citizen. If we want business
recovery we can get it only by closing the gap between buying power
and prices. We can do this either by reducing prices or by raising buying
power until the two are equivalent. But the most effective method to
close that gap is to raise buying power and to lower prices at the same
time. To accomplish the ralSlng of buying power and the lowering of
prices clearly necessitates a change in our broken-down money system.
WHAT WE REQUIRE IS A SUPPLY OF CREDIT AT ALL TIMES CORRELATED WITH OUR
SUPPLY OF GOODS. The monopoly of credit can no longer continue to issue
money only as debt. The first immediate necessity is to restore to the
nation the right to control its own money system. The Constitution grants
this power to Congress, as the elected representatives of the people.
The assertion of this power is the first step in the direction of permanent
business recovery and freedom from our slavery to the money-monopoly.
The time for the change has come. It is here and now. The overwhelming
forces of economic necessity require that we face this fact, Ie. M.
Hattersley, This Age of Plenty, p. 105. 48 and give our earnest attention
to the design and operation of a 11701ZCY syste111 that is sound, that
will equate our buying power with the supply of goods we can produce.
To refuse this challenge is nothing less than national suicide. 4lJ
VIII THE SOCIAL CREDIT PROPOSALS Social Credit meets this challenge.
The Douglas solution to this, the greatest problem of our day, provides
a scientific money system by basing the supply of credit directly upon
the supply of goods. Douglas has defined Social Credit as "The ability
to 1nonetize our existing real wealth for the benefit of society.HI
Social Credit gives us a definite practical plan for the control and
use of this money system, designed specifically to overcome the chronic
shortage of buying power. In Major Douglas' own words, "The business
of a modern and effective financial system is to issue credit to the
consumer, up to the limit of the productive capacity of the producer,
so that either the consumer's real demand is satiated, or the producer's
capacity is exhausted, whichever happens first."2 Moreover Social Credit
aims directly to start immediate and permanent business recovery. Its
object is "to cease the accumulation of national, no less than international,
debts, and put an end to the continual and simultaneous existence of
glut and poverty."3 With growing certainty the voice of the shopping
public demands that the deluge of debt be replaced by individual security.
Depression must give way to lasting national prosperity founded solidly
upon Real Wealth. In this Age of Plenty, brought about by our progress
in scientific achievement, we have already learned that every consumer
is a partner of industry. Production cannot go on without constant buyers.
We have seen that the present shortage of buying power in the hands
of consumers is due to two fundamental causes, both of them rooted in
the system of Debt-money. The proposals of Social Credit are designed
to remedy these causes and to eliminate the s/Jortage of purclJasing-
power. "Now, broadly speaking, what we are aiming at in the Social Credit
Movement is, in the first place, simply to increase purchasing power
so that the money system shall become self-liquidating, and, secondly,
we are aiming to meet that condition .... that fewer and fewer operators
are required to tap the machines of industrial production."" lLecture,
The Evolution of Finauce-New York, April 1934. 2C. H. Douglas, Credit
Power and Democracy, pp. 106-7. 3A. R. Orage, Fortune, November 1933.
4C. H. Douglas, Oslo, Norway, Feb. 1935. SO This may sound like a large
order. Now let us see how it is to be filled. Social Credit says that
it is as possible as it is logical and necessary. "To claim that a world
which has witnessed the marvelous mechanical, scientific and cultural
progress of the past 150 years cannot adjust a system which is merely
a combination of accounting and ticket-issuing so that it truly reflects
the physical facts as they change from time to time, is to ask too much
of the credulity of an exasperated public. HI lC. H. Douglas, The Premises
of Social Credit. 51 IX THE NATIONAL CREDIT ACCOUNT If we want money
to work for us instead of against us we must use Credit-money instead
of Debt-money. We can only enable the economic system to deliver wanted
goods and services by closing the gap between buying power and prices.
As more debt-financed relief programs fail to bridge this gap the necessity
for action becomes increasingly plain. Equally obvious should be the
fact that the most effective method to close the gap is to raise buying
power and lower prices at the same time. But how can this be done in
practical operation? It is self-evident that any lasting and general
prosperity depends upon maintaining a constant balance between a high
rate of production and an equally high level of consumption. This balance
results from continuously satisfying the vital needs of consumers with
the actual physical goods of producers. To make their demand for goods
effective consumers must have sufficient money to buy the goods. Demand,
without money to implement it, is impotent, ineffective. The only actual
limit to the satisfaction of the shopPing nation's need for goods is
the lintit of our jJroductive capacity, of which we are now utilizing
only a small fraction. Therefore sufficient money must be available
to express accurately the demand for wanted goods. Money, being the
bridge between desire and goods, must depend upon our REAL Credit; that
is to say, the rate at which we as a nation can deliver the goods and
services we require to live.I In other words, money must reflect the
true facts of our Real Wealth. Since money is the accepted means to
express the effective demand for available goods, the balance between
our ability to produce and our ability to buy and consume what is produced
must be accomplished by money. Permanent business recovery requires
then that we level up consumption to balance with production. The nation
as shoppers and consumers of goods must be able to buy what we produce.
If America as l"Real credit is a correct estimate ... as to the capacity
of a community to deliver goods and services as, when, and where required."
e. H. Douglas, New and Old Economics, Section I. See also "From Debt
to Prosperity," reference to REAL CREDIT, Chapter II, p. 14. 52 - shopper
is to buy the output of America-producer we must begin to raise consumption
up to the level of productive capacity. This can be accomplished only
by controlling the total amount of mon'lY in circulation so that it
will be increased or expanded at exactly the same rate as production
and comumption are increased. Only in this way can the balance between
production and consumption be maintained, and the desires of consumers
for goods be satisfied in permanent prosperity. A money system that
is sound, that delivers wanted goods to 5hoppers for consumption, m145t
be a true 'lxjJression of Real Credit. Furthermore Financial Credit
1nust be fully equal to this Real Credit. Otherwise money cannot reflect
the true facts of our Real Wealth. "The re-identification of Real Credit
with financial credit is the vital issue."l What Must be Done Two things
are necessary to make the money system reflect our Real Credit. Both
must be done by the government of the United States, acting as the representative
of the people. Both can easily be done by existing governmental agencies.
We have seen that the first necessity is to restore to the nation its
Constitutional right to control our own money system. The government
must exercise its sovereign power to control the money supply of the
nation. This includes credit as well as currency. This action is the
first requirement for permanent business recovery. Second, the government
must gather together the facts and figures of our ability to produce
and deliver useful wanted goods for consumption. As we have seen, our
Real Credit rests upon this solid foundation. Once the nation regains
constitutional control of its Own money system, the immediate practical
step proposed by Social Credit is to appoint a non-political Federal
Credit Commission. As its primary duty this Commission would take a
national inventory of our actual productive capacity for wanted goods.
Based on this capacity to produce wealth a NATIONAL CREDIT ACCOUNT would
be established in the United States Treasury. The National Credit Account
is simply a business statement showing the known facts of our ability
to produce wealth in goods compared with our ability to buy those goods,
to consume them. This Account provides the practical means by which
the gov'lrnment can monetize the nation's Real Wealth, that is, to express
its value in money. The purpose Ie. H. Douglas. 53 of this Account is
to keep the price-values created in the nation's workshop of wealth
in constant balance with the money-tickets distributed for shopping.
Its object is to provide a constant supply of credit correlated exactly
with our supply of goods. Social Credit proposes to supply the money
necessary to level up the balance between production and consumption
by means of the National Credit Account. This money will be created
as credit by the Government, acting through the United States Treasury.
The money itself will be Sound Money in every sense of the word, for
its value will be based upon the Real Credit of the United States. Monetizing
our Real Wealth means the transformation of our present vast Real Credit
into its financial equivalent. This is necessarily a bookkeeping operation,
exactly like the present creation of money. But Social Credit requires
that instead of the nation's money supply being created in the bookkeeping
of the private banking system as debt, it would be created in the bookkeeping
of the United States Treasury as CREDIT. How to Do It The non-political
Federal Credit Commission would gather together and show in a national
balance sheet all the facts of our enormous productive capacity as compared
with our present limited, restricted consumption of goods. The nation
would be credited with its production of wealth and charged with its
consumption. This balance sheet would show the real limit of the national
Credit. By means of this business-like method the surplus of production
over consumption would be mad.,: available as credit to increase conSZl1nption.
Sufficient money in the form of credit would then be issued by the Treasury
direct to cOJtS1l1nersto enable them to buy all the wanted goods produced.
This credit-money will be exactly sufficient in quantity to enable our
established productive capacity to deliver goods and services to shoppers
for consumption. The amount of the money must therefore be based on
the current relationship between production and consumption. In essence
the National Credit Account is simply a stat':1nent of the facts of
the nation's business, of the production and consumption of Real Wealtb
over a given period, reflecting the truth of our Real Credit. This Real
Credit is transformed into Financial Credit in the bookkeeping of the
United States Treasury by the constitutional power of the Government.
The administration of the National Credit Account would be the duty
of the Federal Credit Commission, a non-political body of commissioners
comparable in authority in the realm of business to the Supreme Court
in law. The members of this commission would be appointed by the President,
by and with the consent of the Senate, to serve for a definite term
of office. The membership of the commission would change in rotation
as seven year terms of office expire. The commission could not be politically
influenced because its work would deal only with the facts of production
and consumption.1 But we must understand clearly the most important
point to be grasped about this controlled issuance of credit-money based
on the Real Credit of the nation. The money thus created is backed 100
% by the Wealth of the nation, its ability to produce and deliver wanted
goods and services.2 This wealth, created by the industries of the nation,
is an Asset. Social Credit recognizes this wealth as an added national
value, a true asset, NOT AS A DEBT TO THE BANKING SYSTEM. A rough example
in round numbers will illustrate in a general way how the National Credit
Account provides the facts necessary to monetizing our Real Wealth:
:(SEE FOLLOWING PAGE) 1Furthermore, no more than four of the commissioners
could be members of the same political party. . 2"'vVe are simply. saying
it,I effe~t: .'Credit, convertible into money, is a correct estimate
of the capacIty of socIety wIth ItS plant, culture, organization and
moral to deliver goods and services desired by individuals.'" C. H.
Douglas, Cr;dit Power ~nd Democrac}', pp. 133-4. 55 Banks and Bankers-An
Important Necessity The institution and keeping of the National Credit
Account does not require any "nationalization" of the banlzs. As a matter
of fact, such nationalization would be a great mistake. "I am not myself,
for instance, an advocate of the nationalization of banks. I believe
this again to be one of those misapprehensions so common in regard to
these matters, for the nationalization of banks is merely an administrative
change: it does not mean a change in policy, and a mere administrative
change cannot be expected to produce any result whatever in regard to
this matter. A change in monetary policy can be made without interfering
with the administration or ownership of a single bank in the world."l
Only monetary policy need be under national control. The present banking
system could just as efficiently carry out a policy for the national
benefit as today it carries out policies for its own private profit.
While Social Credit would do away with the monopoly over the supply
of money as now maintained by the banking system, it would preserve
banks and protect bankers. The government would assume, as its proper
constitutional function, full authority for the supply of money. But
this change does not imply any violence, nor does it contemplate putting
the banks out of business. As proposed in the United States, Social
Credit would save the banking system for private ownership. The banks
would operate under the superv'ision of the Government as agencies of
the Treasury. They would handle money, accept deposits and carryon the
bookkeeping necessary to the use of cheques and the transaction of business.
In fact" ... the bank as repositories of the people's money and as efficient
debt collectors, are most useful institutions, and banking is one of
the fine arts of the modern world. The machinery of the banks should
as far as possible be retained-perhaps extendedalthough monetary policy
should be withdrawn from private control."2 This simply means that the
banks would no longer hold as a monopoly the power to create and destroy
money as they do today. Business and individuals alike need the facilities
of the banking system to carryon their activities. All the useful functions
of banking must be preserved In terms of this example, based on the
Real Credit of the United States, the Treasury could issue 25 Billion
dollars in CREDIT -money, thus transforming this Real Credit into Financial
Credit available to consumers for shopping . lSpeech by Major C. H.
Douglas, at Oslo, Norway, 1935. 2C. MarshaIl Hatters ley, This Age of
Plenty, p. 194. 57 oo - I |
| © Published by the Australian League of Rights, P.O. Box 27 Happy Valley, SA 5159 |