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September 2003: Two-Phase Social Credit Plan
The following draft plan was created for the Social Credit Active Group in connection with Economic Democracy: Project South Africa. However, it is at this point just a "cookie-cutter" plan into which the name of any country could be substituted.
1. Money is the way society allocates the use of new goods and services in the optimal way. Society allocates new capital goods for the work and new consumer goods to keep us while we work (in the form of wages). Society currently does this via commercial banks, which lend money into existence. Commercial banks are allowed to create money under the authority delegated to them by the Reserve Bank, which the Reserve Bank holds from society. Therefore, it is not radical to say that society allocates the use of all new goods and services.
2. 100% of new capital goods will naturally be allocated to production. There is no other use of capital goods. However, 100% of new consumer goods do not need to be allocated to production but only enough to pay the required work-force. The more efficient production is, the fewer new consumer goods and services need be allocated to production; and what is not allocated to production can be allocated to each and every person by means of a National Dividend.
3. The South African economy is obviously addicted to compulsive growth and waste. Think of the number of jobs that do not actually produce any primary product or service for human satisfaction. Think of whole industries that are mere unnecessary adjuncts to, or parasitic, on real productionor adjuncts to adjuncts. Think of the swollen bureaucratic machine, the Alice-in-Wonderland world of the civil service. Think of the cars and roads and petroleum that people use to get to and from these unnecessary jobs. The waste of labor is phenomenal. If you could save that labor, you could have the consumer goods and services that are the reward of it, for free!
4. But that is not the full story. This economy of compulsive growth and waste rides like a Juggernaut over human creativity and kills many promising projects in the womb. For example: a hydrogen adaptor for your car; radiant-energy motors; magnet-powered motors, generators, and heaters; mechanical heaters; superefficient electrolysis; vacuum-powered (implosion) engines; cold fusion; solar-assisted heat pumps; freshwater from solar irradiation of the sea.1 These inventions could already have ushered in a whole new world if they paidwhich is another way of saying, if society had allocated sufficient new goods and services to them, instead of to compulsive growth and waste.
5. So why does society behave this way? Compulsive growth and waste are simply a cumbersome machine for distributing money. Compulsive growth and waste do what could be done more efficiently, leaving out the middle-man, by credit cards. At the same time, the monetary price of compulsive growth and waste (quite apart from its environmental and human impact) is systematically discounted. The price you pay is not the full price, because a portion of it shows up as ever-increasing business debt, which is just indefinitely deferred price. And even that is not enough, for people still cannot buy the goods and services that are produced without resorting to consumer borrowing (like credit cards), as well. Mounting debt of both kinds proves that Real Consumer Prices cannot, month by month, be liquidated by Real Consumer Purchasing-Power. If money were not massively paid out and debts were not allowed to increase without limit, the economy would collapse. Compulsive growth and waste and unlimited debt are revealed as the economy's spasmodic reaction to an underlying instability.
1. South Africa to issue an Economic Declaration of Independence. The South African Reserve Bank to be rechartered. The new Reserve Bank will publicly acknowledge the creation of money by commercial banks and announce that commercial banks will henceforth become branches of the Reserve Bank. In this way, all bank-debt will be consolidated and will be owed to the Reserve Bank. New branches to be opened in areas lacking a bank. The new money system must be very visible.
2. The South African Reserve Bank to create the money to pay off the bank-debt of the South African government directly. The South African Reserve Bank to create money equal to aggregated state bank-debt and credit it to each state in proportion to its population. Any balance left over to be spendable by the state. The same technique to be applied to lower jurisdictions.
3. One time only, the following calculation to be made:
a. Add total business bank-debt to total consumer prices to get Real Consumer Prices.2
b. Subtract total personal bank-debt (including credit cards) from total personal savings to get Real
c. Create a sum of money equal to the difference between the two.
4. This sum to be sorted out amongst all households in proportion to the number of household members. Every household's bank-debt to be redeemed up to that household's portion and the money cancelled out of existence. Anything above that to be issued to each head of household to be spent. Businesses to deposit all their sales receipts in their local bank branch, which will automatically go to their bank-debt. Anything over and above that can be spent by the business. In this way, money will pass up through the system mopping up bank-debt, and every household will benefit in proportion to its numbers from every rand that is created.3
5. The same "debt-zapping money" technique can be used to liquidate new prices including debt, month by month.4 Let lending continue as before, and let credit cards be used as before. One month from the one-time-only debt-mopping-up phase, there will be new consumer goods and services available, and new debt will have accumulated. Make the following calculation:
a. Add new business bank-debt to new consumer prices to get New Real Consumer Prices.5
b. Subtract new personal bank-debt (including credit cards) from new personal income to get New Real
c. Create a sum of money equal to the difference between the two.
6. Distribute this sum in the form of debt-zapping money among all households just as before. This is the National Dividend. It reduces differences in income by making everybody richer, just as a blanket of snow reduces differences in the ground.
7. It would be possible (although not essential) to distribute a lesser part of this sum not to households but directly to consumer businesses in proportion to their sales since the initiation of Phase I"in proportion to sales" because the money-vote of the consumer, once empowered, will be a natural indicator of the best. In this case, any positive balance remaining after bank-debt liquidation would not be spendable but would be used to finance a Sale at the business. This is the Just Price.
8. What about inflation? Debt is a part of price, but we need not worry about debt being arbitrarily increased because there is more money about. But will the increase in spending-money make prices go up, or will the breadth of the distribution ensure healthy, consumer-driven competition and destroy monopoly? One way to find out would be to experiment with a small amount of money. Issue R100 of debt-zapping money per household, and see what effect it has on prices. If inflation should prove a problem, a solution would be to require price to be in a defined relation to cost as part of the terms of bank-financing.
9. The South African Reserve Bank to facilitate export and import transactions by exchanging rands and foreign money at the ratio of the respective consumer price indexes (cpis) of South Africa and the other country. Export transactions facilitated by created rands provide the Reserve Bank with foreign money for import transactions. Thus, imports depend on exports. The Reserve Bank does not release rands except as part of bona fide transactions. Rands, as such, are not for sale.
10. The South African Reserve Bank to create the money required by the government. Taxation to be abolished. Since every household is already paid, there is no need for the civil service to act as the employer of last resort and as a haven of job redundancy. Since every household is already paid, there is no need for government welfare schemes. Money being the way society allocates new goods and services, the less is required by government, the more will be available for national dividend.
1. As a result of Phase I, consumer debt, long-term producer debt, and government debt will disappear. The economy will be financed by short-term (month to month) producer debt.6 However, the South African Reserve Bank and its branches will now discover hitherto unthought-of opportunities.
2. When you think of commercial banks (now branches of the Reserve Bank) as creating money to allocate new goods and services, the absurdity of making such allocations loans becomes apparent: the new goods and services are going to be used up in production and cannot be returned. They will result in new production, which will, in turn, be allocated by the banks. But the banks' ability to do this doesn't depend on their getting money from producers: it depends on producers' producing goods and services and the banks' producing money. "Old" moneythat has gone through the cycle and returned over the retail countershould be thought of on a par with a cancelled postage stamp. The business that makes sales successfully doesn't reuse "old" money to pay its work-force and continue (or expand) its operations. It uses new money that it is granted automatically in consequence of turning in "old" money. If society gives you a line of credit and you deposit R100 and take out R100, it is not the same money, because it is all a line of credit.
1. As debt disappears, a new era of financing to be phased in. Two possible methods are proposed. The first is the Open Method. Each bank branch focuses on the art of allocating goods and services as productively as possible. Good allocation decisions will make more consumer goods and services available for direct distribution by National Dividend. (The bank should also receive a reward in the form of a bonus for distribution locally.) Poor allocation decisions result in wasted goods and services, for which society is the poorer, but they don't result in any debt. Good allocation decisions will result from a new art of doing credit ratings. They will be based on the brains and energy of managers and staff, their sporting interest in the art of serving the public, their ability to give the public the best quality for the best price, but without regard at all to the possession of assets for "security." Every business to receive a new line of credit (which is not a loan) based on that rating. The line of credit is a permanent bank account, into which the business will deposit all its sales receipts ("old" money), thus renewing its credit-line. From time to time, based on performance, a credit-rating can be reevaluated and a credit-line lengthened or shortened.
2. The second method is the Automatic Method. In it, lines of credit are awarded to businesses automatically in proportion to their sales from the beginning of Phase I on. Since the consumer is now empowered, his money-vote will be a natural indicator of the bestthe best merchandise, the best service. The consumers' money-votes take the place of credit-ratings.
3. In both cases, the bank-service is free. The bank is no longer concerned with positioning itself to gain leverage from the productive process. It is concerned with the art of facilitating production. Since in the new era, financing is so readily available from the source, older methods of financing will become obsolete. It will no longer be necessary for the brains-and-skill that really constitute a company to appeal to private investors, silent partners, and absentee owners for funds. A remarkable consequence of this is that it will no longer be necessary for a company to make a profit or pay dividends. It pays its people for their work; but it doesn't pay them out of profits, it pays them out of its credit-line. And a consequence of that is that goods and services can sell at cost.
4. The bank, with its market horizons and its prestige, is an obvious candidate both to help you find the best suppliers and contractors for your needs and to publicize your product or service in the marketplace. This would be the beginning of a new type of cooperative relationship between the bank and its surrounding businesses, no longer dependent on borrowing. This service, too, could be free. The bank doesn't need to make money. It only needs to create prosperity and allocate the fruits of prosperity.
1. Examples are from Jeremy Lee, "Free Energy: A Hidden World in Waiting," New Times Survey, December 2002.
2. This should exclude the import component of price.
3. Should it prove impossible to consolidate the system, have an account for every household and business, and compel businesses to deposit all receipts, more cumbersome machinery could be devised to do the same job. For example, each head of household could receive spendable, nontransferable vouchers in that person's name. The business where they are spent would have to turn them in to get its bank-debt cancelled up to that amount and any balance left to be put into vouchers in its name.
4. Or quarter by quarter.
5. This should exclude the import component of price.
6. Actually, this is a problem. We can't say there will be no long-term financing, and the money to pay it can only be given to the consumer month by month as goods and services are produced and offered. This will necessitate an adjustment to Phase I.5.