The Social Credit proposals
explained in 10 lessons
Louis Even
and C. H. Douglas
and
viewed in the light of
the social doctrine of the Church
A study prepared by Alain Pilote
on the occasion of the week of study
that followed the Congress of the Pilgrims of Saint Michael
in Rougemont, September 5-11, 2006
Published by the Louis Even Institute for Social Justice
1101 Principale St., Rougemont,
QC, Canada J0L 1M0 — www.michaeljournal.org
The Social Credit proposals
explained in 10 lessons
Lesson
1 : Le goal of economics: to bring goods to those who need them
Lesson 2 : Poverty amidst plenty, the birth of money
Lesson 3 :
Banks create money as a debt
Lesson 4 :
The solution: debt-free money created by society
Lesson 5 : The chronic shortage of purchasing power
— The dividend
Lesson 6 : Money and prices — The compensated
discount
Lesson 7 :
The history of the banking control in the United States
Lesson 8 : Social Credit is not a political party
Lesson 9 : Social Credit and the social doctrine of
the Church (Part I)
Lesson 10 : Social Credit and the social doctrine
of the Church (Part II)
Introduction
Social Credit is a doctrine, a series of principles
set down for the first time by Major and engineer C. H. Douglas in 1918. The
implementation of these principles would make the social and economic organism
effectively serve its proper purpose or end, that is, to meet human needs.
Social Credit would create neither the goods nor the needs; what it would do is
to eliminate the present artificial obstacle between goods and needs, between
production and consumption, between the wheat in elevators and the bread on the
table. The obstacle today — at least in the developed countries — is purely of
financial order, a money obstacle. The financial system does not proceed from
God, and nor does it come from nature. Established by man, it can be adjusted
to serve man and cease to enslave him.
Social Credit presents concrete propositions for
exactly this purpose. Though very simple, these propositions embody a real
revolution. Within it, Social Credit holds the vision of a new civilization, if
civilization means man's relationship with his fellow man and the conditions of
life that foster for each one the blossoming of his personality.
Under a Social Credit system, we would no longer
struggle with problems that are strictly financial, problems that constantly
plague public administrations, institutions and families, problems which poison
relationships between individuals. Finance would be nothing more than an
accounting system which expresses in figures the relative values of goods and
services. This system would serve to mobilize and coordinate the energies and
effort involved in the different levels and stages of production that lead to the
finished goods. It would distribute to ALL consumers the means to choose freely
and individually, what is suitable to them from among the goods offered or
immediately realizable.
For the first time in history, absolute economic
security, without restrictive conditions, would be guaranteed to each and every
one. Material poverty would be a thing of the past. Material anxiety about
tomorrow would disappear. Bread would be ensured to all, while there is enough
wheat to make enough bread for all. Similarly for the other goods that are
necessary for life.
Each citizen would be presented with this economic
security as a birthright, as a member of the community, enjoying throughout
one’s life an immense community capital, that has become a dominant factor of
modern production. This capital is made up of, among other things, natural
resources, which are a collective good; life in society, with the benefit that
ensues from it; the sum of the discoveries, inventions, technological progress,
which are an ever-growing heritage from previous generations.
This
community capital, which is so productive, would bring to its co-owners, each
citizen, a periodical dividend, from the cradle to the grave. With the volume
of production coming from the common capital, the dividend to each ought to be
at least sufficient to cover the basic necessities of life. This dividend would
be distributed equally, in equal amount, to all. It would also be given to
those who personally take part in production, independently of wages, salaries,
or other forms of reward received.
An income like this attached to the individual, and no
longer only attached to his status of employee, would protect him from
exploitation by other human beings. With the basic necessities of life guaranteed,
a man can better resist being pushed about and can better take up the career of
his own choosing. Freed from urgent material worries, people could apply
themselves to activities which are more creative than compulsory and routine
work, and strive towards their own development by the exercise of human
capabilities superior to the purely economic function. Getting the daily bread
would no more be the all-absorbing occupation of their lives.
Note: The text of the following 10 lessons is 
essentially taken from Louis Even’s
writings :
In This Age of Plenty,
What Do We Mean by Real Social Credit?
A Sound and Efficient Financial System
LESSON 1 — THE GOAL OF ECONOMICS:
TO BRING GOODS
TO THOSE WHO NEED THEM
Ends and means
In talking of economics, it is important to
distinguish between ends and means. It is also very important to make the means
serve the end, and not the other way around.
The end is the goal aimed at, the objective pursued.
The means is the processes, the methods, the acts that achieve the end or goal.
I want to make a table. That is my goal. I get planks,
I measure, I saw, I plane, I adjust, I nail the wood. These are the means, the
methods, which go into making the table.
All this is elementary. Yet, in the running of public
affairs, means are mistaken for the end, and the resulting chaos can be
amazing. For example, according to you, what is the goal, the end of economics:
A. To create jobs?
B. To reach a favourable balance of trade?
C. To distribute money to people?
D. To produce the goods that people need?
The correct answer is D. Yet, for practically all
politicians, the business of economics is to create jobs: but jobs are just a
means to produce goods, and goods are the real “end”. Today, thanks to the
heritage of progress, goods can be produced with ever-diminishing input of
human labour, and this leaves people ever-increasing free time to engage in
other activities, like looking after their families, or taking care of other
social duties. What would really be the point of continuing to produce
something when the need for it has already been satisfied? This would be just a
useless waste of resources. Now what about all those who cannot be employed in
the production system? The disabled, old people, children, housewives? Should
they starve to death? Not every human being is strictly a producer, but all
have needs, and are consumers.
To have a
favourable balance of trade means that you export to other countries more
products than you import from abroad, so you end up with less of your home
product, and are poorer in real wealth.
To the question above, you might be tempted to answer
C, for is it not obvious that money is necessary to live today? Unless, that
is, if you produce all that you need yourself, but that is the exception in
today’s society, with the division of work where one person is the baker,
another one the carpenter, and so on, each one accomplishing a specific task
and producing specific goods.
Money is a means to obtain what is produced by others.
Note carefully, it is a means, not an end! You cannot eat money, wear it, or
put it on your feet. Money is there to buy food and clothing. First, these
things have to be produced and put on
sale in the market: money is not good if there is nothing you can buy with it.
What would be the use of having a million dollars in the North Pole or the
Let us not confuse “ends” with “means”; the same thing
applies to systems. The systems were invented and established to serve man, not
man created to serve systems. If a system is harmful to the mass of men, must
we let it continue, or do we not alter it to make serve the multitude? Another
question: since money is put there to oil the wheels of production and
distribution, must production and distribution be limited by the flow of money,
or, must money be made to flow in step with production and distribution?
Can you see now the error of
mistaking the ends for the means, and the means for the ends? Is this not a
silly, stupid and widespread error which causes much disorder in our society?
The purpose of economics
The word “economy” is derived from two Greek roots: Oikia, house; nomos,
rule.
Economy is therefore about the good regulation of a
house, of order in the use of the goods of the house.
Domestic economy is good management of domestic
affairs, and political economy is good management in the affairs of the large
communal home, the nation.
Management of the affairs of the small or large home, the
family or the nation, can be called “good” when it serves its purpose.
Man engages in different activities and pursues
different ends.
Man’s moral activities concern his final end.
Cultural activities affect the development of his
intellect, the ornamentation of his intellect, and the formation of his
character.
In participating in the general well-being of society,
man engages in social activities.
Economic activities deal with temporal wealth. In his
economic activities, man seeks to satisfy his temporal needs.
The goal, the purpose or end of economic activities,
is then the use of earthly goods to satisfy man’s temporal needs. Economics
serves its purpose when earthly goods serve human needs.
The temporal needs of man accompany him from the cradle
to the grave. Some needs are essential, others less so.
Hunger, thirst, bad weather, weariness, illness,
ignorance, create for man the need to eat, drink, clothe himself, find warmth,
shelter, refresh himself, rest, take care of his health, and to educate
himself.
These are all human needs.
Food, drink, clothing, shelter, wood, coal, water,
bed, remedies, the school teacher’s teaching books — all these things must be
present to meet man’s needs.
To have goods meet needs — this is the goal, the
purpose and end of economic life.
If it does this, economic life serves its end or
purpose. If it does not do this, or does it badly or incompletely, economic
life fails its purpose, or only meets that purpose imperfectly.
The goal is to join goods to needs, not only just to
bring them close together.
In straight terms, it may be said that economics is
good, that it serves its end, when it is sufficiently well-regulated for food
to enter the hungry stomach, for clothes to cover the naked body, for shoes to
protect the bare feet, for a good fire to warm the house in winter, for the
sick to receive the doctor’s visit, for teacher and the students to meet.
The purpose of economics is not only to produce goods;
these goods must be useful for people, answer their needs. Goods are not
produced to stay on the shelf, but to be consumed by the people who need them.
And for this to happen, people must have money to buy the goods that are on the
shelf in the store.
Economics has a purpose of its own: to satisfy man’s
needs. To eat when one is hungry is not the final goal, or end, of man; no, it
is only a means the better to aim towards his final goal, that is, to see God
face to face in Heaven for eternity.
If economics is only a means to the final end, if it
is only an intermediate end in the general order, it is nevertheless a very
distinctive end.
When economics join goods to needs, it is perfect. Let
us not ask more of it. But let us ask this of it. It is the purpose of
economics to achieve this perfect end, or goal.
Morality and economics
Let us not ask of economics to serve a moral purpose,
nor of morality to serve an economic purpose. This would be as disorderly as to
attempt to travel from
A starving man will not appease his hunger by reciting
his Rosary, but by eating food. This is in order. It is the Creator who wanted
it this way, and He turns from it only by departing from the established order,
through a miracle. He alone has the right to break this order. To satiate man’s
hunger, it is economics therefore that must intervene, not morality.
Similarly, a man who has a sullied conscience cannot
purify it by eating a good meal, or by drinking bucket loads of water. What he
needs is the confessional. In that case, it is religion’s place to intervene;
it is a moral activity, not an economic activity.
There is no doubt that morality must accompany all of
man’s actions, even in the domain of economics, but morality does not replace
economics. It guides in the choice of objectives, and it watches over the
legitimacy of the means, but it does not do what economics must do.
So, when economics does not meet its purpose, when
things stay in the stores or are not produced, and needs continue in the homes,
let us look for the cause in the economic order.
Let us blame, of course, those who disorganize the
economic order, or those who, having the mission to govern it, leave it in
anarchy. By not fulfilling their duties, they are certainly morally
responsible, and fall under the sanction of ethics.
If moral and ethics are truly distinct, both at the
same time concern the same man, and if the rules of one are broken, the other suffers.
Man has the moral duty to make sure that the economic order, the social
temporal order, serves its proper purpose.
Also, although economics is responsible only for the
satisfaction of man's temporal needs, the importance of good economic practices
has time and time again been stressed by those in charge of souls, because it
normally takes a minimum of temporal goods to encourage the practice of virtue,
as Saint Thomas Aquinas put it. We have a body and a soul, spiritual and
material needs. As the saying goes, “words are wasted on a starving man”, and
even the missionaries in poor countries know this. It is they who have to feed
the hungry before preaching to them. Man needs a minimum of goods to live his
short pilgrimage on earth and save his soul, but a money shortage can cause
terrible and inhuman situations. This is what brought Pope Benedict XV to
write, “It is in the economic field that the salvation of souls is at
stake.”
And Pius XI: “It may be said with all truth that
nowadays the conditions of social and economic life are such that vast
multitudes of men can only with great difficulty pay attention to that one
thing necessary, namely their eternal salvation.” (Encyclical Letter Quadragesimo Anno,
May 15, 1931.)
The social and very human end of
the economic organism is summed up in this sentence of Quadragesimo
Anno:
“Only
will the economic and social organism be soundly established and attain its
end, when it secures for each and all those goods which the wealth and
resources of nature, technical achievement, and the social organization of
economic affairs can give.”
EACH and ALL must be secured with all the goods that
nature and industry can provide.
The end and purpose of economics is therefore the
satisfaction of ALL of the consumers’ needs. The purpose is consumption;
production is only a means.
To make economics stop at production is to cripple it.
Economics must not finance production only; it must also finance consumption.
Production is the means, consumption is the end.
In an order where the end governs the means, it is man
as consumer who is in charge of all of the economy. And since every man is a
consumer, it is every man who contributes to ordering the production and
distribution of goods.
A really human economy is social, as we said; it must
satisfy ALL men. So EACH and ALL must be able to make their demands on the
production of goods — at least to satisfy their basic needs, as long as
production is in a position to respond to these demands.
The policy of a philosophy
Social Credit is not a utopia, but is based on a right
understanding of reality, on the just relationship between man and the society
in which he lives. As Clifford Hugh Douglas said, Social Credit is the policy
of a philosophy.
A policy is the action that we take, and it is based
on a conception of reality or, in other words, a philosophy.
Social Credit proclaims a philosophy which has existed
as long as men have lived in society, but which is terribly ignored in practice
— more than ever in this day and age.
This philosophy, as old as society itself — therefore
as old as the human race — is the philosophy of association. The social
teaching of the Church cal it: the common good.
The philosophy of association is therefore the joining
together of all associates for the good of the associates, of each associate.
Social Credit is the philosophy of association applied to general society, the
province, the nation. Society exists for the benefit of all the members of
society, for each and every one.
It is for this reason that Social
Credit is, by definition, the opposite of any monopoly: economic monopoly,
political monopoly, prestige monopoly, brutal-force monopoly.
Let us define Social Credit as a system of society at
the service of each and every one of its members, in which politics is at the
service of each and every one of the citizens, and economics is at the service
of each and every consumer.
Now let us define monopoly: the exploitation of the
social organization for the benefit of a few privileged individuals, where
politics is in the service of clans called parties, and economics works in the
service of a few financiers, a few ambitious and unscrupulous entrepreneurs.
Too often, those who condemn monopolies stop at
specified industrial monopolies: the electric monopoly, the coal monopoly, the
oil monopoly, the sugar monopoly, etc. They ignore the most pernicious of all
monopolies in the field of economics: the monopoly of money and credit; the
monopoly that transforms and subverts a country’s progress into public debts; a
monopoly which, by controlling the volume of money, regulates the human
standard of living, out of all relation to the realities of production and the
needs of families.
The aim of Social Credit is to “bind back to reality”
or “express in practical terms” in the current world, especially the world of
politics and economics, those beliefs about the nature of God and man and the
Universe which constitute the Christian Faith, as delivered to us from our
forefathers, and NOT as distorted and perverted to suit current politics or
economics, which stem from a non-Christian source.
Man lives in society, in a world subject to God’s
laws: the laws of nature (the physical laws of creation), and God’s moral law
(the Ten Commandments). The acceptance and knowledge of these laws implies
recognizing the consequences of violating them.
To accept Natural Law is to recognize that it is
inescapable reality, and that all people, as individuals or collectively in
society, are subject to Natural Law. Every event which occurs on the physical
plane is an abundant illustration of the laws of the physical universe. For
example, if a man jumps out of an aeroplane, he does not break the law of
gravity… he just illustrates, proves it. That observation is applicable to all
natural laws.
These laws are beyond the abrogation of man — they
cannot be disobeyed — the sanctions which enforce them are irresistible.
The chains (agreement associations — man made laws)
which individuals in society have forged for themselves — are optional, whereas
the Natural Law and its consequences are inescapable.
For example, money is a man-made system, not a system
created by God or by nature: it can be changed by man. The equilibrium of the
environment, however, has been created by God, and cannot be broken without
consequences. If we produce goods without respecting the environment, if we
pollute and waste the resources given to us by God, we have to suffer the
consequences.
The social credit: the confidence
that binds society together
In his booklet What is Social Credit?, Geoffrey
Dobbs wrote: “The social credit (without capital letters) is the name of
something, which exists in all societies but which never had a name before
because it was taken for granted. We become aware of it only as we lose it.
“‘Credit’ is another word for ‘faith’ or ‘confidence’,
so we can also call it the Faith or Confidence which binds any society together
— the mutual trust or belief in each other without which fear is substituted
for trust as the “cement” of society... Though no society can exist without
some social credit, it is at its maximum where the Christian faith is
practised, and at its minimum where it is denied and derided.
“The social credit is thus a result, or practical
expression, of real Christianity in society, one of its most recognisable
fruits; and it is the aim and policy of social crediters
to increase it, and to strive to prevent its decrease. There are innumerable
commonplace examples of it which we take for granted every day of our lives.
How can we live in any sort of peace or comfort if we cannot trust our
neighbours? How could we use the roads if we could not trust others to observe
the rule of the road? (And what happens when they don’t!)
“What would be the use of growing anything in gardens,
farms or nurseries if other people were to grab it? How could any economic
activity go forward — whether producing, selling or buying — if people cannot,
in general, rely upon honesty and fair dealing? And what happens when the
concept of the Christian marriage, and the Christian family and upbringing, is
abandoned? We see, do we not? — that Christianity is something real with
desperately vital practical consequences, and by no means a mere set of
opinions which are ‘optional’ for those to whom they happen to appeal.”
You could add that without this respect for the social
credit, for the laws ruling society, any life in society would become
impossible, even though you put a police officer on every street corner, since
you could not trust anybody.
Social Discredit
Mr. Dobbs continues:
“Just as there are social crediters, conscious
and unconscious, trying to build up the social credit (the confidence that we
can live together in society and benefit from it), so there are others — social
discrediters — trying to destroy it and break it
down, at present, with all too much success. The conscious ones include the
communists and other revolutionaries, who quite openly seek to smash all the
links of trust and confidence which enable our society to function until the
Day of the Revolution dawns... But it is the unconscious social discrediters who are responsible, in the West, for the
present success of the conscious ones....
“Why do shops and manufacturers foist upon us so many
shoddy, rubbishy, throw-away things, at outrageous prices, and trick us into
buying them with clever packaging and advertising? Why are most repair services
so scandalously slow, expensive and inefficient, and so many small services
which made life easier now unobtainable? And above all, why do millions of
decent working people of all classes take part in strikes deliberately designed
to damage services to their fellow men? What on earth can make normal decent
people descend to this spiritual level? We all know what it is. There is one
common factor running through all this destructive and discreditable action:
the compulsive need for more money to meet the ever-rising cost of living.
“So now at last I have come to the
question of money, which is what some people think that Social Credit is all
about; but it isn’t! Social Credit is an attempt to apply Christianity in
social affairs; but if money stands in the way, then we, and every Christian,
must concern ourselves with the nature of money, and just why it stands in the
way, as it surely does. There is a dire need for more people to look deeply
into the operation of our monetary system, though that is not everyone's job.
But when the consequences are so desperate, everyone can at least grasp the
outline of what is wrong, and could be put right, which will enable them to act
accordingly...”
LESSON 2 —
POVERTY AMIDST PLENTY
THE BIRTH AND DEATH OF MONEY
Do goods exist? Do they exist in sufficient quantity to
satisfy all of the consumers' basic needs?
Are we short of anything in our country to satisfy the
temporal needs of the citizens? Are we short of food for everybody to eat one’s
fill? Are we short of shoes, clothes? Can we not make as much as is required?
Are we short of railroads and other means of transportation? Are we short of
wood or stones to build good houses for all families? Are we short of builders,
manufacturers, or other workers? Are we short of machines?
No, we have all these things, in plenty. Never do the
retailers complain that they cannot find enough goods to meet the demand. Grain
elevators are bulging. Numerous are the able-bodied men waiting for work.
Numerous also are the machines which are at a standstill.
Yet, a great many people suffer! Goods are simply not
finding their way into homes.
Of what use is it to tell people that their country is
rich, that it exports a lot of goods, that it ranks third of fourth among the
world’s exporting countries?
What goes out of the country does not go into the
homes of the citizens. What sits idle in the stores does not appear on their
tables.
A mother does not feed her children or provide them
with shoes and garments, by going window-shopping, by reading the advertisements
of goods in newspapers, by listening to the description of good products on the
radio, or listening to the sales talk of countless salesmen of all kinds.
What is lacking is the effective means of laying hands
on these goods. You cannot steal them. To get them, you must pay for them: you
need money.
There are a lot of good things in our country, but
many individuals and families who need these goods lack the right to have them,
the permission to get them.
Is there anything lacking but money? What is lacking,
apart from the purchasing power to make the products go from stores to homes?
Mankind has gone through periods
of food shortage; famines covered big countries, and there was no appropriate
means of transportation to bring to these countries the wealth from other
sections of the planet. It is no longer the case today. There is an
overabundance of everything. It is abundance — no longer scarcity — that
creates the problem.
It is not at all necessary to go into detail to
demonstrate this fact. There are thousands of cases of voluntary destruction on
a large scale “to stabilize markets”, by making stocks disappear. Let us give
just a few examples:
The
“The very same week this operation was taking place,
6,000 barrels of 200 pounds (90 kg) of herrings were dumped into the
Abundance is not confined to
“Public outrage has erupted over the European
Community’s (EC) plan to burn or dump in the ocean the huge surplus mountains
of butter, milk powder, beef and wheat piling up across EC nations. A report
from the EC’s
Why all this waste? Why don’t the products join the
needs? It is because people have no money. Wealth, goods are laughing in your
face and you starve in front of lofts full to overflowing, if you have got no
money. No money, no products: humans starve to death, and products are thrown
away.
Are we smarter than monkeys?
Look at the opposite cartoon: Here is a grocer's store
filled with good products in abundance; in front of this store, there is a
penniless starving man. Good products are made to be consumed. The grocer
displays them to sell them. The consumer would like to purchase them, but he
lacks the ticket to purchase them: he has got no money. The result: the good
products will not be consumed, and they will rot on the shelves. Yet, everybody
would be happier if the situation was different — the grocer would be happy to
sell, and the consumer would be happy to buy.
Why is it that something that would make everyone
happy cannot take place among human beings?
Let us have a
look at the monkeys. They see plenty of bananas on the banana trees. Since they
need to eat bananas to live, they simply pick the bananas and eat them.
Monkeys never worked out complicated economic systems
in their universities. In their heads of monkeys, they never examined the law
of supply and demand, nor the difference between socialism and neo-liberalism.
They simply saw good things in front of them, and they were smart enough to
pick them in order not to starve.
But a monkey is a monkey, and a man is a man. A monkey
has no mind, but a man can misuse his mind.
A monkey is led by its instinct, which does not
mislead it. Man is led by his mind, which is often misled by pride. In such a
case, man quibbles, uses dialectics, but forgets simple and pure reasoning
based on common sense.
This foolish situation of a multitude of starving
people amidst plenty of wealth is caused by the greed of those who base their
power on the bondage of the masses. You can say also that this foolish
situation is supported and maintained by people allegedly learned in economics,
who lead minds to the most stupid conclusions, under the pretence of reasoning
with science and wisdom.
This whole situation can also be summed up in the form
of a joke, although the conclusion is very serious: A group of monkeys in the
jungle were arguing whether men were more intelligent than monkeys. Some said
“yes”; others said “no”. One of the monkeys said: “To be clear in my own mind,
I will go to the city of the humans, and find out if they are really smarter
than us.” All the monkeys agreed that it was a good idea. So the monkey went,
and saw a penniless man starving in front of a grocery store filled with
bananas. The monkey came back to the jungle, and said to the other monkeys:
“Don't worry, men are not smarter than us; they starve to death in front of
bananas that rot on the shelves for lack of money.”
Conclusion: Let's be smarter than the monkeys, and let
us devise a money system that will allow us to eat the bananas and all the
other products that are provided in plenty by God for all His children. This
smart money system exists; it is Social Credit.
Money and
wealth
We have just shown that what is lacking is not
products, but money. This does not mean that money itself is wealth. Money is
not an earthly good capable of satisfying a temporal need. As we said in the
previous lesson, money is a means, the end is the products.
You cannot keep yourself alive by eating money. To get
dressed, you cannot sew together dollar bills to make a dress or a pair of
stockings. You cannot rest by lying down on money. You cannot cure a sickness
by putting money on the seat of the malady. You cannot educate yourself by
crowning your head with money.
Money is not real wealth. Real wealth consists of all
the useful things which satisfy human needs.
Bread, meat, fish, cotton, wood, coal, a car on a good
road, a doctor visiting the sick, the knowledge of a science — these are real
wealth.
In our modern world, each individual does not produce
all things. People must buy from one another. Money is the symbol or token that
you get in return for a thing sold; it is the symbol that you must give in
return for a thing that you want from another.
Wealth is the thing; money is the symbol of that
thing. The symbol should reflect the thing.
If there are a lot of things for sale in a country,
there must be a great deal of money to dispose of them. The more people and
goods, the more money in circulation is required, otherwise everything stops.
It is precisely this balance that is lacking today. We
have at our disposal almost as great a quantity of goods as we could possibly
wish, thanks to applied science, to new discoveries, and to the perfecting of
machinery. We even have a lot of people without occupations, who represent a potential
source of goods. We have loads of useless, even pernicious, occupations. We
have activities of which the sole end is destruction.
Money was created for the purpose of keeping goods
moving. Why, then, does it not find its way into the hands of the people in the
same measure as the flow of goods from the production line?
Money
begins somewhere
Everything, except God, has a beginning. Money is not
God, therefore it has a beginning. Money begins somewhere.
We know the origin of such useful commodities as food,
clothing, shoes, books. Workers, machines, plus the country’s natural
resources, produce the wealth, the goods we need and which we do not lack.
But then where does money begin, the money that we
lack in order to buy the goods that are not lacking?
The first idea that we keep alive in our minds,
without really realizing it, is that there is one fixed quantity of money, and
that it cannot be changed; as if it was the sun, or the rain, or the weather.
This idea is utterly wrong; if there is money, it is because it was made
somewhere. If there is not more, it is because those who made it did not make
more.
Another prevalent belief about the origin of money is
that the Government makes it. This is also incorrect. The Government today does
not create money, and complains continuously about not having any. If the
Government were the source of money, it would not have sat around idly for ten
years in front of the lack of money. (And for example, in
Now, we will explain where money begins and ends.
Those who control the birth and death of money also regulate its volume. If
they make much money and destroy little, there is more. If the destruction of
money goes faster than its creation, its quantity decreases.
Our standard of living, in a country where money is
lacking, is not regulated by the volume of goods produced, but by the amount of
money at our disposal to buy these goods. So those who control the volume of
money, control our standard of living. “Those who control money and credit
have become the masters of our lives... No one dare breathe against their
will.” (Pope Pius XI, Encyclical Letter Quadragesimo
Anno).
Two kinds of
money
Money is whatever serves to pay, to buy; whatever is
accepted in exchange for goods or services.
The material substance of which money is made is of no
importance. In the past, money has at times been made of shells, shark teeth,
leather, wood, iron, silver, gold, copper, paper, etc.
Examples
of money in the past
Source:
http://www.currencymuseum.ca/eng/learning/digit.php
There are at present two kinds of money in
Book money is the bank account. Business operates
through bank accounts. Whether pocket money circulates or not depends on the
state of business. But business does not depend upon pocket money; it is kept
going by the bank accounts of businessmen.
With a bank account, payments or purchases are made
without using metal or paper money. Buying is done only with figures.
Let us suppose I have a bank account of $40,000. I buy
a car worth $10,000. I make my payment by writing a cheque. The car dealer
endorses the cheque, and deposits it at his bank.
The banker then makes changes in two accounts: first,
that of the car dealer, which he increases by $10,000; then mine, which he
decreases by $10,000. The car dealer had $500,000 — he now has $510,000 written
in his bank account. I had $40,000 in mine — my bank account now shows $30,000.
Paper money did not move in the country because of
this deal. I simply gave some figures to the car dealer. I paid with figures.
More than nine-tenths of all business is done this way.
It is book money, the money made of figures, which is modern money; it is the
most abundant money; its volume is ten times that of paper or metal money. It
is a superior type of money, since it gives wings to the other. It is the
safest kind of money, the one that no one can steal.
Savings and borrowing
Book money, like the other type of money, has a
beginning. Since book money is a bank account, it comes into existence when a
bank account is opened without money decreasing anywhere, neither in another
bank account nor in anyone's pocket.
The amount in a bank account can be increased in two
ways: by saving and by borrowing. There are other ways, but they can be
classified under borrowing.
The savings account is a transformation of money. I
bring along some pocket money to the banker; he increases my account by this
amount. I no longer have that pocket money; I have book money at my disposal. I
can get back pocket money by decreasing the amount of book money in my account.
It is a simple transformation of money.
But since we are trying to find out how money comes
into existence, the savings account, being a simple transformation of money, is
of no interest to us here.
Money
begins in the banks
The borrowing (or loan) account is the account lent by
the banker to a borrower. Let us suppose I am a businessman. I want to set up a
new factory. All I need is money. I go to a bank and borrow $100,000 under
security. The banker makes me sign a promise to pay back the amount with
interest. Then he lends me the $100,000.
Is he going to hand me the $100,000 in paper money? I
do not want it. First, it is too risky. Furthermore, I am a businessman who
buys things at different and widely far-flung places, through the medium of
cheques. What I want is a bank account of $100,000 which will make it easier
for me to carry on business.
The banker will therefore lend me an account of
$100,000. He will credit my account with $100,000, just as if I had brought
that amount to the bank. But I did not bring it; I came to get it.
Is it a savings account, set up by me? No, it is a
borrowing account made by the banker himself, for me.
Money
creators
This account of $100,000 was made, not by me, but by
the banker. How did he make it? Did the amount of money in the bank decrease
when the banker lent me $100,000? Well, let us ask the banker:
— Mr. Banker, have you any less money in your vault
after having lent me $100,000?
— I haven't gone into my vault.
— Have other people's accounts been reduced?
— They remain exactly as they were.
— Then what was decreased in the bank?
— Nothing was decreased.
— Yet my account has been increased. From where did
the money you lent me come?
— It didn't come from anywhere.
— Where was it when I came into the bank?
— It didn't exist.
— And now that it is in my account, it exists. So we
can say that it was created.
— Certainly.
— Who created it, and how?
— I did, with my pen and a drop of ink when I
inscribed $100,000 to your credit, at your request.
— Then you create money?
— The banks create book money, the money of figures.
That's the modern money that puts into circulation the other type of money by
keeping business on the move.
The banker manufactures money, ledger money, when he
lends accounts to borrowers, individuals, or governments. When I leave the
bank, there will exist in this country a new source of cheques, one that did
not exist before. The total amount of all accounts in the country was increased
by $100,000. With this new money, I will pay the workers, buy materials and
machinery — in short, build my new factory. Who, then, creates money? — The
bankers!