In this article, the question will be the production of capital goods. Therefore let us forthwith draw the distinction between capital goods and consumer goods.
Mr. Smith is a shoe manufacturer. The shoes are consumer goods, things that one uses to fill a need. Bread, butter, meat, clothes, books, firewood, medicines, etc., are consumer goods, goods that are put on the market for the consumers.
Therefore, when Mr. Smith manufactures a pair of shoes, he produces consumption goods.
Now Mr. Smith, in order to better meet the demand, decides to enlarge his business. The enlargement of his business will not be put on the market. This is not a thing that will be worn, like the shoes. This is an expansion of the production capacity of Mr. Smith's business. It is done in order to produce more shoes.
Mr. Smith's business is a capital good. The enlargement is also a capital good. Capital goods are used in producing consumer goods.
A country is developed, gets richer, when it increases its production capacity. For this reason, it must increase its capital goods: its hydro, its businesses, its means of transportation, etc. This is called economic expansion.
Another remark here before proceeding on. You get billed for a product that you purchased: in this bill there is not only the price of the material and the labour required for the manufacturing of this product, but also the manufacturer's profit and that of the intermediary. There is also a portion of the costs of the manufacture's installation, like that also of the store. This means that the buyer pays for a portion of the capital good with each consumer good that he purchases.
This seems normal. However, if one looks closely at it, one will see that there is a question of a public undertaking; the people pay twice and more for what is the fruit of their own labour.
Here is an example to prove it.
Let us say that a nation – or a state or province – decides to harness a river in order to turn it into electrical production. This will surely be a capital good. This will surely be an economic expansion: the new energy will increase the country's production capacity.
Let us say that the installation necessitates each week the payment of $600,000 in salary and wages to the engineers, to the workers, to all those who are working on the dam, and to all those who are supplying the materials or the tools, etc. In practice, evidently, there are weeks where it is more, others where it is less, according to the running of the undertaking and the need of materials or tools, but we are simplifying things by putting all of the weeks equal to $600,000.
Whatever may be the manner in which the running of the undertaking may have been financially organized, the means of payment comes out of the banking system, the only source where it is born, and where it must return in virtue of the conditions imposed at birth.
Each week, the recipients of the $600,000 will use this money to get, for themselves and for their families, the consumer goods which they need. This $600,000 then takes the road back towards the banking system, which will be able to issue just as much from week to week without increasing the total volume in circulation.
Fifty weeks later, there will thus have passed into payments, transformed into consumer goods, a total of 30 million dollars. If five years is required at the same rhythm to complete the undertaking, the total will increase to one-hundred and eighty million. The dam will then be completed, ready to supply power. But, in return, there will be a debt of 180 million written somewhere in the books of the financial system.
Therefore, and this is a fact to be understood well:
The physical cost, the real cost of the dam, it's the cost of everything that was consummated to produce it. Therefore the cost is the feeding, the clothing, the accommodation, the service to all those who have supplied their contribution to the building or to the repairs of the materials, and to their transportation.
But the building teams have been fed, clothed, accommodated, served, by the producers of goods and services of the country, as the members of these teams were spending their salaries and wages. Therefore it is the people of the country, by their labours, by their accrued production as much as was needed, who have really paid for the dam's undertaking. The banks have only produced the “tickets”, the figures serving as a means of payment, to facilitate all of these transactions.
The dam is the production of the country's people. It should therefore clearly be its own property. Yet, there is a debt entered against the people, equal to the price of what it produced itself, a 180-million-dollar debt. And the 180 million are no more in the people's hands. Week after week, the money is returned to its source. The people do not have this money anymore, and it will be demanded of them just the same, gradually through the payment of their hydro bills.
The people paid for the dam by their work. They will have to pay for it a second time through their hydro bills, or through taxes, or through both combined, to remove this 180-million-dollar debt. They will pay, over and above this, the interest on this 180 million, and if the repayment takes time, the interest could equal, or even exceed, the 180 million. Therefore, the people will work a second time, a third time, to pay for what they have already produced.
This is purely and simply a confiscation of the fruits of the people's labours.
Commenting on a similar example, James Guthrie wrote in Australia's bi-monthly, the New Times:
“We find ourselves here face to face with property confiscation which, although very well accomplished through less direct methods than in Communistic countries, is still no less effective. And precisely because of its indirect route, it is probably much more dangerous.
“If one takes into consideration all that mankind has built through physical activities on the surface of this planet through thousands of years, it is difficult to comprehend why the great majority of these individuals of each generation must begin their lives as being underprivileged, having to begin practically from nothing, at least in a financial sense.
“Mankind from each generation realizes that, practically, none of the physical assets built by their precursors are credited to them, and they receive no dividends from them. To the contrary, these physical assets appear as financial liabilities emerging in ever-increasing prices.
“If we are to receive no credit, nor any dividends, from the colossal efforts represented by our national assets, and if we are to receive no reduction of prices from the usage of processes from automatic production, there is the explanation as to why so many of our efforts remain absolutely without profit for ourselves, for our families, for our people.
“The financial conditions in which we are trying to work have no relation whatsoever with the physical facts. They were only able to be upheld while doing away with all the vital information on the matter...”
All people realize that the cost of living increases, even while the production becomes more and more easy because of sophisticated techniques. But few people grasp the fact that they are literally robbed from a portion of their production. Collectively speaking, as a country's population, of a province, it is however very clear, for so few look at it closely.
If you were to build yourself a house or a barn, you would most certainly not allow one to say to you: “You built the house and the barn. Wel<%18>l<%0>! Only the house is your exclusive possession; the barn, you can use it, but you are going to pay for it, year after year, to people who have not spent one minute of their time nor one ounce of material to build it.”
This is nevertheless what happens concerning public works. Let us return, for example, to the case of our 180-million-dollar dam:
For five years, the people of the country supplied all that was required, by way of materials and labours, also by way of consumer goods, food, clothing, etc., to build the dam. They supplied both the dam and the consumption goods.
Then, at the end of five years, what did the population get? They received the consumer goods, as they requested them by spending their wages and salaries, and as the producing system supplied them. But they did not exclusively receive the dam itself. They have the use of the dam, but they are told that they owe it to someone.
The people produced everything, but they only get a portion of their production: the consumer goods. The other portion, the capital goods, is entered as a debt. The population is debited with what it itself produced!
The population is robbed of its capital good. It's robbed of its economic expansion. It is not deprived of it, but it must pay for it after having made it itself. To be freed from it, it must supply by working, twice, three times the equivalent of the product.
And how can one explain this? One can explain it by a fraudulent financial system that changes a physical asset into a financial debt.
There is no economic expansion without a monetary expansion to facilitate transactions. Therefore, in our system, there is no monetary expansion without an increase in debt, since all new credit comes out from the banking system under a form of debt, and a debt burdened with interest. This is the way that the monetary expansion transforms into debt the economic expansion that is an asset.
There is a complete divorce between finance and economic realities. And since finance enters into everyday economic life and into all corners of the country, this fraudulent system totally poisons the whole economic life in all of its nooks and crannies.
To be in conformity with the facts, in paying consumption for a year, or for any given term, the population would obtain all of its production for that year or that given term. As it was so ably expressed by Douglas, the founder of Social Credit: “The real price of production is its consumption.”
If we were living in a Social Credit financial system, the dam would be financed, as it is built, through credits issued by a national monetary organism, which could very well be the Bank of Canada. Once the dam is built, it would clearly be the property of the country. It would have been paid by the labours, by the accrued production allowing this expansion.
If a country's population is capable of producing, at the same time, capital goods and consumer goods, there is no legitimate reason for the population to be debited with the capital goods.
It would only be in a case where it would receive something without having produced it itself that a population could become indebted. It would be the case at home if Americans or Mexicans would come to build our dams, our roads, and yet, the materials or the manpower that our country would supply would have to be credited to us.
Public debts – national and provincial – are nonsensical, and their services, through taxes from taxpayers, are a robbery.
In a Social Credit financial system, the country's entire production, during a year or a given term, would be entered to the country's credit; all consumption during that same period of time would be entered as a debit. The difference between both would be shown as an enrichment. This enrichment would be distributed out to the country's citizenry, through a national dividend and through a general discount over all retail prices, a compensated discount to all retailers, in order to satisfy the requirements of the accounting prices.
It is then that one would see: 1) the elimination of public debts and taxes which correspond to them; 2) a decrease in the cost of living, as production techniques would progress. It would be the expression of physical realities, and no more that of a false and faking financial system, which would cause the cost of living to go up when production is more easy.
For the time being, as long as we have not yet decided to put the financial lies aside for a finance reflecting realities exactly, public developments – federal, provincial, municipal – should at least be financed through credit advances without interest, supplied by the Bank of Canada. The borrowing-public corporations would still have to gradually pay back these fund advancements, since we're still hanging on to this system, but they would at least be rid of interests, which are no more and no less a punishment inflicted on the ones who are developing the country.
We shall come back on this subject.