Demystifying money and its role

Mr. Bill Daly is a long-standing Social Crediter of New Zealand, who attended our Congress this year, and delivered a brilliant lecture on the distinction between the real physical world and the world of money:

There is a saying that when a problem is correctly understood it is already half solved. Our money problem is not understood and the subject is surrounded by superstitions and myths. Money and the money system are human inventions. When Christopher Columbus came to the Americas and Captain Cook to Australia and New Zealand they did not find any money, nor did they bring shiploads of dollars. People established these systems and created some money.

There is a common belief that money is created when goods are manufactured or food grown by a farmer. But money creation is done by a different organisation altogether. This function is undertaken by the banks.

It happens like this. When a factory receives an order to supply goods it has to buy raw materials, pay labour and meet its overheads in the process of making these goods. The bank provides an overdraft facility. The factory meets its expenses by drawing upon this. When the company sells and gets payment for its new production it pays this to its account at the bank and the overdraft is cancelled out. The money no longer exists. Every day billions of dollars are created and cancelled in an ongoing dynamic process. It's an accounting procedure.

We should have no objection to this basic function of the banks. It is an administrative service provided to society. It is a vital function and essential to facilitate modern production. But because there is presently a financial monopoly this influence or power is usually directed to encouraging monopolisation elsewhere. We see this in financial pressure and propaganda at the levels of government and industry.

Mostly such propaganda is opposite to the facts. There is plenty of evidence that usually smaller farms and enterprises are, when it comes to real physical facts, more efficient. And decentralised political structures are usually more satisfactory for citizens. The true purpose of having a production system is to meet the requirements of people and efficiency should be a measure of human satisfaction.

There is a principle known as subsidiary. It was widely acknowledged in the old Catholic Europe. It means that nothing ought to be undertaken by a larger organisation that can be adequately undertaken by a smaller one. If smaller family farms can supply a society's food then that's what should happen. If smaller factories can provide the things that people in that locality want then they should. Subsidiary basically means that when things are measured in physical terms, that is in the energy, materials and human time required smaller scale and localisation are more efficient.

We need larger enterprises only when we want things like jet airliners and ships that can't be made in any other way. It is a simple case of whatever works best is best.

In our minds we must see the difference between the real cost of things and their financial costs. The real cost of making a pair of shoes, is the raw materials, and the time and personal consumptions of the people involved. The financial cost is the end result of the accounting process involved and is a figure written in monetary terms. It has been society as a whole that has provided the food and other material needs consumed by the workers in the shoe factory.

By distinguishing between the real physical costs of making things and the financial measurement of these costs we save ourselves a great deal of difficulty.

This then allows us to distinguish between the real physical world and the world of money. The physical world is the world we can touch and see; the earth with its wonderful beauty and enormous provisions; the existing infrastructures in our countries of houses and factories, roads, power stations, electrical transmission lines, communication and transportation systems; highly developed systems of management and production, governmental systems, facilities for research and invention, and so much more. All these things are real wealth. The accounting mechanism called money creates a financial figure by which we can put a measure on these.

What should be the purpose of having a production system? It is to provide for consumption. It's that simple. Its primary role is not to provide employment or exports.

This raises a philosophical question concerning how we see ourselves and others. Are we economic units or is the purpose of our lives and of everyone else of greater significance which requires the greatest possible individual freedom and opportunity for personal development. This is really a spiritual issue, but it can't be separated from discussing the role of money in society.

Every collectivist movement believes that people are economic units. This is the belief of the communists and socialists, the Nazis and Fascists. And it is a belief of monopoly capitalism and in recent centuries of the more puritanical elements within Christianity. It is really a horrible belief and denies the deeper requirements of human nature which are essential for personal spiritual development. And the main tool by which the collectivist inclination is imposed is monopolised finance. In Stalin's Russia it was the bayonet. The financial mechanism is thus perverted.

It does perform to some extent its rightful function but its monopolised position has put too much power into the hands of people who are not elected political representatives; it gives them undue influence over government, the media, industry and education; and caused an enormous and artificial system of unrepayable money debt to be imposed on every sector of society and to every comer of the world.

The pressure to endlessly increase production and trade, with its resultant pollution, wastage of peoples'time and materials, is a financial pressure. It causes junk items and people everywhere and their families and towns and cities to be disrupted and stressed by the pressures of money debt. It forces our farmers and business folk to take cost cutting and production increases to unnatural excess.

Technically the solutions are quite simple. Politically and philosophically there is a bit more involved. Technically, it is a simple matter of firstly recognising the natural functions of money, of grasping how it presently operates. Then we can see that the money system is not completely wrong. But it needs correcting.

The money system must be put into its correct place in society. Its natural relationship to society is much the same as the relationship of an accounting department to a large company. The role of the banker is as society's bookkeeper.

The financial corrections required include that the financial system needs not only to provide the financial credits needed for the production system to produce, but that consumption be also satisfactorily financed.

Conventional economics mistakenly teaches that industry does distribute sufficient money to society to buy everything produced. But conventional economic doctrine leaves out the factor of time from its equation. When we factor in time we see that less money is distributed to society than is required to cancel the prices of the goods distributed in that same period.

Without some other factors this would cause commerce to come to a quick stop. So why doesn't it? Because the problem is recognised, even if only in a clumsy and almost unconscious way by government economic advisers and bankers. Hence, there is a huge and continuous flow of new money from the banks that goes directly toward financing consumption. We loosely call it consumer debt. It is provided for consumption via credit cards, personal loans and overdraft facilities, mortgages on private properties and various schemes for time payment.

Society's bookkeepers should ensure the adequate financing of the manufacturing of the products demanded by consumers and also ensure that consumption is also properly financed without leaving a long trail of debt long after the goods have been consumed. The banking or money system is a book-keeping or accounting system. It must be sensibly administered.

Claims that a money system should be based on gold or some other precious metal only show a lack of appreciation of what money and its function is. Money is required for production and consumption. When the particular goods have been consumed that money needs to be withdrawn from existence. This is not complicated. It is just a matter of book keeping and it is largely how the system presently functions, except that the financial monopoly imposes permanent debt on everyone, resulting in undue stresses and higher charges and taxes.

The realistic analysis of the money system after World War One was able to be made by Clifford Douglas because he was an engineer, not a trained economist with his head full of myths and superstitutions and vague theories.

Instead of the banks loading consumers with endless unrepayable debt Social Credit has proposed the issue of a personal national dividend to everyone and a discounted price. This would make up the short fall in purchasing power and recognises that our machine age makes possible a society with increasing economic freedom for all.

The easiest way to understand this is to forget momentarily about money and just look at the real physical world. If modern technology allows the increasing use of machines and robots in manufacturing this does not cause any shortage of real goods or wealth. The purpose of making these things is still to meet the requirements of every member of society, and so everyone must be able to get access to these goods whether they were employed at that period or not.

The greatest factor in modern production are the increment of association and the cultural heritage, which is all the accumulation of knowledge and technology, much of which has been bequeathed to the world by people who are now long dead. Who invented the wheel, or the cogged gear for example. The knowledge about these is now common property.

None of this necessary financial correction threatens private ownership as the socialists advocate. A factory or a lathe is the private property of those who have been enterprising or benefited from a family inheritance. But the products of the factory have a more communal nature in that they could not be made without the knowledge behind their manufacture, behind the invention of the lathe, of the huge infrastructure of roads, electricity and communications. A social dividend is the right of all people in the modern world.

The existing money system is highly developed. It does facilitate an enormous co-operation between people all over the world but it needs some corrections. If we fail to do this there will be increased wastage of materials and peoples lives, of pollution, of the breakdown of towns and cities as governments find it increasing difficult to finance maintenance.

In conclusion I must emphasis that the proposals known as social credit are not a scheme or plan to relieve poverty. Social Credit is not in fact a scheme at all. It is a way of seeing things, of seeing the reality of the physical world in which we live; of getting around the obscurities caused by conventional money-dominated economic thinking.

From this greater view of reality comes the suggestions of financial correction associated with the social credit movement. It would of course greatly relieve poverty. It would do much more than this. It would provide everyone with the basic economic security they require. It would achieve this not as some sort of good will scheme run by better thinking governments, but because the material world made by God provides sufficient abundance for all.

Bill Daly