As most of the regular readers of the “Michael” Journal should know, the fundamental flaw of the present financial system is that all the existing money has been created by the banks, as a debt: banks create new money, money that did not exist before, every time they make a loan. These loans must be returned to the banks, but increased with interest.
Even coins and bank notes, which, in Canada, are respectively issued by the Canadian Mint and the Bank of Canada — two State-owned institutions — are put into circulation only when they are lent at interest by the private chartered banks. And it is precisely this interest, which is charged at the origin of money, that creates the problem, a mathematical impossibility to pay the loan back: the bank creates the principal it lends, but does not create the interest that must also be paid back.
For example, let us suppose that the bank lends you $100, at 10 per cent interest. The bank creates $100, but wants you to pay back $110. You can pay back $100, but not $110: the $10 for the interest does not exist, since only the bank has the right to create money, and it created $100, not $110. The only way to pay back $110, when there is only $100 in existence, is to also borrow this $10 from the bank... and your problem is not solved; it has only gotten worse: you now owe the bank $110, plus a 10-per-cent interest, which makes $121... and as years pass, your debt gets bigger; there is no way to get out of it.
Some borrowers, taken individually, can manage to pay back their loans in totality, the principal plus the interest, but all the borrowers as a whole can not. If some borrowers manage to pay back $110 when they received only $100, it is because they take the $10 that is missing in the money put into circulation through the loans granted to other borrowers. In order for some borrowers to be able to pay back their loans, others must go bankrupt. And it is only a matter of time before all the borrowers, without exception, find it impossible to pay the banker back.
And note that even with an interest rate of only 1 per cent, the debt would still be unpayable: if you borrow $100 at 1-per-cent interest, you will have to pay back $101 at the end of the year, while there is only $100 in circulation. This means that any interest charged on newly-created money — even a 1-per-cent interest — is usury, is a robbery, is a racket.
Some may say that if one does not want to get into debt, one has only not to borrow. But if no one borrowed money from the banks, there would simply not be a penny in circulation at all: in order to have money in circulation in our country — if only a few dollars — someone — an individual, a corporation, or the Government—must borrow these dollars from the bank, at interest. And this money borrowed from the bank cannot remain in circulation indefinitely: it must be returned to the bank when the loan is due... and returned with the interest, of course.
This means that just to maintain the same amount of money in circulation, year after year, unpayable debts must pile up. In the case of public debts, the bankers are satisfied as long as the interest charges on the debts are paid. Is it a favour they do for us? No, it only delays the financial impasse for a few years since, after a while, even the interest on the debt becomes unpayable. (See example in the next chapter.)
If debts do not pile up, there can be no money in our country. So one should not be surprised to see the public debts of all the nations reaching astronomical proportions: for example, Canada's public debt, which was $24 billion in 1975, reached the $200-billion mark ten years later. (In January, 1995, the debt of the Canadian Government reached the $500-billion mark, with interest charges of about $49 billion per year, or one-third of all the taxes collected by the Federal Government. If one adds the debts of the provinces, corporations, and individuals, one gets a total debt in Canada of over 2,800 billion dollars.) Even though you take all the money that exists in Canada, even the money in saving accounts, it will not be sufficient to pay off the debt. And the same situation prevails in all the countries in the world.
It is impossible to pay off the public debt, since it is made up of money that does not exist. Many Third-World nations have realized this absurdity, and stopped servicing their debts. In fact, these loans to Third-World countries are far from helping them: on the contrary, they impoverish these nations even more, since these nations must pledge to pay the bankers back more money than what was lent, which makes money tighter among the people, and condemns them to live in poverty and starvation.
But can a country be run without borrowing the bankers' debt-money? Yes, and it is very easy to understand: It is not the banker that gives money its value; it is the production of the country. Without the production of all the citizens in the country, the figures lent by the bankers would be worthless. So, in reality, since this new money is based on the production of society, this money also belongs to society. Simple justice therefore requires it to be issued by society — interest free — and not by the banks. Instead of having a money created by the banks, a banking credit, one would have a money created by society, a social credit.
As Louis Even said, “Interest at the origin of money is illegitimate, absurd, anti-social, and anti-arithmetic.” To charge interest on newly-created money is therefore a very great crime that cannot be justified. As a matter of fact, the only passage in the Gospel where it is mentioned that Jesus used force, is when He drove the money changers out of the Temple with a scourge of cords, and overthrew their tables (as reported in Matthew 21:12-13 and Mark 11:15-19), precisely because they were lending money at interest.
There was, at that time, a law that the tithes or taxes of the Temple could be paid only in one certain coin called the “half shekel of the sanctuary”, of which the money changers had managed to obtain the monopoly. There were several different coins at that time, but the people had to obtain this particular coin with which to pay their Temple Tax. Moreover, the doves and the animals that the people bought for sacrifice also could only be bought with this same special coin that the money changers exchanged to the pilgrims, but at a cost of twice or more times its actual worth, when it was used to buy commodities. So Jesus overthrew their tables and said: “My house shall be called a house of prayer; but you have made it a den of thieves.”
In his book, Money and Its True Function, F.R. Burch has the following comment on this text of the Gospel:
“As long as Christ confined His teachings to the realm of morality and righteousness, He was undisturbed; it was not till He assailed the established economic system and cast out the profiteers and overthrew the tables of the money changers, that He was doomed. The following day, He was questioned, betrayed on the second, tried on the third, and on the fourth, crucified.”
One would be tempted to make the parallel with the Pilgrims of Saint Michael, the “White Berets” of the “Michael” Journal: as long as they content themselves with talking about moral renovation, the Financiers can still tolerate it; but when the “White Berets” dare to attack the debt-money system, this is an “unforgivable sin”, and the Financiers are then ready to do everything to silence the “White Berets”. But these attempts of the Financiers are vain, since the truth always triumphs in the end.
The Bible contains several texts that clearly condemn the lending of money at interest. Moreover, more than 300 years before Jesus Christ, the great Greek philosopher Aristotle also condemned lending at interest, pointing out that “money, being naturally barren, to make it breed money is preposterous.” Furthermore, the Fathers of the Church, since the remotest times, always denounced, unequivocally, usury. Saint Thomas Aquinas, in his Summa Theologica (2, 2, Q. 78), thus summarized the teaching of the Church on lending money at interest:
“It is written in the Book of Exodus (22, 24): `If you lend money to any of my people who is poor, that dwells with you, you shall not be hard upon them as an extortioner, nor oppress them with usury.' He who takes usury for a loan of money acts unjustly, for he sells what does not exist, and such an action evidently constitutes an inequality and, consequently, an injustice... It follows then that it is wrong in itself to take a price (usury) for the use of money lent, and as in the case of other offenses against justice, one is bound to make restitution of his unjustly acquired money.”
In reply to the text of the Gospel on the parable of the talents (Matthew 25:14-30 and Luke 19:12-27) which, at first sight, seems to justify interest (“Wicked and slothful servant... why did you not put my money into the bank, so that I might have recovered it with interest when I came?”), Saint Thomas Aquinas wrote: “The interest mentioned in the Gospel must be taken in a figurative sense; it means the additional spiritual goods asked of us by God, who wants us to always make better use of the goods He entrusted us with, but this is for our benefit and not His.”
So this text of the Gospel cannot justify interest since, as Saint Thomas says, “an argument cannot be based on figurative expressions.”
Another passage of the Bible that presents difficulties is Deuteronomy 23:20-21: “You shall not demand interest from your brother on a loan of money or food or of anything else. You may demand interest from a foreigner, but not from your brother.” Saint Thomas explains:
“The Jews were forbidden to take interest from `their brothers', that is to say, from other Jews; this means that demanding interest on a loan from anyone is wrong, strictly speaking, for one must consider every man as `one's neighbour and brother', especially according to the evangelical law that must rule mankind. So the Psalmist, talking about the just man, says unreservedly: `he who lends not his money at usury' (14:4) and Ezekiel (18:17): `a son who accepts no interest or usury'.”
If the Jews were allowed to demand interest from a foreigner, Saint Thomas wrote, it was tolerated in order to avoid a greater evil, for fear that they might charge interest to other Jews, the worshippers of the true God. Saint Ambrose, commenting on the same text, gives to the word “foreigners” the meaning of “enemies”, and concludes: “One may seek interest from the one he legitimately wants to harm, from the one whom it is lawful to wage war with.”
Saint Ambrose also said: “What is usury, if not killing a man?”
Saint John Chrysostom: “Nothing is more shameful or cruel than usury.”
Saint Leo: “The avarice that claims to do its neighbour a good turn while it deceives him is unjust and insolent... He who, among the other rules of a pious conduct, will not have lent his money at usury, will enjoy eternal rest... whereas he who gets richer to the detriment of others deserves, in return, eternal damnation.”
In 1311, at the Council of Vienna, Pope Clement V declared null and void all secular legislation in favour of usury, and “all who fall into the error of obstinately, maintaining that the exaction of usury is not sinful, shall be punished as heretics.”
On November 1, 1745, Pope Benedict XIV issued the encyclical letter Vix Pervenit, addressed to the Bishops of Italy, about contracts, and in which usury, or money-lending at interest, is clearly condemned. On July 29, 1836, Pope Gregory XVI extended this encyclical to the whole Church. It says:
“The kind of sin called usury, which lies in the loan, consists in the fact that someone, using as an excuse the loan itself — which by nature requires one to give back only as much as one has received — demands to receive more than is due to him, and consequently maintains that, besides the capital, a profit is due to him, because of the loan itself. It is for this reason that any profit of this kind that exceeds the capital is illicit and usurious.
“And in order not to bring upon oneself this infamous note, it would be useless to say that this profit is not excessive but moderate; that it is not large, but small... For the object of the law of lending is necessarily the equality between what is lent and what is given back... Consequently, if someone receives more than he lent, he is bound in commutative justice to restitution...”
The teaching of the Church on this matter is therefore quite clear but, as Louis Even wrote (in the previous chapter): “In spite of all Christian teaching to the contrary, the practice has made so much headway that, so as not to lose in the furious competition around the fertility of money, everybody must behave today as if it was natural for money to breed money. The Church has not abrogated her laws, but it has become impossible for her to insist on their application.”
On this matter, it is interesting to consider the experience of the Islamic banks: the Koran — the holy book of the Moslems — forbids usury, as the Bible of the Christians does. But the Moslems took these words seriously and have set up, since 1979, a banking system that conforms with the rules of the Koran: Islamic banks charge no interest on either current or deposit accounts. They invest in business, and pay a share of any profits to their depositors. This is not the Social Credit system implemented in its entirety yet but, at least, it is a more than worthy attempt at putting the banking system in keeping with moral laws. On this point, the Christians should be inspired by this example of the Moslems.
This article should have shown clearly enough that any interest on newly-created money is unjustifiable. But this may bring some fear among those who have money deposited in banks: if interest is thus condemned, will they still receive some interest on their money deposited in banks? Read what Mr. Even wrote in the previous chapter, under the subtitle “Interest and dividends” (“So that our readers do not pass out…”).
Mr. Even concluded that money can claim dividends where there are fruits. Otherwise, no. But in order to make this possible, the production increase must automatically create an increase in money. Otherwise the dividend, while being perfectly justifiable, becomes impossible to give in practice.
In the example of the $5,000 that was used to buy ploughing implements, the lender is entitled to a share of the results, since production increased, thanks to his loan. If he accepts to be paid in goods, there is no problem. But if he wants to be paid in money, it is quite another story since, even if production increased, there was no corresponding increase in the money in circulation. The Social Credit system, which makes money come into being interest free, as new production is made, would settle this problem.
And for those who worry about the fate of the banks if they did not charge interest on their loans, let us just mention for now that the wages and salaries of their employees would be paid by the National Credit Office, the authority in charge of the creation of new money in the country. (This point is explained in detail in Louis Even's brochure: A Sound and Efficient Financial System.)
Just like Our Lord drove the money changers out of the Temple, it is high time we drove out the International Financiers and their debt-money system, and set up an honest debt-free money system — money issued by society. May this passage of the Gospel inspire us, and let us ask Christ to fill us with the same zeal as His for the interests of God and for justice.
| Previous chapter - Should Money Claim Interest? | Next chapter - The Public-Debt Problem |
Alain Pilote has been the editor of the English edition of MICHAEL for several years. Twice a year we organize a week of study of the social doctrine of the Church and its application and Mr. Pilote is the instructor during these sessions.
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