The Economic Democracy solution

Having established the shortcomings of the current financial system, Douglas devised an ingenious system to correct the flaws and ensure that the economic system achieved its goal, which is the satisfaction of human needs or, in other words, ensuring that goods reach the people who need them.

Production only works according to the orders it receives. Orders are a function of consumer purchasing power. This purchasing power depends on the money in the hands of consumers who have needs to satisfy. Given enough money, consumers can choose, or "vote" for the products of their choice. If we think of money as a ballot, we can speak of an economic democracy, where each citizen has enough money to "vote" and obtain the products he wants. As Douglas puts it, we would have an aristocracy of producers serving a democracy of consumers, with the latter ultimately dictating what would or wouldn't be produced, depending on which products they choose to buy or not.

As we saw in the previous article, the basic problem with the current financial system is that money is created in the form of debt by commercial banks, since they only lend money which must be repaid with interest. There's a double injustice here: charging interest - demanding repayment of money that doesn't exist - and the fact that bankers see themselves as the owners of the money they lend, whereas the genuine value of money is based on a country's production - which is the fruit of natural wealth, inventions and the toil of all the country's workers. Money's value is certainly not the fruit of bankers, who merely lend out figures.

Essentially money is a tool that enables the country's productive capacity to be generated. Money is not a tangible good. We don't eat money, it is a ticket exchangeable for tangible goods, like food, clothes, housing, etc.

Instead, we should think of money as a unit of measurement, like centimeters or inches. One of the slogans of Economic Democracy is: "Make financially possible what is physically feasible". If every time the population wanted a public project, such as a new bridge, the government asked, "Do we have the materials, the know-how and the workers to build it?" rather than "Do we have the money?" we would have all the infrastructure we required.

If the necessary materials, know-how and workers were available, the National Credit Office would create the money necessary to finance the project. To say we don't have the money to build a bridge is as ridiculous as saying we can't build the bridge because we don't have enough centimeters.

Interest-free money issued by society

The Economic Democracy system aims to make money an accurate reflection of economic realities. Accordingly, issuing or printing money willy-nilly, irresponsibly or without limits or according to the whims of politicians in power would not occur. Douglas proposed a system in which the Government would appoint an independent body, a commission of accountants who would form a "National Credit Office" that would be assigned the task of establishing accurate bookkeeping. Money would be issued at the rate of production and withdrawn from circulation at the rate at which goods and services are consumed. An equilibrium would thus be achieved between the productive capacity and the capacity to pay and between prices and purchasing power.

The Pilgrims of St. Michael is seeking that the Government cease borrowing money from private banks. Money can instead be created interest-free, and without indebtedness, through its Central Bank. Graham Towers, the first governor of the Bank of Canada, stated in 1939 before a House of Commons committee, that this was entirely feasible, after being asked, "Why should a government pay interest on money that it can itself create free of interest?"

During the Second World War, the Bank of Canada created as much as 50% of the country's money, without inflation. Today, it creates less than 2%. The remaining 98% is created by private banks as loans. Many people are unaware of this fact. They do not know that private banks, unlike other lenders, create the money they lend out of nothing and that they do not circulate their depositors' money as loans.

Whether money is created by the Bank of Canada or by private banks, it needs to be created somewhere. It is made of the same figures, it is based upon the same production, our country's production. The only difference, but a sizable one, is that if the Government borrows money from its own Central Bank, it does not create debt.

The proposed model includes two modes of distributing new money which are Compensated Discounts and Dividends.

Compensated Discount

If the available production in the country is $12 billion and the purchasing power is only $9 billion, the National Credit Office would establish a 25% discount in prices on all products sold to the consumer. This method reduces prices to the level of available purchasing power. The discounted 25% would then be returned to the retailer by the Credit Office.

Thanks to this price discounting feature, inflation would be impossible as the discount lowers prices. The best way to stop the inflation of prices is to make them go down!

The Dividend

Wages are only one component of the cost of the production of any item and wages alone are not sufficient to buy all existing production. The National Credit Office would distribute a monthly Dividend to each citizen, a sum of money to make up for purchasing power, and to ensure that everyone had their share in the country's goods.

A dividend traditionally represents the share of a company's profits paid out to each shareholder of a company. It could be said that all citizens of the country, Canada for example, are shareholders in Canada Limited, since they are co heirs to the two greatest factors of modern production, the inheritance of natural resources and the innovations and inventions of past generations, both of which are gifts from God to all and therefore belong to everyone. Those working in production would still receive their wages, but all, salaried and non-salaried alike, would receive a Dividend.

This Dividend would not be taken from the taxes of those who work, but would be financed by new money created by the National Credit Office. No one would be living on taxpayers' money.

There are three basic principles in Economic Democracy:

1. debt-free money issued by the government, society's representative, according to production and withdrawn from circulation according to consumption;

2. a monthly Dividend to all citizens;

3. the Compensated Discount. All three are necessary; remove one of these three principles, and the rest fail.

Economic Democracy, as summarized in the preceding paragraph, has one goal which is to finance the production of goods that truly meet needs, and to finance the distribution of these goods so that those needs may be met. A review of the attached figure will show that money does not accumulate at any time; it follows the path taken by production, entering circulation at the rate at which production takes place, and taking the route of its return toward its source, the National Credit Office, at the rate at which goods are consumed which is at the time they are bought at a retailer's. At all times, money is the exact expression of reality. Money appears when a new product appears, and disappears when it is consumed.

                                                      Alain Pilote