Page 31 - Michael October 2021

morselessly. As taxation increases, so individual se- Instead of being more free, man is enfettered.
curity decreases. Instead of enjoying better health with shorter hours,
It is the most tragic irony of our civilization today labor-saving devices and social services, many dis-
that although man has solved the age-old problem eases, and especially diseases of the nervous system,
of dire poverty and scarcity, although his inventive are more widespread than ever before.
genius has given the world an age of plenty, we have The money-creation and debt story is the same
become individually more and more enmeshed in the all over. Nations are now wallowing in crisis, through
heavy chains of debt. Progress has been purchased by a sea of debt and usury. v
tax bondage — and quite needlessly. Colin Barclay-Smith

A bank’s premises cost it nothing!

Did you ever wonder why the most beautiful its properties and securities out of profits or reserves.
buildings of a large city are always its banks? The an- But this idea is as illusory as the fiction that a bank
swer is that it actually costs banks nothing to build lends its deposits. Neither profits nor reserves are af-
their marvelous edifices. They are simply honoring fected by any purchase by a bank, because it hasn’t
their own cheques! Here is how Colin Barclay-Smith actually parted with anything.
explains it in his book, “It’s time they knew,” published The position is very different when an individual
in 1957. buys a premises. The cost of the purchase is debited
We have stated that most money comes into circu- to his bank account. The individual, though he has
lation as a debt to the banks. We say “most” of it does, acquired an asset, is down in his balance at his bank
the only money that does not originate as a debt to the to the extent of the transaction. But in the case of
banks is the money banks use in their own purchas- the bank’s purchase of a premises or securities, or
es. All money that a bank spends on its own behalf, indeed anything else, the cost is no more than a book
whether it is the payment entry in its own books.
of its employees’ salaries, As Ralph Hawtrey, one-
the purchase of a building time under-Secretary to the
site, a building, stocks and British Treasury, observed in
shares, printing, advertis- The Art of Central Banking
ing, stationery, etc., all such [published in 1970]: “Other
purchases put money into lenders have not this mystic
circulation debt-free. power of creating the means
Let us deal with the of payment out of nothing.”
statement that banks pur- You may object that if
chase properties or secur- bank “A” bought a premises
ities by the simple process and its cheque in payment
of honouring their own was deposited with bank “B”,
cheques. Take the case of the latter might not cooper-
a property or bank prem- ate. That is a possibility, of
ises. First, the bank draws course. But this is met by an
a cheque upon itself. This exchange of balances with
cheque is paid into some- other banks. If the banks
one else’s account — prob- work in harmony with each
ably at another bank. Thus other (as they do), they can
bank deposits are increased. meet their own requirements
To offset this purchase and acquire assets, at no real
in the bank’s balance sheet, Toronto’s bank district: the richest buildings cost to themselves.
there would be an increase in the bank’s assets, i.e., The foregoing may explain to the reader why the
premises. The accounting technique is to debit the banks have been enabled to acquire the most valu-
Premises Account with the amount of the purchase able building sites in cities and towns and erect such
and credit the same amount with the value of the asset. remarkably attractive premises. Most of the main
In a similar manner, a bank can purchase shares city banks are beautified with marble from floor to
or government securities. These would be paid for by ceiling, and the humble depositor feels like doffing
a cheque drawn on the bank and in due course the his hat, and standing in silent awe and admiration
amount of the cheque and purchase are placed to the in such an atmosphere of hallowed opulence and
debit and credit of the Securities Account. power. Now we know the secret of it. v
It may be argued, of course, that a bank pays for Colin Barclay-Smith

www.michaeljournal.org MICHAEL October/November/December 2021 31