Thanks, Tim. The essential (money supply increased etc.) wording in my
comment was copied directly from our NZ Monetary Commission report.
The key point is that in each case the bank creates credit out of nothing.
Existing money is not involved. And use or receipt of it by the customer
increases the money supply; new money is created. I believe early American banks
short cut this process by showing the loan directly as a deposit in the
borrrower's account, but the result is the same. It is exactly the same process
as a forger increasing the money supply by printing his own note-copies. The bank
regards the new money as its own; the forger uses his notes as his own.
You are absolutely correct in stating that no new wealth has been created.
Money has been created and an equivalent debt to the bank has been created. If
it is a loan, the bank has, in effect, monetised your asset, which it shows as
its asset to the extent of the loan.
And sure, although the purpose would be a nonsence, the process could be
reversed and the debt etc. wiped out.
But as the system progresses, another factor comes in. In modern economies, to
a 98% or thereabouts level of veracity, the only source of money is that lent
into circulation by the banks, which require repayment of principle plus
interest. Interest can only be paid out of new loans. so the general level of
indebtedness of the economy (public and private) must compound. Test this
statement against the fact that practically all nations, especially the "rich"
ones have a large and increasing debt structure.
Were the situation such that the banks paid out in salaries, rents etc.
sufficient to "pay the interest", the system would be self liquidating, but the
indebtedness level shows that they do not. Like other commercial organisations,
to use a very loose term for the process, they "reinvest".
Please be aware that I have given you no part of Social Credit theory in this;
I have simply outlined one problem in the present monetary system that S.C. takes
into account. There are other factors such as depreciation allowances, paid out
in one cycle of goods but charged into two, which also may cause a discrepancy
between prices of goods and money available to the consumer ("purchasing
power"). And increased bank lending, while projecting still more costs into future
production of goods, may fill this need in part, or in full, or in excess so that
demand-pull inflation actually occurs.
While I am dealing with the financial aspects, I would also accentuate the
stress others have placed on the philosophy of accent on the worth of the
individual. Social Crediters use this approach in relation to all aspects of
community affairs, financial or otherwise.
And perhaps in passing, a comment on the A+B model that may help you. Douglas
discovered that no industry he studied paid out enough in purchasing power to buy
its own goods. Therefore this applied to all similar industries, i.e. the
productive economy as a whole. Nobody has proved his data incorrect, therefore at
this level the model must be taken as a fact. The theoretical part comes in when
we claim that this applies to the whole economy, productive industry and other
facets. Proving this, it it can be done at all, is a minefield of assumptions
and conjecture, or at least can be made to appear so. For something like 80
years, SC has been at least partially bogged down in this approach, largely by
trying to answer attacks by its opponents on these grounds. But if we, in
scientific fashion, test the idea against reality, it gives
satisfactory explanations of observed facts that orthodox economics can not
explain. Its value becomes readily apparent.
Regards. John R.
>From: "Tim Knight" <Tim_Knight@NTLWorld.Com> >Reply-To:
socialcredit@elistas.com >To: <socialcredit@elistas.com> >Subject: Re:
[socialcredit] Social Credit from First Principles >Date: Sun, 24 Apr 2005
23:09:35 +0100 > >John G Rawson kindly replied to my notes requesting help in
getting a grip on what Social Credit people mean by very basic expressions such
as 'money', 'issuing money', 'credit' and 'issuing credit'. > >John G Rawson
wrote: > >A bank "increases the money supply" when it buys an asset, e.g. a
building. If its cheque is deposited at another bank, it has to accommodate that
debt with it. If deposited with itself, it gets it "for nothing". Either way, the
banking system "gets it for nothing". If they can do it, the nation can, just as
the kings of old could
issue gold coins without incurring debt other than the costs of minting etc. And
electronic impulses don't need minting! > >Tim Knight now writes: > >Surely, the
bank does not 'get it for nothing'. The bank has to credit either the account of
the seller or the account of the seller's bank. That debt is an asset in the
sleer's books and an equal liability in the bank's books (just like every other
account with a positive balance). > a.. The bank acquires owned-wealth (i.e. the
property) and an equal liability (the owed-wealth recorded in the account). > b..
The seller conceedes owned-wealth (i.e. the property), and acquires an equal
asset (the owed-wealth recorded in the account). >Neither party is richer or
poorer. No wealth is created or destroyed. If a bank could simply 'deny' such a
liability, we could all deny our mortgage, credit-card, and utility bills etc.!
The idea that any economic entity (state, treasury, central bank, merchant bank,
retail bank, building society, creative accountant, Enron Finance Director, or
whatever) could create wealth 'out of thin air' in the way John suggests is
surely pure wishful thinking. If anyone thinks it can be done, please tell us
all, and we can all be rich (with servants) whilst none of us need to be servants
(and pigs will be able to fly!). > >The global aggregate of net-wealth must equal
the global aggregate of owned-wealth. The global zero-sum network of owed-wealth
is (or ought to be) simply a zero-sum book-keeping exercise which 'keeps the
score' on where we are in our non-barter trading and employment activity. Those
who have sold more owned-wealth than they have bought accumulate a net positive
balance, and those who have bought more owned-wealth than they have sold
accumulate a net negative
balance. The grand total (of course) is zero. > >Surely, the owed-wealth
position between the seller and the bank, and the changes to that position, can
be called money, non-money, 'credit' or 'money-supply' as the mood takes you, but
that is more a question of semantics (the meaning of words) and administration
rather than economics. It doesn't matter whether you call a particular debt a
cash account, a receivables account, a payables account, a current account, a
deposit account, a credit-card account, a mortgage account, a tweedle-dum account
or a tweedle-deed account. Surely, from an economic perspective, a debt is a debt
is a debt is a debt. Each debt is an asset in one set of books and an equal
liability in another. > >Surely also, from an economic perspective, specie coins,
valued at their intrinsic value, are simply a subset of owned-wealth, like a
washing machine or
real estate. Use of such coins for settlement of debts created by trade and
employment is a subset of barter. How do you differentiate between the gold in a
shoe-buckle and the gold in a coin used to 'pay' for the shoe. Or is there any
economically-meaningful distinction to be made? > >Best Wishes > >Tim Knight
>Tim_Knight@NTLWorld.Com > >
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