|Subject:||[socialcredit] Report: Parliament of Tasmania - 1935|
|Date:||Friday, July 7, 2006 19:49:01 (-0700)|
|From:||MODERATOR <socredus @.....com>
PARLIAMENT OF TASMANIA
REPORT OF SELECT COMMITTEE, WITH MINUTES OF
Brought up by the Rev G.S. Carruthers on 29th October,
1935, and ordered by the House of Assembly to be
SELECT COMMITEE appointed on the 28th day of November,
1934, and reappointed on the 25th day of July, 1935,
to inquire into and report upon the Monetary System.
MEMBERS OF THE COMMITTEE Captain Cameron Mr Dwyer-Gray
Mr O'Keefe Mr Pearsall Mr Carruthers (Mover)
DAYS OF MEETING
1934: Wednesday, December 19, 1935: Thursday, January
10; Wednesday, January 16; Thursday, January, 17;
Friday, January 25; Saturday, January 26; Tuesday,
January 29; Monday, February, 18; Tuesday, February
19; Wednesday, February 20; Friday, September 27;
Tuesday, October 1; Thursday, October 17; Friday,
October 18; Wednesday, October 23; Thursday 24;
Monday, October 28; Tuesday, October 29.
Mr Harold James Exley, Deputy Commonwealth
Statistician; Mr David Robertson, Manufacturer,
Victoria; Mr Arthur Herbert Marshall, Director of
Clements and Marshall; Mr John Harold Watson; Mr
George Johnston McElwee, President of the Launceston
Branch of the Douglas Credit Association; Mr Maurice
Dubrelle Weston and Mr William Drake, Members of the
said Association; Mr George Raymond Field, Member of
the Deloraine Branch of the Douglas Credit
Association; Mr Henry Bye, Retired Acting Commissioner
for Railways; Mr John Rankin Harvey, Accountant; Mr
Alfred Edward Watson, Manager, ES&A Bank, Hobart; Mr
Frank Byron Cane, Company Promoter, Mr Frank Ernest
Ward, Director of Agriculture; Mr George Davey
Balsille, Director of Public Works; Mr Robert Milligan
Gore, Manager National Bank; Mr. Sidney Angel,
Manager, Commercial Bank of Australia; Professor
Torleiv Hytten; Mr. Allan Richardson, Recorder of
Titles; Mr. Stanley Rupert Adams, Manager, Agriculture
Bank; Mr. John Charles Foley, Commonwealth Divisional
Meteorologist; Mr. Frederick Howell Alt, Divisional
Engineer, Commonwealth Post & Telegraph Department;
Mr. Vere Isham Chambers; President of the Chamber of
Commerce, Hobarr, Mr. John Peters Piggott, Member of
the Chamber of Commerce, Hobart; Mr. Frank Richard
Mouldon, Professor of Economics, Tasmanian University.
The Select Committee appointed by Your Honourable
House on the 28th day of November, 1934, and
re-appointed on the 25th day of July, 1935, to inquire
into and report upon the following matters:-
1) Whether the people are being prevented by any
removable banking or financial circumstances, factor,
law, or condition from possessing, consuming, and/or
utilising and enjoying the increase of wealth and/or
the actual and potential increase of production over
the last thirty years; and, if so, the cause, and what
remedial steps should be taken: and
2) All matters and things appertaining and incidental
thereto - has now the honour to submit the following
report: - Your Committee held eighteen meetings and
examined a large number of witnesses, including Mr H S
Exley, Deputy- Commonwealth Statistician; Mr David
Robertson, Manufacturer, Caulfield, Victoria; Mr
Arthur Herbert Marshall, Managing Director of Clements
and Marshall, Devonport; Mr Alfred Edwazd Watson,
Manager, E S & A Bank; Mr Frank Byron Cane, Company
Promoter, Mr Frank Ernest Ward, Director of
Agriculture; Mr George Davy Balsille, Director of
Public Works; Professor Torleiv Hytten; Mr Stanley
Rupert Adams, Manager, Agricultural Bank; Mr James
Charles Foley; Mr Frederick Howell Ault, Engineer.
On the evidence placed before it the Committee finds
that the people are being prevented from possessing,
consuming, and/or utilising and enjoying the increase
of wealth and/or the actual or potential increase of
production over the last 30 years; that the cause of
this is shortage of purchasing power in the hands of
the community as a whole; and that this can be
effectively remedied only by -
1) Restoration to the sovereign community of effective
control over money in all its forms and;
2) The establishment by the Commonwealth Parliament of
machinery which would secure regular equation between
the community's production and the community's
The inquiries of the Committee have shown that, since
the basic wage was first fixed in 1907, the benefits
of the great advance in scientific and mechanical aids
to production have not been passed on to the general
community, but instead have been appropriated by a
small section of society, while the great bulk of the
people have actually suffered a lowering of their
living standards. Owing to the fact that statistics
relating to production have been kept in the form of
variable money values and not in the form of bulk
quantities, it has not been possible to give an
accurate comparison between production at the present
time and that of 30 years ago. At the same time, the
following facts, to which particular attention should
be drawn, appear to be fully substantiated: -
1) There has been a great increase in actual
2) This increased production has been effected with
the use of the services of a relatively small number
of workers in industry, and the trend is towards
greater production with fewer workers;
3) The workers dispensed with have been left
absolutely without incomes, while the basic wage of
those retained in industry has a lower purchasing
power than in 1907;
4) The smaller producers, manufacturers, distributors,
and retailers have been and are being overwhelmed with
debt and driven out of business;
5) The place of the interests mentioned in (4) is
being taken by organisations of a monopolistic
6) These monopolistic organisations can be closely
identified with the monopoly of finance as represented
by the private banks and their subsidiaries.
This points to the fact that production has been and
is secondary to finance, whereas finance should
obviously be secondary to production, i.e., finance
should be the servant, and not the master of industry.
Not only is it evident that our people are not
receiving full benefit from our increased production,
but a large portion of our potential wealth is being
wasted, not because of any shortage of people with the
desire to consume, but because those having the desire
have not also the purchasing power to procure the
goods, and this, in turn, hinders manufacturers and
It is rapidly becoming recognised that shortage of
purchasing power is the great cause of the world's
difficulties. Economists and supporters of the present
financial system seem particularly desirous of showing
that this system will work well as long as it is
expanding, that is, so long as money lent for future
productive and public works is being made available to
buy present production. The economists and bankers
thus practically admit that industry is not
self-liquidating, that is, that during any one cycle
of production, enough money is not made available to
buy the products, and thus meet the costs, unless
further purchasing power is borrowed.
This new money is a debt either to individuals or the
community, and the interest on it still further
decreases the available purchasing power.
There does not seem to be any way of bridging this gap
between prices and purchasing power under our present
financial system. The Committee urges the Commonwealth
Monetary Commission to pay the greatest possible
attention to the statements in the Journal of the
London Chamber of Commerce concerning this gap, and
the closely related fact that credit is created and
issued by the banks as a debt to the community, and
that the money to pay interest is not issued except as
a further debt, and that it is therefore useless to
seek a solution which does not involve community
control of credit.
The apparent confusion of opinion about the creation
of credit and the origin of money required for
interest, stands out very clearly throughout the
Even in the earliest days of banking, it was known
that a bank's chief source of profit is in the issue
of credit, and, in more recent years, the injustice of
this has become apparent to larger numbers of people.
Attention is drawn also to the articles by Messrs. H T
N Gaitskell, G D H Cole, and the pronouncement by the
London Chamber of Commerce, which are very
illuminating when compared with the broadcast of the
Federal Treasurer, Major Casey, as reported in 'The
Mercury," of October 21, 1935.
Major Casey said: "The Commonwealth Monetary Inquiry
was not being held because the Government suspected
any underhand work. It would be useful even if it only
showed whether or not the present system could be
"It might appear strange," Major Casey continued,
"that the Inquiry should be held at all in view of the
fact that Australia's banking and monetary systems had
been running smoothly for so long. But there were a
certain number of persons who were not satisfied with
things as they are. They cannot see why, as it is
possible for about 85 per cent of Australians to live
reasonably comfortable lives, the lot of the other 15
per cent cannot be improved."
"Many persons think that perhaps some adjustment of
the monetary system would enable prosperity to spread
more easily, that is, rectify the terrible anomaly of
poverty amid plenty." "It is to satisfy these people
and to see whether they are correct that the Inquiry
is being held."
It is an accusing fact that the recent Commonwealth
Census showed that 13.3 per cent of the male
breadwinners had no income and 24.3 per cent had less
that 1 pound per week. Among the females, 10.9 percent
had no income and 40.3 per cent had less than 1pound
That is 37.6% of the males and 51.2'% of the females
had less than lpound per week.
Also, including pensioners and unemployed, who
together made a total of 745,308, two-thirds of the
male breadwinners had less than 3 pound per week, and
three-quarters of the females had less than
2 pound per week during the year which ended on June
30, 1933. Those who uphold and administer the present
system have failed to discover a way of adequately
distributing actual production, and the trend of the
policy which they have adopted has been and is towards
restricting and destroying a portion of present
production rather than developing and distributing the
maximum that the people can economically use and
The sole object of production should be use or
There should be no insuperable difficulty in
distributing what we can make or produce.
There is an evident attempt on the part of
monopolistic organisations to keep the people in
ignorance of facts which might lead them to change the
But there is a rapidly growing demand for monetary
reform all over the Empire on the ground that the
present system has failed and cannot distribute
available goods and services. Various British Chamber
of Commerce have spoken strongly along these line's.
The conviction is growing that shortage of purchasing
power is a factor tending to disrupt the industrial
system and that this is a factor which must be
removed. Contrary to long-accepted ideas, there is now
a general realisation of the fact that industry does
not release sufficient purchasing power to buy the
goods it produces. His Majesty the King, at the
opening of the World Monetary and Economic Conference
on 12th June, 1933, said: "I appeal to you to
cooperate for the sake of the ultimate good of the
whole world. It cannot be beyond the power of men so
to use the vast resources of the world so as to assure
the material progress of civilisation. No diminution
of these resources has taken place, while on the
contrary, discovery, invention, and organisation have
multiplied these possibilities to such an extent that
abundance of production has itself created new
His Royal Highness the Prince of Wales, at the annual
dinner of the London Chamber of Commerce National
Congress of Commercial Education, said: "The
depression and economic disturbance has been largely
caused by maladjustment of distribution.
The potential output is far greater than ever before.
If all employable labour were employed for a
reasonable number of hours per week, the world would
have at its disposal a volume of commodities and
services which would enable the entire population to
live on a higher level of comfort and well being than
has ever been contemplated in the rosiest dreams of
the social reformer. Our urgent task is to bring
consumption and production into a proper real
relationship - not a simple, but a quite possible,
Attention is called to the following resolution of the
13th Congress of the Federation of the Chambers of
Commerce of the British Empire in London:
This Congress of the Federation of Chambers of
Commerce of the British Empire, recognising the
immense changes in the social and economic conditions
of the world brought about by the application of
scientific discovery to agriculture, industry and
means of transport and communication, deplores thc
lack of a corresponding advance in the monetary system
both national and international. "It calls upon all
the governments of the Empire to concentrate upon
finding a monetary system which would enable the
people of the world to enjoy the vast abundance which
technical improvements have made available."
"Further, the Congress, representing the producers of
real wealth, wishes to place on record that it is
strongly opposed to all measures purporting to bring
about prosperity by the creation of scarcity through
The following statement by the Southhampton Chamber of
Commerce agrees with much of the evidence submitted to
the Committee, and is endorsed by the Committee as
substantially expressing its own general conclusions:
"The effects of unemployment have spread like a plague
over the whole of the civilised world, carrying
destitution, suffering, degradation and despair into
millions of homes.
Taking the total number of unemployed persons and
those dependent upon them, it is estimated that about
120 millions of human beings have been rendered
destitute in the industrial countries of the world,
and, in our view, the problem of unemployment
consists, not only of those unemployed persons and
their dependents, but also of the vast resources lying
idle in factories, plants, mines and land.
Further, new inventions daily reduce the number of
man-hours required in production, and when we find
that, over a given period, productivity is increased
and human employment is decreased, we are forced to
the conclusion that unemployment, due to technological
progress will continue to increase. On the one hand we
have the vast army of persons capable of producing,
but rendered impotent to do so, and existing in
bitterly impoverished conditions through their
inability to obtain employment.
On the other hand we have almost limitless resources
for supplying the full wants of every human being in
the civilised world made available by machinery.
The position of an unemployed person is, indeed,
strikingly paradoxical. Either he is without work
because we are producing sufficient without his
services being required, in which case he is poor
because there is an abundance of services and goods
available, or he is in want because the available
wealth is not sufficient to provide for the
satisfaction of his needs, in which case it is
difficult to explain why his services are not being
utilised to produce more.
Thus, from whatever angle it is viewed, we have the
situation of widespread industrial trade stagnation,
with producers capable of production, and millions in
want of the very things that can be produced in
On the prima facie evidence, the fault in the economic
system lies in the machinery responsible for the
transfer of goods from productive industry to
individuals of the community.
This link between production and distribution is
'money'. Currency forms only a small amount of the
total money of a country. The bulk of the money is
created by commercial banks. By granting loans,
allowing money to be drawn on overdraft, and
purchasing securities, banks literally create money.
There is no indication of the amount of money being
dependent upon the needs of the productive system to
supply the community with goods and services. Rather
it seems that an arbitrary fixed amount of money now
demands the restriction of production to the quantity
Again, the fact that the authority for the creation of
money is thus vested in private institutions seems an
anomaly, for the 'credit' or 'belief' upon which the
monetary system is based is inherent in the community.
(1) Money supply should be governed by the real credit
of the community as represented by its productive
capacity. This involves the abandonment of any
arbitrary restriction on the quantity of money,
including the limitation of the internal supply of
money by any such instrument as the international gold
(2) In order that money should perform its true
function of operating as a means of exchange and
distribution it should cease to be traded as a
(3) Money being merely a vehicle for the credit of the
community, and the power, which the control of money
carries with it, being nothing less than the control
of the entire economic life of the nation, the
administration of financial policy should be vested in
a national authority directly responsible to the
Sovereign and his people.
(4) As the existing mechanism for the distribution of
incomes fails to supply the purchasing power necessary
to distribute the products of industry or the money
equivalent to imports, it is necessary that purchasing
power and prices of available goods and services
should be equated. As the defect arises chiefly from
charging the community with certain costs in respect
of which the necessary purchasing power is not
distributed, two alternatives are available -
(a) Either prices should be reduced to meet the
purchasing power available without involving any loss
to individuals, or,
(b) Purchasing power must be increased to meet prices
- or both methods could be employed together. The
defect being due to the withdrawal and, in effect,
cancellation of money before the products represented
by the money are consumed, it follows that, under
either plan, the necessary money must be distributed
direct to the community in the form of currency and/or
(5) This fund of financial credit, available to the
community for purposes of obtaining access to its
production, should also be employed towards -
(a) Adjusting the financial system to the progress of
technical development and consequent decrease in the
human labour required for production, and
(b) Effecting a drastic reduction in taxation with
benefit to the entire community.
The following extracts are from the written Judgement
of the Commonwealth Full Court of Conciliation and
Arbitration, delivered on 22nd January, 1931. The
judges were Chief Justice Dethridge and Judges Beeby
There is a considerable body of opinion in support of
the contention that the handling of currency and
credit, and the banking systems of the world, are
largely responsible for the present world crisis.
Lord D'Abernon went so far recently as to express the
opinion that 'independent international action would
probably furnish the most effective solution, if
applied in time.'
The whole mechanism of finance is theoretically a
device to facilitate the movement of existing wealth,
internally and externally.
Under the world's banking systems it has become an
instrument for controlling the future production of
the wealth. Whether this control is for ever to be
left in the hands of profit- making institutions has
become a question which has been agitating the minds
of thinking men in all parts of the world. Many
eminent economists and statesmen today support the
idea that the control of money should be a State
function rather than a field for dividend making.
By some witnesses it appeared to be thought that the
raising of the wage-level would have an effect similar
to an increased issue of currency or so-called
'purchasing-power'. This misconception was not shared
by others, who advocated a system involving the
distribution of 'new money' to consumers, somewhat
similar to that enunciated during the last ten years
by Major Douglas and his followers.
There was an almost unanimity in the opinions of
witnesses that in some form banking policy should be
Mr R F Irvine, for many years Professor of Economics
at the Sydney University, contended:
'It is practically a question of life and death to
stop deflation and institute a movement in the other
direction, that is to retrace our steps by a carefully
guarded inflation. Such a policy is forced upon us by
The consensus of opinion is that some change in the
direction of granting facilities to increase credit is
necessary. Beyond doubt, the grave hardships to the
wage-earning and other long-period debtors, and the
discouragements to industry which accompany the
continuous fall in the internal price levels in
Australia, demand the most earnest consideration by
those who are able to exercise any control of the
factors governing the price levels.
In view of the Commonwealth Inquiry, this judgement of
a Commonwealth Court nearly five years ago is
specially interesting. A statement was given to the
Committee by the Deputy- Statistician that during the
past 25 years the assets of the Australian trading
banks increased as follows: -
This shows a total increase of £298.9 millions in 25
years, and further indicates that the faster industry
functions the faster the total debts to the banking
The wealth of the community should be reckoned by its
freedom and security and well-being and not, as at
present, by its debts. The fall from 57 million pounds
to 32 million pounds in the last five years clearly
discloses the reason why the representatives of the
banks commend the Government for spending, so that
industry may again function more rapidly, and the
banks' assets grow faster. The banks, in providing the
credit by which industry expands, do no work, and do
not provide anything which a national credit board, or
a community controlled bank, could not do and provide
without taking away the community's assets.
According to press reports of the period, in 1921 a
deputation from the Australian unemployed waited upon
Sir Denison Miller, Governor of the Commonwealth Bank,
owned by the people. A member of the deputation put
the following direct question to him: -
"In a recent address in London, Sir Denison, you
stated that to meet the necessities of the war certain
things had been done by you which, before the war,
would not have been dreamt of. You advanced Australia
over £350,000,000 for war purposes, and you stated
that, had the war continued, you would have advanced
another £350,000,000. Are you now prepared to advance
Australia £350,000,000 for productive purposes?" Sir
Denison Miller replied: "Yes, I shall do my best."
S Eccles, when taking over the Governorship of the
Federal Reserve Bank of the U.S.A., said: "Orthodox
economics are out of date, because they were meant for
a situation in which famine and scarcity were normal
The following quotation from the Papal Encyclical,
Quadragesimo Anno (1931), throws a very great light on
this attitude of the financiers and their economists:
"It is patent that in our days not alone is wealth
accumulated, but immense power and despotic economic
domination is concentrated in the hands of a few, and
that those few are frequently not the owners, but only
the trustees and directors of invested funds, who
administer then at their good pleasure.
"This power becomes particularly irresistible when
exercised by those who, because they hold and control
money, are able also to govern credit and determine
its allotment, for that reason supplying, so to speak,
the life blood to the entire economic body, and
grasping, as it were, in their hands the very soul of
production, so that no one dare breath against their
"This concentration of power has led to a three-fold
struggle for domination. First there is the struggle
for dictatorship in the economic sphere itself: then,
the fierce battle to acquire control of the State so
that its resources and authority may be abused in the
economic struggle; finally, the clash between the
"Unbridled ambition for domination has succeeded the
desire for gain; the whole economic life has become
hard, cruel, and relentless in a ghastly measure,
Furthermore, the intermingling and scandalous
confusion of the duties and offices of civil authority
and of economics have produced crying evils and have
gone so far as to degrade the majesty of the State.
"The State, which should be the supreme arbiter,
ruling in kingly fashion, far above all party
contentions, intent only upon justice and the common
good, has become instead a slave, bound over to the
service of human passion and greed.
"As regards the relations of peoples themselves, a
double stream has issued forth from this
fountain-head: on the one hand, economic nationalism
or even economic imperialism; on the other, a not less
noxious and detestable internationalism or
international imperialism in financial affairs, which
holds that where a man's fortune is, there is his
Recently, leaders in the Anglican and Free Churches
have been taking a more definite stand in public
interests. Some, such as the Dean of Canterbury (who
is also an engineer), have realised that increased
unemployment or leisure has been forced upon civilised
nations by the inventions and discoveries of
scientists and engineers, and that work can no longer
be regarded as a man's sole claim to draw his means of
sustenance from the national supply. Definitely they
realise that man's character, moral nature, and
spiritual aspirations are as universal, and at least
as important, as his desire for food and clothing, and
now that the latter can be provided by the world's
fields and factories with the expenditure of so much
less toil than formerly, it is right that there should
be more time for the cultivation of personal or human
Some of these leaders are adopting social credit views
fully; others, without committing themselves to any
economic or political plan, while still inclined to
believe that continual human labour is a necessary
part of the general scheme of life, are beginning to
see the present conditions of poverty and distress are
man-made and can certainly be removed, as soon as a
sufficiently strong public opinion demands their.
removal, irrespective of the desires of the few who
now control so much of the community's wealth.
Within the last few weeks the Anglican Primate of
Australia (Archbishop Le Fanu) and the Primate of New
Zealand (Archbishop Averill) have been leading
speakers at meetings held in Perth and Auckland
respectively with the object of rousing the public to
demand that their political leaders shall put an end
to the present distress. They have been supported by
Monseigneur Holbrook of the Roman Catholic Church and
by speakers of other churches.
Similar meetings, based on the fact, as expressed by
His Majesty the King, that it should be possible to
find means of distributing existing wealth, are being
held in many places.
It is realised that the health, morals, and happiness
of our people are being needlessly sacrificed, and the
inevitable result must be very severe injury to the
The Committee unanimously agrees that this is
unnecessary. It is not satisfied that any real attempt
has been made by the financiers, who control the
destinies of the nation, to carry out His Majesty's
desire of finding a means of distributing our abundant
wealth. Probably the mason for this is that the first
step necessary in any plan promising success must be
control of its own credit by the community.
It is not reasonable to suppose that those who now
control it, and have controlled it for so long to
their own great advantage, will allow this control to
pass easily out of their hands. The Committee is
satisfied to accept the views recently expressed by Mr
H T N Gaitskell that it is questionable if private
banks have any more right to the profits arising from
control of credit than they would have to profits
arising from issuing notes.
The Committee is also much impressed by the recent
suggestion of Mr Cole that a social dividend appears
to be the most appropriate way of distributing our
increased production in conjunction with community
control of credit, and also fully supports the views
expressed by the London Chamber of Commerce as to the
need for monetary reform and the even more explicit
views of the Southampton Chamber of Commerce.
It is necessary to recognise that, owing to the great
increase of machines and power, large numbers of
people can no longer be kept in permanent employment,
and a division of the profits of labour and science
and power will have to be made on a social or national
basis as a right belonging to every member of the
This matter has gone far beyond the stage of quibbling
or arguing over details of administration.
During periods of war, every member of the community
is asked to protect the community. So also, in times
of peace, every member of the community has at least
as much right to share in the enjoyments and benefits
and wealth resulting from peace as he had duty to
protect it in war.
Suggestion of possible ways of returning to conditions
and incomes of some years ago fall far short of what
is required in an age of marvellous expansion and
development. This failure to show satisfactory causes
and cure can only be taken to mean that the supporters
of the present financial system are unable to find any
solution while the present financial system exists,
and are unwilling to consider any solution which
involves a change of system.
It has been realised from the inception of the
Committee that, under Tasmania's insular and
restricted conditions and the fact that it was not
possible to call as witnesses the heads of financial
institutions, since these do not reside in Tasmania, a
complete investigation of some matters could not be
This Committee considers the Inquiries of the
Commonwealth Monetary Commission should not be
confined to superficial aspects of the present
monetary system, but should be directed firstly to the
basic principles on which money, and especially
credit, is at present issued and controlled, with
particular attention to the manner in which it
functions in industrial operations in the creation and
liquidation of costs and debts.
Secondly, this Committee considers that the chief fact
or in judging the success or failure of any financial
system should be whether it is or is not assisting
industry to function at its maximum rate and at the
same time distributing maximum wealth combined with
the highest and healthiest standard of living among
the people generally. Any monetary system failing in
these must be automatically on the defensive.
The Committee's general and unanimous conclusion is
that it is obviously possible to find a just and
equitable method of distributing any already existing
surplus and also potential production without in any
way injuring or dispossessing those now enjoying
Community control of credit and its equitable
distribution seems to be the first necessary step
towards realising the ideals expressed by His Royal
Highness the Prince of Wales in the following
memorable words already quoted:
"The depression and economic disturbance has been
largely caused by maladjustment of distribution. The
potential output is far greater than ever before. If
all employable labour were employed for a reasonable
number of hours per week, the world would have at its
disposal a volume of commodities and services which
would enable the entire population to live on a higher
level of comfort and well-being than has ever been
contemplated in the rosiest dreams of the social
reformer. Our urgent task is to bring consumption and
production into a proper real relationship - not a
simple, but a quite possible, task."
Finance System Little Understood
At the outset it may be stated that one fact revealed
by this investigation has been the lack of
understanding among bankers and others of the
economics of the present money system. This fact was
remarked also in the Report of the Monetary Committee,
1934, New Zealand, which said (Section 19), "It would
appear, however, that the economics of our present
money system are not as well known as might be
The nature of some of the prevailing ideas will be
referred to again, but mention may be made here of the
lack of research, so far as we can discover, into such
matters as the analysis of costs of industry and of
the growth of debt. There seems to be a tendency on
the one hand to regard such an inquiry as a prying
into the affairs of private industrialists and
business men, and, on the other hand, to adopt
assumptions regarding such matters as the relation
between costs and prices and incomes without
adequately examining their validity. These, habits of
thought undoubtedly tend towards confusion and chaos
in theories relating to the distributive side of
Meaning of Wealth
In discussing the utilisation of the wealth of a
country it is desirable to be clear in the first place
as to what we mean by wealth, for the essential
difference between wealth (well-being) and its common
measure or symbol, called money, is of the utmost
Speaking generally, the wealth of an individual
consists of his possessions in land, goods, etc.,
personally useable or exchangeable for the useable
possessions and services of other individuals. His
personal ability and his money are not wealth, but may
be exchanged for the wealth of others and, in so far
as they can be so exchanged, they constitute only a
claim or effective demand upon the wealth and service
of other members of the community. Their validity even
as a claim to wealth depends solely upon the others'
willingness to exchange. An individual may consume,
exchange, give away, or destroy his wealth. His
personal ability may deteriorate and his money
disappear by spending, theft, or loss on investment
and in other ways. He then has neither wealth, nor
ability to obtain wealth, nor money to claim the
wealth of others.
The wealth of a nation is determined by its ability to
produce and distribute wanted goods and services. It
includes the productive capacity of its land and
plant, the skill and morale of its people, and its
powers of defence against predatory attack. It is
physically impossible for a nation to become poorer
unless it consumes wealth at a greater rate than it
produces wealth. In other words, so long as national
appreciation of wealth equals depreciation of wealth
the nation is solvent. When appreciation exceeds
depreciation (as is actually the case with all
progressive nations), the nation undoubtedly is richer
by the amount of that excess. Unlike an individual a
nation cannot make itself bankrupt by using its
wealth, so long as it takes care not to depreciate
unduly its capital resources, mines, forests,
fertility, etc. On the contrary, any failure of a
nation as a whole to produce and consume what it can
reasonably produce, without overtaxing either its
capital assets or the work or desire to work of its
people, is a definite loss to the nation, which must
be reflected in the unnecessarily low standard of
living of its people.
Individuals or section of the community may in-crease
their wealth by obtaining, either by fair means or
otherwise, an excessive share of the wealth of others.
But this internal interchange of wealth, even if it
results in the formation of spectacular fortunes, is
no indication - though unfortunately often considered
to be of a general increase of the nation's prosperity
or well-being. Conditions for Prosperity.
Increase of real wealth requires-
1) That the productive powers of the nation shall
2) That the increased production shall be fully and
There still prevails among a certain class of
economists the idea that a nation's wealth should be
measured by the money value of its production. From
the point of view of individual wealth, a man
possessing a hundred bushels of wheat which he can
sell at 10s. per bushel is better off than if he
possesses two hundred bushels with a market value of
3s. per bushel. But a nation must consider its
requirements for consumption, and it is a matter of
prime importance whether the quantity it possesses is,
or is not, sufficient for its own consumptive demands.
Distinction should be made between the actual value,
i.e., utility, of the amount required for consumption,
and the money or exchange value of the exportable
One of the factors which should indicate internal
prosperity or well-being is that goods required for
internal consumption be low- priced and therefore
readily available to all who need them. Naturally, the
greater the exchange or export value of the surplus,
the better for the community, in that it may receive
in exchange for such surplus a greater quantity of
goods which it requires, but does not itself produce.
Too much emphasis on Export Value of Production
The tendency in some quarters is to regard the export
value of production as the main consideration and to
look upon home consumption as something which is of no
Meaning of Value
To think of value in terms of money is illusory. The
fundamental conception of value is usefulness, and any
economic theory which is to be of practical utility in
solving present-day problems must be based on this
Coming now to the question of actual or potential
increase in wealth over the last thirty years, the
Committee was brought face to face with one of the
consequences of the prevailing ideas regarding money
values of production. Statistics have been collected
relating to production, but these are in the form of
variable money values and are useless for comparative
purposes, and apparently no attempt has been made to
find some fundamental invariable unit of measurement.
Increased Capacity far Production
Information is obtainable from other sources, however,
showing the trend of the times. Actual figures for
productivity per acre or per man-hour for primary and
secondary industries have been extensively published
for other countries, and these give a reasonably good
indication of what might be expected in Australia and
The Journal of the London Chamber of Commerce of
March, 1934, stated that industry in Great Britain is
not working at more than 25 per cent of its capacity.
This means that four articles or units of wealth could
be made available for each individual in place of the
one he can receive under present conditions.
Bulletin 1348 of the U.S. Department of Agriculture
gives figures which indicates the tremendous increase
in productive capacity made possible by modern
power-farming. Professor Laby of the Melbourne
University has estimated that this has resulted in the
displacement of thirteen million farm workers in the
United States in the last 30 years.
The Editor of "Power", according to Maurice Colbourne
in "The Sanity of Social Credit," recently estimated
that the mechanical power available for industry in
four countries alone - United States, Great Britain,
Germany, and France - was equal in man- power to five
times the population of the world.
Without any doubt, the increased productivity of
industry during recent years has been remarkable.
There is reason to believe that production is being
restricted. Many inventions and discoveries are being
held back for financial reasons, and enormous sources
of power, many machines, and millions of men, are
ready to produce still more as soon as a means of
effective distribution can be found.
Failure of Distribution
For some years past it has been increasingly evident
that the means of distribution have not been working
efficiently. His Majesty the King, the Prince of
Wales, and many others have called attention to this.
In order to analyse the cause or causes of this
failure of the distributing system, it is necessary to
study the relation between the industrial system in
its function of producing physical wealth and the
financial system which facilitates the transfer of
goods and services. It is usually assumed that these
systems are, if not one and the same system, at least
mutually supplementary. It may be necessary for us to
revise our ideas of their functions.
Purpose of Industry
Most people have the idea that the industrial system
would function satisfactorily if everyone could be
found an opportunity for co-operating, through work or
otherwise, in industry. The question should be asked,
"What is the object of industry?" Some think it is to
make fortunes; others think it is to provide
employment; others, again, believe it is to provide
goods and services.
The mark of success in industry from a purely
individual standpoint may be the highest individual
profit of the acquisition of the largest amount of
claims on the goods and services of others. But the
mark of national wealth or well being is surely that
few or none of the people shall be in debt and that
all, or nearly all, shall have plenty. From this it is
evident that our ideas of personal success in industry
are in conflict with our ideas of national well-being.
How Industry Works
It is well to examine the matter further by
considering on wide general lines, how the present
industrial and financial systems are supposed to
Each individual breadwinner contributes what he is
able in goods or services to a central pool, which is
the existing system of stores, shops, etc. He receives
an acknowledgment in the form of a coin or a cheque,
and in return for this he can select from the pool
other goods and service which he desires.
Or he may refrain from selecting at once and either
leave his claim idle or lend it to others. This is a
general outline of the system built up and accepted by
our industrial leaders. It implies definitely that the
way a man obtains the right to draw the necessaries of
life from the pool is by contributing to the pool.
Therefore, it is surely fair and just that he must not
be denied the right of contribution. The average
individual is not responsible for these conditions,
and, therefore, those who are responsible must protect
him and either give him work or provide other means of
drawing his support from the pool. Conceding that, for
the mass claims only arise from work, how else - if
work be denied - can they arise, except as a free gift
or something in the nature of a shareholder's
Scientists, inventors, engineers, chemists ,etc, have
conspired to one end, namely, to increase efficiency,
to grow two blades of grass instead of one, to use
power and machines, to fill the central pool with the
goods man wants, and which were previously produced by
his own personal effort. Surely, with the increased
amount of goods available, all should be more wealthy?
How can these goods be distributed if man's right to
earning his claim has been removed?
How Industry is Financed
Regarding industry from its financial side, it is
supposed to work on the following lines: - Money, or
credit, is lent by the banks to producers, who pay it
out in the form of wages, salaries, and dividends or
profits. Practically all the money in the pockets of
the general public gets there in this way.
With this money, or a portion of it, the general
public buy the goods they require, and, with the money
the producer receives (that which is passed back
through retailers and wholesalers),he recoups himself
for his expenses of production, wages, salaries,
interest, raw materials, etc.
All costs of production must go into prices, but the
general public have only the money paid to them as
wages, etc., wherewith to meet prices.
It is assumed by economists that the incomes of the
people are equal to prices, but it is not so when
applied to power production. The tendency of modern
industry is to restrict production. and raise prices,
and even under these conditions the continuous growth
of debt shows that costs of industry are by no means
There are in general two forms of production: -
1) Production of goods required for everyday
2) Public works and capital goods, that is, factories
and machines, etc.
The money distributed as wages for both of these has
been used in the past to buy consumable goods, and to
some degree capital goods also, there was a sufficient
margin to prevent the deficiency of purchasing power
from bringing an acute crisis.
For example, when Tasmania was in its early ages of
development there was comparatively little production
of consumable goods and much development.
Therefore there was plenty of money in these times to
pay high prices for the consumable goods produced.
As development continued, the amount of consumable
goods increased as compared with capital production,
until at present production of consumable goods comes
first and capital production second.
It is a matter of common observation that business is
brisk and the community is relatively prosperous when
a big capital undertaking or considerable expenditure
of loan money by Governments, is in progress.
The amount of wages from capital development available
to make up the shortage of purchasing power to buy
consumable goods has decreased in recent years, and
the smaller distribution of wages in proportion to
goods produced is still further intensified by the use
of labour-saving machinery.
This has been world-wide, and in addition there is
also a world- wide slowing down of exports to all
advanced industrial countries which have passed their
earlier stages of development.
In general, it may be said that money sufficient to
distribute consumable goods freely has, in the past,
only been available when large amounts of new or loan,
money were being expended on development or on war.
No suggestion has been forthcoming from the financiers
of the existing system or from the economists to show
how to distribute production in any other way.
Public works financed by loan money, even at a very
low rate of interest, would have to be paid for in the
end, and the number of such works required would, even
at one per cent interest, be so great that the
interest bill would rapidly absorb all revenue. The
State is at present approaching this condition.
Foreign markets and increased exports are coming
better understood. Nations try to send away their real
wealth and get credit in return of the amount exported
over and above what is required to pay for imports and
interest on debts.
Exporters receive credits if they are fortunate. It
happens that sometimes fruit growers and others
receive debits. It is useless to seek for fresh
external markets as a means of increasing home
There has been a conviction among some economists that
public works should be financed out of savings.
Suppose it were possible to set men to work and to
accumulate a surplus of necessaries for consumption,
and then retire part of the men from the production of
consumable goods and set them doing public work for as
long as the accumulated stores would maintain them.
In a sense, this would be providing for public works
out of savings, but it is obvious that these savings
could only be made if the nations workers were able to
produce in any one period more than the nation
required for consumption in that period.
It might be possible also to find, by trial or
otherwise, how many men were required to produce the
necessary consumable goods by working continuously,
the remaining men being kept permanently employed on
public works and being paid by receiving a share of
This simply means that a section of the workers would
be paid or rewarded by the surplus production of the
others. It will be obvious that the fewer men required
- owing to increased efficiency, etc - to produce
consumable goods for all, the more men would be set
free, to produce luxuries and public works for all.
The real credit of a country has been defined as the
rate at which it can deliver goods and services as,
when, and where required.
The above is an illustration of how real credit might
be used to finance public works, and it is clearly
evident that, if no disturbing factors intervene, the
public works and luxuries, and the standard of living
of everybody, would be increased in direct proportion
to the real credit. It is obvious that this does not
take place, so the problem has been investigated
Though in a small primitive community there would be
no great difficulty in making direct allotments of
goods to those performing services, in dealing with a
more complex community, some form of money that is an
easily portable and recognisable representation of the
value of the goods would be necessary. On general
principles, the public worker, that is, one working
for the community, now receives a token or claim which
enables him to draw his share of the communities
consumable goods in return for the services he has
performed. (Money is actually a claim on the goods of
the community which issues or recognises it.)
The report has previously mentioned that the root idea
of the present financial system is that each
contributes to a central pool and receives a token or
acknowledgment which he can exchange again for goods.
A ready exchangeability of this token or money depends
on confidence, that is, on the acceptor knowing that
the claim of the money will be recognised.
Dealing with people at a distance, or in another
community, it was obviously an advantage to have some
easily portable and recognisable token which was of
value anywhere apart from the claim it offered to its
possessor on goods, etc., held by the issuer. It was
for this reason that gold became a satisfactory form
of money. The root idea of the introduction of money
was to facilitate the interchange of goods and
services between actual owners or workers. The value
of gold coin really rested on the goods it could
Suppose now that all the community except one are at
work producing goods and services and improving the
communities wealth and happiness, etc., and that this
one - not perhaps a satisfactory worker or a useful
citizen - went out and found a large quantity of gold.
By using this gold discreetly he would be enabled to
obtain great control over the possessions of the
community. Gold has not been found in quantities
sufficient to upset the ownership of modern real
wealth, but another discovery has taken its place.
With the development of the banking system gold was
kept in the vaults of the banks instead of circulating
freely, and a cheque system, based originally on the
backing of gold, was developed.
Those holding the gold in charge discovered that only
a fraction of the total holding was required to be
withdrawn at any particular time. From this there
arose the cheque system, through which bankers found
that they could lend more than they possessed with
little risk of being caught short by all depositors
requiring their gold at one and the same time.
There were times when depositors demanded their gold
and could not get it, but gradually the banks found
the limits of reasonable safety, and developed a
credit system which put them in control and possession
of the communities wealth just as effectively as the
hypothetical non-worker who discovered large
quantities of gold. They learned to deal with money -
gold and credit - as a commodity; to lend it and to
withdraw it, so as to obtain the greatest claim over
the community's goods; and therein lies the cause of
the community being unable to interchange freely its
own goods and services.
It is not a matter requiring any lengthy argument. The
facts are, simply, that various members of the
community are able and willing to perform various
services, and to exchange part of the resulting
surplus of their work, for part of the surplus of the
work of others.
Yet this is not taking place, for millions are in a
state of destitution, and the leading so-called
experts and financiers do not appear to know how to
relieve the situation.
Instead of getting back to first principles and
allowing each citizen to have full value of what he is
able to do by himself, and of the still greater work
he is able to do in association with others, with the
aid of available power and machinery, "expert"
advisers are trying in all ways to find some means of
carrying on the present system of control by the
monopoly of credit.
The tokens, which are all that are required to bring
about the exchange of goods and services which need
have no intrinsic value and which should be issued by
the community - are now being issued by the credit
monopoly as though they were of great value and in
short supply. Moreover, they are only issued to the
community as a loan bearing interest or in return for
securities. There is no justification for this: there
is no need that it should continue. Its removal would
also remove the root causes which are preventing full
production and consumption.
McLeod on Banking.
With regard to the working of the modern money system,
the questions may be asked: "Where does the money come
from? Whose is it, and what is it?"
H D McLeod, M. A., a barrister who had been selected
previously by a Royal Commission for the Digest of Law
to prepare a Digest on the Law of Bills of Exchange,
Notes, etc., published a book of over 1400 pages
before 1897 - 'The Theory of Credit."
This is still quoted as one of the highest authorities
on the subject. On page 607 we find the following:
"Contrast between the Common Notions about Banking and
the Reality." - "Having now giving an exposition of
the actual facts and mechanism of banking, it will be
as well to contrast the common notions respecting it
and the reality.
"i ) It is commonly supposed that bankers are dealers
in money only; that they borrow money from one set of
persons and lend it to another set of persons.
"The fact is that bankers are not dealers in money:
they never lend money. The sole function of a banker
is to create and issue credit; and to buy money and
debts by creating and issuing other debts in exchange
"ii ) It is commonly supposed that bankers act only as
agents or intermediaries between persons who want to
lend and those who want to borrow.
"Bankers never act as agents between persons who want
to lend and those who want to borrow Bankers buy money
from some persons and rights of action from others
exclusively with their own credit, or by creating and
issuing rights of action against themselves.
"iii) It is commonly supposed that a banker's profit
consists in the difference between the interest he
pays for the money he borrows and the interest he
charges for the money he lends.
"The fact is that a banker's profit consists
exclusively in the profit he can make by creating and
issuing credit in excess of the specie he holds in
"No bank which issues credit only in exchange for
money ever did, or by any possibility could, make
profit. It only begins to make profit when it creates
and issues credit in excess of the credit it creates
in exchange for money; when it begins to buy debts
payable at a future time, for which it charges a
discount; which, according to Mill, as we shall
presently see, is robbery! "And the whole of a
banker's profit consists in the quantity of debts he
can purchase with his own credit."
McLeod on Lending Deposits
Attention has been called previously to the fact that
the economics of our present money system are not as
well known as might be expected among bankers and
Mr McLeod shows that this has been a feature of the
administration in banking in times past. On page 600
of 'The Theory of Credit," he states: -
"Mr John Torr, a Liverpool merchant, was questioned by
Mr Wilson before the Committee of the House of Commons
on the monetary panic in 1858.
"Mr Cardwell and Mr Wilson were considered to be among
the ablest financiers of their day, and yet neither of
them had the least knowledge of the true nature and
effects of banking. Mr Torr had a perception of the
real nature of it: for he says that the banks had
increased their liabilities by their advances. But he
held his knowledge so loosely that he was easily
shaken out of his ideas, and gave in to Mr Cardwell
and Mr Wilson. Neither of these gentlemen had the
least idea of the true nature of banking; because
banks make all their advances by creating and
increasing their liabilities.
"This, however, seemed a paradox to Mr Cardwell, who
sneeringly asked the witness to explain how banks
increased their own liabilities by making advances to
others. Mr Wilson asked him if the banks make
imprudent advances out of their capital and deposits.
Now banks have no deposits in juridical meaning of the
term; what they have are mutua: but they make all
advances by creating deposits, i.e, credits, in their
books: thus all banks make advances by increasing
their liabilities, which was so sore a puzzle to Mr
"This misconception of the meaning of the word deposit
leads to a somewhat amusing error which is usually
seen in the newspapers every half -year, after the
joint-stock banks publish their accounts. Many papers
give summaries of the accounts of the banks, which
show they have about £,800,000,000 of deposits: and
those innocent writers evidently consider that these
are deposits of cash, and hold up their hands in
astonishment at the vast quantity of cash the banks
hold. Now, as no one supposes there is more than
£90,000,000 of gold coin in the country, it would
somewhat puzzle these ingenious gentlemen to explain
how there can be £800,000,000 in cash in the banks.
But anyone conversant with banking would tell them
that £800,000,000 are not deposits of cash, but are
merely creations of credit, and are nothing more than
bank notes in disguise."
Starting a Bank Without Capital
In this connection it will be of interest to note the
remark of Mr Beaumont Pearce, Chairman Lloyds Bank,
who said in Melbourne, on November 13, 1934, as shown
in the National Bank Monthly Summary for December,
1934,that no capital is necessary to start a bank.
The "Sydney Morning Herald" of April 5, 1935 published
the following: -
"The hearing of the protest by Mr Andrew Mellon, the
former Secretary of the Treasury, against the Federal
Governments assessment of 3,000,000 dollars on his
1931 income, was continued to-day.
"He told how, without consulting him the stockbrokers
of the Union Trust Company had made him President and
kept in office without any duties, in spite of his
protest. Then when the bank's affairs did not prosper,
the stockbrokers intimated that they would gladly sell
to him their holding. He bought 100,000 shares at 100
dollars each, and then got after business. The same
shares were later sold for as high as 15,200 dollars
each. Mr Mellon then harked back to last century when
he was partner with his father in a private bank which
never had any capital, the depositors simply bringing
their money there for safe keeping. He and his father
divided the profits and drew them out. His father's
capital was goodwill and name. His other brothers, who
attempted to found a bank by similar methods in North
The Commonwealth Bank Act, 1911, authorised that "the
Treasurer may, out of the Consolidated Revenue Fund,
which is hereby appropriated accordingly, make
advances to the Bank for the purpose of enabling it to
defray any of the expenses incidental to the
establishment of the Bank, the opening of offices
thereof for business, and the raising of sufficient
capital for carrying on business '... Any moneys
advanced in pursuance of this action shall be repaid
to the Treasurer by the Bank, together with interest
at the rate of 3 1/2 per cent per annum.'
"The Governor of the Bank used this provision to the
extent of £l0,000 (p. 64, "Australia's Government
Bank," L.C. Jauncey). "On July 15, 1912, with no
subscribed capital and with assets of only £10,000 in
the form of a loan from the commonwealth Government,
the Bank opened its doors for business" (p. 72 of
same). On July 7,1921, a deputation of unemployed
waited on Sir Denison Miller, then Governor of the
"Mr Scott (member of the deputation) - In your address
in London, Sir Denison, you stated that to meet the
necessities of war certain things had to be done by
you, which before the war would not have been dreamed
of. You financed Australia for £350,000,000 for war
purposes, and, had the war continued, you could have
financed another £350,000,000 are you now prepared to
finance Australia £350,000,000 for productive
purposes? Sir Denison Miller - 'Yes, I shall do my
best.' 'Governor Miller died before he could make good
his promise"(p. 275 of same.'"
Creation of Credit.
Returning to the question of creation of credit, Mr
McKenna, Chairman of the Midland Bank, in an address
to shareholders on January 25, 1924, said: -
"I am afraid the ordinary citizen will not like to be
told that the banks can and do create and destroy
money. The amount of money in existence varies only
with the action of the banks in increasing or
decreasing the deposits and bank purchases. Every
loan, overdraft, or bank purchase, creates a deposit,
and every repayment of a loan, over-draft, or bank
sale destroys a deposit."
Later in the same address he said: "And those who
control the credit of a nation direct the policy of
governments and hold in their hands the destiny of the
The Macmillan report states that banks can carry on a
process of lending and purchasing investments until
such time as the credits created or investments
purchased represent nine times the amount of the
original deposit of £1000 in cash (para. 74).
Mr R G Hawtrey, Assistant-Secretary to the British
Treasury, says: "When a bank lends, it creates money
out of nothing." William Patterson, first Governor of
the Bank of England (about
1694), said: -
"Whereas before the money was only the running cash of
the nation, now the credit founded upon this money is
as much a running cash as the money itself. The
running cash of the nation will be much increased
answerable to the credit issued out, let it be what it
will It will be great. The Bank hath benefit of the
interest of whatever credit it issues out of nothing."
The Report of the Monetary Committee, New Zealand,
1934 (Para. 83), stated that the banking system was
"operated by external boards of directors whose
integrity is not questioned, but whose main aim was
quite properly, for competitive profit-making
institutions, maximum of dividends for shareholders.
There is no question that the banks in New Zealand
have acted deliberately in a manner which they
considered would prejudicially affect the interest of
New Zealand. It may also be added that in the long run
the prosperity of New Zealand means the prosperity of
the banks, but the fact that the banks are prospering
does not mean that New Zealand is prosperous.
Many references have been made by the Prime Minister
and others in the last year or two to Australia's
"wonderful recovery" during the last three years.
During 1932-35 the debts of Australia (Federal and
State ) have increased by £54,286,958.
The census figures show 439,788 unemployed or 20.5 per
cent of the breadwinners.
The industries receiving or requiring subsidies,
excluding sugar, are shown in the following list: -
Assistance to Industries (Commonwealth Government)
WHEATGROWERS, SPECIAL (FLOUR TAX) BOUNTIES... COTTON
INDUSTRIES, GOLD, FLAX and LINSEED, IRON and STEEL,
PRODUCTS, SULPHUR, WINE EXPORT. CATTLE TICK CONTROL,
FRUITGROWER'S. CITRUS INDUSTRY, MANDARIN-GROWER'S
RELIEF, BANANA INDUSTRY, TOBACCO INVESTIGATION, BERRY-
GROWERS, PEARL SHELL INDUSTRY, ARTIFICIAL MANURE,
SUBSIDY... METALLIFEROUS MINING, FORESTRY, APPLE-
GROWER'S ORGANISATION, EGG PRODUCER'S ORGANISATION.
The total amount paid in subsidies, excluding sugar,
1931-32, £3,821,603; 1934-35, £5,074,500.
Expenditure of loan money has caused certain
industries to be more active, and some increase in
employment has been due, in general, to shortage of
housing and other services and commodities, resulting
from the stagnation of industry during the depression.
It may be noted that during the lean times there were
no bank failures and the bank's assets were not
diminished, but on the contrary were increased from
four hundred and five million pounds in 1930 to four
hundred and thirty seven million pounds in 1935. There
should be no real difficulty in establishing
prosperity for all. It has already been shown that,
with the immense resources of power and technique
available, there is no physical difficulty. With all
the real wealth which "lies at our doorstep" (to use a
phrase of President Roosevelt), it is ridiculous to
remain in poverty because of finance.
There are other indications that financiers are afraid
of losing their power of domination, and the
propaganda of fear and misrepresentation are well
enough known to need no further comment.
It is significant that the press as a rule gives very
little attention to ways and means of dealing with
these problems which are of such vital importance and
the failure to find a solution of which is fraught
with such tragic consequences for millions of people.
Coming back to Mr McKenna's statement that the amount
of money in existence varies with the action of the
banks in increasing or decreasing deposits, let us
assume that 100 units is the total money in
circulation and that it has been loaned at an average
rate of 5 per cent. interest. At the end of 12 months
five units will be due back at the bank for interest.
Where is this interest to come from? Industry cannot
earn it or produce it - industry can produce goods. Or
people may be able to earn money from one another. It
is popularly believed that the money to pay interest
is in existence "somewhere." from Mr McKenna's
statement, however, only the banks can bring this
extra money into being, and it follows that interest
can only be paid by borrowing more from the financial
system and pledging further security to the bankers.
This means in the last analysis that loans to industry
in general continue for ever and grow continuously,
due to interest. One industrialist re-pays his loan
and interest with money that someone else has
borrowed. The only relief gained is that afforded by
repudiation of debts in bankruptcies, etc.
Some economists state that the turnover of money will
produce the means of paying interest. It is assumed
that a payment of interest results in an amount of
money being circulated by the banks in payments of
wages and dividends, which are then spent at the
shops, and paid back as interest by industrialists,
etc., and so on through a number of cycles. Money
spent at the shops has a function to perform in
defraying costs of production of the articles bought.
These costs are at least equal to the money which is
put into circulation by bank loans, because every loan
is issued for purposes of production and every payment
made out of it becomes a cost to be recovered.
Interest is an additional cost.
This money might be made to circulate indefinitely in
the circuit assumed above, provided the interest did
not increase and the sum required to pay the original
interest was found from some source outside of bank
It is doubtful whether there is any adequate source
for payments of interest at the present time, and the
fact that interest payments of all countries resulting
from private debts being transferred directly or
indirectly to governments are rapidly increasing, is
sufficient proof that no such source exists, and that
it is a mistake to assume that turnover or velocity of
circulation provides a means of payment. It follows
that provision should be made for additional money to
be circulated in some way other than through repayable
loans to industry or governments.
Banks and Lending
One of the witnesses, Alderman Harvey, stated in
evidence that he had given a series of broadcast talks
on banking in November, 1934, with the object of
informing the public concerning banking practice and
checking erroneous ideas. In para. 7 of his submitted
evidence this witness stated: "The banks' principal
source of profit is interest. To obtain interest the
bank must lend money - it borrows and it lends - a
quite simple and straightforward transaction." And in
para. 13, "Nevertheless, it must be remembered that a
bank borrows before it lends." These views were, until
recently, widely held among bankers and economic
advisers, and also among some politicians.
Yet for the last forty years the contrary opinion has
been clearly expessed by such authorities as McLeod
and more recently Hawtrey and others.
It clearly suits the interest of the bankers to
persuade the public to believe this.
Examination of Mr David Robinson
Mr Robertson said he had forty years business
experience in Melbourne and had offered to come and
give evidence because so many business men dare not do
Mr Robertson said that, if a product is sold, there is
included in the price a proportion of the cost of the
machinery and the building. He then read his written
evidence and handed it in:
Mr D Robertson, Melbourne.- Outline of Evidence.
"The inherent fault in the present economic system,
which embraces the credit system, is that the total
prices charged by all firms individually and
collectively is greater than the total incomes of all
firms individually and collectively. This is true of
all firms individually and collectively - so it is
true to say of the whole nation, and of every nation,
that the total income cannot buy the total products,
hence the continued cry to export.
"There is ample proof of these statements when the
national debt is examined.
"The national debt of Australia in 1913, in round
figures, was £313,000,000; in 1934 the amount is
£l,204,000,000 - even with this increase of 287 per
cent. in the nation's debt in a period of 21 years, it
is becoming impossible to sell all the consumers'
goods that are now being produced, without taking into
consideration Australia's potential productive
"I do not think anyone will contend that the national
debt will ever be reduced. As a matter of fact,
every-day events show that, to enable industry to
carry on (haltingly as it is at the present time), the
national debt will have to be considerably increased,
the method adopted being to borrow more of the
nation's credit (which acts as money) from the banks;
whether from Government or private banks the effect is
the same, inasmuch as it means an increase in the
national debt; and while the rate of interest has been
considerably reduced, the aggregate amount of interest
has and must continue to increase, which means a
further burden on industry, together with the banks
securing a still greater lien on Australian assets.
"Industry, no matter how energetically it functions,
cannot create money - it can only distribute the
amount of money (credit) which private or Government
banks care to loan to industry.
"Assuming the banks loan to Australian industries,
say, to £300,000,000 for a year, and assuming this
amount to be sufficient to carry on Australia's
industries for that period, the banks will require,
say, 3 per cent. interest at the end of the year,
which amounts to £9,000,000.
"Industry being only a distributor of the amount of
£300,000,000 loaned by the banks, it is apparent that
industry cannot meet the charge for interest, hence
the continual increase in the national debt.
"If the policy of the banking system was amended and
the banks permitted to charge a fair rate, including a
reasonable profit for administering the nation's
credit (which the banks at present loan and so create
debt which never can and never will be paid) and this
credit was utilised to create sufficient purchasing
power (which is money) to equate incomes with prices,
it would speedily end the paradox of poverty in the
midst of plenty and stop the absurd wail of
over-production when there are so many human beings
who cannot secure a reasonably comfortable living.
"Many nations have destroyed and are suggesting
further destruction of consumable goods in preference
to adopting a sane distribution of the goods and
services available to enable every human being to live
in economic security."
The New Zealand Committee, MrRobertson said, was
rushed, and the report is a white-washing affair. He
believed the Commonwealth Royal Commission will be the
same. They will have the right of saying whom they
will call, and he said it is pretty certain they will
not call him.
He continued.- "Major Douglas says: 'Credit must be
controlled by the people who own it.'
"Every time you increase credit at the present time
you increase prices. Douglas use credit so as to
reduce the prices.
"The subsidy to the wheatgrower is taking it out of
one pocket and putting it in another."
He agreed with the Chairman that the real meaning of
using national credit is taking some of the waste
surplus, which we should regard as a national asset,
and turning it into another national asset.
"We have never paid interest in any other way than by
goods. An excess of exports over imports, which is
generally called a favourable trade balance, is in
actual fact an unfavourable one, because it means
exchanging real goods for receipts."
Mr Robertson continued. - "In the case of an isolated
bank in America, if there is a run on it it has no
chance at all. A bank (Australian) can now go to the
Commonwealth Bank, and the Government would have to
give the Commonwealth Bank instructions to issue more
Mr Robertson continued. - "With regard to the Douglas
Just Price Formula, it is not necessary to know the
relation between production and consumption until the
end of the present period. We have surely heard of
rebate and discounts. Well, all Douglas proposes
giving is to give to final consumers a rebate or
discount on their purchases. Every co-operative
society does it every quarter. During the quarter they
collect too much in prices from their members, and at
the end each member gets back his due share of the
He said: "Having more money does not necessarily mean
you would have more purchasing power. The difficulty
is to be able to understand the difference between
more money and purchasing power."
"Douglas says it too. He sets out to reduce prices;
then when you have more money you will have more
purchasing power, because for every £100 you will have
£125 worth of purchasing power."
Mr Robertson said. - "All that a thing costs to
produce is what is consumed during production; the
wearing out of human beings, machinery, and buildings,
etc. He said that, if the creation and control of
credit was taken from the banks under the Douglas
System, shareholders would get their incomes just the
same in the national dividend."
He did not think the present system ever worked
satisfactorily. Four years ago we were called by
economists to "cut the cost of everything down and
economise"; now the cry is, "We have to get prices
Capt Rushworth told him he did not want to go on with
the New Zealand Inquiry, as the terms were so
restricted and it was practically useless.
The Chairman said. - "Quite recently there has been a
movement by the United Bishops of Australia, and they
have put it that it is the duty of the Government to
find work for everybody even if it means extra
Mr Robertson. - "I think it is a ridiculous
suggestion. Oranges at 1s.6d. a case in Australia and
they go to the assistance of the growers by giving 1s.
a case subsidy."
Mr Robertson said. - 'There is not enough money in the
world to- day to buy everything that could be
produced, because the banks destroy credit. He read
the following statement by Mr McKenna: - "Let us look
now at the instances of bank deposits since 1914 and
see to what extent this increase is due respectively
to payments in of additional currency and to bank
loans. In June, 1914, the banks in England held
£75,000,000 of currency. Last month (December, 1919)
this figure stood at £191,000,000.
The banks therefore held more currency to the amount
of £116,000,000 and to this extent the increase in the
aggregate banks deposits is accounted for by payments
in currency. But it is estimated that since June,
1914, bank deposits have risen by £1,230,000,000.
If £116,000,000 of this amount are accounted for by
payments of currency into the banks, there remains
£114,000,000, which, if the previous analysis be
accepted as correct, we must attribute to bank loans.
Mr Robertson said. - When the Savings Bank of New
South Wales was closed, they had £9,000,000 worth of
Commonwealth bonds. Mr Lang had nothing to do with the
closing of the bank, which had to close because the
Commonwealth Bank refused to let it have cash for its
Mr Robertson agreed that, during the past three or
four years of the depression, the only sections of the
community that have not made a loss is the section
that has shares in the banks, trustee companies, and
He then read extracts from the constructive
recommendations of the Southampton Chamber of Commerce
as follows: "In our highly-complicated economic
structure, a monetary system is essential, and just as
civilisation is dependent upon its economic
foundation, so in turn the economic system is bound
together by its monetary machinery.
"If money is to function as an efficient token system
to enable goods and services to be changed the
monetary system should be adjusted to reflect the
facts of production and distribution. If the economic
system is to provide the community with the goods and
services they require, the amount of money to effect
this distribution must by regulated by the goods
produced for the benefit of the community to furnish
itself with goods and services.
It is this knowlege, amounting to a certainty - this
credit - which gives money its value.
Money is therefore a vehicle of this credit and need
have no value apart from the credit attaching to its
possession, which makes it acceptable in return for
goods or services.
"We should, therefore, expect to find any monetary
system based upon the ability of the community to
furnish itself with goods and services, that is, upon
the credit existing inseparable from the community. In
order that it should function smoothly, the quantity
of money should always be sufficient to provide the
community with purchasing power to have access to the
goods and services available. Thus we should expect to
find the monetary system reflecting any increase in
the well-being of the community through its ability to
produce more for its use.
Mr Robertson quoted a recent statement by Mr R G
Menzies, Attorney-General: ...
"Financial policy of the State is governed by the Loan
Council. Money cannot be borrowed without the
permission of the Council, which is the governing body
of Australia to-day."
Mr Robertson said. - "You have jealously guarded the
right to create coins. If anyone suggested to-day that
you hand over that right to the bank, you would have
the public up in arms. And that is only 1per cent of
the sum involved: you jealously guard the 1 per cent
and let the banks have the other.
Mr Robertson said. - "You could knock out any such cry
as 'They are after my money' if you take these people
(the private banks) at their own word, that is,
according to their balance-sheets, they are making
certain profits. I am still agreeable to them making
The feeling is getting stronger in favour of the
change. Medical and professional men are waking up to
find that their financial securities are not secure. A
movement is beginning in the class that counts.
Mr Robertson then read a quotation from Major Douglas
(evidence given by him in Canada), which will be found
on pp. 67-68 of the evidence.
Mr Robertson handed in the following quotations:
Figures from Recent Australian Census.
'Tribune,"January 3rd, 1935.
"These figures classified the financial incomes, as
disclosed under pledge of privilege, of the entire
population. And what did they disclose? Read them as
applied to the 881,926 breadwinners in Victoria:
Percentage of Income Total
Under £l per week 29.8
£1.- £2 18.4
£2.- £3 12.2
£3.- £4 10.2
£4.- £5 7.9
over £5 10.9
R G Hawtrey, of the British Treasury, in the "Art of
Control Banking," says:
When a bank lends, it creates credit. Against advance
which it enters amongst its assets, there is a deposit
entered in its liabilities. But other lenders have not
this mystical power of creating the means of payment
out of nothing. What they lend must be money that they
have acquired through their economic activities."
Rotary Research Pamphlet, No 1
Mr Robertson continuing said. - "In Rotary Re-search
Pamphlet, No 1 (pamphlet by the Rotary International
of Great Britain and Ireland, the following passage
appears on page fourteen:
The money system is a social mechanism ostensibly to
facilitate the production and distribution of goods
and services - a system of tickets which entitle the
holders to demand they desire.
The function of money may be attached to a commodity
having an intrinsic value as in the case of a
sovereign, or it may attached to a practically
worthless piece of paper as in the case of a bank
note; or it may be attached to such a nebulous
conception as bank credit,' which has no separate
tangible existence but is merely represented by ledger
entries in the books of a bank."
Report of the Bank of New South Wales
"I would," continued Mr Robertson, "quote following
excerpts from the Report of the Bank of New South
"7th september, 1932.
"A declaration by a world conference that the trading
central banks would co-operate to raise prices would
doubtless have an important influence in stimulating
investment activity. When investors have an assurance
that central banks will actively engage upon a policy
designed to raise prices, they may not hesitate to
embark upon new projects. The fear of deflation is
indeed more forbidding that the fact itself."
"It is evident that no proposal for further borrowing
will be approved unless it is accompanied by definite
indications that the Governments are doing all things
necessary to reduce their expenditures in keeping with
the condition of the time. This would involve a
reduction in their establishments, with consequent
additions to unemployment, but the problem of
resultant unemployment is secondary, and should not
deter governments from taking necessary action towards
balancing their budgets."
In the National Bank's November Summary, Page 13,
appears the following statement: -
"Banking was one of the first industries to be
conducted on specialised lines. The reasons are fairly
obvious. It requires an unusual degree of capacity,
personal reputation, standing, and sound judgment to
conduct a banking business with success. Those men who
are the best equipped in the ways indicated became
bankers, and devoted the greatest part of their time
and effort to the conduct of that section of the
Then, as now, men possessed in large degree of the
qualities mentioned were not numerous, and as a
result, banks have not multiplied like many other
sections providing for the needs of the people."
Mr Robertson said - For consummate egotism and
boastfulness, this paragraph would take some beating,
particularly when it may be remembered that in 1893
the National Bank was one of the 13 banks out of 25
which suspended payment, confiscated the assets of the
depositors, ruined thousands of producers, traders,
and citizens generally, and then had the sheer
impertinence to use the machinery of Government to
re-establish themselves and build up huge dividends
and reserves for their shareholders while repudiating
their liabilities and dispossessing depositors.
Origin of Money
The question of the origin of money was examined at
some length. Professor Hytten was not willing to
accept the statement of Mr Reginald McKenna and many
well-known authorities that money comes into existence
through bank loans to industry or to governments.
"The Chairman. - I would like to have a general
statement as to where that money does come from. Does
it come through loans to industry or not?
Professor Hytten. - It is very difficult to say if it
comes through loans to industry. It comes into the
banks in the first place as deposits.
The Chairman.- According to Reginald McKenna it comes
out first as loans.
Witness finally agreed that the issue of money depends
in general on the borrower putting up an apparently
profitable proposition. At a later stage the witness
admitted that all money has its basis in the
commodities it represents, and that the value of the
Commonwealth Bank Note rests on the credit of
He, however, described as "nonsense" the statement of
the London Chamber of Commerce Journal that money
tokens equal to the value of goods for sale should be
issued. He believed that production had been so
abnormal that everything should be cheap, and we are
trying artificially to make everything dear. Here is
an obvious instance where the interests of the
consumer and those of the producer are opposed under
the present system of finance. The witness was very
disinclined to admit the statements of McKenna,
McLeod, and others that banks create credit to the
extent of nine times their cash reserves.
Professor Hytten. - Where did you get those figures?
Chairman. - They are admitted time and time again.
Professor Hytten. - Where? Chairman. - In the
MacMillan Report. Professor Hytten. - In Australia it
is one in six. T he witness was not prepared to admit
that the 200,000,000 in the savings banks arose in the
some way as the trading banks money.
Witness. - I do not agree to add the two together.
Chairman. - Where does the money in the savings banks
come from? Witness. - Deposits. Chairman. - But where
do they get it? Witness. - Numerous sources. Chairman.
- But where does the money come from? A large amount
of money comes into existence through the action of
the banks in lending it and there is £200,000,000 to
be accounted for. Where does it come from? Witness. -
It originates from payments into the banks - deposits.
Chairman. - The deposits of the trading and savings
banks and the Commonwealth Bank come to about
£517,000,000. It has arisen out of £60,000,000 cash,
which is all there is.
Witness. - Of course you are disregarding the turnover
of the cash altogether.
The witness would not agree that the amount of money
in existence depends, as Mr McKenna says, on bank
loans, etc.; thus no amount of turning over or
velocity could alter its amount without further
The question of turnover was raised at a later stage
when Mr Turner asked the meaning of "velocity of
circulation." Velocity of Circulation
Witness replied. - "The number of times a given
instrument of exchange changed hands in a given time.
If fast, it increases the efficiency of the amount of
currency in circulation and therefore less currency is
needed to do the same amount of transactions" At a
still later stage witness stated that if £500,000,000
be all the money in existence and £25,000,000 were
required to pay annual interest, this would be
forthcoming through velocity of circulation.
Mr Turner. - "Obviously, the reason is that out of the
£500,000,000 currency you use £25,000,000 to pay your
interest - and round it goes again." Chairman. - "You
have 100 gallons of water. A drought comes along. You
agree to lend me 50 gallons on condition. that I pay
you 52 gallons back. How can I pay you back?" Witness.
- Only if it rains in the meantime. Chairman. -
The borrowed 50 gallons may circulate. It may
evaporate, as water does, and it may all return as
rain. But if that fifty is all that goes up, then it
is all that can come down. So it is with money:
£500,000,000may be lent. It may go into the bank and
out again, but it cannot grow the extra £25,000,000
required to pay interest.. Fresh money has to be
created - in part at least - by the bank for that, and
this means more debt and pledged securities.
The implication of Mr Turner's remark is, that having
paid the amount into the bank, the bank makes you a
present of it again, so that you can pay it in again
next year, otherwise it could only come out - in part
at least - as a loan or in purchasing securities; and
in either case more security would pass to the banks.
The Chairman continued.- "Professor Copland says: - 'A
given amount of money will circulate many times in a
given unit of time. It will make many payments because
it has what economists call 'velocity of circulation."
Witness agreed that Professor Copland meant that £l
paid to the butcher for meat and paid by the butcher
to the baker for bread liquidates two debts.
The Chairman. - "Major Douglas calls this a 'complete
and major fallacy."
Witness, however, did not agree that by "debt" was
meant a debt charge or cost incidental to the
production of meat or bread. The Chairman then quoted
from Major Douglas' reply to Professor Copland; "The
butcher must renew his stock of meat from the £1 he
received and also pay interest, overhead, and etc.,
only his profit was available for buying bread, i.e.,
liquidating the debt charge attached to the bread."
One pound may circulate through a group of persons an
indefinite number of times and effect exchanges of
commodities, but it will not repay more than £l of
bank debt incurred in the production of those
In its complete cycle through the costing system it
will create as many debts as it liquidates. This point
appears to have been given very little consideration
in speaking of "velocity" and "turnover". It is a very
vital point and it is often ignored by those who
contend that there is no shortage of purchasing power.
If one hundred people were in a market with a £l note
between them, each man might in turn buy his
neighbour's hat for £l and so buy £100 worth of hats
with the £l. But the £l could not defray the cost of
production of more than one hat, or repay more than £l
of bank debt.
This difficulty to realise the effects of the
circulation of money in industry and rise of debt is a
very great handicap in reaching a solution of
Ownership of Money
The question of ownership of money and/or the right to
issue it was raised, and Professor Hytten was asked
how the money would come into existence in a new
community which had previously been used to barter.
Witness replied that there would be no trade until the
people had heard of money and commenced to understand
it. When asked how much notes and coin would be
provided for in starting a new community on a large
island where there was no money at all, witness stated
that the amount would be arrived at by trial and
Chairman. - Who would issue the money? Mr Turner. -
Obviously, the Government. Chairman. - When the first
money comes into existence, whether it is a cow or a
piece of leather, who is the owner of it? Witness. -
If you take it that money has some intrinsic value,
the money has in the first place come from the person
who has produced it, that is, a man may have found a
solid lump of silver: he can go and get the government
stamp on it.
After further discussion, in which the witness seemed
to have some difficulty in seeing that the owner of
something of value was really the owner of the money
issued to represent that object of value. Chairman. -
I have a cow, and it represents so many tokens. Would
it be right for someone else to say that cow is worth
so many tokens which he has?
Witness. - No. Chairman. - Is that the present
financial system? When we have an asset now, we
deposit it in the bank, and the bank allows us to use
finance equal to the value, and charge us interest on
it - they are the only persons allowed to issue money.
Witness. - The money obviously belongs to the person
who produced it or owns it in the first place. Bankers
do not own money; they deal in money; they are a class
of middlemen. Chairman. - They are manufacturers of
money? Witness. - Very strictly, yes. Chairman. - They
manufacture money as you manufacture an asset? Mr
Turner. - Owning the asset, you own the money.
But witness again seemed uncertain over the statements
of McLeod, McKenna, etc., as to whether the banks
create or deal in money.
The question of ownership of money may be illustrated
by the following example: -
The Chairman. - Suppose the owner of a cow or some
other valuable article makes a token representing its
value, just as a £l note represents £l sterling. The
owner of the cow surely owns the money reflection of
As money is now created by the banks on some privately
owned asset, the banks, instead of the owner of the
asset, claim ownership of the money. The sum of the
assets on which the banks create money make up a large
portion of the community's assets. All this money
should be controlled by the community and belong to
the owner of the asset instead of, as at present,
being controlled by the banks who lend it to the real
owner - the owner of the asset."
Mr Turner. - "It seems to me that the valuable thing
is the asset ..." The Chairman. - "If all Australian
depositors tried to draw their money out at once they
would get a few pence, plus a request to have
Mr Harvey, in answer to a question as to what the
banks would do in such circumstances, said: "We would
try to persuade the people they did not want their
Professor Hytten, in answer to a question as to how a
general run on the banks in Australia would be met,
said: "I think they would go west then."
The Chairman suggested that they would not fail
because they have assets to cover their liabilities,
but as they could not liquefy these assets they would
ask the Government and the Commonwealth Bank for an
issue of notes. With a National Credit Board, money
would be issued on the same security that the present
banks would have to use in time of emergency. The real
asset is the property of the borrower, which in the
mass makes up the community's property. The value of
most of these separate securities rests on the
community security and on the increment of
association. The banks claim the money they create
against the community's assets, that is, they claim
the credit of the community. Banks have failed
frequently when they have been hard-pressed; they have
ruined thousands, repudiated their obligations, and
started again. It has taken the banking system two or
three centuries to reach its present "sound position"
- a position where the banks cannot meet their
obligation, if called on to do so, without the
Government's aid, and the result of the system of
"sound finance" which they operate is the present
ridiculous position of Poverty amidst Abundance.
Supporters of the system try to discourage the idea
that any reform or alteration is necessary. The
foundation of the Commonwealth Bank, for example, was
greeted with declamatory cries of "Fisher's flimsies!"
EXTRACT FROM MELBOURNE "ARGUS." 1911. ON THE PROPOSAL
TO ESTABLISH THE COMMONWEALTH BANK
"The whole scheme is conceived in idiocy. It
constitutes a malicious use of public funds to compete
with private activities - activities that enjoy the
fullest confidence of the public. There is not the
slightest justification for it, and its failure from
its inception is so much a matter of certainty that
the whole proposition will be abandoned after a few
months' of inglorious experiment."
Mr Watson (E.S.& A. Bank) said that through the wise
policy of the banks, Australia has risen to the
wealthy position it is in to-day. The Chairman. - The
main result of this increased wealth is increased
Mr Watson blamed the War for the increased debt, but
would not credit the war for increased producing
power. Chairman. - How did these debts come onto
existence, and what did they represent?
Witness. - We wanted goods we could not pay for at the
time: we could not live on our income at the standard
we demanded. Chairman. - "We could not pay whom?"
Again the point becomes evident that, if wealth and
income are regarded from a community stand-point as
"what we can produce," there can be no difficulty and
no debt in using unemployed men and available
materials to produce further public or other wealth.
In Tasmania, as in many other countries, the interest
on public debt is almost as great as the revenue from
taxation. In ten years, at the resent rate of growth,
few countries will be able to pay interest on their
When private industry borrows for production, it
recovers its expenses and may repay its loans through
sales of products. Governments have no such means of
recovering expenses and repaying loans. Taxation
reduces the purchasing power which industry requires
to pay its way.
When the financial system lends to governments, it
lends the nation's own credit - not something which is
the sole property of a private group of citizens - on
which it has no moral claim for repayment or interest.
A National Credit Board would have the power of
creating the necessary credit required by governments,
and this would be available for use by the nation,
free of all but administration charges.
Mr Pearsall asked Mr Foley. - "in regard to borrowing
under the Douglas plan, would private individuals be
on the same footing as the State if they wanted to
borrow, or would there be any distinction?"
Mr Foley. - "At present, when a private individual
finances his business by borrowing, he can collect the
money to repay his loan and interest, if he is lucky.
The State has not the opportunity of collecting the
money required to pay back its loans. It cannot do so
by taxation, because if it did so it would cripple
Under the Douglas method we do not anticipate that any
difference would be made in issuing loans to business
people to continue their business, but State
expenditure probably would be financed by an issue of
credit in similar fashion to the National Dividend,
that is, created for the purpose of producing a bridge
or any public work. You would write the value of that
bridge up on the appreciation side of your ledger, and
you would write the value of the bridge off as it
depreciated over, say, a period of one hundred years.
That is what should be done for all public works. The
value should be written up on one side of the ledger
as appreciation, and, when the money is spent, that
should be the end of it. It should be written off year
by year as the bridge depreciates."
Mr Pearsall. - "The State, then, would not be required
to pay any interest, but gradually would write off the
debt by depreciation?" Witness. - "That is what would
happen in practice."
Effect of Savings
The Chairman asked if the Australian National Debt had
increased by nearly £900,000,000in twenty years, and
at the same time the total national debt of the
nations in general had also increased, so that the
total increase of debts could not have arisen from
nations borrowing from each other.
This was admitted by Mr Watson, and, in reply to the
question "Where does that money come from?" the answer
was "Savings." The Chairman. - National debts have
risen chiefly through bank loans. They involve the
pledging of national security. The interest on them
can only be paid by borrowing more money from the
Suppose this £900,000,000 increased debt of Australia
had come from savings, there would be left unsold
£900,000,000 worth of goods, for the production of
which this money had been paid as wages, etc.
Economists say that the money would be re-invested. If
so, you produce more goods - two lots of goods from
one lot of money - is not this always the result of
re-invested savings? Re Investment of Savings
Consider the diagram below:
Consider the diagram below:
A-B represents the total money distributed during a
cycle of production.
C-D equals the total prices of goods for sale -
assuming that prices are equal to purchasing power
If E-B is saved, the goods F-D must be left unsold.
But we are told that E - B would be re-invested in
industry. If so, it will produce G - H (goods). In
other words, there will be two lots of goods, F - D
and G - H, for one lot of money, E - B.
Shortage of Purchasing Power
The questions of shortage of purchasing power and of
the ownership of credit were raised.
Mr E W Turner asked Professor Hytten to state quite
briefly if, in his opinion, there was any real
justification for the statement that there was a
shortage of purchasing power, as a number of
contentions are based on this hypothesis.
Professor Hytten. - "Shortage of purchasing power can
only come about by the equation of purchasing power,
which is money, and the total amount of transactions
multiplied by prices on which the transactions have
taken place. No shortage of purchasing power can take
place if you assume that transactions are growing and
that prices will not fall."
This seems to mean that if prices do not fall as
transactions increase there is no shortage of
purchasing power, but it throws no light at all on
whether there is any real shortage. Possibly the
witness meant that no shortage of purchasing power
will exist while transactions are growing.
If so, this is the contention of the new economic
thought, which says that ever-increasing expenditure
of wages on new production is required to provide
additional purchasing power for goods already produced
and to keep the present system going until the crash
finally comes as the result of accumulated debt.
Mr Watson specially commended the present Tasmanian
Government for its spending policy.
Professor Hytten showed also that any loss of
confidence causing slowing down of business causes a
shortage of purchasing power, and said -
"This is something we do not understand very much
about, but a sudden loss of confidence means the
destruction of purchasing power, and that destruction
of purchasing power comes about, not by destroying
notes, or anything like that, but by the simple ratio
of turnover of money. Some factor comes in to make a
shortage in the circulation of money. People simply
plonk it into the bank, and this slows down the
velocity and thereby creates less effective purchasing
power in the community. Then suddenly you get a
difference in outlook and it goes up by leaps and
bounds again. This is the uncontrollable part of our
credit system, which is quite uncontrollable, or at
least no one has yet thought of a way of controlling
Surely this supports the previous finding that
continual expansion of work is required to provide
Asked to analyse briefly the cause of the present
trouble, and suggest a cure, Professor Hytten spoke of
Professor J M Keynes' theory, that, as you climb out
of a depression, the "inorganic goods that last," as
the Germans call them, are the first to get going.
Keynes and some Germans are saying, "Let us create a
condition under which these heavy industries will get
going. This will mean creating a prospect somewhere
that there is going to be good business in consumption
goods a little while ahead."
Witness also quoted Professor J M Keynes to show that,
in times of depression, it is necessary to get more
money into circulation, which has to be done through
governments and public works. Chairman. - We have
everything necessary to build houses and we have the
people who want them, and yet we do not go ahead and
do it. - why?
Witness. - The demands must be effective - it must be
backed by purchasing power.
Witness' statements implied the need for confidence
and additional purchasing power being put into the
system. This might start one of the many recurring
booms, but it does not touch on anything which would
prevent another depression in due course. The Witness
continued. - "You would surely not expect me to say on
the spur of the moment why purchasing power is not
available." It seems that former inquiries onto the
Monetary and Industrial System, or general inquiries
of Governments and financiers, do not seem to have
spent much effort to find the cause of this shortage
of purchasing power which Major Douglas has said to be
the main cause of the trouble, and which is now being
accepted be many prominent men, such as Sir H Gepp,
the Rt Hon Winston Churchill, Professor Cole, and
At a later stage the witness said that "our purchasing
power is low because industry is at a standstill."
It is natural to ask, "Why is industry at a
standstill? Would it be so if the thousands who want
goods had purchasing power?"
Very recently Sir Herbert Gepp, at Hawkesbury, and Mr
S M Bruce, at Geneva, called attention to the shortage
of purchasing power.
One of the great questions at issue between the old
and the new economic thought is whether or not
industry is self-liquidating. Industry has two
functions. It produces goods and releases purchasing
power which it derives form bank loans.
The old idea was that the purchasing power paid out by
industry is sufficient to buy the goods produced.
The new idea is that it is not, never was, and never
can be under present methods of finance.
Chairman (to Professor Hytten). - "You have an
enormous number of unemployed people, and many of them
are capable of doing good work, and want to work. Are
you going to suggest that, if you form a company and
set 1000 of them to work to produce some useful goods,
in producing them you will set free enough purchasing
power among these men to buy those goods, and at the
same time leave you with a profit?"
Witness. - "I would hope so." Chairman. -"How could
you? You pay £1000 to these people in wages and other
expenses. The only purchasing power they have is a
portion of the £1000 you have paid them, and with that
they are to repay your £1000 and leave you with a
profit?" Witness. - "It is not quite as simple as
that. It is not quite a fair proposition to put up."
Chairman. - "If industry did release sufficient
purchasing power to buy the goods it produces it would
be quite sound?" Witness. - "The men have got to pay
for the capital goods they consume in production."
This is a very obvious and very true statement.
When he made it the witness was indicating the
existence of a gap between the prices generated and
the purchasing power released in any one cycle of
Money to pay for the depreciation of the factory is
not supplied to the workers in their wages and
profits. It has to be distributed to consumers in some
other way. This deficiency of purchasing power has
been made up in the past by distributing wages in the
building of new factories and machinery or for public
works, by export surplus, and by loans.
The increase of national indebtedness is one
indication that even these methods of bridging the gap
are not effective at the present time."
Professor Hytten pointed out the need for better
direction of production over large areas. The needs of
the community should be known some years beforehand so
that unnecessary production of certain articles could
Mr O'Keefe. - "What articles are being produced. in
excess of demand? Is it not rather a shortage of
purchasing power again?" Mr Turner. - "It seems to me
that the whole trend of the Chairman's attitude is to
have a perfect distribution of goods." Witness. - "No
one will fail to admit that our distribution of wealth
is not ideal and that it could be a great deal
Mr Turner asked if public works were the only
The Chairman said Mr Paterson, Minister for the
Interior, commenting on a cable from Geneva, said "he
had never regarded public works as the solution and he
wished to ensure that industry should be reasonably
This would tend to add to the goods to be distributed
by already insufficient purchasing power.
The cable stated that the League of Nations had
published the result of a questionnaire which it had
addressed to the nations on the subject of relief
work. The British Government had replied that "public
works were a part of the normal activities of the
government and local authorities, but an experiment in
large-scale public works as a method of dealing with
unemployment had been tried and had failed, and it was
not intended to repeat it." (Jan 9, 1935.)
Witness. - 'The ideal thing is to put by in good times
for the times when we need it."
Some people have a curious idea that financial saving
has a physical counterpart - that, when we save
"claims on goods," we automatically save the goods
Did the witness mean that in times of plenty we should
put aside meat, fruit, etc., as in the fat Years in
Putting by money is obviously no solution. It increase
debt, since its distribution has meant the creation of
costs of production which can only be recovered
through prices of goods sold. The result of saving is
thus increased poverty. The confusion existing between
theories of finance and facts of experience is shown
Need for Monetary Reform
The need for monetary reform is being recognised by
responsible bodies in England and else-where. This is
exemplified by the following extracts from Chamber of
Commerce Journals, and the London "Times."
Mr Maurice Weston, Solicitor, of Launceston, handed in
a letter from the Secretary of the London Chamber of
commerce in which these words appeared: -
"The reports of the Committee of the London Chamber of
commerce, from which the following extracts are taken,
This letter appeared in the "London times" of 4th
"We, the undersigned, in common with a large and
rapidly growing body of citizens who are genuinely
concerned at existing conditions, have come to the
conclusion that gold is not essential as a basis for
the issue of national money ... A system must, in our
view, be established under which the issue and recall
of currency and credit will be regulated on a
rational, national, and scientific basis, so that the
correct number of money tokens shall be available to
consumers to enable them to enjoy the output of
Among the ten who signed were -
Lord Semphill - Chairman of the Council of the London
Chamber of Commerce; Member of the Advisory Council of
scientific and Industrial Re-search. Sir Geoffrey
Clarke - Managing Director of British Telegraph
Construction and Maintenance Co Ltd; Director P and 0
Company; President of the Associated Chambers of
Commerce of Great Britain. Sir Maurice Jenks - Lord
Mayor of London (1931-32); member of the Council of
the Institute of Chartered Accountants; member of the
Court of the University of London.
The "Times" of 4th April, 1934, in its leading article
stated. "The widespread and growing interest in the
question of monetary policy is reflected on the letter
printed on another page to-day appealing for the
immediate investigation by Parliament of the
fundamental principles which should govern our
monetary system with a view to its reform in the
interest of both producers and consumers.
It is not long since all such questions were
considered so abstruse that discussions of them were
left to professional economists, treasury officials,
and dealers in international exchange ... In fact,
there was a tendency to dismiss as a crank anyone who
ventured to criticise the orthodox gold standard.
In a period of unrest, when the fundamental bases of
economic, political, and social life are being
examined afresh, it is inevitable that the traditional
money system should be brought into the discussion.
Our correspondents, indeed, regard it as already
obsolete, as having become a hindrance to the
effective distribution of goods, and they regard it as
responsible for the continued existence of poverty and
unemployment at a time when scientific invention has
made it possible to meet practically without limit all
the requirements of mankind ... Our correspondents are
representative men of affairs, they have signed the
present letter in their individual capacities, and
their appeal derives force from the variety of their
own experiences and interests."
The London Chamber of Commerce Journal March, 1934,
"With approximately 90 million destitute people ...
hungrily awaiting the almost unlimited production,
either actually or potentially avail-able, it is
evident that the failure of the one to reach the other
is due to some thing being radically wrong with
finance." ... From the foregoing it will be evident
there is nothing whatever to prevent the country for
example re-housing its people. Houses are built with
bricks, cement, sanitary fittings, pipes, wood, etc.,
and there is no shortage of these things.
They are built by men who will require in return food,
clothes, and other necessaries and amenities of life,
and there is no shortage of these. The tokens
necessary to effect the exchanges have, since
September, 1931, consisted of paper notes and book
entries, convertible into goods and services.
"The creation of these tokens presents no difficulty
whatever. It is quite evident that this can not be
done by the old method of asking the bank to create
new money by the not very arduous activity of writing
figures in a ledger, the States then borrowing from
them at interest.
"In order to repay the capital and interest, more
money must be recovered from the community by taxation
than has been issued to it, since the banks do not
lend the interest, so that the last state of that
community is worse than the first."
"This is particularly evident in the Canadian banking
system, which only issues £95 of a £100 loan at 5% ,so
that from the start of the loan, there is never enough
issued to repay it. Bank Consideration
"The original theory by which it was held that the
banks gave some consideration to the rest of the
community in return for these privileges was that they
were under the obligation to the borrowers to pay them
in gold on demand.
It was physically and mathematically impossible for
the banks to fulfil their contracts if all those who
were entitled to fulfilment demanded it, since there
only existed a small part of the gold which the banks
had contracted to hand over 'on demand' in
consideration of which undertaking every borrower was
"Whenever the banks were called upon to fulfil their
contracts the nation was obliged to come to their
rescue, and moratoria were declared in 1848,
1857,1866,1914, and 1931. The only risk the banks now
run is that all those who have borrowed book-entry
money from them should at the same moment demand paper
These the banks are under the obligation to supply on
demand, and once more there are not enough of these in
existence for them to fulfil their contracts.
The Bank of England could only come to their rescue by
printing more notes, provided once more the State, by
means of a Treasury minute, authorises the Bank of
England to print additional notes ... They could, in
fact, fulfil their obligation only if the State would
itself authorise a printing of notes, which it would
then receive from the banks."
Chamber of Commerce and Monetary Reform
Mr Weston further submitted extracts from the report
by a special committee put forward by the Council of
the London Chamber of Commerce on the reform of the
monetary system and as a basis for discussion at
Ottawa on the subject of monetary policy. A special
meeting of the council of the Chamber, on 20th June,
called to consider this report, unanimously adopted
the following resolutions: -
"That in the opinion of the Council monetary reform is
of outstanding importance. The arrest of progressive
deflation is, in their view, a condition precedent to
a restoration of world prosperity, and no other
measures which may be taken can prove effective
This Council cannot too strongly urge upon His
Majesty's Government that the opportunity which will
be afforded by the Ottawa Conference should be seized
... so that the Empire, having itself agreed upon a
constructive monetary policy, may be in a position to
give a lead to the other nations and invite their co-
Further extract from the Chamber of Commerce Journal
Supplement, July, 1932, showing among other things the
immense increase in producing power and the
comparative shortage of purchasing power: -
"Three times as much in commodities is now required to
pay a debt contracted in 1920."
The above statements may be summarised by saying that
the existing money system fails to facilitate the
utilisation of the resources of the community, such as
power and materials, in such way that the community
might obtain and enjoy to a very much greater extent
the facilities - goods and services-which such
resources would otherwise be employed to make
Douglas Credit Proposals
The President of the Hobart Douglas Credit
association, Mr J C Foley, B.Sc., made the following
"These proposals are the result of observations and
studies made by Major Douglas of the manner in which
industry is financed. His analysis of the present
system showed that there were certain defects which
must inevitably lead to its breakdown. It may be shown
that insufficient money reaches consumers to enable
them to purchase all that industry is capable of
As a consequence, output is restricted and the people
are prevented from enjoying the potential wealth of
the country, and are in many cases reduced to poverty,
while goods which they require are being destroyed."
He then outlined the defects in the present monetary
Evidence which has been submitted leads us to believe
that the contentions outlined above are substantially
true and we are of the opinion that an exhaustive
study of the points raised is highly desirable.
Industry Not Self Liquidating
The following statement was put forward by F H Ault,
Engineer in the Telegraph and Telephone Department of
"Industry is not self-liquidating, that is, it is not
paying its way, for, if it were, public debt could not
increase. The world's debt is growing as the fourth
power of time, time being taken in unit of 100 years,
and at this rate of increase it is calculated that in
about 25 years from now interest payments alone will
absorb every penny of the world's income.
Some idea of the rate at which debt is growing may be
gained from Australian figures.
Thus, in 1860 the debt was £12,000,000 yet to-day it
is 100 times greater, whilst the population is only
four times greater. Debt in Australia has grown 25
times faster than the population. "It should be
clearly understood that the Douglas Social Credit
Proposals are propounded as suggestions, which, if
adopted, are likely to produce the obviously needed
reform of the monetary system.
They make no pretensions to completeness in detail,
but the basic principles of national control of
credit, the national dividend, and the just or
compensated price are claimed as fundamental to any
scheme of effective monetary reform which will
preserve individual liberty.
These three principles presuppose national control,
but not necessarily the actual creation, of financial
G D H Cole and the Social Dividend
G D H Cole's Advocacy of the National Dividend. -
Extract from "Principles of Economic Planning," pp.
"The most appropriate way of distributing incomes
would appear to be one which would involve at the
outset a recognition of the social character of the
greater part of the wealth produced, and would
accordingly attribute shares in this wealth to all
members of the community by virtue of their
citizenship, after deducting whatever might be
required for carrying on those services which they
provide in common.
"Thus, after providing for these common services, it
would appear most desirable to distribute incomes
mainly on the following ways:
"1) By distributing to all members of the community a
social dividend as their shares in the common social
heritage - the only condition for the receipt of this
social dividend being a proved readiness to play their
part in the common tasks and duties of the whole
2) By distributing to all working members of the
community smaller supplementary payments on a scale
sufficient to afford such money incentive as may
continue to be needed in order to get the work of
society efficiently done."
G D H Cole advocates the issue of non-repayable
presents of purchasing power to consumers, subject to
a condition that new gift money is not used as an
instrument for correcting the continuously restrictive
tendency of sectionally planned capitalism. Extract
from "Principles of Economic Planning," p. 208. - "Let
the State, it is urged, create more purchasing power,
and more production will speedily follow. I do not
dispute this. I agree that, if the State makes a
present of new money to consumers - not a credit
advance, repayable later on, but at present - the
effect will be to stimulate additional production."
Presents of Purchasing Power
Extract from "Principles of Economic Planning," p.
213. - "When the need arises to increase the supply of
money, I am suggesting that the increase ought to be
made, not in the form of increased loan credits to
either producers or consumers, but of non- repayable
presents of purchasing power to all the citizens, save
to the extent to which the State decides to use the
money itself for public purposes."
Security and Recovery
Mr A E Watson, this year Chairman of the Associated
"Since we were here before, I have given quite a lot
of time to this subject, and I have read as much as I
could. From what I have read it would appear that, if
the fear of war was vanquished and a feeling of
security could be acquired in Europe for say 30 years,
the intense economic nationalism that has been
clogging our trade for so long would be mitigated to a
very great extent, etc." Thirty years seems rather a
long time to wait for the chance of this suggestion
It is questionable whether humanity could survive the
strain of increasing debt with its attendant wrecking
of life and happiness. On the question of creation of
credit, Mr Watson said. - "One point I would like to
emphasise is this - we do not create credit out of
nothing; we cannot safely create credit out of
Let the word "safely" speak for itself.
The witness continued. - "Give creditor nations a
chance to lend money safely on long terms to stable
borrowers for developmental purposes, and I am sure
that most of the forces affecting the trade of the
world to-day would disappear in a few years."
The reply to this is: - When creditor nations can find
stable borrowers, recovery must already have taken
This also seems to show that the banks, own idea is to
lend money to Governments to provide purchasing power
through wages spent on public works and at the same
time increase the amount owing to the financiers - the
result being more debt and more taxation until the
The witness said. - "When times are bad and private
enterprise lacking, I think governments must step in
and fill the breach and go in as far as possible for
reproductive works that will have some use in the
"As machinery and technique in industry improve, it is
reasonable to assume that costs of production will
decrease and the margins of profit enlarge"
(presumably by decreasing total wages and lowering
purchasing power?). "I consider that both employer and
employee should share in this increase in profits from
The witness said. - "The Bank of Amsterdam ...
realised that people did not come in and take the
whole of their deposits every day, and thus it was
quite safe to use a portion of these deposits and lend
them out to other clients."
Chairman. - "Quite safe and quite honest?" Witness. -
"Yes, as long as it paid 20s. in the pound"
It is, perhaps, not very easy for a layman to see why
a bank should lend what does not belong to it and get
interest, and be called quite honest if it gets the
money back in time to meet the demands of the owner of
the money; while it is recognised that it is quite
dishonest for a trustee or shop girl to gamble with
trust funds or till money, even if the gamble succeeds
and the money is replaced before discovery.
In reply to a remark that there have been at least
five periods of bank failures in Australia the witness
said: "They were small" This view is small comfort to
those who lost their money. As opposed to Mr Watson's
contention, we quote Mr Frank Anstey, who was for many
years a member of the Victorian Legislature and later
a member of the House of Representatives and Minister
of the Federal Government: - 'The Commercial" was the
most notorious of the defaulting banks.
It declared a 12 percent dividend, and then closed its
doors upon 30,000 depositors and millions of deposits.
It then appropriated one-third of the deposits as
"preference" capital, and gave receipts on the
indefinite future for the two-thirds balance.
Other banks followed the 'Commercial's' example, and
thousands of depositors were left penniless, compelled
to sell their deposit receipts and their compulsory
shares for a fraction of their face value.
"The directors of these fiduciary institutions had
cross-loaned to each other enormous sums of other
people's money yet while they were pushing each
other's people to the wall, they conspired with each
other, met in secret, and wiped off their mutual
obligations for a few pence or one farthing in the
They kept their assets, gave each other clean
receipts, and got through the legislature of the State
an Act of Parliament making it an offence for any
person or newspaper to give publicity their scandalous
They now only wiped off each other's debts to the
institutions they controlled, whose depositors' money
they had borrowed, upon whose remaining assets they
had foreclosed, but from these foreclosed funds they
again 'borrowed' to purchase the script and deposit
receipts of the thousands they had ruined.
Thus these financers, trusted custodians of other
men's money, emerged from the struggle more wealthy
"The memory of this smash," says Mr D J Amos, FA. LS.,
"and consequent distrust of the Associated Banks'
persisted for many years if the minds of the
Australian people, and when after the formation of the
Commonwealth, the second Fisher Administration came
into power in 1910, it brought with it a mandate from
the people to reform the Australian Banking System.
Banks Right to Interest
The Chairman then read an article by Mr H T N
Gaitskell (Lecturer in Economics at University
college, London), dealing with Bank Creation of
This article appeared in the "London Economist," of
25th May, 1935.
After dealing somewhat fully with bank creation of
credit, Mr Gaitskell said. - "It is true that their
profit arises from the difference between the interest
received on the debts they own and the interest they
pay on the debts they owe.
"It has yet to be shown that they ought to retain this
"On all that part of the new money which remains in
various interest-bearing current accounts (that part
which is in active circulation), the banks make a
clear gain of the yield from the assets purchased.
We may say, broadly, that, from any increase in the
volume of bank money other than deposit accounts, the
banks secure gains exactly similar to those of the
Issue Department of the Bank of England. It is
suggested that the argument for reserving these gains
for the community are as strong in the former case as
in the latter."
Witness - "I am afraid I cannot accept that."
To the question whether private banks should profit
from the creation of credit, witness replied. -
"Do you want to monopolise the whole thing?"
The banks now do monopolise it all.
The witness continued. - "What is the difference
between buying and selling money and buying and
(In the footnote on the following page will be found a
reply to this supplied by Mr David Robertson in
State Creation of Money
The Chairman read a quotation from the recent book of
Mr G D H Cole (an Oxford economist),
"Principles of Economic Planning": - "It does seem to
me undeniable that the State, by creating new money
without thereby creating new debt, can come near to
bringing about the full use of the available
productive resources, and can, by recurrent infusions
of additional money, keep those resources in use. (p.
Mr Watson replied. - "How can you create new money
without creating a new debt?"
Did the witness mean. -
1) That when banks create new money they are in debt
to no one for it, but can lend it?
2) That it is impossible, or wrong, for the community
to create new money without being in debt to the
banks, though they would create it on the same
security as the banks now create it, that is, the
joint and/or several assets of the community - a very
satisfactory position for the banks as long as the
community will agree to continue it?
Remedy for Unemployment
The witness' remedy for unemployment was, "increase
social services and lower the price of goods."
This means increasing taxation to pay interest for
borrowed money and displacing men by machines in order
to cheapen production, and so still further reduce
purchasing power - typical suggestion from supporters
of the present system.
Witness objected to the question whether banks give
bonus shares or water their capital, because "it is
FOOTNOTE SUPPLIED BY MR DAVID ROBERTSON
If money is to be regarded as a commodity, its value
must be calculated on the same basis as other
commodities, in which case the value of the whole of
the money in existence in Australia is made up
somewhat as follows: -
Gold held by the Commonwealth Bank in London 500,000
Silver and Bronze Coinage (face value about
Notes (face value about £47,000,000) 20,000
Bank Deposits (face value £500,000,000) say *250,000
* This figure is the estimated value of the
commodities used, viz., pens, ink and papers
(including bank ledgers). The practice of regarding
money not only as a commodity, but as the commodity
controlling all other commodities, has given rise to
the difficulties which now beset the community;
whereas it is obvious from the particulars given that
money is not a commodity at all.
Criticisms of Social Credit
During the 1934 Commonwealth Election Campaign, a
pamphlet, dated 26th July, 1934, "With the Compliments
of Irvine Douglas, Publicity Officer, Prime Minister's
Department, Canberra." was widely distributed
throughout his electorate of Wilmot on behalf of the
It says: - "It is not necessary to consider in detail
the whole of Major Douglas' curiously complicated
theories and vague proposals. It is sufficient to say
that they have been investigated time and time again
by qualified and disinterested persons, economists,
industrialists, bankers, business managers, cost
accountants, and politicians of all parties, and not
one of them has found them other than basically
unsound and impracticable."
Witness Ault said: - "Nothing in Douglas is
disapproved there," and produced a list of all the
important inquiries that have been instituted.
A Committee of the British Labor Party held an inquiry
in 1921, and found adversely because "the Social
Credit Principles were not in agreement with the
defined Policy of the Labor Party in Great Britain,
and therefore would not be contemplated."
The MacMillan Committee was instituted to consider the
gold standard. It had no authority to inquire into or
report on Douglas Principles. At the request of the
Social Service Section of the Congregational Union and
the Editor of the "New Age," they asked Douglas to
give evidence, but made no mention of his evidence in
their report, which was concerned almost exclusively
with the gold standard.
Major Douglas was twice invited - at about ten years'
interval - to give evidence in Canada, and the fact
that he has been retained as Reconstruction Adviser to
the Government of Alberta speaks for the impression
made by his evidence.
The Farmer's Position
Mr Marshall gave evidence of the great decrease in the
sale of chaff from the northern parts of Tasmania,
chiefly through the decrease in the use of horses on
the mainland. Northern Tasmania could easily produce
many times its present output of chaff, if required.
Mr Marshall's view of the farmers' present position is
that the best farmers, in a particularly well-favoured
district (in fact, one of the best districts in
Australia), have just been able to maintain their
position by reducing labour, paying a trifling wage to
those whom they still do employ, economising in every
way, and not providing for depreciation of plant, and
that they cannot hold on indefinitely under these
He could see no hope at all for the less competent
farmers or those on poorer land. A changed monetary
system seemed to him the only way of escape not yet
He agreed that production could be increased very much
if demand existed.
Increased Powers of Production
Mr F B Cane said that in his firm production of boots
per employee had increased three time over.
Mr Ward, Director of Agriculture, said that in parts
of the country four sheep were being carried in place
of one as a result of better methods. He laid great
emphasis on the need for high efficiency if a farmer
is to be able to stand up to present conditions.
Mr S R Adams, Manager of the Agricultural Bank,
testified to the greatly improved agricultural
production as the result of education and guidance.
Large numbers of farmers are recognising the
desirability of direction and control. He said the
Agricultural Bank has power to take over mortgages of
farms, and, if the Government provided the authority,
every farmer could transfer his business from private
banks to the Agricultural Bank.
Mr Balsille, Director of Public Works, said two men in
drilling could bore 8 feet a day; one man and a
machine, 80 feet - ratio of increase 20 to 1; in
crushing stone, 16.6 to 1; scarifying 45 to 1. He had
noticed unemployment in Tasmania constantly increasing
since 1905. The building trade may have improved
recently, but not much improvement otherwise. Mr
Balsille made some statements about the general
methods of financing public works:
Public Works Finance
Mr Balsille went on to say: "This State commenced
responsible government in 1856, and started its
development loan policy in 1865. Up to the time that I
had compiled this information, viz., in 1933, this
State had spent on developmental public works, in
which are included roads, bridges, harbours and
jetties, 7.2 million pounds.
"But she had paid out in capital charges 12.3 million
pounds and she still owes 7.2 millions pounds and will
continue to owe it till 1980.
"When I first got out these figures it appeared
absolutely obvious to me that, if she had paid for
public works out of revenue at the same rate as she
had paid interest and sinking fund out of revenue, she
should have had 12-3 million pounds worth, of public
works instead of 7.2 million pounds worth and would
not owe anything on their account.
"Under the terms of the Financial Agreement the public
debt accumulated prior to 1927 will not be wiped out
"I traced the history of the debt back, and put in the
figures from the Treasurer's Annual Statement. In my
analysis I had to assume that the public debt had
increased uniformly from 1865 - 1900, as prior figures
were not really available. I found that, to the year
1906, we had borrowed 3.6 million pounds at which date
we had paid 3.6million pounds in capital charges, but,
since that date, the position has been very much
"Since 1906 we have been losing on the transaction,
and have been paying out more in interest and sinking
fund than the new money that has been coming in.
Public works are costing us today £330,000 per annum
in original charges -interest and sinking fund -
without any maintenance charges, but no allowance is
made for depreciation, and, if we are going to borrow
at the rate we have been borrowing since 1927, by 1980
the cost will be half a million pounds per annum.
"Having got these facts, it was then suggested that
the rate of progress of the country would have been
very much slower on a revenue programme than on this
loan basis, but when you come to get into it you find
that it is not really so bad as it appears. For the
development due to the first million pounds the state
would have been eleven years behind. For the
development due to the third million she would have
been five years behind."
Mr Turner: - Would that be cumulative? Mr Balsille -
May I explain by referring to the graph? (Witness
explained Graph No 10).
Continuing, he said: "I had got to the stage when I
said for the development due to the third million we
were five years behind. After this the position is
reversed, and we find that the revenue policy would
have been ahead of the loan policy by the following
leads: For the development due to the fourth million -
three years. For the development due to the fifth
million - four years. For the development due to the
sixth million - six years For the development due to
the seventh million - eight years.
The Chairman: - If that is carried on for a hundred
years? Mr Balsille - I tremble to think where it may
lead. Our population is not increasing rapidly. Our
capital charges are increasing much more rapidly. The
Chairman - Have you ever considered the issue of debt
free loans for public works? Mr Balsille - I do not
know where it is done. The Chairman - I want to put
this to you. Supposing a man goes right back and
pictures himself as one of a tribe of ten bread-
winners. He would be fully occupied in finding food
and clothing and shelter for his family.
Firstly you improve your method of production, so that
nine men become able to produce as much as ten had
been doing. The surplus man could be set aside to do
work of a general nature, leaving nine on production.
That goes on until there are only five men doing works
for the whole tribe and five doing public works. If we
introduced a public works system financed in this way,
it would really come to the same thing in the long run
as your suggestion of not borrowing?
Mr Balsille - You would be financing your public works
out of revenue? The Chairman - Yes. And there is no
debt created at all? Mr Balsille - No.
G S CARRUTHERS, Chairman. New Library, House of
Assembly 29th October, 1935.
Do You Yahoo!?
Tired of spam? Yahoo! Mail has the best spam protection around