| Subject: | [socialcredit] An Emergency Program of Monetary Reform for the United States | | Date: | Thursday, May 3, 2007 07:44:48 (-0700) | | From: | MODERATOR <socredus @.....com>
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F_A_I_R__U_S_E__C_L_A_I_M_E_D
An Emergency Program of Monetary Reform for the United
States
By Richard C. Cook
April 26, 2007
The author of this independent report worked for the
Carter White House and NASA, then spent 21 years with
the U.S. Treasury Department. In the report, he
explains that the U.S. financial system headed by the
Federal Reserve System has failed and that only an
emergency program of monetary reform can address
conditions which may be leading to a catastrophe like
the Great Depression or worse. Such an assessment has
become increasingly familiar as economic storm clouds
continue to gather. But the analysis and
recommendations contained in the report may be
surprising, even to many progressives.
----
© Copyright Richard C. Cook
INTRODUCTION
The mass media show attractive images of the
comfortable lifestyles of the upper income earners who
benefit from the cash-rich global economy. Which
luxury car to drive, which championship golf course to
frequent, which hedge funds to invest in, which stock
brokers to consult—good questions if you’ve got the
money! But behind this attractive scenery, debt,
bankruptcy, and poverty are a tsunami that is
overwhelming much of the world’s population, including
growing numbers in the U.S.
Following close on the heels of these calamities is a
worldwide breakdown in law and order. Drug dealing,
money laundering, gangsterism, white collar crime,
political corruption, weapons trafficking, human
slavery, terrorism, and endemic warfare are the dark
side of a global financial system where everything has
a price, the rich seem above the law, and individual
security is almost impossible to attain.
Behind the fences of our gated communities, we fancy
ourselves the “good guys” in this scenario. We’ve
learned to blame the victim, failing to see that it’s
a world the U.S. and the other Western powers have
fashioned through our centuries-long march to own or
control everything that can have a price tag attached
to it.
Meanwhile, “dollar hegemony” has flooded the world
with U.S. currency, loans, or debt instruments to
support our fiscal and trade deficits, pay for our
extraordinary level of resource utilization, induce
foreign governments to purchase our armaments, ensure
the allegiance of their governing elites, and maintain
their economies in subservience through World Trade
Organization and International Monetary Fund trade and
lending policies.
Today we are engaged in the outright military conquest
of the Middle East. Our political leaders tell us that
if we don’t fight the “terrorists” in Bagdad we will
have to fight them on our own shores. But India, which
has become our largest armaments customer, has seen a
soaring number of suicides among bankrupt farmers left
out of that nation’s economy. The illegal immigrants
who have flooded the U.S. from Mexico have watched
NAFTA destroy their own family farms, where 600
Mexican farmers a day are forced off the land.
But now our pigeons are coming home to roost. The CEO
of one of our leading brokerage houses received over
$53 million in bonuses in 2006. Not far from his plush
Wall Street office, veterans of two Iraq wars sleep in
homeless shelters.
While U.S. corporations, including the financial
industry, are reaping enormous profits, our domestic
economic problems are growing, including an enormous
load of cumulative societal debt, a continuing decline
of real family income, and increasing wealth and
income gaps between the rich and the rest. Despite the
reports in the mainstream press about the economy’s
“soft landing” and the continued record-setting
performance of the stock market, the financial markets
have been shaken by the bursting of the housing bubble
and soaring home foreclosures. Meanwhile, the
relentless decline of our domestic manufacturing
sector continues.
But one thing is connected to another. A good
investigator always asks, “Who benefits?” The most
salient feature of our financial system is that the
creation of new purchasing power through credit—loans,
mortgages, credit cards, etc.—is controlled by private
financial institutions and, though regulated, works
principally for their profit. Because we are never
taught about alternative economic structures, we take
this system for granted, though earlier generations
had profound fears of becoming what President Martin
Van Buren prophetically called a “bank-ridden
society.”
The private control of credit has given vast wealth
and ironclad political dominance to what Van Buren and
his 19th century contemporaries warned about—the Money
Power, even though our Constitution gave Congress
authority over our monetary system. This authority had
been compromised through the system of state-chartered
banks before the Civil War. But with the National
Banking Acts of 1863-4 and the Federal Reserve Act of
1913, Congress largely ceded its powers over money to
the private banking industry.
Today, high finance rules our economy and most of the
violence-wracked world. The system came into existence
in order to provide the capital for economic growth
during the industrial revolution, but those who ran it
figured out how to do so in ways that vastly increased
their own wealth and power. They rule the world today.
But the system is man-made, with functions and effects
that can be measured and analyzed. The system was
created by historical forces, but if we want to, we
can identify these forces and change the system. What
we have lacked is the understanding of our possible
choices, along with the discernment and moral courage
to act on our understanding.
The direction in which change must be sought is that
of greater economic democracy; that is, a higher
degree of sharing of the bounty of the earth by more
people. Though our economics textbooks don’t mention
it, a reform movement began in Great Britain in the
1920s called Social Credit, which showed how a
financial system in a modern economy can be so
structured as to serve democracy and freedom, not
erode them. This knowledge has had a profound
influence in parts of the British Commonwealth but has
rarely been discussed in the U.S. This report explains
how the Social Credit system could apply to the U.S.
economy, along with other monetary proposals that have
been put forth by U.S. reformers from the 19th century
until today.
The report provides a unique diagnosis of the
underlying financial issues by applying new concepts
to familiar data. It criticizes finance capitalism but
without going to the other extreme of proposing a
collectivist solution. It affirms the value of
“democratic capitalism,” combined with a shift to more
public control of credit, and it offers a new approach
to achieving worldwide prosperity, starting with
economic recovery in the U.S. This can be done through
measures that could be implemented today by inspired
political leadership.
Most economic reform programs nibble around the edges.
Many proposals address symptoms, not causes, such as
suggestions to use tax or trade policy to bring
exports and imports back into balance. Other observers
would destroy society—or, more accurately, watch it
destroy itself—before building something new. Another
line of reasoning says we can only look forward to
decades of a lower standard of living before we work
our way out of the present crisis.
Monetary reform accepts none of these scenarios. It
takes life as we live it on the individual level in a
technological age as basically positive. It embraces
the enormous productivity of modern industrial methods
with approval and hope. But it identifies factors in
the nature of industrial production at the level of
the corporation as creating a chronic state of
instability. These factors, which are explained later
in this report, create an economy in a state of
continuous crisis and disintegration to which
governments react in all the wrong ways
One way is to permit the misuse of debt-financing to
bridge an ongoing gap between the value of production
and the purchasing power available to the community to
absorb it. Another is to attempt to overcome
instability by fostering continuous economic growth
merely through inflationary bubbles where financial
transactions can be taxed as though they produced
real, tangible, value. Another is through an
aggressive foreign policy based on trade and monetary
dominance. Obviously, if all developed nations pursue
such policies—as they inevitably do—wars must result.
It is thus no coincidence that the last 100 years of
incredible progress in science and technology have
witnessed almost constant warfare.
The most surprising thing that monetary reformers
declare is that our problems stem not from a failure
to manage fairly the limited resources found in a
world of scarcity but from our inability to manage a
world of almost unlimited abundance and prosperity.
The first thing monetary reform would do would be to
change the underlying financial structure from one
that confines this abundance to the privileged
few—whether nations or individuals—to one that would
provide it to everyone on earth. The measures which
are available have been discussed among reformers for
many years and could begin to have a positive effect
within weeks of implementation. This is the direction
in which economic stability can and should be sought,
rather than the terminal out-of-control configuration
of global corporatism, finance capitalism, and
military aggression that has brought us to the brink
of catastrophe.
For the glory of God and the love of man, we now owe
it to humanity to make these epochal changes. In the
meantime, it would be foolish for people to wait and
do nothing while the system continues to crumble. The
report closes with suggestions for immediate action by
concerned people.
LEISURE DIVIDEND?
Ever since mankind began to invent machines to do our
work, we began to look forward to a “leisure
dividend.” Products could now be manufactured with far
less human effort. Every new wave of mechanization,
from the harnessing of steam power in the late 1700s
to the cybernetic revolution of today, has held out
the promise of less work and more enjoyment of the
good things of life.
We’ve seen tremendous gains for the workforce. We
enjoy a forty-hour workweek, a cornucopia of new
consumer products, universal public education, longer
life spans, revolutions in communications, medicine,
entertainment, and transportation, a whole new world
of interesting things to do, to know, to accomplish.
The world is so much happier and better off than in
the days when our ancestors worked all day and half
the night just to survive, right?
Well, wrong.
Today, the quality of life in the U.S. seems to be
moving backwards. While the shelves of the big-box
stores are crammed with products, most of them are
made overseas by low-paid laborers from countries like
China and Indonesia. The people who work in the stores
earn wages that hover around the poverty level.
Not long ago, in the 1950s, a single wage-earner,
usually the husband, could support a family while the
wife stayed home and looked after the children. Yet
they could buy a house, a car, and household
appliances, go away on vacation, and send the kids to
college.
Today both husband and wife must work, often at more
than one job, to make ends meet. Inflation has been
rampant in big ticket items such as the cost of a
home, health care, utilities, insurance, and higher
education, and is now affecting the cost of food.
The costs of petroleum products are soaring again.
Over forty-seven million people don’t have health
insurance, poverty is on the rise after a generational
decline, and thirty-five million don’t have enough
food to eat. Good jobs are scarce, and stress-related
illness has become an epidemic.
Meanwhile, public assets like electricity have been
privatized at an alarming rate. Public infrastructure
such as roads, bridges, school buildings, levees, and
water systems are often crumbling, with state and
local governments unable to make improvements without
budget cuts elsewhere or stiff tax increases to pay
the costs of borrowing.
While the recent weakening of the dollar has improved
the U.S. export position slightly and created a few
more jobs, the official unemployment rate of less than
five percent does not include people no longer looking
for work, nor does it take into account the huge
number of jobs that are low-paying and without
benefits.
In fact the real purchasing power of the American
workforce is on a steady downward trajectory, while
the average pay of employees at Wall Street brokerage
firms is more than $250,000 a year, and the CEOs of
some U.S. companies earn thousands of dollars an hour.
But is the problem really that those at the top of the
heap earn so much more than the rest of us? If so, the
solution would be simple. We should do some of the
things many reformers advocate, such as restore a
truly progressive income tax, close corporate tax
loopholes, implement universal health insurance, and
make borrowing for college a little less expensive.
But while economic policies that are fairer may be
desirable, they would fail to address major underlying
structural issues, especially financial ones. The main
problem with the U.S. economy today has to do with
earnings and prices. People simply do not earn
anywhere near enough to buy what the economy produces.
GAP BETWEEN GDP AND PURCHASING POWER
In 2006, our Gross Domestic Product was about $12.98
trillion, with the enormous trade deficit of $726
billion figured in. Our total national income was
$10.23 trillion, including wages, salaries, interest,
dividends, personal business earnings, and capital
gains. Of this amount, at least 10 percent, or $1.02
trillion, would have been reinvested either at home or
abroad, including retirement savings, leaving total
available purchasing power of $9.21 trillion.
The $12.98 trillion GDP minus $9.21 trillion of
purchasing power equals $3.77 trillion. That’s what
the figures indicate was the shortfall that would have
been needed to consume the entire GDP.
Thus we do not earn enough to buy what we produce.
What does this mean, and who, or what, is to blame?
Despite the high CEO compensation, the huge Wall
Street salaries and bonuses, and the wealth and income
disparities between high and low earners, we should
not blame the “capitalists”; i.e., the business
owners, for the entire problem. Business profit taken
as dividends is only about 7 percent of GDP.
Besides, the “capitalists” are us! Forty-five million
Americans have some measure of stock ownership,
including a multitude of tax-deferred retirement plans
and mutual funds. This is one of the strengths of our
economy—the “ownership society”—for which we deserve a
pat on the back. Also, the dividends we earn are
mostly spent, so most of it finds its way back into
the economy.
Let’s look at the situation from a slightly different
standpoint, starting with the $12.98 trillion GDP.
It’s said that the U.S. economy is the most powerful
and productive in the history of the world. This is
true, even with our trade deficit and our decline in
manufacturing due to relocating so much of our factory
production abroad. So we should be dancing in the
streets. There should be festivals, celebrations!
Obviously that’s not happening. Why not?
It’s not happening because of how we define the $3.77
trillion gap between GDP and earnings. Since we
produce the value of our entire GDP with such low
labor costs, the $3.77 trillion differential really
should be viewed as the total societal dividend,
right?
But it’s not defined as a dividend. Rather it’s
defined as a shortfall. This is because it still
appears in prices. And with the stagnation of wages
and salaries, combined with the current slowdown in
appreciation of housing values which is resulting in
lower capital gains, the shortfall is growing.
Obviously, those goods and services still have to be
paid for—the entire $12.98 trillion. The way they are
paid for is through debt. You, the consumer must go
out and borrow to cover the $3.77 trillion gap between
GDP and purchasing power. This is how much our debt
increased in 2006—the amount of new debt less what we
paid off. This new debt was 29 percent of GDP last
year.
Note that this analysis deals with gross numbers, so
does not dwell on the major social problem that income
disparities are growing within the U.S., with a higher
proportion of income each year going to the wealthiest
segments of society. Conversely, the debt burden which
fills the gap between GDP and income falls
disproportionately on the lower income brackets.
But the point is undeniable. Our ability to produce
our incredible GDP with relatively little labor means
that, under the existing system, we have to borrow
money from financial institutions and pay with
interest to enjoy what really should be the leisure
dividend mentioned at the start of this report.
Remember this point, because we’ll be coming back to
it.
Finally, these numbers shouldn’t surprise anyone.
Every responsible analyst has made the point that ours
is a consumer-based economy and that consumer
borrowing keeps it afloat. It’s why economists and
politicians keep such a close eye on the “consumer
confidence” polls. It’s why President George W. Bush,
after the 9-11 tragedy, told us to “go shopping.”
THE GROWING DEBT BURDEN
Again, what should have been a total societal dividend
from our fantastic producing economy somehow became a
debt. How did that happen? Let’s focus on the debt for
now.
Obviously, the $3.77 trillion we borrowed—the debt we
just discovered where a dividend might have been
expected—included a little fun—vacations,
entertainment, wide-screen TVs, etc. But there’s not a
lot of frivolous expenditure in the average family’s
budget. Most of what we buy we need just to live. Many
families even charge groceries on their credit cards.
At the end of 2006, total debt in the U.S., including
households, businesses, and all levels of government,
was $48.3 trillion. This is 50 percent higher than the
sum of all personal wealth held by the entire U.S.
population and 38 percent higher than the value of all
publicly-traded U.S. companies!
That’s $161,000 per U.S. resident, or $564,000 for a
family of four, payable with interest. Again, it
includes personal debt, business debt that is
reflected in the prices we pay, and federal, state,
and local debt for which we, the taxpayers, are
accountable. And the debt has been building up from
year to year. It’s increasing, not going down.
During the year 2005-2006, debt grew five times faster
than the GDP. The Federal Reserve has calculated that
total debt today is 460 percent of the national income
vs.186 percent in 1957. Credit card debt was $9,300
per household in 2004 and is more now, three years
later. A typical family pays $1,200 a year in credit
card interest charges alone. In 2004, students
graduating from college had an average debt of
$21,899. Many end up owing $80,000 or more, especially
if they attend law or medical school. Under the 2005
bankruptcy “reform” legislation, student loan debt can
never be written off.
One result of skyrocketing debt is that the financial
industry, which today includes much more than just
banks, is the fastest growing sector in the economy,
with capitalization increasing from less than five
percent of the Standard and Poor’s total in 1980 to
twenty-two percent today. The financial industry now
generates thirty percent of all U.S. corporate
profits. These profits result from account and
transaction fees, commissions, interest charges,
foreclosures, penalties, and late fees.
Much of the profits—which totaled about $545 billion
in 2006—are the financial industry’s windfall,
resulting from an economy that substitutes debt for
earned purchasing power. These profits would have paid
the entire 2006 Department of Defense budget with $126
billion left over and were larger than the GDP of 92
percent of the world’s nations. While some of the
profits support consumption through payment of
salaries, dividends, and bonuses to financial industry
executives, employees, and shareholders, much is
plowed back into new lending. This contributes to
further erosion of total societal purchasing power.
The data on financial industry profits also call into
question the national rollback of usury regulation
which started in the 1980s. Few realize that interest
rates in the range of 6.5-7.5 percent, which are
viewed today as “low,” are actually higher than in
times past. The average mortgage interest rate in
1960, for example, was 5.25 percent.
A working definition of “usury” has long been any
interest rate higher than what can be justified by the
lender’s risk. This has been forgotten in the face of
contentions by the Federal Reserve that raising
interest rates is a monetary tool to control
“inflation.” The contentions are disproved by the fact
that inflation was low in the 1950s and 1960s, when
interest rates were below today’s levels, but much
higher since the 1970s. Thus the data suggest that
high interest rates are actually a cause of inflation
rather than a result.
A large portion of society’s debt is incurred by the
federal government, with the taxpayer eventually
having to pay. Currently the national debt is over
$8.84 trillion.
James Turk wrote in an report titled “Economic
Suicide” in The Freemarket Gold and Money Report,
March 2006: “…The dire financial straits the federal
government is facing, its financial position, is even
worse than it appears….In the 2005 Financial Report of
the U.S. Government, U.S. Comptroller General David
Walker reported that, ‘The federal government’s fiscal
exposures now total more than $46 trillion, up from
$20 trillion in 2000.’ Yes, it’s insane. But it’s even
more insane that people buy the U.S. government’s
T-Bonds and T-Bills, thinking that they are a safe,
low-risk investment.”
In fiscal year 2000, 1.1 percent of the federal
government’s cash flow came from new debt. This soared
to 20.4 percent in 2005. During that period, total
federal debt grew 40.5 percent. Higher interest rates
will produce a 9.3 percent increase in interest on the
national debt in the 2008 federal budget that will
lead to cuts in social services, education, and health
care.
There is pressure from budget belt-tighteners to
reduce the government’s $46 trillion exposure by
slashing future retirement benefits like Social
Security or entitlement programs like Medicare,
Medicaid, veterans’ benefits, food stamps, etc. Thus
the most vulnerable members of society are expected to
pay for structural financial problems that have left
the federal government, according to competent
observers associated with the Federal Reserve,
functionally bankrupt.
Federal debt is only one element of spending by all
levels of government—federal, state, and local—which
has become a major drag on the U.S. economy. Not only
must U.S. wage and salary earners pay for the debt
that supports their spending, they must also pay a
cumulative tax burden equal to a third of their total
income.
We pay as much in taxes as for housing, food, and
transportation combined. Governments also take
advantage of housing inflation by taxing newly
assessed values to the point where people whose
incomes don’t keep up, and who may even own their
homes outright, are forced to sell and move away.
Our inability to support our economy through earnings
also results in the fact that the U.S. supports much
of its enormous fiscal and trade deficits by selling
securities to foreigners, who own 13 percent of U.S.
stocks, 24 percent of corporate bonds, and 44 percent
of Treasury bonds. It was estimated almost a decade
ago that two-thirds of U.S. currency was in foreign
hands. When foreigners bring their dollars into U.S.
markets they drive up prices, especially of real
estate.
As indicated earlier, another aspect of the problem is
that the growing debt affects different economic
classes in different ways.
According to the Congressional Budget Office, the top
one percent of U.S. households owns 57 percent of all
income, capital gains, dividends, interest, and rents.
These super-rich, along with the upper middle class,
are debt-free or are able to leverage debt profitably,
and are often the owners and executives of the
financial institutions to which the rest of us owe
money.
The middle-class, declining as a proportion of the
population, is under increasing pressure as debt eats
up more of the family income. For them, debt is often
a source of intense personal stress, the more so as
family savings have plummeted, Many families have
cashed in the equity in their homes for spending
money, but the remaining equity is now at an all-time
low proportionate to assessed value—55 percent in 2003
vs. 85 percent in 1950.
The working class or those in poverty or without jobs
are being crushed. A low unemployment rate due to the
creation of more “service economy” jobs may prevent
mass starvation, but that’s about all. According to
The Nation, there is no longer any place in America
where a person earning a minimum wage can afford even
a one-bedroom apartment.
These people, living in the “fringe economy” and
relying on payday loans, group housing, check cashing
stores, and rent-to-own stores, are the prey of a
growing industry of usurious lenders often backed by
corporate financial giants. Perhaps a third of
Americans, including tens of millions of the “working
poor,” are in this category, with their ranks growing
daily.
Finally, there are the homeless, abandoned by the most
abundant economy in the world, approaching a million
in number nationwide.
What is the Bush administration, Congress, or the
Federal Reserve doing to address the potential for
financial catastrophe due to skyrocketing debt? The
answer is, “nothing,” unless you call making it more
difficult for families to qualify for mortgages “doing
something.”
WHAT CAN BE DONE?
The one thing that is certain is that they don’t have
an answer.
The answer is not tighter regulation and more
restrictions on lending, which may protect financial
institutions from exposure, but do little to help
consumers. Nothing is solved for the economy at large
by forcing consumers to pay high rents instead of
mortgage payments, postpone buying needed cars or
other major household items, or get a low-paying job
instead of going to college.
The answer is not for the Federal Reserve to cut
interest rates, though it might help consumers a
little in the short run. But too much damage has been
done in the past with interest rate cuts that ignored
economic fundamentals, such as the 2001-3 cuts that
led to the housing bubble which is now deflating with
drastic consequences. Besides, cuts are likely to
cause the foreign investors to pull out of our
investment markets, leaving us unable to service our
gigantic existing debt load.
The answer is not to cut the costs of production.
Employee benefits would be further decimated, more
jobs would be eliminated or outsourced overseas, tax
revenues would fall, and “fiscal austerity” would lead
to more reductions in government social services.
The answer is not harder work or productivity
increases. This may lead to more or cheaper goods, but
since wages and salaries never keep up with
productivity growth, the gap between consumption and
production also grows. In fact, the more we automate,
the harder we work, and the more efficient we become,
the worse off we are financially! Again, it’s because
purchasing power never keeps up with production.
As indicated at the beginning of this report, higher
taxation of the upper brackets and closing corporate
loopholes would be more fair and would allow some
degree of recovery of income derived from financial
profiteering, but even this would not be nearly enough
to cover the gap between GDP and purchasing power.
It is this gap, currently filled through debt, which
is taken for granted and has never been properly
investigated or explained by any official body. The
debt taken out to fill the gap is the 600-pound
gorilla in the room that the politicians and pundits
have agreed to ignore.
It’s a bleak picture, but not a new one.
President Franklin D. Roosevelt addressed the problem
half-consciously with the massive spending programs of
the New Deal. This was an attempt to overcome the
shortage in purchasing power through a large federal
deficit and a steeply progressive income tax, rather
than placing the entire burden on middle and lower
income citizens as the U.S. is doing today. The U.S.
was finally able to work its way out of this crisis
through spending on World War II and a large balance
of payments surplus which continued into the 1960s.
But with today’s huge trade deficit, that solution is
not available and, with monetary reform, would not be
necessary.
But the situation still points to problems monetary
reformers have been writing about for over a century.
Unfortunately, for the last fifty years, since the New
Deal faded into memory, our political leaders, the
mainstream media, the establishment economists, and
the financial and corporate vested interests, all of
whom are free-market fundamentalists who believe
government is helpless to remedy the situation, have
ignored what the reformers have been saying.
For all of them, “growth” is the only answer to
whatever problem may arise. But when growth in GDP
falters, or is not matched by purchasing power, not
only does it not improve conditions, it makes them
worse. This is the underlying flaw in the system that
cries out for an answer.
C.H. DOUGLAS AND SOCIAL CREDIT
In 1918, Scottish industrial engineer Major C.H.
Douglas published a book titled “Economic Democracy,”
where he wrote that several major factors associated
with modern mechanized production resulted in a gap
between the value of manufactured goods and purchasing
power distributed through wages, salaries, and
dividends. That is, he addressed the exact problem the
U.S. and other developed economies were facing both
then and now.
In a 1932 publication, The Old and the New Economics,
Douglas listed several systemic causes “of a
deficiency of purchasing power as compared with
collective prices of goods for sale.” These included
business profits not distributed as dividends
(retained earnings); individual savings, i.e., “mere
abstention from buying”; “investment of savings in new
works, which create a new cost without fresh
purchasing power”; accounting factors, where costs
previously incurred are carried over into current
prices; and “deflation”, i.e., “sale of securities by
banks and recall of loans.”
Other elements not mentioned by Douglas include
insurance, which is costly in the U.S., maintenance of
unused plant capacity, which is extensive due to the
decline of U.S. manufacturing output, employer
retirement contributions, and the cumulative sum of
retained earnings and other cost factors when
businesses buy from each other.
These factors all show up in the prices of goods and
services but are not paid as earnings to individuals.
A simple way to understand what happens is that prices
that a business charges must not only pay for labor
costs but must also cover all non-labor costs, as well
as equip the firm to perform in the future.
Also, while the financial and accounting systems force
consumers to pay for the costs of capital
depreciation, they do not give them credit for
appreciation of the value of the business that will
appear through future capital gains. This applies
particularly to technology-intensive companies where
high R&D costs must be recovered in prices but do not
show up proportionately in employees’ immediate
take-home pay.
Taken together, the impact of all these factors is
devastating to consumers and the economy at-large,
because we never earn enough to compensate for what
the tax and accounting systems label as costs.
Douglas’s analysis had solved the main financial
problem of the industrial age, one which puzzled most
of his contemporaries, including Winston Churchill,
who said in a 1930 speech at Oxford: “Who would have
thought that it would be easier to produce by toil and
skill all the most necessary or desirable commodities
than it is to find consumers for them? Who would have
thought that cheap and abundant supplies of all the
basic commodities would find the science and
civilization of the world unable to utilize them? Have
all our triumphs of research and organization
bequeathed us only a new punishment: the Curse of
Plenty? Are we really to believe that no better
adjustment can be made between supply and demand? Yet
the fact remains that every attempt has failed. Many
various attempts have been made, from the extremes of
Communism in Russia to the extremes of Capitalism in
the United States. They include every form of fiscal
policy and currency policy. But all have failed, and
we have advanced little further in this quest than in
barbaric times.”
Churchill was speaking at the start of the Great
Depression, which, with unsold milk being poured in
the farm fields, was the classic case of society’s
failure to distribute what industry and agriculture
were perfectly capable of producing. “Poverty in the
midst of plenty,” became the hallmark of the modern
age and continues to roar down the world’s highways
with a murderous vengeance today.
But Douglas showed how to solve the problem by an
analysis of the concept of “credit.” He pointed out
that there are really two forms of credit. One is
“real credit,” which equates to the total ability of a
nation to produce goods and services through
increasingly efficient use of science and technology.
Another way to define “real credit” is to view it as
“productive potential.” The second is “financial
credit” issued as loans by the banks.
Douglas made it clear that in a system where the banks
have a monopoly on the issuance of credit, as ours
does, they are the most powerful entity in the economy
and therefore will be the most powerful politically as
well. They will enhance their power, and their
profits, by keeping financial credit scarce, so the
amount they issue will never approach the amount of
“real credit” that ultimately should derive from the
bounty of the producing economy.
Even in a country like the U.S., where claims are made
that credit is cheap and abundant, there are strings
attached, simply because the limited amount of credit
that financial institutions choose to make available
obviously must be repaid and repaid with interest.
Also, today’s “low” interest rates are still higher
than in the 1950s and 60s. And when the inevitable
credit contraction comes at the downside of every
business cycle, the wealth of society gradually but
remorselessly fall into the creditors’ hands.
Further, people don’t realize how much events on the
national and international scale are connected in ways
that are not evident on the surface. Monetary
decisions, for example, have more to do with
determining the course of a nation’s economy than any
other factor. Similarly, it is the state of its
economy that determines a nation’s foreign policy.
The usual recourse taken by a society whose economy is
strapped for purchasing power, Douglas said, is to try
to export more than it imports to make up for the
credit shortfall through a positive balance of
payments. Because this leads to tremendous competition
among nations for foreign markets as a matter of sheer
financial survival, wars must result.
We can see that because the U.S. today has such a
large trade deficit, even more of the
production/consumption gap must be filled by
bank-issued credit or by the conquests of war. This
seems to be the case with the war on Iraq, whose real
cause appears to be the desire for corporate profits
through control of oil.
Douglas and his followers pointed out that war or
mobilization for war also has the “benefit” of
destroying or idling large quantities of production
(bombs, missiles, tanks, airplanes, etc.), which
otherwise society is unable to consume.
The war economy also props up the employment numbers.
It was World War II that finally pulled the U.S. out
of the Depression, and it is the huge quantity of
deficit spending on the military-industrial complex
which continues to anchor the U.S. economy today. This
has happened in accordance with the Douglas model of a
debt-based economy where people do not earn enough to
buy what industry must produce to create jobs.
Critics may ask why, if Douglas’s analysis is correct,
is it not generally recognized and accepted? The
answer is that it IS recognized and accepted, but only
by the monetary reformers on the one hand and the
financiers on the other. But the financiers, who own
the mass media, are not telling the rest of us,
because it’s what makes them so rich and powerful.
This is why William Greider titled his 1987 book on
the subject, Secrets of the Temple: How the Federal
Reserve Runs the Country. We are dealing here with the
deepest secrets of the financial control of the world.
One final point about Douglas is to observe that late
in his career he made remarks that have been
interpreted as anti-Semitic when he pointed out that,
historically, certain Jewish customs allowed them to
take advantage of non-Jews in business dealings. He
also pointed out, as have others, that many of the
financiers engaged in the banking business have been
Jews. Douglas attributed their success to a high
degree of organizational skill and their ability to
excel and take control in business matters.
But the Social Credit movement itself is not and has
never been anti-Semitic. Nor is the author of this
report, and neither is the worldwide monetary reform
movement. In calling for change, we are talking about
a new system, a new philosophy, and new laws based on
principles of justice and democracy that are accepted
everywhere, though often embattled.
The Jewish people are not responsible for the present
crisis and did not create it. It’s simply the way the
Western economic system evolved. Finance capitalism
came out of the Italian city-states. At various times
it furthered industrialization by making credit
available, but any system can be abused. Any system
outlives its usefulness and eventually has to be
changed.
THE NATIONAL DIVIDEND SOLUTION
The way out of the monetary dilemma, said Douglas, was
not to opt for Marxism or socialism, because economic
democracy cannot be achieved by another collectivist
“-ism” to replace finance capitalism. Also, Marxism,
like finance capitalism, assumes an economy of
scarcity. It simply says that workers have a greater
right to the limited supply of manufactured products
than do business owners.
Douglas, by contrast, saw things through the eyes of
an engineer. He saw that technology created a
possibility of virtually unlimited abundance. He saw
that workers’ wages would fade away as a source of
societal purchasing power as machines took over more
of their work. But he also saw that this abundance
could be distributed to those who needed and deserved
it only if society took back its rightful prerogative
of credit creation from the banks and made that credit
available without hindrance to individuals.
Finally, Douglas saw that the distribution of credit
could not be tied solely to work because many jobs
would cease to exist through advancing automation.
These were revolutionary ideas and remain so today.
Enough people understood what Douglas was talking
about that his ideas became a significant political
force in Great Britain, New Zealand, Australia, and
Canada. The Social Credit movement he founded still
exists in those countries.
The primary method this system would use to implement
public creation of credit would be through a cash
stipend paid to all citizens known as a National
Dividend. Because the dividend would be an expression
of the sum total of the producing potential expressed
as the “real credit” of the nation, it would be
distributed as a book entry on a government ledger,
not as a budget expenditure paid for by tax revenues.
And the right to the dividend would not be tied to
whether or not a person had a job.
Going back to the discussion at the beginning of this
report of the $12.98 trillion 2006 GDP vs. the $9.21
trillion in purchasing power generated through wages,
salaries, dividends, etc., recall that the $3.77 “gap”
that should have been viewed as an overall dividend to
society instead had to be financed by debt.
Now we’ve come full circle. It’s the National Dividend
of the Social Credit system that explains the gap and
would in fact provide it to the residents of the
nation as their rightful benefit from creating,
operating, and maintaining our wondrous economy. It’s
society as a whole which created our economy, and we
are the ones who should benefit from it.
A Social Credit system would be implemented through
simple bookkeeping. The funding of the National
Dividend would be drawn from a national credit account
which would include all factors which give rise to
production costs and create new capital assets.
The national credit account could also be used for
price subsidies. Prices in the U.S. are generally too
high, leading manufacturers to cut costs by shipping
jobs overseas. But it is simply wrong that the hard
work we do for our standard of living should turn
against us and end up taking away our jobs. A program
of price subsidies would allow us to stop penalizing
our workers for their high levels of productivity and
could be funded as another element of the National
Dividend.
You might ask at this point, is a National Dividend
simply having the government “give away” money created
out of “nothing”? If so, it’s the same “nothing” from
which banks make loans under their “fractional
reserve” privileges, using as a base a small
collateral of customer deposits and government
securities. The difference is that bank loans must be
repaid, while payments under a National Dividend
system would not.
Thus the National Dividend would be real money, unlike
Federal Reserve Notes. These are a substandard type of
money, since each one is entered into circulation only
through a debt payable to a bank with interest. But
the National Dividend is not “free” money. Rather it’s
the result of a powerful, productive, and scientific
economic system that has developed over the course of
centuries and today is so strong that some of its
benefits can and should be made available to everyone
in society without their having to work as hard to
enjoy them.
A National Dividend would represent the true wealth of
the community, the bounty of our incredible GDP and
our amazing efficiency, of which all citizens should
be the rightful beneficiaries once the business owners
receive a reasonable profit. Again, it’s important to
realize that Social Credit is not a socialist system.
Rather it is “democratic capitalism,” in contrast to
the “finance capitalism” that has become so damaging.
We must realize too that while “democratic capitalism”
has been talked about, and is the basis of the idea of
widespread stock ownership, it has never been
implemented as the driving principle of a developed
economy. Rather the cream is always skimmed off the
top by the financial elite through their control of
credit-creation.
Again, the heart of the Social Credit program is the
fact that the collateral base of the
government-managed National Dividend, as with all
sources of legitimate currency, would be the
productive capacity of the economy expressed as GDP.
This is what already stands behind “the full faith and
credit of the United States.” This is the true
“credit” of the nation. It’s what provides the real
“backing” of the currency.
Viewed from a philosophical level, the national
credit, including that portion from which the National
Dividend would be drawn, is the monetization of an
intangible; i.e., the totality of the nation’s real
wealth as expressed by its laws, history, physical
plant, land, resources, and the education, skills, and
character of its people. Without all of these, the
government could print dollars—or the banks could lend
them—from here to eternity, and they would be totally
useless.
Under a Social Credit system, banks would continue to
function in limited ways, but they would not have the
privilege of funding the entire shortfall in
purchasing power of the nation.
Instead, if we’d had a Social Credit system in place,
the $3.77 trillion gap in the 2006 U.S. economy
between production and earnings—the bounty of our
productive genius—would have been bridged by a
National Dividend averaging $12,600 for every man,
woman, and child (legal resident or citizen) in the
nation.
Looked at from another angle, this payment has some
relationship to a “basic income guarantee,” which has
been advocated by many economists, politicians, and
reformers in the U.S. for decades, including Milton
Friedman and Dr. Martin Luther King, Jr., and which is
the idea behind the current citizens’ dividend of
about $1,000 per resident under the Alaska Permanent
Fund.
The difference between a National Dividend and a basic
income guarantee is that the dividend is tied to
production and consumption data and may vary from year
to year. During years that the dividend fell below a
designated threshold, the balance of a basic income
guarantee could be provided from tax revenues. But in
a highly-automated economy such as that of the U.S.,
the National Dividend would normally be sufficient.
One use individuals would be likely to make of their
dividend would be to pay down personal, household, or
student debt, though some of that debt should be
written off by restoration of a more reasonable—i.e.,
pre-2005—federal bankruptcy law. Further, if the
dividend were reduced to an average of $10,000, the
additional $2,600 could be used to pay down the
principal on the $8.84 trillion national debt as well.
The entire debt could be retired in eleven years, with
interest being funded from tax revenues as it is
today.
WHAT ABOUT INFLATION?
Bankers and their apologists have always argued that
any program of publicly-generated credit would cause
inflation. This is nothing but propaganda.
Because a National Dividend would replace bank-credit
of the same amount, it would bring the total monetary
supply of the nation only up to the level of the GDP.
It would not result in “more dollars chasing the same
amount of goods,” but would simply bridge the gap. Not
only would the National Dividend be non-inflationary,
it could even be counter-inflationary by liquidating
previous financial costs without creating new ones.
Besides, what is truly inflationary is the Federal
Reserve’s policy of creating, then deflating, asset
bubbles, the latest being the housing bubble. With
such bubbles, prices inflate on the way up, but only
level out on the way down. This can do irreversible
structural damage to the economy.
Inflation due to the housing bubble has affected not
only home prices—it has also escalated rents and
business leases, made it harder for people to start
small businesses, and difficult for young people even
to find a rented room. Meanwhile, home and property
ownership is becoming a high-priced commodity
available only to the rich.
This type of inflation has an immense ripple effect.
What it means is that the dollars people earn can
purchase less throughout the economy, because every
business must operate in a building and on a parcel of
land which now costs much more.
The housing bubble has been a catastrophe to
democracy. With the Federal Reserve at the helm and
the private banking industry in charge of credit, the
dollar has lost almost 90 percent of its value since
1960. Since the early 1970s, virtually every period of
economic growth has been a Federal Reserve-created
bubble, with the Treasury Department helping out in
the early 1990s with a strong-dollar policy that
contributed to the dot.com bubble. With every cycle,
more and more assets fall into the hands of the
wealthy, including both U.S. and foreign investors.
Also, bank interest by itself is inflationary, because
it adds to the cost of doing business at many points
in the production-consumption stream. The Federal
Reserve claims it is fighting inflation when it raises
interest rates, but what it actually does is slow down
economic activity by suppressing wages and salaries or
throwing people out of work. The higher interest
itself pulls in the other direction by adding to
costs. Thus inflation has continued even during
periods of monetary contraction, as in the1979-83
recession when the consumer price index rose almost 20
percent.
Another point on inflation is that under our system of
bank-created debt-based credit, businesses inflate
their prices to make paying their debt cheaper, as
does the federal government. A government like ours
that is deeply in debt always wants to pay with
dollars of less value, so it pursues inflationary
policies in order to push taxpayers into higher tax
brackets. This is yet another way a bank-centered
monetary system distorts real economic values and
hurts working people and families.
Management of a modern producing economy the way the
Federal Reserve does by raising and lowering interest
rates is a travesty. With no participation by any
elected official, and with the most superficial
explanations, the Federal Reserve can and does alter
the value of all the money in the United States. The
U.S. courts, were they willing to face down the
financiers who are the de facto controllers of the
Federal Reserve, could easily rule that this is an
unconstitutional confiscation of property without due
process. At times, as in the early 1980s, when the
Federal Reserve devastated the economy with interest
rates of more than 20 percent, its actions are simply
a crime.
Such an event can have far-reaching and even
catastrophic consequences. When the Federal Reserve
decided in 1979 to begin a radical escalation of
interest rates to combat the inflation of the 1970s,
it took the Carter administration by surprise. After
President Ronald Reagan took office in 1981, the top
echelons of his administration reacted to the Federal
Reserve’s actions with dismay.
The economy was collapsing in the worst recession
since the Great Depression. But instead of confronting
the Federal Reserve and its financial controllers, the
Reagan administration took a series of radical actions
to slash tax rates for the upper income brackets,
deregulate the banking system, add huge sums to the
national debt by throwing deficit-produced dollars at
the military-industrial complex, and commence a new
era of low-scale proxy warfare in Afghanistan, Angola,
El Salvador, Nicaragua, and elsewhere known as the
“Reagan doctrine.”
President Reagan was so relieved when the Federal
Reserve finally relented by lowering interest rates in
1983, he declared in his 1984 reelection campaign that
it was “morning in America.” But instead of facing up
to and addressing the monetary actions taken by the
Federal Reserve which ended up damaging our industrial
infrastructure and leaving us with today’s anemic
“service economy,” the Reagan administration panicked
and set in motion a complex series of compensating
actions that ignored the underlying monetary issues.
As a current example of how the system works, in early
2006, the Federal Reserve announced an interest rate
hike after data came out which showed that U.S.
workers were seeing their pay go up a tenth of a
percentage point higher than expected.
As a result of these kinds of interest rate increases,
hundreds of thousands of people pay higher rates on
their adjustable rate mortgages, foreclosures of homes
increase, tens of millions pay more interest on their
credit card balances, and the loans that fuel the
American economy, paying for everything from raw
materials to inventory and transportation, cost more.
Also, business and individual bankruptcies increase,
workers and salaried employees are laid off, and, in
the example cited above, the stock market took a hit,
with hundreds of millions of dollars of value lost in
a single day, wealth that simply vanished.
The correct term for such a system is “monetary hell.”
Reducing the payment of interest to banks through
monetary reform would lessen inflationary pressure and
eliminate the policy whereby the Federal Reserve tries
to create “price stability” on the backs of working
people. Its policy, which is the essence of so-called
“monetary targeting” or “monetarism,” and which is
fully supported by a Congress dominated by monetary
conservatives from both political parties, is really
one of class warfare. As U.S. billionaire investor
Warren Buffett has said, "There’s class warfare, all
right, but it’s my class, the rich class, that’s
making war, and we’re winning."
BENEFITS OF A NATIONAL DIVIDEND SYSTEM
The method by which the Federal Reserve attempts to
manipulate the economy by adjusting interest rates is
not only destructive and tends to further the
long-term interests of the financiers to the detriment
of society, it would be completely unnecessary under a
National Dividend system.
Under a National Dividend system with periodic cash
stipends, most people would work anyway, but they
would not have to work so much, and if they wanted to
take some time off, stay home and care for children or
the elderly, take lower-paid positions in education or
the arts, or learn a new profession, they could do so.
At last there would be a leisure dividend. Of course
this goes counter to many of our prejudices, including
fundamentalist notions that man is meant to toil and
suffer. In practice, of course, those who toil and
suffer exclude the monetary controllers.
Another way to look at it is that a National Dividend
could at last provide enough personal freedom that all
our time and energy would not have to be spent just
keeping our bodies fed, sheltered, and clothed. We
would be free for more important cultural and
spiritual pursuits. Who knows what forms society might
take or what we might accomplish if the individual
were liberated from the crushing demands of economic
necessity?
Another prejudice to overcome is the idea that if we
just “give people money” they will waste or abuse it
or become alcoholics or drug addicts. But people tend
to respond positively to social benefits and make the
most of opportunities when presented. Slackers always
must face their own consciences and generally find it
easier to live up to community expectations than live
as self-indulgent outcasts.
Also, neither Social Credit nor a basic income
guarantee is a “free money” program. A strong,
functioning economy is required. Freedom must be
earned. And it has been earned in our mature,
highly-developed economy.
Besides, what really turns people into alcoholics or
drug addicts is a pressure-cooker economy like we have
today. Maybe this is why, according to a report that
came out in March 2007 by the National Center on
Addiction and Substance Abuse at Columbia University,
forty percent of college students are binge drinkers
and twenty-three percent meet the medical criteria for
substance abuse.
Part of the problem is likely that students are
staring at a future of huge debts and few good jobs,
where the rich rule the world and the rest struggle to
survive. Financial conditions may be reflected in
young peoples’ attitudes, where, according to the
Higher Education Research Institute, the proportion
who say it is “essential” or “very important” to be
“very well-off financially” grew from 41.9 percent in
1967 to 74.5 percent in 2005, and “developing a
meaningful philosophy of life” dropped in importance
from 85.5 percent to 45 percent. According to a Gallup
survey, 55 percent “dream about getting rich,” though
few ever will.
For now, let’s leave it to the imagination of the
reader to ponder further the social, political, and
economic benefits of a national credit program,
including the effects on the lives, aspirations, and
attitudes of our youth. As you do so, realize that it
could mitigate many of the economic causes of the
drive toward war that are threatening to blow up the
world in Iraq and elsewhere; i.e., competition among
nations for markets and resources and use of war
expenditures to create jobs and profits. It would also
provide the first real opportunity in decades for
economic decisions to be made on the basis of other
considerations than financial profits—such as what
economic policies would benefit individuals, families,
or the environment.
This change could result in another dividend—the
elusive “peace dividend,” where tax money saved from
no longer needing to conquer the world to prop up our
collapsing debt-based financial structure could be
used for such urgent priorities as environmental
protection and clean-up, infrastructure maintenance,
and alternative energy R&D and conversion. A 50
percent cut in military expenditures would yield over
$300 billion per year for these and other beneficial
purposes.
PUBLIC CONTROL OF CREDIT
Finally, a comprehensive monetary reform program could
also shift a certain amount of credit creation through
lending to the federal government, away from the
private banking industry, which has held that monopoly
in the U.S. most of the time since the creation of the
Federal Reserve System. This would reflect the fact
that credit should really be viewed as a
publicly-regulated utility like water or electricity.
Overall monetary targets could be overseen by a
Monetary Control Board within the U.S. Treasury
Department, as advocated by the American Monetary
Institute in its model legislation, the American
Monetary Act.
The logic of publicly-controlled credit is obvious. If
government has the authority to charter banks to issue
credit through loans against a small reserve of
deposits, it could just as easily issue credit itself
against a reserve of tax receipts or even against the
“real credit” of the nation’s GDP. Because government
would not have to earn a profit on lending, it could
offer credit at much lower rates of interest, only
enough perhaps to cover administrative costs.
An example of how public credit can be used
successfully was the Reconstruction Finance
Corporation which provided the U.S. economy with
billions of dollars in low-interest loans from 1932 to
the early 1950s. Another example was the Home Owners
Loan Corporation which took over the mortgage industry
from Wall Street speculators during the New Deal and
established secure home ownership through low-interest
fixed-rate loans as the basis for middle class
financial security. This system was eventually
destroyed by the deregulation of the 1980s.
Efforts to create a new basis for public credit today
could restore programs like the RFC or HOLC and lead
to low or even zero-percent interest lending programs
for state and local infrastructure projects through a
self-capitalized federally-sponsored infrastructure
bank. Funds could also be distributed from the
national credit account as grants. Public credit for
infrastructure investment could become a vehicle for
shifting the U.S. economy back in the direction of
heavy manufacturing and helping to restore our status
as the world’s leading industrial democracy.
Public credit could also be used to provide or
subsidize inexpensive loans at the local level for
consumers, students, and small businesses. These loans
could be made available at interest rates as low as
one percent. Such a program could be implemented by
having the federal government lend money at low
interest to commercial banks from a national credit
account. The banks would then use the money to fund
consumer loans while charging only an additional
administrative fee plus a reasonable business profit.
Through a National Dividend and publicly-regulated
credit, rural and small-town America, as well as
Native American communities, all of which have had the
life sucked out of them by poverty and debt, would
vastly benefit, as would our center cities. In fact, a
rebirth of local culture and self-sustainability,
which various half-hearted and heavily bureaucratized
federal programs have tried unsuccessfully to address,
could at last be possible.
The monetary reform program would address several of
the biggest social and economic problems, including
lack of income security. Without income security, we
can’t even start to solve many other problems, because
we have to work so hard just to keep our heads above
water. And more of us are going under all the time.
There was a time in American life when the leaders of
government and business calculated what people needed
for a decent life and tried to provide for it. Those
times are gone. People today have been tossed to the
corporate and financial wolves.
A broad-based program based on public control of
credit-creation would replace a financial system that
benefits mainly the financial plutocracy with one that
supports democratic values and local financial needs.
It would give back control over their own lives to
individuals and communities. It would immediately
relieve some of the most serious sources of economic
and political tension that are driving the world
toward more and bigger wars. And by facilitating
self-sustaining local economies both at home and
abroad, the program would reduce the pressure for the
large and powerful nations of the West to prey on the
rest of the world.
ECONOMIC POTENTIAL
Finally, a point should be made that would take
another lengthy report to elaborate, which is that our
existing economy, where GDP cannot be purchased by the
cumulative national income unless it is heavily
augmented by debt, is an economy operating in a
straightjacket. Even with a $13 trillion GDP, it is an
underperforming economy, one which is not even close
to its full potential. It is another secret of high
finance that its overall effect under today’s
conditions is actually to throttle legitimate economic
activity, not facilitate it.
If the national credit were free to expand along with
production, there is no reason why our GDP could not
be much higher than what it is today, except that it
would be distributed more democratically. This level
of abundance need not be environmentally damaging,
because it would include the application of technology
to mitigate environmental hazards and develop new
materials and processes.
The abundance would have the effect of raising the
standard of living for everyone in society. The same
methods could be applied in other developed and
developing nations. The fact that we have not allowed
science and technology to reach this level of
potential is another manifestation of the misuse of
financial credit to create an unnatural scarcity which
benefits only the financial controllers.
Also, increased economic activity would not
necessarily lead to out-of-control world population
growth, as a society’s birthrate tends to decrease
through voluntary means as it becomes more prosperous
and stable.
IMMEDIATE STEPS
Viewed from the perspective of this report, world
history over the last 100 years is starkly simple. The
aspiration of every nation, regardless of its economic
habits and ideology, has been to maintain something
resembling income security for its population. This is
natural; above all, people want to live.
But science and industry have made it possible to
satisfy human needs without full employment, leaving
the gap between purchasing power and production which
this report has explained. But instead of supplying
its citizens with the needed National Dividend,
governments have tried to fill the gap through a
welfare state based on income redistribution, through
socialist state controls, through bank-furnished
credit, or a combination.
No approach yet devised has resolved an inherently
unstable economic situation that is endemic to a
technological economy that refuses to operate on the
basis of truly democratic principles.
The U.S., among nations, has had the most success in
creating a measure of stability but has been able to
do so only through economic domination of the rest of
the world as a means of filling the
production/consumption gap. This domination began with
the massive loans to the European combatants during
World War I, continued through the lend-lease program
of World War II, and reached its zenith through the
economic recovery measures after the war, the aim of
which was to maintain for the U.S. a positive trade
balance. Thus was formed the basis for U.S. prosperity
during the 1950s and 1960s.
This trade domination began to expire with the Vietnam
War and had evaporated by the 1970s. After the fall of
Saigon in 1975, the only way the U.S. saw to keep its
economy afloat was through the policy of dollar
hegemony, where use of the dollar was established for
oil trading and as a worldwide reserve currency. With
the Reagan administration came the habitual resort to
military power as the enforcer of U.S. financial
prerogatives. This is what accounts for the period of
incessant low-key warfare that has controlled U.S.
policy since the late 1970s, with the “War on Terror”
and the military invasions of Afghanistan and Iraq
being only the latest phase.
Today, as U.S. dollar hegemony, along with our
domestic economy, begin their collapse, through laws
as immutable as those of physics, the threat of world
war has returned. But another world war would not
produce economic stability. The only way to achieve
that objective is through real economic democracy as
described in this report and in similar writings by
other monetary reformers. But the cost of doing so, as
seen by the financial and political establishment,
would be to give up their near-total control of
society.
In conclusion, it should be clear that this report
takes an optimistic view of mankind, its aspirations
and potential. And it affirms the positive value of
science and technology. Human beings were created in
the image of God, and God does not want us to be
miserable on a planet where all can be provided for.
Obviously it would take a book to describe a complete
monetary reform program to take us in this direction.
This report has put forth some key concepts. For now
it is enough to summarize the way out of our economic
dilemmas by recommending that the federal government
take the following steps:
1) Issue a $10,000 average dividend, created simply as
an accounting book entry, to every U.S. legal resident
or citizen (to be determined), tax-free and without
reducing any other benefits currently being paid. A
sensible ratio between adults and children would be
calculated. A temporary system of price controls would
be instituted to prevent profiteering.
2) Create a second dividend which totaled
approximately $800 billion as a first installment on
paying the principal on the national debt and freeze
the purchase of U.S. assets by foreign holders of U.S.
debt instruments until currency exchange programs can
be put into place. (The dividends paid to individuals
and for repayment of the national debt would equal the
gap between GDP and purchasing power for 2006.)
3) Continue to issue both dividends for each future
year based on the calculated gap between GDP and
purchasing power.
4) Utilize the money saved from no longer having to
maintain an aggressive military posture overseas to
compensate for monetary problems by addressing urgent
priorities such as alternative energy R&D and restore
more progressive tax rates for the highest income
brackets.
5) Create a self-capitalized national infrastructure
bank to lend or provide grants to state and local
governments for infrastructure maintenance and
development with provisions for use of U.S.-made
products.
6) Use federally-created credit or resources to
subsidize local banks in providing low-cost credit to
consumers, students, and small businesses.
7) Create a Monetary Control Board within the
executive branch to regulate the U.S. monetary system,
determine the amount of the National Dividend, assure
the stable value of money, and oversee both private
and public use of credit. (For additional provisions
of the American Monetary Act, see the American
Monetary Institute website at www.monetary.org.)
8) Return to the more forgiving pre-2005 bankruptcy
laws and offer genuine debt relief to nations which
owe money to banks and international lending agencies.
9) Move toward a national system of “fair pricing”
subsidies using national credit as a funding base.
10) Support the adoption of a similar monetary program
for other nations of the world.
To implement this program, Congress could pass a
series of laws which would have the effect of taking
back the people’s Constitutional prerogative over
their monetary system and laying the basis for future
prosperity. These laws could help to usher in a new
age of humanity. In fact, the agony of degradation and
violence the world is now going through may someday be
seen as the birth throes of a new age of economic
enlightenment. A key would be a democratic monetary
system which opens the door to material abundance for
all people.
We know that the financial industry which controls the
economy and politics of the world might have to be
persuaded to support these proposals. The chief
argument may be this: Yes, you have become rich
through your monopoly over credit. Yes, you preside
over the economies of most of the world. But don’t you
see that you have bled the life out of the people who
just want to live and work? Don’t you see that it is
their labor that is keeping you alive too? Don’t you
think that if society destroys itself from war,
financial collapse, and pollution you might lose your
own livelihood and ability to sustain yourselves?
So why don’t you join us in making a better world,
even if it means altering a financial system that has
the momentum of centuries behind it but that today is
choking the aspirations of humanity like a dead hand?
Shouldn’t we make a start by addressing our economic
problems rationally and democratically through a
monetary reform program that benefits everyone, that
properly rewards us for our miraculously productive
economy, and that has a good chance of success if we
embrace it with determination and hope?
The only question at this late stage may be whether
economic democracy will be achieved through a process
of peaceful reform, or whether it will be built on the
ashes of whatever is left of world society after the
likely coming catastrophe.
IN THE MEANTIME
There is much that individuals, families, and groups
can do right now to address the effects of the
economic crisis in their own lives. These measures
exist on the material, mental, and spiritual levels.
Following is a short list:
Don’t borrow. What enslaves us to an economic system
in a chronic state of collapse is, above all, our
debts. Throw away credit cards. If it makes sense to
do so, rent instead of taking out a mortgage to pay
the inflated prices of today’s housing. Work for a
year or two and save for college. If your debts are
overwhelming, don’t be afraid to declare bankruptcy or
look for other options. If you have money, put it into
tangible assets before its value is destroyed by
inflation.
Think for yourself. Search for reliable information
about the economic and political situation and the
true reasons for wars and other forms of organized
violence. Read books and turn off the TV and video
games. Discuss ideas and issues with your kids,
family, and friends. Start a website which expresses
responsible opinions and offers help and information
to others.
Hone your skills. Do your own car and household
repairs. Grow and cook your own food. Shop at thrift
stores. If you can, raise farm animals. Take classes
in handicrafts. Start your own part-time business.
Take a job doing manual labor. Demand that the local
schools teach practical skills to young people.
Work with others on creating democratic intentional
communities. Explore group housing. Live near mass
transit commuting lines. Set up barter groups and
consider establishing local currency systems as many
people did during the 19th century and the Great
Depression. In the last two years there have been a
number of new communities being started in small towns
or rural areas as people have seen the writing on the
wall about what may be coming to an endangered
American economy.
Become politically active. Register, vote, and demand
honest elections. Support politicians who have
integrity. Demand changes along the lines suggested in
this report, as well as consumer-friendly laws and
regulations, including those that favor mass transit
and affordable housing. Lobby locally for public space
for farmers’ markets and commitments by government
agencies to buy from local small business. Don’t allow
government to drive people out of their homes with
property tax increases or to seize private property on
behalf of developers.
Work with schools and expect them to teach democratic
ideals including economic reform. Honor those who
speak truth to power and let the government know that
the Bill of Rights means something to you. Demand
local programs to help people avoid and get out of
debt. Let the local media know that you want to see
reporting on real issues and more public interest
programming. Boycott companies, retailers, and media
outlets that oppose reform.
Remember that external circumstances have no power. We
tend to be overwhelmed by the apparent strength of
government, corporations, employers, banks, our credit
rating, the economy, the media, armies, technology,
our endangered possessions, etc. The power of these
things is illusory and is based on the dualistic
conceptions of the human carnal mind. In reality, God
is the only source of power in the universe, and the
more we realize God’s presence, the less do we fear
externals. Search for God within. Every person has a
higher self, which is God, and which may be sought and
found through prayer and meditation.
THE LAST WORD
We’ll give the last word to Edward Kellogg
(1790-1858), an American businessman who published his
ideas about monetary reform in Labor and Other Capital
in 1849. Kellogg favored consumer lending at as little
as one percent interest, as advocated earlier in this
report. This lending would originate from a
government-operated credit account he called a Safety
Fund. Kellogg’s ideas were well-known among American
progressives during the latter part of the 19th
century and are drawing attention again today. The
following excerpt is from A New Monetary System
published posthumously in 1875.
“This money power is not only the most governing and
influential, but it is also the most unjust and
deceitful of all earthly powers. It entails upon
millions excessive toil, poverty and want, while it
keeps them ignorant of the cause of their sufferings;
for, with their tacit consent, it silently transfers a
large share of their earnings into the hands of
others, who have never lifted a finger to perform any
productive labor.
“The same power has grossly deceived our public
teachers; for not being able rationally to account for
the great inequalities of wealth and condition
existing in society, and being expected to furnish a
satisfactory explanation in some way, they tell the
people that these great wrongs are providential, that
they are the mysterious workings of the providence of
God, that all these evils are governed and controlled
by His power and goodness.
“This method of accounting for the gross political
wrongs in society has covered up and hidden from view
a multitude of heinous sins. Notwithstanding the
number of those who now live in luxurious idleness,
performing little, if any useful labor, and the great
number of those who remain idle because the scarcity
of money renders it impossible for them to obtain
work, yet with all these impediments, there is
generally enough produced each year in each nation to
give to every man, woman and child a comfortable
living.
“Every person of common sense must see that God in his
providence has bountifully provided for man and that
there is some other power working against him, and
diametrically opposed to the righteous distribution of
his bounties. It is the providence of the national
laws, establishing this unjust power of money, which
robs the producing classes of their rights.
“As the bounties of God are abundant, so must the
money for their distribution be abundant, or they can
never be justly distributed. If the scarcity of money
or its centralizing power retard the production and
the distribution of the products of labor, the power
of the money is unjust and oppressive, and instead of
being in unison with the providence of God, it is the
most powerful opponent of his righteous laws, as well
as the most powerful and bitter opponent of justice
and beneficence among men.
“It would be as reasonable to expect sweet waters to
flow from a bitter fountain, as to expect just
distributions of property if the standard by which it
is valued is unjust. We are not depicting an unknown
evil. Legislators, financiers, and the producing
classes all know that money is possessed of some
mysterious evil power, which has never been clearly
explained and defined.
“We have intended to remove this mystery concerning
the nature and operations of money, and to show what
laws must be annulled, and we shall proceed to show
what other laws must be enacted, in order to establish
money that will be endowed with an equitable power.
The evil power of money has been politically
established, and it must be politically annulled. It
is a public wrong, and the public must administer the
remedy.”
----
Richard C. Cook is the author of Challenger Revealed:
An Insider’s Account of How the Reagan Administration
Caused the Greatest Tragedy of the Space Age. He is a
Washington, D.C.-based writer and consultant who, in
addition to NASA, taught history and worked in the
U.S. Civil Service Commission, the Food and Drug
Administration, the Carter White House and spent 21
years with the U.S. Treasury Department. His website
is at www.richardccook.com.
----
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