| C. H. Douglas and the Budget Balancing Act (from The Social Crediter, 1988:
Page 4 THE SOCIAL CREDITER: For Political and Economic Realism (Official Journal of the Social Credit Secretariat, U.K., founded in 1933 by Clifford Hugh Douglas. A non-party, non-class organization neither connected with nor supporting any political party, Social Credit or otherwise.) March - April, 1988 C. H. DOUGLAS AND THE BUDGET BALANCING ACT The British Government’s forthcoming Budget is widely reported to be likely to show a substantial “surplus” for 1987-88. Unexpectedly buoyant tax revenues, it is said, account for this and for the “undershoot” in the Public Sector Borrowing Requirement. Originally estimated at £4 billion a year ago, it is now expected to be below zero, thereby enabling a small net reduction in the huge Public Sector Debt for the first time since the late 1960’s. Expectations of tax-cuts abound and various means of disposing of “the surplus” are keenly debated. Under the persuasive influence of media comment, the citizen might be forgiven for concluding that such a Budget reflects great credit on the Chancellor. Consciously or unconsciously, he will compare the state of the national finances with that of his own, which may similarly show a surplus (or possibly a deficit) on his year’s work. The more discerning citizen might ruefully note that he and his fellow taxpayers have been unnecessarily deprived of several billions of purchasing power, part of which may now be returned to him as a tax cut, thereby earning for the Chancellor the undeserved plaudits of the uninformed. A growing number, it is safe to say, will have the insight to see the whole process for what it really is, a gigantic confidence trick played on the population in order to maintain intact the monopoly of credit creation by the banks. Ever since 1694, when William Paterson inveigled King William III to grant him the right to print notes in exchange for a loan of gold, thus simultaneously instituting the “Bank of England” (a private business) and the National Debt, successive governments have continued to be beholden to banks for the funds to finance government expenditure, with the consequence of a National Debt now demanding nearly as much to service it (£17 billion) as the entire Defence budget (£18 billion). But the full enormity of this confidence trick is only grasped when it is also understood that the incomes on which taxation is levied to pay that interest have themselves originated predominantly in bank-created credits to finance the businesses from which the wages, salaries and dividends are derived. In The Monopoly of Credit (1931), C. H. Douglas summarised this position as follows: “. . . The great spending departments . . . obtain the money with which to make their monthly payments by means of drafts upon what is called the ‘Ways and Means Account’, which is in fact merely a Government overdraft kept with the Bank of England. The Bank of England treats this overdraft of the Government as cash which, since it rests upon the credit of the country, it is clearly entitled to do. The sums received in taxation go to the reduction of the Government debit on the Ways and Means Account, so that we have the position that the money which the Government spends is created by the Bank of England, is loaned to the Government, and is repaid by taxation of wages, salaries and dividends which were originally derived from this and other bank loans, which, in turn, have to be repaid.”It will be clear that the demand for a balanced budget is another form of the claim that all money belongs to the banks, and so far from being a reflection of the physical facts of production, is unrelated to them. Every modern community, so far as physical facts are concerned, is becoming richer year by year, and this increase of riches could be greatly accelerated, a fact which is indicated by a large unemployed population, and a manufacturing system with a capacity which, although already greatly in excess of present possibilities of sale, is daily being improved. It is equally obvious that so long as this demand for a balanced national budget is admitted, there can be no economic security, since it involves continuous application to the financial authorities for permission to live” (The Monopoly of Credit, Chapter V). There is a way out of this bankers’ stranglehold on the national finances. That is to stop all further “borrowing”, (a misnomer for the use of credits created “out of nothing” on the capacity of the nation itself to produce its wealth), and to transform the Public Sector Borrowing Requirement into the Public Sector Credit Requirement. Public Sector spending must be funded by money, created as now on paper by the Bank of England, but credited, not debited, to the national accounts and thus being both debt-free and interest-free. Lest “printing money” should raise the bogey of runaway inflation, let it be made abundantly clear that such a reform is no more than the first essential step. Once the bankers’ monopoly of credit is broken and control of the money supply is firmly based on the physical facts of production and consumption, a proportion of the PSCR can be directly applied to the reduction of prices to the consumer by means of the National Discount mechanism. In accordance with the basic principle that the True Cost of Production is Consumption, this mechanism brings sale prices below the level of cost prices. Prices to consumers would thereby be reduced at the point of sale, and retailers would be compensated the difference between cost and sale prices. Since the entire machinery for administering Valued Added Tax is already in place and functioning, it is equally available for carrying through such a major reform. The National Discount could be introduced, if need be in stages, first by a substantial reduction in the level of VAT, then as soon as possible by its abolition and reversal to a negative rate and its extension to all products. All risk of inflation would thus be eliminated and the way be opened for the National Dividend and the establishment of true economic democracy. To quote Douglas further, “In place of the relation of the individual to the nation being that of a taxpayer it is easily seen to be that of a shareholder. Instead of paying for the doubtful privilege of being entitled to a particular brand of passport, its possession entitles him to draw a dividend, certain, and probably increasing, from the past and present efforts of the community of which he is a member. The National Debt, which he did not create, becomes a national credit which is a reflection of the national capital which he did create. His budget is not required to balance because his wealth is always increasing” (The Monopoly of Credit, Chapter 9). Printed by Lindsay & Co. Ltd .• Edinburgh END OF ARTICLE On 11-Jun-07, at 9:40 PM, John Hermann wrote:
[JH] "Thus within the context of a '100-percent-reserve' system, in which banks acted as mere branch depositories of the central bank (ie, all deposits would be central bank deposits), the banks would not have a need or incentive to offer term deposits at all." ------------------------------------------ [WR] But if they were "mere branch depositories," and that was all there was to it, they could not make loans. If they indeed make loans they are operating on the basis of fractional reserves against deposits. If they are making loans as agents of the central bank, that is effectively the same thing. The theorem that loans create deposits would hold true.
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The simplest 100% banking scheme would involve one-to-one matching of all deposits with reserves, with all new loans matched by excess reserves (ie, reserves which are surplus to what is required for matching pre-existing deposits). Banks may acquire whatever excess reserves they need for their volume of lending by borrowing those reserves either directly from the central bank or from other financial institutions which have a temporary surplus. In practice there would be at least a nominal rate of interest attached to such borrowings. Hence there would be a disincentive for banks to hold onto reserves that are not immediately needed. Banks would then advance loans in the usual way.
JH
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