G.G. McGeer
The Conquest of Poverty
CHAPTER II
Money Is Economic Power
The creation of money and the regulation of its circulation, as we have seen, involve the exercise of no powers which all national governments do not possess. In the exercise of these powers, there is no administrative function that requires anything but plain reason and common sense. Government, therefore, by correlating its power to create and issue the currency and credit medium of exchange now in common use with its power to withdraw currency and credit from circulation by taxation, can maintain in effective circulation whatever volume of the medium of exchange may be required to maintain the going concern activity of the social system. In a word, government can and should use its power to create, issue and circulate the medium of exchange as a creative power.
No government need suffer bankruptcy while its powers in the realm of currency and credit remain unused. To save itself from destruction by the dictatorship of Money Power, Democratic government must establish a national banking system. In making the change, it should be recognized that national banking and commercial bunking are, and should be treated as, separate and distinct functions in the monetary system. The national banking system should be confined in its operation to the creation, issue and regulation of the circulation of the domestic and international medium of exchange necessary to maintain government and the trade and commerce of the nation. The merchant banking system should be confined to the business of serving the private commercial needs of the nation. The former is essentially a public enterprise, while the latter is a normal part of the private enterprise of a capitalistic system. The problems the administration of such a system will meet will be discussed more fully later on.
Economic Difficulties
I wish now, however, to point out that I am fully aware that the reconstruction of the monetary system is not in itself a panacea for all the economic problems that confront us. It is merely the first step.
We have learned that the promise that economic and social security could and would be sustained by the management of the private money system cannot be fulfilled. In addition to that, we have been compelled to recognize that the international gold standard is not an effective means of regulating international trade and that the adverse balances which unmanaged international trade develops cannot be settled out of the gold reserves available. In the future we must, therefore, segregate monetary from non-monetary factors and recognize that monetary management, other than providing the economic power which an effective circulation of the medium of exchange offers, should have little or nothing to do with the control and regulation of factors and institutions which are purely social, economic and Political. In the past, our inability to segregate and administer monetary and non-monetary factors has been very largely responsible for the impotency of government and the failure of our monetary system.
Much of the confusion that now exists is due very largely to the fact that we have wrongly assumed that progress could and should be regulated and controlled by those empowered to regulate the flow of the medium of exchange in the social system. We should have known that progress is wholly dependent upon education, for it is upon the advancement of intelligence that we must depend to provide administration with increasing efficiency.
The monetary system, instead of being empowered to restrain the progress which education makes possible as it has been in the past, should be charged with the responsibility of financing rational progress towards the complete conquest of poverty and to the end that cultural life shall be made available to every individual born into the world. Some will say, no doubt, that this will change the established order, but it should be remembered that changes are always necessary to secure perfection.
We ought to know by now that a completely changed outlook upon the function and power of the monetary system is long overdue. Instead of allowing the monetary system to rude the rate of progress, we must make the monetary system the servant of progress. Money must be circulated as the economic energy of the social system. It should at all times be ready and able to increase the volume of buying power needed to assist science in raising the general standard of living.
Currency and monetized credit must cease to be issued against fixed standards such as gold and the capacity of borrowers to pay interest in the future. It must be issued to eliminate unemployment and to alleviate indigency due to accident, sickness, age or any other involuntary incapacity suffered which makes it impossible for the individual to earn a decent living. The gold standard must be changed into the wages and decent living standard, because money should be issued to serve human progress.
Irrigation
For the purpose of presenting clearly what I mean, let me here explain the analogy already referred to of the circulation of the media of exchange in the social system with water circulating in an irrigation system. First, in an irrigated area an inexhaustible supply of water, sufficient to serve the needs of the irrigated land over an indefinite period must be established. Next, the means of putting the water on the land at the times and in the quantities required must be developed, and thirdly, a practical administration of the circulation of the water must he maintained. The water itself will produce nothing but weeds. The success of the agricultural activities must, therefore, depend upon the industry and intelligence of the farmer who works the land from year to year. The kind of crop he plants, the quality and quantity he produces, the proceeds from sale and distribution, the type of buildings and equipment and the social life on the farm are all dependent first upon the maintenance of the supply of water, and secondly upon the intelligence and industry of the farmer.
Communal life is sustained in much the same way. An inexhaustible supply of the medium of exchange must be established. That is now avail able. The means of maintaining the medium of exchange in circulation must be developed. Wages and consumers’ buying power must be sustained and new capital must be issued as it is required from time to time. Once the social system is supplied with its medium of exchange and capital requirements and the means of regulating circulation are established, the monetary system is ready to do its work. It is able to supply the individuals in the community with the medium of exchange necessary to divide labour and intelligence. What they will produce, how they will use it, the type of social system they maintain and the cultural progress they achieve, are dependent upon the intelligence and industry of leaders in the innumerable structures of the social system. Modern progress, therefore, depends first upon the power of government to maintain an effective circulation of the medium of exchange with which people can divide the produce of their industry, and secondly, upon education which should create both intelligence and capacity to work with others in ever-increasing service to all.
Now I appreciate that while water runs away, the medium of exchange tends not only to accumulate but to increase its buying power under the influences of accelerating velocity of circulation. Therefore, in the social system taxation must be used to prevent the flooding of the social system with buying power and to prevent its clogging in the possession of the few. In addition to the national banking system, which issues the medium of exchange, and the taxation system, which prevents inflation, deliberate powers of control and regulation must be established and maintained; otherwise the provision of abundant buying power will only result in chaos overwhelming progress.
Industry, commerce and trade and social activities must all be taken in hand and co-ordinated under an effective scheme for the development of a national social order. The work of national, provincial, state, county and municipal government must be co-ordinated to the end that all will contribute towards achieving ordered progress. In no other way can glut be avoided.
Balanced progress must be maintained in all departments of the commercial, industrial and social life of the nation. The mere fact that many of these problems appear to be difficult and do involve experimentation should not prevent us from going forward. We should, on the experience of the past, feel justified in the conclusion that with time and experience, solutions of practical value will be found for every problem that confronts us. We should not forget that men twenty-five and fifty years from now will probably be in a much better position than we are to solve the ultimate difficulties of some of the problems we are now compelled to meet.
The vast extent of the work involved in any scheme of planned economy may be inferred from what has grown out of the reconstruction programme started by ex-President Hoover in 1932, when he launched the Reconstruction Finance Corporation. At that time everyone thought that the Reconstruction Finance Corporation, by coming to the aid of bankers and large corporations with financial assistance, would be able to act as a priming of the pump that would set the wheels of progress in motion. The programme of the Reconstruction Finance Corporation proved to be inadequate.
Since then President Roosevelt, in his endeavour to make his recovery programme effective, has found it necessary to expand his National Industrial Recovery Act into the following administrative departments :
AAA—Agricultural Adjustment Administration.
ACP—Advisor on Consumer Problems.
NIRB—National Industrial Recovery Board.
FCC—Federal Communications Commission.
FSEC—Federal Securities and Exchange Commission.
TVA—Tennessee Valley Authority.
EHFA—Electric Home and Farm Authority.
TVACI—Tennessee Valley Associated Co-Operatives Inc.
FERA—Federal Emergency Relief Administration.
FSRC—Federal Surplus Relief Corporation.
CCC—Commodity Credit Corporation.
CCC—Civilian Conservation Corps.
FHLBB—Federal Home Loan Banks Board.
HOLC—Home Owners’ Loan Corporation.
FSLIC—Federal Savings and Loan Insurance Corporation.
FCT—Federal Co-ordinator of Transportation.
FCA—Farm Credit Administration.
FACA—Federal Alcohol Control Administration.
FHA—Federal Housing Administration.
SAPFT—Special Advisor to the President on Foreign Trade.
EIB—Export-Import Banks.
FDIC—Federal Deposit Insurance Corporation.
PAB—Petroleum Administrative Board.
PWA—Public Works Administration.
SHC—Subsistence Homesteads Corporation.
PWEHC—Public Works Emergency Housing Corporation.
The establishment of all these agencies has increased the total of government employees in Washington by almost 100,000, and resulted in a boom-time prosperity for Capitol landlords and business men.
President Roosevelt has found all these to be necessary to arrest the progress of depression and he is by no means finished. Experience in this depression is compelling all to recognize that the NBC or the National Banking Corporation is the most essential of all the departments needed to bring about prosperity. Another is the NE & HA, or the National Education and Health Administration. Only with such organizations can the government finance and maintain the tremendous increase in the cost of government that planned economy involves.
To relieve unemployment, the government has found it necessary to launch a vast programme of public works. In the beginning the reactionary elements declared that every step Roosevelt took was a mistake. But the forces of reaction are declining and their opposition is disappearing. For example, many people have decried the programme of public works upon the ground that modern construction is of such a permanent nature and offers so little in the way of labour for maintenance that in a comparatively short time the saturation point in public works will be reached and unemployment will be more serious than ever.
For while this is partly true, the fact remains that if every nation were to undertake to reconstruct buildings, roads, railroads and all public and private institutions so that twentieth century standards would be established, unemployment during the nest quarter of a century would be unknown. This programme, however, cannot be financed if credits are to be borrowed at interest, but such a programme does offer an opportunity for national governments to put buying power in circulation that will sustain domestic and international trade. In the meantime, plans could be laid to provide for the needs of an age when leisure would be permanently established as the normal state of human existence. But as yet work, not leisure, is our problem. We are just wasting our time worrying about something that can only be dealt with years in the future. Doing that, we lose the opportunity to do the work now waiting to be done.
Let us solve our present problems, and if we do our job properly, posterity will take care of the many problems that we are not able to deal with, simply because they are not ready or ripe for solution. One thing is certain: once we are in a position to effectively finance trade and commerce, many of the problems that to us now seem unsolvable will solve themselves.
Certainly no progress can be made until an effective management of the monetary system is established, and that is not in itself a difficult problem.
Taxation Obsolete
From what we have observed, it is perfectly apparent that governments with power to create and issue money and credit need not borrow capital necessary to finance government. No levies of taxes, therefore, are required to maintain government other than those essential to maintain the effective circulation of the medium of exchange.
By the adoption of a sane attitude towards money and credit, the financing of public works and social services can and should be changed from one of disastrous expense to the taxpayers into a profitable operation serving the general betterment of the entire social system.
The Value of National Currency and Credit
Let us check these conclusions by examining more closely the proposition that the government’s right to issue the medium of exchange is and should be treated as a wealth-creating and wealth-producing function. The facts and plain reason support such a proposition. When, for example, the government authorizes the minting of 38 cents worth of silver into a $1.00 coin and declares it to have 100 cents in money value and uses such a medium of exchange to pay civil servants and governmental contractors for labour and material, the government makes a profit of 63 cents on every dollar issued. If the government uses cheaper metal, paper or an accounting system in which credits transferable by cheque are substituted for token currency, the profit to the government would be even greater, amounting to the difference in the cost of the metal, paper or accounting system employed.
Now let us examine a little more closely what the power to create and issue money means to government. Let us assume that the government is going to build a school worth $100,000. The government lets the contract and the contractor builds the school and turns it over to the government, and the government gives to the contractor, let us say, 100,000 silver dollars. The government, by exchanging for the 100,000 silver dollars that cost the government $35,000 for a school worth $100,000, makes a profit of $62,000 on the transaction. But let us assume that the government issues a $100,000 paper currency note or enters a credit in the books of a national banking system in favour of the contractors for $100,000 transferable by cheque, then the cost to the government would be a purely nominal amount and the profit to the government would be increased proportionately. The government has accomplished a two-fold purpose. It has increased the real wealth of the community with a $100,000 school and it has increased the money wealth of the community by $100,000 of money, and no one is in debt.
Taxes Eliminated
Here, then, we observe that the power of government to create money places the government in a position to finance all public enterprise without cost to the taxpayers. But there is something even more important than that. By this course the government is able to steadily increase the volume of consumers’ buying power required to serve the demands of progress. For example, the $100,000 which the government has issued in payment for the school has gone into circulation. It has been used by all those engaged in providing the material and the labour out of which the school was created with buying power. They, in turn, have bought the needs and comforts and conveniences of existence, and the social system is enriched by an added volume of medium of exchange that has been put into circulation as a result of the creation of real wealth in the form of the completed school. The community at large has a school representing real wealth to the value of $100,000 and $100,000 in buying power has been put in circulation. The books are balanced.
Let us carry the illustration further. There is the cost of maintaining and operating the school. When the government creates its own paper money or credits in a national banking system to finance the school’s operation as a going-concern unit in the social system, a continuous stream of purchasing power is put in circulation. That increase is required to support the greater demand for the increased buying power needed to purchase the increasing supply of comforts and conveniences which educated people desire.
Now let us assume that all of the public works and social services now being maintained on a niggardly basis by national, provincial, state, county and municipal authorities were financed by the issue of national currency and credit, and that governments were under no obligation to arbitrarily withdraw from circulation any stun other than the amount necessary to maintain the effective buying power of the medium of exchange. Governments could then usher in an era of progress in governmental service to the people that would eliminate any possible suggestion of unemployment. Wages could be maintained at all times and in all circumstances. People could be paid to go to school if there was nothing else for them to do. “Yes,” the inflationist says, “but what about prices?” Well, we will deal with that issue in the proper time. It is a problem, but it is not altogether a monetary problem.
Taxes and Bankruptcy
In contrast with this proposal, let us take a concrete ease under the present system. The government now issues $100,000 of 5 per cent. bonds, repay able in forty years. The community builds, uses and pays for the school. The credit dealers convert the bonds into credit medium of exchange. When the school is completed the government takes it over and pays over $100,000, which is then in circulation, but the books do not balance, because while there is $100,000 in circulation against the value of the school of $100,000, there is a liability to repay the bonds over a period of forty years at 5 per cent., which totals in all $300,000. When the government finally pays for the school, $200,000 more than was put into circulation by the lenders has been transferred from the community at large to the lending community.
When we realize that it is under this system that we have tried to finance government and private enterprise, war and progress, we should not be amazed when we find that the circulation of the medium of exchange has ceased its active flow. Under the system it could not end in any other result. That will be made more than plain when we consider in more detail war finance, post-war prosperity and post-war depression. Suffice it to say at the moment that this illustration proves that the gold standard usury system is bound to end in depression.
Under a sane monetary system children, mothers in need, the injured, those entitled to super-annuation allowances and the aged could be cared for on a basis of Christian social justice. Instead of being treated as irksome and costly burdens to the taxpayers they would be converted into consumers of real value to the commercial life of the nation. The standard of public life and the living of the masses of the people could be raised to the level that modern science has made a practical possibility. Surely there is nothing visionary or impractical in managing the nation’s power to create money for such purposes.
In the face of the facts, we must recognize that depression and poverty are abnormal and purely artificial conditions.
The Glittering Delusion
In the light of all that has taken place, we should be coming to an appreciation of the wisdom of President Cleveland who, on December 3rd, 1888, included in his message to Congress this profound expression of superior statescraft :
“He mocks the people who proposes that government shall protect the rich and that they in turn will care for the labouring poor. Any intermediary between the people and their government or the least delegation of the care and protection the government owes to the humblest citizen in the land makes the boast of free institutions a glittering delusion and the pretended boon of American citizenship a shameless imposition.”
Time has vindicated Cleveland’s understanding and we are paying the price of the obvious folly of the past.
We are now face to face with the day of reckoning, and that day can no longer be put off. In our worship of money and gold we have forgotten God. Church organizations, in their desire to accumulate money-wealth, have ignored the Christian dogma that the teaching of the laws of God is their sacred duty. As a result usurers, the servants of the archfiend, have succeeded in establishing hell on earth. The wolves of society have been entrusted with the care of the economic lifestream of the social system and they have devoured the economic power of civilization. The very men against whom all governments should have been on guard have been placed in a position of complete control over the destiny of progress. The sin of covetousness is accepted as a virtue. It is supposed to be the soul of good business.
The Sovereignty of Bankers
In confirmation of the soundness of my conclusion that under the present monetary system, governments have actually delegated the power to control the trade of the nation to bankers. Let me call as a witness to the fact the evidence of a foaner Governor of the Bank of England. In 1910 the Governor of the Bank of England declared before the American National Monetary Commission that :
“The Bank of England regulates the conditions under which the trade of the country is carried on, and imposes a charge on the trade of the country for legitimate accommodation.”
Despite the ruin and despair, the bankruptcy and the destitution, and the total collapse of domestic and international trade that have attended banker management of currency and credit, the bankers still flamboyantly declare :
“The lessons of experience and the common judgment of students of the subjects of money and credit everywhere have led to the universal policy of entrusting to banks the responsibility of managing the money system.”
Unfortunately, the management of the money system carries with it the control of government and trade. Thus we have been led by the shallowest kind of trickery into the adoption of a system that has imposed poverty on the masses and to accept the delusion that the people should remain mystified, perplexed and poor, for fear that they would suffer disaster from plenty. We have foolishly listened to the exhortations of money changers and credit dealers that bankers alone possessed the integrity and administrative knowledge that is required to properly control and regulate the issue and circulation of the medium of exchange which constitutes the spending power of government and the buying power of the consumer. So long as this nonsense continues, we must acknowledge that we have learned nothing from God, the Scripture, the teachings of Christ or history. For the truth is that the private money system violates the sanctions of both Christian teaching and experience.
Confusion
Instead of placing the men responsible for the issue and circulation of the medium of exchange under the responsibilities and checks of national and public stewardship, we have allowed the operators of a private money system to enjoy unchallengeable authority to use the medium of exchange of our Christian era as a means of private gain. Intoxicated with power, these irresponsible trustees have indulged the lust and insatiable greed of usury to the point where all vitality has been literally sucked out of the most advanced and enlightened civilization that ever existed.
It is because money is now managed primarily as an instrument of appropriation serving the interests of a private monopoly that there is so much confusion engendered whenever currency and credit problems are considered. That is why you hear on every hand statements such as :
“I do not know anything about money,” “Currency and credit problems are over my head,” “Do not talk to me about the monetary system, I cannot understand it,” and so on, ad nauseum.
Confusion and perplexity dominate in a realm that is and should always remain the soul of simplicity, for sound money, sound credit, sound banking and a sound monetary system must always be simple. Walter Bagehot made this clear in his book, “Lombard Street,” written in 1873, which has always been recognized as the bankers’ Bible, when he said :
“A banker’s business—his proper business—does not begin while he is using his own money; it commences when he begins to use the capital of others.
“The business of banking ought to be simple; if it is hard it is wrong. The only securities ... that a banker ought to touch are those which are easily saleable and easily intelligible.”
Now if money were created and circulated as a medium of exchange by the government instead of being created and managed by private bankers as an instrument of appropriation, all would be able to agree with Walter Bagehot.
In the face of all the facts which undoubtedly support Bagebot’s conclusions, there certainly is no reason why anyone should feel that an acknowledgment of a complete and total ignorance of money and monetary problems is a mark of sophistication. That such an attitude is adopted by men, otherwise normally sane and intelligent, merely proves that propagandists, working in the service of private monopolies, can always successfully depend upon the shibboleths and fetishes of superstition to overrule and dominate plain reason.
Now the fact that the banker has misled us into believing that the management of money and credit is a difficult and complex science that no one can understand proves beyond any question the unsoundness of his system. The private money system is one, however, that must be protected by confusion and perplexity because if statesmen, church leaders, business men and the public really understood it, they would recognize it as a racket and insist upon its destruction. The banker, however, has successfully fooled and dominated everyone. Rulers of church and state, the press and public, all became the willing and humble servitors of the captivating and guileful charm of usurers. Statesmen applauded and church leaders condoned the repudiation of the law of God: “Thou shalt not lend on usury.” The monetary system of Great Britain, which established and constitutionalized a colossal scheme of mass robbery, theft and fraud, was held out by all as a perfect institution of social justice and a contributing factor to human progress. The Morgan family, with the attainment of monetary leadership in the Land of Liberty, became the unofficial sponsors of the Church of England in the United States. Bishops and church dignitaries became shareholders in banks, armament companies and distilleries, profiting, along with others, from the fruits of usury and in the production of the instruments of human destruction. Everyone became money minded and money took the place of God as the symbol of power throughout Christendom.
It therefore appears that our difficulties are not due to any inherent defect in Christian Democracy, but solely to the fact that we have been wrong in our attitude to the management, use and purpose of the medium of exchange. The issue is perfectly plain and it is—
Shall the power to create money be managed by men responsible to the government and the nation as a public utility or shall it be managed as the stock-in-trade of a private profit-seeking monopoly of mass usury ?
That is an issue to which the answer was made more than 3,000 years ago when Moses, under the direction of God, laid down the law “Thou shalt not lend on usury.”
Banker Versus State Control
It is in considering the issue of whether the power to issue and circulate money should be used as the economic power of government or as the stock-in-trade of a private profit-seeking monopoly that we find the root cause of the failure of Democracy and capitalism. It is upon this issue that the ideals of true Democracy clash with the theories and purposes of orthodox finance.
Issuing and circulating money to serve the needs of the people is a plain and easy proposition, but when money is issued and circulated to serve a private monopoly a facade of mystery must be developed to hide the truth. That is perfectly plain. No fraudulent racket could survive otherwise. In any event I feel certain that an examination of the powers that bankers have secured my place my conclusions that the private money system is a plain racket upon substantial grounds. Let us see first what the banker needs and second the powers he has secured.
Powers Needed by the Banker
If the power to create and circulate the medium of exchange is to be effectively used as the stock-in-trade of a private banking monopoly, privileged to accumulate wealth by earning interest on paper and credit issued by bankers as a substitute for money which should be issued by governments, the private monopoly will naturally seek to secure from government the following extraordinary powers :
(a) The exclusive management of the monetary gold reserves of the nation and the right to say how much or how little gold would be held for monetary purposes.
(b) The exclusive monopoly of the creation and issue of the nation’s legal tender paper currency and bank credit transferable by cheque as a substitute for money, leaving to the government the right to mint and issue metal coins, the least used and the most costly form of money.
(c) The exclusive monopoly of the power to regulate and manage the circulation of the nation’s medium of exchange.
(d) The exclusive monopoly of the issue of new capital, including capital required for governmental and private investment.
(e) Supreme authority over government in the realm of currency and finance, together with the power to control the creation of capital for investment in public enterprise, industry and commerce.
(f) The unrestricted and unfettered privilege of creating, issuing and circulating bank credit transferable by cheque and a substitute for money and the right—
(1) To create bank deposits by advancing loans of bank credit established by the mere entry of a credit in the banker’s books in the name of the borrower;
(2) To circulate bank credit as overdrafts of credit loans established by the bank ;
(3) To purchase governmental bonds and all manner of interest-bearing securities and profit-producing assets with legal tender money issued by the Bank of England, and with bank credit issued by private bankers, thereby permitting the banker to finance interest-bearing loans by the creation and issue of a pure fiction of money.
Powers Given to Bankers
Now it is not without significance that when we examine our coinage, currency and banking laws, we find all these powers are now vested in the monopoly of private banking while the records containing monetary statistics prove beyond any question that they have all been used to serve the craft of usury in a way that has proved detrimental to the well-being of national and social economy. In proportion to the increase in the debts of government and people, the wealth of the financiers, credit dealers and bankers has steadily increased. Clearly, there was method in the bankers’ advice to government on monetary policy. It was all in favour of the banker.
It is, of course, idle to conclude that a monetary policy which has been so disastrous to society and so beneficial to the ancient trade of money dealing happened by chance. It is much more reasonable to assume that it is the result of coldly-planned and skilfully-operated manipulation. It is quite clear that the bankers’ monopoly is not the result of laissez faire on the part of the bankers. The proof that the bankers, during the last 200 years, knew full well what they were about is to be found in an examination of the laws which established the original Bank of England in 1694, the original Bank of the United States in 1791, the second Bank of the United States in 1816, which, incidentally, was the same year that silver was demonetized in Great Britain, the Bank of England in 1844, the Federal Reserve banking system in 1914 and the Bank of Canada in 1934. These laws were all moulded from the same pattern and, strangely enough, they followed the general plan outlined by the original bank of credit manipulation which was established in Genoa in 1409. The laws that have created our super-banking structure were developed under the direction of the master minds of the age-old craft of usury. They were designed to establish the sovereignty of Money Power over Democracy, and they have been successful.
Everyone who knows anything about the enactment of laws knows full well that all banking, currency and credit legislation is drawn by and enacted under the supervision of the ablest lawyers that bankers’ money can buy. They invariably work in the service not of the state, but of the private money system. That they have done their work well and effectively may be inferred from the fact that in every nation, with the exception of Russia and Japan, private bankers now enjoy the privilege of managing the monetary system and the power to achieve the following objectives :
(1) To maintain a shortage of money.
This is accomplished by restricting the government’s power to issue money to a metal reserve limitation and by skilful propaganda threatening the disasters of inflation.
(2) To vest in the bankers the control of the issue of currency and credit.
This is accomplished by the creation of a central bank to which is delegated a monopoly of the national prerogative of issuing paper currency.
(3) To permit bankers to finance interest-bearing loans and to purchase profit-producing assets with bankers’ printing press money, and bank credit created by the mere stroke of a pen in bankers’ books.
This is accomplished by giving to private banks the right to print, issue and use paper currency and by the practice of permitting bankers to finance loans with bookkeeping entries and allowing the banker to call his bookkeeping entries bank deposits of money. Naturally, they advise that the bankers and not the government should have the monopoly of creating new capital. All must therefore borrow from the private money system, using a fiction of capital created by the bankers in an accounting system.
(4) To compel government, corporation and individual to finance all public and private enterprise requiring new capital by borrow ing bank credit at interest repayable m money.
This is accomplished by permitting bankers to remain the exclusive technical advisers upon banking, currency, credit loans and governmental monetary policy. Any other practice, we are told, would constitute unsound finance and be injurious to our credit.
(5) To place under the control of the banker the government of the nation, the level of prices and the standard of living of the people.
This is accomplished by a unique exploitation of the doctrine of specie payment and the practice of trading short. The gold standard having been employed to maintain a shortage of legal tender money, the bankers financed loans and all debts so created were made payable in legal tender based on gold. The banker, permitted to purchase interest-bearing assets with paper currency and with credits transferable by cheque created in the bankers’ books by the mere stroke of a pen, which are not subject to the limitation of gold or anything else, but the private bankers’ judgment, thus became the complete master of government, producers and consumers. The legal minds, who were charged with the work of devising banking and currency laws to serve bankers, financiers and credit dealers, did their work effectively and well from the usurer’s point of view. Governmental bankruptcy, unemployment, destitution and unpayable debt in the midst of abundance now bear witness to that truth.
ECONOMIC FALLACIES
The Negation, of the Law of Supply and Demand
In view of the situation that actually exists, it is not surprising to find that the fundamental laws which academic economists say are essential to the maintenance of what the banker calls a “sound money system” are thoroughly unsound and wholly impractical. They do, in fact, actually violate the laws that must be depended upon to maintain economic and social progress. The restriction of the issue of currency to gold or any other fixed standard is obviously unsound.
We know that the law of supply and demand which serves production, consumption by use and replacement is in a continuous state of flux. None of the innumerable factors involved in the progress of civilization remains static, nor can any of them be standardized. Therefore, the creation, issue, circulation and cancellation and re-issue of the medium of exchange must be readily changeable; otherwise the variations that must be made from time to time to meet the changes in the production and use of wealth cannot be accomplished. If this is not possible, the medium of exchange cannot be used to serve effectively the law of supply and demand, for it cannot be circulated to maintain in balanced equasion the natural expansion of production, consumption and replacement that progress demands.
Ignoring these facts, we have been told by the bankers that the issue of national currency must be restricted to scarce commodities such as gold and silver. Foolishly adopting this absurd conclusion, we have by law restricted the power of government to issue money by limiting the issue of the medium of exchange to gold, which bears no relation whatever to the possible creation and use of goods and services and the replacement of destructions. We should, therefore, not be surprised when we find our monetary system conflicting with the entire social order for, in truth, we have established a monetary law that stands as an effective barrier to the proper functioning of education as a means of advancing civilization. This is so because our monetary laws which limit the issue of the medium of exchange to gold negative the natural operation of the law of supply and demand.
Monetary laws which restrict the issue of national currency to a gold ratio destroy the power of government to provide the nation with the medium of ex change essential to progress. The government’s power to create money is effectively nullified. Government thus imposes upon itself a condition of impotency in the realm of its most important responsibility. Under the gold standard It cannot finance progress.
Bankers’ Circulation
Equally unsound is the bankers’ scheme of circulation. The banker has assumed that he can manage the circulation of purchasing power by advancing credit at low rates of interest in good times, and by checking the rate of progress through the raising of the rate of interest and withdrawing his loans from circulation when he thinks prosperity has gone far enough. The assumption that there is anything scientific in the expansion and contraction of bank credit as the purchasing power medium of exchange of the people is utter nonsense. The banker blindly follows and encourages periods of speculation by expanding credit freely. When a speculative era has attained the crisis that always comes with the hysteria and madness that dominates the public in the pursuit of easy gains, the banker withdraws his credit, leaving the public holding worthless assets and loaded with impossible debts.
Under banker management, the cycles that terminate in boom and depression crises are inevitable. Unfortunately, as the trade cycle operates, in the main the banker profits. In the first instance the banker gains by earning interest on credit loaned as speculation advances prices, and in the second instance the banker gains from the accumulation of hypothecated wealth of borrowers unable to repay loans. Yes, it is true that in these cycles bankers occasionally do suffer bankruptcy, but the bankers who survive are always the gainers. With each major boom and depression the bankers become fewer and richer, while the poor and destitute become more numerous.
The Functions of Bank Bate
The Macmillan Committee dealt very completely with the bankers’ system and methods of controlling the regulating circulation, and they pointed out its pitiful inadequacy. The report says :
“The methods by which a modern Central hank controls the volume and terms of credit in its domestic monetary system consist, in the main—
“(i) In what are now known as `open market operations’, that is to say, the purchase or sale of assets in the market on the initiative of the Central Bank itself, and
“(ii) in varying the terms on which it will purchase assets on the initiative of the seller, which is conveniently summed up as `bank rate policy’.”
Prior to 1931 it was assumed by bankers that their pre-war policy, which was very largely limited to making money cheap or dear, of encouraging borrowing or withdrawing loans, could be effectively augmented by the additional policy of open market operations. Since 1931, however, the idea that the bankers could improve the circulation of private finance by buying and selling interest-bearing securities has failed to produce any satisfactory results.
The bankers’ system of circulation has proven to be inadequate. It has failed completely. The Macmillan Committee anticipated this result when they said :
“There can be no doubt in our judgment that bank rate policy is an absolute necessity for the sound management of a monetary system and that it is a most delicate and beautiful instrument for the purpose. Nevertheless, there are certain limitations to its usefulness.”
The subtle sarcasm that is brought into play by describing “bank rate policy” as a “delicate and beautiful instrument” becomes noticeably conspicuous when the report describes how this “delicate and beautiful instrument” works. According to the Macmillan report, “bank rate policy” destroys business profits, establishes unemployment and creates a condition of depression which it is impotent to correct. This, according to the Macmillan Committee, is how it works :
“Its efficacy depends, in the first instance, on reducing the profits of the business men When in the effort to minimize this result, out put and unemployment are contracted, it depends on decreasing the amount of business profits and increasing unemployment up to whatever figure is necessary to cause business men either to decrease their costs by additional economies or to insist on, and their workers to accept, a reduction of wages. But public opinion does not easily acquiesce in such a process. And the reduction, if and when effected, will fall unequally and unfairly on those sections of the community who are least protected by contract, least able to defend themselves, and often least able to afford the sacrifice.
“Moreover, those who are in charge of our monetary system will—naturally and excusably—be reluctant to carry through so ruthless a policy to its proper conclusion, with the result that we may continue for a long period in a depressed condition with severe losses and severe unemployment and yet with not enough of both to compel by force majeure the necessary readjustment of incomes. Moreover, once such a condition of depression has become firmly established a policy of dear money will no longer be necessary to ensure its continuance; for it will contain within itself the seeds of its own perpetuation.”
Surely a policy that creates results so disastrous to the welfare of humanity and the social system is something more than a “delicate and beautiful instrument”. It is a vicious and monstrous power that has been outrageously abused. It is the power that permits bankers to place money and their credit substitute for money upon a plane where it is superior to human values and human needs. This power, even in the hands of altruists, would be dangerous. No such power should ever be given to any group of money-loving, profit-seeking individuals.
The record of bankers clearly shows that they have never placed the needs of humanity or the welfare of general trade and commerce first. The welfare of the banking community in the exercise of its power to earn interest and to accumulate wealth by investment of a preferred nature has always been placed first. National security, social welfare and stable trade have always been sacrificed to secure the profit and power of the banking community.
To those who fear that public men administering a national banking system would prefer political partizans, the thought never seems to come that in the monopoly of banking a vicious scheme of discrimination, preference and privilege is continuously in operation. Bankers engaged in all manner of commerce and industry are in a position to use their power to prefer themselves and their friends to the disadvantage of those with whom they are competing or to whom their friendship is not extended.
There is no power that government can ever use to eliminate the evils of privilege and preference in our commercial system as long as the bankers have the right to create and control the circulation of buying power.
This power to prefer and discriminate against has gradually spread through every department 9f our modem commercial and industrial life. Like a great cancer, it has destroyed fair competition and converted modern trade and commerce into an intensive activity in which the idea of monopolistic power profiting by discounts, rebates, favours in advertising, special prices and a host of other things that have come to make the word “chiselling” one of the most significant and sinister of modern expressions. It compels us to conclude that the control of circulation must be undertaken as a national responsibility.
Interest and Profit
But let me return to the outstanding defect in the bankers’ scheme of circulation—the defect that is inherent in the system they have established. It is the exaction of interest. In this iniquity, the investment banker is, of course, the real culprit. The merchant banker is not so much to blame, for his loans are for short terms and he gives a measure of real service. Once we realize that every dollar of bank credit which the banker puts into circulation is issued under a contract to be returned to the banker on a specific date with interest, we should be able to see the danger involved. Obviously, under this practice, the banker, by making loans, temporarily increases the volume of the medium of exchange in circulation. When the loans are repaid, however, the total volume of medium of exchange in circulation is less than it was when the loans were made by the amount of the discounts, charges and interest which the banker has exacted.
Under the theories of the private money system, the continuous expansion of the circulation of the medium of exchange required to sustain progress is impossible. A moment’s reflection on what takes place will make that proposition perfectly clear. Take, for example, the simple illustration of capital invested in a shoe factory. The owner invests a certain amount of money in the plant, supplementing his own capital with borrowed bank credit for operating expenses. The sale price of the product of the plant must include a sufficient amount to repay operating expenses, capital investment, interest to the banker and profit on the operation. Therefore, the sale price of a pair of shoes must exceed the cost of producing the shoes by their proportionate share of the interest and profit demanded. Now, nothing has been put into circulation to take care of interest and profit. If the operation is successful, banker and capitalist in the end must be possessed of more than they put into circulation; consequently, the consumers’ buying power stream is subject to an exaction that will eventually reduce it to the point where the buying power of the consumer cannot support the operation of the plant established. Now, when government finances by borrowing capital from the private money system, agreeing to repay it with interest, the government joins with the capitalist and the banker in demanding more from the taxpayers, who are also consumers, than government, banker and capitalist put into circulation.
If this policy is persisted in, it must result in the ultimate destruction of the consumers’ buying power, the confiscation of the wealth of the taxpayer and the bankruptcy of the State. Under this impossible programme, which the banker offers as a sound money system, the medium of exchange wealth of the nation is bound to centralize in the possession of bankers, financiers and credit dealers. In time, borrowers who can operate at a profit cease to exist and the monetary wealth of the nation becomes valueless to the community at large because it is deliberately withheld from circulation.
Bankruptcy and Debt
Of course, circulation can be prolonged and is prolonged by individual bankruptcy and by the pyramiding of debts. In the course of time, however, although it may be staved off, the day of reckoning is inevitable and likewise the coming of depression is inescapable.
Now it does not require a great deal of intelligence to appreciate that if capitalist, banker and government join together in demanding from tax payers and consumers more in the way of prices, interest and taxes, than capitalist, banker and government put into circulation, that the circulation of buying power will be wiped out. Anyone can check the soundness of this conclusion by applying the following test: Take a bucket of water and a dipper. Pour into the bucket one dipperful and then pour out two. If this is kept up long enough the result will be that the bucket will be emptied. That is what has happened and must always happen under the stupid theories of monetary management upon which our so-called “sound money system” is based.
It is this system that has changed our civilization from one of progress to one of retrogression. Governments with power to finance war, hypnotized by the cabalistic jargon of metaphysical economists, who in turn were flattered into a blind pursuit of their folly by the blandishments of an aristocracy of Money power, have gladly joined with the bankers and their willing dupes, the trade monopolists, in the wreck of civilization. The public, not knowing the real cause of the trouble, is now convinced that Democracy and Christianity have failed when the truth is that neither Democracy nor Christianity has ever been tried.
The Sovereignty of Government
Under a proper system of Christian Democracy the government should be able to finance education and whatever progress education can make possible. For instance, when a government frames a policy on education it should act upon the advice of men qualified to lay down a plan of education that will lead towards the establishment of cultural respectability as the stabilizing power in a scheme of ordered progress. When the policy of education is framed, the government should be able to lay before the national banking organization the monetary requirements to put that policy into effect. Similarly, the government should be free to act in developing and administering its policy on health. In that policy the government should be guided by the opinion of recognized authorities capable of advising the government on what is essential to the protection and advancement of the health of the whole community. Surely no banking organization should be empowered to deny to the government the national currency and credit which is essential to the advancement and maintenance of the intelligence and health of the people that the government represents. We do not allow bankers to restrict the issue of credit for war, and we should not allow them to plunder the wealth of the nation or to prevent progress in times of peace.
Now what I have said with reference to the financing of education and health applies with equal force to governmental policies designed to increase the production and use of wealth; and to advance the quality and quantity of all public enterprise and social service that is necessary to a life of contented respectability for every worthy citizen in the land. Surely the craft of usury should not be placed in a position where it can deny the government the right to finance progress. When we realize the folly of our present monetary policies we will be able to see that, when government invests national credit in improving the intelligence, health, contentment and cultural advancement of the people, it is building a foundation of economic and social security that is infinitely more valuable than any accumulation of gold or other form of material wealth can possibly be.
Unfortunately, under the monetary policies dictated by bankers, the accumulation of money has been treated as more important than the expansion of cultural progress. Material money values have been allowed to push human values aside.
Bankers Not Competent to Rule
Emancipated by education from an involuntary shortage of an effective medium of exchange, we have courted bankruptcy and destitution by accepting the advice of bankers who we are now coming to know are not gods, but merely usurers. Experience has established that the banker is not competent to manage the rate of progress of civilization. He is not capable of fixing the rate of progress of industry, commerce and the standard of living of the people. That duty must be performed by men properly equipped and capable of advising government in an unselfish way upon the practical services that government can render to the people.
The idea that social and economic destiny was safe in bankers’ hands has ended in the disaster that should be recognized as the normal and natural result of the misguided nature of the monetary policies that have been accepted by modern governments.
The Depression Continues
We cannot escape the realization that the depression which broke in 1929 is still continuing. Uncertainty in business, attended by the open disruption between labour and capital; the persistence of the unemployment of from 80,000,000 to 90,000,000 destitute industrial workers in the leading nations; the continuance of municipal, state and national bankruptcy and the persistent rise in the volume of interest-bearing debts prove that, under the private control of credit, Money Power is gaining and Democracy is losing.
Education and health are being neglected while culture is declining. Factories and all manner of utilities are closed or operating partially because consumers have not the means to purchase the normal requirements of a decent standard of living.
State, municipal, corporate and individual debts are also increasing while the cost of living is rising. On the other hand, the ability of the taxpayers and consumers to carry the accelerating obligation of greater debt and increased cost of living is declining because incomes and wages are not increasing proportionately.
Democratic government is losing out to the banker and the public is losing out to the credit dealer. The demand for payment of money is increasing while the means of paying money debts is declining. The government, under the system, is now confiscating the wealth of the taxpayers to meet debts incurred by borrowing rags of paper and mere bookkeeping entries. Such a situation is diabolic and monstrous.
Democracy Bankrupt
Obviously, under the private control of credit, government, corporation and individual, consumers and taxpayers are all enthralled by the deliberate maintenance of a money shortage. Interest-bearing debts are hopelessly inflated. Democracy is bankrupt through its own misguided laws, and the financing of progress is impossible. The world, abundantly wealthy, writhes in the impoverishment imposed by “sound money” adherents, intent, apparently, upon sacrificing humanity to the relentless grip of “the dead hand of usury”.
Ignoring the laws of God and the wisdom of the experience of past ages, we have tried to build a civilization on a foundation of usury. We are now learning that mass usury imposes upon civilization the same blighting moral disruption that rapacious individual usury always imposes upon its hapless victims. Were this not so, our civilization would not be bogged down with abundance, nor would it remain in a condition of stagnation in the face of unparalleled opportunity for constructive achievement. Whether or not our civilization is doomed to suffer a prolonged period of the chaos and strife which is inevitable when the multitude in destitution are compelled to watch the few enjoying the opulence of abundance that should be available for everyone is, of course, problematical. Up to the present, there is good reason for assuming that our inability to manage currency in an era of possible plenty will bring about the decline and eventual eclipse of what we are pleased to commonly describe as our Western civilization.
Whether we like it or not, we are at the parting of the ways. In our financial, political and social institutions, we have reached the stage when an era of conscious and deliberate management must succeed the era of undirected natural evolution that has been characterized by the unbridled exploitation of humanity by Money Power. One thing at least is certain and that is if the educational and spiritual leaders fail to dominate in the future where Money Power has ruled in the past, we shall experience the tragedy of that prophetic period when on every hand there will be “weeping and wailing and gnashing of teeth”.
Wonderful World
This is true notwithstanding the fact that all are agreed that if we could manage the money factor we truly live in a marvellous world. Science has eliminated drudgery from human toil. None need want for all that is required to sustain a life of respectable leisure is now available. There are millions of jobs crying to be done and millions of idle brains and hands anxious to go to work. Although we all recognize that we live in an age when a waste of labour constitutes a real and irreparable material loss, we stand still, unable to circulate the medium of exchange that is needed to put the unemployed to work. Yes, living in an age when a waste of intelligence in unemployment is recognized as a loss in possible achievement that constitutes an immeasurable moral calamity, governments bound by false conventions refuse to provide the medium of exchange necessary to convert idle intelligence and labour into constructive and productive activity. The anomalous nature of our plight is apparent when we realize that while we are able to finance war with ease, we are unable to finance peace and progress. It does seem to me that nothing but the power of God can save us from our own folly.
Doubt and Disagreement
in considering the seriousness of our present situation, we should not forget that history is replete with records of social and political tragedies that might have been avoided. The decline of the Chinese civilization, the collapse of the Roman Empire, the French revolution, the American revolution, the Hungry Forties, the American Civil War, the World War, the Russian revolution, the German and Austrian debacles, and the present world-wide economic chaos, constitute afflictions that have fallen on struggling humanity simply because doubt and disagreement ruled when united action, based upon reason, should have prevailed.
In our present plight all are forced to admit that a civilization that has conquered starvation and pestilential disease; that is able to span the world with transportation and communication facilities; and that is able to control the circulation of electricity has come to grief because it cannot manage the simpler problems of issuing and circulating the medium of exchange which is created by law. Hence, with the conquest of material, moral and spiritual poverty within our grasp through the advance of education, we have come to grief because a foolish love of money has blinded us to the possibility of managing currency. The mere fact that the changes can be made easily and that they will be effective in aiding humanity to achieve the actual conquest of poverty is not sufficient in itself to justify the conclusion that the public will endorse any effective scheme of reform.
A study of history discloses that major political and economic reforms of the nature we must bring about come rarely except when necessity compels action as the only alternative to an acknowledged threat of appreciated calamity. Even when these circumstances exist and the imminence of social tragedy is fully appreciated, blind fear and doubt often develop, creating confusion of thought with the result that plain reason and common sense cease to be available as the guide to public action. Such a situation is, in fact, our greatest danger to-day.
Great social tragedies in the past have been the result very largely of failure on the part of people to agree upon the methods to be adopted under which the changes in political and economic practices could be affected, which were essential to bring about the results that all agreed were both desirable and necessary. And it is quite possible that our capitalistic civilization may come to grief for the same reason. The doubt and fear that always attends any fundamental change in any department of the economic structure is invariably intensified by the confusion that is deliberately and designedly interjected by selfish interests and by leadership blinded by jealousy.
For these reasons, political institutions and economic practices once established in the service of monopolies and minorities will persist long after they are recognized by the majority as being decidedly harmful.
The Revolution of Humanity
We must face the fact that humanity, to save Democracy, must organize and prosecute a militant revolution against the oligarchy of Money Power. That revolution may be every bit as bloody and bitter as any revolution ever waged against autocratic tribal leaders, feudal barons, or misguided kings. But that makes no difference, for the struggle is now inevitable. Of course the overthrow of Money Power may come through peaceful and constitutional means, but the extent of the confusion which now exists justifies no such conclusion. The hope, however, should be that reason will prevail. Despite the gloomy nature of the present outlook, there is, thank God, some little ground to justify that hope.
Now having indicated the cause of our depression and the practical nature of the remedy that must be applied, I want to frankly acknowledge that I believe that no recovery can come until the following conditions are satisfied :
(a) A majority must unite in agreement upon the proposition that our monetary and economic policies are unsound.
(b) This same majority must agree that existing policies can and should be changed.
(c) A dominating majority must come to an agreement upon the monetary and economic policies that are to take the place of those whose abandonment has been determined as essential to progress.
In substantiation of my belief that these things can and may be brought about by peaceful means, I want first to review the lessons that come from a consideration of war-time finance. Next, I will review the expressions of leaders which indicate an ever-growing volume of authoritative opinion that should result in securing the support of an overwhelming majority to the cause of a new financial and economic order. Then I will propose, from the wisdom of Lincoln, a plan which I firmly believe he would have put into execution had he lived to serve out his second presidential term. It is a plan upon which all reason able Christian men should be able to agree. This conclusion I think I can justify by proving that it is based upon Christ’s interpretation of the laws of God.