Populist Social Credit or North American Basic Income Guarantee – Dick Eastman reply to M. Oliver Heydorn
February 17, 2015
Introducing… the greenbit
The Money Power has been stronger than the people. Populist Social Credit can change that very quickly, in the simplest and safest way. We just need the new system, a better way; there is no need for revenge. We just take the money monopoly out of the wrong hands, and adopt the policy that all money is provided by government through a household dividend of no-cost autonomous (debt-free) money, as a public utility.
You have heard of the greenback. I submit that the best greenback money for the twenty-first century is the “electronic greenback” or “greenbit” dollar – provided you do not confuse it with the the scam “bitcoin” or the phony “Green Party” which promotes an anti-industrial revolution in the name of saving the world from “climate change” and backed by scientific fraud. The greenbit is an electronic greenback, and nothing else – “thin-air” money, created permanent deposits – authorized by Congress in exercising its Constitutional power to regulate the value of money through a very simple and short Social Credit Act. Such an act would end all money creation by banks (the money multiplier effect via fractional reserve lending). Banks will only lend exactly the funds submitted. The greenbit dollar is a new concept; I wish to specify that each electronic-entry greenbit dollar can have its own “serial number”, so that the history of spending of each greenbit dollar as it transfers from account to account in market transactions can be traced. But all the consumers know is that they get greenbit dollars every month or quarter, as a national dividend. “Greenbit” money is a name derived from “greenback” – autonomous, ex nihilo (“thin-air”) national legal tender, in the form of a permanent “deposit” amount.
The Populist Social Credit dividend is NOT a guaranteed income; it is not a negative income tax; it is not a substitute for any existing welfare or social security benefit. It has nothing to do with those things. Rather, it is the government’s way to best provide the economy with the infrastructure of permanent money needed to generate market activity for the good of all. The dividend is given to people, with no strings attached. They can spend it on consumer goods; they can give it to poor relatives or charities; they can loan it to a bank for interest, so that the bank can lend it to entrepreneurs and home buyers for a slightly higher interest rate – in a loanable funds market that is very competitive, with many small, state-chartered banks and no big regional or national banks.
You get the idea.
It’s time to teach the public.
Have car. Will travel. I expound on the populist social credit idea for free, for any group of five or more in Yakima, Seattle, Portland, or Spokane. The talk can be recorded and used freely by anyone. I will give a talk and answer all questions, and hear all comments. I will also debate the superiority of populist social credit over alternative proposals, against any monetary reformer, economist, politician, student, libertarian, progressive, or conservative in those cities, if invited to do so.
North American Basic Income Guarantee is a monster disguised as populist reform. The Douglas Social Crediters may be fooled, but I am not. –Dick Eastman
North American Basic Income Guarantee and Anglo-Canadian Douglas Social Credit join forces – to rob American economic sovereignty?
Does the “North American Basic Income Guarantee” idea favor the US giving up its monetary sovereignty in exchange for a small check every so often? There will be a conference discussing both Douglas Social Credit (A + B, compensated price rebate, and all that) and the NABIG proposal, at the Fourteenth Annual North American Basic Income Guarantee Congress, from Thursday, February 26 – Sunday, March 1, 2015 in New York City. Both of these schools of reform – Douglas Social Credit and Basic Income Guarantee – have gotten a big boost from the recent (January 26, 2015) Federal Court of Appeal ruling that the Bank of Canada must fulfill its charter by providing national treasury money. I am not linked to any of these people in any way, except for occasional arguments with D.S.C. folks over whether accountancy problems with depreciation allowance, or the burden of interest drain, causes the shortage of purchasing power behind economic depressions; that, and whether a retailer rebate system is needed on top of the Douglas social credit dividend.
My advice: Be careful, Douglas Social Crediters. The NABIG crowd’s proposals are offering you something like a social credit dividend, but look what they are trying to take from us: national economic sovereignty. [Another caveat to Social Crediters: many of the NABIG/USBIG bigwigs are confirmed socialists, and obviously do not seek to break the Rothschild system money monopoly. –Abel Danger]
They have the money, the conferences, the media recognition. NABIG is a globalist Trojan horse to end national money sovereignty in exchange for a small monthly check from an international private bank. [“Federal Reserve Notes” are already a de facto international currency. The USA needs more national monetary sovereignty, not less. –Abel Danger]
M. Oliver Heydorn has appeared on HenryMakow.com – known for its promotion of the ideas of Anthony Migchels – and on the website AbelDanger.net, which has been advocating Social Credit of one kind or another for some time. I know little of M. Oliver Heydorn and his views; you have some YouTube videos and the article below. My initial reservation about this fellow is his looking for a “North American Basic Income Guarantee”, rather than American Social Credit and Canadian Social Credit forever separate and happy. That indicates to me that Heydorn wants to do away with American national monetary sovereignty. It is not Populist Social Credit (PSC) that is being invited to chat at the NYC conference; it is Douglas Social Credit (DSC) and North American Basic Income Guarantee (NABIG) that are going to get intimate in Manhattan and Brooklyn – working that compensated price rebate and problems with “accountancy” in with the elimination of national money with a North American basic income – with the “amero” as the intended new currency?
[Dick Eastman update (March 30, 2015): Mr. Heydorn did not, as I first thought, endorse Guaranteed Basic Income – in fact, he pointed out differences between the two and clearly put himself on the side of the Douglas social credit dividend position. My criticisms directed against basic income guarantee, and my warnings to social crediters not to join ranks with the basic income guarantee, were misdirected if I aimed them at Mr. Heydorn. His statements pointing out the differences are, on the whole, correct, and he took the right side, as far as I can see. I offer him my retraction for any statements that incorrectly suggested that he endorsed the Guaranteed Basic Income model. As far as I know, Heydorn is a most competent exponent of the Douglas social credit idea, and his own way of presenting it is a good one.]
The NABIG crowd seem to have big money for conferences, and have invited the poor social crediters to get their support. All you have to do is say: 1) that the “B” gap causing depressions involves accounting methods not taking depreciation allowance into account; 2) that deflation is not the problem; 3) that interest is not the problem; and 4) that the social credit dividend should just be for filling a scientifically measurable gap between purchasing power and the total cost of producing and distributing goods. The DSC will eat out of your hand if you just grant them those favorite stupidities of theirs.
At any rate, here are the conference particulars:
The Fourteenth Annual North American Basic Income Guarantee Congress
Basic Income and Economic Citizenship
February 26 – March 1, 2015
Sheraton New York Times Square Hotel
811 Seventh Avenue at 53rd Street, New York, NY
Dr. M. OLIVER HEYDORN, A SPEAKER AT THE NABIG CONGRESS
NABIG SESSION 4: To Have and Have Not in the Twenty-First Century Economy
Michael Lewis, “Beyond the Deserving/Undeserving Dichotomy: Genetics, Poverty, and Social Welfare Policy”
Oliver Heydorn, “A National Dividend vs. A Basic Income – Similarities and Differences”
Karl Widerquist, “Institutional Aspects of the Piketty Observation and the Case for BIG”
Moderator: Troy Henderson
Dr. Heydorn and North American Basic Income Guarantee have no endorsement from me.
Here is Dr. Heydorn – with my comments.
THE DEFICIENCY OF CONSUMER PURCHASING POWER
by M. Oliver Heydorn, Ph.D.
published October 2014
Oliver Heydorn: The founder of Social Credit, C.H. Douglas, cited five main causes for this deficiency of consumer purchasing power in his booklet “The New and the Old Economics”. They were: profits, savings, the re-investment of savings, deflationary policies on the part of banks, and the difference in circuit velocity between cost creation and price liquidation. This last cause, which is the main cause, is also known as the A+B theorem. Basically, the idea is that modern industrial production involves overhead costs, and these overhead costs (because of the way in which real capital – machines and equipment – is financed and its costs accounted for) build up costs without distributing an equivalent volume of income (in the form of salaries, wages, and dividends).
Dick Eastman: The American people are deficient in purchasing power and aggregate demand because the nation’s entire money supply is borrowed. It is borrowed with business loans, with mortgage loans, with government borrowing. The money supply gives amount A in loans to the borrowing households, businesses, and government who spend it into circulation; but with the loan comes the obligation to pay back principal equal to the loan, plus compound interest which often exceeds the amount of the loan. But the only money to pay back that principal and interest is the money floated by the loans. Therefore, there have to be unsold products, because the firm has to pay interest on the business loan, and what is paid as interest cannot be paid as wages or profits.
Douglas was wrong. He spotted the shortage of purchasing power, as had many economists and bankers before him – all of the economists who have explained depressions as caused by under-consumption, by over-saving, by deflation created by too much debt burden. Douglas gave us the idea and the name for the social credit dividend, but he confused everyone with the bogus explanation for the lack of purchasing power.
Heydorn: Apart from any question of theory, the claim that there is a gap between consumer prices and consumer incomes is one that can be (easily) verified by consulting the economic statistics of any developed country.
Eastman: There is no gap to measure, because the production took place in one economy with one money supply, and the subsequent purchases of finished products happen in a different economy in which there are fewer dollars in American consumers’ hands.
Douglas says the money gets held up in the business sector, because firms lock it away as depreciation allowance, rather than distributing the money to people who will go out and buy products. This is dead wrong. The business sector does distribute all of its income to wages, rent, profit, factor buying, taxes and, last but not least, payments of principal and interest on debt.
Yes, money does leave circulation to a place where it does not return. It goes offshore to bank accounts in the Cayman Islands, it sits idle as “excess cash reserves” in the biggest banks, and it is held by those who are said to “earn” that interest simply as cash balances – as money held as a speculative asset in their portfolio, in a speculative bet on deflation that will make the cash worth more. When the well-interconnected bankers hold large cash balances, they conspire as a class – as an “interest group” (interest in the sociological sense, not the economic sense) – to effect deflation. They do this by cutting their lending. The lenders (new bond buyers and bank-loan deposit-creators) can deflate the economy by agreeing to cut lending, by forcing a lowering of loans through lowering the Federal Reserve discount rate, and by calling loans.
All of that contracts the money supply – cuts the flow of money into people’s hands, thereby cutting consumption, cutting business sales and tax revenues, thereby decreasing wages and employment levels. But all of that originates in the financial sector and among the lending class – not in the household, business, or government sectors. Douglas, and Heydorn, have you barking up the wrong tree.
Heydorn: Take a look, for example, at these statistics from the Canadian and American economies in 2008.
In 2008, the GDP in the US was a little over $14 trillion, while total incomes that were earned (wages, dividends, and salaries) were a little over $8 trillion. This means that there was a gap of $5.9 trillion. In Canada in 2008, the GDP was $1.2 trillion, while total incomes were $770 billion. Thus, there was a gap of $436 billion. So we see that in these two countries, there was a disparity between consumer prices and consumer incomes, and it was significant – it was not small. Now, just a word of caution: I don’t believe that these statistics tell the whole story; I think the situation is more complex. So don’t take these figures as revealing the exact nature and size of the gap, because that would be somewhat misleading. The important thing is that, whatever its various causes, a significant gap exists.
Eastman: This is all wrong, and deliberately confused. First of all, the Gross Domestic Product (GDP) measures, within national boundaries, production that was either sold at given prices, or else was counted as unsold inventory at the end of the tax year (net change of inventory) – unsold goods priced at cost of production. The National Income is the wages, profits, rents, financing (interest plus principal), and taxes, that have been paid out during the period in which production took place.
GDP is always more than National Income; and the difference, or gap, between the two amounts is the capital Consumption Allowance. But the capital consumption allowance is not money payment to a factor of production or to a holding account reserved to buy new machines when they wear out. Rather, the Consumption Allowance is the estimated value of capital goods (machines, factories) used up or worn out in production, plus the value of accidental damage to capital goods. No money is set aside at all.
The difference between Gross Domestic Product and National Income is not in money. The difference between them is in recognition that, in order to make the product, capital stock was used up and worn out to a degree that must be observed in the accounting books. It is a way of noting that because of a year of production, all machines that wear out will be worth less at the end of the year of production than they were worth at the beginning of that year. The depreciation is marked in the books as a cost of production, but no actual money is set aside by the firm as a consequence. The wear of the machines shows up in price, to cover the cost as a depreciation allowance, but no money is tied up.
Yes, the firm will call the depreciation a cost, and they will attempt to cover that cost in their pricing: the entrepreneurial decision to produce always takes the fact of machines wearing out into consideration. But this does not affect inflation or deflation as interest drain does.
Here is why the purchasing power gap does not result from depreciation allowance:
A firm buys a machine. The machine will wear out at an unknown changeable rate, but the managers of the firm will decide to depreciate it evenly, say 1/10th of its value over ten years.
The fact of the machine wearing out, and the decision to depreciate it on the books over ten years, will affect pricing. The depreciation is a cost of operating; it will be figured into all production decisions and taken into account in all pricing decisions. There will be more cost and less profit because machines wear out, and because the balance sheet shows depreciation over the year.
But the fact is that, eventually, the worn-out machine will be replaced by a new machine.
No company has a shoebox under the CEO’s desk where thousand-dollar bills of “depreciation allowance” disbursements are stored idle until it is time to buy a replacement for a completely worn-out machine. No money is put aside at all. The strategic decision to buy a new machine is made at the time it is needed; meanwhile, all funds are distributed fully to maximize profit.
Machines wear out, but that does not stop the flow of any funds from distribution. The depreciation is just recorded so that the business owner(s) will not make the mistake of thinking that everything left over after wages, rent, utilities, factor costs, interest, and taxes are paid, will be profit – because he is “poorer in machines” than he was at the beginning of the year.
Douglas did not get it. Heydorn does not get it. The insufficiency of purchasing power in the hands of the public to buy the goods produced comes from interest payments to the lenders (to the financial sector and international sector) – money that is not returned, because the lenders find it more profitable to hoard it and allow deflation in the real economy to increase the value of their money stash.
Douglas and Heydorn are saying that purchasing power falling short causes depressions by an amount determined by the value of machines that has fallen due to wear and tear, or by the cost accounting allowance for such “depreciation”. They are wrong.
Heydorn: So, there is an imbalance that lies at the root of the modern economy, and this imbalance must be consistently overcome or compensated to some substantial degree because, if it isn’t, the economy would enter into a downward recessionary spiral and would eventually collapse. If additional purchasing power is not drawn on from some source to equate the prices of existing consumer goods with available incomes, businesses will scale down production, more people will be unemployed, and this will decrease available incomes even further, thus intensifying the original problem. Additional effective purchasing power that is not derived from existing production must be provided from some source. There are essentially two ways of providing the additional purchasing power. There are the conventional methods, the palliative measures that are employed by economies the world over. And then, there are the Social Credit methods.
Eastman: He hasn’t told you where the shortage of purchasing power is coming from; he just confused you with the difference between GDP and National Income, which has nothing to do with the disbursal of money to buy goods. Everyone expects to pay prices that will compensate the producer for the wearing out of his machinery in production. That is no cause of deflationary spirals!
Now he is talking about the need for “additional purchasing power” – to do what? To “equate the prices of existing consumer goods with available incomes”.
Yes, people need more money given to them directly so they can buy more – and so businesses can actually stay in business, and keep up their demand for labor in the labor market, and pay all their creditors, and even get ahead.
But what is this noise about “equating” prices of goods with incomes? What bean counter is going to measure those two numbers, and what economist is going to state what infusion of new money is going to “equate” the two measures? He certainly can’t take GDP and National Income – those figures come after the year is over. Nor is there any way of estimating them.
So, after wrongly identifying depreciation as the source of the problem of deflationary depressions, and offering the “gap” between GDP and National Income as, more or less, the indicator of how much new purchasing power needs to be added, he tells us new purchasing power can come from the old “conventional methods” or from the new “Social Credit methods”.
Now what do you suppose he means by “Social Credit methods”?
Heydorn: The conventional methods rely mostly on the creation of new money in the form of debt to fill the gap. Incomes derived from new production, especially capital production and production for export, and incomes or purchasing power derived from additional government expenditure, and purchasing power derived from consumer loans (credit cards, lines of credit, car loans, mortgages, etc.) help to offset the consumer prices that are currently on the market, but only at the cost of increasing public, corporate, and consumer debt.
Eastman: The methods of increasing consumption expenditure are two. The first is the monetary policy route of increasing home refinancing and second mortgages, either by bank policy or by reducing the discount rate that allows banks to lend closer to their legal lending limits. The second is the “fiscal policy” route of either lowering taxes, which is never done, or of government increasing expenditures and transfers, usually paid for by more government borrowing. Commercial credit – when businesses extend credit to customers – doesn’t count, because those businesses tighten their belts even as their consumers can loosen theirs; commercial credit does not increase money supply for the whole economy. Businesses don’t create money when they extend credit to customers buying on the installment plan.
Heydorn is right that the “conventional” ways of addressing insufficient public buying power all lead to increased debt.
Heydorn: The problem with relying on debt-money to fill the gap is that it does not liquidate the outstanding consumer costs; it merely transfers the obligation to pay them to a future point in time. But that future point in time will also have its own gap costs to meet. Since consumer incomes in the future will be eroded by the additional debt servicing charges, they will be even less adequate to meet the recurring gap. The increased lack of liquidity translates into an even greater need to borrow, in order to meet the needs of the moment. So what ends up happening is this: debts are paid off at a slower rate than new debts are contracted. This leads to an ever-increasing mountain of debt which is, in the aggregate, unpayable.
Eastman: Since when is the goal to “liquidate outstanding consumer costs”? What is an “outstanding consumer cost”? The problem with “debt-money” – which Heydorn does not define! – is that people not only have to pay for the good; they also have to, separately, pay for the money with which to transact the purchase. The problem is that the money supply is all borrowed. It’s borrowed by the consumer. It’s borrowed by the producer. It’s borrowed by the government. We can earn dollars rather than borrow them, but the dollars we earn exist only because someone is in debt to pay back to a lender that dollar plus interest. That is the problem. The solution is a permanent money supply that does not have to go back to thin-air or drag from us interest that the usurer will hold as a speculative investment, betting on deflation.
Of course, there is truth in the claim that borrowing money to increase spending (or as Keynesians might put it, to increase aggregate demand) does result in a greater burden tomorrow.
Keynes imagined that government spending financed by deficits in the “bust” portion of a “boom and bust” business trade cycle, would be recouped by the increased tax revenues brought in during the boom. Keynes even recommended increasing taxes in a boom, to be sure to get the money to pay the debt incurred in stimulus and “pump priming” to fill the “recessionary gap” during the downturn. We can all agree that it has never worked out that way.
Heydorn: Under the current system, the richer a country becomes, the more indebted it must be; it is penalized, with a millstone of debt, for making use of its real credit. The United States, constituting as it does the richest country in the world in real terms, is also the most indebted. The total debt outstanding in the United States (public, corporate, and personal) is somewhere in the neighbourhood of $61.6 trillion, or roughly $193,000 per citizen, and is steadily increasing.
Eastman: I’m not going to waste time answering the notion that a country is richer when it is deeper in debt. I’d rather explain what is really going on.
When there is no dot-com industry in existence, and the financial/speculator elites want get the dot-com market created and then own it, they start with the creating. To create the dot-coms, they begin lending money in the field. They instruct their mass media assets to hype the coming revolution. They start giving grants for research. They fund entrepreneurs who will buy the brains to get the boom going, with plenty of loans flooding in. Easy money is the rule. Dot-com companies abound. All are happy. The future looks glorious to all of them.
And then, after all of the brains have done their work, after all of the entrepreneurs have busted their butts to be the Ford or Edison of dot-com, the bankers have completed their act of wealth creation. Now they take possession of it, by deliberately contracting the amount of money in circulation. The lending stops. Loans are called. Firms are forced to sell or to merge to stay afloat. I forgot to mention that as the boom goes on, the interest rates are raised – not really because it is harder for the banks to find the money to lend, but because they want their ongoing cut of the profits: they do not want borrowing entrepreneurs to make a ton of money and then self-finance their own expansion. The higher and higher interest rates prevent this entrepreneurial self-financing from happening.
Now, back to what I was saying: having financed the development of the firms, software, trademarks, etc., the lenders then proceed to ruin the people who built it all, by cutting the money in circulation, so that the borrowers – who borrowed at high interest rates to strike fast and hard in the boom – are now faced with customers lacking the money to buy as before. Firms sell off and hostile takeovers hit them, because the debt situation makes it impossible for firms to defend themselves. And soon the bankers own what they lent money to the entrepreneurs to build.
And what has happened to the Money Power rich? They lent the money, collected the interest, and then when the borrowers could no longer pay the interest, simply had their corporations buy up the defaulting and bankrupted companies – all as planned from the first.
Heydorn says, “Under the current system, the richer a country becomes, the more indebted it must be.” That is wrong. It’s not about a country becoming richer or less rich. It’s about the transfer of wealth from the producers of wealth (entrepreneurs, engineers, managers, skilled working people) to the monopolists of money and credit, who produce nothing – but, by virtue of controlling the flow of tokens in the token-mediated market economy, who can manipulate people through easy money followed by tight money, through interest rate alterations, etc., until the financiers own everything.
Heydorn: The U.S. National Debt alone is around $17.7 trillion, or 55,000 USD per citizen, and is likewise increasing (this figure represented a federal debt-to-GDP ratio of 105%). The money supply, on the other hand, is only about $11.4 trillion (M2). Indeed, if all of the money in circulation were used to pay off as many of these debts as possible at any one point in time, the U.S. would have no money supply whatsoever, yet massive quantities of debt would still remain.
Eastman: It is meaningless to compare the debt to the money supply. The money supply is a thing of the moment; the debt accumulates over time. In the UK, there are consul bonds that never stop paying coupon interest. The important thing to look at is flows of money: the flow of money into the real economy of households, businesses, and public goods; and the money that flows out of it. The problem is that if every dollar that flows in comes with a contingent obligation to pay the same amount back out again, and with compound interest required to be paid out too, then there must be default, bankruptcy, and a great transfer of collateral to the creditors. Debt matters; and the mountain of it represents a gigantic drain of purchasing power, especially when the debt collector would rather take your mortgaged house and turn it into his absentee landlord rental property, and take your business and add its assets to his family-trust-owned corporation, and add your government’s privatized utilities to the trust’s portfolio as well.
Stop trying to match up numbers of this gap. The problem is:
1) that all money in the economy is borrowed, with an obligation to pay back a) all the borrowed money supply, plus b) interest on the money borrowed;
2) that the lenders do not return the interest they take, and put it back into the economy;
3) that all “remedies” being considered are only those remedies devised by the lending class.
Government money is spent to fund a new asset that the lending class can own – high-speed rail or new pipelines, for example – as if the lenders don’t have money as spare change for building those things!
Three of my diagrams show their racket:
The nation does not need this system, in which the masters create the money and decide who gets to spend it into circulation, in return for a cut called interest.
Heydorn: The fundamental problem with the present financial and economic orders is the chronic lack of consumer buying power. The macroeconomic gap between prices and incomes, which is primarily caused by how capital goods (machines and equipment) are financed, and how their costs are then accounted for under existing conventions, is THE issue which needs to be addressed.
Eastman: No, the lack of buying power is not the fundamental problem. There is always a lack of buying power from almost everyone’s perspective – except the saint or ascetic who seeks to annihilate his desires, but even they do not like to see those around them starving and sick. The problem is a borrowed money supply, rather than a publicly provided one. The problem is a privately controlled money supply that is manipulated by the owners of the money supply to maximize their takeover of the wealth of the entire planet. We do not have to fill in the gap between GDP and National Income with an amount equal to the depreciation allowance for machines and equipment, as Douglas suggested and as M. Oliver Heydorn suggests above.
Instead of filling the gap, like putting in a false tooth, we need to overturn the way all new money is introduced into the economy. We need to separate banks from money creation. The national bank – like the Bank of Canada was designed to do, as upheld recently by Canada’s Federal Court of Appeal – is to create national legal tender money. The question then becomes, how should new money be introduced into the economy? By the Canadian Parliament or the US Congress voting for big government projects that give fat contracts to the corporations owned by the family trusts of the big banking families? Or by the big bank lending to whom it chooses to favor with big fat loans?
The populist says neither of those two alternatives is the right and safe way to proceed. Both of those roads lead to corruption and the enslavement of the common man. Let’s have none of that. All new money of a nation should originate in the hands of each citizen of the nation, to spend as he sees fit, or to save, or to give away. Only in that way is there true democracy in both economic and political power. The power to create new money and spend it into circulation is too great to give to any one group of banks or to government; it must be distributed evenly to everyone. Money is a public service, a common utility – the infrastructure of society’s arrangements for conducting a market economy. It is necessary infrastructure. It is not a commodity. It is a medium through which transactions are conducted. No one should have control of the tokens that control everyone’s behavior.
In money creation and the distribution of new money, we must all be equal.
Heydorn: In the main, the present system deals with the gap by filling it with additional debt-money from the private banking system in the form of public, corporate, and consumer debts.
From a Social Credit perspective, saving the taxpayer large sums of money and/or preserving the country from an increase in public indebtedness via the issuance of interest-free money from the Bank of Canada is certainly a good thing. However, such a reform of the system does not address the fundamental problem with the present financial and economic orders: the chronic lack of consumer buying power.
A Social Credit system would fill the gap with ‘debt-free’ money and distribute it to consumers, directly through a National Dividend, and indirectly through a National Discount on retail prices. It is critical that the individual, the common consumer, be the prime beneficiary of any monetary reform, and that he be accorded full control of credit policy within the context of a properly functioning financial system.
Eastman: I say forget gaps. Forget measuring them. Forget conceptualizing them. We know the problem is an economy where all the money is borrowed. Heydorn wants to add debt-free money to fill the gap that shows itself in all debt-money economies. I say get rid of all debt money. The money in the economy should be permanent. Banks should have nothing to do with money creation. Neither Douglas nor Heydorn wants to go there, but there is where America must be to beat debt slavery once and for all. All money should be created by government and distributed exclusively through the Social Credit Dividend to the household sector.
The function of banks is as a medium between savers and borrowers: the savers turn their money over to the bank, so the bank can lend it. The bank gets interest from the businessman or homebuyer; it pays interest – a smaller amount of interest – to the savers, for relinquishing control of their money to the bank for a while, so the bank can lend it.
Banks will be small, competitive, and state-chartered. There will be no need for a central bank. And as for “interest rates” in America, there will be none. Every bank will be allowed to offer what it wants for the use of savers’ savings, and lend at the rates it chooses in its competition with many other banks looking to serve the same entrepreneur customer. Very quickly, the Ivy League do-nothings will drop out of the banking business, because it will no longer be a racket for the care and fattening of an organized crime oligarchy. Bankers will be hard-working, sharp men who, like the entrepreneur, have exceptional knowledge of the community, the markets, and human character. They will be well placed to take the risks in finding men likely to carry through on the ventures they are looking to have financed.
Also, banks should share risks with borrowers, so that if the borrower fails and the anticipated returns are never realized, the banker will only be able to claim half of the principal. The bank must assume half the risk in the loan contract. The banker is responsible for granting the loan, just as the borrower is responsible for applying for it. The risk must be shared. That will ensure that banking will be a much different game, with a much different kind of man playing it, than we have today. I am talking about the American Populist Republic we can have if we want it.
And finally, there is no need for any National Discount on retail prices, that Douglas advocated and that Heydorn is pushing too. All that is needed is that consumers spend all new money into circulation. The Social Credit Dividend is enough to accomplish that. We do not need government giving rebates, or setting “just prices”, or compensating retailers for lowering prices to some level dictated by the government. That is as sure a road to destruction as socialism or the gold standard.
I have just found another Heydorn article – this one at Henry Makow’s website – in which he sings a much different tune. Here he is pointing to interest, rather than depreciation allowance, as one of the causes of a shortage of purchasing power.
Social Credit: A Simple Explanation
There is never enough money to buy what we produce. Social Credit addresses a fundamental flaw in our economic system: the gap between a plethora of products and the lack of money in purchasers’ hands.
by Oliver Heydorn Ph.D. (henrymakow.com)
Heydorn: Social Credit refers to the ideas of the brilliant Anglo-Scottish engineer, Major Clifford Hugh Douglas (1879-1952). Douglas identified what is wrong with the industrial economy and also explained how to fix it. The core problem is that there is never enough money to buy what we produce. In essence, people don’t earn enough to afford the plethora of available consumer goods and services. This gap is caused by many factors. The charging of interest on loans is only one of them. Savings and the re-investment of savings are two others.
Eastman: The “discovery” of the shortage of purchasing power making for “bad times” is very old – older than the formal study of economics. Under-consumption theories of depressions precede Western civilization. Douglas didn’t really discover any gap; in his explanation for the gap he found, he blamed it on “accountancy” in how we figure depreciation (capital consumption allowance). Heydorn, like my well-meaning friend Anthony Migchels, now rightly mentions interest being involved; but he says that “charging interest on loans” is one of the causes of the gap. That is not exactly right.
The real problem is that: 1) our money supply is all borrowed, with interest charges due; 2) banks have the ability to create and destroy money supply – instead of just borrowing, from savers, money that already exists, and lending it to businessmen, as they should; 3) bankers lend money that the banking system creates, and charge interest; but when they collect the interest earnings, they don’t go out and spend them on consumer goods, or lend them. Instead, they withhold them from circulation one way or another – “neither spent nor lent” – causing a deflationary depression, from which they profit. (Lenders can profit in a deflation at the expense of debtors, just as borrowers can profit in an inflation at the expense of creditors.)
Heydorn: The economy must compensate for this recurring gap between prices and incomes. Since most of the money supply is created out of nothing by the banks, the present financial system fills the gap by relying on governments, firms, and consumers to borrow additional money into existence so that the level of consumer buying power can be increased. As a society, we are always mortgaging our future earnings in order to get enough purchasing power so that we can pay present prices in full. Whenever we fail to borrow enough money, the economy stalls, and the government may even start a war to reboot it. To the extent that we succeed in bridging the gap, we contribute to the building up of a mountain of debt that can never be paid off.
Eastman: Dr. Heydorn has departed from Douglas here, and is coming over to populist territory – although I would not say that the banks are “relying on governments, firms, and consumers” to fill the gap. Banks do not want the deflationary gap filled; they profit from the deflation. Remember, banks are in the business of lending money, and the interest rate (the real interest rate) is the price of their product. A rise in the real interest rate, due to deflation, is to the creditors’ advantage. Right now, the nominal interest rates are not historically high – some rates (the federal funds rate, the discount rate) are near zero – but that is because there is deflation. With deflation, the real interest rate is much higher than the nominal interest rate. Real rates are very high now, because dollars to pay back loans will be even dearer to come by through honest work tomorrow than they are today.
Dr. Heydorn has put it very well when he says we are always mortgaging our future earnings to get more purchasing power to address present effects of deflation. Of course, it is not really “we” who are doing that – it’s the oligarchs who are squeezing us, and who pay politicians to use such harmful remedies. The problem is that we do not have the money infrastructure that government should provide, in fulfillment of its true and constitutional function.
Heydorn: Filling the gap with debt-money is also inflationary, wasteful, and puts the whole society on a production–consumption treadmill. It is the prime cause behind social tensions, environmental damage, and international conflict. All of this dysfunction is tolerated because the banks profit from it. Compensating for the gap transfers wealth and power from the common consumers to the owners of the financial system.
Eastman: Providing new money in a deflation does not raise prices – except maybe in the shortest run, before producers can hire more people and buy more supplies to increase output. Having money from the present system is not the main problem. The main problem is when they call back all that money because it was borrowed, and call out interest money besides. There is nothing wrong with a production–consumption treadmill; that is how human beings provide for themselves in any society. Dr. Heydorn is right that the present system is here because the biggest banks profit from it.
The only gap that matters is the gap created by a nation having to pay interest to obtain a money supply that they could have had their government print up and distribute for free. And of course that is worsened by having them charge interest on that borrowed money supply.
Inflation is not a problem – not when everyone is so far in debt because of a fraudulent system rigged to force deflation on debtors.
The bankers are not compensating for the gap; they are deflating the currency to increase the value (command over goods and labor) of each dollar they are owed. They love the gap. They designed the gap. They owe their fortunes to the gap.
Heydorn: Douglas proposed that instead of filling the gap with debt-money, the gap could and should be filled with debt-free money. This money would be created by an organ of the state, a National Credit Office, and distributed to consumers. Some of it would be issued indirectly in the form of a National Discount on all retail prices, while another portion would be issued directly in the form of a National Dividend.
Eastman: National Dividend is good. National Discount rebate scheme is bad.
Heydorn: Since the productive capacity of the modern, industrial economy is enormous, an honest representation of our productive power would allow us to enjoy an abundance of beneficial goods and services, alongside increasing leisure. Our economies could become socially equitable, environmentally sustainable, and internationally concordant.
Eastman: Dr. Heydorn overlooks the fact that under the system of deflationary depression, American industry and other productive capacity has been eviscerated. The interest taken from the people has been spent in China (the dollar is an international reserve currency, remember), on industrialization over there; that foreign industry provides us with almost all of our products now, with very little made here, domestically. The effect has been devastating.
So the productive capacity here is not enormous; but if we are ever to get productive capacity back, it will only be done with money put in the hands of Americans, so they can buy from one another, and so there is ample money for new business start-ups and ample domestic demand to make them prosper. That is what the populist republic looks at when it is providing money to each person; it does not bother about measuring a gap and filling it. Forget about all that. Provide money sufficient to move all production and enterprise that can be moved. Inflation? Not a big worry when there is less lending going on because more firms can finance their operations from their own earnings.
I should add this: the Austrian School “mal-investment” theory of depressions is wrong. Inflation does not cause economic depressions. Interest drain explains why booms collapse – not mal-investment from distorted market signals and so on.
Heydorn: Unlike some other monetary reform proposals, Social Credit does not advocate the nationalization of the banks. It is completely opposed to any scheme that would see us jump from the frying pan of a self-serving private system, into the fire of a complete state monopoly over money and its issuance. The latter would be a fine basis for the introduction of a totalitarian society. Social Crediters, by contrast, stand for the decentralization of economic and political power in favour of the individual. Social Credit’s proposal for an honest monetary system is not socialist but rather anti-socialist. It is completely compatible with a free enterprise economy (incorporating free markets, private property, individual initiative, and the profit motive).
Eastman: Well said. On this we agree.
Here is more Dr. Heydorn:
The Case to “Reinstate” the Bank of Canada
Posted on February 2, 2015 by M. Oliver Heydorn
There is a very interesting legal case that is playing out in Canada at the moment. William Krehm, Anne Emmett, and COMER (the Committee on Monetary and Economic Reform: http://www.comer.org/) filed a lawsuit on December 12th, 2011 in Federal Court, to try to force a restoration of the Bank of Canada to its mandated purposes. In essence, they want the Bank of Canada to provide interest-free loans to the federal, provincial, and municipal governments, as provided for in the Bank of Canada Act.
This money would be used to finance public expenditures whenever there is a budgetary deficit. Apparently, the federal government used to borrow interest-free (to at least some extent) from the Bank of Canada up until 1974. At present, governments borrow all of the necessary money (apart from any bonds they may sell to the public) from private banks at the going rate of interest. Canadians are economically burdened with the resultant debt-servicing charges because the Bank of Canada does not make use of its prerogatives in the interests of the Canadian public. The case is being prosecuted by Rocco Galati, who is widely considered to be Canada’s top constitutional lawyer.
The nature of the lawsuit has been explained on the Press for Truth website in the following terms:
TWO CANADIANS AND A CANADIAN ECONOMIC THINK TANK CONFRONT THE GLOBAL FINANCIAL POWERS IN THE CANADIAN FEDERAL COURT. THE CANADIANS PLEAD FOR DECLARATIONS THAT WOULD RESTORE THE USE OF THE BANK OF CANADA FOR THE BENEFIT OF CANADIANS AND REMOVE IT FROM THE CONTROL OF INTERNATIONAL PRIVATE ENTITIES WHOSE INTERESTS AND DIRECTIVES ARE PLACED ABOVE THE INTEREST OF CANADIANS AND THE PRIMACY OF THE CONSTITUTION OF CANADA.
Canadian constitutional lawyer Rocco Galati, on behalf of Canadians William Krehm, Ann Emmett, and COMER (Committee for Monetary and Economic Reform) on December 12th, 2011 filed an action in Federal Court, to restore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility. That purpose includes making interest-free loans to municipal/provincial/federal governments for “human capital” expenditures (education, health, other social services) and/or infrastructure expenditures.The action also constitutionally challenges the government’s fallacious accounting methods in its tabling of the budget by not calculating nor revealing the true and total revenues of the nation before transferring back “tax credits” to corporations and other taxpayers. The Plaintiffs state that, since 1974, there has been a gradual but sure slide into the reality that the Bank of Canada and Canada’s monetary and financial policy are dictated by private foreign banks and financial interests, contrary to the Bank of Canada Act.
The Plaintiffs state that the Bank for International Settlements (BIS), the Financial Stability Forum (FSF), and the International Monetary Fund (IMF) were all created with the cognizant intent of keeping poorer nations in their place, which has now expanded to all nations, in that these financial institutions largely succeed in overriding governments and constitutional orders in countries such as Canada, over which they exert financial control. The Plaintiffs state that the meetings of the BIS and Financial Stability Board (FSB, successor of FSF), their minutes, their discussions and deliberations are secret and not available nor accountable to Parliament, the executive, nor the Canadian public, notwithstanding that the Bank of Canada policies directly emanate from these meetings. These organizations are essentially private, foreign entities controlling Canada’s banking system and socio-economic policies.
The Plaintiffs state that the defendants (officials) are unwittingly and/or wittingly, in varying degrees, knowledge, and intent, engaged in a conspiracy, along with the BIS, FSB, and IMF, to render impotent the Bank of Canada Act as well as Canadian sovereignty over financial, monetary, and socio-economic policy, and bypass the sovereign rule of Canada through its Parliament by means of banking and financial systems.
On the 26th of January, 2015, the latest appeal on behalf of the Crown to have the case dismissed was rejected by three judges in Federal Court in Toronto. The Federal government now has 60 days to appeal the decision to the Supreme Court. Cf. http://pressfortruth.ca/top-stories/update-bank-canada-vs-comer/. Interestingly enough, both the case itself and the various developments that have occurred are not being covered at all by the mainstream media. While Mr. Galati’s other cases have regularly received wall-to-wall coverage across the country, this particular case, which he believes is probably his most important case to date, has so far been ignored. When questioned about this, Mr. Galati said that he has a firm basis for believing that the Canadian government has requested or ordered that the mainstream media not cover the case (he could not divulge his sources), and that, in his opinion, the government does control the media to a certain extent and on certain limited issues. He also added that he does not believe that we in Canada are living in a democracy. In fact, as far back as 1999, he has been on record as claiming that we have entered a “quiet dictatorship”.
As far as its merits are concerned, Mr. Galati said that the case is on solid legal and constitutional grounds, and his clients should win. Whether they will win or not is another question. As Mr. Galati has acknowledged: “Not all meritorious cases in our judicial system win.”
From a Social Credit perspective, saving the taxpayer large sums of money and/or preserving the country from an increase in public indebtedness via the issuance of interest-free money from the Bank of Canada is certainly a good thing. However, such a reform of the system does not address the fundamental problem with the present financial and economic orders: the chronic lack of consumer buying power. The macroeconomic gap between prices and incomes, which is primarily caused by how real capital (machines and equipment) are financed and how their costs are then accounted for under existing conventions, is THE issue which needs to be addressed. In the main, the present system deals with the gap by filling it with additional debt-money from the private banking system in the form of public, corporate, and consumer debts. In lieu of these palliatives, a Social Credit system would fill the gap with “debt-free” money and distribute it to consumers, directly through a National Dividend, and indirectly through a National Discount on retail prices. It is critical that the individual, the common consumer, be the prime beneficiary of any monetary reform, and that he be accorded full control of credit policy within the context of a properly functioning financial system.
In connection with this particular lawsuit, and as a further clarification of the point just made, I should also mention that granting the government the right to fill the gap according to its policy objectives (i.e., employing people to work on public production), or, more broadly, granting it or the state the sole right to control the whole money supply, is thoroughly incompatible with Social Credit’s underlying social and political philosophy. Institutions exist to serve the interests of individuals, not the other way around: that is, individual consumers must control financial policy, not the government, the state, or the private banks. There is no point in “restoring the right to create and issue money to the state” if the state is then going to control the purposes for which producer and consumer credit are to be issued. This is the great trap of which certain monetary reformers, who are rightly concerned about the hegemony of private banking, are blissfully unaware. If, God forbid, such reformers get their way, and the state were to obtain total monopoly control over the money supply, I think they will find to their horror that the same people who levy a great deal of control over the private and partially decentralized monetary system will be in complete control of the state system.
Monopoly is the name of the game; let us not be “useful idiots”.
Those individuals who believe that the main problem with the current financial system and economic regime consists in the mere fact that the private banks create the bulk of the money supply ex nihilo and then charge interest on the loans that they issue, would do well to carefully read the following blog posts which explain the differences between this view and the unique Social Credit approach to monetary reform:
 Douglas often criticized the practice of relying on borrowings from private banks, at the going market rate of interest, in order to finance government operations. Cf., for example, C.H. Douglas, Social Credit, rev. ed. (Gordon Press, New York: 1973), 136-139:
The National Debt rose between August 1914 and December 1919 from about six hundred and sixty millions sterling, to about seven thousand seven hundred millions sterling. And this rise represents, on the whole, the expenditure over that period which it was deemed impracticable to recover in current taxation. That is to say, if we take the average taxation for supply purposes over that period 1914-1918, as being about three hundred millions per annum, the amount paid by the public as consumer for the goods and services supplied to it for war purposes, was about thirteen hundred and fifty millions, and the financial cost of those goods and services was about eight thousand three hundred and fifty millions, a ratio of cost to price of about roughly 1 : 6.2. In other words, goods were sold to the public at one-sixth of their apparent financial cost, and no one lost any money over it at the time. How was this done?
A considerable amount of this money (some of which may be in excess of the figures just mentioned) was created through what are known as the Ways and Means Accounts, and the working of this is described in the first report of the Committee on Currency and Foreign Exchanges, 1918, page two. Paraphrased, the process may be shortly explained as follows.
If ten million pounds credit is advanced at the Bank of England to the credit of Public (i.e. State) Deposits (which simply involves the writing up of the Public Deposits account by this amount), this amount is paid out by the Spending Departments to contractors in payment for their services, and when the cheques are cleared, passes to the credit of the contractors’ bankers (Joint-Stock Banks) account with the Bank of England. The Joint-Stock Banks are accustomed to regard their credits with the Bank of England as cash at call and, therefore, ten million pounds is credited to the depositors of the Joint-Stock Banks, and ten million pounds to the Joint-Stock Banks’ cash account.
As a result of this, the Joint-Stock Banks, working on a ratio of one to four between so-called cash and short-date liabilities, are able to allow their customers (working on Government contracts) overdrafts to the extent of forty millions, a portion of which their customers may devote to taking up Treasury Bills or War Loans. The banks themselves may take up about eight millions of Treasury Bills or War Loan, out of their additional ‘deposit’ balances, or they may lend about eight millions to the Bank of England to lend to the Government. Eventually, the result is the same, namely that the Government owes forty millions to the banks, through the Bank of England.
Now the first point to notice is that the result of this complicated process is exactly the same as if the Government itself had provided forty millions, in Currency Notes, with the important exception that the public pays 4 or 5 per cent per annum on the forty millions, instead of merely paying the cost of printing the Currency Notes. The effect on prices, while the forty millions is outstanding, is the same, and the contractors pay 6 or 7 per cent for their overdrafts instead of getting the use of the money, free. But if the forty millions is redeemed through taxation, or a Capital Levy, the public pays not only the 5 per cent per annum, together with the contractor’s 6 or 7 per cent, plus a profit on both of them, but it pays the whole of the forty millions out of money which has been received in respect of wages, salaries, and dividends. So far as I am aware, no one has ever suggested that Currency Notes should be retired by taxation. It is true that when this forty millions has been repaid, both the original debt and the repayment cancel each other, and only the interest charges go to the Profit and Loss Account of the Bank. But since, as we have seen, the repayment of bank loans means the immobilisation of an equivalent amount of price-values, this only means that a fresh loan with fresh interest charges has to be created. A consideration of these facts will make it easy to understand the implacable opposition of bankers and financiers to Government paper money and their insistence on the importance of what they term redemption. The payment in current taxation of only one-sixth of the price of war stores, etc., meant, therefore, that a credit grant of the other five-sixths of the price was made to the Public. The repayment of this credit is only justifiable on the assumption that banks own Public Credit.
Published on Feb 1, 2015 by arnisluks13 (YouTube)
Eastman: Here is Heydorn talking with two social crediters, both very good men, Wallace Klinck and his youngest sibling, Robert Klinck:
I am against the North American Basic Income Guarantee.
Here are the basic features of what I am hoping my countrymen will consider and adopt instead.
Populist Social Credit is a collection of borrowed ideas combined, I think, in a very good way, to give a nation a money system highly conducive to human well-being and happiness.