Chapter 23 — The Monetary Power
Resides in the Banks



(An article of Louis Even, first published in the January, 1970 issue of the Vers Demain Journal.)

The legislative power has its seat in parliaments, since this is where laws are discussed and voted upon.

The executive power resides in the offices of ministers, since it is they — the Prime Minister and his Cabinet — who make the decisions which are carried out by the civil servants.

The judiciary power resides in the courts, since that is where the judges practice their duties.

And where does the superpower, the monetary power, reside? The monetary power resides in the banks. It is in the banks that financial credit is actually created and cancelled.

It is when a bank grants a loan, either to an contractor, a retailer, or to a government, that new financial credit is created. The banker credits the borrower's account with the loan granted, just as if the borrower had deposited that amount. But the borrower actually neither brought in nor deposited any money, since he came to the bank to get money he did not have.

The borrower will now be able to issue cheques on this account that he did not have when he entered the bank, but that he now has upon leaving the bank.

No account of any other customer of the bank was reduced. This is therefore a new account, added to the accounts that already exist. The total credits in the total accounts of the bank are therefore increased by the amount of this new account.

There is therefore an increase in financial credit, modern money, which will be put into circulation by the cheques of the borrower issued on this new credit.

On the contrary, when a borrower comes to the bank to repay his loan (credit that had previously been borrowed), it reduces the quantity of credit in circulation accordingly. The total quantity of blood in the economic life is thus reduced by the same amount.

A simple bookkeeping operation, made with one stroke of the pen, had created financial credit. Another simple bookkeeping operation, when the loan is repaid, cancels, destroys this credit.

It is easy to see that, if during a given period of time, the total of the loans exceeds the total repayments, this puts more credit into circulation than what is cancelled. On the contrary, if the total of the repayments exceeds the total of the loans, it causes a period of reduction of credit from circulation.

If the reduction period persists, the whole economic body is affected by it: it is called a crisis — a crisis caused by a restriction of credit.

Since the borrower must pay back more than what was lent to him, because of the interest, he must withdraw from circulation more money than what was put into circulation. For this, he must withdraw from circulation extra money that has been put there by other borrowers. As every new credit comes from the banks, under the condition of paying back more money than the capital amounts loaned out, other people must also borrow, following the first borrowers. The latter have even more difficulties in repaying their loans, since they have to find extra money out of the credit in circulation, which is already reduced by the amount of money that the first borrower had to repay in interest.

This chain goes on in the same way for the next borrowers, and eventually, some cannot pay back their loans. Then the banks restrict further loans, which slows down the whole economic life. But the banks put the blame for this situation on the population that suffers from it.

In order to have the flow of credit that is required for economic life resume, the chain of loans will have to take place again, breeding a bigger and bigger chain of debts.

A tool of the superpower

The present banking system is the instrument used by the monetary superpower to maintain its supremacy over nations and their governments. The banks are supported in all this by the ridiculous, politico-financial rule that binds the distribution of purchasing power to employment, in a production that requires fewer and fewer employees to supply the goods necessary for life.

You must not conclude from this that your local banker is part of this dictatorship. He is only a subordinate who, most likely, is not even aware that when he inscribes loans in the ledgers of his bank, he creates credit, and that the repayments inscribed in his ledger destroy, cancel, this credit.

You may still hear backward scholars deny that the volume of credit in circulation depends upon the action of the banks. These backward scholars, who resist the obvious, are an invaluable support to the superpower, through their ignorance — if it is really ignorance on their part, or through vested interests that bind them, or through their collusion with a power which can bring them easy promotions.

Upper-class bankers, on the other hand, know very well that financial credit, which makes up the bulk of modern money, is created and cancelled in the ledgers of banks.

A distinguished British banker, the Right Honourable Reginald McKenna, one-time British Chancellor of the Exchequer, and Chairman of the Midland Bank, one of the Big Five (five largest banks of England), addressed an annual general meeting of the shareholders of the bank, on January 25, 1924, and said (as recorded in his book, Post-War Banking):

“I am afraid the ordinary citizen will not like to be told that the banks can, and do, create and destroy money. The amount of finance in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases. We know how this is effected. Every loan, overdraft, or bank purchase creates a deposit, and every repayment of a loan, overdraft, or bank sale destroys a deposit.”

Having also been Minister of Finance, McKenna knew very well where the bigger of the two powers — the power of the banks and that of the sovereign government of the country — resided. And he was frank enough to state the following, which is very uncommon among bankers of his level:

“They (the banks) control the credit of the nation, direct the policies of governments, and keep in the palm of their hands the destinies of the peoples.”

This is a statement which is in complete agreement with what Pope Pius XI wrote in his Encyclical Letter Quadragesimo Anno, in 1931, about

“those who, because they hold and control money, are able also to govern credit and determine its allotment, for that reason supplying, so to speak, the lifeblood to the entire economic body, and grasping, as it were, in their hands the very soul of production, so that no one dare breathe against their will.”


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