(An article of Alain Pilote, published in the November-December, 1994 issue of the Michael Journal.)

The regular readers of the “Michael” Journal will have noticed it: the first request of the Social Crediters, the “White Berets” of the “Michael” Journal, is that the Federal Government should take back its power to issue, create the money for our country. Once this is done, it will then be possible to implement the two other principles of Social Credit: a monthly dividend to every citizen, and a periodical discount on retail prices, to prevent any inflation.

However, for the new readers, this request may give rise to a few questions. We will mention here the most frequent ones, and give them short answers.

Question: You say that the Government should create the money. Does it not already do it, with the Bank of Canada notes?

Answer: If the Federal Government does create its own money, why is it over $500 billion in debt? The truth is that bank notes and coins come into circulation only when they are lent by private banks, at interest. Moreover, this kind of money (cash) represents less than 10 per cent of the money supply in our country. The other kind of money, which represents over 90 per cent of the money supply, is bookkeeping or checkbook money, that is to say, figures written on checks or bank accounts.

Question: Why do you want the Government to create the money? Is not the present bank money good?

Answer: Chartered banks lend out money and put it into circulation at interest, in the form of a debt, which creates unpayable debts. For example, let us suppose that the bank lends you $100, at 6 per cent interest. The bank creates $100, but wants you to pay back $106. You can pay back $100, but not $106; the $6 for the interest does not exist, since only the bank has the right to create money, and it created $100, not $106.

In other words, when a chartered bank lends you money, it actually demands you to pay back money that does not exist. The only way to pay back $106 when there is only $100 in existence is to also borrow this $6 from the bank. Your problem is not solved yet; it has only gotten worse: you now owe the bank $106, plus an interest payment of 6 per cent, which makes a total of $112.36. As years pass, your debt gets bigger; there is no way to get out of it.

Some borrowers, taken individually, can manage to pay back their loans in full — the principal plus the interest —, but all the borrowers as a whole cannot. If some borrowers manage to pay back $106 when they received only $100, it is because they take the missing $6 in the money put into circulation through the money loaned to other borrowers. For some borrowers to be able to pay back their loans, others must go bankrupt. And it is only a matter of time until all the borrowers, without exception, find it impossible to pay the bankers back, whatever the rate of interest on their loans.

Some may say that if one does not want to get into debt, one has only not to borrow. Well, if no one borrowed money from the banks, there would simply be not a penny at all in circulation. And this money borrowed from the bank cannot remain in circulation indefinitely: it must be returned to the bank when the loan is due... and returned with interest, of course.

Unpayable debts

This means that just to maintain the same amount of money in circulation in our country, year after year, unpayable debts must pile up. For example, if one wants to maintain only $100 in circulation, year after year, by borrowing at 6% interest, the debt will be $106 after one year, then $112.36 after two years ($106 plus the 6% interest), and so on. After 70 years, the debt will have reached the sum of $5,907.59, and there will still be only $100 in circulation.

In the case of public debts, the bankers are satisfied as long as the interest on the debt is paid. Is it a favour they do to us? No, it only delays the financial impasse for a few years since, after a while, even the interest on the debt becomes unpayable. Thus, in the example of the $100 borrowed at 6%, the interest due on the debt will have reached $104.26 after 50 years, which is more than all the money in circulation. (See Chapter 34.)

No wonder then that the national debts of all the civilized countries in the world are reaching astronomical proportions. For example, Canada's national debt, which was $24 billion in 1975, is now over $500 billion, and the interest on this debt costs over $49 billion per year, or about one-third of all the taxes collected by the Federal Government; this percentage keeps increasing year after year. So, to satisfy the bankers, the Government must slash all its other expenditures. Will the Government wait until servicing the debt takes 100% of the taxes, to change the system, or will it prefer to let people starve? Moreover, the national debt is only the peak of the iceberg: there are also the debts of the provinces, the municipalities, the corporations, and the individuals!

Question: Does the Government have the power to create money? Would this money be as good as that of the banks?

Answer: The Government has indeed the power to create, issue the money of our country, since it is itself, the Federal Government, that has given this power to the chartered banks. For the Government to refuse to itself a privilege it has granted to the banks, is the height of imbecility! Moreover, it is actually the first duty of any sovereign government to issue its own currency, but all the countries today have unjustly given up this power to private corporations, the chartered banks. The first nation that thus surrendered to private corporations its power to create money was Great Britain, back in 1694. In both Canada and the U.S.A., this right was surrendered in 1913.

It is not the bankers who give money its value; it is the production of the country. Bankers produce absolutely nothing; they only create the figures that allow the nation to make use of its own producing capacity, its own wealth. Without the production of all the citizens in the country, the figures of the bankers are worthless. So, the Government can just as well create these figures itself, without going through the banks, and without getting into debt. Then why should the Government pay interest to a private banking system for the use of its money, when it could issue it itself, without going through the banks, without interest nor debt?

This very question was actually asked to Graham Towers, Governor of the Bank of Canada from 1935 to 1954, before the House of Commons Standing Committee on Banking and Commerce, in the spring of 1939 (page 394 of the Minutes of Proceedings and Evidence Respecting the Bank of Canada, Committee on Banking and Commerce, 1939):

“Will you tell me why a government with power to create money should give that power away to a private monopoly and then borrow that which parliament can create itself back at interest to the point of national bankruptcy?”

Answer of Towers:

“Now, if parliament wants to change the form of operating the banking system, then certainly that is within the power of parliament.”

As a matter of fact, the power of the Federal Government to create the money of our country is clearly stated in the Constitution (Section 91 of the British North America Act, paragraphs 14, 15, 16, 18, 19, and 20).

No danger of inflation

Question: Is there not any danger that the Government might misuse this power and issue too much money, which would result in runaway inflation? Is it not preferable for the Government to leave this power to the bankers, in order to keep it away from the whims of the politicians?

Answer: The money issued by the Government would be no more inflationary than the money created by the banks: it would be the same figures, based on the same production of the country. The only difference is that the Government would not have to get into debt, or to pay interest, in order to obtain these figures.

On the contrary, the first cause of inflation is precisely the money created as a debt by the banks: inflation means increasing prices. The obligation for the corporations and governments that are borrowing to bring back to the banks more money than the banks created, forces the corporations to increase the prices of their products, and the governments to increase their taxes.

What is the means used by the present Governor of the Bank of Canada to fight inflation? Precisely what actually increases it, that is to say, to increase the interest rates! As many Premiers put it, “It is like trying to extinguish a fire by pouring gasoline over it.”

It is obvious that if the Canadian Government decided to create or print money anyhow, without any limits, according to the whims of the men in office, without any relation with the existing production, there would definitely be runaway inflation. This is not at all what is proposed here by the Social Crediters.

Accurate bookkeeping

What the Social Crediters advocate, when they speak of money created by the Government, is that money must be brought back to its proper function, which is to be a figure, a ticket, that represents products, which in fact is nothing but simple bookkeeping. And since money is nothing but a bookkeeping system, the only necessary thing to do would be to establish accurate bookkeeping:

The Government would appoint a commission of accountants, an independent organism called the “National Credit Office” (in Canada, the Bank of Canada could well carry out this job if ordered to do so by the Government). This National Credit Office would be charged with setting up accurate accounting, where money would be nothing but the reflection, the exact financial expression, of economic realities: production would be expressed in assets, and consumption in liabilities. Since one cannot consume more than what has been produced, the liabilities could never exceed the assets, and deficits and debts would be impossible.

In practice, here is how it would work: the new money would be issued by the National Credit Office as new products are made, and would be withdrawn from circulation as these products are consumed (purchased). (Louis Even's booklet, A Sound and Effective Financial System, explains this mechanism in detail.) Thus there would be no danger of having more money than products: there would be a constant balance between money and products, money would always keep the same value, and any inflation would be impossible. Money would not be issued according to the whims of the Government nor of the accountants, since the commission of accountants, appointed by the Government, would act only according to the facts, according to what the Canadians produce and consume.

The best way to prevent any price increase is to lower prices. And Social Credit does also propose a mechanism to lower retail prices, called the “compensated discount”, which would allow the consumers to purchase all of the available production for sale with the purchasing power they have at their disposal, by lowering retail prices (a discount) by a certain percentage, so that the total retail prices of all the goods for sale would equal the available total purchasing power of the consumer. This discount would then be refunded to the retailers by the National Credit Office.

No more financial problems

If the Government issued its own money for the needs of society, it would be automatically able to pay for all that can be produced in the country, and would no longer be obliged to borrow from foreign or domestic financial institutions. The only taxes people would pay would be for the services they consume. One would no longer have to pay three or four times the actual price of public developments because of the interest charges.

So, when the Government would discuss a new project, it would not ask: “Do we have the money?”, but: “Do we have the materials and the workers to realize it?”. If it is so, new money would be automatically issued to finance this new production. Then the Canadians could really live in accordance with their real means, the physical means, the possibilities of production. In other words, all that is physically possible would be made financially possible. There would be no more financial problems. The only limit would be that of the producing capacity of the nation. The Government would be able to finance all the developments and social programs demanded by the population that are physically feasible.

No nationalization

Question: Does what you advocate require nationalizing private banks?

Answer: Not at all. The private banks could freely continue to exercise the functions that are rightfully theirs: receiving deposits and investing them. They could continue to loan money, but the creation of new money would be the sole prerogative of the sovereign government of the nation.

The education of the people by the “Michael” Journal

Question: If all that you have said above is true, and that a social money system, money created by a public organism on behalf of society, is so beneficial, why is it that the Government does not implement it right away?

Answer: Constitutionally speaking, there is nothing that prevents the Government from doing it immediately, since it has already the right to issue its own currency. It is the sovereign government of the nation that must be responsible for the monetary policy of our country, and not private corporations, for whom the objective is not at all the common good, but their own profit. On July 21, 1961, Louis Rasminski, who was Governor of the Bank of Canada from 1961 to 1973, sent the Government the following letter:

“If the Government disapproves of the monetary policy being carried out by the Bank (of Canada), it has the right and the responsibility to direct the Bank as to the policy which the Bank is to carry out... and the Bank should have the duty to comply with these instructions.”

The governments, despite statements that are often stupid, are perfectly aware of the iniquity of the creation of money by private companies, but they dare not to challenge the money power, for want of support among the population. (See Chapter 24, on Mackenzie King's statements in 1935.)

The only thing that is lacking is the education of the people, to show the falseness, the absurdity, and the injustice of the present financial system, and the existence of a corrective system like Social Credit. Only the “Michael” Journal denounces the present system and brings the Social Credit solution. The population must therefore study the “Michael” Journal. To that end, everyone must be subscribed to the “Michael” Journal.