L’intérêt sur l’argent créé est un vol

L’intérêt sur l’argent créé est un vol

Jésus chasse les voleurs du temple


Notre-Seigneur a chassé du Temple les changeurs d’argent
Il est grand temps de chasser les Financiers Internationaux

Comme la plupart des lecteurs réguliers de Vers Demain devraient le savoir, le défaut fondamental du système financier actuel, c’est que tout l’argent qui existe est créé par les banques, sous forme de dette: les banques créent de l’argent nouveau, de l’argent qui n’existait pas auparavant, chaque fois qu’elles accordent un prêt. Ce prêt doit être remboursé à la banque, mais grossi d’un intérêt.
Même les pièces de monnaie, qui sont frappées par l’Hôtel de la Monnaie, et les billets de banque, imprimés par la Banque du Canada — deux institutions gouvernementales — ne viennent en circulation que s’ils sont prêtés par les banques, à intérêt. Et c’est précisément cet intérêt, à la base de la création de l’argent, qui cause le problème, une impossibilité mathématique de rembourser: la banque crée le capital qu’elle prête, mais elle ne crée pas l’intérêt qu’elle exige en retour.
Par exemple, supposons que la banque vous prête 100 $, à 10 pour cent d’intérêt. La banque crée 100 $, mais vous demande de rembourser 110 $. Vous pouvez rembourser 100 $, mais pas 110 $ : le 10 $ pour l’intérêt n’existe pas, puisque seule la banque a le droit de créer l’argent, et elle n’a créé que 100 $, pas 110 $. Le seul moyen de rembourser 110 $ quand il n’existe que 100 $, c’est d’emprunter aussi ce 100 $ à la banque… et votre problème n’est pas réglé pour autant, il n’a fait qu’empirer : vous devez maintenant 110 $ à la banque, plus 10 pour cent d’intérêt, soit 121 $… et plus les années passent, plus les dettes s’accumulent, il n’y a aucun moyen de s’en sortir.
Certains emprunteurs, pris individuellement, peuvent réussir à rembourser à la banque capital et intérêt, mais cela ne change rien au fait que tous les emprunteurs, pris dans leur ensemble, ne le peuvent pas. Si certains emprunteurs réussissent à rembourser 110 $ alors qu’ils n’ont reçu que 100 $, c’est qu’ils prennent le 10 $ qui manque sur l’argent mis en circulation par les emprunts des autres. Pour que certains soient capables de rembourser leur prêt, il faut nécessairement qu’il y en ait d’autres qui fassent faillite. Mais ce n’est qu’une question de temps avant que tous les emprunteurs, sans exception, se retrouvent dans l’impossibilité de rembourser le banquier.
Et remarquez bien, même à un taux d’intérêt de seulement 1 pour cent, la dette serait encore impayable : si on emprunte 100 $ à 1%. On devra rembourser 101 $ à la fin de l’année, alors qu’il n’existe que 100 $. Cela signifie que tout intérêt demandé sur de l’argent créé, même à un taux de 1%, est de l’usure, est un vol.
Certains pourront dire que si on ne veut pas s’endetter, on a seulement à ne pas emprunter. Mais si personne n’empruntait d’argent de la banque, il n’y aurait tout simplement pas un sou en circulation: pour qu’il y ait de l’argent dans le pays, ne serait-ce que quelques dollars, il faut absolument que quelqu’un — individu, compagnie ou gouvernement — les emprunte de la banque, à intérêt. Et cet argent emprunté de la banque ne peut pas rester en circulation indéfiniment: il doit retourner à la banque lorsque le prêt vient à échéance… accompagné de l’intérêt, évidemment.

Dettes impayables

Cela signifie que si l’on veut simplement conserver le même montant d’argent en circulation, année après année, il faut accumuler des dettes impayables. Dans le cas des dettes publiques, les banquiers se contentent de se faire payer l’intérêt sur cette dette. Est-ce une faveur qu’ils nous font? Non, cela ne fait que retarder l’impasse financière de quelques années, car au bout d’un certain temps, même l’intérêt sur la dette devient impayable.
Ainsi, la dette publique du Canada, qui était de 24 milliards $ en 1975, franchissait le cap des 200 $ milliards dix années plus tard. (Et vingt ans plus tard, en janvier 1995, la dette du gouvernement canadien franchissait le cap des 500 $ milliards, avec des intérêts de 49 $ milliards à payer sur cette dette, soit environ un tiers de toutes les taxes collectées par le gouvernement fédéral. En 1998, si l’on additionne, à la dette du gouvernement canadien, la dette des provinces, des compagnies, et des individus au pays, on obtient un dette totale de 2800 milliards $ pour le Canada.) Quand bien même on prendrait tout l’argent qui existe dans le pays, y compris les épargnes des déposants, cela ne serait pas suffisant pour payer cette dette. Et c’est ainsi dans tous les pays du monde.
Il est impossible de rembourser la dette, puisqu’elle est faite d’argent qui n’existe pas. Plusieurs pays du Tiers-Monde ont réalisé l’absurdité de cette situation, et ont cessé de payer les intérêts sur leur dette. Car en réalité, ces prêts aux pays du Tiers-Monde, loin de les aider, ne font que les appauvrir, puisque ces pays doivent s’engager à remettre aux banquiers plus d’argent que ces derniers leur ont prêté, ce qui forcément rend l’argent plus rare parmi le peuple, et le condamne à vivre dans la misère et à crever de faim.
Mais un pays peut-il fonctionner sans emprunter l’argent-dette des banquiers? Oui, et cela est très facile à comprendre: ce n’est pas le banquier qui donne à l’argent sa valeur, mais la production du pays; sans la production de tous les citoyens du pays, les chiffres prêtés par le banquier ne vaudraient absolument rien. Donc, en réalité, puisque cet argent nouveau est basé sur la production de la société, cet argent appartient aussi à la société. La simple justice demande donc que cet argent soit émis par la société, sans intérêt, et non par les banques. Au lieu d’avoir un argent émis par les banques, un crédit bancaire, on aurait un argent créé par la société, un crédit social.

Notre-Seigneur chasse les changeurs d’argent du Temple

Comme l’écrit Louis Even, «l’intérêt sur l’argent à sa naissance est à la fois illégitime et absurde, anti-social et anti-arithmétique.» Réclamer un intérêt sur l’argent créé est donc un très grand crime, que rien ne saurait justifier. En fait, la seule fois dans l’Evangile où il est mentionné que Jésus fit usage de violence, c’est justement pour condamner cet intérêt exigé sur l’argent créé, lorsqu’il chassa les changeurs d’argent du Temple avec un fouet, et renversa leur table (tel que rapporté dans saint Matthieu 21, 12-13, et saint Marc 11, 15-19):
Il existait en ce temps-là une loi qui stipulait que la dîme ou taxe au temple de Jérusalem devait être payée par une pièce de monnaie spéciale, appelée «demi-shekel du sanctuaire», dont les changeurs d’argent s’étaient justement arrangés pour obtenir le monopole. Il y avait plusieurs sortes de pièces en ce temps-là, mais les gens devaient obtenir cette pièce spécifique pour payer leur dîme. De plus, les colombes et les animaux que les gens devaient acheter pour offrir en sacrifice ne pouvaient être achetés autrement que par cette monnaie, que les changeurs d’argent échangeaient aux pèlerins, mais moyennant de deux à trois fois sa valeur réelle en temps normal. Jésus renversa leur table et leur dit: «Ma maison est une maison de prière, et vous en avez fait une caverne de voleurs.»
F. R. Burch, dans son livre Money and its True Function, commente ainsi ce texte de l’Evangile:
«Tant que le Christ limitait son enseignement au domaine de la moralité et de la droiture, il n’était pas dérangé; ce ne fut que lorsqu’il s’attaqua au système économique établi et chassa les profiteurs et renversa les tables des changeurs de monnaie qu’il fut condamné. Le jour suivant, il était questionné, trahi le second, jugé le troisième, et crucifié le quatrième jour.»
On serait tenté de faire le rapprochement avec les Pèlerins de saint Michel, les «Bérets Blancs» du journal Vers Demain: tant qu’ils se contentent de parler de la réforme des mœurs, ça, les Financiers peuvent toujours le tolérer; mais quand les «Bérets Blancs» osent attaquer le système d’argent-dette, cela, c’est un «péché impardonnable», et les Financiers sont alors prêts à utiliser tous les moyens possibles pour faire taire les «Bérets Blancs». Mais ces tentatives des Financiers sont vaines, puisque la vérité finit toujours par triompher.

L’enseignement de l’Eglise

La Bible contient plusieurs textes qui condamnent clairement le prêt à intérêt. Par ailleurs, plus de 300 ans avant Jésus-Christ, le grand philosophe grec Aristote condamnait lui aussi le prêt à intérêt, faisant remarquer que l’argent, n’étant pas une chose vivante, ne pouvait donner naissance à d’autre argent: «L’argent ne fait pas de petits», dit-il. De plus, les Pères de l’Eglise, depuis les temps les plus anciens, ont toujours dénoncé sans équivoque l’usure. Saint Thomas d’Aquin, dans sa Somme Théologique (2-2, question 78), résume l’enseignement de l’Eglise sur le prêt à intérêt:
«Il est écrit dans le livre de l’Exode (22, 24): “Si tu prêtes de l’argent à quelqu’un de mon peuple, au pauvre qui est avec toi, tu ne seras point à son égard comme un créancier, tu ne l’accableras pas d’intérêts.” Recevoir un intérêt pour l’usage de l’argent prêté est de soi injuste, car c’est faire payer ce qui n’existe pas; ce qui constitue évidemment une inégalité contraire à la justice… c’est en quoi consiste l’usure. Et comme l’on est tenu de restituer les biens acquis injustement, de même l’on est tenu de restituer l’argent reçu à titre d’intérêt.»
En réponse au texte de l’Evangile sur la parabole des talents (Matthieu 25, 14-30 et Luc 19, 12-27), qui, à première vue, semble justifier l’intérêt («Serviteur mauvais… tu aurais dû placer mon argent à la banque, et à mon retour, j’aurais retiré mon argent avec les intérêts»), saint Thomas d’Aquin écrit:
«Les intérêts dont parle l’Evangile doivent s’entendre dans un sens métaphorique; ils désignent le surcroît de biens spirituels exigé par Dieu, qui veut que nous fassions toujours un meilleur usage des biens qu’il nous a confiés, mais c’est pour notre avantage et non pour le sien.»
Ce texte de l’Evangile ne peut donc pas justifier l’intérêt puisque, dit saint Thomas, «on ne peut fonder un argument sur des expressions métaphoriques».
Un autre texte causant difficulté est celui de Deutéronome 23, 20-21: «Tu n’exigeras de ton frère aucun intérêt, ni pour un prêt d’argent, ni pour du grain, ni pour autre chose. Tu ne pourras recevoir d’intérêt que d’un étranger». Saint Thomas explique:
«Il était interdit aux Juifs de toucher un intérêt de la part de “leurs frères”, c’est-à-dire des autres Juifs; ce qui donne à entendre que percevoir l’intérêt d’un prêt, de quelque homme qu’on le reçoive, est mal, absolument parlant. Nous devons, en effet, regarder tout homme “comme notre prochain et notre frère” surtout d’après la loi évangélique qui doit réglir l’humanité. Aussi le Psalmiste (15, 5), parlant du juste, dit-il sans restriction: “Il ne prête pas son argent à intérêt”, et Ezéchiel (18, 17): “Il ne pratique pas l’usure, et ne prend pas d’intérêts”.»
Si les Juifs étaient autorisés à recevoir un intérêt de la part des étrangers, dit saint Thomas, c’était une tolérance pour éviter un plus grand mal, de peur qu’ils ne perçussent des intérêts sur les Juifs eux-mêmes, adorateurs du vrai Dieu. Saint Ambroise, commentant le même texte («tu pourras prêter à intérêt aux étrangers»), voit dans le mot «étrangers» le sens d’«ennemis» et conclut: «A celui auquel tu désires légitimement nuire, à celui contre lequel tu prends justement les armes, à celui-là tu peux à bon droit prendre des intérêts.»
Saint Ambroise dit aussi: «Qu’est-ce que le prêt à intérêt, sinon tuer un homme?»
Saint Jean Chrysostome: «Rien n’est plus honteux, ni plus cruel que l’usure.»
Saint Léon: «C’est une avarice injuste et insolente que celle qui se flatte de rendre service au prochain alors qu’elle le trompe… Celui-là jouira du repos éternel qui entre autres règles d’une conduite pieuse n’aura pas prêté son argent à usure… tandis que celui qui s’enrichit au détriment d’autrui, mérite en retour la peine éternelle.»
En 1311, au Concile de Vienne, le pape Clément V déclarait nulle et vaine toute la législation civile en faveur de l’usure, et «si quelqu’un tombe dans cette erreur d’oser audacieusement affirmer que ce n’est pas un péché que de faire l’usure, nous décrétons qu’il sera puni comme hérétique et nous ordonnons à tous les ordinaires et inquisiteurs de procéder vigoureusement contre tous ceux qui seront soupçonnés de cette hérésie.»
Le 1er novembre 1745, le pape Benoît XIV publiait l’encyclique Vix Pervenit, adressée aux évêques italiens, au sujet des contrats, où l’usure, ou prêt à intérêt, est clairement condamnée. Le 29 juillet 1836, le pape Grégoire XVI étendait cette encyclique à l’Eglise universelle. Il y est écrit:
«L’espèce de péché qu’on appelle usure, et qui réside dans le contrat de prêt, consiste en ce qu’une personne, s’autorisant du prêt même, qui par sa nature demande qu’on rende seulement autant qu’on a reçu, exige qu’on lui rende plus qu’on a reçu et soutient conséquemment qu’il lui est dû, en plus du capital, quelque profit, en considération du prêt même. C’est pour cette raison que tout profit de cette sorte qui excède le capital est illicite et usuraire.
«Et certes, pour ne pas encourir cette note infamante, il ne servirait à rien de dire que ce profit n’est pas excessif, mais modéré; qu’il n’est pas grand, mais petit… En effet, la loi du prêt a nécessairement pour objet l’égalité entre ce qui a été donné et ce qui a été rendu… Par conséquent, si une personne quelconque reçoit plus qu’elle n’a donné, elle sera tenue à restituer pour satisfaire au devoir que lui impose la justice dite commutative…»
En 1891, le pape Léon XIII écrivait dans son encyclique Rerum Novarum:
«Une usure dévorante est venue ajouter encore au mal. Condamnée à plusieurs reprises par le jugement de l’Eglise, elle n’a cessé d’être pratiquée sous une autre forme par des hommes avides de gain, et d’une insatiable cupidité…»
L’enseignement de l’Eglise sur le sujet est donc très clair, mais, comme l’écrit Louis Even dans «Sous le Signe de l’Abondance», «malgré tout l’enseignement chrétien dans le sens contraire (que l’argent doit produire de l’intérêt), la pratique a fait tellement de chemin que, pour ne pas perdre dans la concurrence endiablée autour de la fécondité de l’argent, tout le monde aujourd’hui doit se conduire comme s’il était naturel pour l’argent de faire des petits. L’Eglise n’a pas rescindé ses vieilles lois, mais il lui est devenu impossible d’en exiger l’application.»

Les banques islamiques

A ce sujet, il est intéressant de considérer l’expérience récente des banques islamiques: le Coran — le livre saint des musulmans — condamne l’usure, tout comme la Bible des chrétiens. Mais les musulmans ont pris ces paroles au sérieux, et ont établi, depuis 1979, un système bancaire en accord avec les règles du Coran: les banques prêtent sans intérêt, et au lieu de payer des intérêts aux déposants, elles les associent aux projets dans lesquels elles investissent: si ces projets font des profits, les banques partagent ces profits avec leurs déposants. Ce n’est pas encore tout à fait le Crédit Social, mais au moins, c’est une tentative plus qu’honorable de mettre le système bancaire en accord avec les lois morales.

Intérêt et dividende

Cet article devrait avoir suffisamment démontré que tout intérêt sur l’argent créé est injustifiable. Mais cela peut amener une certaine crainte chez ceux qui ont de l’argent placé à la banque: si l’intérêt est ainsi condamné, vont-ils encore recevoir un intérêt sur leur argent placé à la banque? Au chapitre 32 de «Sous le Signe de l’Abondance», chapitre intitulé «L’argent doit-il réclamer de l’intérêt?», Louis Even explique:
«Pour que nos lecteurs ne perdent pas connaissance en pensant à leurs économies placées dans l’industrie ou dans des institutions de prêts, hâtons-nous de faire quelques distinctions. Si l’argent ne peut pas grossir par lui-même, il y a des choses que l’argent achète et qui produisent logiquement des développements. Ainsi, je consacre 5000 $ à l’achat d’une ferme, ou d’animaux, ou de semence, ou d’arbres, ou de machinerie. Avec du travail intelligent, je ferai ces choses en produire d’autres.
«Supposons que je n’avais pas ce 5000 $. Mais mon voisin l’avait et n’en avait pas besoin pour d’ici quelques semaines. Il me l’a prêté. Je crois qu’il sera convenable pour moi de lui marquer ma reconnaissance en lui passant une petite partie des produits que j’obtiens grâce au capital producteur que j’ai ainsi pu me procurer. C’est mon travail qui a rendu son capital profitable, oui. Mais ce capital lui-même représente du travail accumulé. Nous sommes donc deux, dont les activités passées pour lui, présentes pour moi, font surgir de la production. Le fait pour lui d’avoir attendu à tirer sur la production du pays en récompense de son travail, m’a permis à moi d’obtenir des moyens de production que je n’aurais pas eus sans cela.
«Nous pouvons donc diviser les fruits de cette collaboration. La production due au capital est à déterminer, par l’entente et par l’équité. Ce que mon prêteur va retirer dans ce cas est, à proprement parler, un dividende (nous avons divisé les fruits de la production). Le dividende est parfaitement justifiable, lorsqu’il y a production fructueuse.»
Donc l’argent peut réclamer des dividendes lorsqu’il y a fruits. Autrement, non. Mais pour permettre cela, il faut que l’augmentation de la production crée automatiquement une augmentation d’argent. Sinon, le dividende, tout en étant parfaitement dans l’ordre, devient impossible à satisfaire en pratique.
Dans l’exemple du 5000 $ qui a servi à acheter des instruments aratoires, le prêteur a droit à une partie des résultats, puisque la production a augmenté grâce à son prêt: s’il accepte d’être payé en produits, pas de problème. Mais si c’est de l’argent qu’il demande, c’est une autre affaire puisque, même si la production a augmenté, il n’y a pas eu d’augmentation correspondante d’argent en circulation. Le système du Crédit Social, qui fait naître l’argent nouveau sans intérêt, au rythme de la production nouvelle, règlerait le problème.
Et pour ceux qui s’inquièteraient du sort des banques, si elles ne chargeaient plus d’intérêt, qu’il suffise de dire ici que le salaire de leurs employés serait payé par l’Office National de Crédit, chargé de créer tout l’argent nouveau dans le pays (ce point est expliqué plus en détail dans la brochure Une finance saine et efficace, de Louis Even).
Tout comme Notre-Seigneur a chassé les changeurs d’argent du Temple, il est grand temps de chasser les Financiers internationaux et leur système d’argent-dette, et d’installer un système d’argent honnête et sans dette, un argent émis par la société. Que cet épisode de l’Evangile nous inspire, et demandons au Christ d’être remplis du même zèle que Lui pour les intérêts de Dieu et pour la justice!

Écrit par Alain Pilote le mardi, 01 janvier 1991. Publié dans Sous le Signe de l’Abondance
SOUS LE SIGNE DE L’ABONDANCE – CHAPITRE 33

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Qui fomente les guerres ?

Gabriel Galice, président de l’Institut international de recherches pour la paix à Genève : “Les Américains ont un plan qui est de remodeler le Moyen-Orient et c’est un projet de prise du pouvoir”



Le coup d’état en Syrie organisé dès 2006 (Preuves Wikileaks) Julian Assange dénonce le complot occidental, preuves à l’appui

Help us to answer banker’s propaganda, thank you.

Dear Friends of Common Good, 


Please, help us to answer to the swissbanking.org, 

Study: “The Sovereign Money Initiative in Switzerland: An Assessement” (EN)

thank you

111’111 + Swiss, positive money & social credit

Vollgeld is swiss, this is not positive money, which has very good arguments but we need to be prudent because Switzerland is not centralized but is a Confederation of Cantons and communities and our national bank has to be amended as well. We need to apply the true subsidiarity principle, persons, families, communals ( villages ), cantons, and then only the federal level…

111.819 swiss signatures to change the money creation system in favor of the swiss by a referendum with a double majority, the swiss states and the swiss people…

Now, we can write a complete law dealing with all those subjects, including the swiss national bank, please, help us now.

A new paradigm ! Too much products thanks to robots ? How to distribute all those goods ?


http://desiebenthal.blogspot.ch/2015/12/swiss-positive-money-social-credit.html

http://www.initiative-monnaie-pleine.ch/english/


Sovereign Money Initiative: Study
shows repercussions for Switzerland

Basel27th June 2017  The study presented today by Philippe Bacchetta, a professor of economics, entitled “The Sovereign Money Initiative in Switzerland: An Assessment”, is the first and only analysis to date that examines the consequences of the introduction of a sovereign money system for bank clients, commercial banks, the central bank and the nation. The study shows that the initiative ignores the prevailing economic understanding and that if sovereign money were to be implemented, it would have significant negative implications for the Swiss economy. The Swiss Bankers Association (SBA) firmly rejects the Sovereign Money Initiative, as it would be an irresponsible experiment with what is an efficient economy.

  • In a study published today, Prof. Philippe Bacchetta has for the first time assessed the repercussions of the introduction of a sovereign money system in Switzerland.
  • According to the study, the initiative ignores the prevailing economic understanding. The assumption of the individuals who launched the initiative that an increase in the supply of money destabilises the economy is scientifically inaccurate.
  • The introduction of a sovereign money system would have negative repercussions for the entire Swiss economy. According to the study, account holders would be most impacted by the reform. They would have to pay for the high costs of the sovereign money approach.
  • The study estimates that the introduction of a sovereign money system in a normal interest rate environment would have an annual cost to the economy of 0.8 percent of gross domestic product (GDP).
A study presented today concludes that if the “Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank!” (Crisis-proof money: Money creation by the National Bank only!) (Sovereign Money Initiative) were to be adopted, it would have a strong adverse impact on the Swiss economy. This is the first and to date only study to explore the possible effects of the introduction of the sovereign money system in Switzerland using scientific criteria. The Sovereign Money Initiative aims to radically alter the monetary system in Switzerland: banks would have to fully cover all sight deposits with central bank money, the Swiss National Bank (SNB) would have full control of the volume of sight deposits and could put money into circulation debt-free either by distributing it directly to citizens or through the federal government and cantons.
The study on the one hand places the Sovereign Money Initiative in a scientific context. On the other hand, it assesses the repercussions of the introduction of a sovereign money system in a period with normal interest rates.
The key findings of the study are:
  • The Sovereign Money Initiative has no scientific basis whatsoever. The considerations and arguments that underlie the initiative contradict empirical evidence and economic logic. Untenable from a scientific perspective is, for example, the assumption that a strong increase in the money supply results in excessive lending and destabilises the economy.
  • The initiators of the Sovereign Money Initiative also draw inadmissible comparisons to existing literature. The differences between the often-quoted Chicago Plans and the initiative are too great for the literature on this matter to serve as evidence of the positive effects of the sovereign money system.
  • The sovereign money system leads to additional costs for depositors as a result of lower interest income and translates into lower interest margins for banks. Combined with the loss in tax revenues for the federal budget, the annual costs exceed the additional revenues gener-ated by the SNB in times of normal interest rates by 0.8 percent of GDP.
  • The introduction of sovereign money has a destabilising effect on the economy. The alternatives to financing through customer deposits increase the risks for banks. The narrowing of the room for manoeuvre in monetary policy makes it more difficult for the SNB to achieve its objectives.
The author of the study is Philippe Bacchetta, Professor of econometrics and political economy at the University of Lausanne. The study was commissioned by the Swiss Bankers Association, but was conducted independently. “It was important to me that the outcome of the assessment be open,” says Philippe Bacchetta, “but the deeper I went into the analysis, the more problems I discovered with the initiative.”

The SBA rejects the Sovereign Money Initiative for the following reasons

The Sovereign Money Initiative endangers one of the strongest economies in the world and carelessly and irresponsibly puts jobs, tax revenues, a secure economic system and Switzerland’s prosperity at risk. For Switzerland, which is highly interconnected internationally, going it alone is therefore an incalculable risk. The sovereign money system would in particular undermine the innate, core function of banks by complicating the financing of loans and mortgages. The SBA firmly rejects the Sovereign Money Initiative for these reasons. “Today’s financial system works well the way it is. There is no reason to change it,” says CEO of the SBA Claude-Alain Margelisch. “Anything else would be an experiment with unforeseeable consequences for bank clients and the Swiss economy.”

Next steps

The Federal Council recommended last fall that the Sovereign Money Initiative be rejected without a counterproposal. During the autumn session 2017, the Council of States, as the first chamber, will discuss the initiative. The proposal is expected to be put before the Swiss electorate next year.

Further Information

Further information about the Sovereign Money Initiative and a film about the workings of money creation (all in German) can be found here.


http://www.swissbanking.org/fr/medias/positions-et-communiques-de-presse/initiative-monnaie-pleine-ses-consequences-potentielles-en-suisse-au-centre-d2019une-etude/the-sovereign-money-initiative-in-switzerland-an-assessement.pdf


The Sovereign Money Initiative in Switzerland: 



An Assessment1 Philippe Bacchetta University of Lausanne 

Swiss Finance Institute CEPR 

April 26, 2017 


1 I would like to thank Simon Tieche for able research assistance and Martin Hess and Elena Perazzi for comments. I acknowledge financial support from the Swiss Bankers Association. The views expressed in this survey are solely those of the author. 


Abstract The Sovereign Money Initiative will most likely be submitted to the Swiss people in 2018. 


This paper reviews the arguments behind the initiative and discusses its potential impact. Using a simple model, the paper assesses quantitatively the impact of imposing full reserve requirement on sight deposits. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a lower return. Moreover, the initiative goes much beyond full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather then reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact. Reviewing the arguments behind the initiative, I argue that they ignore current knowledge in monetary economics and that many arguments are inconsistent with empirical evidence or with economic logic. 1 Introduction The Swiss people should vote in 2018 on an initiative for monetary reform. The proposal is to have sovereign money, where only the Swiss National Bank (SNB) can issue money and where money includes bank notes and scriptural money.1 In principle scriptural money means sight deposits included in M1. The reform would imply that all sight deposits in Swiss francs would be transferred outside commercial banks’ balance sheets and would be fully backed by reserves at the SNB. The SNB would control the quantity of these sight deposits. The initiative also proposes that the SNB distributes funds to the state or directly to households. These funds would come from new money creation and from selling SNB existing assets. The objective of this paper is twofold. First, it reviews the main arguments behind the reform and, second, it discusses the potential impact of its implementation on the Swiss economy. Since there already exist several reviews of the initiative and of its potential implications (including the views of the Federal Council), this paper is brief on some aspects that are already covered in details elsewhere. The perspective taken in the paper is the one of an academic and of a macroeconomist. As a macroeconomist, I would like to put the reform in the perspective of current knowledge in the field. As an academic, I would like to examine the intellectual rigor of the arguments. From both perspectives, this review will be critical. First, even though it is a reform of macroeconomic nature, the motivation behind the initiative fundamentally ignores most of the existing literature in macroeconomics. Second, the arguments are often vague and incomplete and sometimes misleading or incorrect. The sovereign money reform is obviously related to the proposals for full reserve banking and to the ”Chicago plan”, where commercial banks are imposed a 100 percent reserve requirement on deposits. Sovereign money also implies full reserve coverage, but it goes one step further as it gives full control of sight deposits by the central bank.2 Moreover, the initiative goes much further than the concept of sovereign money. It would introduce constraints on monetary policy and might push the SNB to sell its existing 1 In Swiss national languages, sovereign money is called Vollgeld, monnaie pleine or moneta intera. It is useful to consider both the text of the initiative requiring a change in the Swiss constitution and its interpretation by the Swiss Federal Council (see www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64444.html) 2See Huber (2015, p. 15) for a discussion of the difference between full money and 100 percent reserves. He argues that ”100% reserve would thus miss its main target of ruling out severe banking, financial and economic crises on the basis of the banking sector’s excessive credit, debt and deposit creation.” 1 assets. It would also impose restrictions on minimum holding periods for non-monetary financial assets such as savings deposits. While the idea of full reserve requirements has received some attention in the literature3 , it is difficult to find much literature on sovereign money. Instead, the idea of sovereign money is based on a manifesto written by Huber and Robertson (2000), henceforth HR. The two authors of the manifesto are not specialists in monetary economics and did not relate their arguments to the existing literature. Even though the motivation for monetary reform is not totally clear, they provide several arguments behind their proposal, some of which I will review in the next section.4,5 At this stage, it is interesting to notice that the original sovereign money proposal by HR preceded the global financial crisis, so that avoiding crises was not its main motivation. Even though some of the arguments are not fully explicit, there are several hidden assumptions that run counter to our current knowledge in macroeconomics. For example, a major argument behind the sovereign money proposal is that controlling money allows the stabilization of credit.6 This in turn will help stabilize the business cycle. If this is left to commercial banks, HR write: ”They expand credit creation in upswings, and reduce it in downswings. The result is that bank-created money positively contributes to overheating and overcooling business cycles, amplifying their peaks and troughs,…(p. 37)”. However, HR provide no evidence for their claim. While their first sentence is correct, there are two fundamental problems with their second sentence. 3For recent contributions, see Benes and Kumhof (2012), Baeriswyl (2014), Cochrane (2014) or Prescott and Wessel (2016). See Benes and Kumhof (2012, section III) for a review of the Chicago plan. 4See also Huber (2014). 5They also anticipate several counter arguments to the reform and potential negative effects. Interestingly, they also anticipate who might be opposed or in favor of the reform. Regarding academics, there seem to be two types. On the one hand, there might be opponents: ”Among … academics with a stake in the present way the banking system works there will probably be some opponents. They will have built up an understanding of the details and complexities of a monetary and banking system founded on bank creation of credit. They will fear that their expertise may lose value and their prospects may suffer if the system is changed.” (p. 60-61). On the other hand, there will be beneficiaries: ”Although opposition may come from some of the older and more established monetary economists on the “can’t-teach-old-dogs-new-tricks” principle, growing interest in seigniorage reform will open up a new range of questions and career opportunities for more innovative practitioners of the discipline. It will create new openings in the economics departments of universities and in research institutes in economic and political fields.” This cynical view assumes that academic economists would determine their opinion on the reform based on pure personal interest, rather that on the merits of the proposal. 6Notice that most of the literature does not make a distinction among different monetary aggregates. In the same spirit this introduction simply talks about money, but the rest of the paper will be more precise in focusing on M1. 2 First, there is little empirical evidence that money amplifies business cycles in modern economies. On the contrary, bank deposits tend to decline before financial crises (see Jord`a et al., 2017). Second, the link between money and credit is weak. As I discuss below, there is no correlation between changes in money and changes in credit in Switzerland. Looking at developed economies, Schularick and Taylor (2012) show there was a close link between credit and broad money before World War II, but there has been a decoupling after World War II. This is illustrated in Figure 1. Schularick and Taylor also discuss the distinction between the ”money view” and the ”credit view” in macroeconomics. The defenders of sovereign money clearly worry about credit, but they want to control it by controlling money. This perspective is inconsistent with empirical evidence. Figure 1: World Money and Credit (relative to GDP) Years 1880 1900 1920 1940 1960 1980 2000 Log scale 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Bank Loans/GDP Broad money/GDP Source: Schularik and Taylor (2012). Data covering 14 developed countries The arguments in favor of the reform are also often backward looking, citing facts or reasonings in the nineteen century or early twentieth century. But the role of money used for transactions has clearly changed in the last 3 decades. It is likely to keep changing in the near future and the liquidity services of demand deposits will most likely drop. Cochrane (2014, p. 199) puts it clearly: ”With today’s technology, you could buy a cup of coffee by swiping a card or tapping a cell phone, selling two dollars and fifty cents of an S&P 500 fund, and crediting the coffee seller’s two dollars and fifty cents mortgage-backed security fund. If money (reserves) are involved at all—if the transaction is not simply netted among intermediaries—reserves are held for milliseconds. In the 1930s, this was not possible.” With a decline in the demand for transaction money, the potential revenue for the central bank, one of the main argument for reform, would also shrink. The development of new forms of e-money will also require a different analysis. However, at this stage we ignore what form of e-money will be widely used and to what extent central banks can control it.7 A major feature of the sovereign money reform is that money would not bear any interest. This implies that there would never be interest on checking accounts, even in periods of high interest rates. This means that the reform would increase the cost of holding money. As pointed out by Friedman (1969), holding money is in general costly and this cost should be minimized. Instead, sovereign money increases this cost. As I explain in more details in Section 2, given our current state of knowledge, it is difficult to see much benefit, if any, from the reform. The arguments behind the reform are inconsistent with much empirical evidence and find little theoretical support. It is typically argued that sovereign money could avoid standard bank runs. But this is not totally true as some type of bank runs could still occur. Moreover, runs on bank deposits are not the main source of recent financial crises. The defenders of the initiative often cite the paper of Benes and Kumhof (2012) as support, but the experiment studied by these authors is not the one proposed in the initiative. Section 2.4 explains why Benes and Kumhof’s results do not apply to the sovereign money initiative for Switzerland. The initiative is also based on the surprising idea that money is not a liability. I also discuss the issues with this idea in Section 2. Finally, Section 2 discusses why bank credit is unlikely to be the source of money creation at the macroeconomic level. Independently of its motivation, the next question is to assess the potential impact of the reform for the Swiss economy. This is done in Sections 3 and 4. The reform is planned to be implemented in two stages. In the first stage, sight deposits, that are part of M1, disappear from bank liabilities and are fully backed by the central bank. But the overall banks balance sheets 7An interesting case is the experience of Ecuador where e-money is issued by the central bank, but only receives limited public acceptance. 4 may not be affected as the central bank could lend its reserves back to banks. The first stage of the reform and its impact is examined in Section 3. In the second stage of the reform, the central bank no longer lends its reserves to banks. This means that banks need to find alternative sources of financing. It also means that the central bank could use its reserves in different ways. These aspects are reviewed in Section 4. Section 3 examines quantitatively the impact of the reform’s first stage on the state, on banks and on depositors, using a simple model of monopolistic competition in the banking sector. In the current situation of the Swiss economy, the aggregate impact of the first stage would be negligible because of very low, even negative, interest rates and of a massive level of reserves at the central bank: in early 2016, the proportion of central bank reserves to deposits in M1 is 100%. Figure 2 shows the evolution of real M1 and of the 3-month Swiss franc Libor rate in the last decades. Figure 2: Liquidity Trap Quarters 1985 1990 1995 2000 2005 2010 2015 Billions of 2015 CHF 0 200 400 600 M1/P (left) CHF 3 month Libor (right) Annualized percentages -5 0 5 10 Source: SNB. M1 is deflated by CPI 5 To have an assessment in a period of positive interest rates, I consider data for the 1984-2006 period. I find that the overall impact of the reform is negative and annually represents -0.8% of GDP. Consolidating the SNB and the government, the state gains by 0.5% of GDP. This would represent about CHF 3.5 billion. However, depositors would be the main losers (0.8 % of GDP) and banks would also lose (0.5% of GDP). Results in Section 3 basically represent the impact of imposing full reserve requirement at zero interest rate. But they do not include the impact of the other dimensions of the sovereign money initiative, which are discussed in Section 4. Section 4 reviews the alternative sources of funding for banks in the second stage of the reform. It points to potential instability with some sources of funding. Then it reviews the implications of a decrease in SNB’s assets. Finally, it discusses the constraints and the dangers for monetary policy. 2 The Arguments Behind the Initiative 2.1 Credit Creates Money A major argument behind the idea of sovereign money is that money creation comes largely from the granting of credit by commercial banks. However, this close relationship is not verified at the macroeconomic level. 2.1.1 A simple example At a purely microeconomic, partial equilibrium, level it is true that a bank can increase the quantity of deposits when it provides a loan. But this is only true at the initiation of the loan. Consider a simple example: I ask a mortgage loan from my bank to buy a house. When my bank grants me the loan, the funds are available on my checking account. So that in this initial operation my bank indeed increases money. Then I transfer immediately the funds to the seller of the house, who will see an increase in her checking account. But the seller does not want to keep these funds in her checking account, as it bears a low interest, and transfers them to interest-bearing instruments of her bank (e.g., time deposits, bank bonds, savings account, etc.). Therefore, at the end of the day my mortgage loan has no impact on the quantity of checking accounts and on M1. At the aggregate level, my loan is matched by an increase in interest-yielding assets of the seller.8 8An interesting question is how this simple example would work under sovereign money. If my bank grants me a loan, the funds still end up in the seller’s checking account. If the 6 2.1.2 A decoupling between money and credit To put it in other terms, in general money is not generated by credit. This is confirmed by macroeconomic data. As mentioned in the Introduction, Schularick and Taylor (2012) document a decoupling between broad money and credit since World War II. This is also true for M1 and credit for Switzerland. Figure 3 shows the evolution of credit and M1 (divided by GDP and normalized to 100 in 1984q4) in Switzerland. It shows that movements in M1 are not tied to movements in bank credit. We see for example that in the credit boom in the early nineties, M1 actually decreased. Similarly, the large increases in M1 in the second half of the sample are not accompanied by large increases in credit. If we look at the correlation between the changes in money and in credit on a monthly basis from 1985 to 2015, we find a coefficient of -0.011.9 One should also notice that sight deposits represent a relatively small proportion of credit: about 25 percent in the last decades. In other terms, most of bank credit is not backed by sight deposits. 2.1.3 The constraint of money demand Claiming that banks create money basically assumes that money demand is totally elastic. In that case it is the supply that determines the quantity. A standard money market equilibrium can be written as: MS = P · L(Y, i − i m, c) (1) where MS is nominal money supply, P is the price level and L is a real money demand function from the private sector. It typically depends positively on a measure of economic activity Y and negatively on the opportunity cost of holding money i−i m, where i m is the interest on money and i is the alternative interest rate, typically government bonds. The variable c represents other factors like financial technology. If we assume that prices are rigid in the short run, an increase in MS is only possible if Y increases or if i decreases. Since banks cannot directly influence Y and i, any increase in MS in the short run cannot be directly determined by banks.10 However, there is one case where money demand is elastic. This the case of a liquidity trap we are seller were to keep the funds on her checking account, money supply would increase (as without sovereign money). But if the central bank wanted to keep money constant, how would it operate? 9The correlation is also insignificant if we consider M2 or M3. 10They could obviously have an indirect effect. For example, an increase in credit could boost economic activity, which stimulates money demand. 7 Figure 3: M1 and Total Credit per GDP Quarters 1985 1990 1995 2000 2005 2010 2015 Indices 60 80 100 120 140 160 180 200 220 240 260 M1/PY Credit/PY Data source: SNB. Data are from 1984q4 to 2016q1. Both variables are deflated by GDP before being transformed into indices; base 100 = 1984q4. Credits includes mortgages. currently in. In that case equation (1) does not apply as the private sector is indifferent between money and alternative assets. At the empirical level, there is a very long tradition of estimating money demand.11 Even though these estimations are faced with econometric problems, they tend to yield reasonable (and finite) income and interest elasticities. In the Swiss case, the focus has often been on M2 or on M3 as M1 appears less stable and less related to macroeconomic variables like inflation or output.12 However, Section 3 will present a specific estimation for M1. 11There has been declining attention to money demand in the last two decades as central banks focused more on inflation targeting and decreased their focus on monetary aggregates. 12E.g., see Kirchg¨assner and Wolters (2010). 8 2.2 Money is not a Liability A major assumption behind the benefits of sovereign money is that money would no longer be a liability of the central bank. And if it is no longer a liability, there is no need to match money with assets and money can then be spent. This view is puzzling, since both in accounting and in monetary economics, money at the central bank (i.e., the monetary base) is always considered as a liability and matched by assets. If money were not a liability and M1 represents for example 100% of GDP, it would mean that the central bank could potentially give away the equivalent of 100% of GDP on top of its usual profits from seigniorage. This would liberate a substantial amount of resources that could be used in many different ways (e.g., lowering taxes, increasing spending, lowering the debt, subsidizing credit, etc.).13 2.2.1 No reason to change fiscal policies There are fundamental issues with using central bank assets for fiscal or credit policies. The first issue is that there is no reason why the state should change other aspects of its policies in the case of a monetary reform. This is because sovereign money differs very little from debt so that the policies considered are already possible by changing government debt. Changing other policies because of sovereign money would be suboptimal. For example, consider the current situation of a liquidity trap. In standard models, money and debt are actually equivalent in this situation. As a thought exercise, assume that nominal interests rates on government debt are zero for a very long period.14 In that case, money and bonds are very similar since no interest has to be paid on either bonds or money. Bonds mature, but they can be rolled over. Therefore, the consolidated state (government + central bank) can issue either bonds or money. This means that if the central bank buys government debt by issuing money, the consolidated state debt position is unaffected. Whatever can be done with money can be done with debt. 2.2.2 A central bank needs to hold assets The second issue is that it is important for a central bank to hold assets. There are at least two main reasons for this. First, assets are useful to conduct monetary policy. The central bank may want to be more restrictive and sell its assets to reduce money supply. Or the central bank may want to change the currency or the maturity composition of its assets through foreign 13If this view were true, one could wonder why countries would not have already used the resources. 14See Bacchetta et al. (2016) for a formal analysis of a persistent liquidity trap. 9 exchange interventions or different types of quantitative easing. Not having assets would therefore seriously handicap the central bank. The second reason for the central bank to hold assets is to provide a guarantee for the currency. Currently, banks hold deposits at the central bank because they trust the central bank and because they know that they can withdraw their funds immediately. With sovereign money, deposits at the central bank are not determined by commercial banks and may be less fickle. But reductions in deposits may still occur and may be caused by a decline in trust in the system. If the central bank gets rid of its assets, it will clearly lose credibility and trust in the system may indeed decline (see more on this below). 2.3 Sovereign Money Avoids Financial Crises In theory, a major advantage of a full reserve requirement system or of sovereign money is to avoid traditional bank runs, as modeled in Diamond and Dybvig (1983). This leads the defenders of the initiative to claim that a better control of money would i) eliminate financial crises; ii) avoid speculative bubbles; iii) avoid the need for a lender of last resort for banks. However, these claims have little basis and are inconsistent with empirical evidence. 2.3.1 Bank runs may not be avoided It is not the case that sovereign money can fully eliminate bank runs, for at least two reasons. First, a run may come from liabilities other than sight deposits. Second, there may be a run on the central bank.15 Regarding the first reason, bank runs may come from short-term liabilities other than demand deposits. Jord´a et al. (2017) show that non-deposit bank liabilities, rather than deposits, tend to predict banking crises. Moreover, in the recent global financial crisis, demand deposits by non-financial agents only played a minor role. It is true that the crisis could be viewed in the perspective of runs, i.e., quick withdrawals of funds, as argued in particular by Gorton (2009). However, these runs were not on demand deposits. They started with the asset-backed commercial paper market and then spread to money market funds and other financial institutions.16 Commercial banks were not strongly 15A third channel is a run on the asset side, as customers may run down their credit lines in times of crises. See Ippolito et al. (2016) for evidence. 16Gorton (2009) writes: today‘s panic is not a banking panic in the sense that the traditional banking system was not initially at the forefront of the ”bank” run as in 1907… In the current case, the run started on off-balance sheet vehicles and led to a general sudden drying up of liquidity in the repo market, and a scramble for cash… 10 affected by a run on their checking deposits. Even in the case of British bank Northern Rock in 2007, the run came from other financial institutions, i.e., from short-run liabilities that are not included in M1. To avoid any bank run, the sovereign money reform should add severe restrictions on banks’ other liabilities, e.g. on short-term interbank lending. The second reason for bank runs is that an indirect run on the central bank may occur if the initiative implies that the central bank is running down its assets. In that case, there might be a lack of trust in the central bank and a run on sovereign money may occur. This would likely imply a currency crisis and the mechanism could be similar to Krugman (1979): a speculative attack on the currency occurs when the level of central bank foreign assets becomes low enough. This speculative attack implies a decline in domestic currency deposits and a capital outflow. In other terms, selling central bank assets would move the risk of a bank run from commercial banks to the central bank. 2.3.2 Iceland in 2008 as an example An interesting case is the financial crisis in Iceland in 2008, which is one of the largest observed in history.17 The three large banks expanded extraordinarily their balance sheet and their credit in the years before the crisis. In the crisis, they all went bankrupt and were all subject to a run. The main source behind the credit surge and the subsequent withdrawal came from foreign shortterm borrowing, as investors were exploiting the interest differential through carry-trade strategies. Controlling M1 in that context would clearly not help.18 It may even be counterproductive: restricting M1 would imply a more restrictive monetary policy, which could increase interest rates in Krona. This would make carry trade even more attractive and increase capital flows and credit growth. It is interesting to notice that, in Switzerland, the only bank that activated the deposit insurance scheme for its depositors in the recent financial crisis was the subsidiary of one of the Iceland banks, Kaupthing. 2.3.3 Empirically money is not a good indicator of financial crises As already mentioned, the stock of money in the economy does not have a significant macroeconomic impact. This is also true for its role in financial crises and bubbles. There is a huge empirical literature studying banking 17See for example Benediktsdottir et al. (2011) for a description of the Iceland crisis. 18The proposal of sovereign money has also been suggested in a report by Sigurj´onsson (2015), but the report does not explain how the financial crisis could have been avoided. 11 crises and trying to identify the determinants of crises. Different monetary aggregates and different measures of money have been considered (e.g., the level of real money or deviations from trend), but it has proven insignifi- cant. What has proven significant in recent work, however, is credit (e.g., see Gourinchas and Obstfeld, 2012, or Schularick and Taylor, 2012). There has been much less empirical work on the causes of financial bubbles, but Jord´a et al. (2016) show that credit-driven housing bubbles are particularly damaging for the economy. More generally, periods of strong credit growth are often followed by lower economic activity. Therefore, controlling credit appears to be key for financial stability. This is by now well understood and has been motivating various aspects of financial regulation. But this is not true for money, since we have already seen that the correlation between money and credit is low: controlling money will not necessarily limit credit growth. 2.3.4 A lender of last resort is still needed The recent crisis and other episodes clearly show that when banks run into trouble it is not due to traditional bank runs. Why would sovereign money affect the role of the state as lender of last resort? Banks may still be ”toobig-to-fail”: a bankruptcy may endanger the whole financial system and will affect employment. Other measures of financial regulation are clearly needed to limit the probability of bankruptcy and the need for state intervention. 2.4 The Benes-Kumhof Paper The initiative committee cites the working paper by Benes and Kumhof (2012, henceforth BK) and claims that ”the IMF confirms the positive impact of the sovereign money reform”. This claim is abusive for three reasons. First, the working paper by BK is simply an academic investigation and is not the official IMF position.19 Second, the study is analyzing a reform that is quite different from the initiative submitted to the Swiss people. Some of the key differences between the initiative and the ”Chicago plan” experiment in BK are the following: i) BK consider full reserve requirements and not sovereign money; ii) BK have only one type of deposits, so that reserve 19On the first page it is written: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Notice also that these two economists are not currently working at the IMF. 12 requirement applies to all deposits and not only to sight deposits as in the initiative; iii) in BK, central bank reserves, and therefore deposits, yield an interest, while there would be no interest on reserves in the initiative; iv) in the second stage of the reform, the central bank would use money to buy back government and mortgage debt in BK. In the initiative, the central bank would distribute the money to the government. Because of these key differences, the impact of the BK experiment are quite different from the initiative. The third reason why the reference to BK is misleading is that the environment considered does not correspond to important features of the Swiss economy. One feature is that the Swiss economy is currently in a liquidity trap and the existing amount of central bank reserves is already very large. The monetary reform would therefore not increase substantially the reserves at the central bank. Another key feature is that Switzerland is an open economy. This has several implications. First, the real interest rate is strongly influenced by foreign interest rates. Second, banks can easily change their assets and liabilities by changing their positions with non residents. Third, there is currency substitution and alternative currencies, mainly euros and dollars, can be used for transaction purposes. All these differences mean that the results from BK are not relevant for the sovereign money initiative. The Chicago plan experiment in BK increases the steady-state level of output by 10% through three channels.20 First, there is a large decline in the real interest rate that boosts investment. But the decline in interest rate comes mainly from the debt purchases by the central bank in the second stage of the reform. This aspect is not considered in the initiative. Moreover, the real interest can decline because the model is a closed economy. In an open economy model, this would typically not happen. The second channel is a decrease in distortionary taxes by a large increase in seigniorage (3.6% of GDP). I will explain below that the increase in seigniorage in Switzerland is much lower than that, so that the potential decrease in taxes is limited. On the other hand, by not paying interest on reserves in the sovereign money reform, seigniorage is also very distortionary. I show below that the loss for depositors is larger than the gain for the state. Therefore, the second channel does not appear relevant. The third channel reflects a decline in monitoring costs due to the reduction in credit. But the sovereign money initiative does not foresee a decline in credit. Moreover, the 20Another issue is that the BK model is not standard and incorporates several debatable assumptions. It is also difficult to see the role of each assumption on the results. A more detailed discussion of these issues would become quite technical for this survey. But is fair to say that most economists (including all IMF economists I could talk to) are not convinced by the output increase generated by the experiment. 13 role of monitoring costs in the BK is somewhat odd: it implies by assumption that the smaller the banking sector the better. The above discussion therefore shows that the three channels in BK would not apply to the proposed sovereign money reform in Switzerland. 3 The Impact of Sovereign Money in Switzerland: Stage 1 The reform implies that all sight deposits are backed by 100 percent reserves at the SNB. This may imply lower funding for banks. If this is the case, in the first stage of the reform, the SNB lends the funds to banks. More specifically, let H be the monetary base before the reform, which is made of bank notes and of banks’ reserves at the central bank. With the reform, banks would deposit the additional quantity M1 − H at the SNB. This is the quantity of funds that is no longer available to banks for their lending or investment activities. If the SNB lends this amount to banks their total resources are unchanged. This section considers the first stage of this reform and Section 4 will consider the second stage. The objective is to analyze the revenue impact for the state, i.e., government and central bank, for banks and for depositors. Three key aspects will influence the analysis. First, an important aspect of the reform is that the SNB would not pay any interest on reserves so that sight deposits would no longer yield any interest, i.e., i m ≤ 0. This implies that the opportunity cost of holding money is higher, which has been shown to lower welfare.21 Moreover, this will decrease money demand M1. Let m1 represent M1 in proportion of GDP: m1 = M1/P Y ; and let m1 − and m1 + be the levels of money before and after the reform. For the quantitative estimation, it is key to estimate ∆m1 = m1 − − m1 +. For this purpose we need an estimate of the interest elasticity of money demand and this is discussed in the next subsection. Second, it is important to distinguish between the current situation of a liquidity trap with interest rates close to zero from a more ”normal” situation with positive interest rates. For the more normal period, the estimates will be based on the period 1984-2006 (the sample starts in 1984 due to data 21E.g., see Curdia and Woodford (2011). This point is related to the Friedman rule, a basic result in monetary economics. It says that the optimal level of nominal interest rates on bonds should be zero to eliminate the cost of holding money (when money yields zero interest). Since bonds rates are usually positive, it is optimal to pay a positive interest rate on money. 14 availability on interest rates). Figure 4 shows the evolution of interest rates during that period. Figure 4: Interest Rates, 1984-2006 Quarters 1985 1990 1995 2000 2005 Annualized percentages 0 1 2 3 4 5 6 7 Savings deposits Sight deposits Government Bonds Data source: SNB. Interest rate on 10-year Government bonds. Third, the impact of the reform depends on the competitive structure of the banking industry. This is a complex issue, since banks offer multiple products. It is also possible that the competitive structure is affected by the reform. I will abstract from these complexities and follow the macroeconomic literature that assumes monopolistic competition in the loans and the deposit markets. Appendix B lays out the underlying model and derives the markups used in the numerical analysis. After describing the estimate of the interest elasticity of money demand, this section discusses the impact for the state, for depositors, and for banks. 15 3.1 Interest Elasticity of Money Demand The objective is to determine how much the demand for sight deposits would decrease with a decline in its interest rate. This amounts to estimate a semielasticity of money demand: by how much, in percent, does money demand decrease if the interest rate increases by one percentage point? Estimates of this elasticity vary a lot, from as low as 6 in Ireland (2009) to as high as 60 in Bilson (1978).22 Here we estimate a simple long-run money demand for Switzerland, using quarterly data from 1984q4 to 2006q4. Our interval ends in 2006 to focus on a period where interest rates were distinctly higher than zero. As a dependent variable, we consider deposits in M1, so that we subtract banknotes from M1 and define this new variable as Mf1. We estimate the following regression: ln  Mf1t/Pt  = α0 + α1 ln Yt + α2 (it − i m t ) + ut (2) where Pt represents the consumer price index, Yt is real GDP, it is the longrun interest rate (10-years Swiss bonds), and i m t is the interest rate on sight deposits. The results of the estimation can be found in the Appendix.23 The important result is the point estimate for α2, which is −0.13. Even though the estimation is derived from a relatively short sample of 22 years, this estimate is in line with the recent estimations of Benati (2016) who considers a sample from 1948 to 2015. This implies that a one percentage point decrease in i m decreases real money demand by 13 percent. I estimate the decline in the average return on sight deposits to be 2.73 (see below). This implies that ∆m1 = −35.5%. 3.2 Additional Revenue for the State 3.2.1 Computing additional revenue A major argument for sovereign money is the increase in revenue for the state. Commercial banks can make a profit by paying a low interest rate on sight deposits and lending the same amount at a higher rate. If instead the central bank controls sight deposits, it can reap these profits. The additional revenue is basically the increase in seigniorage minus two items that are otherwise paid by commercial banks. First, when banks make profits by issuing sight deposits, they pay taxes to the state. With sovereign money these taxes 22Lucas (2000) finds a value of 28 when translated to a quarterly frequency. Engel and West (2005) review many estimates that also fall in this range. 23Equation (2) gives us a long run money demand. Since variables are non stationary, we have also checked for cointegration. 16 would disappear. Second, there is a cost to manage sight deposits and the liquidity and payment services they provide. At this stage, it is not clear who will pay these costs, but some of these costs may be paid by the central bank. To summarize, the additional revenue from sovereign money can be expressed as:24 ∆Revenue = i · (m1 + − h −) − T axes− − Costs+ (3) where h − = H−/P Y . For convenience, in the numerical analysis I will abstract from Costs+, as they are difficult to estimate. Notice that under sovereign money the interest differential is simply i, because no interest is paid on money. Instead the interest rate differential for commercial banks is i − i m as they typically pay an interest on money. For an estimation of increased revenue, we should distinguish between the situation of a liquidity trap that we are in now and more normal times. 3.2.2 No increase in revenue in the current liquidity trap In the current situation, sovereign money would give no additional gain to the central bank. First, interest rates are about zero so that i = 0. Moreover the level of reserves already represents about 100% of demand deposits, i.e., M1 ‘ H. Therefore sovereign money would not increase the central bank balance sheet and would have no impact on its profits. If the state has to incur some additional costs from managing M1, the net impact could even be negative. 3.2.3 Increase in revenue in more normal times Things will be different if we exit the liquidity trap, where interest rates would be positive, while money demand would be lower. The additional amount of seigniorage with sovereign money will obviously depend on how these variables change. It is natural to assume that the SNB lends its additional resources to commercial banks at rate i. If we compute i · (m1 + − h −) over the period 1984-2006, we find an annual rate of 0.80% of GDP.25 24There are two ways to look at seigniorage. First, a central bank earns revenues by issuing money at a low or zero interest rate and lending it at a higher interest rate. In that case seigniorage is equal to the interest differential times the stock of money. In the second perspective seigniorage is simply the money created by the central bank. Although the two perspectives appear different, under some mild conditions they turn out to be equivalent in present value. We focus on the first approach. 25I used the average interest rate on federal government bonds (source: SNB). The average over the period is 4 percent. The average of M1 − H is 34 percent of GDP. 17 To compute the net gain for the state, we need to have an estimate of taxes paid by banks on profits from sight deposit operations. In Appendix B, I compute the decline in bank profits to be 0.77% of GDP. If we assume a tax rate of 35%, lost taxes would represent 0.27% of GDP. This implies that the net gain for the state, abstracting from operational costs, would be 0.53% of GDP. Using 2015 GDP, this would make CHF 3.42 billions. This number is not insignificant, but it should be put in perspective by comparing it to recent SNB profits (CHF 24.5 billion in 2016) and to SNB profits that would occur in a period of high interest rates. 3.3 Implications for Depositors The sovereign money reform implies a 100% reserve requirement. There is an extensive literature on reserve requirements that shows that they act as a tax on deposits.26 With 100% reserve requirement, the tax is simply equal to the reference interest rate i (the marginal interest rate a bank would get if it did not have to hold reserves at the SNB). With perfect competition in banking, this cost would be fully passed trough to depositors. However, if we assume monopolistic competition (see Appendix B), depositors will only bear (1 − µ d )i, while banks profits in principle decline by µ d i. Under the assumptions of Appendix B we have i s = (1 − µ d )i, where i s is the interest rate on savings deposits. The additional tax from the reform can be simply computed as i s · (m1 − − h −).27 For the period 1984-2006, this gives a loss of 0.82%. It may be useful to clarify why i s , and not i m, is used to compute the loss. On top of a decline in interest rates i m, depositors are likely to see an increase in service fees, as in the current situation of low interest rates. If sight deposits are still run by commercial banks, they would still have to incur operational costs. With competitive pressure, part of these costs are passed on to depositors. It is obviously difficult to estimate these costs, but an indirect way to estimate them is to consider the difference between the interest on savings deposits i s and the interest on sight deposits i m. Appendix B shows that the cost τ is proportional to the differential (i s−i m): 26Under some conditions, reserve requirements are equal to a tax on deposits combined with an open market operation. See Bacchetta and Caminal (1994). 27It can be argued that the tax should be computed on the new money demand, i.e., i s · (m1 + − h −). However, when m1 decreases depositors enjoy fewer services from sight deposits or have to incur higher costs. A simple approximation of these costs is i s · ∆m1, and is captured by using m1 − instead of m1 +. The precise measure of these costs actually depends on the motives for holding money. For an analysis of the welfare cost for depositors in a more structured analysis, see Bacchetta and Caminal (1992). 18 τ = (i s − i m)/(1 − µ d ). Depositors bear a share 1 − µ d of this cost. In the 1984-2006 period, we find τ = 1.57. There is an additional cost that we cannot quantify, which is the increase in regulation including likely restrictions for savings deposits. Moreover, there is the uncertainty around these measures. 3.4 Implications for Banks Profits and Credit In normal times, banks would definitely lose from the reform, as sight deposits with cost i m are replaced by SNB loans with cost i. The loss for banks is the decline in interest rate margins, from which we can subtract taxes and operation costs if we assume that they are passed on to depositors.28 The decrease in interest income is (i − i m) · (m1 − − h −). Over the 1984-2006 period, this is equal to 0.80% of GDP. Appendix B shows that the decline in bank profits per unit of deposits, µ d (i − τ ), is equal to 0.77. If we assume a tax rate of 35% on these profits, the after tax loss in profit would be 0.50%. Since banks’ balance sheets are little affected by the first stage of the reform, the impact on total credit would in principle be small. However, banks face a loss µ d τ on sight deposits and may compensate it by increasing the cost of lending. Even if we assume that the whole loss is transferred to the cost of lending, the impact would not be large: 0.12 percentage points. The increase in the cost of credit should only have a small negative impact on the demand for credit. 3.5 Overall Impact Table 1 summarizes the above analysis. It is obvious that the precise numbers should be taken with a grain of salt, but they help to provide an overall picture of the impact of the first stage. It is interesting to notice that when interest rates are positive, the sum of all the effects is negative. This is due to the decline in i m with the reform, which implies a decrease in M1. This decrease means that the gain in SNB revenue is smaller than the loss in net interest revenue from banks. Moreover, the decline in the opportunity cost of holding money is an additional burden to depositors. To summarize this section, we have found that in the current situation of a liquidity trap, there would be little aggregate impact of the first stage of the reform. If the Swiss economy returns to positive interest rates, the impact would be more significant. Using data for the period 1984-2006, we see an 28Notice, however, that reserves at the SNB would be less liquid under sovereign money: they would only be liquid for sight deposit withdrawals, but not with other liquidity needs. 19 Table 1: Impact of Sovereign Money – Phase 1 Annualized percentage of GDP Positive interest rates Liquidity Trap 1984-2006 Current period SNB 0.80 0 Government -0.27 0 State Total 0.53 0 Depositors -0.82 0 Banks -0.50 0 Total -0.79 0 Notes : See text for a description. Does not include cost to borrowers, additional costs for the SNB, or regulation costs increase in state revenue, but also a loss for depositors. The loss to banks appears relatively small. Overall, this implies a net loss for the economy. This loss should be seen as a lower bound, as it excludes some of the costs that are more difficult to assess (regulation costs, implementation costs) and it assumes an orderly implementation of the reform. 4 The Impact of Sovereign Money in Switzerland: Stage 2 In the second stage of the reform, the SNB eliminates its lending to banks. This means that banks need to look for alternative sources of funds. On the other side, the SNB has more potential resources that could be used in several ways. This section will discuss the macroeconomic implications of this second phase under different scenarios. In such a survey, only the broad implications are considered. A more detailed analysis would require a full dynamic model.29 29Bacchetta and Perazzi, 2017, provide such an analysis, examining in particular the welfare effect of the reform. 20 4.1 Need for Alternative Funding by Banks On average, sight deposits represent a relative small share of banks balance sheets. In the last thirty years, sight deposits minus reserves at the central bank represented about 25 percent of total credit and 15 percent of total banks balance sheets. In the second phase of sovereign money, banks would need to find alternative sources of funding. Given the attractiveness of the Swiss franc, there is no doubt that Swiss banks would be able to find funding. However, switching to alternative funding may create short-term costs. For example, consider the situation where banks want to rapidly increase their credit and need to issue new liabilities. Such a situation would occur if the Swiss economy exits the liquidity trap. In the transition, it might take some time to organize alternative funding, especially for smaller banks. This may slow down a potential credit recovery. Therefore, there might be short-run risks in the search for alternative financing. In the medium run, the question is whether this funding would be much more expensive than sight deposits. This is a difficult question. Sight deposits obviously imply a lower interest payment for banks. But a large part of the lower interest rate is accounted for by the operating cost of sight deposits. Therefore, the difference may not be that large. What type of alternative funding would be available? The basic idea behind the initiative is that, once sight deposits are outside of banks’ balance sheets, the financing of banks should come from more ”responsible” investment decisions. This is likely to be true for equity or long-term debt. But some alternative sources of financing may not be more ”responsible” and some other may make banks more prone to crises. First, there might be an increase in savings deposits: since the opportunity cost of holding sight deposits increases, there would be a shift towards savings deposits. Second, there might be a shift towards sight deposits in euros. These deposits would not be part of sovereign money and would keep yielding a positive interest rate (once we exit the current liquidity trap). These accounts are already available in many Swiss banks, so that the switch would be easy. It may lead to an increase in euro transactions in Switzerland.30 Third, banks may innovate to make alternative investments more liquid (e.g., the citation of Cochrane in the Introduction). Basically, they can reduce switching costs between invested funds and money needed for transactions. This could drastically reduce the demand for sight deposits without changing the behavior of depositors. 30Notice that almost half of Swiss banks liabilities are already in foreign currency. However, an increase in foreign currency liabilities could imply a currency mismatch for Swiss banks. 21 But alternative funding may attract more fickle funding. For example, banks may rely on short-term debt borrowing from other financial institutions. But these sources of funds are more volatile than sight deposits, as the recent financial crisis has illustrated (e.g., Bear Stearns, Lehman Brothers, or Northern Rock). There are many other examples of dramatic financial crises, where the source of the problem is the short-term international borrowing by banks and not in demand deposits (e.g., the Asian crisis or Iceland).31 In particular, this could increase the exposure of Swiss banks to international contagion. In other terms, the Swiss banking system may replace funding from relatively stable funding deposits by funding from more volatile sources and be more prone to financial crises. 4.2 Macroeconomic Implications The macroeconomic impact of the reform depends on how the additional money at the SNB is used. For example, Benes and Kumhof (2012) assume that the state buys back mortgage and government debt, which leads to a decline in the interest rate and an increase in investment. Mortgage buybacks are not considered by the initiative and I will focus on more realistic scenarios. 4.2.1 Status quo The SNB invests its resources in Swiss and foreign assets. This could still be the case with sovereign money if additional money is simply matched by increases in SNB assets. SNB profits would come, as now, from the return differential between its assets and reserves. These profits would then be distributed over time to the state. The impact of sovereign money would not be large, besides the negative net effect mentioned in the previous section. 4.2.2 Increased transfers from the SNB The initiative would insert in the Swiss constitution that the new money created by the SNB is directly transferred to the state (cantons and confederation). Moreover, the committee behind the initiative argues that the SNB could transfer an additional CHF 15 billion each year to the state. The only way to do that is to sell the assets of the central bank. However, selling SNB assets or automatically transferring new money does not have much impact on the present value of SNB transfers: SNB profits are anyway eventually 31As already mentioned, Jord´a et al., 2017, show that non-deposits sources of funding increase the probability of financial crises. 22 distributed to the state. In other words, the initiative’s committee is basically proposing to frontload the distribution of SNB profits at the cost of lower profits for future generations. Nevertheless, policies affecting the timing of transfers may have distortionary effects. The actual impact of these transfers depends on what the state would do. If central bank transfers are exclusively used to reduce government debt, the impact is likely to be small. This would not affect government expenditures or revenues and would leave unchanged the consolidated position between the state and the central bank. However, it would also reduce the size of Swiss public debt, which may not be desirable.32 If the SNB transfers the increase in money directly to the private sector, this would be equivalent to ”helicopter money” (a policy where the central bank makes direct transfers to the private sector). Such a policy is currently discussed in the context of the liquidity trap, but is clearly not the right policy in normal times for reasons I will not discuss here. A more likely scenario is that these transfers will allow to finance government deficits, i.e., to increase its expenditures or to decrease its revenues without a need to issue debt. This means that monetary policy would be tied to fiscal policy. It is well known that deficit financing by the central bank is extremely bad policy. All modern central banks are prevented from directly financing the government and the SNB has always been a leading example in terms of independence. It would also be important that central bank transfers affect fiscal policy as little as possible. Putting the emphasis on a frontloaded distribution of central bank profits may help in ”selling” the initiative to the voters, but is not key to a monetary reform. Moreover, it would clearly put political pressure on the SNB. Section 3.2 already discussed the serious problems associated with the sale of these assets. In particular, having a central bank with assets much lower than the amount of currency in circulation strongly threatens the confidence in the system. Moreover, since the assets are currently in foreign exchange reserves, the SNB would need to sell foreign currency assets, which would put pressure on the Swiss franc. 4.3 Implications for Monetary Policy Monetary policy would clearly be hampered by the sovereign money initiative. In the ideal world of a smoothly growing economy, the SNB could gradually increase its money supply through transfers (with all the problems this entails). But in the real world, the economy is bumpy and the SNB needs 32See Bacchetta (2016) for a discussion. 23 to react quickly to the changing economic environment. With the initiative, the SNB could no longer use its current instruments, that work in great part through a quick impact on the monetary base. The SNB would have to find other, less efficient, ways to influence monetary policy. In particular, it is not obvious to foresee how the SNB would operate when monetary policy has to become more restrictive for a sustained period. Following the logic of the initiative, the SNB should do reverse transfers to the government, i.e., tax the government. This appears unrealistic and extremely difficult to implement politically. An alternative could be to issue central bank bills to reduce money supply. But how safe would central bank debt be perceived if its assets do not match existing liabilities? Investors may require a high risk premium to hold these bills, which would make monetary policy very costly. Moreover, once there is central bank debt, could it be reduced to increase again money supply? This might contradict the law, as money supply increases are supposed to be transferred to the state or to the public. Another issue for monetary policy is that the initiative implies that the SNB would return to monetary targeting, since it focuses on money supply. The SNB adopted such a strategy after the end of the Bretton Woods system until 2000 when it shifted to a policy focusing on inflation forecasts and on the control of short-term interest rates. There were good reasons (which I will not review here) to abandon such a system and going back to it would clearly lead to worse monetary policy. More generally, setting constraints in the Federal constitution on the way monetary policy can be implemented is undesirable and inconsistent with central bank independence. 5 Conclusions and summary This survey has evaluated the arguments behind the sovereign money initiative and has examined some of its potential consequences. This has been done from a monetary and macroeconomic perspective and the survey abstracts from important aspects related to legal issues, practical implementation, or implications for specific institutions. One element that has been mentioned, but could not be evaluated, is uncertainty. There is high uncertainty at two levels. First, the text of the initiative is not precise and there is uncertainty about how it could be implemented. Second, since such a system has never been implement anywhere, there is high uncertainty about the reaction of economic agents. For example, one scenario could be that the initiative would stimulate financial innovation and that financial technology would allow to make payments without any sight deposits in Swiss francs. Trying to guess which scenario is the most likely is difficult, but what is clear is that 24 this high uncertainty would be an additional cost from this initiative. This survey puts the initiative in a negative light, as its foundations are shaky, its benefits are questionable, and its drawbacks can be serious. Before starting working on the survey, I had a much more positive prior. However, the more I delved into the issue, the more disappointed I became because of the limited intellectual merit in the arguments behind the monetary reform proposal. First, it ignores and even despises current knowledge in monetary economics. Several of the arguments made are inconsistent with this knowledge and with basic economic logic. For example, claiming that bank credit creates money is inconsistent with empirical evidence and there is no convincing argument that sovereign money can avoid financial crises. Second, some of the claims are misleading or demagogic. For example, it is not true that the IMF supports the initiative or that there is academic support for it. A major theme in this paper is that the role of sight deposits is overstated in the arguments behind the initiative. There is no evidence, at least in the last eighty years, that increases in sight deposits would lead to financial crises or to large credit increases. Therefore, giving control of these deposits to the SNB cannot provide any stabilizing benefit. On the other hand, the sovereign money reform will entail clear costs for the Swiss economy and will create potential risks and instability. The quantitative analysis shows that depositors and banks would clearly lose from the reform and that these losses are larger than the increase in state revenue. Pushing banks to look for alternatives to sight deposits is potentially destabilizing. There is a clear destabilizing impact of the reform, even though it is difficult to evaluate this quantitatively. Selling SNB assets and constraining monetary policy are threats to monetary stability and to the well functioning of the Swiss economy. It is to be hoped that all these costs and potential risks will be all well understood by Swiss voters. 25 Appendix Appendix A. Money Demand Estimation Data Data is quarterly for the period 1984q4-2006q4 and comes from the SNB data base. Monthly variables were converted in quarters using the end of quarter value. Money aggregate M1, banknotes and nominal GDP are in billion CHF. The interest rate differential is calculated as the difference between the long-run interest rate on bonds (10-year Confederation) and the interest rate on sight deposits. Both rates are annualized and in percentage points. Pt is CPI based on all items (base 100, 2015m12). Regression The regression performed is as follows: ln (M1 – banknotes)t Pt  = α0 + α1 ln GDPt Pt  + α2 (it − i m t ) + ut (A1) Results are displayed in table 2. Table 2: Demand for Sight Deposits Variables Coefficient Std errors Robust std errors T-test P-value Constant -18.54 0.01 1.52 -12.23 0.00 ln(Real GDP) 3.72 0.00 0.22 16.98 0.00 i − i m -0.13 0.01 0.02 -8.19 0.00 Notes : Dependent variable is ln  (M1 – banknotes) CPI  . Adjusted R2 =0.80062. DurbinWatson =0.53708 Cointegration The dependent variable and the exogenous variable ln  GDPt Pt  are both I(1), so that we have to check for cointegration. Residuals of the regression are stationary according to the Augmented Dickey-Fuller test. Moreover, in an error correction model the error correction term is significant. 26 Appendix B. Interest Rates and the Banking Sector This appendix describes the assumptions made behind the quantitative analysis of Section 4. The approach is in line with standard models of banking at the macroeconomic level. Although stylized, this approach allows to determine broadly the magnitude of the effect of the reform. In general, banks offer multiple products in imperfectly competitive markets. To simplify, I assume that there is monopolistic competition with constant markups, generated by Dixit-Stiglitz preferences for deposits and loans. Moreover, the analysis of loans and deposits can be separated as in the Monti-Klein model.33 However, I will assume that if a bank makes a loss in the sight deposit market, it will recoup the loss in the loans market (the alternatives would be that the bank charges fees to depositors or stops offering sight deposits). There are four interest rates: i m on sight deposits, i s on savings deposit, i l on loans, and i on safe bonds. The safe interest rate i is a ”reference” rate that applies to government bonds and to the interbank market. I also assume it is the rate at which the SNB would lend to banks. The banks balance sheet can be written as: He + B + L = Mg1 + S + E (B1) where B are the net assets held by banks (B could be negative), L are loans, S are savings deposits and E is equity. He are reserves at the SNB and are equal to H minus bills and coins. They yield zero interest rate. Mg1 represents sight deposits (M1 minus bills and coins). The difference between the savings interest rate and the bonds interest rate is given by: i s = (1 − µ d )i (B2) where µ d is the markdown applying to both savings and sight deposits. This abstracts from any cost of managing savings deposits. In the Dixit-Stiglitz framework the markdown is given by the substitutability across bank deposits and is given by 1 − µ d = ε d/(ε d − 1), where ε d is the elasticity across bank deposits.34 I also assume that there is a proportional cost τ for banks to run 33See, for example, Generali et al. (2010) for similar set of assumptions in a DSGE model. 34Notice that this elasticity is different from α2, which represents the elasticity between sight deposits and other assets. 27 sight deposits.35 In that case, the interest rate on sight deposits is given by: i m = (1 − µ d )(i − τ ) (B3) Banks profits from sight deposits are simply given by: Π = i − i m − τ = µ d (i − τ ) (B4) With sovereign monetary reform, the reference interest rate for banks on sight deposits is zero. From (B3) this implies that the interest rate on sight deposits decreases by (1−µ d )i, which turns out to be equal to i s . The return on sight deposits is i m = −(1 − µ d )τ , which is negative. In practice, the interest rate on sight deposits might be equal to zero, but deposits would bear a cost (e.g. monthly charges) of (1 − µ d )τ . To estimate the total cost for depositors, the decline in interest rate should be multiplied by the amount of sight deposits. From (B4), bank profits would decline by µ d i and would be negative at −µ d τ . If sight deposits were the only product of banks, they would immediately stop offering them. However, with multiproducts, this loss can be compensated on loans.36 I assume that the loan interest rate is increased such that: ∆i l · L = µ d τ · Mg1 (B5) In such a case, the actual decline in bank profits is µ d (i−τ ) per unit of sight deposits. To quantify the analysis, I consider the 1984-2006 period. During this period, the average interest rates are i = 4.00, i s = 2.73, i m = 1.66. From (B2), this implies that 1 − µ d = 0.68 or µ d = 0.32. This implies an elasticity of substitution ε d = −2.15. From (B3), we have τ = 1.57. Therefore, the sovereign money reform implies a decline in i m of 2.73. The decline in bank profits per unit of deposits, µ d (i − τ ), is equal to 0.77. Since Mg1/L = 0.25, ∆i l = 0.12. 35For simplicity, I assume that there are only variable costs, even though in reality fixed costs are significant. 36This is consistent with recent evidence in Switzerland where an extremely low interest rate i has lead to an increase in mortgage rates. The alternative scenario is that banks charge fees on sight deposits, so that depositors would suffer even more. It turns out, however, that this effect is small so that the precise assumption regarding the loss of sight deposits is not crucial. 28 References [1] Bacchetta, Philippe (2016), ”Is Swiss Public Debt too Small?” mimeo. [2] Bacchetta, Philippe, Kenza Benhima, and Yannick Kalantzis (2016), “Money and Capital in a Persistent Liquidity Trap,” CEPR Discussion Paper No. 11369. [3] Bacchetta, Philippe and Ramon Caminal (1994), “A Note on Reserve Requirements and Public Finance,” International Review of Economics and Finance, vol. 3, N◦ 1, 107-118. [4] Bacchetta, Philippe and Ramon Caminal (1992), “Reducing the Implicit Taxation on the Spanish Banking System: Who Gains and who Loses,” ESADE working Paper No. 88. [5] Bacchetta, Philippe and Elena Perazzi (2017), “Sovereign Money Reforms and Welfare,” mimeo. [6] Benati, Luca (2016), “What Drives the Long-Horizon Dynamics of Monetary Aggregates?” mimeo. [7] Benediktsdottir, Sigridur, Jon Danielsson and Gylfi Zoega (2011), “Lessons from a Collapse of a Financial System,” Economic Policy April, 185-235. [8] Bilson, John F.O. (1978), “The Monetary Approach to the Exchange Rate: Some Empirical Evidence,” International Monetary Fund Staff Papers 25(1), 48-75. [9] C´urdia, Vasco and Michael Woodford (2011), ”The Central-Bank Balance Sheet as an Instrument of Monetary Policy,” Journal of Monetary Economics 58, 54-79. [10] Engel, Charles and Kenneth D. West (2005), “Exchange Rates and Fundamentals,” Journal of Political Economy 113(3), 485-517. [11] Friedman, Milton (1969), The Optimum Quantity of Money, Macmillan. [12] Gerali, Andrea, Stefano Neri, Luca Sessa, and Federico M. Signoretti (2010), ”Credit and Banking in a DSGE Model of the Euro Area,” Journal of Money, Credit and Banking, Supplement to Vol. 42, No. 6, 107-140. 29 [13] Gorton, Gary (2009) “Information, Liquidity, and the (Ongoing) Panic of 2007,” American Economic Review, Papers and Proceedings, vol. 99, no. 2, 567-572. [14] Gourinchas, Pierre-Olivier and Maurice Obstfeld (2012), “Stories of the Twentieth Century for the Twenty-First,” American Economic Journal: Macroeconomics 4, 226–265. [15] Huber Joseph (2015), “The Chicago Plan (100% Reserve) and Plain Sovereign Money,” mimeo, www.sovereignmoney.eu/100-per-centreserve-chicago-plan. [16] Huber Joseph and James Robertson (2000), Creating New Money: A Monetary Reform for the Information Age, New Economics Foundation. [17] Ippolito, Filippo, Jos´e-Luis Peydr´o, Andrea Polo and Enrico Sette (2016), ”Double Bank Runs and Liquidity Risk Management,” Journal of Financial Economics 122 (1), 135-154. [18] Ireland, Peter N. (2009), “On the Welfare Cost of Inflation and the Recent Behavior of Money Demand,” American Economic Review 99(3), 1040-52. [19] Jord`a, Oscar, Moritz Schularick, and Alan M. Taylor (2015), “Leveraged Bubbles,” Journal of Monetary Economics 76, S1-S20. [20] Jord`a, Oscar, Bj¨orn Richter, Moritz Schularick, and Alan M. Taylor (2017), “Bank Capital Redux: Solvency, Liquidity, and Crisis,” CEPR Discussion Paper No. 11934. [21] Kirchg¨assner, Gebhard, and J¨urgen Wolters (2010), “The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank,” Swiss Journal of Economics and Statistics 146, 221-253. [22] Krugman, Paul (1979), ”A Model of Balance of Payments Crises,” Journal of Money, Credit and Banking, XI (2), 331-325. [23] Lucas, Robert E. (2000), “Inflation and Welfare,” Econometrica 68(2), 247-274. [24] Prescott, Edward C. and Ryan Wessel (2016), “Monetary Policy with 100 Percent Reserve Banking: An Exploration,” NBER Working Paper No. 22431. 30 [25] Schularick, Moritz and Alan M. Taylor (2012), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870– 2008,” American Economics Review 102, 1029–61. 31


Invitations 2017
In English

Avec mes meilleures salutations

Nouvelle adresse: 23, Av. Edouard Dapples, CH 1006 LAUSANNE. SUISSE

Tél: international ++ 41 21 616 88 8

http://www.initiative-monnaie-pleine.ch/fa/img/English/neu_151022_Vollgeld-Initiative_Kernbotschaften_translated_22Nov15.pdf

Banksters afraid of resistance !

Dear Friends of Common Good, 


Please, help us to answer to the swissbanking.org , 

Study: “The Sovereign Money Initiative in Switzerland: An Assessement” (EN)

Thank you


111’111 + Swiss, positive money & social credit

Vollgeld is swiss, this is not only positive money, which has very good arguments but we need to improve and be prudent because Switzerland is not centralized but is a Confederation of Cantons and communities and our national bank has to be amended as well. We need to apply the true subsidiarity principle, persons, families, communals ( villages ), cantons, and then only the federal level…

111.819 swiss signatures to change the money creation system in favor of the swiss by a referendum with a double majority, the swiss states and the swiss people…

Now, we can write a complete law dealing with all those subjects, including the swiss national bank, please, help us now.

A new paradigm ! Too much products thanks to robots ? How to distribute all those goods ?


http://desiebenthal.blogspot.ch/2015/12/swiss-positive-money-social-credit.html

http://www.initiative-monnaie-pleine.ch/english/


Sovereign Money Initiative: Study
shows repercussions for Switzerland

Basel27th June 2017  The study presented today by Philippe Bacchetta, a professor of economics, entitled “The Sovereign Money Initiative in Switzerland: An Assessment”, is the first and only analysis to date that examines the consequences of the introduction of a sovereign money system for bank clients, commercial banks, the central bank and the nation. The study shows that the initiative ignores the prevailing economic understanding and that if sovereign money were to be implemented, it would have significant negative implications for the Swiss economy. The Swiss Bankers Association (SBA) firmly rejects the Sovereign Money Initiative, as it would be an irresponsible experiment with what is an efficient economy.

  • In a study published today, Prof. Philippe Bacchetta has for the first time assessed the repercussions of the introduction of a sovereign money system in Switzerland.
  • According to the study, the initiative ignores the prevailing economic understanding. The assumption of the individuals who launched the initiative that an increase in the supply of money destabilises the economy is scientifically inaccurate.
  • The introduction of a sovereign money system would have negative repercussions for the entire Swiss economy. According to the study, account holders would be most impacted by the reform. They would have to pay for the high costs of the sovereign money approach.
  • The study estimates that the introduction of a sovereign money system in a normal interest rate environment would have an annual cost to the economy of 0.8 percent of gross domestic product (GDP).
A study presented today concludes that if the “Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank!” (Crisis-proof money: Money creation by the National Bank only!) (Sovereign Money Initiative) were to be adopted, it would have a strong adverse impact on the Swiss economy. This is the first and to date only study to explore the possible effects of the introduction of the sovereign money system in Switzerland using scientific criteria. The Sovereign Money Initiative aims to radically alter the monetary system in Switzerland: banks would have to fully cover all sight deposits with central bank money, the Swiss National Bank (SNB) would have full control of the volume of sight deposits and could put money into circulation debt-free either by distributing it directly to citizens or through the federal government and cantons.
The study on the one hand places the Sovereign Money Initiative in a scientific context. On the other hand, it assesses the repercussions of the introduction of a sovereign money system in a period with normal interest rates.
The key findings of the study are:
  • The Sovereign Money Initiative has no scientific basis whatsoever. The considerations and arguments that underlie the initiative contradict empirical evidence and economic logic. Untenable from a scientific perspective is, for example, the assumption that a strong increase in the money supply results in excessive lending and destabilises the economy.
  • The initiators of the Sovereign Money Initiative also draw inadmissible comparisons to existing literature. The differences between the often-quoted Chicago Plans and the initiative are too great for the literature on this matter to serve as evidence of the positive effects of the sovereign money system.
  • The sovereign money system leads to additional costs for depositors as a result of lower interest income and translates into lower interest margins for banks. Combined with the loss in tax revenues for the federal budget, the annual costs exceed the additional revenues gener-ated by the SNB in times of normal interest rates by 0.8 percent of GDP.
  • The introduction of sovereign money has a destabilising effect on the economy. The alternatives to financing through customer deposits increase the risks for banks. The narrowing of the room for manoeuvre in monetary policy makes it more difficult for the SNB to achieve its objectives.
The author of the study is Philippe Bacchetta, Professor of econometrics and political economy at the University of Lausanne. The study was commissioned by the Swiss Bankers Association, but was conducted independently. “It was important to me that the outcome of the assessment be open,” says Philippe Bacchetta, “but the deeper I went into the analysis, the more problems I discovered with the initiative.”

The SBA rejects the Sovereign Money Initiative for the following reasons

The Sovereign Money Initiative endangers one of the strongest economies in the world and carelessly and irresponsibly puts jobs, tax revenues, a secure economic system and Switzerland’s prosperity at risk. For Switzerland, which is highly interconnected internationally, going it alone is therefore an incalculable risk. The sovereign money system would in particular undermine the innate, core function of banks by complicating the financing of loans and mortgages. The SBA firmly rejects the Sovereign Money Initiative for these reasons. “Today’s financial system works well the way it is. There is no reason to change it,” says CEO of the SBA Claude-Alain Margelisch. “Anything else would be an experiment with unforeseeable consequences for bank clients and the Swiss economy.”

Next steps

The Federal Council recommended last fall that the Sovereign Money Initiative be rejected without a counterproposal. During the autumn session 2017, the Council of States, as the first chamber, will discuss the initiative. The proposal is expected to be put before the Swiss electorate next year.

Further Information

Further information about the Sovereign Money Initiative and a film about the workings of money creation (all in German) can be found here.


http://www.swissbanking.org/fr/medias/positions-et-communiques-de-presse/initiative-monnaie-pleine-ses-consequences-potentielles-en-suisse-au-centre-d2019une-etude/the-sovereign-money-initiative-in-switzerland-an-assessement.pdf

Changer ce système !

+Louis Hannetel : ” mais je ne vois pas comment changer ce système”

Cet ex banquier suisse ne se contente pas de dénoncer le système bancaire, il se propose de le révolutionner, avec la conviction, soumise à la contradiction de tous les experts de la finance qui le souhaitent, que ses propositions sont les remèdes aux malheurs de l’humanité.
J’ai ailleurs invité à cliquer sur les hashtags suivants, pour mesurer le niveau de lutte que permet la force civile armée, en plus d’avoir permis à la Suisse d’échapper à la guerre et aux crises depuis des siècles, la meilleure santé économique et le meilleur niveau de vie #monnaie-pleine
et #un-banquier-suisse-explique.
Le mieux est de commencer par la vidéo de 4 mn qui est la première proposition qu’il soumet au vote du peuple, puis la vidéo de 36 mn où il explique les vices du système et ce que ses propositions apporteront.Et éventuellement d’autre si on est convaincu.
Cette personne ne doit sa sécurité et son droit de défendre son projet que grâce à la force civile armée, qui ne tolèrera pas qu’on porte atteinte à son intégrité physique, ni qu’on l’intimide pour l’émpêcher de s’exprimer, ni que son projet ne soit pas mené à son terme, s’il devait perdre la vie.
Pour avoir idée de la force armée suisse #swiss-gun-ownership #Does-every-swiss-have-a-gun
#bat-car quasiment tous des civils vivant d’un métier civil, et donc arme militaire à la maison.
Car ceux qui ne sont pas dotés de la même configuration militaire ne pourront rien changer.
 Il affirme avoir été l’objet d’un cambriolage, qui ressemble à un cambriolage d’intimidation avec la porte d’entrée de son logement prise par les cambrioleurs, et qu’on n’a jamais été aussi strict pour le rassemblement des signatures, qu’il a réussi à rassembler.
J’ai découvert grâce à lui que Victor Hugo avait la même conviction que la mienne au sujet du rôle à jouer de la Suisse.
Je précise au passage que la dame, qu’il n’aurait pas laissé parler, peut à nouveau s’exprimer à la TV. et d’autres peuvent également le contredire.
Il explique aux suisses, que leur 1er intérêt de lui donner leurs signatures, est que ses propositions soient l’objet d’un débat.
Et en Suisse en raison d’un modèle, à commencer par sa configuration militaire, qui fut défendue par l’agrégé de philo Jean Jaurès, le débat est possible.
Et sa sécurité bien mieux assurée qu’ailleurs, pour traiter d’un sujet aussi risqué que celui d’une réforme totale des banques, au seul profit du peuple.



Comment l’argent est-il créé ? Qui en profite vraiment ?
Les conséquences, crises, rigueur, immobilier trop cher etc

Une soirée entre amis ?
Une fête de bureau ?
Une salle de classe ?
Une conférence
Un week-end
Un stage
Une université

Jeu de la monnaie, alias jeu des monnaies, alias jeu de la monnaie-pleine, alias jeu des monnaies-pleines ou vides ?

Nous nous déplaçons en Suisse romande ou dans le monde entier pour organiser le jeu de la monnaie à partir de 10 joueurs.

“Parce que l’expérimentation vaut plus que n’importe quelle présentation.” Laurent, joueur.

http://desiebenthal.blogspot.ch/2011/05/pour-un-capital-social-local-le.html

Les visiteurs peuvent désormais consulter mon blog via une connexion chiffrée en se rendant sur https://desiebenthal.blogspot.com.

Invitations 2017
In English

en français:

Avec mes meilleures salutations

Nouvelle adresse: 23, Av. Edouard Dapples, CH 1006 LAUSANNE. SUISSE

Tél: international ++ 41 21 616 88 88

Mobilisation générale: épargnes, retraites…  volées légalement ! 

http://desiebenthal.blogspot.ch/2015/12/projet-de-loi-dapplication-de-monnaie.html

http://desiebenthal.blogspot.ch/2015/12/swiss-positive-money-social-credit.html

Donner à chacun ce qui lui est dû par un dividende social à tous!
à faire circuler largement, merci, le monde est déjà meilleur grâce à ce simple geste de solidarité.

Nicolas de Flüe le 19 août 2017 – 12h. au Flüeli


La Suisse avec saint Nicolas de Flüe
19 août 2017 – 12h. au Flüeli
Célébrations du 600e anniversaire de la naissance de saint Nicolas de Flüe, patron de la Suisse et de la paix universelle, en présence de SE Mgr Vitus Huonder, évêque de Coire, M. le Conseiller fédéral Guy Parmelin et M. le conseiller fédéral honoraire Christophe Blocher.
Ouvert à tous, venez nombreux !


Cordiale bienvenue à la cérémonie commémorative nationale en l’honneur de Frère Nicolas

Cette année, c’est le 600e anniversaire de Saint Nicolas de Flüe. Ses activités et son rayonnement restent intacts encore à l’heure actuelle.
Par cette cérémonie commémorative nationale du samedi, 19 août 2017, nous souhaitons rendre possible pour tous, petits et grands, l’attachement et la référence à «Frère Nicolas». Cette cérémonie a pour but de montrer «Frère Nicolas» comme un saint, mais aussi comme un conseiller social et politique et père de famille.
La manifestation commencera à 12:00 heures par des spectacles scéniques simples tirés de la vie quotidienne de cette époque. Sur le territoire de la fête, vous trouverez aussi des boissons et repas. La cérémonie officielle va commencer à 14:00 heures (il est recommandé de se rendre sur place suffisamment de temps à l’avance).
Nous avons la grande joie et l’honneur de recevoir à cette cérémonie commémorative nationale le Conseiller fédéral Guy Parmelin qui va y accueillir officiellement nos invités romands.
La cérémonie officielle commencera par une brève évocation historique par Peter Keller, Conseiller national et historien de Nidwald, des activités de Frère Nicolas. Ensuite notre évêque en fonction Vitus Huonder va rendre hommage à Frère Nicolas comme croyant et saint et l’ancien Conseiller fédéral Christoph Blocher évoquera l’importance de Frère Nicolas comme précurseur et figure importante de la Confédération helvétique.
Entre deux, différentes scènes de théâtre filmées de la vie et des activités de Frère Nicolas vont être montrées sous l’égide du metteur en scène bien connu Klaus Odermatt, Dallenwil.
Nous nous réjouissons de vous accueillir le samedi 19 août 2017 au Flüeli Ranft au-dessus de Sachseln/OW dans un cadre convivial pour rendre hommage à Frère Nicolas.
Monika Rüegger
Présidente du CO «La Suisse avec frère Klaus»

https://bruderklaus-gedenkfeier.ch/francais/programme/

Programme

Cérémonie commémorative «Les 600 ans de Frère Nicolas»

Date: Samedi, 19 août 2017
Lieu: Flüeli-Ranft, halle polyvalente, place de gymnastique (avec tente)

Avant-programme

Vue sur Flüeli-Ranft, derrière les montagnes du Melchtal (photo: de.wikipedia.org)

Le public est invité à se rendre sur le territoire de fête déjà pour le repas de midi. Il y a des possibilités de stationnement à l’aérodrome Kägiswil. Des navettes de bus assureront en permanence dès 11.00 heures la liaison entre le parking, la gare de Sarnen et le territoire de fête. >> Voir le plan d’accès (cliquer ici)
Divertissement: Musique avec l’orchestre de l’ASIN dirigé par Jakob Leuenberger, activités professionnelles de l’époque, etc.
Recommandation: Visite de la maison natale de Frère Nicolas au Flüeli-Ranft. Visite de l’ermitage et de la chapelle de Frère Nicolas au Ranft. (env. 10 min. de marche à pied depuis le territoire de la fête)
Repas de midi: «Obwaldner Chässuppe» (un menu qui était déjà répandu à Obwald à l’époque de Frère Nicolas) et d’autres possibilités de collation à différents stands

Programme

11:00 h Ouverture du territoire de fête
12:00 h Repas de midi avec divertissement musical
13:00 h Arrivée des invités
13:15 h Entrée des invités sur le territoire de fête
14:00 h Début officiel de la cérémonie commémorative

Accueil par la présidente du CO
Message du gouvernement d’Obwald
Aperçu historique par le Conseiller national Peter Keller
Accueil des invités romands par le Conseiller fédéral Guy Parmelin
Discours officiel de l’évêque Vitus Huonder
Discours officiel de l’ancien Conseiller fédéral Christoph Blocher
Entre-deux, différentes scènes de théâtre filmées sur la vie et les activités de Frère Nicolas vont être montrées .
17:00 h Clôture de la cérémonie commémorative

Soirée ”Jeu de la monnaie”. Ce vendredi 30 juin à 18h30

Invitation ce vendredi 30 juin à 18h30

Soirée ”Jeu de la monnaie”

Tu veux apprendre en t’amusant ?
Le Jeu de la monnaie c’est 4 parties de 12 minutes pour :
Comprendre l’origine des problèmes du système économique
Découvrir des alternatives intelligentes
Ressentir les effets des différents modèles
Tout cela est long à expliquer, mais très facile à comprendre par l’expérience !
Ainsi, en jouant tu pourras éprouver ce que change le choix d’un système ou d’un autre… Eh oui, il n’y a pas qu’une façon de créer LA monnaie… il y en a plusieurs… et avec des conséquences très diverses… à découvrir !
La soirée se termine par un repas convivial.

Date : Vendredi 30 juin à 18h30
Lieu : Alliance Sud, Av. de Cour 1, Lausanne
Prix comprenant le repas : chacun donne ce qu’il veut pour couvrir les frais
Durée : minimum 2 heures
Inscription : www.facebook.com/jeudelamonnaie ou mathieu@martouf.ch

Apprendre par l’expérience

Comment l’argent est-il créé ? 
Les conséquences, crises, rigueur, immobilier trop cher etc

Une soirée entre amis ?
Une fête de bureau ?
Une salle de classe ?
Une conférence
Un week-end
Un stage
Une université

Jeu de la monnaie, alias jeu des monnaies, alias jeu de la monnaie-pleine, alias jeu des monnaies-pleines ou vides ?

Nous nous déplaçons en Suisse romande ou dans le monde entier pour organiser le jeu de la monnaie à partir de 10 joueurs.

“Parce que l’expérimentation vaut plus que n’importe quelle présentation.” Laurent, joueur.

++ 41 21 616 88 88, François

Revenu universel : pas utopique


Revenu universel : toutes les expériences prouvent que la proposition n’est pas utopique

Rutger Bregman

Les sans-abris de Londres
Argent gratuit

Le revenu universel a fait du chemin depuis sa conception au XVIe siècle. Ses expérimentations ont toutes réussi. (Partie 1)

Une « utopie pour réalistes ». C’est ainsi que Rutger Bregman, l’auteur de cet article, définit le revenu universel. Utopique, parce que l’idée d’un revenu mensuel accordé inconditionnellement à tous les citoyens majeurs du pays semble sortir d’un songe de doux rêveurs ; réaliste, parce qu’au fil des quatre chapitres qui suivent, le journaliste néerlandais démontre minutieusement que l’idée est réalisable (en s’appuyant sur de nombreuses expérimentations réussies). Si elle n’a jamais été appliquée au niveau national, toutes les expériences menées sur la planète ont été un succès, quelle que soit la période de l’histoire à laquelle elles ont eu lieu.

L’Utopie de Thomas More

C’est qu’avant de figurer en bonne place dans le programme de Benoît Hamon, contribuant à sa victoire à la primaire de la gauche le dimanche 29 janvier dernier, l’idée d’un revenu universel a fait du chemin. Ainsi, lorsqu’il publie L’Utopie en 1516, l’homme politique et philosophe anglais Thomas More y fait déjà référence. Et pour cause, elle est pensée pour la première fois par son ami et collègue, l’Espagnol Juan Luis Vives, jamais avare de réflexions visant à réformer l’organisation sociale sous un jour plus humaniste. En 1526, après avoir fui l’Inquisition espagnole en 1509 et étudié à la Sorbonne, c’est réfugié à Louvain – où séjournent Thomas More et d’autres humanistes – qu’il fait paraître De Subventione pauperum, « De l’Assistance aux pauvres ». Ce traité, adressé aux magistrats de Bruges où sévit une pauvreté qui l’écœure, contient pour la première fois l’idée d’un moyen de subsistance accordé à tous, aux pauvres comme aux riches.

« Même ceux qui ont dilapidé leur fortune dans une vie dissolue – dans les jeux, les prostituées, le luxe excessif, la gloutonerie et les paris – devraient avoir de quoi manger, car personne ne devrait mourir de faim », écrit ce philosophe juif converti au catholicisme, né à Valence. Sa pensée inspirera certaines villes des environs de mettre en place les premières expérimentations, comme la municipalité flamande d’Ypres. Depuis lors, sa thèse a traversé les âges et les esprits de bon nombre de penseurs.

En 1895, dans La Machine à explorer le temps, H. G. Wells décrit une société des Eloïs reposant sur un revenu universel pour pallier au chômage causé par l’automatisation généralisée de leur société. Dans son dernier livre paru en 1967, Où allons-nous ? la dernière chance de la démocratie américaine, Martin Luther King écrit sa conviction qu’il est possible de créer un « revenu garanti » pour tous les citoyens américains.

Aujourd’hui, tandis que des expériences ont lieu en ce moment-même au Rwanda, en Finlande ou en Inde, c’est dans le débat public français que le revenu universel a fait son entrée, principalement par l’intermédiaire du candidat socialiste Benoît Hamon. Le 22 mai 2016, un groupe de travail de la Fondation Jean Jaurès, proche du PS, a remis au gouvernement un rapport intitulé « Revenu de base, de l’utopie à la réalité ? », qui proposait différents scénarios dans la perspective d’une mise en application de l’allocation universelle. C’est pour le second qu’a opté Benoît Hamon – de 750 €, soit 504 Md€ de dépenses, ou 24 % du PIB, finançables d’après le rapport.

Quoiqu’il advienne dans les prochains mois, il est peu probable qu’un revenu universel voit le jour à l’échelle de la nation avant plusieurs années. Mais maintenant qu’il est omniprésent dans le débat politique français, l’article qui suit vous éclairera, au-delà des idées, sur les différentes occasions au cours desquelles l’idée a été testée, pour des résultats enthousiasmants.

Crédits : Jim Cooke

Les sans-abris de Londres

Londres, mai 2009. C’est le début d’une petite expérience réalisée avec treize hommes sans-abris. Des vétérans de la rue. Certains d’entre eux dorment sur le pavé froid de la City, le centre financier de l’Europe, depuis plus de 40 ans. Leur présence est loin de ne rien coûter. Entre la police, l’assistance juridique et les soins de santé, les treize hommes coûtent des milliers de livres aux contribuables. Chaque année.

En ce printemps, une association locale prend une décision radicale. Les vétérans de la rue vont devenir les sujets d’une expérience sociale innovante. Finis les timbres alimentaires, la soupe populaire ou les hébergements temporaires pour eux. Ils vont bénéficier d’un renflouement massif, financé par les contribuables. Ils recevront chacun 3 000 livres, en liquide et sans conditions. Il leur appartient de décider comment ils vont le dépenser, les services de conseil sont totalement optionnels. Pas de prérequis, pas d’interrogatoire sévère. La seule question à laquelle ils doivent répondre est la suivante :

Qu’est-ce qui est bon pour vous, à votre avis ?

La City de Londres
Crédits : ITV

« Je ne m’attendais pas à un miracle », se rappelle un travailleur social.

Les désirs des sans-abris se sont révélés tout à fait modestes. Un téléphone, un passeport, un dictionnaire : chaque participant avait sa propre vision de ce qu’il y avait de mieux pour lui. Aucun d’entre eux n’a gaspillé son argent en alcool, en drogues ou aux paris. Bien au contraire, la plupart se sont montrés très économes avec l’argent qu’ils ont reçu. En moyenne, seules 800 livres avaient été dépensées au cours de la première année.

La vie de Simon a changé du tout au tout grâce à cet argent. Accro à l’héroïne depuis vingt ans, il a réussi à décrocher et a commencé à prendre des cours de jardinage. « Pour la première fois dans ma vie, tout allait de soi, j’ai l’impression que désormais je peux vraiment en faire quelque chose », dit-il. « Je songe à retourner à la maison. J’ai deux gamins. »

Un an après le début de l’expérience, onze des treize hommes avaient un toit au-dessus de leur tête. Ils ont accepté d’être placés en foyer, se sont inscrits pour prendre des cours, ils ont appris à cuisiner, ont reçu des traitements pour se défaire de leurs addictions, ils ont rendu visite à leurs familles et ont échafaudé des plans pour le futur. « J’adorais lorsqu’il faisait froid », se souvient l’un d’eux. « Maintenant, je déteste ça. » Après des décennies d’amendes, d’intimidation, de persécution et d’emploi de la force en vain par les autorités, onze vagabonds ont fini par quitter le pavé.

Combien cela a coûté ? 50 000 livres par an, en incluant les salaires des travailleurs sociaux. En plus d’avoir donné un nouveau départ dans la vie à onze individus, le projet a permis d’économiser au moins sept fois ce qu’ils coûtaient auparavant à la société. Même The Economist a conclu après la fin de l’expérience :

« La façon la plus efficace de dépenser l’argent pour régler les problèmes des sans-abris est peut-être bien de leur en donner directement. »
Argent gratuit

Nous avons tendance à présumer du fait que les pauvres sont incapables de gérer leur argent. S’ils en avaient, se disent bon nombre de gens, ils le dépenseraient probablement en fast-food et en bière bon marché, pas pour acheter des fruits ou se payer des études. Ce genre de raisonnements président à la myriade de programmes sociaux, de jungles administratives, d’armées de coordinateurs de programmes d’aide sociale, ainsi qu’aux légions d’équipes qui veillent à la marche de l’État-providence contemporain. Depuis le début de la crise, le nombre d’initiatives qui combattent la fraude aux allocations et aux subventions est en nette augmentation.

Les gens doivent « travailler pour leur argent », incline-t-on à penser. Au cours des récentes décennies, l’aide sociale a été réorientée vers un marché du travail qui ne crée pas assez d’emplois. Le passage du welfare au workfare – soit d’un système d’aide sociale redistributive en faveur des populations défavorisées à l’octroiement d’allocations à la condition d’une recherche d’un travail – est international. Il faut obligatoirement rechercher un emploi au plus vite, songer à des trajectoires de réinsertion, voire obligatoirement s’investir dans des activités bénévoles. Le message sous-jacent ? L’argent distribué gratuitement rend les gens paresseux.

Sauf que ce n’est pas le cas.

Les versements M-Pesa du Kenya
Crédits : GiveDirectly

Il s’appelle Bernard Omandi. Pendant des années, il a travaillé dans une carrière, quelque part dans la région inhabitable de l’ouest du Kenya. Bernard gagnait deux dollars par jour, jusqu’à ce qu’un matin, il reçoive un texto des plus inhabituels. « Quand j’ai vu le message, j’ai sauté de joie », se rappelle-t-il. Il avait une bonne raison de réagir de la sorte : son compte venait tout juste d’être crédité de 500 dollars. Pour Bernard, cette somme équivalait à presque un an de salaire.

Deux mois plus tard, un reporter du New York Times s’est promené dans son village. C’était comme si tout le monde avec décroché le jackpot, mais personne n’avait gaspillé l’argent. Les gens réparaient leurs maisons et lançaient de petites entreprises. Bernard gagnait entre six et neuf dollars par jour au guidon de sa Bajaj Boxer neuve, une moto indienne qu’il utilise pour assurer le transport des habitants du coin. « Le choix revient aux défavorisés, pas à moi », explique Michael Faye, le co-fondateur de GiveDirectly. « La vérité, c’est que je ne pense pas savoir très bien ce dont les personnes défavorisées ont besoin. » Quand Google s’est penché sur les résultats de l’opération de GiveDirectly, la firme de la Silicon Valley a immédiatement décidé de leur donner 2,5 millions de dollars.

Bernard et les autres habitants de son village n’ont pas été les seuls à avoir cette chance. En 2008, le gouvernement ougandais a donné environ 400 dollars à près de 12 000 jeunes âgés entre 16 et 35 ans. Juste de l’argent, on ne leur a posé aucune question. Et devinez quoi, les résultats ont été stupéfiants. Près de quatre ans plus tard, les réinvestissements entrepreneuriaux ou éducatifs de ces jeunes ont permis à leurs revenus d’augmenter de 50 %. Leurs chances d’être embauchés a pour sa part bondi de 60 %.

Un autre programme ougandais à offert 150 dollars à 1 800 femmes défavorisées du nord du pays. Là encore, les revenus ont augmenté de manière significative. Les femmes qui étaient aidées dans leurs démarches par un travailleur social étaient légèrement mieux loties, mais des calculs ultérieurs ont démontré que le programme aurait été plus efficace encore si le salaire des travailleurs sociaux avait été tout simplement redistribué entre les femmes.

« On ne peut pas se remonter les manches quand on n’a pas de chemise. »

Des études venues du monde entier convergent au même point : distribuer de l’argent aide incontestablement. On a démontré qu’il existait une corrélation entre l’argent gratuit et la baisse de la criminalité, des inégalités, de la malnutrition, de la mortalité infantile, des grossesses précoces, de l’absentéisme à l’école ; ainsi qu’une augmentation significative des résultats scolaires, de la croissance économique et de l’émancipation. « La principale raison pour laquelle les gens pauvres sont pauvres, c’est qu’ils n’ont pas assez d’argent », affirmait sèchement l’économiste Charles Kenny, membre du Center for Global Development, en juin 2014. « Il ne devrait pas être surprenant de constater que leur donner de l’argent est une excellente façon de remédier au problème. »

Lors du projet Just Give Money to the Poor en 2010, les chercheurs de l’Institut Brookes pour la pauvreté dans le monde, un institut indépendant basé à l’université de Manchester, ont donné de nombreux exemples au cours desquels l’argent avait été dépensé avec succès. En Namibie, la malnutrition, la criminalité et l’absentéisme à l’école ont respectivement chuté de 25 %, 42 % et près de 40 %. Au Malawi, les inscriptions au sein d’établissements scolaires pour les filles et les femmes ont connu une augmentation de 40 %, avec ou sans conditions. Du Brésil à l’Inde en passant par le Mexique et l’Afrique du Sud, il y a eu de nombreux programmes de distribution d’argent sans condition au cours des dix dernières années. Bien que les objectifs du Millénaire pour le développement (OMD) n’en ont pas fait mention, aujourd’hui plus de 110 millions de familles en bénéficient, dans au moins 45 pays.

Des chercheurs ont résumé les avantages de ces programmes :

1. Les ménages font bon usage de cet argent.

2. La pauvreté recule.

3. L’impact positif en termes de revenus, de santé et de rentrées fiscales est considérable sur le long terme.

4. On ne constate pas d’impact négatif sur la main-d’œuvre disponible : les bénéficiaires de cet argent ne travaillent pas moins.

5. Les programmes ont permis d’économiser de l’argent.

Bernard Omandi sur sa moto
Crédits : NPR

Pourquoi envoyer dans les pays concernés des étrangers en 4×4 aux salaires conséquents, quand nous pouvons nous contenter d’y envoyer de l’argent ? Cela diminuerait aussi considérablement le risque que des fonctionnaires corrompus prennent leur part au passage. L’argent gratuit stimule l’économie toute entière : la consommation progresse et engendre davantage d’offres d’emplois et des revenus plus élevés.

« La pauvreté est essentiellement un problème de manque d’argent, ça n’a rien à voir avec la stupidité », remarque l’auteur Joseph Hanlon. « On ne peut pas se remonter les manches quand on n’a pas de chemise. »
LISEZ ICI LA SUITE DE L’HISTOIRE
LE REVENU MINIMUM UNIVERSEL
EST-IL LA SOLUTION À LA CRISE ?

Traduit de l’anglais par Nicolas Prouillac et Arthur Scheuer d’après un essai adapté du livre Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek, de Rutger Bregman. Utopia for Realists est né sur De Correspondent et le livre est disponible sur Amazon.

Couverture : Illustration par De Correspondent.

Economic Dysfunction & solutions !

From The Valley of The 7:

Confessions of a Former Swiss Banker

de Joe Gaudet Films

https://vimeo.com/136794177

SOCIAL CREDIT ECONOMICS in Summary

A précis of Professor Oliver Heydorn’s Social Credit Economics by Professor Ronnie Lessem

Part 1 : The Origin of Economic Dysfunction in the Modern World

The Fulfilment of the Economy’s True Purpose

Seven Stages of Economic Development

Oliver Heydorn (1) is a philosopher, who graduated from the International Academy of Philosophy at the Pontifical Catholic University in Chile. He is also, now as a Canadian resident, founder of the Clifford High Douglas Institute for the Study and Promotion of Social Credit in Canada. Clifford Douglas was in fact an English engineer and accountant in the first half of the 20th century, who happened to have a particularly strong influence in Canada, and who was the originator of the so called social credit movement in the Anglo-Saxon world. Heydorn starts his monumental tome by outlining Douglas’ stages of economic development.

Whenever the primary, or first, condition of economic progress has been met, for Heydorn as for Douglas, whenever the time-energy units procured are greater than those units consumed, how the surplus units are to be spent is up to the hypothetical lone individual. The production of tools, secondly, also results in the acquisition of knowledge, the knowledge of how best to use these tools and the knowledge necessary to replace them after they have been worn out. It also occasions the knowledge required to improve them and to create new types of tools. Both types of inheritance, thirdly, tend to enrich themselves as each generation does not merely receive from the past but adds its own discoveries and accomplishments to those that preceded it.

The lone individual can then enter into an active economic association with other individuals in pursuit of a common objective, thereby multiplying the economic power of each member. This constitutes the fourth discernible stage in the human development of raw productive capacity. The fifth stage in raw productive power via the application of human creative power involves the conscious harnessing of forms of energy other than mere human labour in the process of production. The introduction of solar and other natural energies has a significant influence on efficiency.

This brings us to the sixth stage, the introduction of the now self-operating machine. A society which has given rise to such will find itself in the grips of a dichotomy. On the one hand, engineers, scientists, industrialists and others, by furthering the development of technology, will be working incessantly on labour displacement. On the other hand, politicians and the disadvantaged will be ever more preoccupied with the elimination of the growing, consequent “unemployment problem”. There is then, for Douglas, a hopeless conflict of objectives. If the scientists and engineers succeed more and more people will be displaced. For the unemployed and political caretakers society should go back to manual labour. It is impossible for both lines of action to be realized simultaneously.

In reality though, the release of a certain percentage of the workforce from the necessity of toil is a definite component of true economic progress, indicating as it does the capacity of the community to liberate at least some of its members from the economic duties imposed by nature. This will require that other ways be found by means of which the unemployed can nevertheless have access to the fruits of production. Being unemployed must cease to be synonymous with being poor or destitute.

The seventh and final stage in the development of the human dimension of raw

economic power begins with the introduction of “intelligent” machines, that is machines

that receive, store, process, transform and transmit information. Information

technologies and the emergence of artificial intelligence, made practicable by

development in electronics, such as the transistor and the silicon chip, hold the

potential to increase the raw productive capacity of an association to an enormous

degree, while simultaneously magnifying the phenomenon of labour displacement. As

Douglas noted, the Marxist view is :

.. based on the fallacy that labour, as such, produces all wealth, whereas the simple fact is

that production is 95% a matter of tools and process, which tools and processes form the

inheritance of the community not as workers, but as a community (Douglas C.H., 1974,

Economic Democracy. Sudbury, England. Bloomfield Books)

The standard enumeration of the factors of production by economic orthodoxy, then, in terms of land, labour and capital has ceased to be accurate because it has failed to incorporate precisely those factors that are most important in an industrialized economy. For Douglas :

The original conception of the classical economist that wealth arises from the interaction of land, labour and capital was a materialistic conception which did not contemplate the preponderance of intangible factors in the modern production process. The cultural inheritance, and what may be called the “unearned increment of association” represent factors that are increasing in importance so rapidly that other factors are becoming negligible in comparison (Douglas C.H. Social Credit. New York. Gordon Press).

The Present Stage of Economic Development in Britain

In 1923, almost a century ago, Douglas was able, as an experienced engineer, to give the following assessment of his native England’s stage of economic development :

One tenth of the available labour, working short hours but with the whole of its attention directed solely to the objective of the most efficient production, could supply all the general demands of the population of the country, either by direct production, or by exchange of proper methods for the production of other countries, in respect of articles which cannot reasonably be produced at home; in other words, production, as a problem, has been solved long ago (Douglas C.H., 1979, The Breakdown of the Employment System. Vancouver. The Institute of Economic Democracy).

Empirical confirmation of the general accuracy of Douglas’ above statement, according to Heydorn, was most spectacularly provided in his own lifetime by the activities of the U.S. during the Second World War :

During the war, the general standard of living in America rose by 40%; at the same time 21 million people were engaged in the armed forces and in munition production, and were therefore a pure drain on the resources of the country .. demonstrating that a small proportion of the population could provide the requirements for a high standard of living for the whole population (Monahan B, 1967, An Introduction to Social Credit. London. K.R.P. Publications).

The effect of labour displacement is now so great, then, and the capacity for re-absorption so correspondingly small, that it is becoming impossible to hide the brute physical efficiency of the economy; unemployment is becoming an ever greater problem. At the same time, in Douglas’ view, the likelihood is that the real percentage of the available workforce that will be necessary to produce the desired goods, as and when and where required with the least trouble to everyone, will be less than 20% of the employable population. Overall then, for Heydorn, we are somewhere between the beginning and completion of the seventh stage of economic development and rapidly progressing toward “the end of economic history”. What does that more specifically mean for the nature and scope of a “social credit” economy?

Poverty in the Midst of Plenty/Servility in the Place of Freedom

The true purpose of economic association, for Douglas as we also saw from Rudolf Steiner, earlier, is twofold : first, to deliver the goods and services that individuals desire, and, second, to do this with the least amount of trouble to everyone. Insofar as any economic system fails to achieve the first end to the extent that it is physically possible and desirable, we are confronted with the phenomenon of “poverty in the midst of plenty”, and insofar as any economic system fails to achieve the second end to the extent that it is physically possible and desirable, we encounter the phenomenon of “servility in the place of freedom”.

The expression “poverty in the midst of plenty” then describes a paradox that has characterized the economic life of nations from at least the early years of the 20th century. On the one hand, we live in a “developed” world which, thanks to the industrial revolution with its introduction of machines and its harnessing of new sources of energy, can easily supply all the goods and services that individuals can profitably use, and yet, on the other hand, we live in a world where an enormous real demand for both goods and services is left unsatisfied.

In developing countries, this phenomenon is most commonly experienced as a lack of useful production even though the raw materials, the labour, the knowhow and the desire to consume are all present or could easily be acquired. How many people then in Africa, Asia or Latin America are threatened with starvation, suffer from preventable diseases, or are illiterate or unskilled, when the physical means to present all of such exist? How is it that the astonishing rates of unemployment in the third world (which represent their productive capacity) happen to co-exist alongside massive poverty?

In developed nations, the phenomenon of “poverty in the midst of plenty’ manifests itself not so much in a lack of useful production as in the ability to fully satisfy the needs and desires of consumers because already existing production cannot be distributed. We have, on the one hand, a situation in which the productive system produces more goods and services than can be distributed and is even capable of producing much more actually and potentially. On the other hand, there are many people who, though in need or desirous of certain goods and services, are nevertheless forced to go without.

Furthermore, as technology advances, the number of people required to work in the industrial system is continually decreasing. These realities are not duly reflected, however, by the current economic arrangements that govern modern, industrial societies. Instead, there is almost universal insistence on the objective of “full employment” as an ideal state of affairs. Instead of enjoying release from the economic necessity to work in terms leisure, artificial “make-work” is imposed on the individual since this is typically the only way he can obtain the money he or she needs to look after necessities. For Douglas :

If the ordinary man has to work hard and long hours to obtain a precarious existence, then for him civilisation fails. (Douglas C.H, 1922, The Control and Distribution of Production, London. Cecil Palmer).

Moreover :

The abolition of poverty in the midst of plenty, important as that is, is not the core of the problem. It is conceivable that people might be provided for as well-fed slaves. (Douglas C.H., 1936, The Approach to Reality. London. K.R.P. Publications).

All Conventional Systems Fail to Fulfil the Purpose of Economic Association

Which of the conventional economic systems has abolished poverty in the midst of plenty? Some have been more successful than others but which has completely abolished the spectacle of poverty when, in the modern world, it is perfectly practical to do so, from a realistic assessment of our economic potential. Neither Laissez Faire capitalism, not Marxist Socialism, nor a Mixed Economy, has succeeded.

Thanks to the development of industrial technologies, for Heydorn then, in combination with the bounty of the natural world, physical abundance has replaced physical scarcity, and hence we need a “New Economics”, that is one based on the facts of abundance, to replace “Old Economics”, one based on conditions of scarcity which no longer exist, or need not exist. Such is the promise, as we shall see, of Social Credit economics. What then gets in the way of such promise?

Finance Artificially Limits Economic Social Credit

The Nature of the Standard Financial System

If all conventional economic systems fail to facilitate adequately the true purpose of economic association, why do they fail? How well a thing fulfils its purpose is contingent on the nature and extent of the power which is available for the realization of that purpose. In the case of associations, Douglas referred to this power as “the social credit’. In fact the social credit (see below) of contemporary economic associations is limited to a large extent by the nature of the standard financial system :

Unrestrained by the financial system, the resources of modern production would be sufficient to provide for the material desires of the whole population of the world at the expense of a small, and decreasing amount of labour (Douglas C.H., 1979, The Monopoly of Credit. Sudbury, England. Bloomfield Books)

The financial system fails to successfully unite, in the best possible manner, the real demands of consumers for goods and services and of workers for leisure with the real capacity to satisfy these demands. This results in the paradoxes of “poverty in the midst of plenty” and of “servility in the place of freedom”. As a matter of fact the restraining effect that the financial system exerts on the actualization of our physical economic potential is so intense and pervasive, according to Heydorn, that its dysfunctional nature constitutes the chief cause underlying economic problems worldwide, together with the accompanying personal, social, political, cultural and environmental catastrophes. The problem of production then, is a problem of physical scarcity, has long been solved by the industrial development of our raw productive capacity; the current “problem of production” is a problem of catalysing or distributing production. Both of these difficulties owe their existence to the dysfunctional financial system.

The Limits to Growth

It is quite clear therefore that the economic difficulties of developed nations cannot be adequately dealt with by ever-increasing and indiscriminate economic “growth”, that is more production, larger exports, and harder work, as advocated by neo-liberal capitalists. It follows that the solution to economic problems cannot be found in state or communal ownership of the means of production, in a planned economy, or in progressive taxation. None of these remedies addresses the core of the problem, which has to do with the structural nature of the financial system.

Why Does Finance Artificiality Limit the Economic Social Credit?

What is the Financial System?

It is not finance per se then, but the misdirection of finance that artificially limits its economic social credit. The financial system is in effect the soul of the economic body. Finance mobilizes and coordinates economic energies and distributes their physical output. It supplies an incentive for economic cooperation by giving individuals a reason to believe that by the means of the financial system the things they need can be more easily produced, distributed and consumed; it maintains an accounting system to keep track of the materials, machinery and labour that are expended in the course of production and the costs that are built up; and finally it distributes the money. What then is the nature of money?

The Nature of Money

According to mainstream economic theory, money can be understood as, first, a medium of exchange, second a unit of account, third a store of value, and fourth a standard of deferred payments. In serving as a medium of exchange money ensures people have something to sell, for money. As a unit of account money enables the prices of goods to be calculated and expressed in a commonly accepted manner. As a store of value money makes it possible for people to save their incomes in view of future exchanges. Finally, as a standard of deferred payments money allows for contracts to be written in the present with respect to future payments for present exchanges.

In a modern, industrialized economy, money is increasingly a means of distribution rather than a means of exchange. A unit of money is nothing more than a ticket, the purpose of which is to relate a real demand to a real capacity to satisfy that demand.

Real Credit versus Financial Credit

Before we proceed to a consideration of the true purpose of the financial system, it is necessary, Heydorn maintains, to make a distinction between real credit and financial credit. Real credit is defined by Douglas as “the rate at which goods and services can be delivered, as, when, and where required”, whereas financial credit is defined as “the rate at which money can be delivered as, when and where required”. The two are related because the real credit serves as the basis for the financial credit. It is the faith of a society in its real credit which is the ultimate source of “value” of its financial credit.

The True Purpose, or Otherwise, of the Financial System

The financial system came into being (and is maintained) because it serves as a tool or device by means of which the delivery of goods and services, as, when, and where required can be carried out in an optimal manner. In keeping with this conception of the financial system, the true purpose of financial credit must be to enable real credit to be fully actualized by, firstly, adequately catalysing production processes, and secondly, adequately distributing to individual consumers the real wealth that results from these processes. Yet in actual fact the financial system, for Heydorn, is designed in such a way that the benefits which can be derived from the use of both communal and also individual economic resources within the context of an association accrue, in a grossly disproportionate manner, to an elite few.

The current “anti-functional” financial “monopoly credit” then works as if its purpose were to bequeath, to the greatest possible extent, a bouquet of undue economic benefits in the form of wealth and power to the owners of the financial system. The actual economy then functions as a system of government in the service of an oligarchy. Beyond working for an employer (in exchange for salaries and wages) and for government, via taxes, we work as such, according to Heydorn, above all to secure and increase the wealth, prestige and power of the financiers.

How Does Finance Artificially Limit the Economic Social Credit?

Subordination of Real Credit to Financial Credit

More specifically then real credit is subordinated to financial credit as numbers become more important than real things. Indeed, money is often so highly prized as an end in itself by our contemporary civilization that it is even regarded by some as a kind of super-commodity, the acquisition of which constitutes the be all and end all of all economic activity and even of life itself. The Biblical claim that “the love of money is the root of all evil” does not appear to be an exaggeration. We are enslaved, according to Douglas, by a numerical abstraction.

The real credit is the substance; the financial credit is only its shadow. The tool, acquiring the function of a control mechanism, becomes more important than the thing which, by nature, it was introduced to serve.

The Annexation of Financial Credit

Not only does the financial system maintain financial credit in a state of artificial scarcity, therefore, the banks also claim ownership of all the financial credit which they create. It is critical then for us to realize that in claiming ownership of the financial credit they originate, the banks are in fact usurping the legitimate property rights of the individuals who compose society. In reality, the value of financial credit is ultimately derived from real credit. If there were no capacity to produce goods and services, as when and where required, financial credit would be valueless and there would be no reason to create it. Where then is that real credit located?

Apart from those aspects of the real credit which are a function of the labour and enterprise of individual human beings, the real credit also depends on natural resources (which are free gifts of God of which each individual may claim their share), on the unearned increment of economic association, on the cultural heritage, and on the individual desire to consume goods and services. In virtue of all these factors, every individual in the community can make a legitimate claim to a personal share in the beneficial ownership of real credit. Thus, if financial credit derives its value from real credit, then the creation and use of financial credit should always be determined by the course of action that will most benefit the true owners of real credit, that is the individuals who compose society.

Monopoly Control of Credit

Both the subordination of the real credit to financial credit and the annexation of financial credit by an elite few are maintained as constituent elements of what Heydorn terms a ‘financial harness”, the monopoly that an elite holds over the creation of financial credit.

In contrast, in days gone by, when many people lived on the land and were able to provide from themselves by administering the land, a large proportion of them could deliver the goods and services that were needed, as, when and where they required them without relying to any great extent on the institution of money. Today finance is so pervasively established that its willingness to co-operate by issuing money is, in many cases, a necessary condition for the actualization of real credit. For Douglas then :

You have an enormous vested interest possessing the most powerful monopoly that the whole history of the world has ever known, the monopoly, as we call it, of credit, the monopoly of the creation of and dealing in money, a monopoly against which any other monopoly pales into insignificance (Douglas C.H., 1978, Money and the Price System, Vancouver. The Institute of Economic Democracy).

There is nothing either in the inherent nature of the universe or in the requirements of a functioning economic system that might require economic agents to be at the mercy of financial institutions in this manner. Money under the Monopoly of Credit is artificially scarce, firstly, and so there is never enough to actualize the Real Credit in its entirety. In the second place, the financial system typically earmarks this inadequate volume of money to those governments, businesses and individuals who are likely to engage in economic activities which, from the point of view of the banks, deliver a maximum return. This results in patterns of production, distribution, and consumption that are quite often at odds with what those patterns would be if the actualization of real credit alone was regarded as the whole point of economic activity, thereby serving the purpose of true economic association.

The Artificial Scarcity of Financial Credit

The current financial system then, by not automatically providing sufficient credit to mirror the real credit, fails to fully catalyse useful production. As Douglas observed :

A phrase such as “there is no money in the country with which to do such and so” means nothing unless we are also saying “the goods and services to do this thing do not exist

and cannot be produced, therefore it is useless to create the money equivalent of them”. For instance, it is simply childish to say that a country has no money for social betterment, or any other purpose, when it has the skill, the people and the material and plant to create that betterment. The banks and the Treasury could create the money in 5 minutes, and have been doing that for centuries (Douglas C.H., 1922, The Control and Distribution of Production, London. Cecil Palmer).

As long as there is real demand, and, on the other side, a real capacity to satisfy that demand, there can be no legitimate economic reason, for Heyborn as for Douglas, for refusing to issue money that is necessary to link the two by catalysing useful production. What is physically possible is financially possible. For Douglas again :

The immediate cause of poverty in the developing world lies in a lack of producer purchasing power with which productive processes might be catalysed and the real credit actualized (Douglas C.H., 1974, Economic Democracy. Sudbury, England, Bloomfield Books).

And he goes on to say :

.. the core of the crisis the world is going through .. what the population of the world wants, and is determined to get, is a sufficiency of goods and services; there is no lack of these goods and services, either actual or potential, but they cannot be obtained except through the agency of money of which there is a lack. This lack of money is, in no sense, natural, in the sense of being unavoidable, but is wholly artificial, and is the result of deliberate policy in the operation of the money system, although that policy may not perhaps be wholly conscious (Douglas C.H., 1979, The Breakdown of the Employment System. Vancouver. The Institute of Democracy).

In fact some of the unsatisfied real demand is actually caused by surplus productive capacity in the form of unemployment. It is an extraordinary thing then that it is possible to have poverty as the result of surplus productive capacity. What is needed, according to Heydorn, is additional purchasing power, not more work. We now turn specifically to fractional reserve banking.

The Financial Mechanism of Artificial Scarcity : Fractional Reserve Banking

The fractional reserve system largely determines the nature of money which can serve as the life-blood of a nation’s economy, the rate at which it can flow, and the conditions under which it can be issued. The first aspect of such a system is that, under its rubrics, the banks have the power to create money out of nothing. The new money that the banks create exists in the form of bank credit (intangible numbers formerly represented as numerals on paper and nowadays by electronic blips on computer screens).

For Douglas then :

The great thing to notice about this situation is that the creation of wealth – the real creation of goods and services which go to make a standard of living, the thing which goes to make a difference between starvation and comfort, and makes all those things that we call civilisation – the actual making of these things is carried on by one organization, but the making of money, by which alone these things can be transferred from the producers of wealth to those who wish to consume it, is carried on by an entirely separate organization, having no real connection with the production of wealth at all.

It is as if you had a railway in which one set of people were providing trains, rolling stock, signals and railway stations – everything including the people needed to operate the railway – and you had a totally separate organization which had control of the ticket office, saying, “we will do anything we like with issuing or restricting tickets just to suit our own purposes (Douglas C.H., 1943, Reconstruction. Liverpool. K.R.P. Publications)

Not only then do banks create money ex nihilo in the form of bank credit, the money is almost always created in the form of interest-bearing debt. In fact the creation and sale of debt-money is the sine qua non of the present banking business. The banks implicitly claim the ownership of the credit they create and lend it to “make money” for themselves. It is commonly the case, moreover, that well over 95% of the money supply of an industrialised country exists as bank-credit. And since bank-credit is typically created as interest-bearing debt, the present system is correctly described as a debt-based system. Moreover, whenever debt-money is issued, it is issued on terms that maximize the financial advantages to those running the banking system.

The banking system, therefore, does not conceive of its due recompense as coming from its service to the community but as coming from the use of the money it creates in order to forward its own interests – even at the expense of the community. As such the banks, for Heydorn, are anti-social rather than social institutions. In fact, for Douglas : “the claim of the banking system to the ownership of money which it creates is a claim to the ownership of the country” (Douglas C.H, 1938, Warning Democracy. London. Stanley Nott). Specifically then, the dominating position which the banks exercise over effective demand translates into the financial domination over the formal economy as a whole.

Preventing the Artificial Scarcity of Consumer Credit

Douglas was indeed completely in favour of retaining the practice of production for profit, provided that consumers were in full control of the policy of production, leading to the optimal satisfaction of consumer needs with the least amount of trouble to everyone. This is what he meant by functionalist as opposed to anti-functionalist profit making.

Moreover, the rate at which purchasing power is being made available can be made equal to the rate at which prices are being built up if and only if additional purchasing power is provided. In fact Douglas observed time and time again that prices tended to race ahead of consumer purchasing power because : (1) production is of a multi-stage nature over a period of time; (2) the firm is recovering its costs; (3) production is financed through the debt-money system.

One very important implication of the Social Credit approach (see below) is that the necessary disparity in the rates of flow, between real and financial credit, must be further exacerbated by the progressive displacement of labour by machinery. As technology improves fewer people are required to work the industrial machine. The banks meanwhile have another agenda.

The Nature and Mechanism of Financial Benefits

Today Heydorn affirms, consider the speculative use of various financial instruments, which people purchase in the hopes of obtaining a monetary reward, that have no direct connection with the real economy at all. These include stocks and derivatives, the latter including futures, forwards, swaps, and options. Financial credit, ultimately created on the basis of real credit, is employed with no other intention than to multiply financial credits as ends in themselves.

It is estimated moreover that the vast majority of foreign currency exchange (98%), for example, is conducted for speculative purposes and that even the bulk of international trade is purely financial, that is money exchanged for money or financial products. In many ways, economic globalization is not primarily about trading real goods on the basis of different comparative advantages, but about trading money for money. How exactly growth of this nature is supposed to overcome poverty in a trickle-down process is anybody’s guess. Though the proceeds derived from these activities are separated from the real economy in their point of origin, they nevertheless deliver control over real resources to their recipients. When we further consider that the financial credit that may be used in these transactions is not really the property of the banks to begin with, but the property of individual members of the community, such practices, for Heydorn, must constitute the worst forms of gambling conceivable.

In summary for him, the specific benefits that can be derived from a financial system which is operated as a private monopoly would appear to be threefold and intimately related : (1) financial wealth (and the access to real resources this implies); (2) social prestige; and (3) political power over social and economic policy. Within the parameters of an economic system plagued with an artificial scarcity of financial credit, moreover, businesses have no choice but to try to make as great a monetary profit as possible, as a means of increasing their credit ratings with banks. For Douglas then :

In the case of nation, as at present situated, all the alleged services it renders to the public composing it are supposed to be paid eventually by taxes. That is to say to make its receipts in taxation equal or exceed its expenditure, and in addition to have as large as possible a surplus to pay the interest on loans created by the financial hierarchy (Douglas D.H., 1933, Credit, Power and Democracy. Melbourne. Social Credit Press.

One need only compare which types of jobs, moreover, are highly valued by the “free market” under the influence of credit monopoly, in terms of wages and salaries, with those that are not, and we will find that people are paid not in terms of the real contribution they make to social welfare, but in terms of how useful their activity is deemed from the point of view of credit monopolists. Money and the money system then, as far as our contemporary civilization is concerned, for Douglas, now occupies the place of religion.

Every individual and group is then in a position of lack or potential lack as far as financial credit is concerned. Some individuals and groups will end up with more than enough financial credit to meet their needs, others with just enough, and the majority of the world’s population with an insufficient amount. The mechanism of cultural conditioning, moreover, is such that the favoured few at the top must be seen to engage in conspicuous consumption on “prestigious” pursuits, luxury items, and other forms of waste. This ostentatious display of their wealth both establishes and confirms their “high” status. While the common individual may never attain the levels of success of the “rich and famous”, he is nevertheless encouraged by the mass media to identify with the elite the practice of emulative consumption. The only alternative which is juxtaposed to staying on the treadmill and running ever more quickly on it is, correctly or incorrectly, a state of chronic dissatisfaction.

Transfer of Purchasing Power

The charging of compound interest, moreover, on debt-money acts as a siphon that constantly redistributes purchasing power from the lower 90% of households to the top 10%, thus increasing the gap between rich and poor and reinforcing the hierarchy of wealth, power and privilege. Insofar as both producer and consumer credits are only advanced on the basis of some collateral, the present money system also ensures that large quantities of real property are actually under lien to the banks. By means of public debts, additionally, it is likewise possible for a whole city, region or country to be under lien to financial powers.

The larger the productive organization, moreover, the greater is its capacity to take advantage of economies of scale in order to lower costs in financial terms, and the greater its capacity to simultaneously extend the market for its products. In an economy in which, due to the artificial scarcity of consumer incomes, the production of cheap, mass-produced goods is doubly favoured, such organizations are much better placed to make the largest profits. This tendency towards centralisation, for Douglas, meant :

.. Capitalism died an unhallowed death 75 years ago (writing almost a century ago), and that driving force of the system which, more than any other cause, has produced the tangle of misery and unrest in which the world now welters is Creditism (Douglas C.H, 1922, The Control of Distribution of Production. London, Cecil Palmer).

The ultimate frontier in economic centralization is, of course, globalization, or the centralization of power over the world economy in fewer and fewer hands. One of the main mechanisms for achieving this is “free trade”. By eliminating or at least lowering barriers to trade between nations, the smaller and medium sized firms grounded in particular localities lose some of the protections which offset the financial advantages that accrue to large multinationals under the Monopoly of Credit. Unlike such multinationals nationally based industries cannot play off countries against one another by producing in the cheapest markets and selling in the most expensive ones. The result is a loss of jobs in developed nations, while labour and the environment are exploited in the third world for the benefit of first world financiers and corporate interests.

The Opportunity Cost of Monopoly Credit

The service for which banks should be able to make a financial profit, according to Heydorn, is the full actualization of the real credit of the community, that is their financial profit should be dependent on facilitating the maximization of the real profit of the community, on the production and distribution of the desired goods and services with the least amount of trouble to everyone. They should not be paid and should not be making a profit for cornering the market in money and using it as a lever for the sake of the proliferation of monetary profits and power – as if these were sufficient ends in themselves.

Let us consider one concrete example. An unemployed individual may be forced to accept employment in a project that has no realistic connection with his own economic needs and desires. Let’s suppose he is recruited into the armaments industry. While employed he will be busy producing weapons, bombs and so on which he could never make profitable use of himself as a consumer. His activity contributes nothing to useful production (unless the security of his country is under real threat). However, by advancing production loans to the armament industry, the banks misdirect economic activity to a purpose that would not be independently desired by customers. At the same time, the armaments industry is extremely profitable to the banks in financial terms.

Overall, moreover, making an economy as a whole work involves the contracting of ever increasing, and in the aggregate, unrepayable debts by governments, businesses and individuals, such that the richer an economy is in real terms (the greater its capital and consumable assets) the poorer it is in terms of the general level of indebtedness. Such a state of affairs, while financially endorsed, undermines and perverts the real economy. One prime example is the orientation of economies in the third world toward production for export in an attempt to obtain fresh money from an already glutted world market in order to meet the demands of international financiers for the repayment of debts and interest. This occurs in lieu of domestic improvements in terms of infrastructure, agriculture, educational and health systems.

Such an economy is greatly at odds with what it could and should be if the financial system sought only to reflect reality and therefore functioned as nothing more than a faithful servant of the desire of people to actualize the real credit of their economic associations.

We now turn to macroeconomic management.

Part 11 Conventional Methods of Macroeconomic Management

Analysis of the Conventional Methods of Macroeconomic Management

Conventional Techniques for Overcoming Deficiencies of Consumer Incomes

In Part 1 on “The Origin of Economic Dysfunction in the Economic World”, Heydorn acquainted us with the fact that, as a result of the various sources of income deficiency, the rate at which final price-values are generated by the industrial system is always greater than the rate at which the corresponding consumer income, directly derived from the same processes, can be made available to liquidate those prices. There is an underlying macroeconomic deficiency of consumer income. For Douglas then, by way of compensation for such :

The main forms in which assistance is given to the defective purchasing power of the population are the redistribution of money through the social services such as the so-called dole, and the distribution of bank loans (Douglas D.H, The Monopoly of Credit. Sudbury. England. Bloomfield Books)

Moreover, one of the most important methods presently employed by the financial system to bridge the macroeconomic deficiency of consumer purchasing power, a method that was not widely used in Douglas’ lifetime, is the direct extension of debt-money to consumers for the purpose of facilitating consumption. Mortgages, car loans, educational, personal lines of credit, credit cards, instalment purchasing, are all necessary, not because people are inexorably inclined to live beyond their means, but because the production of the economy cannot be bought in its entirety without the increasing level of consumer purchasing power. Increased quantities of debt-money for consumption are becoming more and more an essential adjunct of the economy without which it would collapse.

The quantity of debt owed by consumers has steadily increased as a percentage of their incomes in various Western countries over the last few decades. The drawback to the use of consumer debt as a means of bridging the gap (the same applies to government debt) is that future incomes will be depleted to the extent that they have been mortgaged in order to pay back the sums borrowed, plus interest; this means that the gap will be intensified in subsequent periods. For Douglas :

If we take 1800 as the origin, and then take 100 years from there, world debt has increased by the power of four (Douglas C.H., 1978, Money and the Price System, Vancouver. The Institute of Economic Democracy).

What then are the overall implications?

An Evaluation of the Conventional Methods of Macroeconomic Management

Economic Efficiency

Our economic resources are not fully or clearly directed to the procurement of what we really want out of our economic associations and so the insane spectacle, for Heydorn, of the paradox of poverty in the midst of plenty in conjunction with the production of incalculable waste continues. All of this exists, he says, because the policy of production is largely determined by a self-serving financial system and not by an independent body of consumers, properly financed in exchange for the work that is done in the production of autonomously desirable consumables.

The conventional methods of compensating for the gap compel individuals to work longer and harder, often under considerable psychological stress. Instead of being able to lift the economic burden off their shoulders in the easiest possible manner, with the least amount of time and energy expended, individuals are forced to waste their precious resources in the “make-work” of servile labour. The vast majority of individuals are obliged to work for the formal economy, to receive sufficient purchasing power to live, whether their work is required to fulfil the true purpose of economic association or not. Indeed, how many jobs make no real contribution to essential production, and are simply cancerous outgrowths of a dysfunctional system?

The general inefficiency of the present economic system is most sharply thrown into relief when one considers the physical processes of production, thanks to the employment of power-driven machinery having become a thousand times more efficient than it was in the Middle Ages. And yet, in many cases, the standard of living in the industrial period is merely marginally better. For Douglas :

At the present time, when every man, woman and child has on the average at least ten times the mechanical energy of the strongest man, and the knowledge available for his or her use is incomparably greater, the struggle for existence is probably more intense than it ever was, a large portion of the working population living in abominable conditions

(Douglas D.H., 1922, These Present Discontents. London. Cecil Palmer).

Moreover, according to Boyle and Simms in their recent book The New Economics :

Victorian economists calculated that the average English peasant in 1495 needed to work annually for 15 weeks to earn the money he needed to survive for the year, supported as people were by access to the common land. Now GDP tells us we are considerably richer, yet it is difficult to buy a house in southern England and live a reasonable life without both partners working flat out all year (Boyle D and Simms A. New Economics. London. Earthscan)

Ultimately then, for Heydorn, the misdirection of effort and consequent inefficiency is due to the dysfunctional nature of the current financial system in combination with certain antiquated economic rules such as the necessity for full employment. Where does this then lead?

A Just Distribution of Harms and Benefits

Failure to Distribute Communal Profit : Present economic organization, for Heydorn therefore, is intrinsically unjust for the same reason that it is ineffective and inefficient : the population never derives enough income from the production of the desired goods and services so as to able to purchase that production in its entirety. The return for effort is much less than it should be because the capacity to produce is not automatically balanced by the financial capacity to consume. There is, instead, a failure to freely distribute the communal profit, that is the proportion of production that cannot be purchased by the insufficient volume of consumer incomes.

The population, for him then, is being continually defrauded; more specifically, each individual is denied free access to the communal profit upon which each has a natural claim. Under the existing economic system, individuals can only share in the collective profit (made possible by the unearned increment of association and the application of the cultural heritage in the use of power driven machinery) by going further into debt, and/or working harder on the production of more goods and services.

Unjust Taxation Systems : The prevailing structure of economic organization moreover, according to Heydorn, involves a tax system that is fundamentally unjust, in that it completely inverts the idea that the population should have free access to the communal profit. In fact a large proportion of the monies paid in taxes are actually employed in meeting the interest payments on government debts. Yet the reality is that no government is obligated to borrow money to fund its operations, as it could simply create the necessary credit itself. Taxation to cover loans is therefore unnecessary. Ultimately then, the key cause behind poverty is a lack of aggregate consumer purchasing power, he says, rather than its maldistribution.

Wage and Debt Slavery : Meanwhile the vast majority of economic agents are not in such a financially favourable position that they can opt out and “refuse to play the game”. The contracting of debt-money is all too often needed. But once an economic association has collectively acquired debts, the necessity of having to work in perpetuity to pay off debt forcefully imposes itself. The weaker individuals and nations in the economic pyramid, according to Heydorn, are in a condition of debt and wage-slavery.

Third World Debt : The international financial system moreover, consisting of the key Institutions of the World Bank, the Bank of International Settlements, the International Monetary Fund and the World Trade Organization, most of the world’s central banks and multinational commercial banks, reproduces on an international scale the same type of social structure that characterizes national economies. Some countries are high up in the international economic pyramid and others low down. Worst off are those third world countries seeking access to international credit.

Many third world countries have paid back their original debts several times over. Nevertheless, these debts remain and often continue to grow due to the charging of compound interest. Instead of being able to use tax revenues for health, education and the development of infrastructure, these nations must direct a large proportion of their national income to servicing international debts. At the same time often access to such is circumscribed by so called structural adjustment programs.

A Due Economic Order : Heavily pressured then to put the maximization of “financial goodness” ahead of any and all other forms of goodness, the choices which individuals and institutions make are very often at odds with the choices that would enable them to live well, that is in harmony with their own best interests, with those of society, and with those of the natural world.

For those who don’t have enough money to meet their needs, moreover, the artificial scarcity of money is generally experienced as a burden, whereas those who occupy the upper echelons of the economic pyramid experience the artificial scarcity of money as something positive, since it is the source of their wealth, status and power. The problem is, moreover, that while one is free to serve Mammon, so to speak, one is not free to alter the laws which are embedded in the economic system.

Intense Competition for Money : The underlying deficiency in consumer incomes, overall then for Heydorn, means that the economic system is inherently insolvent. The spectacle of the ordinary individual trying to make ends meet is not therefore a natural or unavoidable component of economic life nor is necessarily due to the greed or incompetence of the individual; rather it is a necessary implication of an economy operating from a position of gross insolvency.

At the same time, the work of psychological manipulation through image creation and branding is greatly facilitated by the fact that the bulk of consumers, stuck as they are on producer-consumer treadmill while loaded with debt, are most eager to find some comfort, some solace in the product that can temporarily alleviate their economic and psychological insecurities. For English economist Michael Rowbottom then :

Because they too are reliant upon work for a salary, masses of creative, intelligent people are employed in research which might indicate some gap in the market; some crack or tiny opening into people’s desires which can be opened up with a penetrating advert and turned into a money-spinner. This is not consumer demand but blatant aggression against the consumer, who is becoming part of the industrial process, subservient to the need for turnover, employment and constant growth (Rowbottom M, 1998, The Grip of Death, Charlbury, Oxfordshire, Jon Carpenter Publishing).

The dizzying dynamism of the commercial world is then a tragic manifestation, for Heydorn, of economic entropy.

Intrusive Government Bureaucracy : On the side of the worker, meanwhile as such, the lack of money that comes as a result of unemployment necessitates government bureaucracies to reduce the potential conflict by managing unemployment insurance, welfare, job creation and so on. This growth of government bureaucracy is deemed “good”, but if a country had a proper financial system, for Heydorn, none of this would be needed, and in fact, for him, it is a tremendous misdirection of collective effort.

Governments need to reduce expenditures meanwhile, is especially urgent whenever, as a result of increasing debt levels, they find it increasingly difficult to balance their budgets. Being a ‘good” government, in financial terms, might therefore mean certain goods and services will not be delivered. From a Social Credit viewpoint though, a government which fails in its duties to provide the goods and services the public legitimately desires is actually a bad government.

Forced Economic Growth : In truth then, much economic growth is undertaken not because the resultant goods and services are needed or wanted but because the lack of consumer purchasing power needs to be addressed if financial homeostasis is to be achieved. People cooperate with this misdirection of time and energy because of their wage/salary dependency. Under the structures of the prevailing economic system almost everyone must either work in order to obtain an income to purchase the things they need for survival or be supported by those who do. Since the available consumer income distributed in the production of needed goods and services is not sufficient to finance the necessary consumption, there is no shortage of labour willing to work in the programmes mandated by the necessity of forced growth.

As a direct and further consequence, every technological advance that, by increasing the efficiency of economic activity, throws people out of work and thereby represents, in real terms, a decrease in the need to work, is re-interpreted through the lens of the financial system that there is a need to create more jobs. From the point of view of the economy’s true purpose, however, economic growth which is undertaken primarily for the sake of distributing incomes involves a waste of resources, and should be avoided.

In an economy suffering from an insufficient flow of consumer incomes, moreover, much economic growth is fostered in the direction of cheap goods of low durability and poor quality and the firms (usually large multinationals) that provide them. Such cheap products favour companies that are international in scale and have access to cheap labour markets and materials and can mass produce. As their market share increases these large companies tend to take over the smaller ones. The “efficiency” of such large undertakings is the result of easy access to credit, bulk buying and price making, and has no physical reality as such.

Highly centralised production also bears a real cost in the dissatisfaction which it can engender in the individuals who labour in such operations. For Douglas :

The very efficiency with which factory operations have been established has resulted in complete divorce between the worker and the finished product, to the extent that he feels he has become part of a machine. His foreman and departmental heads are almost inevitably out of human touch with him, while bureaucratic methods contribute to constant irritation (Douglas C.H, 1974, Economic Democracy, Sudbury. Bloomfield).

Our consumerist society, moreover, which is often bewailed by social critics, is actually necessary then as an economic adjunct, and exists not because the average person is inherently greedy because forced economic growth depends on ravenous consumption to maintain its momentum. For Douglas again :

It is one of the most curious phenomena of the existing economic system that a large portion of the world’s energy, both intellectual and physical, is directed to the artificial stimulation of the desire for luxuries by advertisement and otherwise, in order that the reminder may be absorbed in what is frequently brutalizing work; to the end that “employment’ as a device for distributing purchasing power may be maintained (Douglas C.H, 1974, Economic Democracy, Sudbury. Bloomfield).

The Value of Economic Growth is Measured in Financial Not Real Terms : Because it is forced economic growth, for Heydorn then, that is growth undertaken mainly for financial reasons and independently of any real need, much of the resultant growth is actually productive of “illth”, to use the term coined by John Ruskin, that is goods and services which actually constitute evils, destroying wellbeing. For Douglas :

The whole argument which represents a manufactured article as an access to wealth to the country and to everyone concerned, no matter what its description and utility, so long as by any method it can be sold and wages distributed in respect of it, will, therefore, be seen to be a dangerous fallacy based on an entirely wrong conception, which is epitomised in the word “production”, and fostered by ignorance of financial processes (Douglas C.H, 1974, Economic Democracy, Sudbury. Bloomfield).

Real wealth, by contrast, involves goods and services which contribute to individual wellbeing. Typical examples of “illth”, by way of contrast, include armaments for export, cigarettes, processes foods and pornography.

International Economic Conflict : To further exacerbate matters, exporting in exchange for money can lead to international conflict. It is mathematically impossible for all countries of the world to have a favourable balance of trade. International trade in goods and services then is a mad scramble. So the time, energy and economic resources expended in unnecessary competition is, for Heydorn, a senseless waste.

Individual, Societal and Environmental Wellbeing : Just as the formal economy involves the production, distribution and consumption of goods, the social life of an association may also be thought of as involving economic activities, except that these are undertaken more on the basis of caring than with a desire to maximize profits. The raising and education of children in the family, and voluntary work in the community are examples.

In the same way the natural environment also produces goods and services, distributes them through natural processes, and consumes others. The value of the work then done by “Mother Nature” is inestimable.

Though the “social economy” and the “environmental economy” do not typically register in the narrow terms of a formal economy, the so-called “real economy” is nothing but a superstructure erected on the basis of social and environmental production-distribution-consumption cycles. Without the caring done in society, the formal economy would not function. In our modern world though, the fact that both the social and environmental economies are labouring under considerable stresses is inevitable, for Heydorn, given the present financial system.

The world, moreover as such, is obsessed, or possessed, by a scarcity complex. This inclines individuals and whole nations to believe that the economic fight for survival is inescapable, whereby manipulative advertising and cut-throat competition are means toward that end. Closely connected with worries induced by scarcity is the psychological stress associated with unemployment. For Douglas :

A system which will not allow the population of the world to obtain goods already in existence, without first obtaining money through the making of further goods which are not, and may never be, required, is the direct explanation of the senseless strain and hurry of the modern business world (Douglas C.H., 1979, The Monopoly of Credit, Sudbury, Bloomfield Books).

Spiritual Health : The corrosive effects of the domination of money, moreover, destroy genuine culture, Heydorn reckons, and prevent the individual from consolidating and enriching his own indemnity as a spiritual person. The primary form of expression which is available to an individual who spends most of his days labouring as a corporate wage-slave is the unabashed consumption of ephemeral things. Present economic arrangements also demoralize individuals by making it more difficult if not impossible for them to have the purchasing power and leisure necessary for the fulfilment of their creative desires. For English journalist and author Storm Jameson :

Beauty grows from the earth upwards, it does not descend to the people from angelic beings far removed from common life. When the mass of people have no leisure, when the vital seed in them is killed by making them machine serfs. If they are cheated by the social circumstances of their lives, in time the society which contains them goes bad, and smells as foul as the slums. (Storm Jameson, 1935, The Soul of Man in the Age of Leisure, London. Stanley Nott).

The Misdirection of Educational Institutions : As far as the conditions of employment are concerned then, the rapid pace of forced economic growth often requires people to change jobs, retrain, or even go back to school just so they can retain and income. Under these circumstances education has become increasingly denatured, as it can no longer be regarded as something valuable in itself, but must be seen as a means to employment. The chief and only objective of life, for Douglas, becomes “business”.

Immigration, Emigration and the Displacement of Persons : The disruptive economic forces, therefore, generated by the “Monopoly of Credit” are also largely responsible for the mass migrations of large numbers of people. For it is impossible for all countries to be economic winners under the current financial system. The exportation of human beings from countries with stagnant economies helps them to reduce the number of individuals for whom a livelihood must be provided, while the importation of human beings into countries with expanding economies helps those countries increase

their internal labour and consumer markets so that the necessary rates of economic growth can be supported.

Countries that “export” human beings are sometimes losing talented, highly trained individuals who are much needed in their countries of origin. Importing countries, on the other hand, are often faced with racial, linguistic, cultural and religious tensions that result from forcing different people to live together chiefly for the sake of economic advantage, and a concomitant loss of communal identity.

Harm to Environmental Wellbeing : The programme of forced economic activity and economic growth to which the economy is beholden is responsible for a significant proportion of the pollution of the earth’s land, air and seas. To the extent that excessive production is necessitated by the demand for increased consumer purchasing power to fill the price-income gap, to that same extent all pollution is artificially induced.

The very same factors ensure that industrial activity will lead to the generation of large amounts of pollution, that is forced economic activity and economic growth, vested interests, and the proliferation of cheaper goods, largely responsible for the depletion of no-renewable resources. Goods that are characterized by built-in obsolescence, moreover, are often preferred by consumers, because they can afford them. They are also often preferred by producers and employees because they guarantee new production and hence jobs and profits in the near future.

We now turn to ways and means of what Heydorn terms economic rehabilitation.

Part 111 The Principles of Economic Rehabilitation

Current Financial Policy Must be Replaced

Financial Laws are Created by the Agreements of People

The laws of the financial system are in fact purely conventional rather than natural in origin, that is financial laws are created by the agreements of people. For Douglas :

The money system is a wholly artificial system, having in itself nothing corresponding to natural law in its composition. It is a man-made system and can be altered to any extent by its makers (Douglas C.H., 1933. Douglas Speaks. Sydney. Douglas Social Credit Association).

The Distribution of Credit – DoC – Mechanism

Under the alternative policy of Douglas’, referred to as “The Distribution of Credit”, or DoC, the financial system would only concern itself with catalysing the desired productive process and distributing the resultant production to consumers. Financial credit would then be subordinated to real credit.

Now, for Heydorn, of all the systems of symbolic representation which we have developed to better understand and manipulate our environment, the system of financial symbols we presently employ stands out in systematically failing to correspond with the realities with which it is supposed to deal.

The Administration of a Truthful Financial System

Just as a nation moreover may have a bureau for weights and measures, a National Credit Office (NCO) or a National Credit Authority (NCA) will need to be introduced to assess, monitor and administer the foundations of that nation’s life in line with such a DoC. In fact financial credit, for Douglas as for him, rightfully belongs neither to the banking system, nor to government, but rather to the consuming public considered as individuals. Responsible to these individual citizens through their political representatives, the officials operating the NCO would be subject to censure or removal should they fail to provide satisfactory results in the fulfilment of their duties.

The first task of the NCO would be to establish and maintain a proper set of National Accounts consisting of a National Balance Sheet and Credit Account. In the case of the former, an inventory of all items within the boundaries of a country would constitute its assets : natural resources that are privately, communally or governmentally owned, capital equipment and infrastructure, intermediate goods and services, and human resources. At any given time, the call made by productive agencies on these assets (and on behalf of the consumer) would be recorded as drafts on the national credit (the nation’s productive potential) and they would constitute the nation’s liabilities. The real basis of credit then is the consuming capacity of the community.

On the credit side of the account, the officials at the NCO would tabulate the nation’s production of both capital and consumer goods/services plus imports; this would be opposed by the figures representing the consumption of both capital and consumer good/services as well as exports on the debit side. Overall then, the rate of flow of consumer purchasing power must be increased until it equates to the rate of flow of final prices of desired goods and services; the power to produce must be balanced by the power to consume.

In a Social Credit Economy, moreover, there would be no favourable balances of trade, no excessive government debt, no redistribution of incomes, no bank created debt-money in the form of loans, mortgages or lines of credit for purposes of facilitating consumption and, perhaps most importantly, no excessive production (especially capital production). Indeed since real capital is a function, above all, of the cultural heritage of a civilization, a factor of production that belongs to the whole community and cannot be privatized, a share of the real profit on the sale of goods and services belongs to each individual member of society, and should be distributed freely to them.

At present, we are less rich financially than we are in real terms, and, to make matters worse, the extent of the real wealth which is produced is accompanied by a great deal of “illth”. The introduction of a National Balance Sheet and National Credit Account would allow us to be rich in financial terms as we are in real terms and would even allow us to increase our real wealth to any extent desirable, while simultaneously eliminating the production of waste.

Under Social Credit then, private banks would continue to lend credit to local firms for production. However, in contrast with prevailing practice, the ultimate purpose of lending money would be to ensure that the desires of consumers would be properly satisfied. Accordingly, the money which is to be lent to producers would not be created out of nothing via the fractional reserve system of banking. Instead private banks would request the NCO to monetize the appropriate items in the national credit inventory and would proceed to borrow that money from the NCO interest-free. Their power to create money ex nihilo would completely disappear. For Douglas :

The most important and fundamental function of a bank should be to envisage the capacity of the community it serves, taken in conjunction with its plant and culture,

to meet the demands made upon it, and, under democratic control, to issue purchasing power, on behalf of that community (Douglas. C.H., 1922. These Present Discontents and the Labour Party and Social Credit. London. Cecil Palmer).

The DoC Mechanism versus the MoC Mechanism

The introduction of the National Balance Sheet and the National Credit Account firstly ensures that the volume of money cycling in an economy at any given point in time is solely determined by whatever is necessary to produce and then distribute the consumable goods and services that are independently desired by the population.

Secondly, the fact that private banks must borrow the community’s or the nation’s credit via the NCO in order to finance production and can no longer create this credit themselves, together with the fact that sufficient consumer credit to bridge the gap between final prices and incomes is to be freely distributed by the NCO, both imply that the banks will no longer be able to claim ownership of the credit with which they deal. The annexation of credit by private banks has been replaced by the recognition that the credit belongs to individual members of the community and must be utilized in accordance with their best interests. The loans which the banks make to productive agencies moreover are never to be repaid with additional debt-money but with the incomes that the original loan generated together with a debt-free monetization of the community’s credit in the form of additional consumer credits.

The DoC mechanism, ultimately, is designed to establish an “Economic Democracy” through the implementation of a democratic monetary system. This involves the embodiment of the principle of equity in economic affairs; such an application clearly recognizes that “the increment of association derived from the operation of individuals should be distributed amongst them, if the object of their cooperation is to be achieved successfully. The DoC mechanism achieves this by reducing financial credit to the status of a public utility like water or electricity.

The National Dividend

Society as a Gigantic Cooperative

Just as companies that make a profit, according to Heydorn, in the form of dividends to their shareholders, a nation could maximize a certain portion of its profit as determined in the National Credit Account and distribute the money to its shareholders, to its citizens. The National Dividend would thus transform the whole of society into a gigantic cooperative in which each citizen would have an individual inherited, and equal claim to the real surplus of economic association, that is the unearned increment of production.

The dividend would be distributed at a flat rate and tax-free to all individual citizens who are permanent residents of their country as an inalienable right, whether they be richer or poorer, in recognition of the fact that, in a modern, industrialized society, it is not necessary for all able-bodied adults to work in order for that society to produce the goods and services the individuals require. In fact even if all such persons are not needed as workers, the economy needs them as consumers, and that every person has a right to consume just because he exists. These facts then must be accommodated for a reformed financial system because a system by which purchasing power is distributed mainly through the agency of wages conflicts sharply with the physical reality involved. In other words a decreasing number of persons tend to be involved in the production of the necessary amount of goods and services. Universal employment then is neither desirable nor possible.

As there is a tendency for more and more workers to suffer displacement without being usefully re-absorbed by industry, the purchasing power of the dividend payments in relation to wages and salaries would increase as time goes on.

The Differences between National Dividend and Basic Income

Heydorn emphasizes, moreover, that the Social Credit proposal of a National Dividend is quite distinct from the contemporary suggestions that are being advanced today from many quarters for the implementation of a basic income. Unlike the basic income, which represents a guaranteed amount, the dividend depends on the nature and volume of real production. If more and more production is being generated with less and less labour thanks to the increasing capitalization of industry, then the dividend received by consumers will increase in terms of its relative purchasing power.

Ethical and Pragmatic Objections to the National Dividend

One of the chief obstacles to the introduction of the National Dividend, in fact, is the ethical objection that it is somehow intrinsically wrong, that it is immoral for individuals to “get something for nothing” and that goods and services should only be distributed as a reward for working in the formal economy. If this objection were valid, for Heydorn, then the ultimate solution would be to ensure that all of the labour-saving technologies which have been proliferated since the dawn of civilization were summarily destroyed! Moreover, for another advocate of Social Credit, John Hargrave :

When the Sun shines upon the Earth there is no charge for the stream of Solar Energy that we receive. It is something for nothing. Yet without such there would be no life on this planet. Solar Energy is God’s gift to man .. the whole of Creation is, in fact, a something-for-nothing scheme (Hargrave J., 1945. Social Credit Theory Explained. London. SCP Publishing House).

If it is intrinsically immoral to receive something for nothing, then we are in a terrible situation indeed. Since we cannot help but receive something for nothing, as illustrated above, it would follow that we cannot escape immorality!

Consider also the development of an individual from the stage of infancy to adulthood that requires a tremendous investment on the part of parents and society as a whole, thus necessitating that individuals receive something for nothing. Providing then everyone with an unearned income would allow those individuals who are no longer required in the formal economy to meet their economic needs while continuing to contribute to the consumer demand so desperately sought by productive organizations.

The alternative is to insist on a policy of full employment with no guarantee that all able-bodied individuals can find a job. Since real capital, moreover, made possible by the application of cultural heritage in conjunction with natural resources and the unearned increment of association, is the main contribution behind our immense productive capacity in the modern economy (superior to both labour and financial capital) and since each individual is rightly regarded as a beneficiary of these three communal factors of production, each citizen can and should be regarded as a shareholder in the economy’s real capital. For Douglas then :

The property that is common to the individuals who make up a nation is that which has its origins in the association of individuals to a common end. It is partly tangible, but to a great degree intangible, in the forms of scientific knowledge, character and habits (Douglas C.H., 1935. The Use of Social Credit. Sydney. The Australian Social Crediter).

A “Consumer Motivated” Economic Democracy

Yet instead of living under such an authentic economic democracy, Heydorn laments, we live under what is, to a greater or lesser extent, a financially induced economic dictatorship that masquerades as an economic democracy. The lack of consumer income, that is the artificial scarcity of consumer purchasing imposed on the market by the financial system, means that the choices that are made by consumers are very often reflective not of what they would really like, but merely what they are able to afford, or else are pressured into buying. One cannot then speak in any reasonable sense of “economic democracy” when the vast majority of consumers cannot consistently obtain from the economic system, as a matter of course, those specific goods and services they have a right to expect from it.

In contradistinction then to many of its ideological competitors, Social Credit does not sanction worker control of industry, or government control, or least of all banker control of industry, but rather consumer control. Social Credit envisions therefore a functionally aristocratic hierarchy of producers accredited by, and serving, a democracy of consumers. Only by combining the free market system of distribution through the mechanism of consumer choice with the allocation of sufficient purchasing power can the consumer be restored to his rightful place as the sole occupier of the commanding heights of the economy.

There is moreover, for Heydorn, yet a second meaning that might be attached to the concept of economic democracy. Just as political democracy is deemed to imply universal suffrage, a nation cannot be considered as embodying a perfect economic democracy, if it does not distribute, by right, a sufficient volume of monetary votes to all of its citizens to ensure a basic level of participation in economic life. By means of the National Dividend, such universal economic suffrage would be incorporated. What sorts of specific economic improvements can then be expected?

What Sorts of Economic Improvements Can Be Expected?

Solving the Paradox of Poverty Amidst Plenty

In developed countries, for Heydorn, the paradox of poverty amidst plenty (the fact that real wealth cannot connect with real demand) is mainly caused by the deficiency of consumer purchasing power, not by a shortage of actually existing real wealth or the physical capacity to produce such. This is where the National Dividend comes in.

In the case of developing countries, he goes on to say, the real wealth of a country lies not in what it actually produces, but in the rate at which it could produce the goods and services that individuals desire. Once the artificial limitations on the capacity to produce are eliminated through the establishment of a National Balance Sheet and production credit can be freely advanced to catalyse the production of useful goods, the inherent potential of developing countries to provide a decent standard of living for their peoples can be released.

Resolving the Paradox of Servility in the Place of Freedom

By allowing technological improvements to advance at their own pace, secondly, without any fear of the labour displacement this may cause, Social Credit, according to Heydorn, will also facilitate a continual reduction in the necessity of “natural” labour, that is labour that is inherently necessary to operate society’s productive machine.

Indeed, for Douglas, the perfect industrial system would require no labour at all!

Employers moreover would have to regard their workers more as co-operators, rather than as mere underlings. This means that the scope for the exploitation of labour alongside wage-slavery would be a thing of the past.

The Curse of Unemployment is Turned into the Blessing of Leisure

Indeed, thirdly, the single greatest benefit which would follow from the introduction of the National Dividend is that it would put an end, according to Douglas and to Heydorn, to the phenomenon of unemployment, and replace it with leisure. No longer would those who, through no fault of their own, cannot find a decent job, be threatened with poverty, economic insecurity, and social exclusion. For Douglas :

It is my own personal opinion that the undue acquisitiveness of a small section of society very largely arises out of fear, and that by far the best way to reduce it to its normal proportion would be to remove the fear and insecurity in the existing state of affairs by making plain what is undoubtedly the truth, that the modern production system can meet every possible need of society without any stress or strain, if only it is freed from the fetters imposed upon it by the financial system (Douglas C.H., 1978, The Tragedy of Human Effort. Vancouver. The Institute of Economic Democracy).

It is the artificial pressure which conditions the nature and circumstances of work which tends to turn into an all-encompassing end in itself. By restoring a certain measure of security, independence and freedom, the National Dividend would make it far easier to view work as a mere means to an end, only engaged in to the extent that it serves the real purpose of the economic association. Individuals would thereby be able to choose what field of work or leisure to pursue, allowing plenty scope for the pursuit of noble and constructive motives through meaningful activities replacing mere pecuniary reward.

Increased Efficiency in Production

The elimination, fourthly then, of a servile labour force together with the removal of economic fear and insecurity is likely to greatly increase the efficiency of human effort. For Douglas as such :

The fear of poverty is the worst possible incentive to successful industry. I have no hesitation whatsoever in saying that the most important work, the hardest work, is done by men who have no fear whatever of poverty. Conversely, those sections of society which are constantly faced with the fear of poverty tend to become incapable of anything but the lowest grade of work (Douglas C.H., 1935, Warning Democracy. London. Stanley Nott).

The “psychological efficiency of voluntary work” is vastly superior to effort made under the threat of coercion. Indeed it is likely that in a Leisure State many people will, by being able to do freely those things that most interest them, work more effectively.

The Release of Authentically More Progressive Forces

Fifthly by making leisure a practicable possibility for everyone, the dividend would also tend to release the tremendous potential contained in human associations for a faster rate of authentic progress. According to Douglas again :

It is hardly an exaggeration to say that 75% of the ideas and inventions to which mankind is indebted for its progress can be directly or indirectly traced to persons who were by some means freed from the necessity of regular employment. Douglas C.H., 1936, The Approach to Reality. London. K.R.P. Publications).

The Transformation of Civilization

Finally perhaps the most startling effect, for Heydorn, that the National Dividend is likely to exercise on society is the transformation of our civilization from one which is centred on economic good and evil, rewards and punishments, to one which optimally facilitates the free expression of individuality. It will become possible for new and higher forms of living in society to emerge, for culture to yield the finest flower and for civilization to reach its highest peak. For Douglas as such :

Production, and still more the activities which commonly referred to as “business”, would of necessity cease to be the major interest of life (Douglas C.H., 1979, The Monopoly of Credit. Sudbury. Bloomfield Books).

We now turn to more specific elements of the economy under social credit, starting with the motion of the commons.

The Economy Under Social Credit

The Commons Under Social Credit

Many of the earth’s natural resources, firstly in fact, its cultural heritage, the increment of association and the real capital of a society are economic assets to which each individual must have sufficient unfettered access if he is to procure in reasonable quantities the goods and services he needs to survive and flourish. Neither the collectivization nor the privatization of these types of resources through various forms of enclosure can be tolerated as both are attempts to monopolize elemental economic factors.

Intellectual Property Becomes Part of the Social Commons

At the same time, and secondly, it is important for inventors and developers to be able to recover the costs of investment in the creative process and it is also appropriate for them to receive due recompense for their labours. Once a certain period of time has passed, however, and certainly after these intellectual entrepreneurs have died, their products, tools and processes should become part of the intellectual commons.

Banking on Service Fees

Thirdly, as far as the banks are concerned, the use of service fees as opposed to the imposition of interest charges would seem to be more in line with Social Credit because service fees are charges that are levied in exchange for the assistance that the bank provides to a customer, whereas interest is levied on the credit that is lent. Since credit is not to be regarded as a commodity to be bought and sold under Social Credit, but merely as a neutral accounting tool, it would make little sense to charge producers for the money itself, as it has no inherent value.

Superseding the Stock Market

In accordance with the establishment of the National Balance Sheet, fourthly in fact, there will be “new credits for new production” provided by the NCO through the banking system, such that any productive agency which is warranted by the community will automatically have access to producer credit. It is reasonable then to expect that long-term debt-financing of production, especially capital production, will tend to squeeze out equity-financing. From the producer’s point of view then, the original rationale behind stock markets, as a useful device for raising capital, will be superseded.

Eliminating Social Welfare

With the abolition of chronic public debts at all government levels, fifthly in fact, there would be no necessity to levy taxes in order to service these debts (interest and principal). As a large proportion of the current tax claims made on citizens and their private associations represent nothing more than the sums necessary for the government to service public debts, the overall tax burden would be correspondingly reduced. Moreover, many social welfare measures could be abolished because intense poverty, extreme income inequalities, and perennial income insecurity would be significantly alleviated under Social Credit reforms. We now turn to the positive effects on what Heydorn terms social and environmental economies.

The Positive Effects on Social and Environmental Economies

Impose the Least Amount of Trouble

Firstly then, the true purpose of economic association understood as the production of desired production of desired goods and services with the last amount of trouble to everyone can be naturally extended to include the idea that the economy should impose the least amount of trouble on the “social and environmental economies” as well.

Women’s Freedom and Independence

An unearned income, secondly, would bestow a hitherto unheard-of degree of both economic independence and freedom on all women regardless of their societal roles. Women who wish to work in the industrial system could continue to do so, to the extent that their labour is needed, while being in a much stronger position to ensure that their conditions of work are equitable. At the same time, those women who would prefer to dedicate themselves full-time to raising their children would find this a more feasible option under Social Credit.

Education for Self-Chosen Activity

Social Credit thirdly moreover would, by decreasing economic pressures and by providing a more supportive financial environment, enable educational institutions to restructure themselves in line with their own fundamental purposes. If the school system is to retain any practical purpose it will be to prepare young people for a life of leisure, that is a life of self-chosen activity.

The National Dividend then, in conjunction with compensated prices, together with whatever public investment might be deemed advisable, should be sufficient to cover the costs of higher education for qualified students. Being financially care-free would allow them to focus their time and energy on their studies to their own advantage and to the benefit of the wider community.

Liberating the Work of Scientists and Engineers

Closely connected with the liberation of the academy, fourthly then, is the liberation of the work of scientists, engineers and technicians. Adequate financial support for competent and socially responsible inquirers in the fields of science and technology would be more easily forthcoming inside and outside the formal educational system. New scientific and technological applications that serve the true purposes of economic, political and cultural associations may be expected.

The Organic Development of Richer and Nobler Cultural Forms

Fifthly culture may be defined as the spiritual expression of the soul of a people. When a people are under artificial pressures induced by a dysfunctional financial and economic system it should come as no surprise that many of their cultural forms express the angst, ennui, malaise and frustration which such a system induces. Social Credit rather would allow for the organic development of richer and nobler cultural forms in which the unique identities of different peoples find their due expression. Thereby artists would finally possess the leisure that is a necessary condition of excellence.

Economics and the Environment: Eliminating Forced Economic Activity

The environmental benefits, finally, that Social Credit economics promises to deliver are of a threefold nature. To begin with the elimination of forced economic activity and growth would significantly reduce much of the excess production and consumption which does not service genuine human needs but is only required to keep the current system financially afloat. With this reduction, the volume of pollution and the rate of resource depletion would likewise be reduced.

Secondly communities operating under Social Credit could easily adopt those forms of economic activity which are more in harmony with the environment because finance would no longer be a hindrance. Finally, Social Credit would also provide the means necessary to repair much of the social and environmental damage caused by past economic activity.

Economic Systems Revisited

Distributivist Economic Functionalism

Heydorn now begins to bring his argument to a conclusion, thereby comparing and contrasting different economic systems. Beside the system of limited private ownership endorsed by Laissez-Faire capitalism and the system of collective ownership championed by Marxist Socialism, it is possible to conceive of a system in which the ownership of productive capital is widely distributed such that all individuals have at least some minimum claim on productive capital qua individuals. Such a system of ownership may be referred to as “distributivist”.

The Social Credit proposal for a National Dividend would afford to each individual citizen a beneficial ownership in a society’s productive capital, and the recognition

of that ownership would be the basis for his periodic reception of an unearned income grounded in the operation of that capital in the production of “surplus” goods and services. This may alternately be termed “Economic Functionalism”, constituting what Heydorn terms “the radical centre” as opposed to the conventional “Mixed Economy”. How then does a Social Credit Economy differ from a Socialist or Capitalist one?

Economic Functionalism is not a Species of Socialism

From the Social Credit point of view, the fundamental antagonism in economic life as it is presently organized is not between the “haves” and “have-nots”, nor between management and labour, nor indeed between capitalists and the proletariat, but between the whole community of individuals and high finance. While conflict between classes, for Heydorn, undoubtedly exist, it is not the classes themselves that are responsible for the tensions. The conflicts are primarily due to the fact that all classes are forced, under the present system, to operate under artificially restrictive financial conditions; it is the “Monopoly of Credit” which is to blame.

On the one hand management attempts to keep prices low by cutting costs in order to remain profitable and in business in an economy that is anaemic due to an artificial scarcity of purchasing power; on the other hand workers strive to gain increased purchasing power and better labour conditions in order to deal with the same problem. Both objectives cannot be realised optimally at one and the same time, hence the conflict. For Douglas therefore (anticipating today’s Brexit) :

By keeping the less fortunate short of money, a discontented body of the population could be, and has been, kept available for agitation against every type of property except the credit or money-creating mechanism (C.H. Douglas, 1935, The Brief for the Prosecution, Liverpool, K.R.P. Publications)

In other words, attempts at redistribution, for Douglas, do not de-proletarianize the proletariat; they merely add more individuals to their ranks. Whereas socialism thrives by blaming the ostensibly richer classes for the conditions of the “poor”, Social Credit, links the destinies of various classes in a cooperative framework. Ironic then as it may sound, the tendency of a Social Credit economy operating under the influence of rapid technological improvements would actually be to promote an economically classless society. In a civilization where almost all of the labour required by production is performed by machines, and where machines are largely responsible for repairing and replacing themselves, most of the income available for the distribution of the resultant goods and services would have to come from the National Dividend.

The establishment of an economically classless society in a civilization which has completed the seventh stage (see above) of raw economic development, harnessing artificial intelligence, would then allow for more real distinctions between groups of people to emerge. We now turn from socialism to capitalism from a Social Credit perspective.

Economic Functionalism is Not a Species of Capitalism

While approving of free enterprise, individual initiative, and the profit motive (as long as profit bears a functionalist character) Social Credit is also highly critical of certain aspects of what is normally referred to as capitalism. Any activity to begin with which, under the present system, allows people to use money to make money without contributing thereby anything to the production and distribution of the desired consumer goods and services, stands condemned. Therefore currency speculation of all types, creating money out of nothing and lending it as if it were a commodity, and many of the speculative uses of the stock exchanges and derivative markets are all forms of business, make a mockery, for Heydorn, of the economy’s true purpose. Creditism, or monopolistic finance capitalism, harnesses the unearned increment of economic association for the benefit of the owners of the world financial system at the expense of individuals.

Under capitalism moreover, a class division is erected through various processes of enclosure between those who own and operate productive property and those who have no share whatsoever in it. Those without a share have only one thing to sell, their labour. Social Credit opposes such a system because it does not work; it does not engender an economic system which delivers the goods and services that individuals desire with the least amount of trouble to everyone. To put it another way, the conventional paradigm revolves around whether government (left wing) or business (right wing) should occupy the commanding heights of the economy, when, in fact, the commanding heights have always been occupied by the banks.

So Why Have Social Credit Reforms Not Been Implemented

The major ethical and philosophical obstacle to Social Credit lies in the fact that many individuals, whether they number among the common people or the elite echelons of society, cannot accept the end to which the Distribution of Credit is directed. They cannot, in effect, because our minds have been so programmed by the current status quo, accept the idea of a society where goods and services are produced and delivered with the least amount of trouble to everyone. For Douglas in conclusion :

I would commend to you a most serious consideration, whether you wish the economic system to be made a vehicle for an unseen government, over which you have no control; or whether, on the other hand, you are determined to free the forces of modern science, so that your needs for goods and services may be met with increasing facility and decreasing effort, thus, in turn, permitting humanity to expend its energy on altogether higher planes of effort than those involved in the mere provision of the means of subsistence (Douglas C.H., 1979, The Breakdown of the Employment System. Vancouver. The Institute of Economic Democracy).

Bibliography

1 Heydorn O (2014) Social Credit Economics. 2nd Edition. Ancaster, Ontario, Canada. CreateSpace Independent Publishing

About the Authors

Ronnie Lessem is a graduate of Harvard and the London School of Economics, of Zimbabwean origin, has written some 35 books linking the local and the global, his latest work (May, 2017) embracing Social Credit exploring worlds beyond employment as we conventionally know it.

Ronnie Lessem is a co-founder of Trans4m (www.trans4m.com) Centre for Integral Development (Geneva), an NGO that seeks to release the individual and collective genius of a particular society, most specifically in Africa, the Middle East and Europe. With its partner the Da Vinci Institute in South Africa, founded by Nelson Mandela to transform the nation, Trans4m runs an individual PhD program which is simultaneously a collective PHD – Process of Holistic Development. As such it works with communities, sanctuaries, academies and social laboratories in a particular society to recognise and release its genius, drawing on integral worlds, that is southern and eastern, northern and western world views.

M. Oliver Heydorn graduated summa cum laude with a Ph.D. in philosophy from the International Academy of Philosophy at the Pontifical Catholic University of Chile. The IAP is dedicated to the study and promotion of realist phenomenology and other closely related schools of continental thought. Over the course of ten years, Dr. Heydorn taught philosophy to undergraduates at three different institutions in three different countries. He is the author of Social Credit Economics, The Economics of Social Credit and Catholic Social Teaching, and Social Credit Philosophy. His articles have appeared in both scholarly and more popular media. He is currently completing two years research which will be published in late 2017. His website is www.socred.org

Children Learn What They Live

Children Learn What They Live

By Dorothy Law Nolte, Ph.D.

If children live with criticism, they learn to condemn.
If children live with hostility, they learn to fight.
If children live with fear, they learn to be apprehensive.
If children live with pity, they learn to feel sorry for themselves.
If children live with ridicule, they learn to feel shy.
If children live with jealousy, they learn to feel envy.
If children live with shame, they learn to feel guilty.
If children live with encouragement, they learn confidence.
If children live with tolerance, they learn patience.
If children live with praise, they learn appreciation.
If children live with acceptance, they learn to love.
If children live with approval, they learn to like themselves.
If children live with recognition, they learn it is good to have a goal.
If children live with sharing, they learn generosity.
If children live with honesty, they learn truthfulness.
If children live with fairness, they learn justice.
If children live with kindness and consideration, they learn respect.
If children live with security, they learn to have faith in themselves and in those about them.
If children live with friendliness, they learn the world is a nice place in which to live.

Copyright © 1972 by Dorothy Law Nolte

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