Sweet waters from a bitter fountain
By Richard C. Cook
The author of this independent report
worked for the Carter White House and NASA, then spent 21 years
with the U.S. Treasury Department. In the report, he explains
that the U.S. financial system headed by the Federal Reserve
System has failed and that only an emergency program of monetary
reform can address conditions which may be leading to a
catastrophe like the Great Depression or worse. Such an
assessment has become increasingly familiar as economic storm
clouds continue to gather. But the analysis and recommendations
contained in the report may be surprising, even to many
"Global Research" -- - The mass media show
attractive images of the comfortable lifestyles of the upper
income earners who benefit from the cash-rich global economy.
Which luxury car to drive, which championship golf course to
frequent, which hedge funds to invest in, which stock brokers to
consult—good questions if you’ve got the money! But behind this
attractive scenery, debt, bankruptcy, and poverty are a tsunami
that is overwhelming much of the world’s population, including
growing numbers in the U.S.
Following close on the heels of these
calamities is a worldwide breakdown in law and order. Drug
dealing, money laundering, gangsterism, white collar crime,
political corruption, weapons trafficking, human slavery,
terrorism, and endemic warfare are the dark side of a global
financial system where everything has a price, the rich seem
above the law, and individual security is almost impossible to
Behind the fences of our gated communities,
we fancy ourselves the “good guys” in this scenario. We’ve
learned to blame the victim, failing to see that it’s a world
the U.S. and the other Western powers have fashioned through our
centuries-long march to own or control everything that can have
a price tag attached to it.
Meanwhile, “dollar hegemony” has flooded the
world with U.S. currency, loans, or debt instruments to support
our fiscal and trade deficits, pay for our extraordinary level
of resource utilization, induce foreign governments to purchase
our armaments, ensure the allegiance of their governing elites,
and maintain their economies in subservience through World Trade
Organization and International Monetary Fund trade and lending
Today we are engaged in the outright military
conquest of the Middle East. Our political leaders tell us that
if we don’t fight the “terrorists” in Bagdad we will have to
fight them on our own shores. But India, which has become our
largest armaments customer, has seen a soaring number of
suicides among bankrupt farmers left out of that nation’s
economy. The illegal immigrants who have flooded the U.S. from
Mexico have watched NAFTA destroy their own family farms, where
600 Mexican farmers a day are forced off the land.
But now our pigeons are coming home to roost.
The CEO of one of our leading brokerage houses received over $53
million in bonuses in 2006. Not far from his plush Wall Street
office, veterans of two Iraq wars sleep in homeless shelters.
While U.S. corporations, including the
financial industry, are reaping enormous profits, our domestic
economic problems are growing, including an enormous load of
cumulative societal debt, a continuing decline of real family
income, and increasing wealth and income gaps between the rich
and the rest. Despite the reports in the mainstream press about
the economy’s “soft landing” and the continued record-setting
performance of the stock market, the financial markets have been
shaken by the bursting of the housing bubble and soaring home
foreclosures. Meanwhile, the relentless decline of our domestic
manufacturing sector continues.
But one thing is connected to another. A good
investigator always asks, “Who benefits?” The most salient
feature of our financial system is that the creation of new
purchasing power through credit—loans, mortgages, credit cards,
etc.—is controlled by private financial institutions and, though
regulated, works principally for their profit. Because we are
never taught about alternative economic structures, we take this
system for granted, though earlier generations had profound
fears of becoming what President Martin Van Buren prophetically
called a “bank-ridden society.”
The private control of credit has given vast
wealth and ironclad political dominance to what Van Buren and
his 19th century contemporaries warned about—the
Money Power, even though our Constitution gave Congress
authority over our monetary system. This authority had been
compromised through the system of state-chartered banks before
the Civil War. But with the National Banking Acts of 1863-4 and
the Federal Reserve Act of 1913, Congress largely ceded its
powers over money to the private banking industry.
Today, high finance rules our economy and
most of the violence-wracked world. The system came into
existence in order to provide the capital for economic growth
during the industrial revolution, but those who ran it figured
out how to do so in ways that vastly increased their own wealth
and power. They rule the world today.
But the system is man-made, with functions
and effects that can be measured and analyzed. The system was
created by historical forces, but if we want to, we can identify
these forces and change the system. What we have lacked is the
understanding of our possible choices, along with the
discernment and moral courage to act on our understanding.
The direction in which change must be sought
is that of greater economic democracy; that is, a higher degree
of sharing of the bounty of the earth by more people. Though our
economics textbooks don’t mention it, a reform movement began in
Great Britain in the 1920s called Social Credit, which showed
how a financial system in a modern economy can be so structured
as to serve democracy and freedom, not erode them. This
knowledge has had a profound influence in parts of the British
Commonwealth but has rarely been discussed in the U.S. This
report explains how the Social Credit system could apply to the
U.S. economy, along with other monetary proposals that have been
put forth by U.S. reformers from the 19th century
The report provides a unique diagnosis of the
underlying financial issues by applying new concepts to familiar
data. It criticizes finance capitalism but without going to the
other extreme of proposing a collectivist solution. It affirms
the value of “democratic capitalism,” combined with a shift to
more public control of credit, and it offers a new approach to
achieving worldwide prosperity, starting with economic recovery
in the U.S. This can be done through measures that could be
implemented today by inspired political leadership.
Most economic reform programs nibble around
the edges. Many proposals address symptoms, not causes, such as
suggestions to use tax or trade policy to bring exports and
imports back into balance. Other observers would destroy
society—or, more accurately, watch it destroy itself—before
building something new. Another line of reasoning says we can
only look forward to decades of a lower standard of living
before we work our way out of the present crisis.
Monetary reform accepts none of these
scenarios. It takes life as we live it on the individual level
in a technological age as basically positive. It embraces the
enormous productivity of modern industrial methods with approval
and hope. But it identifies factors in the nature of industrial
production at the level of the corporation as creating a chronic
state of instability. These factors, which are explained later
in this report, create an economy in a state of continuous
crisis and disintegration to which governments react in all the
One way is to permit the misuse of
debt-financing to bridge an ongoing gap between the value of
production and the purchasing power available to the community
to absorb it. Another is to attempt to overcome instability by
fostering continuous economic growth merely through inflationary
bubbles where financial transactions can be taxed as though they
produced real, tangible, value. Another is through an aggressive
foreign policy based on trade and monetary dominance. Obviously,
if all developed nations pursue such policies—as they inevitably
do—wars must result. It is thus no coincidence that the last 100
years of incredible progress in science and technology have
witnessed almost constant warfare.
The most surprising thing that monetary
reformers declare is that our problems stem not from a failure
to manage fairly the limited resources found in a world of
scarcity but from our inability to manage a world of almost
unlimited abundance and prosperity. The first thing monetary
reform would do would be to change the underlying financial
structure from one that confines this abundance to the
privileged few—whether nations or individuals—to one that would
provide it to everyone on earth. The measures which are
available have been discussed among reformers for many years and
could begin to have a positive effect within weeks of
implementation. This is the direction in which economic
stability can and should be sought, rather than the terminal
out-of-control configuration of global corporatism, finance
capitalism, and military aggression that has brought us to the
brink of catastrophe.
For the glory of God and the love of man, we
now owe it to humanity to make these epochal changes. In the
meantime, it would be foolish for people to wait and do nothing
while the system continues to crumble. The report closes with
suggestions for immediate action by concerned people.
Ever since mankind began to invent machines
to do our work, we began to look forward to a “leisure
dividend.” Products could now be manufactured with far less
human effort. Every new wave of mechanization, from the
harnessing of steam power in the late 1700s to the cybernetic
revolution of today, has held out the promise of less work and
more enjoyment of the good things of life.
We’ve seen tremendous gains for the
workforce. We enjoy a forty-hour workweek, a cornucopia of new
consumer products, universal public education, longer life
spans, revolutions in communications, medicine, entertainment,
and transportation, a whole new world of interesting things to
do, to know, to accomplish.
The world is so much happier and better off
than in the days when our ancestors worked all day and half the
night just to survive, right?
Today, the quality of life in the U.S. seems
to be moving backwards. While the shelves of the big-box stores
are crammed with products, most of them are made overseas by
low-paid laborers from countries like China and Indonesia. The
people who work in the stores earn wages that hover around the
Not long ago, in the 1950s, a single
wage-earner, usually the husband, could support a family while
the wife stayed home and looked after the children. Yet they
could buy a house, a car, and household appliances, go away on
vacation, and send the kids to college.
Today both husband and wife must work, often
at more than one job, to make ends meet. Inflation has been
rampant in big ticket items such as the cost of a home, health
care, utilities, insurance, and higher education, and is now
affecting the cost of food.
The costs of petroleum products are soaring
again. Over forty-seven million people don’t have health
insurance, poverty is on the rise after a generational decline,
and thirty-five million don’t have enough food to eat. Good jobs
are scarce, and stress-related illness has become an epidemic.
Meanwhile, public assets like electricity
have been privatized at an alarming rate. Public infrastructure
such as roads, bridges, school buildings, levees, and water
systems are often crumbling, with state and local governments
unable to make improvements without budget cuts elsewhere or
stiff tax increases to pay the costs of borrowing.
While the recent weakening of the dollar has
improved the U.S. export position slightly and created a few
more jobs, the official unemployment rate of less than five
percent does not include people no longer looking for work, nor
does it take into account the huge number of jobs that are
low-paying and without benefits.
In fact the real purchasing power of the
American workforce is on a steady downward trajectory, while the
average pay of employees at Wall Street brokerage firms is more
than $250,000 a year, and the CEOs of some U.S. companies earn
thousands of dollars an hour.
But is the problem really that those at the
top of the heap earn so much more than the rest of us? If so,
the solution would be simple. We should do some of the things
many reformers advocate, such as restore a truly progressive
income tax, close corporate tax loopholes, implement universal
health insurance, and make borrowing for college a little less
But while economic policies that are fairer
may be desirable, they would fail to address major underlying
structural issues, especially financial ones. The main problem
with the U.S. economy today has to do with earnings and prices.
People simply do not earn anywhere near enough to buy what the
GAP BETWEEN GDP AND PURCHASING POWER
In 2006, our Gross Domestic Product was about
$12.98 trillion, with the enormous trade deficit of $726 billion
figured in. Our total national income was $10.23 trillion,
including wages, salaries, interest, dividends, personal
business earnings, and capital gains. Of this amount, at least
10 percent, or $1.02 trillion, would have been reinvested either
at home or abroad, including retirement savings, leaving total
available purchasing power of $9.21 trillion.
The $12.98 trillion GDP minus $9.21 trillion
of purchasing power equals $3.77 trillion. That’s what the
figures indicate was the shortfall that would have been needed
to consume the entire GDP.
Thus we do not earn enough to buy what we
produce. What does this mean, and who, or what, is to blame?
Despite the high CEO compensation, the huge
Wall Street salaries and bonuses, and the wealth and income
disparities between high and low earners, we should not blame
the “capitalists”; i.e., the business owners, for the entire
problem. Business profit taken as dividends is only about 7
percent of GDP.
Besides, the “capitalists” are us! Forty-five
million Americans have some measure of stock ownership,
including a multitude of tax-deferred retirement plans and
mutual funds. This is one of the strengths of our economy—the
“ownership society”—for which we deserve a pat on the back.
Also, the dividends we earn are mostly spent, so most of it
finds its way back into the economy.
Let’s look at the situation from a slightly
different standpoint, starting with the $12.98 trillion GDP.
It’s said that the U.S. economy is the most powerful and
productive in the history of the world. This is true, even with
our trade deficit and our decline in manufacturing due to
relocating so much of our factory production abroad. So we
should be dancing in the streets. There should be festivals,
celebrations! Obviously that’s not happening. Why not?
It’s not happening because of how we define
the $3.77 trillion gap between GDP and earnings. Since we
produce the value of our entire GDP with such low labor costs,
the $3.77 trillion differential really should be viewed as the
total societal dividend, right?
But it’s not defined as a dividend. Rather
it’s defined as a shortfall. This is because it still appears in
prices. And with the stagnation of wages and salaries, combined
with the current slowdown in appreciation of housing values
which is resulting in lower capital gains, the shortfall is
Obviously, those goods and services still
have to be paid for—the entire $12.98 trillion. The way they are
paid for is through debt. You, the consumer must go out and
borrow to cover the $3.77 trillion gap between GDP and
purchasing power. This is how much our debt increased in
2006—the amount of new debt less what we paid off. This new debt
was 29 percent of GDP last year.
Note that this analysis deals with gross
numbers, so does not dwell on the major social problem that
income disparities are growing within the U.S., with a higher
proportion of income each year going to the wealthiest segments
of society. Conversely, the debt burden which fills the gap
between GDP and income falls disproportionately on the lower
But the point is undeniable. Our ability to
produce our incredible GDP with relatively little labor means
that, under the existing system, we have to borrow money from
financial institutions and pay with interest to enjoy what
really should be the leisure dividend mentioned at the start of
this report. Remember this point, because we’ll be coming back
Finally, these numbers shouldn’t surprise
anyone. Every responsible analyst has made the point that ours
is a consumer-based economy and that consumer borrowing keeps it
afloat. It’s why economists and politicians keep such a close
eye on the “consumer confidence” polls. It’s why President
George W. Bush, after the 9-11 tragedy, told us to “go
THE GROWING DEBT BURDEN
Again, what should have been a total societal
dividend from our fantastic producing economy somehow became a
debt. How did that happen? Let’s focus on the debt for now.
Obviously, the $3.77 trillion we borrowed—the
debt we just discovered where a dividend might have been
expected—included a little fun—vacations, entertainment,
wide-screen TVs, etc. But there’s not a lot of frivolous
expenditure in the average family’s budget. Most of what we buy
we need just to live. Many families even charge groceries on
their credit cards. At the end of 2006, total debt in the U.S.,
including households, businesses, and all levels of government,
was $48.3 trillion. This is 50 percent higher than the sum of
all personal wealth held by the entire U.S. population and 38
percent higher than the value of all publicly-traded U.S.
That’s $161,000 per U.S. resident, or
$564,000 for a family of four, payable with interest. Again, it
includes personal debt, business debt that is reflected in the
prices we pay, and federal, state, and local debt for which we,
the taxpayers, are accountable. And the debt has been building
up from year to year. It’s increasing, not going down.
During the year 2005-2006, debt grew five
times faster than the GDP. The Federal Reserve has calculated
that total debt today is 460 percent of the national income
vs.186 percent in 1957. Credit card debt was $9,300 per
household in 2004 and is more now, three years later. A typical
family pays $1,200 a year in credit card interest charges alone.
In 2004, students graduating from college had an average debt of
$21,899. Many end up owing $80,000 or more, especially if they
attend law or medical school. Under the 2005 bankruptcy “reform”
legislation, student loan debt can never be written off.
One result of skyrocketing debt is that the
financial industry, which today includes much more than just
banks, is the fastest growing sector in the economy, with
capitalization increasing from less than five percent of the
Standard and Poor’s total in 1980 to twenty-two percent today.
The financial industry now generates thirty percent of all U.S.
corporate profits. These profits result from account and
transaction fees, commissions, interest charges, foreclosures,
penalties, and late fees.
Much of the profits—which totaled about $545
billion in 2006—are the financial industry’s windfall, resulting
from an economy that substitutes debt for earned purchasing
power. These profits would have paid the entire 2006 Department
of Defense budget with $126 billion left over and were larger
than the GDP of 92 percent of the world’s nations. While some of
the profits support consumption through payment of salaries,
dividends, and bonuses to financial industry executives,
employees, and shareholders, much is plowed back into new
lending. This contributes to further erosion of total societal
The data on financial industry profits also
call into question the national rollback of usury regulation
which started in the 1980s. Few realize that interest rates in
the range of 6.5-7.5 percent, which are viewed today as “low,”
are actually higher than in times past. The average mortgage
interest rate in 1960, for example, was 5.25 percent.
A working definition of “usury” has long been
any interest rate higher than what can be justified by the
lender’s risk. This has been forgotten in the face of
contentions by the Federal Reserve that raising interest rates
is a monetary tool to control “inflation.” The contentions are
disproved by the fact that inflation was low in the 1950s and
1960s, when interest rates were below today’s levels, but much
higher since the 1970s. Thus the data suggest that high interest
rates are actually a cause of inflation rather than a result.
A large portion of society’s debt is incurred
by the federal government, with the taxpayer eventually having
to pay. Currently the national debt is over $8.84 trillion.
James Turk wrote in an report titled
“Economic Suicide” in The Freemarket Gold and Money Report,
March 2006: “…The dire financial straits the federal government
is facing, its financial position, is even worse than it
appears….In the 2005 Financial Report of the U.S. Government,
U.S. Comptroller General David Walker reported that, ‘The
federal government’s fiscal exposures now total more than $46
trillion, up from $20 trillion in 2000.’ Yes, it’s insane. But
it’s even more insane that people buy the U.S. government’s
T-Bonds and T-Bills, thinking that they are a safe, low-risk
In fiscal year 2000, 1.1 percent of the
federal government’s cash flow came from new debt. This soared
to 20.4 percent in 2005. During that period, total federal debt
grew 40.5 percent. Higher interest rates will produce a 9.3
percent increase in interest on the national debt in the 2008
federal budget that will lead to cuts in social services,
education, and health care.
There is pressure from budget belt-tighteners
to reduce the government’s $46 trillion exposure by slashing
future retirement benefits like Social Security or entitlement
programs like Medicare, Medicaid, veterans’ benefits, food
stamps, etc. Thus the most vulnerable members of society are
expected to pay for structural financial problems that have left
the federal government, according to competent observers
associated with the Federal Reserve, functionally bankrupt.
Federal debt is only one element of spending
by all levels of government—federal, state, and local—which has
become a major drag on the U.S. economy. Not only must U.S. wage
and salary earners pay for the debt that supports their
spending, they must also pay a cumulative tax burden equal to a
third of their total income.
We pay as much in taxes as for housing, food,
and transportation combined. Governments also take advantage of
housing inflation by taxing newly assessed values to the point
where people whose incomes don’t keep up, and who may even own
their homes outright, are forced to sell and move away.
Our inability to support our economy through
earnings also results in the fact that the U.S. supports much of
its enormous fiscal and trade deficits by selling securities to
foreigners, who own 13 percent of U.S. stocks, 24 percent of
corporate bonds, and 44 percent of Treasury bonds. It was
estimated almost a decade ago that two-thirds of U.S. currency
was in foreign hands. When foreigners bring their dollars into
U.S. markets they drive up prices, especially of real estate.
As indicated earlier, another aspect of the
problem is that the growing debt affects different economic
classes in different ways.
According to the Congressional Budget Office,
the top one percent of U.S. households owns 57 percent of all
income, capital gains, dividends, interest, and rents. These
super-rich, along with the upper middle class, are debt-free or
are able to leverage debt profitably, and are often the owners
and executives of the financial institutions to which the rest
of us owe money.
The middle-class, declining as a proportion
of the population, is under increasing pressure as debt eats up
more of the family income. For them, debt is often a source of
intense personal stress, the more so as family savings have
plummeted, Many families have cashed in the equity in their
homes for spending money, but the remaining equity is now at an
all-time low proportionate to assessed value—55 percent in 2003
vs. 85 percent in 1950.
The working class or those in poverty or
without jobs are being crushed. A low unemployment rate due to
the creation of more “service economy” jobs may prevent mass
starvation, but that’s about all. According to The Nation,
there is no longer any place in America where a person earning a
minimum wage can afford even a one-bedroom apartment.
These people, living in the “fringe economy”
and relying on payday loans, group housing, check cashing
stores, and rent-to-own stores, are the prey of a growing
industry of usurious lenders often backed by corporate financial
giants. Perhaps a third of Americans, including tens of millions
of the “working poor,” are in this category, with their ranks
Finally, there are the homeless, abandoned by
the most abundant economy in the world, approaching a million in
What is the Bush administration, Congress, or
the Federal Reserve doing to address the potential for financial
catastrophe due to skyrocketing debt? The answer is, “nothing,”
unless you call making it more difficult for families to qualify
for mortgages “doing something.”
WHAT CAN BE DONE?
The one thing that is certain is that they
don’t have an answer.
The answer is not tighter regulation and more
restrictions on lending, which may protect financial
institutions from exposure, but do little to help consumers.
Nothing is solved for the economy at large by forcing consumers
to pay high rents instead of mortgage payments, postpone buying
needed cars or other major household items, or get a low-paying
job instead of going to college.
The answer is not for the Federal Reserve to
cut interest rates, though it might help consumers a little in
the short run. But too much damage has been done in the past
with interest rate cuts that ignored economic fundamentals, such
as the 2001-3 cuts that led to the housing bubble which is now
deflating with drastic consequences. Besides, cuts are likely to
cause the foreign investors to pull out of our investment
markets, leaving us unable to service our gigantic existing debt
The answer is not to cut the costs of
production. Employee benefits would be further decimated, more
jobs would be eliminated or outsourced overseas, tax revenues
would fall, and “fiscal austerity” would lead to more reductions
in government social services.
The answer is not harder work or productivity
increases. This may lead to more or cheaper goods, but since
wages and salaries never keep up with productivity growth, the
gap between consumption and production also grows. In fact, the
more we automate, the harder we work, and the more efficient we
become, the worse off we are financially! Again, it’s because
purchasing power never keeps up with production.
As indicated at the beginning of this report,
higher taxation of the upper brackets and closing corporate
loopholes would be more fair and would allow some degree of
recovery of income derived from financial profiteering, but even
this would not be nearly enough to cover the gap between GDP and
It is this gap, currently filled through
debt, which is taken for granted and has never been properly
investigated or explained by any official body. The debt taken
out to fill the gap is the 600-pound gorilla in the room that
the politicians and pundits have agreed to ignore.
It’s a bleak picture, but not a new one.
President Franklin D. Roosevelt addressed the
problem half-consciously with the massive spending programs of
the New Deal. This was an attempt to overcome the shortage in
purchasing power through a large federal deficit and a steeply
progressive income tax, rather than placing the entire burden on
middle and lower income citizens as the U.S. is doing today. The
U.S. was finally able to work its way out of this crisis through
spending on World War II and a large balance of payments surplus
which continued into the 1960s. But with today’s huge trade
deficit, that solution is not available and, with monetary
reform, would not be necessary.
But the situation still points to problems
monetary reformers have been writing about for over a century.
Unfortunately, for the last fifty years, since the New Deal
faded into memory, our political leaders, the mainstream media,
the establishment economists, and the financial and corporate
vested interests, all of whom are free-market fundamentalists
who believe government is helpless to remedy the situation, have
ignored what the reformers have been saying.
For all of them, “growth” is the only answer
to whatever problem may arise. But when growth in GDP falters,
or is not matched by purchasing power, not only does it not
improve conditions, it makes them worse. This is the underlying
flaw in the system that cries out for an answer.
C.H. DOUGLAS AND SOCIAL CREDIT
In 1918, Scottish industrial engineer Major
C.H. Douglas published a book titled “Economic Democracy,” where
he wrote that several major factors associated with modern
mechanized production resulted in a gap between the value of
manufactured goods and purchasing power distributed through
wages, salaries, and dividends. That is, he addressed the exact
problem the U.S. and other developed economies were facing both
then and now.
In a 1932 publication, The Old and the New
Economics, Douglas listed several systemic causes “of a
deficiency of purchasing power as compared with collective
prices of goods for sale.” These included business profits not
distributed as dividends (retained earnings); individual
savings, i.e., “mere abstention from buying”; “investment of
savings in new works, which create a new cost without fresh
purchasing power”; accounting factors, where costs previously
incurred are carried over into current prices; and “deflation”,
i.e., “sale of securities by banks and recall of loans.”
Other elements not mentioned by Douglas
include insurance, which is costly in the U.S., maintenance of
unused plant capacity, which is extensive due to the decline of
U.S. manufacturing output, employer retirement contributions,
and the cumulative sum of retained earnings and other cost
factors when businesses buy from each other.
These factors all show up in the prices of
goods and services but are not paid as earnings to individuals.
A simple way to understand what happens is that prices that a
business charges must not only pay for labor costs but must also
cover all non-labor costs, as well as equip the firm to perform
in the future.
Also, while the financial and accounting
systems force consumers to pay for the costs of capital
depreciation, they do not give them credit for appreciation of
the value of the business that will appear through future
capital gains. This applies particularly to technology-intensive
companies where high R&D costs must be recovered in prices but
do not show up proportionately in employees’ immediate take-home
Taken together, the impact of all these
factors is devastating to consumers and the economy at-large,
because we never earn enough to compensate for what the tax and
accounting systems label as costs.
Douglas’s analysis had solved the main
financial problem of the industrial age, one which puzzled most
of his contemporaries, including Winston Churchill, who said in
a 1930 speech at Oxford: “Who would have thought that it would
be easier to produce by toil and skill all the most necessary or
desirable commodities than it is to find consumers for them? Who
would have thought that cheap and abundant supplies of all the
basic commodities would find the science and civilization of the
world unable to utilize them? Have all our triumphs of research
and organization bequeathed us only a new punishment: the Curse
of Plenty? Are we really to believe that no better adjustment
can be made between supply and demand? Yet the fact remains that
every attempt has failed. Many various attempts have been made,
from the extremes of Communism in Russia to the extremes of
Capitalism in the United States. They include every form of
fiscal policy and currency policy. But all have failed, and we
have advanced little further in this quest than in barbaric
Churchill was speaking at the start of the
Great Depression, which, with unsold milk being poured in the
farm fields, was the classic case of society’s failure to
distribute what industry and agriculture were perfectly capable
of producing. “Poverty in the midst of plenty,” became the
hallmark of the modern age and continues to roar down the
world’s highways with a murderous vengeance today.
But Douglas showed how to solve the problem
by an analysis of the concept of “credit.” He pointed out that
there are really two forms of credit. One is “real credit,”
which equates to the total ability of a nation to produce goods
and services through increasingly efficient use of science and
technology. Another way to define “real credit” is to view it as
“productive potential.” The second is “financial credit” issued
as loans by the banks.
Douglas made it clear that in a system where
the banks have a monopoly on the issuance of credit, as ours
does, they are the most powerful entity in the economy and
therefore will be the most powerful politically as well. They
will enhance their power, and their profits, by keeping
financial credit scarce, so the amount they issue will never
approach the amount of “real credit” that ultimately should
derive from the bounty of the producing economy.
Even in a country like the U.S., where claims
are made that credit is cheap and abundant, there are strings
attached, simply because the limited amount of credit that
financial institutions choose to make available obviously must
be repaid and repaid with interest. Also, today’s “low” interest
rates are still higher than in the 1950s and 60s. And when the
inevitable credit contraction comes at the downside of every
business cycle, the wealth of society gradually but
remorselessly fall into the creditors’ hands.
Further, people don’t realize how much events
on the national and international scale are connected in ways
that are not evident on the surface. Monetary decisions, for
example, have more to do with determining the course of a
nation’s economy than any other factor. Similarly, it is the
state of its economy that determines a nation’s foreign policy.
The usual recourse taken by a society whose
economy is strapped for purchasing power, Douglas said, is to
try to export more than it imports to make up for the credit
shortfall through a positive balance of payments. Because this
leads to tremendous competition among nations for foreign
markets as a matter of sheer financial survival, wars must
We can see that because the U.S. today has
such a large trade deficit, even more of the
production/consumption gap must be filled by bank-issued credit
or by the conquests of war. This seems to be the case with the
war on Iraq, whose real cause appears to be the desire for
corporate profits through control of oil.
Douglas and his followers pointed out that
war or mobilization for war also has the “benefit” of destroying
or idling large quantities of production (bombs, missiles,
tanks, airplanes, etc.), which otherwise society is unable to
The war economy also props up the employment
numbers. It was World War II that finally pulled the U.S. out of
the Depression, and it is the huge quantity of deficit spending
on the military-industrial complex which continues to anchor the
U.S. economy today. This has happened in accordance with the
Douglas model of a debt-based economy where people do not earn
enough to buy what industry must produce to create jobs.
Critics may ask why, if Douglas’s analysis is
correct, is it not generally recognized and accepted? The answer
is that it IS recognized and accepted, but only by the monetary
reformers on the one hand and the financiers on the other. But
the financiers, who own the mass media, are not telling the rest
of us, because it’s what makes them so rich and powerful. This
is why William Greider titled his 1987 book on the subject,
Secrets of the Temple: How the Federal Reserve Runs the Country.
We are dealing here with the deepest secrets of the financial
control of the world.
One final point about Douglas is to observe
that late in his career he made remarks that have been
interpreted as anti-Semitic when he pointed out that,
historically, certain Jewish customs allowed them to take
advantage of non-Jews in business dealings. He also pointed out,
as have others, that many of the financiers engaged in the
banking business have been Jews. Douglas attributed their
success to a high degree of organizational skill and their
ability to excel and take control in business matters.
But the Social Credit movement itself is not
and has never been anti-Semitic. Nor is the author of this
report, and neither is the worldwide monetary reform movement.
In calling for change, we are talking about a new system, a new
philosophy, and new laws based on principles of justice and
democracy that are accepted everywhere, though often embattled.
The Jewish people are not responsible for the
present crisis and did not create it. It’s simply the way the
Western economic system evolved. Finance capitalism came out of
the Italian city-states. At various times it furthered
industrialization by making credit available, but any system can
be abused. Any system outlives its usefulness and eventually has
to be changed.
THE NATIONAL DIVIDEND SOLUTION
The way out of the monetary dilemma, said
Douglas, was not to opt for Marxism or socialism, because
economic democracy cannot be achieved by another collectivist
“-ism” to replace finance capitalism. Also, Marxism, like
finance capitalism, assumes an economy of scarcity. It simply
says that workers have a greater right to the limited supply of
manufactured products than do business owners.
Douglas, by contrast, saw things through the
eyes of an engineer. He saw that technology created a
possibility of virtually unlimited abundance. He saw that
workers’ wages would fade away as a source of societal
purchasing power as machines took over more of their work. But
he also saw that this abundance could be distributed to those
who needed and deserved it only if society took back its
rightful prerogative of credit creation from the banks and made
that credit available without hindrance to individuals.
Finally, Douglas saw that the distribution of
credit could not be tied solely to work because many jobs would
cease to exist through advancing automation. These were
revolutionary ideas and remain so today. Enough people
understood what Douglas was talking about that his ideas became
a significant political force in Great Britain, New Zealand,
Australia, and Canada. The Social Credit movement he founded
still exists in those countries.
The primary method this system would use to
implement public creation of credit would be through a cash
stipend paid to all citizens known as a National Dividend.
Because the dividend would be an expression of the sum total of
the producing potential expressed as the “real credit” of the
nation, it would be distributed as a book entry on a government
ledger, not as a budget expenditure paid for by tax revenues.
And the right to the dividend would not be tied to whether or
not a person had a job.
Going back to the discussion at the beginning
of this report of the $12.98 trillion 2006 GDP vs. the $9.21
trillion in purchasing power generated through wages, salaries,
dividends, etc., recall that the $3.77 “gap” that should have
been viewed as an overall dividend to society instead had to be
financed by debt.
Now we’ve come full circle. It’s the National
Dividend of the Social Credit system that explains the gap and
would in fact provide it to the residents of the nation as their
rightful benefit from creating, operating, and maintaining our
wondrous economy. It’s society as a whole which created our
economy, and we are the ones who should benefit from it.
A Social Credit system would be implemented
through simple bookkeeping. The funding of the National Dividend
would be drawn from a national credit account which would
include all factors which give rise to production costs and
create new capital assets.
The national credit account could also be
used for price subsidies. Prices in the U.S. are generally too
high, leading manufacturers to cut costs by shipping jobs
overseas. But it is simply wrong that the hard work we do for
our standard of living should turn against us and end up taking
away our jobs. A program of price subsidies would allow us to
stop penalizing our workers for their high levels of
productivity and could be funded as another element of the
You might ask at this point, is a National
Dividend simply having the government “give away” money created
out of “nothing”? If so, it’s the same “nothing” from which
banks make loans under their “fractional reserve” privileges,
using as a base a small collateral of customer deposits and
government securities. The difference is that bank loans must be
repaid, while payments under a National Dividend system would
Thus the National Dividend would be real
money, unlike Federal Reserve Notes. These are a substandard
type of money, since each one is entered into circulation only
through a debt payable to a bank with interest. But the National
Dividend is not “free” money. Rather it’s the result of a
powerful, productive, and scientific economic system that has
developed over the course of centuries and today is so strong
that some of its benefits can and should be made available to
everyone in society without their having to work as hard to
A National Dividend would represent the true
wealth of the community, the bounty of our incredible GDP and
our amazing efficiency, of which all citizens should be the
rightful beneficiaries once the business owners receive a
reasonable profit. Again, it’s important to realize that Social
Credit is not a socialist system. Rather it is “democratic
capitalism,” in contrast to the “finance capitalism” that has
become so damaging.
We must realize too that while “democratic
capitalism” has been talked about, and is the basis of the idea
of widespread stock ownership, it has never been implemented as
the driving principle of a developed economy. Rather the cream
is always skimmed off the top by the financial elite through
their control of credit-creation.
Again, the heart of the Social Credit program
is the fact that the collateral base of the government-managed
National Dividend, as with all sources of legitimate currency,
would be the productive capacity of the economy expressed as
GDP. This is what already stands behind “the full faith and
credit of the United States.” This is the true “credit” of the
nation. It’s what provides the real “backing” of the currency.
Viewed from a philosophical level, the
national credit, including that portion from which the National
Dividend would be drawn, is the monetization of an intangible;
i.e., the totality of the nation’s real wealth as expressed by
its laws, history, physical plant, land, resources, and the
education, skills, and character of its people. Without all of
these, the government could print dollars—or the banks could
lend them—from here to eternity, and they would be totally
Under a Social Credit system, banks would
continue to function in limited ways, but they would not have
the privilege of funding the entire shortfall in purchasing
power of the nation.
Instead, if we’d had a Social Credit system
in place, the $3.77 trillion gap in the 2006 U.S. economy
between production and earnings—the bounty of our productive
genius—would have been bridged by a National Dividend averaging
$12,600 for every man, woman, and child (legal resident or
citizen) in the nation.
Looked at from another angle, this payment
has some relationship to a “basic income guarantee,” which has
been advocated by many economists, politicians, and reformers in
the U.S. for decades, including Milton Friedman and Dr. Martin
Luther King, Jr., and which is the idea behind the current
citizens’ dividend of about $1,000 per resident under the Alaska
The difference between a National Dividend
and a basic income guarantee is that the dividend is tied to
production and consumption data and may vary from year to year.
During years that the dividend fell below a designated
threshold, the balance of a basic income guarantee could be
provided from tax revenues. But in a highly-automated economy
such as that of the U.S., the National Dividend would normally
One use individuals would be likely to make
of their dividend would be to pay down personal, household, or
student debt, though some of that debt should be written off by
restoration of a more reasonable—i.e., pre-2005—federal
bankruptcy law. Further, if the dividend were reduced to an
average of $10,000, the additional $2,600 could be used to pay
down the principle on the $8.84 trillion national debt as well.
The entire debt could be retired in eleven years, with interest
being funded from tax revenues as it is today.
WHAT ABOUT INFLATION?
Bankers and their apologists have always
argued that any program of publicly-generated credit would cause
inflation. This is nothing but propaganda.
Because a National Dividend would replace
bank-credit of the same amount, it would bring the total
monetary supply of the nation only up to the level of the GDP.
It would not result in “more dollars chasing the same amount of
goods,” but would simply bridge the gap. Not only would the
National Dividend be non-inflationary, it could even be
counter-inflationary by liquidating previous financial costs
without creating new ones.
Besides, what is truly inflationary is the
Federal Reserve’s policy of creating, then deflating, asset
bubbles, the latest being the housing bubble. With such bubbles,
prices inflate on the way up, but only level out on the way
down. This can do irreversible structural damage to the economy.
Inflation due to the housing bubble has
affected not only home prices—it has also escalated rents and
business leases, made it harder for people to start small
businesses, and difficult for young people even to find a rented
room. Meanwhile, home and property ownership is becoming a
high-priced commodity available only to the rich.
This type of inflation has an immense ripple
effect. What it means is that the dollars people earn can
purchase less throughout the economy, because every business
must operate in a building and on a parcel of land which now
costs much more.
The housing bubble has been a catastrophe to
democracy. With the Federal Reserve at the helm and the private
banking industry in charge of credit, the dollar has lost almost
90 percent of its value since 1960. Since the early 1970s,
virtually every period of economic growth has been a Federal
Reserve-created bubble, with the Treasury Department helping out
in the early 1990s with a strong-dollar policy that contributed
to the dot.com bubble. With every cycle, more and more assets
fall into the hands of the wealthy, including both U.S. and
Also, bank interest by itself is
inflationary, because it adds to the cost of doing business at
many points in the production-consumption stream. The Federal
Reserve claims it is fighting inflation when it raises interest
rates, but what it actually does is slow down economic activity
by suppressing wages and salaries or throwing people out of
work. The higher interest itself pulls in the other direction by
adding to costs. Thus inflation has continued even during
periods of monetary contraction, as in the1979-83 recession when
the consumer price index rose almost 20 percent.
Another point on inflation is that under our
system of bank-created debt-based credit, businesses inflate
their prices to make paying their debt cheaper, as does the
federal government. A government like ours that is deeply in
debt always wants to pay with dollars of less value, so it
pursues inflationary policies in order to push taxpayers into
higher tax brackets. This is yet another way a bank-centered
monetary system distorts real economic values and hurts working
people and families.
Management of a modern producing economy the
way the Federal Reserve does by raising and lowering interest
rates is a travesty. With no participation by any elected
official, and with the most superficial explanations, the
Federal Reserve can and does alter the value of all the money in
the United States. The U.S. courts, were they willing to face
down the financiers who are the de facto controllers of the
Federal Reserve, could easily rule that this is an
unconstitutional confiscation of property without due process.
At times, as in the early 1980s, when the Federal Reserve
devastated the economy with interest rates of more than 20
percent, its actions are simply a crime.
Such an event can have far-reaching and even
catastrophic consequences. When the Federal Reserve decided in
1979 to begin a radical escalation of interest rates to combat
the inflation of the 1970s, it took the Carter administration by
surprise. After President Ronald Reagan took office in 1981, the
top echelons of his administration reacted to the Federal
Reserve’s actions with dismay.
The economy was collapsing in the worst
recession since the Great Depression. But instead of confronting
the Federal Reserve and its financial controllers, the Reagan
administration took a series of radical actions to slash tax
rates for the upper income brackets, deregulate the banking
system, add huge sums to the national debt by throwing
deficit-produced dollars at the military-industrial complex, and
commence a new era of low-scale proxy warfare in Afghanistan,
Angola, El Salvador, Nicaragua, and elsewhere known as the
President Reagan was so relieved when the
Federal Reserve finally relented by lowering interest rates in
1983, he declared in his 1984 reelection campaign that it was
“morning in America.” But instead of facing up to and addressing
the monetary actions taken by the Federal Reserve which ended up
damaging our industrial infrastructure and leaving us with
today’s anemic “service economy,” the Reagan administration
panicked and set in motion a complex series of compensating
actions that ignored the underlying monetary issues.
As a current example of how the system works,
in early 2006, the Federal Reserve announced an interest rate
hike after data came out which showed that U.S. workers were
seeing their pay go up a tenth of a percentage point higher than
As a result of these kinds of interest rate
increases, hundreds of thousands of people pay higher rates on
their adjustable rate mortgages, foreclosures of homes increase,
tens of millions pay more interest on their credit card
balances, and the loans that fuel the American economy, paying
for everything from raw materials to inventory and
transportation, cost more. Also, business and individual
bankruptcies increase, workers and salaried employees are laid
off, and, in the example cited above, the stock market took a
hit, with hundreds of millions of dollars of value lost in a
single day, wealth that simply vanished.
The correct term for such a system is
Reducing the payment of interest to banks
through monetary reform would lessen inflationary pressure and
eliminate the policy whereby the Federal Reserve tries to create
“price stability” on the backs of working people. Its policy,
which is the essence of so-called “monetary targeting” or
“monetarism,” and which is fully supported by a Congress
dominated by monetary conservatives from both political parties,
is really one of class warfare. As U.S. billionaire investor
Warren Buffett has said, "There’s class warfare, all right, but
it’s my class, the rich class, that’s making war, and we’re
BENEFITS OF A NATIONAL DIVIDEND
The method by which the Federal Reserve
attempts to manipulate the economy by adjusting interest rates
is not only destructive and tends to further the long-term
interests of the financiers to the detriment of society, it
would be completely unnecessary under a National Dividend
Under a National Dividend system with
periodic cash stipends, most people would work anyway, but they
would not have to work so much, and if they wanted to take some
time off, stay home and care for children or the elderly, take
lower-paid positions in education or the arts, or learn a new
profession, they could do so.
At last there would be a leisure dividend. Of
course this goes counter to many of our prejudices, including
fundamentalist notions that man is meant to toil and suffer. In
practice, of course, those who toil and suffer exclude the
Another way to look at it is that a National
Dividend could at last provide enough personal freedom that all
our time and energy would not have to be spent just keeping our
bodies fed, sheltered, and clothed. We would be free for more
important cultural and spiritual pursuits. Who knows what forms
society might take or what we might accomplish if the individual
were liberated from the crushing demands of economic necessity?
Another prejudice to overcome is the idea
that if we just “give people money” they will waste or abuse it
or become alcoholics or drug addicts. But people tend to respond
positively to social benefits and make the most of opportunities
when presented. Slackers always must face their own consciences
and generally find it easier to live up to community
expectations than live as self-indulgent outcasts.
Also, neither Social Credit nor a basic
income guarantee is a “free money” program. A strong,
functioning economy is required. Freedom must be earned. And it
has been earned in our mature, highly-developed economy.
Besides, what really turns people into
alcoholics or drug addicts is a pressure-cooker economy like we
have today. Maybe this is why, according to a report that came
out in March 2007 by the National Center on Addiction and
Substance Abuse at Columbia University, forty percent of college
students are binge drinkers and twenty-three percent meet the
medical criteria for substance abuse.
Part of the problem is likely that students
are staring at a future of huge debts and few good jobs, where
the rich rule the world and the rest struggle to survive.
Financial conditions may be reflected in young peoples’
attitudes, where, according to the Higher Education Research
Institute, the proportion who say it is “essential” or “very
important” to be “very well-off financially” grew from 41.9
percent in 1967 to 74.5 percent in 2005, and “developing a
meaningful philosophy of life” dropped in importance from 85.5
percent to 45 percent. According to a Gallup survey, 55 percent
“dream about getting rich,” though few ever will.
For now, let’s leave it to the imagination of
the reader to ponder further the social, political, and economic
benefits of a national credit program, including the effects on
the lives, aspirations, and attitudes of our youth. As you do
so, realize that it could mitigate many of the economic causes
of the drive toward war that are threatening to blow up the
world in Iraq and elsewhere; i.e., competition among nations for
markets and resources and use of war expenditures to create jobs
and profits. It would also provide the first real opportunity in
decades for economic decisions to be made on the basis of other
considerations than financial profits—such as what economic
policies would benefit individuals, families, or the
This change could result in another
dividend—the elusive “peace dividend,” where tax money saved
from no longer needing to conquer the world to prop up our
collapsing debt-based financial structure could be used for such
urgent priorities as environmental protection and clean-up,
infrastructure maintenance, and alternative energy R&D and
conversion. A 50 percent cut in military expenditures would
yield over $300 billion per year for these and other beneficial
PUBLIC CONTROL OF CREDIT
Finally, a comprehensive monetary reform
program could also shift a certain amount of credit creation
through lending to the federal government, away from the private
banking industry, which has held that monopoly in the U.S. most
of the time since the creation of the Federal Reserve System.
This would reflect the fact that credit should really be viewed
as a publicly-regulated utility like water or electricity.
Overall monetary targets could be overseen by a Monetary Control
Board within the U.S. Treasury Department, as advocated by the
American Monetary Institute in its model legislation, the
American Monetary Act.
The logic of publicly-controlled credit is
obvious. If government has the authority to charter banks to
issue credit through loans against a small reserve of deposits,
it could just as easily issue credit itself against a reserve of
tax receipts or even against the “real credit” of the nation’s
GDP. Because government would not have to earn a profit on
lending, it could offer credit at much lower rates of interest,
only enough perhaps to cover administrative costs.
An example of how public credit can be used
successfully was the Reconstruction Finance Corporation which
provided the U.S. economy with billions of dollars in
low-interest loans from 1932 to the early 1950s. Another example
was the Home Owners Loan Corporation which took over the
mortgage industry from Wall Street speculators during the New
Deal and established secure home ownership through low-interest
fixed-rate loans as the basis for middle class financial
security. This system was eventually destroyed by the
deregulation of the 1980s.
Efforts to create a new basis for public
credit today could restore programs like the RFC or HOLC and
lead to low or even zero-percent interest lending programs for
state and local infrastructure projects through a
self-capitalized federally-sponsored infrastructure bank. Funds
could also be distributed from the national credit account as
grants. Public credit for infrastructure investment could become
a vehicle for shifting the U.S. economy back in the direction of
heavy manufacturing and helping to restore our status as the
world’s leading industrial democracy.
Public credit could also be used to provide
or subsidize inexpensive loans at the local level for consumers,
students, and small businesses. These loans could be made
available at interest rates as low as one percent. Such a
program could be implemented by having the federal government
lend money at low interest to commercial banks from a national
credit account. The banks would then use the money to fund
consumer loans while charging only an additional administrative
fee plus a reasonable business profit.
Through a National Dividend and
publicly-regulated credit, rural and small-town America, as well
as Native American communities, all of which have had the life
sucked out of them by poverty and debt, would vastly benefit, as
would our center cities. In fact, a rebirth of local culture and
self-sustainability, which various half-hearted and heavily
bureaucratized federal programs have tried unsuccessfully to
address, could at last be possible.
The monetary reform program would address
several of the biggest social and economic problems, including
lack of income security. Without income security, we can’t even
start to solve many other problems, because we have to work so
hard just to keep our heads above water. And more of us are
going under all the time. There was a time in American life when
the leaders of government and business calculated what people
needed for a decent life and tried to provide for it. Those
times are gone. People today have been tossed to the corporate
and financial wolves.
A broad-based program based on public control
of credit-creation would replace a financial system that
benefits mainly the financial plutocracy with one that supports
democratic values and local financial needs. It would give back
control over their own lives to individuals and communities. It
would immediately relieve some of the most serious sources of
economic and political tension that are driving the world toward
more and bigger wars. And by facilitating self-sustaining local
economies both at home and abroad, the program would reduce the
pressure for the large and powerful nations of the West to prey
on the rest of the world.
Finally, a point should be made that would
take another lengthy report to elaborate, which is that our
existing economy, where GDP cannot be purchased by the
cumulative national income unless it is heavily augmented by
debt, is an economy operating in a straightjacket. Even with a
$13 trillion GDP, it is an underperforming economy, one which is
not even close to its full potential. It is another secret of
high finance that its overall effect under today’s conditions is
actually to throttle legitimate economic activity, not
If the national credit were free to expand
along with production, there is no reason why our GDP could not
be much higher than what it is today, except that it would be
distributed more democratically. This level of abundance need
not be environmentally damaging, because it would include the
application of technology to mitigate environmental hazards and
develop new materials and processes.
The abundance would have the effect of
raising the standard of living for everyone in society. The same
methods could be applied in other developed and developing
nations. The fact that we have not allowed science and
technology to reach this level of potential is another
manifestation of the misuse of financial credit to create an
unnatural scarcity which benefits only the financial
Also, increased economic activity would not
necessarily lead to out-of-control world population growth, as a
society’s birthrate tends to decrease through voluntary means as
it becomes more prosperous and stable.
Viewed from the perspective of this report,
world history over the last 100 years is starkly simple. The
aspiration of every nation, regardless of its economic habits
and ideology, has been to maintain something resembling income
security for its population. This is natural; above all, people
want to live.
But science and industry have made it
possible to satisfy human needs without full employment, leaving
the gap between purchasing power and production which this
report has explained. But instead of supplying its citizens with
the needed National Dividend, governments have tried to fill the
gap through a welfare state based on income redistribution,
through socialist state controls, through bank-furnished credit,
or a combination.
No approach yet devised has resolved an
inherently unstable economic situation that is endemic to a
technological economy that refuses to operate on the basis of
truly democratic principles.
The U.S., among nations, has had the most
success in creating a measure of stability but has been able to
do so only through economic domination of the rest of the world
as a means of filling the production/consumption gap. This
domination began with the massive loans to the European
combatants during World War I, continued through the lend-lease
program of World War II, and reached its zenith through the
economic recovery measures after the war, the aim of which was
to maintain for the U.S. a positive trade balance. Thus was
formed the basis for U.S. prosperity during the 1950s and 1960s.
This trade domination began to expire with
the Vietnam War and had evaporated by the 1970s. After the fall
of Saigon in 1975, the only way the U.S. saw to keep its economy
afloat was through the policy of dollar hegemony, where use of
the dollar was established for oil trading and as a worldwide
reserve currency. With the Reagan administration came the
habitual resort to military power as the enforcer of U.S.
financial prerogatives. This is what accounts for the period of
incessant low-key warfare that has controlled U.S. policy since
the late 1970s, with the “War on Terror” and the military
invasions of Afghanistan and Iraq being only the latest phase.
Today, as U.S. dollar hegemony, along with
our domestic economy, begin their collapse, through laws as
immutable as those of physics, the threat of world war has
returned. But another world war would not produce economic
stability. The only way to achieve that objective is through
real economic democracy as described in this report and in
similar writings by other monetary reformers. But the cost of
doing so, as seen by the financial and political establishment,
would be to give up their near-total control of society.
In conclusion, it should be clear that this
report takes an optimistic view of mankind, its aspirations and
potential. And it affirms the positive value of science and
technology. Human beings were created in the image of God, and
God does not want us to be miserable on a planet where all can
be provided for.
Obviously it would take a book to describe a
complete monetary reform program to take us in this direction.
This report has put forth some key concepts. For now it is
enough to summarize the way out of our economic dilemmas by
recommending that the federal government take the following
1) Issue a $10,000 average dividend, created
simply as an accounting book entry, to every U.S. legal resident
or citizen (to be determined), tax-free and without reducing any
other benefits currently being paid. A sensible ratio between
adults and children would be calculated. A temporary system of
price controls would be instituted to prevent profiteering.
2) Create a second dividend which totaled
approximately $800 billion as a first installment on paying the
principal on the national debt and freeze the purchase of U.S.
assets by foreign holders of U.S. debt instruments until
currency exchange programs can be put into place. (The dividends
paid to individuals and for repayment of the national debt would
equal the gap between GDP and purchasing power for 2006.)
3) Continue to issue both dividends for each
future year based on the calculated gap between GDP and
4) Utilize the money saved from no longer
having to maintain an aggressive military posture overseas to
compensate for monetary problems by addressing urgent priorities
such as alternative energy R&D and restore more progressive tax
rates for the highest income brackets.
5) Create a self-capitalized national
infrastructure bank to lend or provide grants to state and local
governments for infrastructure maintenance and development with
provisions for use of U.S.-made products.
6) Use federally-created credit or resources
to subsidize local banks in providing low-cost credit to
consumers, students, and small businesses.
7) Create a Monetary Control Board within the
executive branch to regulate the U.S. monetary system, determine
the amount of the National Dividend, assure the stable value of
money, and oversee both private and public use of credit. (For
additional provisions of the American Monetary Act, see the
American Monetary Institute website at www.monetary.org.)
8) Return to the more forgiving pre-2005
bankruptcy laws and offer genuine debt relief to nations which
owe money to banks and international lending agencies.
9) Move toward a national system of “fair
pricing” subsidies using national credit as a funding base.
10) Support the adoption of a similar
monetary program for other nations of the world.
To implement this program, Congress could
pass a series of laws which would have the effect of taking back
the people’s Constitutional prerogative over their monetary
system and laying the basis for future prosperity. These laws
could help to usher in a new age of humanity. In fact, the agony
of degradation and violence the world is now going through may
someday be seen as the birth throes of a new age of economic
enlightenment. A key would be a democratic monetary system which
opens the door to material abundance for all people.
We know that the financial industry which
controls the economy and politics of the world might have to be
persuaded to support these proposals. The chief argument may be
this: Yes, you have become rich through your monopoly over
credit. Yes, you preside over the economies of most of the
world. But don’t you see that you have bled the life out of the
people who just want to live and work? Don’t you see that it is
their labor that is keeping you alive too? Don’t you think that
if society destroys itself from war, financial collapse, and
pollution you might lose your own livelihood and ability to
So why don’t you join us in making a better
world, even if it means altering a financial system that has the
momentum of centuries behind it but that today is choking the
aspirations of humanity like a dead hand?
Shouldn’t we make a start by addressing our
economic problems rationally and democratically through a
monetary reform program that benefits everyone, that properly
rewards us for our miraculously productive economy, and that has
a good chance of success if we embrace it with determination and
The only question at this late stage may be
whether economic democracy will be achieved through a process of
peaceful reform, or whether it will be built on the ashes of
whatever is left of world society after the likely coming
IN THE MEANTIME
There is much that individuals, families, and
groups can do right now to address the effects of the economic
crisis in their own lives. These measures exist on the material,
mental, and spiritual levels. Following is a short list:
Don’t borrow. What enslaves us to an economic system in
a chronic state of collapse is, above all, our debts.
Throw away credit cards. If it makes sense to do so,
rent instead of taking out a mortgage to pay the
inflated prices of today’s housing. Work for a year or
two and save for college. If your debts are
overwhelming, don’t be afraid to declare bankruptcy or
look for other options. If you have money, put it into
tangible assets before its value is destroyed by
Think for yourself. Search for reliable information
about the economic and political situation and the true
reasons for wars and other forms of organized violence.
Read books and turn off the TV and video games. Discuss
ideas and issues with your kids, family, and friends.
Start a website which expresses responsible opinions and
offers help and information to others.
Hone your skills. Do your own car and household repairs.
Grow and cook your own food. Shop at thrift stores. If
you can, raise farm animals. Take classes in
handicrafts. Start your own part-time business. Take a
job doing manual labor. Demand that the local schools
teach practical skills to young people.
Work with others on creating democratic intentional
communities. Explore group housing. Live near mass
transit commuting lines. Set up barter groups and
consider establishing local currency systems as many
people did during the 19th century and the
Great Depression. In the last two years there have been
a number of new communities being started in small towns
or rural areas as people have seen the writing on the
wall about what may be coming to an endangered American
Become politically active. Register, vote, and demand
honest elections. Support politicians who have
integrity. Demand changes along the lines suggested in
this report, as well as consumer-friendly laws and
regulations, including those that favor mass transit and
affordable housing. Lobby locally for public space for
farmers’ markets and commitments by government agencies
to buy from local small business. Don’t allow government
to drive people out of their homes with property tax
increases or to seize private property on behalf of
Work with schools and expect them to teach democratic
ideals including economic reform. Honor those who speak
truth to power and let the government know that the Bill
of Rights means something to you. Demand local programs
to help people avoid and get out of debt. Let the local
media know that you want to see reporting on real issues
and more public interest programming. Boycott companies,
retailers, and media outlets that oppose reform.
Remember that external circumstances have no power. We
tend to be overwhelmed by the apparent strength of
government, corporations, employers, banks, our credit
rating, the economy, the media, armies, technology, our
endangered possessions, etc. The power of these things
is illusory and is based on the dualistic conceptions of
the human carnal mind. In reality, God is the only
source of power in the universe, and the more we realize
God’s presence, the less do we fear externals. Search
for God within. Every person has a higher self, which is
God, and which may be sought and found through prayer
THE LAST WORD
We’ll give the last word to Edward Kellogg
(1790-1858), an American businessman who published his ideas
about monetary reform in Labor and Other Capital in 1849.
Kellogg favored consumer lending at as little as one percent
interest, as advocated earlier in this report. This lending
would originate from a government-operated credit account he
called a Safety Fund. Kellogg’s ideas were well-known among
American progressives during the latter part of the 19th
century and are drawing attention again today. The following
excerpt is from A New Monetary System published
posthumously in 1875.
“This money power is not only the most
governing and influential, but it is also the most unjust and
deceitful of all earthly powers. It entails upon millions
excessive toil, poverty and want, while it keeps them ignorant
of the cause of their sufferings; for, with their tacit consent,
it silently transfers a large share of their earnings into the
hands of others, who have never lifted a finger to perform any
“The same power has grossly deceived our
public teachers; for not being able rationally to account for
the great inequalities of wealth and condition existing in
society, and being expected to furnish a satisfactory
explanation in some way, they tell the people that these great
wrongs are providential, that they are the mysterious workings
of the providence of God, that all these evils are governed and
controlled by His power and goodness.
“This method of accounting for the gross
political wrongs in society has covered up and hidden from view
a multitude of heinous sins. Notwithstanding the number of those
who now live in luxurious idleness, performing little, if any
useful labor, and the great number of those who remain idle
because the scarcity of money renders it impossible for them to
obtain work, yet with all these impediments, there is generally
enough produced each year in each nation to give to every man,
woman and child a comfortable living.
“Every person of common sense must see that
God in his providence has bountifully provided for man and that
there is some other power working against him, and diametrically
opposed to the righteous distribution of his bounties. It is the
providence of the national laws, establishing this unjust power
of money, which robs the producing classes of their rights.
“As the bounties of God are abundant, so must
the money for their distribution be abundant, or they can never
be justly distributed. If the scarcity of money or its
centralizing power retard the production and the distribution of
the products of labor, the power of the money is unjust and
oppressive, and instead of being in unison with the providence
of God, it is the most powerful opponent of his righteous laws,
as well as the most powerful and bitter opponent of justice and
beneficence among men.
“It would be as reasonable to expect sweet
waters to flow from a bitter fountain, as to expect just
distributions of property if the standard by which it is valued
is unjust. We are not depicting an unknown evil. Legislators,
financiers, and the producing classes all know that money is
possessed of some mysterious evil power, which has never been
clearly explained and defined.
“We have intended to remove this mystery
concerning the nature and operations of money, and to show what
laws must be annulled, and we shall proceed to show what other
laws must be enacted, in order to establish money that will be
endowed with an equitable power. The evil power of money has
been politically established, and it must be politically
annulled. It is a public wrong, and the public must administer
Richard C. Cook is the author of
Challenger Revealed: An Insider’s Account of How the Reagan
Administration Caused the Greatest Tragedy of the Space Age. He
is a Washington, D.C.-based writer and consultant who, in
addition to NASA, taught history and worked in the U.S. Civil
Service Commission, the Food and Drug Administration, the Carter
White House and spent 21 years with the U.S. Treasury
Department. His website is at
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