It's time people knew the money trick
Colin Barclay-Smith is an Australian
journalist who started studying Douglas's Social Credit proposals during
the first years of the Depression. He was so convinced of the value of
this doctrine that he founded, in 1932, a journal to diffuse it, the New
Era, which had at one time over 30,000 subscribers. In 1934,
Barclay-Smith accompanied Douglas in his tour of Australia and New
Zealand. Barclay-Smith died on May 19, 1957 in Sydney, at the age of 64.
A brilliant writer, Barclay-Smith wrote several booklets on various
aspects of Social Credit. The last one,
It's time they knew, was published a few months before his
death. This booklet was republished and updated several times under the
Money Trick. (This book is available from our office, in
English or in Polish, for $9, postage included.) Here are excerpts from
by Colin Barclay-Smith
time the people of Australia knew the alarming facts. Test your own
knowledge of these facts by the following questions:
you know that no bank lends money deposited with it?
you know that when a bank lends money it CREATES it out of nothing?
you know that bank loans are merely pen and ink entries in the credit
columns of a bank's ledger? They have no other existence.
you know that practically all the money in the community comes into
circulation as a debt to the banks?
you know that money loaned by a Government bank is just as much a debt
to the people as if it were loaned from a private bank?
you know that “fixed deposits” are a plausible screen to hide the
creation of credit?
it ever occur to you that the banks enjoy this unique facility of
creating credit and putting the nation progressively into debt-bondage
because they create FINANCIAL credit against the REAL credit created by
you realize that every time a Government borrows money for a public work,
the people are debited with the liability (in perpetuity), but are never
credited with the value of the asset?
you know that every repayment of a bank loan cancels the amount of the
loan out of existence?
you know that Treasury Notes are Government I.O.U.'s — national pawn
tickets for pledging the assets of the country to the banks for the loan
of OUR OWN financial credit?
you know that banks purchase bank sites, build premises, and acquire
assets at no real cost whatever to themselves — by the simple process
of honoring their own checks?
You may dismiss these affirmations as “incredible”,
or “absurd”, but if you will read on, each one will be proved beyond
all shadow of doubt.
Most of us have grown up with only the
vaguest notions of money. We are fairly certain that it is the
Government's right to print notes and mint coins. For the rest, our
knowledge is distinctly foggy.
Most people, for example, labor under the
impression that the only money in the community is notes, silver, and
copper. But this is a very, very small part of the community's money.
fact, notes, silver, and copper — legal tender — is used for less
than five per cent of the total purchases made. Over 95 per cent of all
business is done by checks.
This check currency is really bank-created
money — bank credit — but it functions exactly the same as legal
tender money. Banking authorities of world-wide repute state that banks
can and do create credit up to nine or ten times their cash resources.
go to great pains to perpetuate the fiction that they are merely “the
custodians of their customers' deposits” — that they lend these
deposits, and that their profit consists of the difference in the rate
of interest which they pay to depositors, and the interest they receive
from borrowers. Such an idea is quite wrong, and it is the popular
acceptance of this major monetary fallacy which gives rise to most of
the false notions upon the subject of money.
facts about money are as follows: —
(1) Banks do not lend money deposited with
(2) Every bank loan or overdraft is a
creation of entirely new money (credit), and is a clear addition to the
amount of money in the community.
(3) No depositor's money is used when a
bank lends money.
(4) Practically all the money in the
community begins its life as an interest-bearing debt to the banks.
The technique of a bank loan
that a bank does in lending anybody, say $1,000, is to open an account
in the borrower's name — if he hasn't already got an account — and
write Limit: $1,000, across the top of the ledger. The borrower is now
free to operate and overdraw on this account to the limit indicated.
the account is drawn on the check, and in turn the check is lodged in
another account at the same or another bank, a “deposit” is thus
created, and the supply of money increased. Thus bank loans create “deposits”,
which plainly are not the source of loan money but, rather, the other
way around, they are the outcome of loans.
Now for the authorities
Now for the unassailable authorities on
this matter of the creation of credit by the banks.
Governor Eccles, a one-time head of the
Federal Reserve Bank Board of the United States, said: “The
banks can create and destroy money. Bank credit is money. It's the money
we do most of our business with, not with that currency which we usually
think of as money.” (Given in evidence before a
Mr. R.G. Hawtrey, previously Assistant
Under-Secretary to the British Treasury, in his Trade
Depression and the Way Out, says: “When a bank lends, it create money out of
In his book, The
Art of Central Banking, Hawtrey also wrote: “When
a bank lends, it creates credit. Against the advance which it enters
amongst its assets, there is a deposit entered in its liabilities. But
other lenders have not this mystical power of creating the means of
payment out of nothing. What they lend must be money that they have
acquired through their economic activities.”
Lord Keynes, the economist and one-time
Board Member of the Bank of England, states: “There can be no doubt that all deposits are created by the banks.”
Professor Frederick Soddy, the eminent
physicist of Oxford University, wrote: “Is
it possible in these days of disbelief in physical miracles really to
caricature institutions which pretend to lend money, and do not lend it
but create it? And when it is repaid them, de-create it? And who have
achieved the physically impossible miracle thereby, not only of getting
something for nothing, but also of getting perennial interest from it?”
The community's life blood
The business world cannot function without
bank credit, and every person in the community is equally dependent upon
Stop, or even restrict, bank overdrafts for
one week, and there would be a nation-wide crisis. Continue the
restriction for three months, and this nation would be plunged into a
depression, with unemployment and bankruptcy for thousands.
Such a crisis happened in the early
thirties, as millions of the older generation remember with sorrow and
bitterness. You may remember that during the Depression, there was no
shortage of goods. The shops and stores were full. But credit had been
restricted by the banks. The life blood did not flow freely, and
industry died, and unemployment was staggering.
credit is the life blood of the community, and if the flow of blood is
restricted, the patient's life is jeopardized.
How money begins
Now let us look at this credit business a
little more closely. How does it come about?
is an old economic tag that money originates in production, and is
cancelled in consumption. Practically all the community's money has its
roots in production. Most money sees the light of day as a “producer
credit”. In other words, it begins its life as a debt to a bank,
and from the moment it is released as a book entry in a bank's ledger,
the credit created by the bank and loaned to a company or individual
travels through the production system, much of it being used for
consumption, and is finally cancelled when the debt is repaid to the
bank by the borrower.
That industry — both primary and
secondary — cannot function on its own resources which is proven by
the universal need it has of bank overdraft accommodation (i.e., bank
A nation in pawn
other words, this huge total of assets is in pawn to the banks, and in
the event of any individual or company defaulting in its loan
obligations, the individual or the firm would probably be put into
liquidation in satisfaction of the banks' claims.
That's fair enough, you might say. But wait.
The banks lend money against the assets of the
community. These assets were created by the total efforts of the
community. They were created by the resources of enterprising
individuals, skilled executives, and adventurous management, in
producing articles or services to satisfy a public need.
The banks made no contribution whatever to
the development of a farm, a business, or a manufacturing company in its
early formative years. The bank comes into the picture when most of the
hard pioneering work is done, and by granting a loan — a costless and
effortless procedure — it merely monetizes the READ CREDIT created by
a functioning industry and a consuming public.
other words, the banks merely create — by the stroke of a pen, mark
you, or figures in a bank ledger — the financial credit which is
backed by the real credit created by the joint operations of producers
and consumers. The people do all the work and run all the risks. The
bank does nothing — nothing to create the assets — and runs no risk
whatever with the credit it lends.
Real credit may be defined as the faith or
belief (credo, I believe) that a free community has the knowledge,
energy, and capacity to co-operate in satisfying its needs. This is its
power in association, and the end product is the sum total of the
community's real credit.
We see, therefore, that the real credit of
a nation is created by the people through their abundant and many-sided
energies — what economic textbooks refer to as "the increment of
the financial credit of a nation should be a reasonably correct
reflection of its real credit. Since money is merely a convenient token
system to enable the people to purchase goods and services, it should be
issued at the same rate that goods and services are produced, neither
more nor less.
Cuckoos in the nest
even more important is this point: Since the community creates all real
credit, the ownership of the financial credit which
should reflect the real credit — the goods and services — also
belongs to the people. But it doesn't! It belongs to the banks! Or
rather, it has been appropriated by the banks.
The banks are really financial cuckoos in
the community's nest. The banks issue and cancel money without any
regard to the total production of goods and services. They cancel
financial credit arbitrarily, unscientifically, sometimes causing
deflation and depression.
we go on, we shall see that the ownership
of the real credit of the community is the great issue that
must be solved if Australia — and
all nations which work under the same monetary system — is
to survive as a free democracy or as a slave state.
Today, the banks enjoy a monopoly of the
public credit. They create and cancel (destroy) money as though the real
credit was created by them. Whereas they haven't lifted a little finger
in its creation.
by usurping the nation's sovereign prerogative to issue all its monetary
requirements — not merely the small change (the legal tender) — the
banks have established a powerful monopoly of credit by which they wield
the greatest power without any
This monopoly of credit by the banks is not
new. It has been going on for over 100 years, and during that time, the
banks have consolidated their position to one of almost unassailable
The power of life and death
It charges interest upon this credit
creation, and when the loan is repaid, both the debt and the money used
in payment of the debt are automatically cancelled. (Their cancellation,
of course, does not apply to any cash or legal tender used in the
repayment of the bank's loan, but legal tender usually represents no
more than a very small percentage of bank transactions.)
The banks have the power to call up the
overdraft partly or wholly at any time they decide. The fate of
companies and individuals — and governments — is entirely at their
mercy. Their power is stupendous, both in the creating and granting of
loans, and in their arbitrary recall, with or without notice!
The banks give, and the banks taketh away.
They hold the power of life and death over the whole economy.
Man creates a Frankenstein: taxation
lengthened shadow of debt is taxation. As debt waxes fat with every loan, so taxation casts a
larger shadow and a deeper gloom over the lives and liberties of the
people. Debt is what governments sow. Taxation is the bitter harvest the
Taxation reduces the living standard of
every man, woman and child, and is therefore a frontal attack, backed by
all the sanctions of the State, on the personal freedom of the
practically all money issued has its origin in interest-bearing debt, it
follows that all forms of taxation must increase, inevitably,
mathematically, and remorselessly. As taxation increases, so individual
It is not so very long ago since taxation
was a puling infant. But what an alarming change twenty or thirty years
has wrought! The child has grown to a man, and the man has become a
conscienceless thug who forces his way into every home, grabs what he
can with impunity, and waylays rich and poor alike.
The taxation tug is the terror of the
neighbourhood, holding the whole community to ransom. And the irony of
the situation is it is no use calling the police, for the police, and
all the sanctions of the State, are his aiders and abettors.
What if water was issued as a debt?
Does it not occur to you as preposterous
that private institutions — as private as a butcher's shop or a chain
store — should have the sole right to create and issue money as a debt,
thus making tax bondage inevitable?
imagine if the Water Board issued all water for human requirement as an
interest-bearing debt, and that, in order to meet our interest
obligations on the water we used, we had to go back to the Water Board
to borrow more water to pay the Board for the water we had already used.
What a fantastic situation! And yet, that is precisely what the banks do
with money. They monopolize its creation, issue it only as a debt, and
oblige us to go back to the same polluted source — the only source —
to borrow the money to pay interest on the debt already incurred!
Social evils of the system
is the most tragic irony of our civilization today that although man has
solved the age-old problem of dire poverty and scarcity, although his
inventive genius has given the world an age of plenty, we have become
individually more and more enmeshed in the heavy chains of debt.
Progress has been purchased by tax bondage — and quite needlessly.
Instead of being more free, man is
enfettered. Instead of enjoying better health with shorter hours,
labor-saving devices, and social services, many diseases, and especially
diseases of the nervous system, are more widespread then ever before.
Automation will cripple taxpayers
We have dwelt at some length on
confiscatory taxation and the social evils it spawns. But worse is to
come. There is on the horizon a dark cloud slowly but surely assuming
menacing proportions. We refer to automation.
Don't misunderstand us. Automation is
inevitable. It will quicken the tempo of change in lifting the burden of
monotonous types of work from the backs of men to the backs of
electronic, manless machines. Automation will put the coping stone on
this age of plenty by increasing the plenty, and do it with less and
less human effort.
But let us be under no illusions. Where
labor-saving inventions in the past have meant a steady reduction of
working hours, automation will mean a steady reduction of working men
— and women.
By that time — the next five or ten years
— the taxation load will have grown very much heavier, and the number
of taxpayers to carry the onerous burden will have grown fewer. If now
taxpayers are at the staggering point, automation will bring the
declining number of taxpayers to the point of complete collapse.
the people displaced by automation are to live, and live as this age of
plenty entitles them to live, whether employed or not, then it becomes
even more imperative for the Government to assert and exercise its
sovereign prerogative to create its monetary requirements instead of
borrowing them. It must become master in its own house if all the
stupendous problems that are now taking grotesque and frightening shape
are to be resolved in sanity and common sense.
The money-creation and debt story is the
same all over. Nations are now wallowing in crisis, through a sea of
debt and usury.
This article was published in the March-April, 2002 issue of “Michael”.