— What was just explained shows how Douglas's financial propositions could be applied in the production and distribution of consumer goods, the goods that individuals and families buy on the market. Could this method be applied also to the production and the payments of public works?

Certainly! In this case, consumption is best called depreciation: the gradual consumption by fair wear and tear, the ageing of these goods. It is the public as a whole which consumes them, the public represented by the Government, or by a local public administration, like in the case of schools, waterworks, municipal buildings, roads, sidewalks, sewer systems. These public works, once carried out, are, undoubtedly, a new production. This production must therefore also be financed by new credits.

— In the case of consumer goods, you had the producers finance themselves through the existing financial system, without excluding interest-bearing bank loans; then, you had these costs covered by interest-free social credits, when the finished goods passed from the wholesaler to the retailer who serves the consumers. Would it be the same thing for public works, and when would the financial costs of this new production be covered by interest-free credits?

Usually – and the method should come into general use – governments and other public administrations confide the operation of these works to contractors. Most of the time, to the lowest bidder, after having checked his competence and responsibility. Well, the contractor would finance himself in the same way as the producers of consumer goods, either with funds already at his disposal, or with loans that he would be able to get from a bank by promising to repay later on principal and interest.

As for the new credits to finance these public works, the public administration which had them made would get interest-free credits to pay the contractor, when the public administration takes possession of these completed works.

The population, which in this case is the consumer, would then pay this consumption (in this case, wear and tear, depreciation) as it takes place.

— Would you explain this by an example?

We have seen, at the beginning of this study, that a country's real credit resides in that country's production capacity. It is a social credit. And the whole of the country's financial credit, being based on its real credit, is also a social credit.

Therefore, as we have said, all new financial credit must come from a Monetary Office (which can be a Central Bank) operating on behalf of society. But this credit can very well be channelled towards production by the system of banks that presently exists, and be taken back towards its source through the same channel, after its use in production and consumption.

We have also said that the Monetary Office can be, in Canada, the Bank of Canada on a national scale; or a Monetary Provincial Office on a provincial scale, in case the provincial government would take the initiative, if the Federal Government does not take action.

To simplify our explanations, we will suppose that Social Credit is established in the whole of Canada.

When plans for public works are submitted to the people's representatives – to Ottawa, if they are plans within federal jurisdiction, to the legislature of the concerned province, if they are within provincial jurisdiction, to local public administrations, if it falls within their jurisdiction – the people's representatives do not, in the least, have to wonder if these plans are financially possible, but only if they answer real needs and if they are physically workable. Physically workable, that is to say, if the country's production capacity can carry out these works while continuing to supply the required goods to answer private needs. In other words, if this new public production does not hinder a more urgent production.

The decision to proceed with the submitted plans or postpone them is taken into consideration, irrespective of any financial preoccupation. Finance will carry out its role: to serve, and not to decide. Therefore, no further mention of balanced budgets, but of a priority in the order of wanted and possible fulfillments.

As an example, let us say that they are talking about a plan for the building of a bridge. The construction is decided upon, because it answers a real need, and because there is no reason to fear that activities directed toward this construction might harm the supplying of consumer goods to stores.

In a Social Credit financial system, the financing of the bridge is not a problem. But the Government will nevertheless request tenders; because if finance reflects realities exactly, a lower price means less materials, less energy, less time – therefore, a smaller portion subtracted from the country's real wealth.

It is, let us say, contractor John Smith who gets the contract, after his $500,000 tender. This price is planned to cover all of his expenses and a legitimate profit. He anticipated how much it would cost him to borrow to pay for his materials and employees, in case he would not already have himself the necessary funds to this end, interest included. It is his enterprise, not that of the Government. His whole guarantee is that once the bridge is completed, he will be able to deliver it to the Government and get $500,000, if the inspection shows a bridge built completely in keeping with the norms agreed upon.

If Mr. Smith is compelled to borrow $200,000, or $300,000, or even the total amount of $500,000, it is his business. If he deals with the banks, he comes to terms with them. The Government has nothing to do with it.

As in the case of private production, if Smith borrows from a bank, the lending bank is quite justified in requiring an interest from him to cover its operating costs and the risks incurred by any lending institution.

Once the bridge is completed, it is of course John Smith's property, but it is of no particular use to him. Therefore, he makes haste to deliver it to the Government which, after inspection and acceptance, pays him the price agreed upon, $500,000.

This price includes everything: not only the cost of the materials and labour; not only the profit that John Smith had included in his price in preparing his tender, but also the financial costs that he had anticipated.

— Ah! the financial costs also, the interest on his loans? Then, this new production will not be paid by new interest-free money?

Yes it will! In fact, like the retailer when we dealt with consumer goods, the Government will get the global amount in new financial credit, interest free, to pay for this newly-finished production.

— How and where will it get this money from?

It will get it from the source of the social financing credit, the Central Bank, either directly, or through a commercial bank serving as a channel to this end. And in that case, the commercial bank gets it upon request, through a simple cheque, from the source of credit, therefore, from the Central Bank.

— Then, the government is now in debt for $500,000 with the Central Bank, directly or through the commercial bank?

Not at all. There is no getting into debt. The bridge is wealth created by the country's population, not only thanks to the work of those who directly contributed to it, but thanks to the work of all those who supplied the things which allowed the construction workers on the bridge to carry out their works: food and needs of all kinds. The employees on the bridge have paid for these things, of course, but these things are the population's production; or, if certain goods were imported, it was in return for exported domestic production.

The population must not be put into debt for its own production, no more than one requests a baker to pay for the bread he himself produced. If the Canadian bridge had been built by Mexico or China, then it could be recorded as a Canadian debt towards Mexico or China. In a sound financial system, in conformity with reality, a public debt, a national debt can only exist towards a foreign country, when one has obtained from a foreign country more real things (labour, materials, etc.) than what one has supplied to that country in real things.

– But, in the case of consumer goods, you had the retailer pay back to the Central Bank, interest free, the amount he had obtained to take possession of the finished goods; he had to return to the bank the credit he had obtained as he sold his goods.

That is correct. He drew this money from the consumers who bought the goods. He was having them pay for the consumption of the goods, not the production, which was financed by the new interest-free credit, provided by the bank to the retailer.

— And in the case of public production, in the case of the bridge, will the interest-free credit obtained from the source, the bank, also be returned to the source? And if it is so, by whom and how?

Things are working here exactly as in the case of consumer goods. The population does not have to pay for the production of the bridge, which is, as we have just explained, its own production; but it will pay for its consumption, that is to say, the wear and tear, the depreciation, as it is consumed. This is still in keeping with the principle expounded by Douglas:

New production must be financed by new credits, and the withdrawal of credit must be made in proportion to consumption, therefore, as the wealth which had thus been created and financed, disappears.

If one comes back to the comparison with the baker's bread: the baker does not have to pay for the bread production made by himself, but the one who eats it pays for its consumption. In the case of the bridge, it is the public which “consumes” it: therefore, it is the public, the population, which will pay for it, not as a producer, but as a consumer.

— How will the population pay for the bridge?

Let us say that it is anticipated the bridge will last at least 50 years. An average depreciation of $10,000 a year is deducted. So it is $10,000 a year that the public will be requested to return to the Central Bank, so that finance may really be the reflection of economic realities.

At the end of fifty years, no matter if the bridge is totally “consumed” (worn out) or not, the public will not have to continue these payments any more. One cannot consume something twice, so the population must not have to pay for it twice – no more than the bread consumer should have to pay the baker twice for one loaf. It takes an absurd and plundering financial system, like the present system, to make the population pay twice for its waterworks, schools, bridges, roads – even the wars it has fought... and wo<%18>n<%0>!

— Is it through taxes that the Government will withdraw from the public the annual amounts to pay for the “consumption” of the bridge?

It will withdraw them by a levying method that can vary; not necessarily by the present method of taxes, which is heavy, clumsy, expensive, and often unfair. It could do it by way of the price-adjustment mechanism, the annual $10,000 added to the amount of “consumption”, which affects prices for everybody, when it is a matter of a consumption made by everybody, like in the case of the bridge.

— And if, by accident, or sabotage, the bridge fell down at the end of ten years?

This would raise, suddenly and by the amount of the disappeared value, the country's total consumption for the current period; and it would be settled by the price-adjustment mechanism – an adjustment of all prices. Seeing that prices, under a Social Credit system, are adjusted, beginning with the cost price, according to the ratio of consumption to production, it is clear that the more total consumption increases in ratio to total production, the more the compensated price discount decreases.

Then the consumer will pay more for everything he buys, and more money will return towards its source. This is in keeping with the principle expounded before, which claims that finance must be the exact reflection of reality.

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