(Part 5)
When I buy a pound of meat, a piece of furniture, shoes, etc., I make a demand upon the productive capacity of my country. Even if the particular product has been imported I still make a demand upon that capacity because imports are balanced off by the exporting of goods or services which have been contributed by the production system of my country.
When the government builds a bridge, or some other public work, it likewise draws upon the productive capacity of the country.
In both cases it is the producing community which must meet these demands. Hence, every demand, public or private, is really a demand made upon the community.
When it is a private demand it is limited by the amount of purchasing power held by the individual. With one dollar I demand from the production system whatsoever is of the value of one dollar. And I am limited by the number of dollars which I possess.
A public drawing upon the productive capacity of the country comes from the government under the authorization of parliament. Parliament represents the community. So it is that in such a case it is really the community which makes a demand upon itself.
The individuals of a community in which Social Credit had become a reality would obtain the credit necessary to draw upon production:
1. Through a dividend which would be issued to each individual periodically from birth to death;
2. Through salaries, profits and dividends from industry, as is the case at present, in the measure that it is still necessary to issue such forms of credit in order to maintain and, if necessary, increase the flow of production.
How will the government pay for the public goods and services which it must undertake to provide and maintain if it does not obtain such money through taxing those, under its jurisdiction?
Once again, the government is the mandatary of the community. If the community, through its parliament, decides to draw upon the productive capacity of the country, it simply issues to the agent to whom it has confided such drawing, the right to draw upon the country's productive capacity. The community creates, itself, the credits necessary to make possible such a demand upon production. It creates the means of payment.
Government and citizens alike, then, draw upon the same productive capacity. The citizens do so by presenting their money; the government by presenting the decision of the representatives of the community.
Obviously, the capacity of the production system must be capable of meeting such demands. It would be useless for the community to demand of itself something which it was not capable of producing.
The example of a public work realized without taxation which we are going to describe, supposes the existing of a financial system which is in conformity with reality, a Social Credit system. It supposes the issuance and cancelation of credit-money according to facts, with the distribution of a periodic dividend to each and every citizen with the compensating adjustment of prices. So we must, in spirit, place ourselves in an economy which is completely Social Credit if we wish to understand the functioning of public finance without taxation.
Public works without taxation, a bridge built without taxes; such will not be found in our existing financial system. Under the present system, finance commands, conditions, limits and straitjackets realities.
But under a Social Credit system finance would be nothing else but a mirroring, through accountancy, of realities. We produce and we express in credit the value of that which we produce. We consume and we express in terms of debit the value of that which is consumed.
There is no longer any question of: "Can we pay?" or, "How are we going to pay?"
Let us suppose that the community needs a bridge. The only question to be considered is: "Are we physically able to build the bridge?"
"Physically able to build" means having the materials, the engineers and the workers necessary to realize the project.
If the bridge in question is for the province then it is up to the minister of Public Works to submit the project to the provincial parliament. The parliament, then, in the name of the community, either approves the project, refuses it or puts it off until later. In order to arrive at a decision the parliament is not obliged to bring into the consideration the question of finance. The parliament has only to consider whether or not this project corresponds to the desires of the people, and whether or not there exists the physical possibility of realizing the project.
The bridge can certainly be evaluated in terms of estimates of the quality of the materials to be used, in terms of labour and quantity of materials needed. But you don't need a single dollar in order to evaluate something, to measure its value.
And, wisely, the construction of the bridge can be confided to that group of contractors who have tendered, the lowest bid - always providing they are competent. For if you consider that finance is a reflection of realities, a lesser cost signifies a lesser consumption of time, labour and material. So a country adds to its wealth when it can produce finished goods with a minimum consumption of primary material.
Let us suppose that it is John Smith who gets the contract for the building of our bridge. He is asking $500,000.
Where is the government going to get $500,000 with which to pay Mr. John Smith? -- The government does not have to worry itself about this. For, remember, finance is a not a matter of administration but merely an affair of accounting.
The functioning of a Social Credit financial system presupposes the institution of an accounting body for this purpose.
Let us call this body the Office of Provincial Credit since we are here dealing with provincial public financing. The head office will be in Quebec city but there will be branch offices wheresoever they are needed. The system is a little like a banking set-up with the head office, the branches and the agencies.
The branch offices deal with local producers and merchants and forward their reports to the head-office. This is similar to the manner in which bank's deal with their clients.
Who will appoint the accountants to head the system? The provincial government since the system is provincial. Once the officials have been chosen the government may not interfere in their operations.
The government, in the name of the community, defines the objectives. These objectives are set forth in the same legislation which created the official credit body. However, once the body has been set up and the objectives defined by the government, acting in the name of the community, it is then up to the accountants engaged by the body to determine and effect the operations necessary to attain the objectives set, with respect to the realities of production and consumption and of the appearance of money.
This is the fashion, somewhat, in which our judiciary system operates. The government creates laws. The government appoints judges. But the government does not interfere with the judgments of judges. The judges are bound and guided by two things: the law (which they did not create), and the facts (which they did not posit). Under our judiciary system, judge's can even pronounce against the very government which has appointed them.
In such a manner will the accountants of our official credit office act. They will not dictate what is to be produced or what is to be consumed, but they will simply record the bare facts of production and consumption. When a record has then been compiled of these realities, the free work of citizens, the accountants then make the necessary mathematical deductions from these facts and the consequences, following the lines laid down by the law which created this credit body:
1. Create and cancel credit-money according to the production and disappearance of true wealth;
2. Credit, periodically, each citizen with a dividend which will guarantee him a share in the wealth of his country.
3. Adjust periodically the prices to be paid by purchasers of retail goods; such adjustments to be made according to the existing relationship between overall production and overall consumption from one period to the next.
Getting back to our bridge: it is not the provincial credit office which decides whether or not the bridge be built, nor the cost of such a bridge. But it is this office, and not the government, which has the duty of seeing to the financing of the bridge, as it is built. For under the existing financial system, finance is nothing more than accounting.
The contractor who is going to build the bridge, John Smith, may have in hand the funds necessary to build and complete the bridge. In this case he will get his $500,000 when the bridge has been completed.
On the other hand, he may need advances of Credit in order to pay for materials and labour. The solution is quite simple; he goes to the Credit Office.
Let us suppose that Mr. Smith has received a large delivery of cement, wood and steel to the amount of $25,000.00. He brings the bill for these materials to the Credit Office. The bill is proof of the existence of real wealth actually in existence since it has been delivered.
The Credit Office does not have to evaluate this material. It approves the bills and creates the corresponding credit based upon these materials - $25,000.00 worth of credit. This credit is advanced to Mr. Smith who in turn uses it to pay those who have produced this particular bit of wealth.
What this advance amounts to, in fact, is a loan, a loan which is made without any other condition than that the wealth be there; it is also free of interest charges. After all, why penalize those who have produced real, concrete wealth?
In this fashion, Mr. Smith can obtain advances of credit until such time as the bridge has been finished, such advances of credit to total not more than $500,000.00.
Let us suppose that the total advances received by Mr. Smith amount to $225,000.00. How is this going to be repaid?
When the bridge has been finished, Mr. Smith has it inspected and approved by the ministry of public works. Once inspected and approved, the ministry hands Smith a certificate attesting that he has delivered to the government a bridge to the value of $500,000. Mr. Smith presents this certificate to the Office of Credit.
The Provincial Credit Office, in the name of the community, which has received the bridge, gives to Mr. Smith:
1- A receipt for the $225,000 already advanced; this advance is cancelled since the bridge has been completed;
2- Money-credit to the amount of $275,00 to complete payment to Mr. Smith for the bridge he has built.
The Provincial Credit Office then inscribes to the credit of the province the sum of $500,000 which represents a new concrete wealth: the bridge.
On the other hand it has paid out $500,000 - to the contractor (his profit), the salaries to his employees, to those supplying materials; all of this money constitutes drawing power on the production of the community. This is the liability which is the counterpart of the province credit.
If any of the above-named categories does no make use of the credit thus passed to them by the province, then there is simply, that much more wealth in existence in the province.
But obviously, the greater part, if not all, of this money will be used (spent). It will serve to buy food, clothing, shelter, etc. All of these purchases will constitute consumption, that is the destruction of riches produced.
Such purchases, however, have the effect of stimulating production. Agriculture and industry can increase production, providing they have not reached their limit.
Now, it is not necessary to go into a detailed investigation to discover that a very considerable part of our production today is not used or is wasted, or is simply duplicated production which will never be utilized.
In supposing that the increase stimulated by the credit issued for the bridge suffices to meet the increased demand, the bridge will be paid for by this increase in production itself.
The bridge, in effect, will really have been paid for by the work of its builders. And the builders will, in fact, have been paid by the increased production of the community. The community will have paid off its bridge in labour, in products and in services without having deprived itself of anything or having lowered its standard of living.
Contrarywise, in the case where the consumption, financed by the $500,000, increases without an increased production, consumption will rise above production. The result would be an increase in the adjusted price. The purchaser will get fewer goods for his money. The result, in effect, would be a tax on the level of the citizens living.
In fact, the true situation will probably lie somewhere between these two extremes.
But regardless of where the true situation will fall, the consumers, through the adjusted price will always be able to buy all the goods offered to meet their needs. Likewise, each citizen will be guaranteed, through his periodic dividend a share in the production available.
It is necessary to see the system in its entirety in order to understand how at one and the same time, the rights of each individual are protected, while the legitimate aspirations of the community as a whole are satisfied. And this is accomplished because the financial system reflects accurately the reality of the production and destruction of real wealth, public as well as private.
(To be continued)