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Capitalism’s Financial Flaw can be Fixed

Written by Alain Pilote on Monday, 01 March 2021. Posted in Social Credit

Capitalism, not Communism, published in this edition of the magazine, was written by Louis Even in 1971. He states that it is the financial system at fault, not capitalism, per se; that all citizens would be genuine capitalists, i.e. owners of capital, by virtue of a Social Dividend issued to each person. What does the Church, in its social doctrine, teach about the two systems, capitalism and communism?

Pope St. John Paul II wrote in 1987, in his encyclical letter, Sollicitudo Rei Socialis: “The tension between East and West is an opposition... between two concepts of the development of individuals and peoples, both concepts being imperfect and in need of radical correction... This is one of the reasons why the Church’s social doctrine adopts a critical attitude towards both liberal capitalism and Marxist collectivism.”

We can appreciate why the Church condemns Marxist collectivism. As Pope Pius XI wrote, communism is both anti-Christian and “intrinsically evil” with its avowed goals of eliminating private property and destroying both the family and religion. But why would the Church condemn capitalism? Isn’t capitalism the better system?

In his encyclical letter, Centesimus Annus (n. 34), St. John Paul II recognized the merits of free enterprise, private initiative and profit: “It would appear that, on the level of individual nations and of international relations, the free market is the most efficient instrument for utilizing resources and effectively responding to needs. But this is true only for those needs which are ‘solvent’, insofar as they are endowed with purchasing power, and for those resources which are ‘marketable’, insofar as they are capable of obtaining a satisfactory price. But there are many human needs which find no place on the market. It is a strict duty of justice and truth not to allow fundamental human needs to remain unsatisfied and not to allow those burdened by such needs to perish.”

After the fall of communism around the world, there were still millions of poor people and injustice was rampant. St. John Paul II wrote:

“The Marxist solution has failed, but the realities of marginalization and exploitation remain in the world, especially the Third World, as does the reality of human alienation, especially in the more advanced countries. Against these phenomena the Church strongly raises her voice. Vast multitudes are still living in conditions of great material and moral poverty. The collapse of the communist system in so many countries certainly removes an obstacle to facing these problems in an appropriate and realistic way, but it is not enough to bring about their solution. Indeed, there is a risk that a radical capitalistic ideology could spread which refuses even to consider these problems, in the a priori belief that any attempt to solve them is doomed to failure and which blindly entrusts their solution to the free development of market forces” (Centesimus Annus, 42).

The fault that the Church finds with capitalism does not pertain to private property or free enterprise. Far from wishing the end of private property, the Church endorses it, wanting all people to be owners and real capitalists. Pope St. John XXIII wrote in 1961 in his encyclical letter, Mater et Magistra (nn. 114-115):

“The dignity of the human person necessarily requires the right of using external goods in order to live according to the right norm of nature. And to this right corresponds a most serious obligation, which requires that, so far as possible, there be given to all an opportunity of possessing private property... Therefore, it is necessary to modify economic and social life so that the way is made easier for widespread private possession of such things as durable goods, homes, gardens, tools requisite for artisan enterprises and family-type farms, investments in enterprises of medium or large size.”

Capitalism has been Vitiated by the Financial System

The Church identified that the fault with the capitalist system is that each and every human being living on the planet does not have access to a minimum of material goods and thereby does not enjoy a decent standard of living despite God’s plentiful provision. In even the most advanced countries there are many people who do not eat their fill. The principle that goods should have a universal destination is not fulfilled. Essentially, there is plenty of production but distribution is defective.

In the present system, money is necessary for people to obtain goods and services. As Mr. Even explained, it is the money system, or we could say the system of finance, which does not work in capitalism.

The financial system dominates rather than serves, thereby impairing capitalism. Pope Pius XI wrote in Quadragesimo Anno in 1931: “Capitalism itself is not to be condemned. And surely it is not vicious of its very nature, but it has been vitiated.”

The Defect of the System: Money is Created by the Banks as a Debt

The financial system does not accomplish its purpose of ensuring goods meet the population’s needs. Money should be nothing more than an instrument to ensure goods are distributed to those who need them. It is a symbol, like a claim ticket, for goods. The money system can and should act in a simple accounting capacity: money should equal goods.

In this view, money is a servant, but the bankers, in appropriating control over its creation, have made it an instrument of domination. Since society cannot manage without money, governments, corporations and individuals must submit to the conditions imposed by the bankers to obtain the ‘claim ticket’ on goods and services, which represents the basic right to live in today’s society. This establishes a dictatorship over economic life and so the bankers have become the masters of our lives. Pope Pius XI was quite correct when he said in Quadragesimo Anno (n. 106):

“This power becomes particularly irresistible when exercised by those who, because they hold and control money, are able also to govern credit and determine its allotment, for that reason supplying, so to speak, the lifeblood to the entire economic body, and grasping, as it were, in their hands the very soul of production, so that no one dare breathe against their will.”

It is impossible for a nation to escape debt in the present system. All money is created as a debt: literally, all the money that exists came into circulation only after it was loaned by a bank to a customer, with interest charges, of course. When the loan is paid back to the bank, the money is withdrawn from circulation and ceases to exist. In other words new money is created every time banks make a loan and this same money is destroyed every time loans are paid back.

The fundamental problem in this system is that when banks create new money in the form of loans, the borrower must pay back more money than was created. This is because banks create the principal, but not the interest. The borrower must also borrow the amount to pay the interest. Since it is impossible to pay back money that does not exist, debts accumulate and freedom from debt is impossible.

The Church says yes to capitalism, but to a capitalism in which the defective financial system is fixed. Only with this remedy will goods and services reach those who need them. Each person will be a de facto capitalist, an owner of a common capital. It is estimated that more than 90% of a nation’s productivity is due to two factors, natural resources and the inventions of previous generations. Hence, the rationale for a Social Dividend, not financed by taxes, but by money created by society.

Social Credit’s Dividend recognizes that every human being is a capitalist, a co-heir of the natural resources God has distributed on the earth and equally entitled to the progress borne of the inventions and technological innovations generated over the centuries.

Why Worry about Money?

Some readers might say, “I don’t need to know all these things about the economy, and anyway, money is about the material. I’m more interested in the spiritual aspect.” It is true that the ultimate concern of the human being is getting to heaven and living in union with God for eternity. It is also true that as long as we are on earth, we have both a body and a soul and have both material and spiritual needs that must be met. One must have food, clothing and shelter.

Our Lord said, in chapter 25 of the Gospel according to Saint Matthew, that we would be judged on what we have done to the least of our brothers. “I was hungry, and you did not give me to eat.” Our eternal salvation therefore also depends on what we do so that everyone can meet their basic needs.

St. Thomas Aquinas reminds us that a minimum of temporal goods is required to foster the practice of virtue. The expression, “words are wasted on a starving man”, holds. Men need a minimum of material goods to fulfill their short pilgrimage on earth and to save their immortal souls. Missionaries in poor countries know they must first feed the hungry before preaching the Gospel.

Under the current system, one can not obtain essential goods and services without money. Without money, death is a real possibility. Those without incomes are often forced to beg or commit crimes to obtain resources necessary for survival. In developed countries, like Canada, there are social services that ensure no one is penniless, but many cases of poverty still exist. In other areas of the world, a social safety net does not exist at all and abject poverty is the fate of people without jobs and without income.

Inhumane Situations

People need a minimum of material goods to complete our brief pilgrimage on earth and a money shortage creates inhumane conditions and catastrophe.

Newspapers recently reported that in a large city like Montreal, one in three children arrives at school without having had breakfast. Globally, more than 1,700,000,000 human beings rummage through garbage for food. More than 100 million children in the world live in the streets, homeless, abandoned by parents who can no longer support them. In Brazil alone, there are more than 7 million children in this situation. In three years, 4,600 of these children in Brazil were killed by police officers (purportedly hired by merchants who claimed that the children were annoying passers-by and affecting their businesses).

According to Swiss sociologist Jean Ziegler, the U.N.’s Special Rapporteur on the Right to Food, from 2000 to 2008, 100,000 people died from hunger each day in the world; 37,000 were children below age ten. A child dies of hunger every five seconds today. According to the World Food Report of the FA0 (Food and Agriculture Organization of the U.N.), in 2008, the world’s agricultural output could feed 12 billion people. The population at the time was 6.3 billion. There is enough food for everyone yet thousands of children and adults die of hunger. Ziegler concluded: “The children who die of hunger are being murdered. This is the scandal of the century.”

If these children are starving when there is food, it is because families do not have the money, the purchasing power, to obtain that food. It is the corrupt financial system that is the killer, and it is this system that MICHAEL seeks to correct.

As Mr. Even wrote, “If the production or distribution systems fail to perform, it is not because of a lack by producers or incapacity of distributors. The fault lies with the money system.” The stores are full, it is the purchasing power in the hands of consumers that is lacking.

One could go on listing the tragic situations caused by a lack of money. It is such situations that led Pope Benedict XV to write, in a letter to the Bishop of Bergamo, Italy, in March of 1920: “It is precisely in the field of economics that the eternal salvation of souls is imperiled.” His successor, Pope Pius XI, stated in his encyclical letter, Quadragesimo Anno: “It may be said with all truth that nowadays the conditions of social and economic life are such that vast multitudes of men can only with great difficulty pay attention to that one thing necessary, namely, their eternal salvation”.

Others have emphasized this point, adding that without financial and monetary reform, no other problem can be solved. For example, St. John Paul II wrote in 1985: “A structural reform of the world financial system is, without doubt, one of the initiatives that seem the most urgent and necessary.”1

In 2016, Pope Francis said in a speech: “There is a basic terrorism that is born of the global control of money on earth, and threatens the entire humanity… Almost a hundred years ago, Pope Pius XI foresaw the rise of a global economic dictatorship that he called the ‘international imperialism of money’ (encyclical letter, Quadragesimo Anno, May 15, 1931, n. 109)… The entire social doctrine of the Church and the magisterium of my predecessors rejects the idolatry of money that reigns rather than serves, that tyrannizes and terrorizes humanity.”2

In his book, titled What is Social Credit? Geoffrey Dobbs, a Social Crediter from the United Kingdom, wrote: “Social Credit is an attempt to apply Christianity in social affairs; but if money stands in the way, then we, and every Christian must concern ourselves with the nature of money, and just why it stands in the way, as it surely does.

“There is a dire need for more people to look deeply into the operation of our monetary system, though that is not everyone’s job. But when the consequences are so desperate, everyone can at least grasp the outline of what is wrong, and could be put right, which will enable them to act accordingly.”

Where does Money come From?

If the problem is not the lack of products, but of money, then the following question must be asked: Why is there a lack of money in the hands of consumers, and more fundamentally, what is money and where does it come from?

Money is anything that is accepted as a medium of exchange for goods and services within a nation. As Louis Even wrote in the previous article, “Money can be seen as a type of ticket or permission slip. A producer mobilizes production using money. The consumer uses money to secure what has been produced. However, it is not money that gives value to products. It is the other way around: production gives money value.”

Money is not wealth, but the symbol, the numbers, which allow people to get real wealth, products. No matter what material it is made of - paper, precious metal, or a digital code on a bank card - it is essentially numbers which are accepted as a means of payment exchangeable for goods and services.

The Greek philosopher, Aristotle, defined money as a creation of law, a convention. There are two kinds of laws. First, the divine laws: the Ten Commandments and the laws of nature, such as the law of gravity, created by God, which cannot be abrogated or changed by man. There are also other types of laws which are decided and decreed by parliaments and other bodies. These laws can be changed. For example, it is merely a convention that vehicles and pedestrians stop at a red light. Other systems could achieve a similar purpose.

Money is also a man-made system, not a system created by God or nature, so it can be changed. As Louis Even wrote in The Primer of Social Credit: “Everything has a beginning except God. Money is not God so therefore we know it begins somewhere.”

Some would say that the financial system is a very difficult system to change because it is protected by powerful interests: international financiers who also control governments and the news media and who have the power to start wars, etc. Even if this is so, it remains a system established by men, and which can AND MUST be changed by men.

Two Types of Money

In The Primer on Social Credit, Louis Even explained the origin of money.

“We have two types of money in Canada. One is ‘cash’, made up of coins and banknotes, issued by the Canadian Mint and the Bank of Canada. The other type can be called ‘bank money’. The latter consists of balances held in chequing accounts, savings accounts, or any other type of bank account. This type of money is made by bankers and created by entering figures in bank ledgers or on computer screens. It is the most predominant type, comprising 95% of the total currency in use.

“With a bank account, we make payments or purchases without resorting to cash. We conduct our affairs using figures alone. At first, this ‘bank money’ could be used by people in the form of cheques, but the development of computer technology in the latter part of the twentieth century allowed money to be represented digitally, as ‘electronic funds’. In other words, the largest part of the world’s money exists only as accounting numbers which are transferred between computers, with the help of bank cards and other electronic devices.

“Let us suppose that my bank account contains $40,000 and I purchase a car which costs $10,000. I write a cheque, or use a credit or debit card to make the purchase or transfer this amount electronically to the car dealer. There will be changes to two accounts. First, the car dealer’s account will increase by $10,000 and my account will decrease by $10,000. The car dealer had $500,000 in his account and he now will have $510,000. I had $40,000 in my account and it will now show a balance of $30,000.

“The volume of cash in circulation did not change because of this transaction. There was merely a transfer of figures to the car dealer. Essentially the car was purchased with figures.

“More than nine-tenths of all business is done this way. Electronic funds, money consisting of figures on a screen comprises the bulk of modern purchasing power. Its volume is ten times the other; it is a superior type of money, giving wings to the other; it is the safest, the one that nobody can steal like paper money but which can still be stolen today, in a different way, by hackers.

Savings and Borrowing

“Electronic funds, like cash (banknotes and coins), has a beginning. Electronic funds are only an entry in a bank account and computer screen that began its existence when an account was opened. There was no decrease in another account nor from anyone’s pocket for electronic funds to come into existence.

“The amount in a bank account can be created or increased when savings accrue or when loans are issued. (Although there are other means which can be classified as loans.)

“A Savings Account converts money. When I deposit cash in my account the balance increases by the same amount. I will have electronic funds at my disposal and can retrieve cash by decreasing the amount of electronic funds in the account. It is a simple conversion of money. As we are studying how money comes into existence, the Savings Account, being a simple conversion of money, is of no interest to us here.

Money Begins in the Banks

“Let us suppose I am a businessman and want to set up a new factory. I need money so I go to a bank to borrow $100,000. The banker makes me sign the required guarantees and a promise to pay back the principal amount plus interest. He opens a Loan Account and lends me $100,000.

“Is he going to hand me $100,000 in cash? I do not want him to do so. First, it is too risky. Furthermore, I am a businessman who will make purchases from different and distant locales and will use cheques, debit and credit cards and electronic fund transfers to make payments. What I want is a bank account consisting of $100,000 which will make it easier for me to conduct business.

“The banker will therefore issue a loan for $100,000. He will credit my Loan Account with $100,000, just as if I had brought that amount to the bank. But I did not bring it; I came to get it.

“Is it a Savings Account set up by me? No, it is a Loan Account created by the banker for my use. The $100,000 was made by the banker. How did he make it? Did the amount of money in the bank diminish when the banker loaned me $100,000? Let us ask the banker:

— Mr. Banker, have you any less money in your vault after having lent me $100,000?

— I haven’t gone into my vault.

— Have other people’s accounts been diminished?

— They remain exactly as they were.

— Then what was diminished in the bank?

— Nothing was diminished.

— Yet my bank account has been increased. Where did the money you lent me come from?

— It didn’t come from anywhere.

— Where was it when I came into the bank?

— It did not exist.

— And now that it is in my account, it exists. So we can say that it was created.

— Certainly.

— Who created it, and how?

— I did, by keying the figure of $100,000 to your credit, at your request.

— Then you create money?

— The bank creates electronic money by keying figures into a holder’s account. This type of money permits cash, the other type of money, to circulate.

“The banker creates money when a loan is issued to a borrower whether this is an individual, a business or a government. When I leave the bank there will be a new source of credit that did not exist before. The total of all accounts was increased by $100,000 and I will use this new money to build the factory I planned. Who made the new money? — Bankers did” (End of excerpts from “The Primer on Social Credit”).

This way of creating money by the banker is like the wave of a magic wand. With a flourish of the hand money is created that did not exist before. The banker has conditions on loans, such as the payment of interest, which results in debt burdens that are impossible to repay.

A Debt-Money System: The Money Myth Exploded

Earlier we said: “The fundamental flaw in this system is that when banks create new money in the form of loans, the borrower must pay back more money than was created. This is because the bank creates the principal, but not the interest charged on a loan. The borrower must, however, also borrow the amount to pay the interest. Since it is impossible to pay back money that does not exist, debts accumulate and freedom from debt is impossible.”

The creation of money by private banks is well explained in Louis Even’s story, The Money Myth Exploded (sent to our subscribers with the January/February 2021 issue of MICHAEL). In this parable, as in every society, the economic system is divided into two parts: the system of production and the system of finance.

On Salvation Island, five castaways produce the variety of goods necessary for a comfortable life. On the other side is the banker, operating a system of finance.

On Salvation Island, all the money in circulation was created as a loan repayable with added interest. The banker created $1,000, but expected repayment of $1,080. His scheme asked the producers to pay him the principal, which he created with his magic wand, plus the interest which neither he nor anyone else created.

In society, the total public debt is made up of money that does not, and has never, existed but that governments have nevertheless committed themselves to pay. It is impossible to honour such an agreement. Yet it is a contract that will be met even at the cost of human life.

The Solution: Debt-free Money Created by Society

How does one escape an impossible situation? Since the value of money is based on the productive capacity of the country, why should any country pay interest to private corporations (commercial banks) for money it can create and issue itself, interest-free and debt-free? This is the first requirement for a country to be truly sovereign.

Since money is based on the productive capacity of the nation, of society, that money also belongs to society. The question then is: Why should society pay bankers for the use of its own money? Why pay for the use of a good that belongs to us? Why does the government not issue its money directly, without resorting to the privately owned banking system?

Money, made of figures, is a good modern invention, which we must retain. But instead of having its origin in a private pen, so to speak, the figures which serve as money must originate from the pen of the nation. Money creation must be a function of the nation if it is to be a servant of society. Since money is an instrument that is basically social, Social Credit proposes that money is issued by society and not by private bankers for their own profit. Pope Pius XI stated in Quadragesimo Anno:

“There are certain categories of goods for which one can maintain with reason that they must be reserved to the community when they come to confer such an economic power that it cannot, without danger to the common good, be left to the care of private individuals.”

By relinquishing the power to create new money for the country to private banks, governments, Pius XI added, “have surrendered their noble functions and have become the servants of private interests” (Quadragesimo Anno, n. 109).

This new money would be distributed to everyone in the form of a Social Dividend. There are other features of the Social Credit system that have been explained at length in other issues of MICHAEL. We end this article with a quote from Sir Josiah Stamp (1880-1941), former head of the Bank of England:

“Banking was conceived in iniquity and born in sin... Bankers own the earth. Take it away from them, but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again... If you want to continue to be the slaves of the bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.”

Do we want to continue to be the slaves of the bankers? It is up to us to decide. The strength of the financiers rests in the ignorance of the population. So, let us become educated and united to create a public opinion strong enough to fix the system of finance, the flaw of capitalism. We aim to ensure that all citizens are truly capitalists, rather than slaves in a communist “Great Reset”.


1.) Message of the Pope to the 6th United Nations Conference on Trade and Development, Geneva, September 26, 1985.

2.) To the participants at the Third World Meeting of Popular Movements, held at the Vatican on Nov. 5, 2016.


About the Author

Alain Pilote

Alain Pilote

Alain Pilote has been the editor of the English edition of MICHAEL for several years. Twice a year we organize a week of study of the social doctrine of the Church and its application and Mr. Pilote is the instructor during these sessions.


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