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The Myth of Balanced National Budgets

Written by Louis Even on Tuesday, 01 April 1958. Posted in Social Credit

One of the most sensible declarations made by Mr. Diefenbaker at the very beginning of his electoral campaign, was that he would not permit the Canadian people to suffer for the sake of a balanced budget.

The dogma of the balanced budget is one created and imposed upon society by the monopolizers of money and credit.

Balancing the budget means that every expenditure must be balanced by an equal amount of income. Which is to say that governing bodies must keep taxes high enough to balance off public expenditures.

Impossible under the present system

This might appear to be axiomatic. However, such a balance is a mathematical impossibility, as Douglas demonstrates in chapter five of his work, The Monopoly of Credit.

The most obvious proof of this impossibility is the existence of public debts. The taxes of the next twenty or thirty years are ticketed to cover the expenditures of the current year.

If finance were made to conform to physical realities, according to the postulates of Social Credit, it would be meaningless to speak of balanced budgets, since, except in cases of catastrophes, the national economy would be going ahead in all countries. Just providing the work and material for production is paying for it.

The Case of the Individual

Can an individual spend more money that he possesses? Evidently not — unless he wishes to go into debt by borrowing from others, money which he must eventually repay.

But this does not mean that he can accomplish nothing without spending money. It is the production of others which he cannot utilize unless he spends money. But if he wants to make or produce something for himself he does not have to wait until he has money.

His ability to make or produce something is part and parcel of himself. He does not have to spend money or go into debt to possess something he himself has produced.

The Case of the Nation

Now, if there exists an individual capacity for production, so too there exists a national capacity to produce. This latter is made up of the sum total of all the individual capacities for production in the country. Whether the means of production are in the hands of individuals, companies, co-operatives or communities (municipal, provincial or federal) as a whole, these means comprise national wealth. And note that the word "national" does not mean "nationalized", that is, controlled by the government.

Let us take the case of five brothers; one is a mason, another a carpenter, another a plumber, one an electrician and the fifth a painter.

Each one has the capacity for a particular type of production which he can utilize where and how he wishes. But considered together, they have a sum, total capacity for the production of a house, without one, in any way, taking from the other his means of producing. And were they to decide to build a house in which they could all live together, each would furnish his own particular productive capacity to this end. The house would be uniquely theirs. No one could say that, in order to live in it, they would have to make installment payments to individuals who had nothing to do with the building of it.

As in the case above, all individuals (who are the cells which make up a nation) have each their own particular capacity to produce. But considered all together, these capabilities, with an efficiency increased by life in association and by the accumulated knowledge of former generations, make up the nation's capacity to produce.

If the community, through its elected representatives, decides to embark upon public projects, it has only to employ the means already at hand. Regardless of how the labor is hired, the materials obtained, and the work carried out, it is certainly illogical to claim that, once the project is finished, the community owes a debt for this work of production. It is fantastic to tax the nation over long years in order to pay for something which is the fruit of national production.

The only instance in which the nation could go into debt would be the case where material or labor would come from a foreign country and the nation were unable to balance off this imported help by exporting equivalent wealth.

The Means of Payment

But, you will reply, the contractors or workers who have done the work must be paid.! Of course. Payment will be made in money, which in reality constitutes a claim on products or services. Inasmuch as these products and services are the result of other national production, the community is free of obligation once it has furnished, directly or indirectly, all that is necessary in order to complete the work.

But the money?

The money is a group of figures. The money system is only accounting. The purpose of the machinery of money is to facilitate the mobilization of existing capacities for production and to ensure the distribution of products and services.

If the financial system is made to conform to reality, then the wealth produced is paid for by the work and used material necessary to produce it.

Surely there exists in this country accountants capable of making this figure-money conform to the production and destruction of real wealth. This figure-money comes from banks. Canadians have a national bank — the Bank of Canada — which certainly exists to serve them and not to work against them; not to plunge them into debt for wealth which they themselves have produced.

"Throw Out the Budget"

Supposing during the current fiscal year the government were to "throw out the budget"; supposing it were to spend 600 million more than what it received in taxes — what would be proved?

Only that the capacity of the country to produce was much greater than the country's capacity to pay. But this is a defect in the finance system and not an evil born of production.

In order to pay 600 million dollars to those who have furnished materials and labor, the government must somewhere find money. According to the regulations of the existing system, it can only obtain this money by increasing the national debt 600 million dollars, since it has spent more than it has received in taxes.

Which is another way of saying that the people must go into debt some 600 million dollars for having exercised its own capacity to produce.

Which is rank absurdity!

Let us go back to the example of the five brothers. How would they greet someone who said to them: "You have built yourselves a lovely house. Yes, indeed! Now you will have to pay the price of this house for having had permission to exercise your talent and the skill of your hands."

The government would be right in going beyond the limits of its tax receipts in order to furnish public works and services to the people. But it would be wrong to continue to go into debt because of a defect in the money system,

What To Throw Out? What To Balance?

We should not have said, "throw out the budget"; rather, it should have been, throw out the stupid law which plunges the people into debt for something they themselves produce; that law which obliges payment of the price of the product for permission to produce the product.

There is no question of balancing the budget. Rather, it is a matter of producing a balance between the capacity to pay and the capacity to produce. And since it is the capacity to produce which is true concrete wealth, the capacity to pay should be made to conform to the capacity to produce. In other word, don't paralyze the capacity to produce; increase the capacity to pay!

To continue to submit to the evils of the present financial system is not to govern the country but rather to enslave it. Such is not the act of statesmen, but the act of servants obeying the monopolists who have cornered society's credit.

The economy exists to serve the needs, public and private, of the people. No power has the right to impede this service. And the nation's government has the duty to eliminate any power which places barriers between goods and human needs.

(Translated by EARL MASSECAR)

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