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monetary reform

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At the Root of Evil

Written by Louis Even on Friday, 27 May 2016. Posted in A Sound and Efficient Financial System

— Why criticize and denounce the present financial system?

Because it does not attain its end.

— What is the end of a financial system?

The end of a financial system is to finance: To finance the production of goods that answer needs, and to finance the distribution of these goods so they will attain the needs.

If the financial system does that, it fulfills its role. If it does not do so, it does not fulfill its role. If it does something else, it sidesteps its role.

— Why do you say that the present financial system does not fulfill its role?

Because there are goods – public goods and private goods – that are required by the population, that can readily be made but that remain in limbo because the financial system will not finance their production.

Moreover, there are goods offered to a population that is in need of them, but that some individuals or families cannot get because the financial system does not finance their consumption. These facts cannot be denied.

— By what means are production or consumption financed?

By using cash credits; these means of payment can be made of coins, paper money or cheques drawn on bank accounts.

All these means of payment can be grouped under the term “financial credit”, because everybody accepts them with confidence. The word credit implies confidence. You accept with the same confidence four quarters, or a one-dollar Bank note, or a one-dollar cheque drawn on any bank where the signer of the cheque has a bank account. With either of these three means of payment, you know you can pay for labour or materials for the value of one dollar if you are a producer, or consumer goods for the value of one dollar if you are a consumer.

Where does this “financial credit”, these means of payment draw their value from?

Financial credit draws its value from the “real credit”. That is to say, from the country's productive capacity. Money under whatever form has value only because the country's production can supply goods equal to its value. This productive capacity can be called “real credit” because it is a true factor of confidence. It is a country's real credit, its production capacity, which causes you to believe you can make a living in that country.

To whom does this “real credit” belong?

It is the property of society. There is no doubt that individual and group efforts of all kinds have contributed to it. But without the existence of natural resources, which are a gift from Providence and not the result of individual competence, without organized society which allows for the division of labour, and without public services such as schools, roads, transportation, etc, the global productive capacity would be less, much less.

This is why we speak of national production and national economy, which does not, in the least, mean state controlled production. It is in this global productive capacity that the citizens, that each citizen, must find a basis for the confidence he has that his material needs will be satisfied. This is what led Pius XII to say in his 1941 Pentecost Sunday Broadcast:

"The national economy, the fruit from the activities of men who work together in the national community, tends towards no other thing than to secure, without interruption, the material conditions in which the individual life of the citizens will be able to fully develop.”

— To whom does “financial credit” belong?

At its source, financial credit belongs to the collectivity, as does real credit, from which it draws its value. It is a communal good from which all the members of the community must benefit, in one way or another.

In the same way that “real credit” is a social credit, financial credit, by its very nature, is also a social credit. It belongs to all the members of society.

The use of this common good must not be subjected to conditions that hinder the productive capacity, or divert production from its proper end, which is to answer human needs, needs of a private and of a public nature, in the order of their urgency. Basic needs are to be satisfied first, before the luxury needs of a handful of people, before the splendid and pharaonic projects of public administrators who are in need of fame.

— Is it possible to induce the general economy into conforming itself to this hierarchy of needs without resorting to a dictatorship that plans everything, that imposes production programs and administers the distribution of goods?

This can surely be done, through a financial system that guarantees to each individual a share of the community's financial credit. This share needs to be large enough so as to allow each individual to order, from his country's production, whatever he requires to satisfy his basic needs.

Such a financial system would dictate nothing. Production would program itself according to the orders given by the consumers, as far as private goods are concerned, and would program itself according to orders given by the public administrations, as far as public works are concerned. On the one hand, the financial system would serve to express the consumers' will, and on the other hand, it would be used by the producers to mobilize the country’s productive capacity so as to meet the requests thus expressed.

For this to be, we need a financial system that adjusts itself to reality, and not one that distorts it; a financial system that reflects facts, and not one that contradicts them; a financial system that distributes, and not one that rations; a financial system that serves man, and not one that degrades him.

— Is such a financial system possible?

Yes. Its broad outlines were drawn up by Clifford Hugh Douglas, the master and genius who introduced the world to what is known as Social Credit (not to be mistaken with political parties who invest themselves with the name).

Douglas summarized in three propositions the basic principles of a system that would fulfill these goals and that would be flexible enough to adjust itself to the economy in all its developments, whatever the degree of mechanization, motorization, or automation.

 

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