David E. Robinson
May 24, 2012
If the financial system were in conformity with reality, most taxes would have no reason to exist.
When the government has a road built, or a piece of road, does this hinder or reduce the production of eggs, bread, milk, butter, vegetables, clothing, shoes or other consumer goods? No.
Does not this road building active stimulate the production of these other consumer goods? Certainly.
The production of other consumer goods is stimuated because the wages distributed to the workers, working on the road, stimulate the sale of these other consumer goods.
Now, in the present system, the government imposes taxes on the taxpayer to pay the workers working on the road; it takes away money which would buy the consumer goods, to pay for the construction of the road.
This system is not in keeping with reality. Whereas, God’s abundance is available for all !
“I have come that you might have life, and have it more abundantly.” (Jesus)
If the Maine free state is capable of producing, at the same time, both private and public goods, the financial system must supply the money to pay for both private and public goods.
Under a Maine State Credit system, money would come automatically to finance all the production that is pysically possible and requested by the population, whether it is private or public production.
SOLUTION: A PUBLIC MONEY
Since new money belongs to society, simple justice requires it to be issued by the public, instead of by private banks.
This is precisely what is proposed by a “Public Money” system — a set of financial proposals expressed for the first time in 1918 by Scottish engineer Clifford Hugh Douglas. Instead of having money created by the banks as a banking credit obligation, one would have money created by the public society as a social credit benefit, instead.
Whenever the words “social credit” are used in this report, we do not speak about political parties that may be labelled under this name, but about the financial proposals proposed by engineer C.H. Douglas in 1918, which could be applied by any state or nation today.
How would this “people’s credit” or “social credit” be issued? The State would appoint a Commission of accountants, as an independent organism, to be called the Maine State Credit Office which would be charged with setting up accurate bookkeeping, where money would be nothing but the exact financial reflection of economic realities.
Money would be issued as new goods are made, and be withdrawn from circulation as these goods are consumed. Thus there would be a constant balance between the capacity to produce and the capacity to pay, between prices and purchasing power.
This method of issuing money therefore involves no government control whatever: money would not be issued according to the whims of the accountants or the men in office, but according to the statistics of production and consumption according to what Mainers produce and consume — for a TRUE system of Capitalism here in America.
Because wages are not sufficient to purchase all of the existing production, the “Maine State Credit Office” would pay each citizen a basic monthly dividend, a sum of stimulous money, to fill the GAP in purchasing power and production, and to ensure to each person a share in the goods of the state.
This dividend would be based upon the two biggest factors of modern production: (1) the inheritance of state owned resources and (2) the ideas and inventions of past generations. Both are free gifts from God and therefore belong to all Mainers. Those who would be employed in production would still receive a salary, but everyone (employed as well as unemployed) would receive a monthly dividend.
In Maine this dividend could be at least $1,000 per adult person per month.
FINANCING PUBLIC WORKS
Whenever Mainers would want a new public project, the Maine legislature would not ask: “Do we have the money?” but “Do we have the materials and the workers available to do the job?” If they are available, the Maine State Credit Office would automatically create the required new money to finance this new public production.
Let us suppose that Mainers want a new bridge that costs $500 million dollars to build. The Maine State Credit Office would then create $500 million dollars to finance the construction of this bridge. And since all new money must be withdrawn from circulation as the new production is consumed, then the money created to build the bridge would just be withdrawn from circulation as this bridge is consumed.
How can a bridge be consumed? Through wear and depreciation.
Let us assume that the engineers who build this bridge expect it to last 50 years. This bridge would therefore lose one-fiftieth of its value every year.
Since it cost $500 million dollars to build, it would depreciate by $10 million dollars every year. It is therefore $10 million dollars that will have to be withdrawn from circulation every year, during the 50 year period of time.
THE ADJUSTED PRICE
Would this withdrawal of money be done through taxation. No, this is not necessary at all, says Douglas, there is another way, which is much simpler, to withdraw money from circulation — the method of the “adjusted price” (also called the “compensated discount”).
Douglas said in London on January 19, 1928:
“The immense, complex, irritating and time wasting taxation system, which keeps hundreds of people busily working, is a complete waste of time. The results which are supposed to be achieved by the system of taxation could be achieved without any bookkeeping at all; they could be achieved entirely through the price system.”
How would this adjusted price work?
The Maine State Credit Office would be charged with keeping an accurate accounting of the state’s assets and liabilities, which requires only two bookkeeping columns: one to write down all that has been produced in the state during the given period (assets), and one for all that has been consumed (liabilities).
So in the example mentioned above, the bridge’s $10 million dollars annual depreciation would simply be written down in the “consumption” column and added to all the other kinds of consumption, or disappearance of wealth, in the state during the given year.
Let us consider the first column, the assets:
A state becomes richer in goods when it develops its means of production: its machines, factories, means of transportation, etc. These are called “capital goods”.
A state is richer in products when it produces items for consumption: potatoes, milk, meat, furniture, clothing, etc. These are called “consumer goods”.
A state become richer in products when it gets wealth from other states and
abroad. Thus Maine becomes richer in fruits when it gets oranges and pineapples from other states; This is called “importation”.
All these factors will then be inscribed in the first column, the “assets” of the state.
Accordingly, the opposite column, the “liabilities”, will represent the opposite situation, the reduction of wealth in the state.
A state’s goods are reduced when there is war or other destruction of the means of production: burnt factories, worn-out machines, storm damage, etc. This is called “depreciation”. (This is where the $10 million yearly depreciation of the bridge is to be inscribed.)
A state’s goods are reduced when they are consumed. Eaten food, wornout clothing, etc. are not available any more. This is reduction through “consumption”.
A state’s goods are reduced when they leave the state: for example, there will be less apples, butter, bacon, potatoes, lumber, in Maine, if the state sends these products out of the state or abroad. This is called “exportation”.
same year, total consumption was able to produce $1,200 billion worth of goods and services while consuming only $900 billion worth of goods and services, it actually cost 900 billion to produce what the price bookkeeping shows at $1,200 billion.
The real cost of the production that is priced to sell at $1,200 billion is therefore actually $900 billion. The population must therefore be allowed to reap the fruit of its labor — the $1,200 billion production — by paying only $900 billion for it.
Besides, we have seen before that money must be withdrawn from circulation as goods are consumed: if $900 billion worth of goods and services are consumed in the state during that year, it is $900 billion that must be withdrawn from circulation, no more no less.
How can Mainers get $1,200 billion worth of goods and services while paying only $900 billion? This is quite simple, the retail price of all goods and services only has to be reduced by 1/4 — a 25% discount.
The Maine State Credit Office therefore decrees a 25% discount on all retail prices during the following term. For example, if an article is priced at $40.00, I will pay only $30.00 for it.
But if the retailer wants to stay in business, he must recover $40.00 for the sale of that product, because the price of $40.00 includes all the costs of the retailer, including his profit.
That is why Douglas speaks about a “compensated discount”. In the example mentioned above, the retailer will be compensated by the Maine State Credit Office, which will pay him the $10.00 that was discounted.
For each of the retailer’s sales, the retailer will only have to present his sales vouchers to the Maine State Credit Office, which will reimburse the discount granted to the consumer, to him. Thus nobody is penalized: the consumer obtains the goods which (otherwise) would have remained unsold and the retailers recover all their costs.
Thanks to this mechanism of the discount on prices, no inflation would be possible, since the discount actually lowers prices. Inflation means increasing prices and the best way to prevent prices
Now let’ s suppose that a return gives:
Production of capital goods Product’n of consumed goods Importations
Total acquisitions (assets) Moreover:
Exportations Total Reductions (liabilities)
$3 bil. $7 bil. $2 bil. $12 bil.
Depreciation of capital goods $1.8 bil.
While the state became richer with $12 billion worth of production, it used, it consumed or exported, $9 billion worth of production.
The real cost of the production of $12 billion goods and services is $9 billion.
If it actually cost the state $9 billion to produce $12 billion worth of goods and services, the state must be able to enjoy its $12 billion worth of production while spending only $9 billion.
So for example, if Maine’s national accounts show that in a year, the total production of the state (both public and private) was $1,200 billion; and that in the from increasing is simply to lower them! Moreover, a discount on prices is exactly the opposite of a sales tax: instead of paying more for goods because of taxes, the consumers would pay less because of the discount. Who would complain about it? So with a “people’s credit” (or “social money”) system, as proposed by C.H. Douglas, the state government could finance public works and supply services to the population without having to bother them with any form of taxation.
All those who think that taxes are too high should therefore hasten to study and make such a “social credit” (the “people’s credit”) system known.
Dave Robinson’s website is Maine Patriot.