Sunday, April 19, 2009

Lesson IX – Foreign Trade

Once we have outlined the proposals we have made on the subject of financial reform, as we have been doing in the past two lessons, the objection that is most usually heard runs something along these lines: “Granted that the reforms that you suggest would do a great deal to improve the economic strength and welfare of our country, are they not likely to be impossible to put into effect because of the problems of foreign exchange?'

This is a legitimate question, because in fact it is precisely the problems of foreign exchange that at the present time do sharply restrict monetary policies in many countries of the world. Canadian industries in recent years, the automobile industry in particular, have for example been badly harmed by an exchange rate that has risen from around 63 cents to the U.S. Dollar, to as much as $1.05, so making our manufactures uncompetitive, at the same time as U.S. Dollars were being used to buy up interests in the Alberta oil sands.

On the other hand, the whole question of foreign exchange and international trade is not an impossible one to answer. The fundamental problems of the source of the money supply, and the effect of the flow of capital funds, apply here also. In fact, because of the scale on which foreign exchange transactions take place, it is often rather easier to understand what is going on in the international monetary field, because these things happen on a large scale and obvious way, than to spotlight some of the hidden defects of our domestic monetary arrangements.

The Reason for Trade.
The reasons for trade between nations are really not essentially different from those we gave for trade between individuals examined in Lesson II. For reasons of climate, geography, location of resources etc., certain nations have surpluses of goods of one kind, but cannot produce sufficient goods for themselves of some other kind. The simplest sort of trade, therefore, is the exchange of surplus commodities between nations for the benefit of each. Canada grows more wheat than her people can consume – Japan is short of agricultural land, but has well developed light industry, There is obvious scope here for trading the food and raw materials of Canada for the finished products of Japan, and both nations will benefit.

Trade as Barter.
From the earliest times, the merchants of the world have engaged in trade that has in essence been little different from direct barter. Many old tales tell of how merchant venturers fitted out ships with wares for export, sailed to distant lands, and came home to sell those foreign wares at a fabulous profit – the plot is the same, whether the hero is Dick Whittington or Sinbad the Sailor.

Trade such as this could be carried on without the use of any foreign money at all. Merchant A, coming from country A (which uses dollars) might spend $1,000 in fitting out a vessel to trade with country B (which used pounds sterling). He could then sail to Country B, and sells his wares for, say, one thousand pounds sterling in local money. After spending this money in restocking his ship, he might return home, sell what he bought in B for $4,000, and retire with a profit of $3,000 from his total enterprise. In essence, what has taken place is a profitable exchange of goods for goods, even though, as we saw in Lesson II, it is possible to attach a price tag even on such a barter exchange.

In this last illustration, for instance, we could summarize the transactions as follows, even though not a dollar of money of Country A left that country, and not a pound of the money of Country B left Country B.

Merchandise Exports f.o.b.1 Country A $1,000
“Invisible” exports (shipping services) $3,000
TOTAL EXPORTS $4,000 Imports of Merchandise c.i.f2 $4,000

* * * * * * * * * * *

Imports of Merchandise f.o.b. £1,000
Exports of Merchandise c.i.f £1,000

Exchange Rate (Exports A: Exports B) $4=£1

Money in International Trade:
Barter is, however, a difficult way of carrying on the process of exchange, even when, as illustrated above, it is eased by the use of local currency. Internationally, therefore, as nationally, there has been pressure to replace barter with some form of money. For various reasons though, this development of a form of international money has not progressed to such a high degree as has been the case of domestic currencies that we have already studied.

One most important reason for this is that there is no issuing authority comparable to the modern state able to issue a generally accepted international currency. Consequently there is no state created “fiat money” in international trade.3 The fundamental international money unit is therefore money of intrinsic value – generally speaking gold – supplemented by the usual techniques of Banking which, by use of paper promises, make a limited supply of gold the basis for a much greater supply of credit.

The Gold Standard.
The nearest approach the world has seen to an international currency acceptable in all parts of the world was in the heyday of the “gold standard” in the late nineteenth and early twentieth centuries. In its theoretically perfect form, a world gold standard meant that the money of every nation was valued as being worth the same amount as a particular quantity of gold. If nations bought and sold to each other, and it happened that one nation exported more than it imported, there would be a flow of gold from other nations in its direction, so increasing its national money supply. Such an increase would cause a degree of inflation and drive up its prices. Higher prices would make its exports less competitive, so encouraging other nations to export to it, bringing back a balance. By the same mechanism, an “adverse” balance of trade, with imports being greater than exports, would cause an outflow of gold, so causing deflation and a fall in prices.

This may have been fine in theory, but it was a failure in practice, because in practice the gold did not always flow the way it was expected to. The theory was that gold should flow from one nation to another in order to settle international indebtedness. In practice, speculators could import and export gold, so causing a deliberate unsettlement of international exchange, making a profit on the price fluctuations so caused. In his book “A Fraudulent Standard”4 Arthur Kitson cites a case where, some time before World War I, an American syndicate withdrew the sum of eleven million pounds in gold from the Bank of England, and shipped it to New York. Withdrawal of this amount of gold meant, of course, that a considerably larger amount of credit built upon the backing of this gold had to be canceled. The result was a fall in the United Kingdom Stock market in the price of 325 representative securities of $115.5 millions, and corresponding gains in prices in New York. The speculators, playing on two tables at once in London and New York, could not fail to make their profit.

The Gold Exchange Standard:
The economic shocks of World War I and of the 1929 Stock Market crash and the Great Depression which followed effectively put an end to the international Gold Standard. Nations simply were not prepared to let their countries stay in a condition of depression for the sake of following the rules that the Gold Standard laid down. A more flexible system developed, where international settlements could be made either in gold or in some currency exchangeable for gold on demand. The Bretton Woods agreement, setting up the International Monetary Fund, was based on this concept, with the U.S. Dollar being the most popular convertible currency used for international settlements. One result of this was to create a high demand for U.S. Dollars, so as to give them far more buying power than the currencies of most “third world” countries. A second result of this was to place an enormous strain on the U.S. Dollar itself, pegged to be redeemable in gold at a price of $35.00 per ounce. That rate in an expanding world economy simply could not be maintained, and in August 1971, the Nixon administration in the United States abandoned convertibility, since which time the price of gold in U.S. Dollars has risen twentyfold.

The U.S. Dollar continued, however, to be used as the primary settlement money in international exchanges, particularly because it was the currency in which the greatest part of the world's oil was priced. For many third world countries, loans for “development projects” carried out by U.S. Firms imposed debt obligations on such countries beyond any hopes of repayment, giving effective control of their economies to United States interests through the International Monetary Fund, and miring such countries in unnecessary poverty.5

A second consequence of the abandonment of the discipline of the Gold Standard was the replacement of employment in the United States from manufacturing industries to unproductive (in real terms) banking and financial operations. The high exchange rate of the dollar meant that a whole raft of articles, automobiles in particular, but also electronics, toys and appliances, could be imported into the U.S. much more cheaply than could be manufactured at home. Countries such as China also maintained their employment and development by buying U.S. Debt in quantity – so keeping their exchange rate low, and enabling the U.S. to use deficit financing to pay for its extremely expensive military missions abroad. Currently, this honeymoon period appears to be coming to an end, and the U.S. is paying dearly in deficits and deflation for a period in which its financial system was allowed to run wild.

A World Currency
Because of the acknowledged weaknesses of international settlement arrangements based on the gold standard or extensions of it, suggestions have been made that some supra-national authority should issue a “world currency” of fiat money, with which international settlements could be arranged. This could certainly make sure that there was a sufficient quantity of this money to finance international trade, and also correct the gross distortions in exchange rates that result from the use of a national currency, the U.S. Dollar, as the vehicle for international settlements. But there is no guarantee that such a currency would not still be used by international speculators to continue to distort the world's economies, at the expense of the less developed nations of the world.

Again, Arthur Kitson puts the point very well:6
“The effects of a universal currency would be, in the absence of tariffs, to reduce the working classes of all countries to one very low standard of living. The masses of mankind would be engaged in a life and death struggle for the possession of money and for the control of foreign markets, and the nation who could produce goods at the cheapest rate (in other words, the nation whose operatives could be induced to live at the lowest stage of existence compatible with their ability to produce goods) would become the most successful …

“Far from adopting a universal world currency, the most beneficial policy would be for each nation to have its own national paper currency – a currency that has no circulating power beyond the boundaries of the nation issuing it. Such a currency forms a natural protection for its trade and industries. It prevents the cut-throat competition which a world currency permits, and it renders international trade a system of barter – that is, an exchange of goods for goods, which is the natural and rightful form of trade.”

Two major arguments therefore can be advanced against the “world currency” approach:

•It prevents national governments administering monetary policy in the interests of the people they govern, and
•Any currency area which is so large that it is physically difficult to move goods within it at short notice, compared with the ease with which money can be transferred, will be the prey of speculators manipulating prices through rapid, long distance, movements of currency.
Protection or Free Trade?
An offshoot of the same class of thinking that promotes a world currency is the concept of “Free Trade” and lowering tariff barriers as a way of securing world prosperity. This, of course, is fallacious.

In earlier lessons, we have already contemplated the “gap” between purchasing power and prices caused by the increasing use of machinery in production. One way of seeing that there are funds to close this gap and secure full employment at home is to pass the problem on to another country by securing a “favourable balance of trade”, where exports exceed imports in value, and one's own country becomes the “workshop of the world” to which other countries are indebted, as Great Britain was in the 19th century, and China has become today. Since our own dollars are only of use to buy goods in our own country, this means that we secure our own prosperity by piling overseas debt on less developed nations – something very obvious in the disastrous state of public finances in many third world countries, where populations may be starving while “free trade” dictates that the food they grow be exported to other countries who have the funds to pay for it at higher world market prices.

An Effective System
Let us summarize what we have learned so far.

International exchange is primarily a means of barter of goods for goods between countries. As such, it can be carried out without the use of any monetary unit whatsoever.

However, if gold is used as a means of settlement of international indebtedness, it gives the advantage of fixed and certain exchange rates, and an easily worked international accounting system. Disadvantages are loss of national sovereignty, ease of speculation, and scarcity of the international monetary medium, which from time to time causes foreign exchange crises. Another disadvantage is the unrealistic levels of international exchange rates, caused by a particular demand for “hard” currencies, exchangeable into gold. These disadvantages are not wholly eliminated by the use of some kind of international “fiat” money, which also imposes considerable limitations on national sovereignty.

So let us now see if we can lay down specifications for a practical world foreign exchange system which would not have these defects:

•It should have stable exchange rates – otherwise the use of money in international exchange is impossible.
•Exchange rates should be realistic – that is, they should adequately reflect the buying power of each local currency in terms of a standardized form of wealth, e.g human labour of a particular grade of skill.
•It should not adversely affect domestic monetary policy.
•There should be no restraint of trade caused by shortage of the monetary unit.
These specifications could be comparatively easily filled by an international monetary arrangement along the following lines:

•The value of every national currency in terms of every other would initially be fixed in terms of the labour buying power of each, possibly adjusted for the quality of the labour, the wealth of that country's natural resources, and its degree of industrial development.
•Up to specified limits, the treasuries or Central Banks of each nation would be willing to accept the currencies of other nations into their reserve funds, paying out their own national money in exchange.

How it Would Work
Such a system could work with extreme simplicity. Exporter A, in country A, might see a good sales opportunity in Country B, having in mind the price level in B measured by the exchange rate between the countries. Because this exchange rate was fixed in terms of labour cost, the reason for this would have to be that he had some superior economic or industrial advantage by which he could sell more cheaply, not that he was underselling by the use of “cheap labour”.

Merchant A would be paid by the buyer of his product in Country B in the currency of Country B. This, of course, would be useless to him for spending in his own country, so he would take it to his own central bank, who would pay him the fixed rate for it, and put it into its own exchange reserves.

Merchants in country B would similarly be paid for exporting to country A, and in turn, the central bank of B would begin to accumulate reserves of “A” currency. From time to time these central banks would meet and exchange and cancel these foreign exchange reserves. In cases of trade between a number of nations, those reserves might conveniently pass through several banks in several different countries before finally coming to the cancellation point.

What would happen if one country started “living off its neighbours”, by importing more than it exported? In the central banks of other nations, more and more stocks of its currency would be held. Such nations would then have to make a decision. Either they would have to go to the country that was exporting too little, and spend the money they had on desirable imports – or it would remain useless paper in their hands. The pressure that countries now have, to export more than they import, and accumulate gold or hard currency reserves, would be counteracted by a system that gave, in exchange for a “favourable balance of trade” no more than a pile of paper currency, which gave the right to go to the debtor nation and buy its products at prices which, by the fixed exchange rate policy, would be guaranteed to be realistic in terms of its own.

How would international investment be handled under such a system? Suppose that country B was undeveloped, and that investors in country A wanted to supply it with factories, business organization and so on. The answer is very simple – and very interesting. If the investment money were spent buying equipment in country A, the overall effect would be that investors in country A were paying currency of country A to producers in their own country to provide goods and services that they would deliver to country B without immediate payment. In due course, when the new facilities were installed in B, profits would come to the country A investors, taking the form either of B currency, or goods produced in B ready for sale in the markets of A. If, however, the investment money was used for “buying up” the assets of country B – its natural resources, its real estate, its business organizations and so on – the result would be a heavy accumulation of the funds of country A in the hands of the central bank of B which, if the authorities in B are wise, they will be able to use to obtain comparable investment control of country A. What would be avoided is a situation which nowadays is the curse of the underdeveloped world: an obligation to pay back in A's currency debts which currently B can only liquidate by exporting to A food and other materials which would better be used to provide an adequate standard of living back home in country B.7

How to get there:
International agreements relating to tariffs and trade, and the sheer difficulty of reorganizing a world exchange system that is deeply established and highly profitable to financiers, mean that it is bound to take time to put a scheme such as the one suggested above into effect. However, the following first steps could easily be taken, and have in fact been already discussed by some nations at the international level.
1. International currency exchange agreements. Any two central banks of any two countries can very easily agree to exchange quantities of each other's currencies at an agreed exchange rate. This provides reserves to finance trade between them, and neatly avoids all problems between the two caused by a scarcity of gold or “hard” currency. It can be conducted on such a scale as to be beyond the powers of even the best endowed speculators to disturb.
2. A selective tariff/subsidy policy. This could be a means to bring the price level of Canadian products down to the wage level of “low wage” countries so that they do not compete unfairly with Canadian products. A special tariff, or “anti-dumping duty” is placed on all imports from the low wage country, to raise the price of these on the Canadian market to what it would have been had Canadian labour been employed. The proceeds of this tariff are used to reduce the price of Canadian exports to the country concerned, to bring such prices down to the earning level of labour in that country. In effect, what this policy effects is an altered exchange rate, expressing currencies in terms of local wage rates, rather the supply and demand for gold and hard currency. It could well be the key to opening markets for Canadian products in areas now closed to our exports because of foreign exchange difficulties.

* * * * * * * * * * *

Rev. Denis Fahey. “Money Manipulation and the Social Order” especially Chapter V “International Trade and the Gold Standard”
C. M. Hattersley “The Community's Credit” especially Chapter 9 “The International Aspect.”
Statutes of Canada: “The Bretton Woods Agreement Act”, “Currency, Mint and Exchange Fund Act”, “Bank of Canada Act”.

1. Is there any fundamental difference in nature in the problems of exchange between nations and those of exchange between individuals?
2. What are the reasons for engaging in international trade?
3.Barter is the natural and rightful form of international trade.” Do you agree? In what ways can money be of use in such trade?
4. What are the advantages and disadvantages of the gold standard. Why has it largely been abandoned in recent years?
5. What is the difference between the “gold standard” and the “gold exchange standard”?
6. What are the arguments against establishing a single world currency?
7. Can the area covered by a single currency be too large? What disadvantages arise in such a case?
8. What different results occur when foreign investment is (I) spent within the investing country, and (ii) within the country in which the investment takes place, for the purchase of its assets and resources. Are the results the same (I) if exchange rates are fixed, or (ii) allowed to float?
9. How far can “currency exchange agreements” between central banks be of use in stabilizing international trade transactions?

Notes and Sources:
1. f.o.b “free on board”

2. c.i.f “cost, insurance, freight”

3. The proposal of Lord Keynes to create such a medium, which he called the “Bancor”, was defeated in the course of the Bretton Woods negotiations. Wikipedia has an interesting article on the proposal.

4. Cited in “The Bankers Conspiracy” by Arthur Kitson. The passage quoted is reproduced by C. Marshall Hattersley in “The Community's Credit” (1922 Edition page 59). It is also quoted by Rev. Denis Fahey in “Money Manipulation and the Social Order” 1963 Edition, page 35.

5. An alarming expose of the dishonesty of this practice is contained in the book “Confessions of an Economic Hit Man” by John Perkins (Plume, 2006)

6. Leaflet “The Dangers of Internationalism” 1932

7. A disastrous blunder in Canada's foreign exchange policy was when the Liberal government in 1950, faced with rapidly rising foreign exchange reserves coming from major U.S. Investment in Canadian oil reserves, allowed the Canadian dollar to “float” - that is, have its value in terms of the U.S. Dollar established by the forces of the market, a situation that still continues. The result has been wild swings in the value of the Canadian dollar in terms of the U.S.$, leading to alternate phases of prosperity and bankruptcy in Canadian export industries.

Lesson X – The Social Credit Movement

Major Douglas once defined Social Credit as “the policy of a philosophy”. That is to say, it is an idea that has two parts to it. In the first place, there is the philosophy – a particular outlook on humankind and its world. Secondly, there is the policy – an analysis of our present social and economic system and suggestions for its improvement, to make it reflect this fundamental outlook.

As far as his basic philosophy was concerned, Douglas never claimed that he had discovered anything new. Rather, his argument was that, since the close of the Middle Ages, Society has progressed from an economic and social system that regarded the welfare of people – all people – as its basic goal, to one that was based on the worship of an abstraction, that is money.

“The policy of this country . . . is related philosophically to the adulation of money. Money is an abstraction. Money is a thing of no value whatsoever. Money is nothing but an accounting system. Money is nothing worthy of any attention at all, but we base the whole of our actions, the whole of our policy, on the pursuit of money; and the consequence, of course, is that we become the prey of mere abstractions like the necessity of providing employment.”1

The objective of the Social Credit system he proposed was therefore to set to rights the unbalanced, materialist society that had arisen from the worship of false values:

“I will put the objective as I see it for your consideration in a very general form, and that is, we want to establish a correct relationship between the individual and the group, so that the group, and the attributes of the group, shall serve the individual, and not the individual be the slave of the group. The whole of society exists from my point of view – it may not be yours – but from my point of view, the whole of society exists for the benefit of the individual.2

Humankind was, and is, involved in a life-and-death struggle to become the master of the very economic, financial and industrial machine it has created to be its servant, and the stakes in the struggle are nothing less than man's own personality and the continuation of civilizations itself. Writing in the first edition of his book “Social Credit” in 1924 (he saw no need to change his opinions in the revised edition of this book in 1933), he summed up the situation in these words:

“The outstanding fact in regard to the existing situation in the world at the present time is that it is unstable. No person whose outlook upon life extends even so far as the boundaries of his village can fail to see that a change is not merely coming, but is in progress; and it requires only a moderately comprehensive perception of the forces which are active in every country of the world today to realize that the change which is in progress must proceed to limits to which we can set no bounds.

That is to say, the breakup of the present financial and social system is certain. Nothing will stop it. “Back to 1914” is sheer dreaming; the continuation of taxation on the present scale, together with an unsolved employment problem, is fantastic; the only point at issue in this respect is the length of time which the breakup will take, and the tribulations we have to undergo while the breakup is in progress . . .

“There is at the moment no party, group or individual possessing at once the power, the knowledge and the will which would transmute the growing social unrest and resentment (now chiefly marshaled under the crudities of Socialism and Communism) into a constructive effort for the regeneration of Society. This being so, we are merely witnesses to a succession of rearguard actions on the part of the so-called Conservative elements of Society, elements which themselves seem incapable or undesirous of genuine initiative; a process which can only result like all rearguard actions in a successive, if not successful, retreat on the part of the forces attacked . . .

A comparatively short period will probably serve to decide whether we are to master the mighty economic and social machine that we have created, or whether it is to master us; and during that period a small impetus from a body of men who know what to do and how to do it, may make the difference between yet one more retreat into the Dark Ages, or the emergence into the full light of a day of such splendour as we can at present only envisage dimly.” 3

Political History:
In its essence, we can understand Social Credit, therefore, as a philosophy which seeks to assert the mastery of the individual over the organized power of Society (represented by the powers of money and of government). This is in place of the perverted order of Society at the present time, in which money is the master, mankind the servant, and government more the servant of the monetary powers than of the electorate. Although the name “Social Credit” was only coined by Major Douglas around the year 1920, the philosophy has lasted many thousands of years – through Christ's plain statement in the Sermon on the Mount, that “You cannot serve God and Mammon”4 - to the elaborate provisions for the economic health of a nation contained in the laws of the Old Testament.5

It is worth being familiar with the provisions of Old Testament Law on economic questions, because in essence they were carried forward to form the basis of the world's economies at least up to the close of the Middle Ages. Five points in particular can be observed:

1.Elaborate provisions to secure an “inheritance” to every family that could not be permanently alienated.
2.Requirements for worker safety, prompt payment of worker's wages, and fair weights and measures in trade.
3.Interest prohibited on loans to one's fellow citizens.
4.A tax rate set as a fixed proportion of a nation's production, to maintain a Civil Service of defined size.
5.A regular “Year of Jubilee” for the repatriation of land and the forgiveness of debts, every fifty years.
Under the feudal system which formed the framework for society in the Middle Ages in Europe, each tenant held land from a feudal overlord, in return for services in maintaining the fabric of society. Trade was largely regulated by “guilds” of those in a particular trade, who enforced rules for apprenticeship, a “just price”, and quality. Usury was a punishable offence. Taxation took the form chiefly of customs duties and personal services given in exchange for the use of land.

The New World:
The discovery of the New World by Columbus in 1492, and the inflow of gold and silver from Peru and Mexico that followed in the succeeding century, had an economic impact that today is hard to conceive. Money sank to a quarter of its previous purchasing power. Customary feudal services in return for land, which had been commuted into fixed monetary payments, suddenly became more or less worthless. In England, and later Ireland and Scotland, land speculation was rife – common lands or customary tenancies were “enclosed” for sheep farming or as game preserves, agricultural workers were dispossessed, and from this time dates the emergence of a class of the “working poor” without property – Karl Marx's “proletariat” - drifting to cities without work, property or means of support – a social problem continuing to the present day.

The opening up of the Americas did mean that many of those for whom there was no place in their home country could emigrate. From the early seventeenth century onward, the developing American colonies provided land and the chance of a new career for many for whom the new financial developments (including Calvin's legitimizing of the practice of Usury) had left no place. Settlement in the New World may have been a challenge, but the American colonies were, in fact, conspicuous in their prosperity, so much so that Adam Smith, writing his “Wealth of Nations” in 1776, spends considerable time speculating why this should be so. Two basic reasons seem plain, however:

1.The ready availability of free agricultural land, to which no burden of rent was attached.
2.The “Colonial Scrip” - paper money issued by the colonies, which provided a cheap and ample money supply up to the time of the American War of Independence.
It is not always known to what a degree monetary factors were responsible for the final break of the Colonies from Great Britain and the founding of the United States. Following a visit of Benjamin Franklin to Britain in which he had incautiously explained American prosperity as flowing from the use of their own paper money, an Act was passed (1764) by the British Parliament “restraining the emission of paper bills of credit” by the American colonial governments, and by prohibiting their use as legal tender, and so their use for paying taxes to Great Britain. Franklin reports that the immediate consequence of this Act was a severe deflation in the colonies, prosperity turning overnight into unemployment and poverty. It was a refusal to pay tax on imported tea that led to the dumping of such a cargo – the famous “Boston Tea Party”, the beginning of the Revolution. That this matter of money issue was considered of major importance when the Colonies finally threw off British rule, can be seen from Article 1, Section 8, paragraph 5 of the present day United States Constitution:
“Congress shall have power to coin money, regulate the value thereof, and of foreign coin.”
So was won a notable victory in man's struggle for financial independence.

The Nineteenth Century:
The Nineteenth Century saw the expansion of the United States until it filled the whole of the Southern part of the North American continent. It also saw a powerful if sometimes concealed struggle taking place, as Banking interests sought to obtain the privilege of central banking and money creation, already enjoyed by the privately owned Bank of England, in place of the express powers granted to Congress in the constitution. In the teeth of opposition from men like Thomas Jefferson, and after once being vetoed as unconstitutional, a bill chartering the Bank of the United States was passed in 1791. In 1811, President Madison refused to renew the Bank's charter. However, following the disruption of government caused by the war of 1812 and the burning of the Capitol in Washington, pressure to have a new bank started was ultimately successful and a new national bank was chartered in 1816.

President Andrew Jackson vetoed the Act of Congress that would have re-chartered the United States Bank when its charter expired in 1832. The Bank's charter, he felt, was not compatible “with justice, with sound policy, or with the constitution of our country.” In spite of a deliberately induced financial panic, Jackson held firm, and the bank's charter expired and was not renewed.

The American Civil War, which coincided with the Presidency of Abraham Lincoln, marked the beginning of a new era in U.S. monetary history. There is some credibility to the story that this war was conceived as a means to divide the growing United States between French and English Rothschild banking interests. Circumstantial evidence in favour of this is the considerable aid given to the Southern cause by Great Britain during this war, which might have been even greater had it not been for the direct intervention of the Tsar of Russia. In addition, the demands of war exhausted Lincoln's treasury, and the North would have been in bankruptcy, had it not been that Lincoln financed the operation by issue of fiat money – State issued “Greenbacks”. This action was over the disapproval of his Secretary of the Treasury, Chase. Nevertheless it enabled the North to prosecute the war successfully without any accumulation of debt.

This issue of Greenbacks prompted immediate counter moves on the part of the Banking interests. An Act to permit circulation of Bank notes within Washington D.C. was vetoed by Lincoln. In 1863, however, a National Bank Act was passed. Not long after, Lincoln was assassinated, and the rest of the century saw no President with the strength of will to resist the growing power of the bankers over the United States monetary system. Speculation was deliberately used to cheapen the Greenback. A violent deflation was initiated when in 1873, a scarcely examined clause of the new Mint Act led to the demonetization of silver, making it no longer acceptable for coinage within the U.S.A. A further financial panic with the aim of forcing the abandonment of U.S. Treasury “silver certificates” which passed as currency, was engineered in 1893. Thousands of farmers and small businessmen were ruined. The end of this struggle to keep the United States financial system under the people's control ended with the passing of an Act to incorporate the Federal Reserve Bank under private ownership in 1913.

In the U.S. Presidential campaign of 1896, William Jennings Bryan had campaigned on the issue of remonetizing silver, with this stirring question “Shall humanity be crucified upon a cross of gold?” Though he narrowly failed to secure election, Bryan won wide support from those who had lost their homes in the depression, particularly in the Middle West. Many of those people around the turn of the century emigrated into the newly opened Canadian prairies, particularly the new Province of Alberta, created in 1905. Within the United Farmers of Alberta movement, they sparked a lively interest in monetary reform. So the torch of the cause of monetary freedom passed into a new country – the Province of Alberta, Canada.

Students of monetary reform in Alberta were quick to hear of the writings of Major Douglas when these first appeared following World War I. In 1921 also, the United Farmers of Alberta replaced the Liberal Party as the government of that Province. Progressive and United Farmer M.P.'s from Alberta formed a “Ginger Group” of Members of the federal Parliament interested in monetary reform, and were responsible for having Major Douglas invited as a witness before a committee of Parliament in 1923.

The catastrophic depression of the 1930's was nowhere felt so keenly as on the Canadian prairies. It was in these circumstances that a book on Social Credit, “The Meaning of Social Credit” by Maurice Colbourne reached the hands of William Aberhart, a Calgary school principal and Dean of the Prophetic Bible Institute in Calgary. He was impressed and convinced by the Social Credit argument, and began to advocate Social Credit on his regular weekly Bible radio broadcast. His message brought a ready response from all who were suffering under the depression, particularly the many members of the United Farmers, who had regularly discussed the monetary reform issue in their meetings and conventions, yet had been thwarted by the unwillingness of their own government to implement it.

At first Aberhart did not intend himself to start any new political movement, but when it became obvious that none of the established political parties were prepared to adopt a monetary reform program the Alberta Social Credit League was founded, and in the ensuing provincial election, gained 56 seats in the 63 seat Legislature. Social Credit remained in power with large majorities until it was replaced by a Conservative administration in 1972. During this time, through debtor protection legislation, through careful and honest administration, by strong emphasis on developing natural resource revenues, and by using branches of the Provincial Treasury to provide an exchange medium for a Province from which conventional banks had largely withdrawn, this Cinderella province became one of the richest and most progressive in Canada. Social Credit later (1951) became the government of the next door Province of British Columbia, and elected a single M.L.A. in Manitoba.

On the Federal scene, Social Credit members were returned to Parliament, chiefly from the Province of Alberta, from 1935 onward. Under the National Leadership of Solon Low, the total varied between ten and nineteen members of Parliament, with increasing support from British Columbia, up to 1957. In the “Diefenbaker sweep” of 1958, all Social Credit candidates were defeated. However, disillusion with Diefenbaker, and Social Credit reorganization under a new leader, Robert N. Thompson, led to 30 Social Crediters being elected in 1962, where Social Credit held a balance of power in a minority Parliament, and 24 in the following year – a new factor being that the greatest number came from the Province of Quebec under the dynamic leadership of Real Caouette, where Social Credit had already been a non-political pressure group for some time,.

From that time onward, however, Social Credit's fortunes as a political movement went into decline. World War II's financing had inflated the Canadian economy, and memories of the depression years were fading, with other political issues taking the attention of voters. The death of Real Caouette, and the unfortunate loss of the new, young and extremely popular leader, Andre Fortin in a motor accident, made it difficult to hold the party together, and Alberta's long standing Premier Manning, once personal aide to Aberhart, indicated a preference for conservatism rather than financial reform, and much Alberta political support was diverted to a new Reform party organized by his son, Preston. Similarly, much Quebec support moved to the independantist Parti Quebecois.

In Canada, it has always been a problem that matters of Banking and Finance are the responsibility of the Federal rather than Provincial governments, which puts a severe limitation on the powers of Provincial Governments claiming to be Social Credit. Nevertheless, the two Western Provinces of Canada prospered under their many years of Social Credit rule. Four main policies have been characteristic of those governments, and lay behind their economic success:

1.A policy of developing natural resources in the interests of all the people – characterized by incentives given to oil exploration in Alberta, and massive hydro power developments in B.C. Alaska's Permanent Fund, which pays an annual dividend to residents from interest on invested oil royalty income, owes its inspiration also to Alberta policies.
2.A policy of avoiding all direct debt – that is, debt that is not balanced by a revenue producing asset from which it will be repaid.
3.A policy in Alberta of providing competition to the commercial banking system, through the Government owned and guaranteed Treasury Branch system.
4.A policy of encouraging local initiative and government at the grass roots level.
The Outlook for Monetary Reform.
In addition to the position it attained in Canada, Social Credit has for many years been a force in New Zealand, in the form of the Democratic Party, and has supporters in the United States, England and Australia. Nevertheless, until recently, its success as a political movement has been disappointing. Douglas himself was rightly chary of political party politics, since the whole process of government as it is currently conducted is contrary to his ideals of personal freedom of choice, and the Social Credit political experience had been that a “single issue” party based on monetary reform only has voter appeal in times of financial collapse – something that at the present time (2009) brings it once again to the foreground. At which time, a “small impetus from a body of men who know what to do and how to do it” will be needed to prevent yet one more retreat into the Dark Ages, and lead mankind into a civilization of personal freedom and prosperity that is already physically possible for more than the favoured few, once the barriers of greed and financial manipulation have been broken down.

To which end, this Study Course is dedicated.

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Brooks Adams: “The Law of Civilization and Decay”
C. Marshall Hattersley: “The Community's Credit”, “This Age of Plenty”, “Wealth, Want and War”.
Congregational Union of Scotland - “Wealth, a Christian View”
Rev: Denis Fahey C.S.Sp. “Money Manipulation and Social Order”
Olive Cushing Dwinell “The Story of Our Money”
H.E.Nichols - “Alberta's Fight for Freedom”
Maurice Colbourne “The Meaning of Social Credit”
Gorham Munson; “Aladdin's Lamp”
Old Testament Exodus, Leviticus, Deuteronomy
John W. Hughes “C.H.Douglas – the Policy of a Philosophy”
J. Martin Hattersley “A New Way Forward”; brief to the MacDonald Commission on the Economy.

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1. Social Credit has been defined as “The Policy of a Philosophy”. What is the difference between Social Credit Philosophy and Social Credit Policy?
2. To what causes do you attribute the prosperity of the American colonies before the War of Independence?
3. How far do you believe that each of the following factors will be necessary for effective political and financial reform in the world:
(a) Political leadership
(b) Economic pressures
(c) Public Education
(d) Disgust with lethargy, incompetence and corruption in established political parties.
4. “The only good politician is a scared politician”. What methods can money reformers take to influence the established political order?

Notes and Sources:
1. Speech “The Policy of a Philosophy” 1937, page 6.

2. Speech at Calgary, Alberta, April 1934.

3. Social Credit, 1924 Edition, page 214 sqq.

4. Matthew 6.24

5. See, for example, Leviticus Chapter 25


We have come now to the end of this study of the principles and policies of Social Credit. In the course of it, I hope that we have come to understand that Social Credit is something more than just another political party, and something more than just another economic scheme. It is an answer – THE answer – to the most basic human problems of our times.

Our modern Capitalist system, based as it is on the profit motive and the encouragement and reward of personal initiative, has brought humankind to the dawn of an age of plenty never before known in history. At the same time the breakdown of the morally based order of the age that preceded it has allowed avaricious men, consciously or otherwise, to profit not simply as a result of the value they give to their fellow men, but by capturing for themselves the values given to all from our common association in society, whether this is expressed in terms of the value of land, labour, capital facilities, or credit.

The issue of today is the issue of Automation, and the question of how to distribute incomes to mankind with which to buy the products of the machine, when automated production needs less and less human labour, and so distributes fewer and fewer incomes, with which its products can be bought. Traditional Capitalism, whereby people make their incomes from sale or rent of their property or their labour, and most people in practice make a living by selling their labour, can give no other answer than futile schemes to secure “full employment” by “making work” in an age where work is being done away with, and such work as is required may entail many years of specialized and expensive training.

Even in countries claiming to be Capitalist across the globe today, we see the growth of Socialist programs forced on reluctant governments by the economic necessity of providing incomes and social services such a health care to citizens who otherwise could not afford them. Because they come “for free” - at a cost to the taxpayer – they are grudgingly accepted by those who make use of them, but the inefficiency of “one size fits all” programs, and the loss of personal freedom of choice, makes them a second best alternative. The experiment of state planning through Communism has now been reversed in Russia, and is under enormous strain and at great sacrifice of human freedom and welfare in China and North Korea.

Communism should not be regarded as the opposite of Capitalism. It is the logical outcome of Capitalism. It is a creed that believes correctly that the capitalist classes, by owning the means of production and distribution, have become the exploiters of the mass of the people. Yet if the working classes stage a revolution to throw off this Capitalist yoke, they also throw off the undoubted advantages in the production of wealth that Capitalism provides, and that even now workers in Capitalist countries enjoy to a far higher degree than those under Communism.

It is towards Socialism that most nations are tending in their governmental policies at the present time. These constitute, in their activities at any rate, a progressive abandonment of the monetary system altogether. Greater and greater is the proportion of income that the State takes away in taxes. More and more “free” services are provided by the State. The end of such a system is the elimination of all personal initiative and freedom of choice, except such choice as comes from being allowed to elect Parliamentary candidates on meaningless platforms, once every four years.

The economic system of the Middle Ages had the advantage of giving everyone a place in a stable order of society. Capitalism that replaced this gave the advantage that it encouraged the initiative and invention that has made possible the material riches that the world can enjoy at the present time. The policies of Social Credit are the world's next need, so that we can enjoy the economic advantages and freedom of choice given by Capitalism and the use of money, while eliminating its features of exploitation of people and of the environment, and fit all people once again into a stable, secure and prosperous framework of society, without dampening the spirit and the rewards of personal initiative.

“A small impetus from a body of men who know what to do and how to do it, may make the difference between yet one more retreat into the Dark Ages, or the emergence into the full light of a day of such splendour as we can at present only envisage dimly.” You, good reader, who have studied and understood this course, can now number yourself in this body. This is your sacred trust. A troubled and bewildered world is seeking for the knowledge you now have to set it to rights. Do not fail it.

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