The Third Option Part 2
The Third Option – Part 2
By Liam Allone
If you have not yet read Part 1, it can be accessed here. In it, I make a case for the need for something fundamentally different from the left and right political options that we as humanity are generally being offered in every so-called democratic society on earth. I explain why our political parties of every ilk continue to fail us, because they fail to recognize and address the “gap” in purchasing power inherent in every country on earth, without regard to its political system, and point at who is behind frustrating the achievement of a solution. In this second part, we are going to dig into what the potential “Economic Cures” to the gap are.
I have discovered two alternative economic frameworks that start with a recognition of this gap, and zero in on a specific set of recommendations to solve it. Those frameworks are Social Credit proposed by Major Clifford Hugh Douglas and National Economy proposed by Professor Frederick Soddy. Of the two, I found more merit in Social Credit, but let me be quick to exclaim that National Economy is also far preferable in my opinion to anything that has been tried to date. It is also worth noting that neither framework has ever been tried, so any assertions that “it will never work” are nothing more than conspiracy theories put forth to defend the present order of things. Unlike all the other “conspiracy theories” that have been shoved down our throats over the past half century, and that have since been largely found to be conspiracy facts, this conspiracy theory is truly a theory and the conspirators behind it are the international bankers who wish to preserve their stranglehold over the issue of the world’s money and credit. Why is it a theory? A theory is an explanation for a phenomenon for which there is no proof. There is no proof that these proposals would not work because a reasoning mind, who can follow the basic reasoning of cause and effect can clearly see that they just might work; and also because quite simply, they have never been tried. When I show you the A + B Theorem, you will see some of that basic reasoning.
Before we delve further into what those solutions are, let us first look at the present system of money, credit and its basic workings. Let us start with the not-so-well-known fact that the vast majority of money in existence today was birthed in the issue of debt – bonds, new-issue stocks financed by merchant banks, mortgages, car loans, credit card balances, lines of credit, and so on. There is admittedly some currency but that is only a thousandth or so of all the money in existence today. If you don’t believe me, consider this. Even the “Powers That Be” themselves admit that they are entirely in control of the money system and that the money system is entirely comprised of a debt lien levied by private interests against the labor and assets of the United States. This was admitted by Robert H. Hemphill, former Credit Manager of The Federal Reserve Bank of Atlanta (see Senate Document #23, page 102, January 24, 1939):
“…if all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible — but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse, unless it becomes widely understood and the defects remedied very soon.”
Now you have a very clear picture as to why Jerome Powell’s position of driving up interest rates and his stated intention to cause both employment and stock markets to crater in order to spur “deflation” which is what reducing inflation to 2% amounts to, is nothing more than an engineered and deliberately caused “economic bust” that will hurt all of us. And why? Because they know that the enormous amount of “liquidity” that they created out of thin air over the past decade would otherwise sink the system in a hyperinflationary collapse. It is the lesser of two evils. That would be all fine and good if there was no other option; but there are other options. What there is not is the political will and general recognition of the real problem – the gap – that drives this flawed system and the viable solutions that would address it better.
There is something very important to understand about the creation of money as debt. It is clear that if we issue this money but never retire it, hyperinflation is right around the corner. Therefore, this loan money is retired by the repayment of debt. Booms happen when money is being created faster than its retirement - expanding. Busts happen when repayments cause money to be retired at a rate faster than it is being created with new loans - contracting. We, as a society, are at exactly this juncture of this “economic cycle” at this time and the next several years will be another unfolding bust.
So now, what exactly is this gap and what is its cause? The answer is astoundingly simple. It is a shortage of purchasing power that is deliberately built into our economic system. This is directly the reason why we have economic booms and busts. The booms happen when the rate of debt issue is happening faster than the rate of economic consumption, because there is an abundance of money; more than enough to service the issued debt and consume the products produced in what we call the GDP – the value of all goods and services that are actually sold within a fiscal period. The busts unfold when TPTB (The Powers That Be) start telling us that we need fiscal restraint to prevent the malaise that is the consequence of issuing the debt in the first place. This is the fundamental reason why our national debt is ever growing but never shrinking, and why the purchasing power of our national currencies are ever diminishing. If you don’t think the Federal reserve is the direct cause of this problem, consider this graph that shows how before the 20th century debut of the Fed, the purchasing power of $USD was actually relatively stable for the previous 300 years, before credit was in wide use.
The first reserve bank of America was shut down by Thomas Jefferson. It was the inflation that it caused, and by the undermining of colonial scrip before that, that accounts for the drop in purchasing power from the beginning of the 18th century to the early 19th century. The second inflation in the mid 19th century was caused by the second central bank that was shut down by Andrew Jackson. On his grave headstone in Tennessee is the statement “I killed the bank.”
So now we come to the root cause of the gap in the first place. CH Douglas reduced it to what has since come to be known as the A + B Theorem. It is basic algebra expressed as follows:
Let PRICE = A + B
A = all spendable money paid out to employees, business owners, and shareholders in the form of wages, earnings and dividends respectively as a significant input cost.
B = all other costs that must go into price to ensure solvency of the seller. This includes capital equipment, depreciation, buildings, real estate, professional services, raw materials, etc.
If you can show any good or service that has no B costs, then you might begin to make a case for invalidating this theorem. I have considered the subsistence farmer as the best candidate. Does he not need tools, a house, shoes for his children, a means of bringing his goods to market, etc. to support his agricultural production? These are B costs. The only way wages can meet price is if B = 0. That’s basic algebra and this reasoning is irrefutable. B can’t possibly be zero so the cause of the gap is clear.
The following graphs were derived from national statistics for Canada and the United States for the year 2008. The premise, though not perfect, is good enough to make a reasonable case for determining the magnitude of the gap. I used GDP as the indicator of the price achieved by the country that year, for all goods and services. I also used the gross taxable income reported by individuals (and not corporations) as the A costs. It is not reasonable to include the earnings of businesses because their profits ultimately get passed down to individuals or are retained as capital – money not actually spent. Any capital that is spent, becomes an A or B input cost that gets passed on to the final consumer anyway. The consumer is the bottom of the food chain so that is what we measure. From these two measures, the actual B costs are discerned as PRICE – A, again basic algebra. What is remarkable is that the division was roughly the same for both countries. From these numbers, we can quantify exactly how big the gap was that year:
This analysis reveals a significant truth. The way the gap is getting filled is by the issue of debt money – loans at interest - in order to fill the gap; 36% and 42% respectively. It now becomes crystal clear why every self-respecting banker will fight to the utter death to defend their exclusive right to issue the debt of every single nation on earth. It also explains why both social credit and national economy proposals have been suppressed for centuries. If you don’t think it is true, ask Oliver Heydorn, the author of Social Credit Economics, the best academic book on social credit ever published, about how he can’t get a job teaching in any university on earth, despite the fact that he has a PhD in History. This is the fate of anyone who would dare cross “them.” I admire his courage and tenacity. You can follow him on www.socred.org. Also, for those who would rather watch a video, he has prepared a series of 30 short videos here that expand on the most important aspects of economic democracy.
Social Credit Simplified
Douglas’s social credit proposal can be distilled today into the following key components:
- Have all businesses report their A and B costs to a national statistics agency on a quarterly basis so that the magnitude of the gap for that fiscal period can be accurately measured. Once determined, it is important that only the gap money sufficient to meet price be issued – not more so as to cause inflation, and not less so as to cause deflation. Douglas called this the just price mechanism.
- Issue a fixed amount to every man and woman as a social “credit," from the age of 18 to death so that everyone in society can be guaranteed the ability to live in dignity. I would propose somewhere in the order of $2000/month as an appropriate amount. Douglas called this the national dividend.
- Issue the rest of the gap social credit as a sales “credit” percentage (i.e. the opposite of sales tax) for every purchase made by end consumers – but not businesses. Douglas called this the compensated price.
Think about it. This eliminates the welfare state, and it provides a significant incentive to spend our money rather than save it. Why do we save? For a rainy day. If we all have a sufficient income to ensure a roof over our head, food on our table and clothes, how rainy will our days be? Would you rather earn 1%/year on money in the bank or get an immediate 10% return for buying that stereo you always wanted? Furthermore, if there is sufficient money in the economy to ensure business success, this translates into job security and largely eliminates the need for bank loans.
Douglas referred to this as Economic Democracy – a system that guarantees an equitable distribution of the wealth of society. Democracies tout the value of the vote, but ask a street person, starving and living in a cardboard box how much he values his “vote.” I would venture to say he would trade it for a pot of stew in a heartbeat. Critics state that social credit is socialism, but it is actually a purer form of capitalism than the system we presently live under; a system that has effectively implemented every single plank of the communist manifesto in all of the so-called democracies. We are all de facto living under socialism. There will be business failures under social credit – those businesses who offer goods or services for which there is no market. Those who operate successful businesses can still get rich and valuable skilled workers can earn better wages. The dividend would be the minimum we have to live off of.
Critics also say that such a system will cause everyone to want to sit at home on their arses instead of working. Again, not so. What funds social credit? It is the value of the production of the nation, minus the wages already paid out to the people who do the productive work that we monetize; not by the issue of debt, but rather the issue of debt-free credit. The collateral for the issue of this money is the natural resources, infrastructure and productivity of our nation and its people. If there is no production, there will be no guaranteed income dividend. It needs to be earned. That dividend will become smaller and smaller over time if production falters.
Here is another important point. There are very few of us who are so unmotivated that we would settle for a meaningless life where we just meet our basic needs and do nothing productive with our lives. Who are the few who will have no choice but to live at that $2000/month level? It will be mentally and physically handicapped people who can’t work, the aged who are retired and can no longer work, those temporarily unemployed, and those who would rather lead a life of leisure, or pursue the arts, go on adventures, etc. There will only be a small minority who will walk this road voluntarily.
National Economy Simplified
Now, what of Professor Frederick Soddy’s proposals? First, let us establish his credibility. He won a Nobel Prize in physics for the discovery that atoms have different valences and atomic weights, based on the number of electrons it has – what he coined as isotopes; foundational to the development of nuclear energy. When in the sunset of his years, he was asked what he considered his greatest contribution to mankind. It is revealing that he pointed at his national economy proposals, and not his contribution to physics that led to the atomic bomb. What is the basic premise of the national economy proposal? It is fundamentally premised on the fact that there is a gap, that banks and governments issue money as debt to fill it, that this debt issue is a burden upon its people because it accrues interest to the detriment of the public weal, that the compounding interest causes inflation, and that it would be better to issue money debt-free into circulation to fill that gap. He proposed that money be issued for infrastructure projects that should not be a cost burden to society, and that improves the nation’s competitive advantage – projects like roads, bridges, public commons buildings, airports, ports, ferries, busses, hospitals, fire stations, and the paying of support personnel for all of these infrastructure works. This money remains in circulation. His book titled Wealth, Virtual Wealth and Debt elaborates his proposals in detail.
The reason I prefer the social credit solution over national economy is that the collection of A and B costs to measure the gap, and then to fill it in the prescribed manner strikes me as much easier to manage and implement. It operates almost exactly the same as our present system, except for how money is created and destroyed – as a debt-free credit instead of a liability debt that must be repaid down the road with compound interest. What is the creation and destruction mechanism under social credit? It is pretty much the same as our present system. The agency that issues the money to fill the gap, gives offsetting loans to business to provide capital. As those businesses make money, they repay this debt. This keeps everything in balance. The following illustrates the life cycle of money under social credit and the “short circuit” is the critical flaw of our present economic disorder:
I would like to say a word about the moniker social credit. At the present time, the public is being conditioned with this moniker and associating it with the oppressive tracking systems the Chinese Communist Party has imposed upon its people. That is no accident. This moniker was originally associated with the work of Douglas over a century ago. Look up “social credit” on Wikipedia and you will find this out soon enough. TPTB have worked very hard to memory-hole and discredit social credit for over a century. To that end, for the rest of my installments, I will refer to the more meaningful term that Douglas himself first used – economic democracy – instead of social credit, to describe this solution.
In part three, we are going to contrast our economic democracy solution with what is being “proposed” by TPTB as their solution to our global economic meltdown; the systemic demolition of our supply chains that is proceeding in slow motion right before our eyes, even as they are actively building and rolling it out behind the scenes without any public discussion; that of CBDCs – Central Bank Digital Currencies. This will in fact herald in a “democratic” flavor of the same “social credit” system the Chinese have imposed upon its people. Very few of our general population are even remotely aware of the extreme dangers of CBDCs to our freedoms. More on this in the next installment...