CHARLES PINWILL, of Australia, explains in this essay,  “The Denigration of the National Dividend,” how modern economies can be liberated from the vicious cycle of indebtedness:

By 1919, just 100 years ago now, C. H. Douglas, an Anglo-Scottish engineer, discovered the interesting fact that all modern economies generate a deficiency of purchasing power to buy all of the consumer production in the marketplace.

He did this by observing the accounts of an aircraft factory at Farnborough (England) during World War I, and crunching the numbers of another 100 companies. We will spare you the technicalities.

He concluded that as consumer incomes were insufficient to buy the consumer products offered, that this would best be rectified by declaring the surplus to be a profit and distributing new money to consumers in the form of a National Dividend to buy it.

In 1923,  Douglas was invited to dinner by New York’s top bankers;  American financier, Bernard Baruch was among them. Douglas thought he would have to argue technical details and was prepared for this. The bankers took him by surprise, telling him that they completely accepted his diagnosis, and all they wished to know was what he intended to do about it. Douglas responded that the solution was to distribute a National Dividend to all to overcome the deficiency of income;  that is, to distribute the national profit equitably. The bankers made it clear that they were not interested in a National Dividend issued by society.^[1]

They had other plans.The bankers’ plan was simply to expand public indebtedness which would be owed to themselves. This would fund the deficiency of consumer purchasing power which did not allow for existing incomes to buy all consumer goods available.  The profit of society was considered theirs; after all they were in charge of fiat money creation.

The expansion of the money supply was largely accomplished by financing an expansion of industry. To sustain increased production meant expanding markets. To do this consumerism was encouraged, built-in obsolescence practiced, and government deficit financing was undertaken.  This strategy was inadequate over time. Even consumer credit, through credit cards and personal loans, proved insufficient. The need to increase the money supply (read consumers’ increasing indebtedness) could not, on its own, finance full consumption of production, even in spite of a myriad of new goods produced after World War II coming into common use; refrigerators, second cars, dishwashers, vacuum cleaners, computers, mobile phones and all the rest. When these needs were satiated a new stage was reached: the housing market.

Financing residential housing became the main means of increasing the money supply through debt. The banks progressively raised the money value of residences by loaning more money to more people to bid up house prices. This was largely achieved by bringing women into the workforce. With two incomes, families could devote one of them to servicing a mortgage.

In England, the United States, Australia and elsewhere, 2/3 of all the money in circulation was originally loaned into existence as residential housing loans. This has inflated house prices beyond precedent.  There is also now a point of saturation in which increasing numbers of people are finding it very onerous, or indeed impossible, to own a home. What to do now?

The next recourse was to lower interest rates and thereby encourage the acceptance of loans and debt by the public. Bank loans do not reduce anyone’s bank deposits, but increase the deposits of those to whom the loans are paid. The money supply is thereby increased. ^[2]

By 2019, all nations’ Central Banks had lowered interest rates with some, such as Japan and Germany, slipping into negative interest rates. This was the latest best thing for continuing to increase the money supply through higher debt. Yet, how far could this go?

Once the interest rate was nil % it would then have to go to a minus % to continue the process. How would the banks survive if they were to pay people to take their loans? The only answer would be to impose higher negative interest rates on deposits. If banks paid 1% to those taking loans, they could charge perhaps 3% on deposits to maintain their “spread”; the difference between what they pay and receive. Obvious difficulties arise from this scheme.

If people were to lose 3% of their bank deposits each year they would naturally prefer their money to be in notes and coins (as these are not available to the banks to take a portion of.) Legal restrictions on the size of cash payments are now being legislated in Europe, Australia and elsewhere. Outlawing or abolishing cash is fraught with enormous political difficulties in democracies.  Even if this could be accomplished there are other ways in which the public might revolt.

Durable commodities would certainly be used to store value in these circumstances. Not only gold and silver are of consideration here; copper, nickel and tin ingots have a high value to storage volume. Could all these be regulated also? The authorities could try through scrutinizing these metals’ end-users, but it is problematical. Everyone is an end-user of preserved foods; canned meats and vegetables, dried foods, grains and condiments in sealed containers, hermetically preserved nuts and much else and all can be traded with neighbours. Could all homes and storage places be scrutinized adequately? In a free society it is politically impossible, and freedom is the last asset of us all.

When we have all had enough of this, it is probable that paying a debt-free National Dividend will enter into public consideration. Thus far the idea that necessary money increases should be the property of the people (the owners and true shareholders of their nations) has suffered much contempt.

Milton Freidman referred to the distribution of a national dividend as “helicopter money”. The idea was that when no other recourse was available to increase the money supply adequately, that cash could be dispersed by helicopter into populated areas; in other words a National Dividend was painted as ridiculous in the extreme.

So far as is known, no one has ever suggested distributing bank dividends by helicopter. When flying over the Chamber of Commerce one would really shovel it out as one might expect many shareholders would be there. Whilst over the local pub perhaps the odd handful might be dropped.  Over a farm where drought, flood and hard work would preclude owning bank shares, nothing would be given at all.

John Maynard Keynes suggested putting cash at the bottom of deep old depleted mine shafts, filling the mine with refuse, and giving the employment of getting the money out as a means of paying the populace.

Neither of these people, nor any other economists, have ever done a national Profit and Loss Account. Yet sometimes even things which one hasn’t thought of may exist. See the link http://www.socialcredit.com.au/uploads/NationalAccountsPrototype.pdf   The profit (consumer production above total personal incomes) of U.S. consumers in 2014 was measured as $7,500 for every American.

So a national profit has been measured and it can therefore be thought of as existing. It is not beyond the wit of man to distribute it in the same way as other dividends are distributed; directly into the bank accounts of its owners.

^[1] This remained part of the “folklore” of the supporters of Douglas for many decades. In those days it was not considered proper to kiss and  tell about private conversations. I heard this account from close associates of Douglas, Geoffrey and Elizabeth Dobbs.

^[2]  See the Bank of England’s Quarterly Review of the 1^st  Quarter of 2014.

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