Comment

Comment by Doug Harrison on July 19, 2010 at 9:02pm

GOVERNMENT DEBT
AND CREDIT CREATION

ECONOMIC RESEARCH COUNCIL

A study of the creation of credit & its effect on the British Economy.
Research Report
No. 9 December, 1981

Published by
Economic Research Council 55 Park Lane London WlY 3DH
President: The Rt. Hon. Lord Beeching
Vice Presidents: Professor C.C. Allen
The Rt. Hon. Lord Beeching
Sir David Barran
Professor P. Sargant Florence CBE
Lord Killearn
Sir Ian MacTaggart, Bt
Chairman: Damon de Laszlo
Hon. Secretary: Edward Holloway
Object:
To promote education in the science of economics, with particular reference to monetary practice.

GOVERNMENT DEBT AND CREDIT CREATION
CONTENTS
Introduction ......................................................................................................... 1
Summary ..................... .................................................................................... 5
Conclusion ........................................................................................................... 6
1 . The creation of cash
A . The total amount of cash .......................................................................... 7
B .
C .
The amount of new cash .......................................................................... 12
Earnings from the cash issue ..................................................................... 15
2 . The creation of credit
A . The total amount of credit ........................................................................ 19
B . The amount of new credit ........................................................................ 29
C . Eainings from the credit issue ................................................................ 32
3 . The Government borrowing requirement
A . How it was ............................................................................................... 35
B . How it could have been ............................................................................ 37
Appendix A: Additional tables ......................................................................... 45
Appendix B: Note on advances and deposits .................................................... 49
FOREWORD
The inspiration for t h i s paper came from t h e f e e l i n g
t h a t there is something wrong with Government financing
when as much is spent on paying i n t e r e s t on the National
Debt as on Education or on Health.
With our slender resources we have only been able t o
draw together some of the relevant information which seems
to point t o s t a r t l i n g conclusions.
We accept t h a t these conclusions may not be wholeheartedly
accepted, however we do strongly feel that the
concept is worth more comprehensive study and discussion
as the implications are profound. In any event, they should not be ignored.
I ,would l i k e to especially acknowledge Edward
Holloway's enthusiasm and guidance along with Malcolm
MacDonald's research.
The paper has also greatly benefited from help with
presentation and criticism from S i r Arthur Bryant, C . H . , C.B.E.,
Harry Rutherford, Simon P h i l l i p s and M.A. Cameron, also M.H.
Cadman, Simon Webley and Alan Hawkins, members o f . t h e E.R.C.
Publications Committee t o whom the E.R.C. is immensely grateful.
D.P. de Laszlo
CHAIRMAN
December 1981
GOVERNMENT DEBT ANDCREDITCREATION
INTRODUCTION
The Economic Research Council has been well known over
many years for its papers examining and explaining the cowse
Of inflation. The t h e s i s it propounded i n ' A Programme f o r
National Recovery' and 'Excessive Taxes lead to Stagflation'
is now generally accepted and has been acknowledged by a t
l e a s t two Chancellors of the Exchequer. However, the attempts
by the present government to reduce public sector borrowing,
bring down i n t e r e s t r a t e s to acceptable levels and
regulate money supply have not been s a t i s f a c t o r y and the
economy has suffered grievously as a r e s u l t . Even the
substantial income flowing to the Exchequer from North Sea O i l
(estimated by the government a t £5,880 million for 1981/82)
has not enabled e i t h e r the present government or the previous
one, to reduce overall taxation. The government's share of
the Gross Domestic Product rose from 34% in 1955 to 40% in
1980; and the central government estimate f o r taxation
increased by about £10,OOO million from £65,000 million for
1980/8l to £75,500 million for 1981/82. One f a c t which stands
out is t h a t the cost of servicing central Government Debt
(mainly National Debt) has risen from £705 million per annum
in 1955 t o £8,661 million in 1980.
Recognising t h a t the payment of i n t e r e s t a t present high
levels places an intolerable burden on the productive sector
of the economy, the Economic Research Council decided to
i n i t i a t e an enquiry into the way in which money in all forms.
comes into circulation.
We have been led to the following main conclusions:
(1) That the State should create all the currency and c r e d i t
needed to satisfy the spending power of the Government
and the buying power of consumers:
The power of the banks to increase the amount of c r e d i t
money in circulation should revert to the State.
(2)
Had t h i s been done since 1945 some £30,OOO million could
have been saved by the Government i f they had maintained
t h e i r h i s t o r i c privilege of themselves issuing all forms
of money including c r e d i t .
It is r i g h t t h a t the banks should be fully recompensed
f o r the valuable services they perform, but i f we examine
these closely we would see t h at t h i s is e s s e n t i a l l y bookkeeping.
It is misleading to describe the banks services in financing Government
expenditure out of newly created c r e d i t money as "lending".
The word should not have been used in t h i s connection as it creates a false
picture of what really happens. As a r e s u l t we have allowed private i n s t i t u t i o n s to
usurp the right to issue our money and to make very handsome
p r o f i t s thereby.
We maintain it would be possible to stop t h i s compounding
debt i n t e r e s t without a f f e c t i ng i n f l a t i o n if the Government
extended control of its f i d u c i a ry r e s p o n s i b i l i t y to all forms
of c r e d i t creation.
The present system of banking began when Goldsmiths f i r s t made loan
or advances for which they did not have f u l l backing
by i s s u i n g r e c e i p t s t h a t were negotiable.
Provincial banking system of the 18th and early 19th Centuries.
Provincial Banks issued t h e i r own bank notes which were backed
by unlimited l i a b i l i t y of the Bank's Partners - t h e i s s u e
invariably exceeded the l i q u i d a s s e t s and o f t e n t h e t o t a l
assets of the Partners with the consequential periodic banking
crises typical of the period.
This evolved into the
Before 1844, banks issuing notes could use those notes to
make commercial loans on which they earned i n t e r e s t and even,
on occasions, lend money to the Government.
major source of c a p i t a l for the i n d u s t r i a l revolutions. In
order t o regain the control of fiduciary instruments and to
The creation of c r e d i t and l i q u i d i t y by t h i s method was a
raise money Parliament passed the Bank Charter Act of 1844
which gave the monopoly of bank note issues to the Bank of
hgland in -land and Wales.
Certain Scottish and Northern Ireland Banks still have the right to issue notes.
was l a t e r updated by the Currency and Bank Notes Act of 1954.
The Government a t various times during this period tried
The Act
to tax the Bank's fiduciary ability by Stamp Tax on individual
notes (1783) and other methods. The 1844 Act recovered for
the Government its control of the note issue which was a major
source of credit creation, and the profit accruing to it.
Since 1844 the creation of credit has slipped out of the
Government's hands as other forms of credit have been
developed and expanded.
The Bank of England's note issue was originally f u l l y
backed by holdings of gold. Today, the note issue 18 backed
by Government and other Securities. The interest earned on
the securities held by the Bank of England Issue Department
against the issue of notes is refunded to the Treasury since
the Bank of -land is i t s e l f a Government Agent and p r o f i t on
its operations ia payable to the Treasury.
This paper proposes that the method by which credit is
created ahould be re-examined and suggests that the creation
of credit should once again become the sole prerogative of
the Government.
succinctly:
Abraham Lincoln summed up the principle very
"Government possessing the power t o create and issue
currency and credit as money and enjoying the right to
withdraw both currency and credit from circulation by
taxation and otherwise, need not and should not borrow
capital a t interest as a means of financing Governmental
work and public enterprise. The Government should create,
issue and circulate all the currency and credit needed to
satisfy the spending power of the Government and the
buying power of the consumers. The privilege of creating
and issuing money is not only the supreme prerogative of
Government. but it is the Government's greatest creative
opportunity."
(U.S. Senate Document No. 23, Pres. Abe Lincoln)

Major proposals along these l i n e s were put forward by
the American economist, Irving Fisher, during the Depressions
of the 1930's.
A quote from t h e Economic Reform Club's (now part of the
E.R.C.) series of papers 'The Banks and the War', 3 r d Paper,
published i n 1943, put t h e p o s i t i o n c l e a r l y , describing the
situation where Government does not have f u l l control of
credit:
"...it is apparent that no new ( c r e d i t ) money can be
created except through the banking system, which issues
it as an interest-bearing debt owed to them by the Nation.
The r e s u l t of t h i s has been the piling up of an
enormous burden of debt on which succeeding generations
of our people w i l l have to pay huge sums each year i n
the form of i n t e r e s t and Sinking Fund.
As the banking system in creating t h i s money is merely
using the Nation's c r e d i t by liquifying it, t h e r i g h t of
the Banks t o t r e a t such created c r e d i t s as a loan and to
receive payment of i n t e r e s t thereon is unjustifiable, and
it is therefore submitted most strongly t h a t they are not
e n t i t l e d to anything more than an agreed fee based on the
extra work devolving upon them by the handling of these
funds, in a manner similar to t h a t in which the Bank of
England is compensated f o r the management of the National
Debt and of the Fiduciary Issue."

SUMMARY
The power t o issue bank notes has provided f o r the
Government. since 1945, about £l9,OOO million of revenue, of
which £9,300 million a r i s e s from the increase in notes issued,
and 9,800 million from the i n t e r e s t saved on government
s e c u r i t i e s held as backing f o r the issue.
In 1980, the Government borrowed £11,154 million and
spent £8.661 million paying i n t e r e s t on previous debts.
i n t e r e s t payments represented 10.6% of Central Government
current expenditure.
The power of the banks-to increase credit has meant t h a t
the Government has foregone revenue, since 1945 of
£4o.000 million, of which £14,OOO million arises from the
increase in c r e d i t , and £17,OOO million from the i n t e r e s t the
Government could have earned if the credit had been issued as
notes.
Under the present system the Government could have sold
Interest paid on t h i s
d i r e c t to the Bank of England Issue Department government
stock and received notes in exchange.
stock would have gone to the Issue Department and in turn
been credited back to the Treasury.
The effect on the total money supply and consequently on i n f l a t i o n would have been
nil.


CONCLUSION
I f the Government had followed a policy of extensive
fiduciary control and had itself issued c r e d i t , rather than
allowing the banks t o do so, it could, f o r example, have made
a net reduction over t h e period 1970-80 in the need f o r
Government borrowing from the £48,578 million Securities
issued to about £22,OOO million, a saving of about £27.000
million on the national debt over the period.
The e f f e c t of implementing the proposed move now would
be t h a t a net amount of £20,OOO million of national debt
could be cancelled. The consequent reduction of i n t e r e s t
payments on the national debt and, therefore, of taxation or
further borrowing required to meet these payments, would help
to bring about r e f l a t i o n without inflation.
Added ___ WE KNOW THE TRUTH & ANSWERS. Why is our federal Govt, not applying these principles of money creation?
We have on election on 21 Aug 2010, and the whole utterances from candidates and the major parties will be utter drivel.
1.4 million people haven't registered to vote. Why? Is it that the other 11 million voters are the truly stupid ones?
Doug Harrison.

Comment by Michaelng Clayton on July 19, 2010 at 4:06pm

How about we first enforce and strengthen The Constitution (for our own individual human rights) and make the Taxation Department a legal entity.

Australia's Largest Secret Scam (MIND BLOWING INFO)

Comment by Craig Hesketh on July 16, 2010 at 7:53pm

The debits tax that Peter is referring to can work but only if it is a part of a system that involves a regulated banking system and a peoples bank to set the guidelines. The system of privatisation that our governments have taken us down is a recipe for disaster and greed as can be seen with the American banking sector.
Like anything in life the best system lies between the two extremes of government control and private enterprise.

Comment by Doug Harrison on July 14, 2010 at 6:59pm

A new money system:
(All queries to Author – dough01@bigpond.com )
The present system is efficient, so the new money system must equal that efficiency; but the present system is NOT effective.
To be effective a money system should not have an inflationary or deflationary effect on money, which affects in turn the purchasing power of money. That is, in year 2000, $100 should be capable of buying the same product or groceries as in year 2009.
The means to get an effective money system is to have the same amount of money created as is extinguished.
On a cash flow basis, extinguishment means, as new money is spent into the economy from new loans, other money must be withdrawn.
Money is extinguished in two way. (1) money paid off existing loans; and, (2) taxes.
However, in paying off our loan in the present money system involves paying back interest money NEVER created, so on a cash flow basis, the community is paying back, that is extinguishing more money, so more money is extinguished than created.
The only way to attempt to balance the present money system is to have more loans thus more money, for the only way for repayments to continue into private banks is to have enough money in circulation.
Unfortunately, new loans not only create money, but NON-created interest that CANNOT be repaid, without more loans.
This is the financial death spiral of the present money system!
What we need is a means of creating money at zero interest, and or create money AND extinguish money in the same amount, almost simultaneously – a NEW MONEY SYSTEM.

Let us design such a new money system;
Firstly, with private banks having control over credit creation the present system allows them to manipulate the money system to their private ends. Why let them destroy nations and the world?
POINT 1. Now, money and the affects of too little or too much money is felt in every business, every household, and every government service and infrastructure.
So why do we not mandate that the ONLY creator of money is the federal Parliament, and be implemented by and through a People’s Bank (the original Commonwealth Bank, 1912 to 1924 was a significant example)?
POINT 2. The federal Parliament would create money in two ways: (1) through expenditure on government services AND expenditure for infrastructure projects. And (2) by providing created money to private banks to fund private enterprise. (OR: - four ways ?? (a) government services & administration; (b) infrastructure projects; (c) direct loans from People’s Bank to private enterprise, but only as direct policy of government/parliament; & (d) provide credit monies to private banks to fund private enterprise)
POINT 3. The government loans to private banks SHALL be provided as of request and right to a bank. However, federal government policies may and should determine the cost of that money: And if felt fit and necessary government policy may target different economic sectors be having varying rates.
POINT 4. To balance the cash money flow, say on a daily basis, the federal Parliament via the People’s Bank requires the people to repay any surplus money back to the People’s Bank, whereby it is extinguished.
If A = government expenditure + infrastructure payments; & B (private enterprise sector) = monies out (from government loans + added bank costs/interest) ;
Then A + B is the money created. We then need to extinguish as near exact this amount, = E = monies repayment into private banks (C) + the balancing tax (Bt). Then we require (A + B) = (C + Bt)
POINT 5. Transaction impost or balancing tax. Every day, each transaction is recorded by a bank. Every month you get a transaction statement from your bank which would show on every different account you have, so transaction records is one of the significant business functions of any and all private banks.
The amount (A+B) is known from record at the People’s Bank from government appropriations (A) which is one of the important functions of the People’s Bank to record, and from the requirement of the private banks to make known their nett money outflow of that day (B).
If say:- the total figure of nett outflow from the private banks is $90 m on this day; The People’s Bank has a cash outflow of $30 m on behalf of the governments on this day, then we have outflows of $(90 +30) m for that day.
But say, on this same day, the nett inflow into the banks is $100 m. so we have (A + B) (90 + 30) = (C + Bt) (100 +Bt): Bt = 20
The People’s Bank knows by day’s end from the private banks that the total transaction processed that day was say $5,000 m, then the transaction tax required to raise (Bt) $20m would be 0.4% (20 ÷ 5000).
So by proportion, on this day, you spend $500 that appears on your bank statement, and your receive $250 inflow.
0.4 x 1/100 (= 0.004) x ($500 + $250) = $30.
But let’s put it into an annual context for a family. You earn $70,000. Your ‘ins’ would be $70,000 and ‘outs’ near the same at say $65,000 (you’ve saved $5,000 for the year). In + outs = $135,000. @ 0.4% = $540.
POINT 6. THERE IS NO OTHER TAX. You pay $540 to keep the money system in balance for the whole year.
At the end of the year, the purchasing power of your $70,000 salary is the near the same as at the beginning, and in 10 years hence it will be just as good.
Your monthly bank statement will show the transaction tax as one figure, which will be the total of each daily amount the People’s Bank calculated for each day, and the People’s bank gets each private bank to deduct from each transaction in your account and remit to the People’s Bank and thereby extinguishes your share of money supply.

Comment by Michaelng Clayton on July 14, 2010 at 3:24pm

Hi Peter See Video I just posted. http://agmates.ning.com/video/the-meaning-of-austerity?xg_source=ac... The whole World financial crisis is not over yet and eventually the who world system must change. See U.S. debt. Fed Reserve Fails to Reflate the US Banking System

Comment by Michaelng Clayton on July 14, 2010 at 3:01pm

Hi Peter I think a cashless society will be o.k. one day, that's' if you don't use vending or poker machines, but my big worry is that banks are controlled by a small group or wealthy people who also control by influence our politicians and most everyone else who is in a position of power. Before we change to a cashless society we need to adopt Doug Harrisons Fair Tax system and also nationalize the banks and introduce a Mathematically Perfected Economy. Later if we support The Venus Project we could dump money altogether.

Comment by Peter Schuback on July 14, 2010 at 5:49am

Michaeling , They can do that now , As an example SPURS can get into your bank accounts if they wish , They can cancel your drivers licence for unpaid fines , We are very close to a cashless society now . How many people carry large amounts of cash around with them . A cashless society would help to reduce crime and drug dealing

Comment by Michaelng Clayton on July 6, 2010 at 10:20pm

Hi Peter

A totally cashless society also can have a down side. The ruling classes and banks could control you by deducting money owed or fines imposed. But you are on the right path. See video's I posted via my profile. See Max Igan on Mathematically Perfected Economy

Comment by Doug Harrison on July 6, 2010 at 9:40pm

try : www.onefairtax.org.au re debit tax

Doug Harrison

Comment by Peter Schuback on June 28, 2010 at 2:27pm

Iiana , This would work the same as any purchase where you use your cards to buy goods or services , No internet . But what it would do is catch all of the black money and reduce the tax burden on people that now carry that sweet bundle , In stage two it would reduce the cost of every item and service you now use , Their would be no other taxes Duties or any other form opt tax other than the transaction tax and the banks would collect it on every transaction and pay it straight to the treasury

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