The Wealth Pump

Before diving into the Wealth Pumps solution, I must first address the fact that there are many self-described social credit advocates and many of considerable stature in this community who take the very strong position that banks should continue to issue money out of thin air. This is a proposition that I strongly disagree with. They cite quotes from C.H. Douglas to support their position. I will first answer these critics with the assertion that Douglas actually endorsed a plan similar to mine, and I will now make that case.

 

In his 1931 book The Monopoly of Credit in the concluding chapter, Douglas made the following assertions:

 

It is, in my opinion, not too much to say that these governments are now superseded by financial institutions, and that these financial institutions, so far as can be humanly judged, are in an impregnable position...

 

... the world cannot be made safe without removing the banker, painlessly or otherwise, from the commanding position which he now occupies. The alternative is in fact clear, and nothing effective can be done to protect civilization from its major risks which is not an attack upon the power of finance. It would seem, therefore, that the fixation of responsibility largely by means of an explanation of financial processes, and of the probable results of financial policy, is the first effective step which can be taken, not only to prepare for the still further chaos which seems likely to ensue, but to strengthen the hands of those agencies which may be effective in the restoration of popular control...

 

... the reorganization necessary must be based on a philosophy which, whatever other elements it may contain, will certainly not enthrone the productive and industrial systems which they have occupied for the past hundred years...

 

The modern State is a completely immoral organization. Its taxation differs in no fundamental quality from that levied by a highwayman of the Middle Ages, and... bears much the same relation to the question as the liberality, to his followers, of a mountain bandit. Political democracy without economic democracy is dynamite...

 

... some method at present quite unknown must be developed for dealing with a situation in which there is, for instance, one post in the economic system to be filled, and ten equally satisfactory applicants for it...

 

If civilization is not to disappear altogether, there will within a comparatively short period of time arise a situation in which the bankers as at present understood will be replaced. It seems important to recognize that when this situation does arise, it will be just as easy to inaugurate a financial system which will meet all necessities, as to introduce piecemeal reforms...

 

Although it seems difficult to obtain general understanding of it, fundamentally a financial system is a matter of pure arithmetic, and the results which will be obtained depend entirely upon the arithmetical factors which are employed and only to a very temporary extent on the particular brand of black magic which is superimposed... and it is much better that the present defective system should be allowed to discredit its upholders, and so render genuine reconstruction possible, than that an alternative, of which the effects are not sufficiently beneficial as to place it at once in an impregnable position, should be substituted for it.

 

What exactly did Douglas say here? Quite a few points can be concluded:

1. Governments are controlled by international financiers and their position is presently impregnable.

 

2. More economic chaos under the present world economic system is inevitable.

 

3. International financiers must be ousted as the first step to economic reform.

 

4. The key to their removal is an informed public.

 

5. Their removal from power must utterly remove their commanding position of control over industry and the means of production.

 

6. Banking as it is presently practiced must be replaced in its entirety.

 

7. Governments cannot be trusted to assume this role of disciplining banking.

 

8. The ultimate solution was unknown to Douglas although he did make some proposals such as for the coal miners of Wales, which was hardly a comprehensive national solution. His recommendations focused on principles - not concrete forms.

 

9. Taxation of the people is robbery.

 

10. What the system is replaced by must be carefully considered.

 

11. The economic reform must be a thorough overhaul; but to prevent going from the frying pan into the fire, the present system should be allowed to completely collapse so all of its flaws can be fully revealed.

 

12. The ultimate solution must be entirely based on a mathematical formula that will implement economic as well as political democracy.

 

So that one is not left with the impression that Douglas had absolutely nothing to say about the notion of implementing a public but completely de-politicized central bank, he said the following on November 24, 1936 in a speech titled Dictatorship by Taxation on the futility of bank nationalization:

No nationalization of banking will put one penny into the hands of the individuals comprising the countries over whom it rules, so long as this question of the ownership of money is left unaltered. But if it once be admitted that the community, not the Government, is the owner of the money, and the individual, as part of the community, is entitled to his share of it, the situation is obviously very different.

 

I affirm that the economic reform proposals embodied by the Wealth Pumps I am about to set before you embody every single one of these precepts.

I leave it for you to judge the veracity of that statement for yourselves.

I constructed the following diagram with narrative to illustrate how a new economic system without a private central bank or private banking would work in a hybrid National Economy/Social Credit model that promotes equitable distribution of the nation's wealth while carefully controlling the amount of money in circulation. That is not to say that there is no role for banking. It is to say that there is no role for banking as the issuers of new money as debt. This is the basic mechanics of the Wealth Pump:

 

 

Figure 1 - Wealth Pumps Economy with Hybrid Soddy/Douglas Social Credit

Notice how the National Dividend and Compensated Price are in complete balance with the B costs. The balance is preserved by having the Producer borrow his B costs from the National Credit Authority ( purple flow) and pay it off after the specific time interval of:

length of one production cycle + length of one accounting-billing cycle

If the Producer is making 10-year aged whiskey and their billing cycle is 30 days with 30-day terms for payment, the loan will be for 10 years and 90 days if we allow another 30 days for the manufacturing process. The manufacturer's B costs will be covered but there is not enough purchasing power to fill the gap as of yet. The purchasing power will arrive at the point of consumption as Compensated Price. That is fine because the goods are not at market, and introducing the purchasing power before this event would tend to cause inflation anyway. The purchasing power will arrive at the point of consumption as Compensated Price.

Meanwhile wages have been paid, ( blue flows) and that money gets spent into circulation. Wage A money is never removed from circulation either - except for the portion of Producer costs that were borrowed originally to capitalize the launch of the business that is cancelled when the loan is repaid.

This leaves money issued by the National Credit Authority as Compensated Price and National Dividend ( green flows) which cycle through the economy in an endless and continuous process of creation and cancellation ( purple flows) of Producer loans.

The olive flows show how private investors can generate a passive income via a successful investment. We must be careful here, however. This is another mechanism to transfer the wealth of the nation into the hands of the few.

I have described in my book a new form of corporate ownership where it is necessary that shares of a corporation must not be passed on to our children. Instead, they should revert back to the corporation to be evenly allocated among the surviving shareholders of that corporation. In this way, a man may become very wealthy by virtue of his hard work, but not so wealthy that he empowers his progeny to become the masters of their fellow man; that is, wealthy to a degree that is not proportional to their contribution to the wealth of society.

There is a second potential problem with private investment. If private investors supply the funds - presumably to obtain a share of the Producer's profits by either interest or profit sharing - there will be less money returned through loan settlement with which we prime the pump of spending via the National Dividend and Compensated Price. The solution to this inequity is for the government to tax investors' profits (unearned passive income) at source at an example rate of let us say 50%. Investors will get a benefit, but it will diminish and eventually disappear over time (e.g., yearly) - for example 50%, 25%, 12.5% 6.25%, etc.

If a business is successful, it can increase its benefit to its employees by "buying out" investors. Obviously if there is sufficient profit to yield dividends, there are profits with which to buy out investors. If no buyout occurs, the value eventually diminishes to zero anyway. The notion of passive income in perpetuity is not beneficial to society at large but the notion that an investor can profit is still preserved - albeit the return is finite. Specifically, the investor can double his money as his reward, and he can lose it as his risk. Obviously, the constraint on profit can be tuned - 50% ROI, 500% ROI. It is a matter of policy to be determined.