As the governing Liberal party has just released its 2018-19 Budget for the Commonwealth of Australia, I’d like to take this opportunity to make a few observations concerning government budgets from a Social Credit perspective.
According to Business Insider Australia, the Commonwealth government is currently on track to balance its budget over the 2019-2020 fiscal year and even to achieve a surplus soon after.
The surplus would enable, at least in theory, for outstanding government debts to be paid down and thus for the interest due on that debt to be reduced.
This may sound all very good and attractive, but the handling of government budgets under the rules of the existing financial system involves two systemic problems that are never addressed by any political party.
The first is that, in principle, the government is not required to borrow any money either from private investors or from the private banks (which create the money that they lend out of nothing whenever they buy government securities) in order to cover a budget deficit.
The government could instruct the central bank or treasury to create the money itself and at very low rates of interest (to cover administrative costs) in order to fund whatever public works or programmes have been deemed necessary. If this were done routinely, it would save the taxpayers billions of dollars in interest payments. Certainly, that is all money that we would prefer to have in our own pockets to spend as we see fit.
Apart from any question of theory, the Commonwealth Bank, before its Governor was removed and it was placed under the control of a Board (whose members were chosen for their private banking experience) in the 1920’s, actually succeeded in financing many projects in this manner at less than 1% interest. These included the Continental Railway and the Australian effort during the First World War.
Insofar as taxes are collected to cover the interest payable on privately created monies lent to governments at all levels (federal, state, or municipal) they are unnecessary and indeed a form of theft.
The second systemic problem is this: due to the underlying gap which arises under the current financial system between the rate at which costs and prices are built up in the economy as compared with the rate at which income is simultaneously distributed to consumers, someone has to go into debt to the banks in order to provide the additional income that is needed to fill the gap and to achieve equilibrium.
If the federal government does not run a deficit and if, which makes matters worse, it uses a surplus to pay down bank-held debts, more pressure will be put on other levels of government, as well as on the business world and on the private consumer, to borrow even more money to offset the loss of federal dollars.
In other words, it is mathematically impossible for all economic actors under the existing financial system to have balanced budgets if equilibrium between prices and incomes is to be achieved and recessions or worse are to be avoided. Someone must spend more than they receive in revenue to provide the economy with the extra liquidity it requires. A balanced federal budget does not mean, therefore, that the country itself is more solvent; it only shifts the burden of insolvency on to other economic actors.
Under a Social Credit monetary reform in which supplemental credit was issued to the consumer in the form of a National Dividend and on behalf of the consumer in the form of compensated prices, the price system would become self-liquidating and it would then be possible for governments to balance their budgets without it entailing such dire consequences for the rest of the economy.
M. Oliver Heydorn, Ph.D., is the founder and director of The Clifford Hugh Douglas Institute for the Study and Promotion of Social Credit. He is also the author of Social Credit Economics, The Economics of Social Credit and Catholic Social Teaching, Social Credit Philosophy, and, most recently, Lives of Our Own: Social Credit, Catholicism, and a Distributist Social Order.
To read more about Social Credit, visit www.socred.org.