Some thoughts on the deficit and its relationship to state debt

David Astle

In March, 1976, when I approached the "VARSITY" in respect to their doing a review on my book "The Babylonian Woe", after their reading and giving some study to the book, the decision from the Editorial office was that they would indeed review my book (and help me sell a few), and that, furthermore, they would require me to give them a series of articles on the money question, the first of which was to be on "Inflation".

At the same time I warned them it was my opinion that there would be quite a "Hullabaloo" from one source or another in that they published my article on "Inflation" instead of one from one of the numerous Professors of Political Economy attached to the University of Toronto. Their reply was "We don't care. We have asked twelve of the leading Professors in Political Economy for such Articles; which they did; and the amazing result was that every such article said something entirely different. The Editorial staff further said: "What you say makes sense, and we are going to publish it."

Yesterday, the 23rd of February, reading the two articles in the "TORONTO STAR", representing two separate opinions from two leading Professors in Political Economy at the U. of T., headlined, "Should we go even deeper into debt?", I thought back on that time at the "VARSITY" offices, now some 16 years ago.

The article by Mel Watkins, while making some sense in the light of the opinions of orthodox Political Economy seems to me more like the work of a man who knows the truth but long ago (during this last 16 years!) found that truth in this area does not pay, and has (conveniently) yielded in what seems to be a hopeless battle. I.E. He seems to see wisdom in the phrase set afloat amongst loyal men, no doubt to weaken them in their resolve: "If you cannot beat them, join them!"

And here I would remind Mr. Watkins of the poem of A.H. Clough:

"Say not the struggle nought availeth,
The labour and the wounds are vain..."

As for the other gentleman, Mr. John Crispo, while professing to be a Keynesian, which presumably means one who supports unlimited deficits; (the significance of which being that the process by which new money is created in the Anglo-Saxon countries, almost totally depends, in the final analysis, on the existence of such Deficits), at the same time, whatever Canada's malaise, he says he would oppose any further increase in our Deficits (and therefore in our State Debt.)

I do not think that either case will bring about a permanent settlement of this existing situation, for the deep down cause of this malaise which rots the life essence of this country is the failure of Government to exercise its rightful prerogative, the creation of the Unit of Exchange; i.e. the creation of Money.

Of the Keynes that so many worthy men in the field of Economics trot out as an absolute, it may be said here that a few remarks will not be out of place. He was a God, very much with feet of clay. The article published on him a few years ago in the London "Observer", left no doubt that his was the weakness of so many of those who are today dying of Aids, and therefore he was malleable like so many who live in that twilight world, even though, as a man of considerable ability, he must have known the real timeless issues ... So what really was his importance ? ... He wrote the imposing "GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY" (London, 1936), which like Marx's "CAPITAL", many talk about, but relatively few have ever read from cover to cover; though his book : "HOW TO PAY FOR THE WAR" (New York, 1940) under the existing system made sense, and no doubt lead up to the near acceptance of his Post War money plan for an International Clearing Union jointly controlled by Britain and the U.S.A. when the Ghouls met at Bretton Woods, July 1st, 1944, to drink the rivers of blood flowing out of the struggles of an Empire dying as it fought its way up the beaches of Normandie.

So of these two worthy Professors, I have little enough further to say ... What on earth is the meaning of two so-called learned Professors in a so-called science, having such vastly different opinions ? What will it be that they teach ?

However, I will admit that while it is not necessary to be a Political Economist to understand the causes of the fluctuations in the thrust of human endeavour, there is no doubt that such qualifications could be of some assistance ... But surely there could be nothing more worthy of the attention of these men than impartial examination of those processes by which those institutions known as "Banks", protected by law even in their self description designed to gain the confidence of the State and its people, as a consequence of what is virtually their licence to write money, force up, or thrust down the drive of human endeavour and frustrate or otherwise the most important operations of Government.

However, from it all one thing comes clear: no "laws" or "equations" or "graphs" can circumscribe the fickle, changing character of human need and greed.

The issue that all loyal men of goodwill should be discussing is not something concealed in a fluff of wordy verbiage; it is clear and straightforward; it is the significance of a Deficit in relation to State debt, and is the question: Is the Government the instrument of some narrow, unnamed, occult, International body, or is it the representation of the soul and aspirations of a people ? As indeed were the Kings of olden times; ever ready to lead their little armies of gallant men into battle.

The obvious answer is the latter. And just as the first case can become possible through the total control of money creation and allocation into circulation against collateral security, as through the activities of the agents of such occult and seemingly all-powerful international body, so the second case would again become possible should the State take courage and return once again to itself its Sovereign prerogative, the creation and allocation of the Unit of Exchange...

Mr. Mel Watkins, in the article I mentioned above, spoke of a Japanese State Debt... There may be such a debt. But in the brief study I made of Japanese Central Banking in 1964, I could find no evidence of the Japanese going to some external force for a loan of their own credit (or "Money", better put). There seemed to be some small State debt in relation to the purchase of the rice crop every year (no doubt to protect the farmers from speculators, internal or external). However that which came clear more than anything was that the Central Bank was 51% owned according to Japanese law, by the Emperor himself; thus maintaining through it all, as from the God-King, the final say and decision in all things. Thus had the Japanese survived their disasters of the last war ! Japanese industry and Government may borrow, but their borrowings in that of them as being borrowings of the original issue, represent without a doubt the Will-Force of their God-King. They are borrowings as between themselves as indeed is misleadingly put, although perhaps without intention to mislead, on Page 291 of "Economics" by McConnell and Pope, when speaking of Canadian State debt; "We only owe it to ourselves". Misleading in this that 90% is largely owed to the Joint Stock Banks, and they, although appearing to be Canadian, may represent through the control of the share-holders meetings by a holder of as low as a 7% of the shares, anyone, anywhere in the world; be it Threadneedle St., Berlin, Switzerland, Israel, Saudi Arabia, Tahiti, wherever.

The writer of a book published in Cincinnati in 1889, adequately demonstrates that practically all the so-called Great American Industrialists of that time from the Civil War onwards especially, rising overnight from peddling needles, thread, and tape from a little place on Broadway, as in the case of A.T. Stewart, were "owned" by one device or another by what he calls "The London Money Power" ... Of course it might just as well have been "The Berlin Money Power"! etc. And this study also seems to include the original John D. Rockefeller. So why should the gigantic Canadian banks be free of this external control ? Is it likely ?

The Rt. Hon. Reginald McKenna wrote: "Those who control the credit of a Nation direct the policy of its Government and hold in its hands the destiny of its people."

The Deficit each year gives the joint stock banks, who are the ones to profit by such Deficit, the Money Power to influence through the many agencies they obviously will control, the power to arrange the appointment of the so-called leader of the people, and the control, therefore, of his policies. The servants that run these gigantic organizations are aware of, and will use every instrument towards the maintenance of that which seems to be their power, though, indeed, it may be the power of their masters, and which has made a complete mockery of that which was the soul and inspiration of this land before the last so-called "Great" Wars.

If there is no deficit, then the banks, according to laws which no doubt they themselves influenced into being, have very likely to face a steady decrease in their "Reserves" at the Central Bank, which means a steady decrease in their deposits to the tune of (in 1976) 15.38 times the amount of the reduction of their "Reserves". 15.38 being the factor known as "The Multiplier"; unless they actually borrow from the Central bank, as most people imagine they do, or sell bonds, etc. ... Obviously this is not a desirable situation for industry that has to pay loans etc. which are being "Called" as a result of this contraction of the Money supply. If, however, there is a deficit, then the banks, believe it or not, can expand their loans to the amount of that part of the deficit which is their share of what they no doubt think of as "The Pie" multiplied by the same 15.38 (1976), which is clearly a most desirable situation for those who control such banks, and indeed for the dear old ladies who may have a few shares ? (For this paragraph see E.P. Neufeld: "Financial System of Canada," p 106)

While the Central Bank, exercising its own will, or as the case may be, may exert what is known as Moral Suasion; such "Moral Suasion" being hints that they do not want the banks concerned to spend all this lovely money all at once; never-the-less, the enormous loans from the banks to Brazil, Argentina, Timbuctoo, etc; to finance would-be "take-overs", as the case might be are indicative of the fact that much of it is spent, and obviously with no absolute guarantee that it ever will be repaid, except, possibly, as against the War threat of the Canadian State which trade mark of Empire the Canadian State has not yet assumed !

A further comment on the deficit from men who I must consider to be learned and highly professional Economists, is under the heading: "Money Creation": ("ECONOMICS", Pope and McConnell, p. 281)

"If deficit spending is financed by issuing new money, the crowding out effect can be avoided. Government spending can increase without any adverse effect upon investment. Our conclusion is that the creation of new money is a more expansionary way of financing deficit spending, than is borrowing."

Such borrowing means borrowing from the banks, and consequently giving them the power that derives from the application of the "Multiplier".

So it becomes clear, in deficit financing, as it is called, to the State whose actions create this deficit, and the consequent delicious "Pie" for the banks, there is superficially some advantage. But herein the State finally loses any will and power; and slips slowly out of the saddle as it were, and becomes but the Yes-Man for the banks and those behind them. It loses its will-to-be end its total Supremacy, and everything, from welfare services, to numerous "Grants", to "Foreign Aid', to Military expenditure, will be influenced by the desire of the banks for these lovely new funds that every year of Deficit brings.

At this stage I think it appropriate to include a few quotations from prominent persons who lived relatively recently, to show that I am not alone in my thinking,

1. From the time that I took office as Chancellor, I began to learn that the State held in the face of the Bank and the City (Banking and Financial Institutions), an essentially false position as to Finance. The hinge of the whole question was this: The Government itself was not to be a substantive power in matters of Finance, but was to leave the Money Power supreme and unquestioned. In conditions of that situation, I was reluctant to acquiesce and began to fight against it by financial self-assertion from the first. I was tenaciously opposed by the Governor and the Deputy Governor of the Bank of England who had seats in Parliament. I had the Banking and Financial Institutions for an antagonist on almost every occasion" --William Gladstone.

2. "Permit me to control the Credit of a people and I care not who makes its laws." --1792 Mayer Rothschild

3. Question: "Will you tell me why a Government with the power to create money should give that power away to a private monopoly, and then borrow back at interest, that which Parliament can create for itself, to the point of bankruptcy?"

Mr. Graham Towers: "Now if Parliament wants to change the form of operating the banking system, then certainly it is within the Power of Parliament." --P 394, Banking and Commerce Committee of Parliament, 1939.

4. "Money is the creature of the law and the creation of the original issue of money should be maintained as an exclusive monopoly of the National Government ... The circulation of a medium of exchange can be properly regulated. Government has the power to regulate the currency and credit of the Nation.

The privilege of creating and issuing money is not only the supreme prerogative of Government, but is the Government's greatest opportunity..." --President Abraham Lincoln; Senate Document 23, p 91; Library of Congress.

5. "Whoever controls the volume of money in any country is absolute Master of Industry and Commerce." --President Garfield

6. It also should be mentioned that recently a suggestion has surfaced that amongst the peccadillos of President Kennedy that brought about his fateful ending, was this: that he had been giving serious and practical consideration to instituting measures to return to the American People the prerogative of Monetary Creation and issuance that had become totally invested in the bankers as a result of the foundation of the "Federal Reserve" Bank in 1913.

Going back a hundred and thirty years or so, the Minutes of the Engineers Club in Toronto, indicate that gentlemen at that time had wide understanding of the meaning of State created and issued money as evinced by President Lincoln's so called Greenback Currency, and that Canadians, as much as Americans, eagerly sought this money before any other form of money, sensing, or knowing, that it was "For Real". That it was the evincement of their will-to-be as a people, a representation of their pride and achievement... Where the State exercises its Sovereign Prerogative, the creation and allocation into circulation of the original issue of money, a deficit does not need to exist any more than a State debt which causes the State, writhing in helpless misery, to be no more than :

"Mary Adams at the pawnshop door,
A flagon in her hand,
And her baby on the floor..."

Benjamin Franklin, while on a visit to Britain in 1763, was asked to account for the prosperous condition of the colonies. His reply was: "That is simple. It is only because in the colonies we issue our own money. It is called "Colonial Scrip" and we issue it in the proper proportions to the demands of trade and industry..."

230 years have passed by, but the principle remains the same.

Of interest relative to the above, as to how the Chinese of the Great Imperial Dynasties controlled the creation and issue of that which was their Unit of Exchange, the copper "Chuen" represented by what was known as "Cash", is as recorded in the Chinese Repository (1840 approx., p 68, Vol II)

...According to the regulations concerning coinage there are foundries and mints where the metal is prepared and cast, and also a store house in which the coin is deposited until required for public service. The quantity of metal coined in the former, and the periods of its issue from the latter are fixed by the board of revenue in order that the successive supplies of coin for the use of the people may correspond with their wants, and be regulated according to the market price of Gold, Silver, and Grain, and other articles in use and general consumption."

"In no private dwelling of any soldier or citizen shall any utensil of copper be used except mirrors, bells, military arms and other articles especially consecrated to religious purposes. Whatever quantity any individual may have in excess, he is permitted to sell to the Government and at a fixed rate. And whoever buys or sells copper clandestinely, or conceals the same in his house, shall be punished with the bamboo..."

The money system in China represented by this State created and paid into circulation Unit of Exchange, the "Cash" as above (from the Sanskrit Karsápána) according to Alexander Del Mar had always been what he describes as a numerical system even if, though at times, through a rise in demand on copper, and an increase in the circulation beyond the existing need, "Cash" reached or nearly reached a value which might, be called its commodity value.

Government Mints for coining "Cash" were stopped in the province of Fukhien for 20 years, in Chuhli province for 16 years and Hupeh for ten years, (approx.). During this time no further "Cash" were minted in these Provinces. The motive was to diminish the number of "Cash" circulating, and therefore either prevent a fall in their value, and consequent loss of value of the people's savings, or to cause a rise in value. Either measure, correctly applied, could only be for the good of the people. If incorrectly applied, from European experience of monetary contraction, these periods could have caused deep depression in the areas involved and open the people to exploitation from those involved with money who -might bring in "Cash" from those areas where there had been a surplus.

Obviously there was no such thing as a State debt in the sense that it exists in Anglo-Saxon countries today, and, of course, no such a thing as a deficit, as such. Contrary to what was spread abroad, outside of the treaty ports venality scarcely existed. The severity of the penalties for corruption in a Public Servant, amongst which 50 strokes of the bamboo was not out of the ordinary, and in a public place at that, undoubtedly affected this issue...