Canadian Action Party

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- Click here to Download Adobe Reader Money is the key to the solution of our economic and many of our social problems. Our health care system has been undermined by a lack of money. Our public education system has been under attack due to insufficient money. Our environment has been neglected as a result of underfunding and the list goes on and on to include research and development, the arts, including the CBC, the armed forces and just about every service we have come to expect from government.
Why isn't there enough money? That is the $64 billion dollar question and unless you know the answer it is impossible to understand how we got into the present mess and how to get out of it and build a really just society. Unfortunately, only about one person in every hundred knows what money is and where it comes from. No wonder we have problems with debt and high taxes.
When money is one of the subjects that people talk about most often, you might assume that they know everything there is to know about it. Unfortunately, that is not so. Adolescents know where babies come from, but only about one adult in every hundred knows what money is and where it comes from.
In the course of research for Surviving the Global Financial Crisis, a book on the subject, I did an unofficial poll of more than 100 of my friends and acquaintances. The sample included newspaper publishers, editors-in-chief, financial writers and a whole range of professional and business people -- all solid citizens. As incredible as it may seem, there was not one person who had what you might call a working knowledge of the monetary system. Yet these are the very people who advise governments on what they should do.
To begin with, my friends were uncomfortable with the question. When pressed, in a friendly way, they said the federal government prints the money. When I asked what percentage of new money the federal government prints, the guesses ranged from a low of 60 per cent to a high of 100 per cent. It that were so, it would be a very different system and we wouldn't have all the problems with deficits, debt and high taxes that we have had.
In fact, nearly all of the new money created each year is created by the private banks. Banks manufacture money. As Graham Towers, the first and, in my opinion, the brightest governor of the Bank of Canada said, "that is their business. Banks manufacture money the way steel companies manufacture steel."
They don't actually print it, as they did before the Bank of Canada was given exclusive responsibility for currency; they just create it out of thin air (subject to a small capital requirement of around 5%) every time they make a new loan. You go to the bank to borrow money, provide adequate collateral, sign a note and, presto, new money is created. All it takes is a tap on the computer. Call it "printing", manufacturing or creating new money, it's all the same. The banks add to the money supply when they make new loans and "destroy" money (reduce the money supply) whenever they call a loan.
A principal problem of letting private banks create nearly all new money is that it is all created as debt. Furthermore, it is debt on which interest has to be paid. So if nearly all new money is created as debt on which interest has to be paid, and no one creates any money with which to pay the interest, what has to be done? We have to borrow more in order to pay the interest on what we already owe and go deeper and deeper into debt.
That is the reason most countries are so far in debt. It is not primarily the extravagant spending of succeeding generations of politicians, although some of them have been less than prudent on occasion. It is the fact that for 200 years, nearly all new money has been created as debt - debt that can never be paid off and can only be dramatically reduced by another crash similar to the one in 1929.
Insisting that federal governments operate their budgets like household budgets only makes matters worse instead of better. This was the advice the "experts" - the economists, bankers, business tycoons and editorial writers - gave in 1932. They said: "Reduce your deficits and balance your budgets." Sound familiar? Politicians accepted their advice and the result was seven more years of massive unemployment and despondency.
It was only in 1939 when World War II broke out, and governments started letting contracts for ships and planes and guns, that jobs were created and the economy grew to its maximum potential.
This was made financially possible when The Bank of Canada entered the money-creation business in a major way. At one time it created more than half of all the new money. It was a process that allowed us to escape the Depression, finance the Second World War, and lay the foundation for the best 25 years Western capitalism has ever known.
In 1974, however, the Bank of Canada abandoned the system that had worked so well for all Canadians and reverted to the one in effect in the Dirty Thirties when the private banks had a monopoly on money creation. The immediate effect was what Montreal economist Pierre Fortin called the "Great Canadian Slump" with its consequent high level of unemployment.
Even more frightening is the fact that Canada, along with the rest of the Western world has reverted to the volatile, pre-depression, boom-bust system with all its fears and uncertainties. The only hope is for Canada and other countries to abandon the race to a globalized financial system, take back control of its currency and use the Bank of Canada creatively to restore the freedom from want and fear that men and women fought and died for.
(For a much more comprehensive view of monetary history and policy you might find one of my books, Funny Money; A Common Sense Alternative to Mainline Economics, or Surviving the Global Financial Crisis; the Economics of Hope for Generation X, or Stop:Think, an overview of global financial institutions, useful.)
by Paul Hellyer

Abraham Lincoln is the most esteemed politician in United States history, yet his most important ideas have been neglected for three generations. They are even more relevant in these times.

"At the end of the (American civil) war, Lincoln produced his justification for the government creation of money. His Monetary Policy is one of the world's great political declarations; a masterpiece of succinct advocacy and irrefutable justice. In it, he notes the inadequacy of gold and silver, and consequent need for an additional means of exchange. He proclaims the right and duty of government to create such currency, and supply this to the economy free of debt through government spending, thus reducing the need for taxation. Wages are declared to be a higher priority than bank interest, and the economy is to be protected from the 'vicious currency' of banks. The creation and supply of money, he defined as 'not only the supreme prerogative of government, but it is the government's greatest creative opportunity.' Lincoln's monetary policy is included here in its entirety. "

Michael Rowbotham, The Grip of Death: A study of modern money, debt slavery and destructive economics, Jon Carpenter Publishing, Charlbury, Oxfordshire, 1998; Paul and Company, Concord, MA, p 220

Abraham Lincoln's
Monetary Policy (1865)

Money is the creature of law, and the creation of the original issue of money should be maintained as the exclusive monopoly of national government. Money possess no value to the state other than that given to it by circulation.

Capital has its proper place and is of men should be recognised in the structure of and in the social order as more important than the wages of money.

Lincoln and son Tad

No duty is more imperative for the government than the duty it owes the people to furnish them with a sound and uniform currency, and of regulating the circulation of the medium of exchange so that labour will be protected from a vicious currency, and commerce will be facilitated by cheap and safe exchanges.

The available supply of gold and silver being wholly the issuance of coins of intrinsic value or paper currency convertible into coin in the volume required to serve the needs of the People, some other basis for the issue of currency must be developed, and some means other than that of convertibility into coin must be developed to prevent undue fluctuation in the value of paper currency or any other substitute for money of intrinsic value that may come into use.

The monetary needs of increasing numbers of higher standards of living can and should be met by the government. Such needs can be met by the issue of national currency and credit through the operation of a national banking system. The circulation of a medium of exchange issued and backed by the government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, re-deposit and otherwise. Govemment has the power to regulate the currency and credit of the nation.

Government should stand behind its currency and credit and the bank deposits of the nation. No individual should suffer a loss of money through depreciation or inflated currency or Bank bankruptcy.

Government, possessing the power to 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 at 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 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.

By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.'

Abraham Lincoln. Senate document 23, Page 91. 1865.

"It is noteworthy that Lincoln issued this statement of his monetary policy in1865, just before the end of the civil war. A matter of weeks later, he was assassinated. As the publication date and whole tenor of the document show, Lincoln's intention was to advance his monetary policy, based upon the government creation of money, and apply it more fully after the war... It has been speculated many times that Lincoln's death was connected with the fact that such a monetary policy as he was proposing, if pursued effectively, would have signalled the end of banking and money power in the United States, and very rapidly everywhere throughout the developing world. Once that one government was seen to be capable of supplying its nation's monetary needs, others would certainly have followed. The power and profit which national debts and widespread private industrial debts provided to the world's most shadowy and powerful elite -- bankers and financiers -- would have soon vanished."

Michael Rowbotham, ibid, p 221.