“Its Time People Knew The Money Trick”


So you though you understood money !



An Institute of Economic Democracy Publication 


Published for: 

The Institute of Economic Democracy 


Heritage Publications, 

273 Little Collins Street,
Melbourne, Australia. 

In Association with: 

Bloomfield Publishers, 

The Old Priory, Priory Walk, Sudbury, Suffolk, 

United Kingdom. 

Intelligence Publications, 

Box 130, Flesherton, Ontario, Canada. 

Conservative Publications, 

G.P.O. Box 3447, Auckland, New Zealand. 

 1982 Edition





Tel: Sudbury (0787) 76374 



It’s time the people of Australia knew the alarming
facts. Test your own knowledge of these
facts by the following questions: —


1)  Do you know that no bank lends money deposited 

with it? 


2)  Do you know that when a bank lends money it 

CREATES it out of nothing?

3)  Do you know that bank loans are merely pen and ink 

entries in the credit columns of a bank’s ledger?

They have no other existence.


4)  Do you know that practically all the money in the 

community comes into circulation as a debt to the banks? 


5)  Do you know that money loaned by a Government 

bank is just as much a debt to the people as if it were 

loaned from a private bank? [ sold off ]


6)  Do you know that * ‘fixed deposits” are a plausible 

screen to hide the creation of credit? 


7)  Did it ever occur to you that the banks enjoy this 

unique facility of creating credit and putting the nation 

progressively into debt-bondage because they create 

FINANCIAL credit against the REAL credit created by 

the people? 


8)  Do you know that during the last 40 years, from 1942 

to 1982, Australia’s National Debt (Commonwealth and 

States) has increased from $3,378 million to $33,589 



9)  Do you realise that this debt is largely owned by the 

banks — if not directly, then as security loans? 

Are you aware that the money received from 

Commonwealth Income Tax has risen from $282 million in 

1942-43, $39.15 per head of population, to a total of 

$28,577 in 1982-83, no less than $2,000 per head of pop- 


The Commonwealth Taxation Office employed no less 

than 12,497 people at 30.6.77 and we paid their salaries 

totalling $130.7 million! 


10)  Do you know that the sales tax — introduced as a 

“temporary measure” in 1930, has, since 1946-47 to 

1982-83, some 35 years, increased from $72.5 million to 

$3,629 million? It now takes over $250 per head of
Australia’s population


11)  Do you realise that every time a Government borrows 

money for a public work the people are debited with the 

liability (in perpetuity) but are never credited with the 

value of the asset? 


12)  Do you know that every repayment of a bank loan 

cancels the amount of the loan out of existence?  


13)  Do you know that Treasury Notes are Government 

I.O.U.’s — national pawn tickets for pledging the assets of 

Australia to the banks for the loan of OUR OWN financial 


14)  Do you know that banks purchase bank sites, build 

premises and acquire assets at no real cost whatever to 

themselves — by the simple process of honouring their 

own cheques? 

 ( We now have GST.  [ GET STUNG TWICE ] )

You may dismiss these affirmations as “incredible”, 

or “absurd”, but if you will read on, each one will be 

proved beyond all shadow of doubt. 

Most of us have grown up with only the vaguest 

notions of money. We are fairly certain that it is the 

Government’s right to print notes and mint coins. For the 

rest, our knowledge is distinctly foggy. 

Most people, for example, labour under the impres-  

sion that the only money in the community is notes, silver 

and copper. But this is a very, very small part of the com- 

munity’s money. 

In fact, notes, silver, and copper — legal tender — is 

used for less than five per cent of the total purchases made 

in Australia. Over 95 per cent of all business is done by 

cheques, [ and now credit cards].

This cheque currency is really bank-created money — 

bank credit — but it functions exactly the same as legal 

tender money. Banking authorities of world-wide repute 

state that banks can and do create credit up to nine or ten 

times their cash resources. 


Banks go to great pains to perpetuate the fiction that 

they are merely “the custodians of their customers’ 

deposits” — that they lend these deposits, and that their 

profit consists of the difference in the rate of interest which 

they pay to depositors and the interest they receive from 


Such an idea is quite wrong, and it is the popular 

acceptance of this major monetary fallacy which gives rise 

to most of the false notions upbn the subject of money. 


The facts about money are as follows:— 

(1) Banks do not lend money deposited with them. 

(2) Every bank loan or overdraft is a creation of entirely 

new money (credit), and is a clear addition to the 

amount of money in the community. 

(3) No depositor’s money is used when a bank lends 


(4) Practically all the money in the community begins its 

life as an interest-bearing debt to the banks. 

The Technique of a Bank Loan 

All that a bank does in lending anybody, say, $1,000, 

is to open an account in the borrower’s name — if he 

hasn’t already got an account — and write Limit: $1,000, 

across the top of the ledger. 

The borrower is now free to operate and overdraw on 

this account to the limit indicated. 

When the account is drawn on by cheque, and in turn 

the cheque is lodged in another account at the same or 

another bank, a “deposit” is thus created and the supply 

of money increased. 


Thus bank loans create “deposits”, which plainly are 

not the source of loan money but, rather, the other way 

round, they are the outcome of loans. 


Now for the Authorities 

Now for the unassailable authorities on this matter of 

the creation of credit by the banks. 

Governor Eccles, one-time head of the Federal 

Reserve Bank Board of the United States, said: — 

“The banks can create and destroy money. Bank 

credit is money. It’s the money we do most of our business 

with, not with that currency which we usually think of as 

money.” — (Given in evidence before a Congressional 


The Encyclopaedia Britannica, 14th Edition, under 

the heading of Banking and Credit (vol. 3, page 48): — 

“Banks create credit. – It is a mistake to suppose that 

bank credit is created to any important extent by the pay- 

ment of money into the banks. The bank’s debt is a means 

of payment, it is credit money. It is a clear addition to the 

amount of the means of payment in the community.” 

Mr. R.G. Hawtrey, previously Assistant Under- 

Secretary to the British Treasury, in his Trade Depression 

and the Way Out, says: “When a bank lends it creates 

money out of nothing.” 

In his book, The Art of Central Banking, Hawtrey 

also wrote: — 

“When a bank lends, it creates credit. Against the 

advance which it enters amongst its assets, there is a 

deposit entered in its liabilities. But other lenders have not 

this mystical power of creating the means of payment out 

of nothing. What they lend must be money that they have 

acquired through their economic activities.” 

Lord Keynes, the economist, and one-time Board 

Member of the Bank of England, states: “There can be no 

doubt that all deposits are created by the banks”. 

Professor Soddy, the eminent physicist, of Oxford 

University, wrote: — 

“Is it possible in these days of disbelief in physical 

miracles really to caricature institutions which pretend to 

lend money, and do not lend it, but create it? And when it 

is repaid them, de-create it? And who have achieved. the 

physically impossible miracle thereby, not only of getting 

something for nothing, but also of getting perennial 

interest from it?” 

Professor H. Kniffer, in American Banking Practice, 

also testifies to this fact:*— 

“The percentage of cash to credit necessary for a bank 

to hold, demonstrated over a period of years, is 2Vi per 

cent, with IVi per cent as a reserve with other banks.” 


[This approximates to the practice in Australia where 

the trading banks hold a small percentage of cash for legal 

tender purpose, with a further deposit at the Reserve Bank 

of Australia.]  


There Is only One Restraint on Lending 

The July, 1938 issue of Branch Banking, an English 

Bankers’ Journal, stated: — 

“There is no more unprofitable subject under the sun 

than to argue any banking or credit points, since there are 

enough substantial quotations in existence to prove to the 

initiated that hanks do create credit without restraint.” 

There is just one restraint. “Sound banking practice” 

limits the creation of credit to nine or ten times the amount 

of cash or legal tender which a bank holds. 

From Chamber’s Encyclopaedia (1950), vol. 2, page 

99, under the heading of Banking arid Credit:— 

“It is a fact that bank deposits are used as money, 

which provides the basis for the statement that ‘Bank loans 

create deposits’ . The creation takes place when the value of the loan is credited to the customer’s account, or, if a 

different practice is followed, when one customer’s over- 

draft becomes another customer’s deposit.” 

Davenport’s Economics of Enterprise states: — 

“Banks do not lend their deposits, but by expansion 

of credits, create deposits.” 


“Banking is Little More Than Bookkeeping”

The late Sir Edward Holden, an eminent British 

banker, said: — 

“Banking is little more than bookkeeping. It is a 

transfer of credit from one person tq another. The transfer 

is by cheque. Cheques are currency (not legal tender). 

Currency is money.” 

The Rt. Hon. Reginald McKenna, one-time Chan- 

cellor of the Exchequer, and Chairman of the Midland 

Bank, addressing a meeting of the shareholders of the 

Bank on January 25, 1924, said this (and it is recorded in 

his book Post- War Banking):— 

“I am afraid the ordinary citizen will not like to be 

told that the banks can, and do, create and destroy money. 

The amount of money in existence varies only with the 

action of the banks in increasing or decreasing deposits 

and bank purchases. We know how this is effected. Every 

loan, overdraft or bank purchase creates a deposit, and 

every repayment of a loan, overdraft or bank sale destroys 

a deposit.” 

H.D. McLeod, in his Elements of Banking, states: — 

“When it is said that a great London Joint Stock 

Bank has perhaps $50,000,000 of deposits, it is almost 

universally believed that it had $50,000,000 of actual 

money to ‘lend out’ as it is erroneously called … It is a 

complete and entire delusion. These ‘deposits’ are not 

deposits in cash at all … They are nothing but an 

enormous superstructure of credit.” 

Hartley Withers, in his book, International Finance, 

said: — 

“A credit in the Bank of England’s books is regarded 

by the financial community as ‘cash’, and this pleasant 

fiction has given the Bank the power of creating cash by a 

stroke of the pen and to any extent that it pleases, subject 

only to its own view as to what is prudent and sound 

business.” (Page 31). 

“It may sometimes happen that the borrowers may 

require the use of actual currency, and in that case part of 

the advances made will be taken out in the form of notes, 

but as a general rule the Bank is able to perform its 

function of providing emergency credit by merely making 

entries in its books.” (Page 32). 

Professor Heinz Wolfgang Arndt, Professor of 

Economics at the National University, Canberra, writing 

on Banking in The New International Illustrated Encyclo- 

paedia, vol. I, page 321, said:—  

. . . The other important function, which is 

exclusive to the banking system, is to create the commun- 

ity’s money supply, and to administer the monetary 

system. The two functions are intimately connected since 

modern money is created by banks in the process of grant- 

ing credit.” 

[Note: To create means to produce out of nothing.] 

A good legal definition of banking was provided by 

the Judicial Committee of the Privy Council in the famous 

Bank Nationalisation Case (Commonwealth Law Reports, 

1947, vol. 79, pp 632-633). 

. . .The business of banking, consisting of the 

creation and transfer of credit, and making of loans, the 

purchase and disposal of investments and other kindred 

activities, is part of the trade, commerce and intercourse of 

a modern society…” 

TRADING BANKS: H.W. Arndt and CP. Harris, in 

their textbook The Australian Trading Banks, clarify this 

further in a special appendix, “The Creation of Money”: 

. . .The process of creation of money by banks is 

still commonly described as involving the “deposit of 

money by customers with banks” which can then “lend 

out more money than they have” because some of the 

money they have lent out “comes back to them as 

deposits” . . . Nowadays it is a mischievously misleading 

description. It is misleading because it wrongly suggests — 

(a) that notes and coin are, but deposits are not, money; 

(b) that banks merely borrow and lend money created by 

someone else; 

(c) that deposits come into existence primly through 

bank customers paying in notes and co* n > an ^ on ly 

secondarily through bank lending …” 

DR. COOMBS: The former Governor of the Reserve 

Bank, Dr. H.C. Coombs, in the E.S. & A. Research 

Address at Queensland University on September 15, 1954 

made the same clarification: — 

“… Any given piece of expenditure caf 1 be financed 

from one of four sources (or a combinat* on of these 

sources) — 

(a) new savings; 

(b) accumulated reserves; 

(c) money borrowed, other than a bank; 

(d) money borrowed from a bank. 

The last source differs from the first t^ ree because 

when money is lent by a bank it passes into the hands of 

the person who borrows it without anybody having less. 

Whenever a bank lends money there is, therefore, an 

increase in the total amount of money agitable • • 

(emphasis added). 

BANK OF NSW: Finally, the matter pas been put 

beyond all possible doubt by a most important Special 

Article “Sources of Money” in the Bank of Wew South 

Wales Review, October 1978, from whitfh we quote 

extracts: — 

. . Today in Australia, as in most other modern 

economies, all money is a debt of the banking system . . . 

Another important source of money creation * s by the 

banks . . . When a banker grants a custormer credit by  

overdraft, the bank “opens an account” in its books and 

gives the client the right to draw funds without first having 

to put money into the account.  But bank deposits only 

increase when the customer actually draws on the account 

to pay his creditors. In the case of loans, funds are 

deposited directly to the customer’s credit and result in an 

immediate increase in the volume of money. In either case 

the money supply increases as a result of the bank’s 

lending activities. As long as the debt remains outstanding 

the community’s quantity of money is increased …” 


The Origin of Banks 

4 4 And now, as I have said that the word Banco, as 

applied to a Bank, does not mean a Bench, I will tell you 

what it does really mean, and how it originated. 

44 In the year 1171 the City of Venice was at war with 

the Empires of the East and the West. Its finances were in 

great disorder, and the Council levied a forced loan of 1 

per cent on the property of all their citizens, and promised 

them interest at 5 per cent. Such a loan has several names 

in Italian, but the most common is Monte, a joint stock 

fund . . . 

44 At this time the Germans were masters of a great 

part of Italy, and the German word Banck, a mound or 

heap, came to be used as synonymous with Monte, and 

was Italianised into Banco, and the loans or public debts 

were called Monti or Banchi. 

r 4 4 That the word Banco in Italian means a Public Debt 

might be proved by numberless quotations. I will give only 

one or two. 


44 Thus in an Italian Dictionary it says: 4 Monte, a 

standing Bank, or Mound of Money, 2$ they have in diver- 

sities of Italy’ . 

44 Thus you see the words Monte and Banco are synon- 

ymous, and mean a Heap, a Mound, a joint stock fund 

formed by the contributions of a number of persons. 

44 This was the meaning of the word when it was first 

introduced into English . . . 

4 4 Equally great misconception prevails as to the 

meaning of the word Banker, and the nature of Banking 


4 4 It is said in a popular work on Banking: A banker is 

a dealer in capital, or more properly a dealer in money.

He is an intermediate party between the borrower and the

lender. He borrows off one party and lends to another; 

and the difference between the terms at which he borrows, 

and those at which he lends, forms the source of his 

profit’. 1 

44 I will now show you at once what a complete mis- 

conception of the nature of Banking business it is to say 

that a Banker is an intermediate party between the bor- 

rower and the lender’.” 

The Reader Can Prove the Facts Himself 

Now, we think it will be agreed that we have produced 

adequate and incontrovertible evidence of the highest 

authority in support of the first three statements made on 

page 1 of this booklet:— 


• That no bank lends money deposited with it. 

• That when a bank lends money it creates the means of 

payment out of nothing. 

• That bank loans are merely pen and ink entries in the 

credit columns of a bank’s ledger. 

However, if the reader is not prepared to accept the 

abundant evidence given by the authorities quoted, he can 

prove the matter for himself very simply. 

(1) The total sum of legal tender (notes and coin) in use in 

Australia in 1981 was $4,977 million, though the total 

volume of money in existence was $55,387 million 

(Pocket Year Book No. 67 1982), more than eleven 

times the sum of legal tender in the form of notes and 


(2) In contradiction of the banks’ popular fiction that they 

only lend money deposited with them, we challenge the 

donbtful reader to find one bank depositor whose 

deposit has ever been reduced by so much as one cent 

in order that a bank may lend money to someone. 

The Chicanery of Bank Profits 

The entire confidence trick of the banks is based on 

the perpetuation of the claim that bank profits are gov- 

erned by the difference between the interest paid on fixed 

deposits and the interest charged to borrowers. It enables 

them to pull the proverbial wool over the eyes of the 

credulous public, and give verisimilitude to their balance 

sheet hocus-pocus that they make no more profit than any 

other commercial undertaking. 

But profit loses all meaning when a group of financial  

institutions enjoys the unique privilege of being able to 

create the nation’s monetary requirements. 

What we have to look closely at, in assessing how well 

the banks have done at the nation’s expense, is to examine 

how their total assets have increased. 

Total assets of Trading Banks in Australia have 

increased as follows:— 

1962 $ 4.053.4 million 

1970 $ 8,452 million 

1975 $18,480 million 

1980 $35,330 million 


A Bank’s Premises Cost it Nothing!

We have stated that most money comes into circu- 

lation as a debt to the banks. 

We say “most” of it does. The only money that does 

not originate as a debt to the banks is the money banks use 

in their own purchases. 

All money that a bank spends on its own behalf, 

whether it is the payment of its employee’s salaries, the 

purchase of a building site, a building, stocks and shares, 

printing, advertising, stationery, etc., all such purchases 

put money into circulation debt free. 

But with these exceptions, it is correct to say that the 

bulk of the community’s money begins its life as a debt to 

the banks. 

We have given abundant authority on this vital point. 

How Banks Purchase Properties 

But let us first deal with the statement that banks 

purchase properties or securities or advertising, etc., by the 

simple process of honouring their own cheques. 

This is somewhat technical, but we’ll try to make it as 

simple as possible. 

Take the case of a property or bank premises. First, 

the bank draws a cheque upon itself. This cheque is paid 

into someone else’s account — probably at another bank. 

Thus bank deposits are increased. 

To offset this purchase in the bank’s balance sheet, 

there would be an increase in the bank’s assets, i.e., 

premises a/c. 

The accounting technique is to debit Premises 

Account with the amount of the purchase and credit the 

same account with the value of the asset. 

In a similar manner, a bank can purchase shares or 

Government securities. These would be paid for by a 

cheque drawn on the bank and in due course the amount of 

the cheque and purchase are placed to the debit and credit 

of Securities Account. 

It may be argued, of course, that a bank pays for its 

properties and securities out of profits, or reserves.

But this idea is as illusory as the fiction that a bank lends its


Neither profits nor reserves are affected by any 

purchase by a bank, because it hasn’t actually parted with 


The position is very different when an individual buys 

a premises. The cost of the purchase is debited in his bank 

account. The individual, though he has acquired an asset, 

is down in his balance at his bank to thp extent of the 


But in the case of the bank’s purchase of a premises or 

securities, or indeed anything else, the cost is no more than 

a book entry in its own books. 

As Hawtrey, one-time Under-Secretary to the British 

Treasury, observed in his Art of Central Banking: “Other 

lenders have not this mystic power of creating the means of 

payment out of nothing”. 

You may object that if bank “A” bought a premises 

and its cheque in payment was deposited with bank “B”, 

the latter might not co-operate. That is a possibility, of 


But this is met by an exchange of balances with other 


All banks follow the same system and provided they 

keep reasonably in step with each other, their own debits 

and credits cancel each other out. At the worst, all a bank 

would need to pay for would be the difference in favour of 

the other banks. 

J.M. Keynes, a very frank and refreshing economist, 

who later became Baron Keynes, Board Member of the 

Bank of England, once pointed out that all the banks’ own 

cheques are passed through the exchanges, where the 

debits and credits of each bank are worked out. 

If the banks work in harmony with each other (as they 

do), they can meet their own requirements, and acquire 

assets, at no real cost to themselves. 

That is to say, if all banks built or bought premises, 

etc., in proportion to the flow of deposits returning to each 

one, the cheques issued by the banks would cancel each 

other out and they would acquire the premises, etc., for 

nothing more than an increased deposit liability, which 

presents no great difficulty. 


The foregoing may explain to the reader why the 

banks have been enabled to acquire the most valuable 

building sites in cities and towns and erect such remarkably 

attractive premises. 

Most of the main city banks are beautified with 

marble from floor to ceiling, and the humble depositor 

feels like doffing his hat, and standing in silent awe and 

admiration in such an atmosphere of hallowed opulence 

and power. 

Now we know the secret of it. 

Bank Credit is the Community’s Life Blood

The business world cannot function without bank 

credit, and every person in the community is equally 

dependent upon it. 

Stop, or even restrict, bank overdrafts for one week 

and there would be a nation-wide crisis. Continue the 

restriction for three months and this nation would be 

plunged into a depression, with unemployment and bank- 

ruptcy for thousands. 

Such a crisis happened in the early thirties, as millions 

of the older generation remember with sorrow and bitter- 


You may remember that during the depression there 

was no shortage of goods. The shops and stores were full. 

But credit had been restricted by the banks.

The life blood did not flow freely, and industry died and unemployment was staggering.  

Bank credit is the life blood of the community and if 

the flow of blood is restricted the patient’s life is 


How Money Begins 

Now let us look at this credit business a little more 

closely. How does it come about? 

There is an old economic tag that money originates in 

production and is cancelled in consumption. 

Practically all the community’s money has its roots in 

production. Most money sees the light of day as a 

“producer credit”. 

In other words, it begins its life as a debt to a bank, 

and from the moment it is released as a book entry in a 

bank’s ledger, the credit created by the bank and loaned to 

a company or individual travels through the production 

system, much of it being used for consumption, and is 

finally cancelled when the debt is repaid to the bank by the 


That industry — both primary and secondary — can- 

not function on its own resources is proved by the univer- 

sal need it has of bank overdraft accommodation (i.e., 

bank loans). 

A Nation in Pawn 

In other words, this huge total of assets is in pawn to 

the banks, and in the event of any individual or company 

defaulting in its loan obligations, the individual or the firm 

would probably be put into liquidation in satisfaction of 

the banks’ claims. 

That’s fair enough, you might say. But wait. 

The banks lend iinsiiey against the assets of the com- 

munity. These assets were created by the total efforts of 

the community. 

They were created by the resources of enterprising in- 

dividuals, skilled executives, and adventurous manage- 

ment, in producing articles or services to satisfy a public 

The banks made no contribution whatever to the 

development of a farm, a business, or a manufacturing 

company in its early, formative years. The bank comes 

into the picture when most of the hard pioneering work is 

done, and by granting a loan — a costless and effortless 

procedure — it merely monetises the REAL CREDIT 

created by a functioning industry and a consuming public. 

In other words, the banks merely create — by the 

stoke of a pen, mark you, or figures in a bank ledger — the 

financial credit which is backed by the real credit created 

by the joint operations of producers and consumers. The 

people do all the work and run all the risks. The bank does 

nothing — nothing to create the assets — and runs no risk 

whatever with the credit it lends. 

When a Bank Hangs Out its Sign 

But let us look more closely into this question of the 

ownership of the real credit of Australia — the farms, 

factories, houses, offices, stores, railways, and all enter- 

prises, public and private. 

Take a farming district. Men take up a piece of virgin 

country divided into farms. They clear the land, grub out 

the stumps, plough what they can and get it under culti- 


They build homes, barns, cowsheds, plant trees, erect 

fences, construct dams, sow edible grasses and put stock 

on to graze. 

This developmental programme may take years. It 

will certainly require toil and sweat in heroic measure. 

Only the toughest survive — and those blessed with good 

seasons. The rest will fail. The struggle will prove too 

much for them. 

Meantime, a small township has made a beginning in 

the locality, and it is not long before a branch of one of the 

trading banks sets up its sign, and many of the locals open 

an account with it. 

It is not long before every farmer in the district is at 

the end of his resources. He wants more capital for stock- 

ing, for clearing, fencing, housing etc. 

A Mortgage over Every Farm 

So he goes in and puts his problem to the new branch 

manager of the local bank. The manager will probably 

make a personal inspection of the farmer’s property, and if 

he is impressed by the amount of work done and the pros- 

pects of a profitable farm, he will approve his application 

for a loan. 

But in return for the loan, the farm is mortgaged to 

the bank. The hank is now the virtual owner. 

Now, note these points: The farmer, by his long and 

ceaseless energies over a period of years, has brought a 

piece of bush land into production. He has risked his all — 

and often jeopardised the health of himself and his wife — 

in battling with adversity. 

By his energies, and his wife’s loyal help, he finally 

creates a great asset — a farm that produces food — 

referred to in the popular Press as “the backbone of the 

country” . He has added to the wealth, or real credit, of the 


At this stage the farmer is generally obliged to go, cap 

in hand, to the banker, to ask for money — credit — to 

carry on, or to bring the property into greater production, 

or to tide him over a droughty season. 

The banker has contributed nothing to the develop- 

ment of the farm — nothing whatever. And yet — we 

repeat — by the stroke of pen, the bank can make a loan to 

the farmer and acquire the virtual possession of the farm 

under mortgage, until every cent of the loan and the 

accrued interest are paid in full. 

Now, don’t tell us, please, that the bank in making the 

loan, lends the bank’s reserves or money lodged with it on 

fixed deposit, to help the farmer at a critical period. 

Because we have seen, in all the authorities quoted, that 

the bank has done nothing of the sort. All it has done is to 

create financial credit — an effortless and costless process 

— against the real credit created by the farmer and by the 

activities of the people at large. 

And it won’t be long before every farmer in the 

district is under mortgage to the local bank — when the 

deeds of every farming property will be lodged in the 

bank’s safe until their debts are paid … or else! 

Real Credit and Financial Credit 

We have dwelt on this point at some length with a view 

to clarifying what is meant by the real credit of the country 

as distinct from the financial credit. 

In the example given of the farming district, real 

credit is created by the farming community. The real credit 

is the Substance. The financial credit is the Shadow.

And yet the figures in the bank’s ledger are of vastly greater

import than the productive potential of skilled men, rich 

land and milch cows! 

At least, that is the cock-eyed situation that has 

developed out of the private monopoly of the public credit. 

The Story of a City 

Take a city, as an example — any city. Villages grow 

into small towns; small towns into big towns and big towns 

into cities — and land values grow with them. Thus we find 

property in the heart of a city bringing $2,000, $4,000, or 

$10,000 a foot. 

What is it that gives property that fantastic value? 

Primarily, it is the huge aggregation of human beings who 

live in or around a city. 

Take away the people and property values would 


The people represent all the facets of a civilised com- 

munity — production, consumption, manufacturing, 

exporting, importing, retailing. Transport, the food 

supply, education, cultural activities, health services, 

social services, entertainment, and a thousand other vital 

factors go to make a community.

All these factors make up the REAL CREDIT of the 


Real credit may be defined as the faith or belief 

(credo, I believe) that a free community has the know- 

ledge, energy and capacity to co-operate in satisfying its 

needs. This is its power in association, and the end product 

is the sum total of the community’s real credit. 

We see, therefore, that the real credit of a nation is 

created by the people through their abundant and many- 

sided energies — what economic textbooks refer to as “the 

increment of association”. 

Now the financial credit of a nation should be a 

reasonably correct reflection of its real credit. Since money 

is merely a convenient token system to enable the people to 

purchase goods and services, it should be issued at the 

same rate that goods and services are produced, neither 

more nor less. 

Cuckoos in the Nest 

But even more important is this point:

Since the com

munity creates all real credit, the ownership

of the financial credit which should reflect the real credit — the goods and services — also belongs to the people.

But it doesn’t. It belongs to the banks. Or, rather, it 

has been appropriated by the banks. The banks are really 

financial cuckoos in the community’s nest. The banks issue 

and cancel money without any regard to the total pro- 

duction of goods and services. They cancel financial credit 

arbitrarily, unscientifically, sometimes causing inflation, 

and sometimes causing deflation and depression. 

As we go on we shall see that the ownership of the real 

credit of the community is the great issue that must be 

solved if Australia — and all nations which work under the 

same monetary system — is to survive as a free democracy 

or a slave state. 

Today the banks enjoy a monopoly of the public 

credit. They create and cancel (destroy) money as though 

the real credit was created by them. Whereas they haven’t 

lifted a little finger in its creation. 

But by usurping the nation’s sovereign prerogative to 

issue all its monetary requirements — not merely the small 

change (the legal tender) — the banks have established a 

powerful monopoly of credit by which they wield the 

greatest power without any responsibility whatsoever. 

This monopoly of credit by the banks is not new. It 

has been going on for over 100 years, and during that time 

the banks have consolidated their position to one of almost 

unassailable power. 

The Creeping Paralysis of Debt 

Where does this private monopoly of credit lead to? 

To debt and tax bondage. 

Individuals, businesses, industries, municipal councils 

and governments themselves are in debt bondage to the 


Banks being the only source of money, the community 

has to borrow from the banks the money to pay the interest 

on the money it has already borrowed. 

It is inevitable, therefore, under this system, that we 

get deeper and deeper into debt. 

The public debt of both the Commonwealth and the 

States has risen from $3,378 million in 1942 to $33,589 

million in 1982 — over 1,000 per cent in 40 years! 

How the Debt System Works 

The debts owing on public undertakings are debts in 

perpetuity. They are never repaid. You have no doubt 

noticed that every Commonwealth Loan is mostly used to 

renew or convert — not to redeem — previous loans as 

they fall due. Debt is compounded on debt and interest on 


Here is just one example of what we say, typical of all 

public works: — 

A loan of $32,000,000 was raised by NSW in 1888 for 

railway purposes. This loan fell due in 1924, and the State 

had then paid $51,815,452 in interest charges without 

repaying any of the principal. 

The original interest was 3Vi per cent, but the conver- 

sion rate was 5 per cent. The loan was redeemed in 1955, 

by which time NSW had paid $99,651,052 in interest, 

without any reduction of the principal. 

Including principal and interest the total payment up 

to 1955 amounted to $131,651,052. Nearly $100,000,000 in 

interest was paid on a loan of only $32,000,000. 

Do you wonder why the State railways don’t pay — 

any State? 

There is only one possible escape from such a 

financial deadlock — the national credit power of the 

Commonwealth must be used, debt free, to liquidate an 

intolerable debt burden that is threatening all States with 


Semi-public undertakings, such as water and sewerage 

boards, or electricity authorities, are all hopelessly debt- 

logged, a fact which makes the cost of their service to the 

public twice and three times as high as it should be. 

A study of the debt position of Local Government 

throughout Australia reveals that in many cases over 50 

per cent of rate revenue is required to service debt. The 

policy of all Federal Governments since the end of the 

Second World War has been to force the States and 

Municipal Governments to increase their debt burdens 

while financing many of their own activities out of 

taxation. This policy has intensified the breakdown of the 

Federal system of decentralised Government in Australia. 

The Sad Story of Sydney’s 

Harbour Bridge 

There is a much-photographed and much-publicised 

bridge over Sydney Harbour. And it certainly is a proud 

monument to engineering science. 

It was built 50 years ago at a cost of approximately 

$16,000,000. To pay for the bridge it was made a toll 

bridge, and every vehicle and every person who has crossed it in the last 50 years has paid a toll (pedestrians excepted).  

So profitable is the toil that, after paying all mainten- 

ance expenses, the Sydney Harbour Bridge earns a nett 

profit of nearly $800,000 annually. 

But the original capital debt marches on. Up to the 

end of 1955, $13 million was still owing on the bridge and 

interest payments had totalled $14,534,000. 

Instead of costing $16 million, this bridge has already 

cost $27 Vi million and there is still $13 million owing — – all 

this despite some $800,000 per annum in profit from tolls. 

The authorities say that the bridge will be definitely 

paid for by 2005 — twenty years hence. 

It is comforting to have that reassurance, but in 

another thirty years this noble structure will have been paid 

for several times over — and hundreds of millions of 

motorists will have been irked by the annoyance of 

stopping their cars to search their pockets for small change 

every time they cross it. 

This is a typical example of how debt finance works. 

Public undertakings are paid for over and over again. The 

people are taxed and re-taxed for them over the years from 

generation to generation — and as we shall see as we pro- 

ceed, it is all so unnecessary. 

The Cancellation of Credit 

You might ask, “Well, if the banks create money in 

the way you say, and lend it by way of overdrafts, and 

loans, why don’t they own the assets of Australia, lock, 

stock and barrel?” 

A fair question. The answer is this: Because when a 

company repays a bank’s overdraft, or the individual  

repays the bank’s loan, the bank is actually no better off as 

a result of the transaction. 

That may sound incredible, but bear with us, and we 

will explain the technique. 

Take one specific instance, typical of all bank 


Jones & Co. arranged with their bank for an overdraft 

of $5,000. They lodge what is called “collateral security” 

to satisfy the bank (deeds or share scrip to the value of 

about $7,500). 

Jones & Co. are now at liberty to write cheques to the 

value of $5,000, plus whatever they had previously to their 

credit with the bank. To be more precise, they can now 

“overdraw” their account to the extent of the overdraft 

limit of $5,000. 

But when Jones & Co. repay the $5,000, the debt is 

cancelled, and $5,000 previously in circulation has been 

cancelled out of existence. 

[Don’t be confused here. The $5,000 has been paid 

out to other people by Jones & Co., but when the 

Company repays the loan to the bank, $5,000 is auto- 

matically cancelled out of existence.] 

The position of borrower and lender at this point is as 

follows: Jones & Co. are (for the moment) out of debt to 

the bank, but the bank is not one cent the richer for the 

repayment of the $5,000. 

All that has actually happened is that a ledger entry 

has been made in Jones & Co.’s account. They are no 

longer “in the red”, as the banks describe it. 

The only difference the repayment of the loan has 

made to the bank has been to make its position slightly 

more liquid and add to its interest earnings. By making its 

position more liquid, we mean that its ratio of overdrafts 

to cash deposits has improved slightly. 

Remember what the Rt. Hon. Reginald McKenna, 

one-time Chairman of the Midland Bank, said: “Every 

loan, overdraft, or bank purchase creates a deposit, and 

every repayment of a loan, overdraft or bank sale, destroys 

a deposit”. That is what is meant by the cancellation of 


If all money repaid to a bank were not cancelled in 

this way, then, of course, the banks would have owned the 

entire assets of Australia long ago. 

It is as well to note the difference between a bank loan 

and a loan from an individual or company.

The bank creates the money (or credit) it loans by a ledger

credit entry. As the Encyclopaedia Britannica says, “it creates the means of payment out of nothing”.

The Power of Life and Death 

It charges interest upon this credit creation, and when 

the loan is repaid, both the debt and the money used in 

payment of the debt are automatically cancelled. 

(Their cancellation, of course, does not apply to any 

cash or legal tender used in the repayment of the bank’s 

loan, but legal tender usually represents no more than a 

very small percentage of bank transactions.) 

When a loan is made by an individual or a company 

(other than a trading bank) the procedure (outlined above) 

is quite different. The money loaned is debited to the 

account of the lender and when repaid it is credited to the 

account of the borrower. No money is cancelled in the 


Such loans are for a definite period, whereas the 

money loaned on overdraft by a bank is for an indefinite 

period. The banks have the power to call up the overdraft 

partly or wholly at any time they decide. 

The fate of companies and individuals — and govern- 

ments — is entirely at their mercy. Their power is stupen- 

dous, both in the creating and granting of loans, and in 

their arbitrary recall, with or without notice! 

The banks give and the banks taketh away. They hold 

the power of life or death over the whole economy. 

Man Creates a Frankenstein 

The lengthened shadow of debt is taxation. 

As debt waxes fat with every loan, so taxation casts a 

larger shadow and a deeper gloom over the lives and 

liberties of the people. 

Debt is what governments sow. Taxation is the bitter 

harvest the people reap. 

Taxation reduces the living standard of every man, 

woman and child, and is therefore a frontal attack, backed 

by all the sanctions of the State, on the personal freedom 

of the individual. 

As practically all money issued has its origin in 

interest-bearing debt, it follows that all forms of taxation 

must increase, inevitably, mathematically, and remorse- 


As taxation increases, so individual security decreases. 

It is not so very long ago since taxation was a puling 

infant. But what an alarming change twenty or thirty years 

has wrought! The child has grown to a man, and the man 

has become a conscienceless thug who forces his way into 

every home, grabs what he can with impunity, and waylays 

rich and poor alike. 

The taxation thug is the terror of the neighbourhood, 

holding the whole community to ransom. 

And the irony of the situation is that it is no use 

calling the police, for the police, and all the sanctions of 

the State, are his aiders and abettors. 

With the growth of taxation to the point of confis- 

cation of income, we see the State, which should be the 

refuge and the protector of the people, following a policy 

which is alien to the interest of the people who compose it. 

The State has become the enemy of the individual. 

Political parties are cynical, venal machines. The factions 

of right or left are concerned only with a struggle for 

power, perks and preferment, and once one or the other 

party is in office, platform promises crumble like piecrust, 

spoils go to the victors, salaries are constantly increased 

and the public welfare is regarded with open contempt. 

The ‘Temporary Tax” that Came to Stay

But income tax is but one tax. Others have been added 

with almost every Budget until now human ingenuity itself 

is taxed to devise more ways of taking the income from 

those who earn it. 

Customs and excise duties, land tax, property tax, 

sales tax, company taxes, probate duties, stamp duties, 

petrol tax, payroll tax, social services taxes, entertainment 

taxes — these have all conspired to forge heavy chains 

upon the personal freedom of the whole population. 

Take the sales tax as an example. Here you have the 

same story of modest beginning, with rapid growth to the 

point of confiscation of purchasing power, just as thieving 

often begins as petty pilfering and ends as grand larceny. 

The sales tax was first introduced into Australia in the 

year 1930, as a “temporary measure”, to help balance the 

first budget of the Great Depression. It began as a demure 

2Vi per cent and yielded $6,943,674. 

In 1982-83 it yielded $3,629 million! 

Australia loses the services of tens of thousands of 

men and women who could be far more profitably and 

productively and happily employed producing goods than 

in adding savagely to the cost of thousands of articles 

purchased by the public and to the cares of their fellows. 


Taxes That Come Like “a Thief in the Night”

But that is not the end of the tax story. The most 

unfelt of all taxes are the customs and excise duties.


taxes are subtle, unseen, like the silent thief that comes in the night.

The innocent consumer suspects nothing. He drinks 

his glass of beer light-heartedly, quite unaware that on 

every small glass he pays a tax — excise duty. 

The excise taxes on cigarettes are even more savage. 

We repeat, taxation is the great price inf later. 

Customs and excise duties cover a vast multitude of 

goods — most of the goods we import and many of those 

we make in Australia.

$3,700 in Taxes on Every Man, Woman and Child

When the whole burden of taxation is added together 

— income taxes, sales taxes, customs and excise duties, 

social services, property taxes and rates, payroll taxes etc. 

— it will be found that for the year 1982-83 it totalled 

approximately $3,700 for every man, woman and child in 

Australia. Commonwealth taxes, direct and indirect, took 

over $3,000 per head. State taxes and Local Government 

rates took the remainder. So the average family — mother, 

father and two kids — are slugged just under $15,000 in 

total taxation. In 1920 total taxation in Australia averaged 

about $10 per head. 62 years later it averaged $3,700 per 

head — an increase of about 37,000 per cent! 

Why Taxation Must Always Increase

Even a cursory study of the figures relating to the 

growth of income tax, sales tax, customs and excise duties, 

and the dozen other subsidiary taxes, shows that the 

increases are pitiless. 

During the space of half a life-time all these taxes have 

increased remorselessly and fantastically. 


Why is this? The main clue to the answer of this 

question lies in the dispiriting fact that the nation has 

surrendered its sovereign prerogative over the issue of 


There is no more incongruous and depressing spec- 

tacle in Australia than the Commonwealth Government 

every few weeks offering its Treasury Notes (the nation’s 

I.O.U.’s) to the banks in return for money to carry on the 

nation’s business. 

Thus the national estate has been systematically 

pawned to the banks and the people have been progres- 

sively sold into debt and tax bondage. 

So the interest burden on the National Debt has 

increased with similar mathematical progression.

Every government, every municipality, every public utility is

debt-logged, and to meet their increasing interest obli- 

gations they must, in desperation, do one, or all, of three 

things: — 

(1) They must constantly increase the cost of all public 


(2) They must invent new sources of taxation or increase 

the old taxes. 

(3) They must borrow more debt money. 

As we know to our cost, they do all three, and the 

spiral of price, debt and taxation is ever upward. 

What if Water Were Issued as a Debt?

Does it not occur to you as preposterous that private  

institutions — as private as a butcher’s shop or a chain 

store — should have the sole right to create and issue 

money as a debt, thus making tax bondage inevitable? 

Just imagine if the Water Board issued all water for 

human requirement as an interest-bearing debt, and that, 

in order to meet our interest obligations on the water we 

used, we had to go back to the Water Board to borrow 

more water to pay the Board for the water we had already 


What a fantastic situation! And yet that is precisely 

what the banks do with money. They monopolise its 

creation, issue it only as a debt, and oblige us to go back to 

the same polluted source — the only source — to borrow 

the money to pay interest on the debt already incurred! 

The Vast Social Evils of the System

It is the most tragic irony of our civilisation today that 

although man has solved the age-old problem of dire 

poverty and scarcity, although his inventive genius has 

given the world an Age of Plenty, we have become indi- 

vidually more and more enmeshed in the heavy chains of 

debt. Progress has been purchased by tax bondage — and 

quite needlessly. 

Instead of being more free, man is more enfettered. 

Instead of enjoying better health with shorter hours, 

labour-saving devices, and social services, many diseases, 

and especially diseases of the nervous system, are more 

widespread than ever before. 

Those who have managed to put away some savings 

find their value progressively reduced by inflation — a 

hidden tax. Many who thought they were retiring on ade- 

quate retirement funds find that the inflation robber forces 

them to seek some type of work. Debt and taxation are the 

basic cause of inflation. 

This alarming increase in mental disorders — it is 

equally true of America, Britain, Canada and New 

Zealand — has been a development of the last thirty or 

forty years. 

No doubt war and depressions have played their part 

in reducing millions of people to nervous wrecks and 

borderline sanity cases, but the abiding fear which haunts 

men and women from their earliest, formative, impres- 

sionable years, right through life, is the fear of insecurity. 

No matter how hard the average man and woman 

works, no matter how much they deny themselves the 

simple pleasures of life, the great majority can never hope 

to own their own homes, or to travel outside their own 

country, or make provision out of their own resources for 

their old age. 

As the shadows of life begin to lengthen, the prospect 

before, the average man and woman is the depressing 

picture of eking out the last years of their lives on the old 

age pension, aided and abetted by the free medicine of the 

Welfare State. 

That is the pitiable level of security that most people 

can expect — the drab offerings of the Welfare State. 

This haunting sense of insecurity from the cradle to 

the grave leaves a great many social evils in its train. The 

problem of delinquency is one. The alarming increase in 

mental cases is another. The increase in deficiency diseases is a third.

But worse than all this is the pitiful attempts which are 

made by the mass of the people to escape from life, with its 

hazards and obligations. The popular forms of escapism 

are alcohol, horse racing, picture shows, radio serials, 

television and cheap fiction — all of them harmless enough 

in moderation, but when such poor hobby horses are 

ridden to death, life is lived on a pathetic level. 

Doubtful Blessings of the Welfare State

Of course, the politicians, and our masters, the 

bureaucrats, will tell you that our debt and tax bondage is 

made as tolerable as possible. 

Does not the Welfare State give us old age pensions to 

eke out the balance of our lives in poverty street after we 

are too old for the employment treadmill? 

And doesn’t the Welfare State hand out widows’ 

pensions, war pensions, child endowment, unemployment 

benefits arid free medicine? 

And is not the Welfare State based on the socialistic 

principle that no man shall go bare-footed? Everyone will 

have one boot. 

And if all this were not enough to endear us to our en- 

slavement by the powers which have usurped the com- 

munity’s credit, there is the rose-strewn pathway to the 

time-payment institutions. 

We can buy almost anything on time payment — 

expensive labour-saving gadgets, furniture, clothes, even 

holidays. Yes, and we can provide for our funeral expenses 

by the same 4 4 easy” payments (at an added interest

charge of 17 to 25 per cent).

But we cannot buy security in freedom, we cannot buy 

happiness, we cannot get peace on any terms. We are 

enslaved to the private monopoly of the public credit. 

Tax Bondage is a Cause of 

Child Delinquency 

Perhaps it never occurred to you that tax bondage is 

the prime cause of that relatively new social evil — youth 


But consider the facts. In the lower and middle 

income brackets it is now the rule rather than the exception 

for the mother of the family to get a job, once her children 

are old enough to go to school. 

Good money is offering, and often no great skill or 

previous experience is called for. The prospect is tempting 

to any woman. In fact, it is the only way families in the 

lower and middle income groups can pay direct and 

indirect taxation, which averages $6,284 per annum on a 

family of four, and still be able to afford a car, or such 

domestic facilities as a washing machine, refrigerator, etc. 

But what happens to the children? The children arrive 

home from school before 4 p.m. There is no mother to 

greet them. So they order their own lives. Play in the street, 

with doubtful companions, possibly, and under no 


The mother gets home between 5.30 and 6.00 p.m., 

and is hard put to it to prepare the evening meal and do the 

domestic chores left undone in the morning. She is in no 

mood, nor has she the time, to attend to the problems of 

the children. 

How easy for the children to gather the impression of 

unwantedness and make their own small lives as much 

away from home as possible. 

And so the seeds of possible delinquency are sown. 

We are not suggesting that parents are blameless, but 

there is an over-riding cause and a pressing economic urge 

which obliges all too many mothers of the race to go to 

work to supplement the family income. 

So we see how confiscatory taxation strikes at the very 

foundation of civilised society — the home. 


Automation Will Cripple the 

Taxpayers Who Survive 

We have dwelt at some length on confiscatory taxation 

and the social evils it spawns. But worse is to come. 

There is on the horizon a dark cloud slowly but surely 

assuming menacing proportions. We refer to automation. 

Don’t misunderstand us. Automation is inevitable.


will quicken the tempo of change in lifting the burden of

monotonous types of work from the backs of men to the 

backs of electronic, manless machines. 

Automation will put the coping stone on this Age of 

Plenty by increasing the Plenty, and do it with less and less 

human effort. 

But let us be under no illusions. Where labour-saving 

inventions in the past have meant a steady reduction of 

working hours, automation will mean a steady reduction 

of working men — and women. 

By that time — the next five or ten years — the 

taxation load will have grown very much heavier, and the 

number of taxpayers to carry the onerous burden will have 

grown fewer. 

If now taxpayers are at staggering point, automation 

will bring the declining number of taxpayers to the point of 

complete collapse. 

If the people displaced by automation are to live and 

live as this Age of Plenty entitles them to live, whether 

employed or not, then it becomes even more imperative for 

the Australian Government to assert and exercise its 

sovereign prerogative to create its monetary requirements 

instead of borrowing them. 

It must become master in its own house if all the 

stupendous problems that are now taking grotesque and 

frightening shape are to be resolved in sanity and common- 


The money-creation and debt story in Australia is the 

same overseas. Nations are now wallowing in crisis, 

through a sea of debt and usury. 


Canada’s public debt position is frightening.


following figures tell their own story: —

Federal Public Debt (March 31st, 1982) 


$3,695.7 million Interest

$125.6 million 


$15,188.1 million


$ 395.8 million 


$15,574.1 million


$ 551.6 million 


$22,637.2 million


$1,379.5 million 


$69,146.0 million


$8,141.0 million 


$130,000.0 million 

(Prov. est.) 

$16,700.0 million 


Provincial Debt 

1977 $35,668.5 million 

1978 $40,505.8 million Interest $ 3,000 million 

Local Government Debt 

1977 $20,095.6 million Interest $ 1,500 million 

(Note: The Provincial and Local Government Debt 

figures are those published in the Canadian Year Book for 

1980-81 and are the most up to date obtainable). 

Canada’s latest budget has lifted Federal taxes alone 

to a point where direct and indirect taxation per head of 

population is over $3,000 — over $12,000 for the average 

family of four, a mother, father and two children. 

Provincial and Municipal taxes add another $2,000 per 

head to this total. This brings total taxation, starting at 

Municipal level and including Provincial and Federal taxes 

to approximately $20,000 for the average Canadian family 

of four. 

Of this huge total, approximately a quarter is paid as 

interest on government debt!

This is a higher percentage than elsewhere in the Western world, with the exception of Northern Ireland, where 66 per cent of taxation revenue goes as interest on debt.


The biggest economy in the world — the United States 

of America is also being stretched on the debt-rack. The 

1982 budget deficit alone has topped $100 billion. On top 

of this figure, the Administration is trying to find $115 

billion interest on a National Debt that has topped $1 

TRILLION; TIME magazine, in an inadequate attempt to 

convey the size of a trillion-dollar debt, explained that a 

line of one trillion dollars, all touching, would reach 1.2 

million miles into space on the other side of the sun! 

The effect on industry is staggering. Two-and-a-half 

million farmers in the US have an average debt of $85,000 

per farm; a combined total farm debt now exceeding $200 


But farmers aren’t the only ones affected. The New 

York finance magazine Forbes (March 29, 1982) said:— 

. . .Gross interest payments are flowing through the 

economy at a rate approaching $900 billion a year — about 

$4,000 per year for each American man, woman and child. 

That’s interest, mind you, not debt. It’s an increase of 

200% since 1976 … The tremendous burden of debt 

service is taking a growing toll in bankruptcies, savings- 

and-loans failures, dividend omissions and continued 

declines in housing prices … In 1950 the average corpor- 

ation had $43 of operating income after depreciation to 

meet each dollar of interest payment; today’s figure is less 

than $4 . . .” 


In 1982 it was revealed in the House of Commons that 

interest on the National Debt now cost more than defence, 

education or national health. National Debt interest rose 

from £705 million ($1,410 million) in 1955 to £8,661 

million ($17,322 million) in 1980. Thus, National Debt 

interest costs every man, woman and child in Britain over 

$340 per head each year — over $1,300 annually for the 

average family of four. The British situation is chaotic, 

with the demise of many industries. British Steel, 

nationalised in the postwar period, is propped by huge 

injections of taxpayers’ money. British Leyland — almost 

all that remains of the car industry — has been bankrupt 

twice. The textile industry in Bradford is closing up. Both 

the shipping and aircraft industries are shadows of what 

they used to be. 

Britain’s basic problem is public and private debt. 

Part of Britain’s $250 billion national debt is still owed on 

World War I. Britain has paid that debt twice, knd com- 

pound interest has left a sum still outstanding bigger than 

the original loan. Final payment is scheduled for the 2004! 

Apart from an unemployment queue of over 3 

million, there has been a shift in Britain’s workforce of 

over 28 per cent from private industry to government in 

five years. 

Both Northern and Southern Ireland have massive 

financial burdens. Of Eire’s budget, 66 per cent goes in 

interest payments on debt. 

US Tax Commissioner Leads the Revolt 

The crass stupidity of the present monetary system, so 

far as taxation is concerned, was recently exemplified by 

the following cable which appeared in the Sydney Sun 

Herald from New York: — 

As the deadline for Americans to pay their 

income tax loomed this week, thousands of people 

visited pawnbrokers, banks and finance companies 

to raise the necessary money. 

The US is having its greatest business boom for 

years but, paradoxically, Americans say they have 

never felt so broke. 

“They’ve run me dry, ” said Ralph Novin, a 

Dallas (Texas), pawnbroker. “Men have deluged me 

with women’s wedding rings, watches, television sets, 

clothes, irons and mantel clocks to raise tax money. “ 

J.R. Chaplin, loan chief of a Chicago finance 

corporation, reported a steep increase in loans, for 

income tax payments. 

A Detroit bank official estimated tax loans to be 

3 per cent higher than last year. 

Apart from individual loans, business-tax loans 

from major New York City banks have skyrocketed 

in the past two weeks by $763 million, or 8 per cent 

above last year’s jump. 

Many who have had trouble paying their tax 

find a simple expedient. They just don’t pay. 

Despite stepped-up collections by the Internal 

Revenue Service, tax delinquencies last year rose by 

nearly $32 million. Many Americans are criticising 

inconsistencies in the US tax laws. 

Life magazine said the Treasury “dips with a 

sieve, and the pattern of the sieve gets crazier every 

year as the rulings, court decisions and amendments 

pile up. “ 

Besides the millions of ordinary citizens, there 

are some 300 organisations in America agitating for a 

repeal of the tax law. 

This week, T Coleman Andrews, former US 

Commissioner of Internal Revenue (i.e. US Commis- 

sioner of Taxation) unexpectedly came to their 

support by saying: “Federal income taxes should be 

abolished. America today is in the death grip of tax- 

ation. Taxes are too high from top to bottom. “ 

Andrews condemns the present income tax 

structure as “brutal, confiscatory banditry com- 

pounded by extreme complexity” and “an intoler- 

able threat to the unfettered freedom of enterprise 

which made America great “ 

Early in June, 1978, the press headlines referred to the 

launching of a massive tax-revolt movement in the United 

States as property owners in California used their con- 

stitutional rights to force a vote on a proposal to slash 

taxes. Shock waves were sent right across the USA as tax- 

payers voted for big tax reductions in a massive two-to-one 


Here is a lead for tax-weary Australians. 

The Great Treasury Bill Racket 

What does the average citizen know of Treasury Bills? 

Absurdly little. 

Treasury Notes are the I.O.U.’s given by the Com- 

monwealth Treasury to the Reserve Bank. 

In other words, Treasury Notes are pawn tickets by 

which the national assets of Australia are systematically 

pledged to the banks. 

This is how the system works: 

The banks have a nice working arrangement whereby 

they acquire Treasury Notes from the Reserve Bank. These 

Treasury Notes are in denominations of $2,000, $10,000, 

$100,000 and $1,000,000 each. 

The private banks obtain them from the Reserve Bank 

by a process of what is known in high banking circles as re- 


The trading banks acquire the Treasury Notes by 

drawing on their accounts with the Reserve Bank, where it 

is the practice for the banks to keep large balances or 


Say a bank decides to acquire $1,000,000 worth of 

Treasury Notes. It draws a cheque on its account with the 

Reserve Bank. 

The purchasing bank’s account with the Reserve Bank 

will therefore be debited with $1,000,000 and credited with 

an interest-bearing security, worth $1,000,000, plus the 


The bank therefore not only acquires an interest- 

bearing investment, but it acquires a security which CAN 


Reserve Bank. 

And, as we have seen, $2,000 of cash is the usual 

backing for $20,000 of loans and overdrafts. 

But let us follow the process through, and see where 

the Treasury Note racket affects the people of Australia. 

Every three or four months a Commonwealth Loan is 

floated. Commonwealth Loans average about $600 million 

per annum. 

There is usually a great, Commonwealth-wide pub- 

licity ballyhoo behind these loans, in which the public is 

exhorted to subscribe because the loans are for public 

works — for roads, schools, irrigation works, state rail- 

ways, housing, etc. 

This advertising is grossly misleading, because the 

main purpose of the loans is not to finance public works at 

all. The main purpose of the Commonwealth Loans is to 

redeem a volume of outstanding Treasury Notes. 

That is to say, the chief purpose of Federal loans is to 

buy these Bills back from the banks which hold them, and 

thus reduce the volume of the short term national debt. 

Don’t make the mistake of concluding that this 

process of buying back outstanding Treasury Notes in any 

way reduces the National Debt. It doesn’t. All that it does 

is to convert portion of the short term debt into long term 

debt, i.e., into permanent National Debt. This is what is 

called funding the National Debt. 

In simple terms, when a Commonwealth Loan is 

floated, the money subscribed by the public — individuals 

and companies — is chiefly used to redeem, say, 

$100,000,000 worth of Treasury Notes. 

In the process of redemption the public and com- 

panies get the bonds, but the banks achieve the equivalent 

in increased liquidity of assets, enabling them to lend 


But from the public’s point of view, an even more 

disturbing aspect is that the National Debt has been added 

to. It grows, remorselessly, every few months to what is 

now an astronomical figure — and, of course, taxation 

grows with it. 

There is no plan apparently known to the custodians 

of our national financial policy which offers even the 

flimsiest hope of escape from this iniquitious system. 

It never seems to occur to anyone that the National 

Debt should ever be redeemed — though one Auditor- 

General is on record as saying that in one particular year, 

two or three millions were actually set aside for debt 


He added, with classical naivete, that the money used 

for the purpose was loan money! 

You may well ask, if money subscribed to Federal 

loans is mainly used to redeem the short-term debt, how 

are public works financed? 

They are chiefly financed by credits made available by 

the Reserve Bank in return for Treasury Notes. 

A fully subscribed Federal loan, of say, $150 million 

may be used to redeem $100 millions worth of outstanding 

Treasury Bills. The balance may be used for public works. 

This is not to suggest that the public works pro- 

gramme will not be carried out. It will. But the finance 

used will be mainly through Treasury Notes. From a 

bank’s point of view these are gilt-edged securities of the 

highest order, backed by the taxing power of the Federal 

Government to redeem from time to time so that the highly 

profitable practice of short term lending to the nation can 

be repeated over and over again. 

Why the Reserve Bank allows the private banks to 

acquire them (and by a virtually costless process!) is one of 

those incredible things that defies explanation or common- 

sense, judged by the normal standards of this most un- 

common faculty. 

But an even more inexplicable thing is why the 

Reserve Bank, a mere department of the nation, should 

regard the credit it costlessly creates for the Treasury as an 

interest-bearing debt, on which the people, through tax- 

ation, pay interest in perpetuity. This is a classical example 

of the tail wagging the dog, or the weather cock, not 

merely indicating the wind, but creating it. 




didn’t create the national assets which back the loans. 

These were created — or will be — by the people of Aust- 


The bank’s function was effortless, costless, and 

could have been, and no doubt was, performed by a junior 

ledger clerk. 

Why in the name of sanity this simple transaction is 

allowed to become the basis of our National Debt, and the 

pitiless taxation which has to pay the interest on it, 

transcends all the laws of logic. 

Amazing Examples of 

Credit Power 

In Australia’s Government Bank, Dr. L.C. Jauncey 

records the humble start of the Commonwealth Bank of 


“On July 15, 1912, with no subscribed capital and 

with assets of only £10,000 in the form of a loan from 

the Commonwealth Government, the Bank opened its 

doors for business. 

“On July 7, 1921, a deputation of unemployed waited 

on Sir Denison Miller, then Governor of the Bank. 

“Mr. Scott (member of the deputation): ‘In your 

address in London, Sir Denison, you stated that to meet 

the necessities of war certain things had to be done by you, 

which, before the war, would not have been dreamed of. 

You financed Australia for £350,000,000 for war purposes, 

and, had the war continued, you could have financed 

another £350,000,000. Are you now prepared to finance 

Australia £350,000,000 for productive purposes?’ 

“Sir Denison Miller: ‘Yes, I shall do my best’.” 

In the Australian Press of July 7, 1921, Sir Denison 

Miller is reported to have said this: 

“The whole of the resources of Australia are at the 

back of this bank, and so strong as this continent is, so 

strong is this Commonwealth Bank . . .

Whatever the 

Australian people can intelligently conceive in their minds and will loyally support, that can be done.” 

In other words, that which is physically possible can 

be made financially possible. 

Backed by the credit, i.e. the faith, of Australia, the 

Commonwealth Bank, which started with a capital of 

$20,000 was able to create credit over the next eight years 

to the extent of $700,000,000! 

The Commonwealth Bank, incidentally, affords a 

most amazing example of how privileged a bank is in 

acquiring assets. 

As we said, the Commonwealth Bank opened its 

doors for business in 1912 with assets (or, rather, liabil- 

ities) in the form of a loan of $20,000. 

By 1956 it was able to boast assets to the total of 

$4,000,000,000 — a figure exceeding all the assets of the 

larger companies in Australia! 

Every year sees a further increase in total assets. 

Add this stupendous figure to the assets of the private 

trading banks and you get an idea of the extent to which 

the banks have expropriated the real credit — i.e., the real 

wealth — created by the people of Australia. The banks 

have acquired the credit — nearly $8,000,000,000 of it! — 

and have saddled the people with the debt. 

In monetising the real wealth of Australia (i.e. creat- 

ing its monetary equivalent) the banks have issued the 

money as a debt and so acquired assets equal to about one- 

third of the entire wealth of Australia. 


The Incredible Story of the 

Rural Bank 

Another illuminating example of Credit Power is 

afforded by the meteoric growth of the Rural Bank of New 

South Wales, 

Up to the year 1948, the Rural Bank was a savings 

bank. Its branches in 1947 numbered fifty-eight, valued at 

$1,327,430, and its assets totalled $74 million. 

Then, in 1948, a dramatic change took place. The 

Federal, Labor Government, under Prime Minister 

Chifley, introduced a Bill to nationalise the trading banks 

of Australia. 

This threat alarmed the Government of New South 

Wales — a Labor Government — so while Mr. Chifley’s 

legislation was before parliament, the New South Wales 

Labor Government rushed a very short Bill through all 

stages within one day’s sittings of Parliament. 

This Bill’s purpose was to change the constitution of 

the Rural Bank from a virtual savings bank to a bank of 

issue — that is to say, a bank which has the power to 


In the few years since the Rural Bank became a bank 

of issue, it has increased its assets amazingly. 

Valuable corner sites have been acquired for premises 

in the city or Sydney and all the leading country towns. 

In 1956 it had over 110 branches, its assets had 

jumped to SI 38 million, and It disclosed reserves to over 

$20 million. 

There is nothing comparable in business or industry 

with banking when it comes to acquiring assets. 

The assets of the Colonial Sugar Refining Company in 

1956 did not exceed $120 million and the CSR is an 

Australia-wide organisation — the largest sugar producing 

company in the Southern Hemisphere, in addition to its 

vast subsidiaries producing building materials, chemicals 

and pharmaceuticals. 

And there is the great Broken Hill Proprietary — the 

foundation of Australia’s iron and steel industry. Its rami- 

fications are Australia- wide, and yet its assets are only 

$110 million. General Motors-Holden’s assets at Decem- 

ber, 1955, were $94 million. 

Does it not strike you as utterly fantastic that a bank, 

which employs a few hundred clerks, with no machinery 

more pretentious than typewriters and adding machines, 

with no plant more impressive than office buildings, and 

unknown to the general public outside its own State, can 

vastly increase its assets far beyond our greatest industries 

and do it in relatively few years? 

Does it not strike you as preposterous that an institu- 

tion which produces nothing more than figures in books, 

can acquire the ownership of assets more vast than our 

greatest industries which employ thousands of people in all 

States, and upon whose physical production the entire 

economy of Australia depends? 

It is a most illuminating example of CREDIT 

POWER — the greatest power in the world* 

Once a nation understands it, and resolves to use it, 

without the chains of debt and taxes, once it has the states- 

manship to use this vast power potential boldly and wisely 

as a constructive and liberating force, that nation will 

bound ahead, the great problems which confront and 

confound it will be solved with expedition and satisfaction, 

the grievous burdens of debt and taxation will be gradually 

lifted from the backs of the people, enabling them, at long 

last, to raise their heads to heaven in thanksgiving . 




Royal Commissions on Finance 

Has there been no public outcry against a financial 

system that leaves such a trail of human suffering in its 


Of course there has. The outcry usually results in the 

appointment of a Royal Commission to inquire into it. 

Such Royal Commissions have been held in Britain, 

Canada, Australia, and New Zealand. 

The personnel of these Royal Commissions were 

mostly men in the fifty to sixty age bracket. They were men 

who had built up successful careers in industry, law, 

accountancy, and commerce. 

Their minds had long been made up in regard to the 

financial customs of their age. They had all personally 

done well under the financial system they were asked to 

inquire into. 

In short, all these Royal Commissions consisted of 

men whose mental attitudes and understanding of the 

financial and monetary system had been conditioned by a 

life-time of familiarity with the traditional practices. They 

could conceive of nothing else. They were pledged to the 

preservation of the status quo. Custom, tradition, the 

mesmeric spell of orthodoxy, the day-to-day practices of a 

life-time — it is very difficult, if not impossible, for a 

group of men to think outside such a powerful, inhibiting, 

circumscribing framework. 

It is no reflection upon the honesty of the men who 

made up these Royal Commissions when we record that 

their reports for the most part white-washed the prevailing 

financial and monetary system. 

They made some criticisms, to be sure, some minor 

recommendations, but for the most part they gave their 

blessings to the old system and short shrift to any new, 

unorthodox system or innovation that some witnesses pre- 

sented to them. 

Nobody was surprised, therefore, and only a small 

minority of public opinion was disappointed, when the 

reports of these Royal Commissions followed much the 

same pattern. 

But some very interesting and significant things did 

emerge from these Royal Commissions. Here, for 

example, is what the British Royal Commission (presided 

over by Lord MacMillan) found in regard to the creation 

of credit in 1920. 

We quote from chapter 4, page 34:— 

“It is not unnatural to think of the deposits of a bank 

as being created by the public, through the deposit of cash 

representing either savings or amounts which are not for 

(he time being required to meet expenditure. But the bulk 

Of the deposits arise out of the action of the banks them- 

selves, for by granting loans, allowing money to be drawn 

on an overdraft or purchasing securities a bank creates a 

credit in its books, which is the equivalent of a deposit . . . 

“The bank can carry on the process of lending, or 

purchasing investments, until such time as the credits 

created, or investments purchased, represent nine times the 

amount of the original deposits in cash.” 

Australian Royal Commission on Money

The Australian Royal Commission into the Monetary 

and Banking system of Australia made its report in 1937. 

After nearly two years of exhaustive inquiry the Com- 

mission, in its report, was obliged to admit that the Com- 

monwealth Bank (now the Reserve Bank) possessed all the 

power necessary to finance all Governmental needs. 

Section 504, of the Commission’s Report, headed 

4 4 Creation of Credit”, reads:— 

Because of this power, the Commonwealth 

Bank is able to increase the cash of the trading banks in the 

ways we have pointed out above. 

“Because of this power, too, the Commonwealth 

Bank can increase the cash reserves of the trading banks; 

for example, it can buy securities and other property, it can 

lend to the Governments Or to others in a variety of ways, 

and it can even make money available to the Governments 

and to others free of any charge …” 

As this last clause has led to a good deal of contro- 

versy as to its exact meaning, Mr. Justice Napier, Chair- 

man of the Commission, was asked to interpret it, and his 

reply, received through the Secretary of the Commission 

(Mr. Harris) was as follows: — 

“This statement means that the Commonwealth Bank 

can make money available to Governments or to others on 

such terms as it chooses, even by way of a loan without 



Thus the Commonwealth Government was given the 

happy alternative of obtaining all its loan requirements 

without recourse to borrowing from the banks on Treasury 

Bill security, and so involving the nation in additional 

national debt, and the people in more onerous tax burdens. 


A Bank Governor’s Frank 


Some of the most frank evidence on banking practices 

was given by Mr. Graham Towers, Governor of the 

Central Bank of Canada, before the Canadian Govern- 

ment’s Committee on Banking and Commerce. 

During the 1939 session this Committee confined its 

proceedings to an examination respecting the Bank of 

Canada. The witness for the Bank, subject to cross- 

examination, was Mr. Graham F. Towers, its Governor. 

The Committee held thirty sittings and its proceedings 

cover 850 pages, so that to bring out the important points 

necessitates drastic condensation. We have endeavoured

to do this fairly, and in each case we give the page number

of the proceedings so that reference can be made to the


Bear in mind that the following statements made or 

agreed to by Mr. Towers are those of the Governor of the 

Government-owned Central Bank of Canada. 

(The following extracts are from the Minutes of Pro- 

ceedings and Evidence Respecting the Bank of Canada, 

Committee on Banking and Commerce, 1939. Government 

Printing Bureau, Ottawa): — 

Question: “But there is no question about it that x 

banks create the medium of exchange?” 

Towers: “That is right. That is what they are f or . . . 

That is the Banking business, just in the same way that a 

steel plant makes steel.” (p. 287) 

“The manufacturing process consists of making a 

pen-and-ink or typewritten entry on a card or in a book. 

That is all. 55 (pp. 76 and 238) 

“Each and every time a bank makes a loan (or pur- 

chases securities), new bank credit is created — new 

deposits — – brand new money.” (pp. 113 and 238) 

“Broadly speaking, all new money comes out of a 

Baink in th torn of torn (] MS (?)

“As loans are debts, then under the present system all 

money is debt..’ (p. 459) 

Mr. Towers continued: “A government can find 

money in three ways: by taxation, or they might find it by 

borrowing the savings of the people, or they might find it 

by action which is allied with an expansive monetary 

policy, that is borrowing which creates additional money 

in the process.” (p. 29) 

Q: A banker can purchase a federal government bond 

by accepting from the government, we will say a bond for 

$1,000 and giving to the government a deposit in the bank 

of $1,000? 

Mr. Towers: Yes. 

Q: . . . what the government receives is a credit entry 

in the banker’s book, showing the banker as a creditor to 

the government to the extent of $1,000? 

Mr. Towers: Yes. 

Q: And in law all that the bank has to hold in the way 

of cash to issue that deposit liability is 5 per cent? 

Mr. Towers: Yes. (p. 76) 

Q: Ninety- five per cent of all our volume of business is 

being done with what we call exchange of bank deposits — 

that is simply bookkeeping entries in banks against which 

people write cheques? 

Mr. Towers: I think that is a fair statement, (p. 223) 

Q: . . . the need of a currency gold reserve was today 

largely psychological so far as domestic currency was con- 


Mr. Towers: As far as domestic currency was con- 

cerned; yes. 

Q: But if the issue of currency and money is a high 

prerogative of government, then that HIGH PRERO- 





Mr. Towers: YES. (p. 286) 

Creating New Money 

Q: When a $1,000,000 worth of bonds is presented (by 

the government) to the bank, a million dollars of new 

money or the equivalent is created? 

Mr. Towers: Yes. 

Q: It IS a fact that a million dollars of new money is 


Mr. Towers: That is right, (p. 238) 

Q: Now, as a matter of fact, today our gold is pur- 

chased by the Bank of Canada with notes which it issues — 

not redeemable in gold — in effect using printing press 

money … to purchase gold? 

Mr. Towers: That is the practice all over the world . . . 

(p. 283) 

Q: When you allow the merchant banking system to 

issue bank deposits — with the practice of using cheques 

you virtually allow the banks to issue an effective sub- 

stitute for money, do you not? 

Mr. Towers: The bank deposits are actually money in 

that sense. 

Q: … as a matter of fact they are not actual money 

but credit, bookkeeping accounts, which are used as a sub- 

stitute for money? 

Mr. Towers: Yes. 

Q: Then we authorise the banks to issue a substitute 

for money? 

Mr. Towers: Yes, I think that is a very fair statement 

of banking, (p. 285) 

Q: Will you tell me why a government with power to 

create money should give that power away to a private 

monopoly and then borrow that which parliament can 

create itself, back at interest, to the point of national 


Mr. Towers: … we realise, of course, that the 

amount which is paid provides part of the operating costs 

of the banks and some interest on deposits. Now, if 

parliament wants to change the form of operating the 

banking system, then certainly that is within the power of 

parliament, (p. 394) 

Mr. Towers: The banks cannot, of course, loan the 

money of their depositors, (p. 455) 

Q: You have agreed that banks do create money. 

Mr. Towers: They, by their activities in making loans 

and investments, create liabilities for themselves. They 

create liabilities in the form of deposits. 

Q: You will agree with the statement that has been 

made that banks lend by creating the means of payment. 

Mr. Towers: Yes. 

Q: So that with the increase of 500 million of bank 

deposit money (from 1934 to 1938) we have not had any 

inflationary result? 

Mr. Towers: We have not. The circumstances of the 

time have not encouraged it. (p. 643) 

Q: … so far as war is concerned, to defend the integ- 

rity of the nation there will be no difficulty in raising the 

means of financing whatever those requirements may be? 

Mr. Towers: The limit of the possibilities depends on 

men and materials. 

Q: . . . and where you have an abundance of men and 

materials you have no difficulty, under our present 

banking system, in putting forth the medium of exchange 

that is necessary to put the men and materials to work in 

defence of the realm? 

Mr. Towers: That is right. 

Q: Well, then, why is it, where we have a problem of 

internal deterioration, that we cannot use the same tech- 

nique … in any event you will agree with me on this, that 

so long as the investment of public funds is confined to 

something that improves the economic life of the nation, 

that will not of itself produce inflationary conditions? 

Mr. Towers: Yes, I agree with that, but I shall make 

one further qualification, that the investments thus made 

shall be at least as productive as some alternative uses to 

which the money would otherwise have been put. (p. 649) 

Q: Would you admit that anything physically possible 

and desirable can be made financially possible? 

Mr. Towers: Certainly, (p. 771)  

Do Bankers Understand the 

Creation of Credit? 

Do all bankers understand the mechanism of credit 

creation by the banks? 

No. We have discussed this matter with scores of 

bankers, and only an odd one understands how banks 

create and cancel credit and how they purchase securities. 

When we place the facts of the matter before them — 

and the facts are beyond dispute — the average banker is 

almost inarticulate with incredulity, and often with indig- 


This is understandable. A man who has spent the 

better part of his life under the impression that banks only 

lend money deposited with them, and that the banker’s 

profit consists of the difference between the interest he 

pays on fixed deposits and the interest he charges on loans, 

finds it most difficult, if not impossible, to dislodge this 

firmly fixed idea from his mind. 

You may say that it is incredible that bankers would 

not know their own system. Not at all. Men are con- 

ditioned by custom. They grow up in a tradition. They 

accept, without question, the routine practices of their pro- 


Apparently these practices work admirably. They do! 

From the point of view of administration, the banking 

system is probably the most efficient we can point to. Why 

should anyone question it? — especially those in its 

employ. That is the power of tradition. 

Revealing Statement by NZ 

Bank Chairman 

In the higher realms of banking, however, there is no 

doubt that most of the VIP’s know the facts. This was 

admitted by Mr. H.W. Whyte, Chairman of the Associated 

Banks of New Zealand, in his evidence before the New 

Zealand Royal Commission in 1955. He admitted, quite 

frankly, that banks create credit when making loans and 

advances, and he added: — 

“They have been doing it for a long time, but they 

didn’t quite realise it, and they did not admit it. Very few 

did. You will find it in all sorts of documents, financial 

textbooks, etc. But in the intervening years, and we must 

all be perfectly frank about these things, there has been a 

development of thought. Until today I doubt very much 

whether you would get many prominent bankers to 

attempt to deny that banks create credit. I have told you 

that they do; Mr. Ashwin (Secretary to the Treasury) has 

told you that they do; Mr. Fussell (Governor of the 

Reserve Bank) has told you that they do. 

“But twenty, forty, fifty years ago you would not 

have found many people who would have said that. They 

didn’t quite appreciate they did that. 

“The system has not changed very much; it is the 

system that stands today, not very much different from 

what it was forty, fifty years ago, but there has been a 

development of thought.” 

Further, in reply to Dr. Mazengarb, Q.C., who sub- 

mitted to the commission a series of monetary reform 

proposals on behalf of H.J. Kelliher, one-time director of 

the Bank of New Zealand, Mr. Whyte, reiterated the 

point: “There is no secret about banking; there is no secret 

about banks creating money; there has been a development 

of thought in the matter.” 


This “Development of Thought” 

We must confess we were most intrigued by the some- 

what naive admission that “there has been a development 

of thought in the matter”. 

What the Chairman of the Associated Banks of New 

Zealand really meant, we suggest, was that there has been a development of knowledge of the facts of money.

During the Depression years, hundreds of thousands 

of hungry, unemployed people had nothing else to do but 

study a new and strange phenomenon — the paradox of 

poverty amidst plenty. 

The seasons were bountiful. The warehouses were 

bursting. The shops were full. But few could buy the 

goods, and untold numbers of people were destitute. The 

food was there. The clothes were there. All that was 

missing was money — this relatively costless ticket system 

had broken down as a distributing mechanism. 

In those days £1 notes or £100 notes could be printed 

for 2d. each, and bank ledger credit could be issued at no 

cost at all. 

But money was a private monopoly. Its issue and 

control were sacrosanct — more sacred than human lives. 

How absurd it all was, when we look back on those 

bitter years! 

But hungry men began to think, to inquire, to find out 

how the monetary system worked, and what they found 

out was as revelationary as the facts given in this booklet. 

A great literature grew up exposing the truth in regard 

to the creation of credit, and this truth was thrust embar- 

rassingly under the noses of bankers in high places. 

This was the reason — and the only reason — for Mr. 

Whyte’s admission that “there has been a development of 

thought in the matter”. 

Do the Economists Understand 

the Creation of Credit? 

No. This subject forms no part of the economics 

course. The pathetic result is that in their writings and 

speeches, where it is necessary to touch on the subject of 

bank credit, the economists repeat the old fiction that bank 

loans are limited by their deposits. 

Very few Australian economists, to our knowledge, 

understood the creation of credit. One was Professor A.G. 

Mackay, who, in his textbook on “Economics”, stated:— 

“In this way, by means of a loan, an advance, an 

overdraft, or by the cashing of bills, the banks are able to 

increase the volume of deposits in the community, and 

because of this process it is not correct to say that a bank 

loans out deposits which people make with it. 

“It is clear that IT CREATES THE DEPOSIT BY 

THE ISSUE OF THE LOAN; the loan travels back to the 

bank or to another bank and assumes the form of a 


Professor R.F. Irvine, Professor of Economics at 

Sydney University, about the time of the First World War, 

introduced the study of bank credit and financial mech- 

anism generally into the economics course. 

It was a very popular course, and students and pro- 

fessor often discussed the dangerous implications of a 

financial system that placed so vast a power for good or 

evil in private hands for private profit. 

Apparently, Professor Irvine’s handling of the eco- 

nomics course gave considerable concern to the banks, 

with the result that some charge was trumped up against 

the professor and he was obliged to resign. 

During the days of the Depression, Professor Irvine 

lectured extensively in Sydney on the broad lines followed 

by his book. 

Has There Been No Outcry In 

High Places? 

Has no statesman warned the people of the evils 

inherent in a private monopoly of the public credit? 

Yes, a few have, but remember, finance is all-power- 

ful. It controls the Press (by overdrafts) and is in a position 

to make and break anyone who dares to challenge and 

expose its power. Most politicians quickly learn that if they 

are going to “get on”, the simplest policy is to play safe, 

conform to orthodox practices and procedures, and don’t 

“stick one’s neck out”. 

It is an appalling reflection upon the public men of all 

countries that they conform to the orthodox tradition in 

this supine, spiritless and sycophantic manner, but they 

justify their attitude by the cynical reflection that there are 

no political plums for those who kick against the traces or 

try conclusions with powerful vested interests. 

But there is one notable, indeed, classical example of 

courageous statesmanship which did challenge and succes- 

sfully buck the bankers of his day.

That man was Abraham Lincoln.

To finance the American Civil War, he was obliged to 

go to the banks for money. The banks attempted to exploit 

the desperate situation of the northern armies, and agreed 

to lend money at interest rates varying from 24 to 36 per 

cent interest! 

This was usury of an outrageous nature, and Lincoln 

refused financial help at such a monstrous price. 

Instead, he printed the famous “greenbacks”, and the 

United States’ note issue has followed the greenback 

design ever since. 

The “greenbacks” enabled the North to conduct its 

war against the South with very little debt, but before the 

“greenbacks” were issued the North was desperate for 

finance, and the result of his negotiations with the pred- 

atory banks compelled Lincoln to observe:— 

“I have two great enemies; the Southern army in front 

of me and the financial institutions in the rear. Of the two, 

the one in the rear is my greatest foe.” 

This statement by Lincoln, and his other statements 

upon the government’s part in financing the nation are 

confirmed by the Appleton Cyclopaedia (US) of 1861, 

page 292:— 

“The money kings wanted 24 per cent to 36 per cent 

interest for loans to our Government to conduct the Civil 


“The monetary needs of increasing numbers of people 

advancing toward higher standards of living can and 

should be met by the Government. Such needs can be 

served by issuing national currency and credit through the 

operation of a national banking system. The circulation of 

a medium of exchange issued and backed by the govern- 

ment can be properly regulated. Government alone has the 

power to regulate the currency and the credit of a nation. 

‘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 con- 

sumers. The privilege of creating and issuing money is not 

only the supreme prerogative of government, but it is the 

government’s greatest creative opportunity. 

“The financing of all government enterprises, the 

maintanance of stable government and ordered progress, 

and the conduct of the Treasury will become matters of 

practical administration. 

“More will cease to he the master and become the 

servant of humanity. Democracy will rise superior to the 

money power.” 

But Lincoln was assassinated before he fully trans- 

lated this debt-free monetary policy into effect, and there 

is quite an amount of evidence to sustain the theory that he 

was assassinated at the instigation of the banks, which saw 

in his new policy a challenge to their lordship over money. 

The Banks “Gift from Pandora” 

Garet Garret, regarded as “the clearest expositor of 

economics in the United States”, makes these interesting 

remarks about that tragic abstraction, bank credit, in his 

book, The Bubble that Broke the World:— 

“Of all the discoveries and inventions by which we  

live and die, this totally improbable helix of credit is the 

most cunning, the most liable, the least comprehended, 

and next to high explosives, the most dangerous. All that 

the bankers themselves really know about it is how it works 

from day to day. Beyond that, it is a gift from Pandora.” 

Phillip A. Benson, president of the American 

Bankers’ Association, in a speech at Milwaukee, on June 

8, 1939, quoted in the New York Times of June 11, 1939, 

said: — 

“There is no more direct way to capture control of a 

nation than through its credit system.” 

W.E. Gladstone once stated: — 

“From the time I took office as Chancellor (Decem- 

ber, 1852) I began to learn that the State held, in the face 

of the Bank and the City, an essentially false position as to 

finance. The hinge of the whole situation 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 the conditions of that situ- 

ation I was reluctant to acquiesce, and I began to fight 

against it by financial self-assertion from the first. I was 

tenaciously opposed by the Governor and Deputy- 

Governor of the Bank (of England), who had seats in 

Parliament; I had the City for an antagonist on almost 

every occasion.” 

(The term “the city” in London refers to the banking 

and financial institutions, and the quotation is from 

Morley’s Life of Gladstone.) 

With one or two notable exceptions, the Church has 

maintained a sepulchral silence on the subject of financial 

policy, averting its eyes heavenward in the presence of a 

stupendous temporal problem. 

The two exceptions were Archbishop Le Fanu,


can Primate of Australia during the Depression. He

spoke out frequently and courageously against a financial

policy so heavily freighted with the social evils of anti-Christ.

Anglican Primate of Australia (Archbishop Le Fanu) 

in October, 1935, said:— 

Every man in the community is heir to all the inven- 

tions and scientific knowledge which have made this easier 

life possible, and yet the enhanced values and oppor- 

tunities of life are not shared as they should be. 

‘ ‘Our present financial system is not doing its job. The 

fundamental Christian objection to the existing capitalistic 

system and to the bankers’ control of money, from which 

it seems inseparable, is that it holds persons in serfdom to 

the exigencies of financial policy.” 

Pope Pius XI in the Encyclical Quadragesimo Anno 

wrote: — 

” It is patent that in our days not alone is wealth 

accumulated, but immense power and despotic economic 

domination is concentrated in the hands of a few . . . 

‘This power becomes particularly irresistible when 

exercised by those who, because they hold and control 

money, are able also to govern credit and determine its 

allotment, for that reason supplying so to speak the life- 

blood to the entire economic body, and grasping, as it 

were, in their hands the very soul of production, so that no 

one dare breathe against their will.” 


Nationalisation of Banking is not the Answer

The unthinking mind, after perusing the alarming 

array of facts in this book, may be forgiven if he said at 

once that the answer to the problem was to nationalise the 

banking system. 

Whilst this may appear, on the surface, to be the 

obvious answer, in our opinion it is not the correct answer. 

Indeed, in our opinion, after many years of study and 

research, there is only one thing more disastrous than the 

present monetary system, which is mostly in private hands, 

and that is a nationalised monetary system. 

Experience in several fields has shown that a public 

monopoly is far worse than a private monopoly. 

There is a certain amount of competition among the 

private banks, but a public monopoly is complete and 


Such a monopoly may work with tolerable satis- 

faction in regard to postal services or railways, but God 

help Australia if the flow of credit — the life-blood of the 

nation — was within the arbitrary powers of a group of 

bureaucrats from whom there was no appeal — except to 

another group of bureaucrats. 

It should be noted that the Reserve Bank follows pre- 

cisely the same financial policy as the private banks, except 

in a few minor details. It finances the Federal 

Government’s needs in return for Treasury Notes, and 

insists that the Treasury Notes be redeemed by the frequent 

raising of public loans, thus adding progressively to the 

National Debt and to taxation. 

Although a Government institution, it acts towards 

the nation as though it were a private concern. It is quite 

alien in spirit and policy to the national interest. 

Please don’t hasten to tell us that the “profit” it 

makes goes into the national coffers. We know that. But 

the profit benefit from the nation’s bank is almost too 

trivial to mention when we consider what the Reserve Bank 

could do for Australia if it functioned under a different 

monetary policy. 

The Bank of England is another instance of the empty 

futility of nationalising a great bank. What has it bene- 

fitted Britain since its costly nationalisation took place 

under the Attlee Government? A few paltry millions. It 

follows the same alien policy to the nation that it did 

before. It is still a power above the nation, instead of being 

in the service of the nation. 

No. The answer to the problem does not lie in bank 

nationalisation, which merely changes the name over the 

door, but makes no change in monetary policy. 

You don’t make a monopoly any better by making it 


Our Attitude to the Banks 

We make no apology for drawing public attention to 

the social evils that arise out of the present monetary 


It is time the public, and especially those who sit in 

high places, knew the facts. “Know the truth and the truth 

shall make you free”. 

But the sum total of what we say in this book must not 

be construed as an attack upon the banks or upon the hier- 

archy of bank personnel. 

That is neither the point nor purpose of this book. 

Merely to fill readers with an unhealthy revenge complex 

against the banks would defeat its purpose. ■ 

There is nothing new about the present method of 

creating credit and charging it as a debt to the community. 

It began a long time ago. 

Our present banking system began with the gold- 

smiths. As the goldsmiths were craftsmen in gold and 

silver, they were the only people equipped with strong- 

rooms for the safekeeping of such valuables. 

How the Cheque System Began 

In those days the only money was gold, silver and 

copper. It was minted into coinage in the name of the king, 

and put into circulation in the payment of the army, navy 

and public service. Those were the halycon days of no 

public debts. 

It was at this stage, however, that a new development 

took place in the monetary system. 

Burglaries and highway robbery were very common in 

England before a properly organised police force was 

established by Sir Robert Peel in 1835. For safe-keeping, 

therefore, gold plate and sovereigns — the chief monetary 

token — were lodged with the goldsmiths. 

Every time one lodged, say, 20 sovereigns with a gold- 

smith, he gave a receipt for the amount. These receipts 

gradually became currency — that is to say, people accep- 

ted the goldsmith’s receipts in payment of a debt. 

And, of course, it was only a matter of time when the 

goldsmiths themselves woke up to the fact that this 

practice of the payment of debts and purchase of goods by 

the giving of a goldsmith’s receipt put the goldsmith in a 

unique position. 

Long experience had shown them that very few people 

withdrew their gold coinage once it was lodged with them. 

By keeping only 10 per cent of the money deposited with 

them, the goldsmiths could meet all day-to-day with- 

drawals. The other 90 per cent of the money they were now 

free to lend at interest. 

They learned, to their intense satisfaction and im- 

measurable profit, that every £100 of gold sovereigns de- 

posited with them was sufficient backing for the lending of 

£900 in what were called 4 ‘gold receipts”. 

These gold receipts began to circulate as money 

because each one was a promise to pay gold on demand. 

Thus the gold receipts were the forerunners of the bank 


Garet Garrett, in his book, Anatomy of Credit, tells 

the story of the origin of banking and credit in these 

terms: — 

How can a bank lend credit to the amount of nine 

times its cash deposits? Perhaps the easiest way to explain 

it will be to tell the story of the old goldsmiths, who 

received gold for safe-keeping, and who issued receipts for 


“These receipts, representing the gold, began to pass 

from hand to hand as money. Seeing this, and that people 

seldom touched the gold itself or wanted it back, so long as 

they thought it was safe, the goldsmiths began to issue 

paper money redeemable in gold, without having the gold 

in hand to redeem it with. 

“A very audacious idea, and yet it worked, because if 

a goldsmith was honest, he was solvent, as, in exchange for 

that paper which he promised to redeem in gold on 

demand, he took things of value, called collateral, in 

pledge so that against the outstanding paper he had good 

assets in hand, and if people did come with his paper, 

wanting the gold on it, he had only to sell the collateral, 

buy gold, and then redeem the paper, according to his 

promise — always providing that the collateral was liquid 

and easily sold, and that too many people never came at 

once, all demanding gold on the instant. 

4 * Fewer and fewer people ever did want the actual 

gold. So long as they believed in the goldsmith, they pre- 

ferred to use his paper for all purposes of exchange — 

paper which no longer represented the actual gold, and yet 

was as good as gold because whenever anyone did want

the gold, it was forthcoming. From this evolved modern


In the time of Cromwell, the goldsmiths were referred 

to as “bankers”, and in 1694 a private company was 

formed in London which, in consideration of lending the 

State £1,200,000, was granted a charter to form the Bank 

of England. 

The establishment of joint stock banks followed in 

due course, and the system spread to all parts of the world. 

It is idle, therefore, to point an accusing finger at the 

banks or those responsible for the present monetary 

system. They have merely inherited the system, and for the 

most part, have no sense of guilt for the multitude of social 

evils it has given birth to. 

The power to change the system is within the province 

of any democratic State, and this can be done without dis- 

possessing the banks or nationalising them. 

But reforms will involve considerable pruning of their 

powers and also a very salutary increase in the exercise of 

the sovereign power than belongs to the nation. 

Winston Churchill’s Proposals 

Winston Churchill, in his Romanes Lecture at Oxford 

University in 1930, laid a logical foundation for approach- 

ing these problems, with a view to their ultimate solution. 

We quote the following extracts from that notable 

address: — 

“Direct taxation has risen to heights never dreamed of 

by the old economists and statesmen, and at these heights 

has set up many far-reaching reactions of an infrugal and 

even vicious character. We are in the presence of new 

forces not existing when the textbooks were written . . . 

“Beyond our immediate difficulty lies the root 

problem of modern world economics; namely, the strange 

discordance between the consuming and producing 

power . . . 

‘If the doctines of the old economists no longer serve 

for the purposes of our society, they must be replaced by a 

new body of doctrine equally well-related in itself, and 

equally well-fitting into a general plan . . . 

“Have all our triumphs of research and organisation 

bequeathed us only a new punishment — the Curse of 

Plenty? Are we really to believe that no better adjustment 

can be made between supply and demand? Yet the fact 

remains that every attempt has so far failed. 

“Many various attempts have been made, from the 

extremes of Communism in Russia to the extremes of 

Capitalism in the United States. But all have failed, and we 

have advanced little further in this quest than in barbaric 


“Surely it is this mysterious crack and fissure at the 

basis of all our arrangements and apparatus upon which 

the keenest minds throughout the world should be con- 


“It would seem, therefore,” Churchill went on, “that 

if new light is to be thrown upon this grave and clamant 

problem, it must in the first instance receive examination 

from a non-politiqal body, free altogether from party 

exigencies, and composed of persons possessing special 

qualifications in economic matters. 

“Parliament would, therefore, be well advised to 

create such a body subordinate to itself, and assist its 

deliberations to the utmost. The spectacle of an Economic 

sub-Parliament debating day after day with fearless 

detachment from public opinion all the most disputed 

questions of Finance and Trade, and reaching conclusions 

by voting, would be an innovation easily to be embraced 

by our flexible constitutional system. 

“I see no reason why the political Parliament should 

not choose in proportion to its party groupings a sub- 

ordinate Economic Parliament of say one-fifth of its 

numbers, and composed of persons of high technical and 

business qualifications.” 

Nine Vital Proposals 

After twenty-five years of serious research into the 

monetary and financial problems of this era, the Monetary 

Research Institute makes the following proposals, which 

might well serve as a basis of study for a non-party com- 

mittee along the lines suggested by Winston Churchill. 

(1) That a National Monetary Authority, responsible to 

Parliament, be appointed to: — 

A: Control the policy of the Reserve Bank and Trading 


B: Relate the total of monetary issues each year to the 

total productive capacity of capital and consumable goods 

and services. 

(2) That the National Monetary Authority, using the 

Reserve Bank as its instrument, provide the Federal and 

State Governments and Municipalities with their monetary 

needs for capital development, without the incidence of 

debt or interest. 

(3) That the National Monetary Authority introduces the 

principle of a National Balance Sheet, debiting it with the 

cost of all National Capital development, but crediting it 

with the asset value of all such development. 

(At present, all Federal and State public works are 

charged up to the people in the form of further national 


WITH THE ASSETS. No business could long function in 

solvency under such a lop-sided policy of accountancy.) 

(4) That public loans be REDEEMED — not RENEWED 

— as they fall due, the redemption being underwritten by 

the Commonwealth Reserve Bank. 

(5) That income tax be reduced at a flat rate of five per 

cent per annum. The results to be assessed at the end of 

each five-year period, and the progressive reduction to be 


SATISFACTORILY, until taxation has been reduced by 50 

per cent. 

(6) That vexatious taxation — to give it no harsher name! 

— such as sales tax and payroll tax — be progressively 

reduced over a period of five years and then abolished alto- 


(7) That no trading bank be permitted to discount 

Treasury Bills — in fact, Treasury Bill finance should be 

terminated as an instrument or symbol of further national 


(8) That overdraft rates be reduced to the cost of debt 

service, giving the banks a normal profit-margin, but sub- 

stantially pruning their power over governments in particu- 

lar and the nation in general. 

(9) That the war-time policy of price subsidies be re- 

enacted, but with this vital difference: that the subsidies be 

paid from the national credit account and not from in- 

creased taxation. 

The soundness of the price subsidy principle was 

abundantly proved in the last war. It was a most effective 

mechanism for maintaining a stable price level in a highly 

inflationary period. 

The monetary changes proposed are to be implemen- 

ted gradually, not precipitately. Governments and the 

people at large could witness the gradual change from an 

insolvent, debt-logged, tax-ridden economy, staggering 

from crisis to crisis, to a solvent economy, which had at 

last found a happy and practicable way of escape from the 

chains which enfettered it. 

Summary of Merits 

The foregoing proposals are by no means exhaustive 

or comprehensive, but they might well serve as the foun- 

-dation stones of any monetary reform policy. 

In sum, their implementation would: — 

A: Assert the sovereign right of the nation — the 

Federal Government — over monetary policy in general 

and money for the capital development requirements of 

Commonwealth and States in particular. 

It would be master in its own house and no longer 

obliged to pawn the national estate to the banks. 

B: It would make a beginning in the long, uphill task 

of redeeming the National Debt. 

C: It would gradually put an end to a taxation policy 

that is today nothing short of confiscation of income, and 

which tomorrow would turn taxpayers, out of sheer 

struggle for human survival, into a nation of Poujades, or 

tax evaders on a nation-wide scale. 

D: It would progressively reduce the inflated price 

structure to something like normal. Taxation is the arch 


E: The trading banks would be free to finance private 

industry, but at a rate of interest more in keeping with the 

service they render in mobilising and monetising the com- 

munity’s credit. 

To those fearful people who insist that these proposals 

would lead to inflation, may we ask for a little cool



First, never let it be forgotten for one minute that all 

forms of taxation are automatically loaded into prices. 

Now, if we can so re-arrange our financial system that 

income tax can be lowered by 5 per cent per annum, prices 

will fall, generally, by that amount each year. 

Second, by a gradual policy of national debt amortis- 

ation (i.e., by redeeming instead of converting Common- 

wealth loans as they fall due) the National Debt will be 

steadily reduced and taxation can be correspondingly  


Third, the forthright abolition of sales tax would 

reduce the prices of a very wide range of articles by 10 to 33 per cent.

Taxation, in its several forms, is the great price 

inflater. Once we begin, as a nation, systematically to 

reduce the high incidence of taxation, the whole price 

structure will come down amazingly, and money will grad- 

ually be restored to its pre-war purchasing power. 

The Dictatorship of Finance 

You would imagine that once the grea,t basal lie that 

the Banks lend their deposits was exploded, once the real 

(ruth about the creation of money was pointed out, that 

the people who govern us would take steps without more 

ado to redress the transcendental evils that rise out of a 

debt-finance economy. 

But things don’t work quite as simply or as straight- 

tor war dly as that. 

First of all, there is that instinctive resistance to 

change which you will find in most men. 

Singularly enough, this resistance is found in the men 

generally endowed with the highest intelligence and edu- 


The reason is because this type of man has usually 

done better than the great mass of his fellows. He feels that 

a system that has treated him well cannot be bad. 

Indeed, this type of man is so convinced of the 

cardinal virtues of the status quo that he resists the mere 

suggestion of change as a matter of course. 

Call it perversity or what you will, but whatever it is, it 

is of such a stiff-necked nature that it becomes the most 

insuperable obstacle to progress. 

Professor Sir Grafton Elliott Smith, in his Intro- 

duction to Human History, has dealt with this mental atti- 

tude as follows: — 

“Most men, even without being consciously dishonest 

or wilfully stupid, seem to be unable to examine heterodox 

views with understanding and impartiality. 

“The inertia of tradition and the lack of courage to 

defy it when new evidence fails to conform to it, seems to 

be potent enough to blind all, except the ablest and most 

fearless of men, to the most patent facts.” 

But there is another aspect, somewhat more sinister. 

In our present civilisation, money power is the greatest 

power, we regret to say, in the whole world. 

It is the power to give, and the power to take away; 

the power to destroy and the power to create, the power to 

crush opposition or bestow favours. 

This power is exercised through the control of the 

Press, the Radio and Parliament itself — the three greatest 

mediums of controlling public expression and conditioning 

the public mind. 

Personally, we refuse to believe that the great 

majority of public men are corruptible. We are quite sure 

that only an odd one would succumb to the suggestion of 


But there are other and more subtle ways of inducing 

men to conform to a policy. 

Ministerial office is generally enough to put the 

quietus upon any tendency to unorthodoxy. A Cabinet 

Minister — regardless of party — quickly realises that the 

sweets of office are his only so long as he conforms to the 

present monetary policy. 

Knowing this, he instinctively becomes an apologist 

and a defender of this policy and all its works. 

Whilst he may be in genuine agreement with what is 

called financial orthodoxy, he will generally go out of his 

way, in gratitude for its favours, to serve and maintain and 

strengthen the position of financial interests. 

If there were no acceptable alternative to the bankers’ 

debt and tax system, then there would be nothing left to do 

but to settle down with stoic resignation to the rapid decay 

and collapse of civilisation and the decline of human life to 

a low order of serfdom and debt slavery. 

But there is an acceptable alternative! It enjoys such 

recognition as to place it beyond doubt or disputation. 

Not even the most financially orthodox mind would 

quarrel with the proposition that the sovereign prerogative 

to create money belongs to the Commonwealth Govern- 


You may well ask, why doesn’t the Government exer- 

cise this power? 







You can write your own answer to these questions, but 

no satisfactory answer is forthcoming from those who sit 

in high places. 

The fact remains that the nation has surrendered its 

rights over this most vital of all things — the monetary 

system — to interests which are pursuing a policy as alien 

to the well-being of the people as any hostile invader. 


We are prisoners in pur own house. We have been 

delivered into debt and tax slavery by the very people we 

havje elected to govern us. 

In other words, the people, in their utter and child-like 

simplicity, have elected “servants” to Parliament, armed 

them with all the sanctions of physical power, and per- 

mitted them to carry out a policy which is nothing short of 

a declaration of ^economic war, against the interests and 

well-being of the very people who elected them. 

And fdr this service we pay them handsomely and 

bestow honours thick upon them! 

Is it any worider that Democracy, as practised, is in 

great danger of falling intp grievous disrepute? 

The attitude of the average businessman to taxation is 

that it is a necessary evil. He growls about it, adjusts his 

mode of life to it, and submits. 

Now, that would be a logical enough attitude if tax- 

ation were necessary, but as we have seen, IT IS NOT 

NECESSARY — certainly not necessary to the point of 


It is imposed upon us by the power of money sub- 

ordinating the power of Government and the sovereign 

prerogative of this nation. 

Towards a World Dictatorship 

The debt system not only results in growing political 

and economic centralisation inside nations: it is being used 

to attempt to impose an international dictatorship. Follow- 

ing the First World War there was the establishment of 

“The Bankers’ Bank”, The Bank of International Settle-  

ments, based in Switzerland, and the fostering of what was 

known as Central Banking. 

The Bank of Internatiohal Settlements demonstrated 

that it was above nations by continuing to operate freely 

right throughout khe Second World War. 

The international merchants of debt planned further 

centralisation during the Second World War, which saw as 

one result the establishment of The International Mone- 

tary Fund and The World Bank. 

Financial credit is now being created on an inter- 

national basis and loaned to nations — against their assets, 

of course! . 

Mr. William McChesney Martin, former Chairman of 

Directors of the American Federal Reserve Banking 

System lecturing .at the Per Jacobbsen Foundation in Sep- 

tember, 1970, on the subject, “A World Central Bank?” 

said: “I move on now to speak about the most dramatic 

development to date in the process of evolution toward a 

world central bank. This is the agreement to create Special 

Drawing Rights ‘. . . International money is now being 

created deliberately and systematically and as the result of 

multilateral decision.” 

Mr. McChesney Martin frankly conceded that the 

establishment of an International Central Bank creating 

international credit must have a serious effect upon 

national independence: “. . . One often hears it said that 

the existence of a world central bank is inconsistent with 

the maintenance of national sovereignty. So it is, if by 

sovereignty one means what has been traditionally defined 

by that .phrase — the unfettered right of national govern- 

ments to act in whatever way they may choose in econorrric 

financial or defence matters . . . Further evolution along 

the path toward a world central bank will require nations 

to accept further limitations on their freedom of indepen- 

dent action.” 

Surely the totalitarian message is clear enough? 

Nations like Australia can only defend themselves if they 

insist upon effective control over their own credit. 

Why Pawn the Nation? 

The debt merchants foster another myth: that 

Australia must obtain “foreign capital’ 1 in order to 

develop its vast resources. 

What really happens has been explained clearly by 

Queensland consulting economist H.W. Herbert: 

Getting $100 million from overseas expands the money 

supply in Australia by $100 million.

The Reserve Bank issues counterpart funds in new Australian dollars to match the overseas money (which stays in London or New York and adds to the Reserve Bank’s international reserves).

“Using overseas money is every bit as much ‘printing 

money’ as Government spending or enlarging the Budget 

deficit or expanding trading bank advances. Mr. Fraser 

and his Ministers allow the Reserve Bank to create an extra 

$100 million of new money for a foreign company to start 

a mine, but will not allow the Bank to introduce $100 

million of new money to an Australian company to do so 

…” — Sunday Mail, Brisbane, July 2, 1977.  

The Despotism of Custom 

Throughout history, man has shown a strange reluc- 

tance to consider new ideas, no matter how feasible they 


When the first iron ship was constructed in England, 

the public was quite sure it would sink like a stone, and 

ridiculed the idea. 

Marconi hawked the invention of wireless telegraphy 

from one shipping company to another, without success. 

The story is told that the Chairman of Directors of the 

great Cunard line agreed to Marconi addressing a board 

meeting to put his invention before them. 

Marconi assured the directors that it was possible for 

ships equipped with wireless to send Morse code messages 

hundreds of miles. But in spite of the fact that in those 

days scarcely a day went by without a shipwreck, the 

directors of the Cunard line were not impressed with the 

invention. Indeed, it is recorded that the Chairman 

apologised to the Board for inviting Marconi along 4 4 to 

waste their time , \ 

Before Dr. Simpson discovered chloroform, oper- 

ations and amputations were performed in cold blood, 

with the screaming patient held forcibly down until he 

lapsed into a merciful unconsciousness. 

One would have thought that Simpson’s great dis- 

covery of anaesthetics would have been hailed by the world 

as a gift from Heaven. But no. Medical men were sceptical, 

and the Church attacked the discovery on the ground that 

pain was ordained by God as a punishment for the sins of 


Thirty years was to elaspse before anaesthetics were 

generally accepted by medical men and the public. 

Sir William Harvey, who discovered the circulation of 

the blood, delayed publishing his results for 12 years 

because, he said: “I not only fear injury to myself from the 

envy of a few, but I tremble lest I have mankind at large 

for my enemies”. 

This was prophetic, for when the discovery was pub- 

lished, “some writer calumniated me and laid it to me as 

crime that I had dared to depart from the precepts and 

opinions of all anatomists” . 

Sir William Osier, in commenting on this, wrote: 

“There is no evidence to show that Harvey’s lectures on 

the circulation of the blood had any influence on the pro- 


John Aubray, in his biography of Harvey wrote: “His 

discovery gave a decided check to his professional 

prosperity. It was believed by the vulgar that he was crack- 

brained, and all the physicians were against him”. 

When Villemain announced in 1869 that tuberculosis 

was a specific disease “he was treated almost as a perturber 

of the medical order”. 

When X-rays were discovered, morality brigades were 

formed to resist such a destruction of decency and privacy. 

A London firm made a small fortune selling X-ray proof 

underwear to women! 

Sir Patrick Manson, who discovered that malaria, 

once the world’s greatest killer, was caused by mosquitoes, 

was laughed at by his medical contemporaries, and refer- 

red to contemptuously as “Mosquito Manson”. They 

would not believe that malaria could have such a simple 


And the same stiff-necked resistance, the same fanat- 

ical opposition, will be shown to the nine very simple, 

eminently sane suggestions made in this book for reform- 

ing the monetary system and liberating the people of Aust- 

ralia from debt and tax bondage. 

Before these obvious proposals are implemented, it 

will require a great body of informed and intelligent public 

opinion to overcome the violent resistance of powerful 

vested interests, and with the ordinary citizen, the despot- 

ism of custom. 

As Walter Bagehot, the English essayist observed, 

“There is no pain like the pain of a new idea”. 

What Can YQU Do About It? 

It is usual for most men, when confronted with the 

fraud of unnecessary taxation, to exclaim: “What can I do 

about it? The individual is powerless”. 

You can do nothing whilst you harbour the notion 

that the individual is powerless. It is defeatist. More, it 

isn’t true. 

The individual is all powerful if he will but exert him- 

self in his own defence; if only he will add his voice to 

other voices. 

The doubts and timidity of the individual disappear 

when confronted by the dynamic truth that THE INDI- 





When people reach the stage that an unnecessary thing 

is too atrocious to be tolerated; when they become men- 

tally and even physically sick at the sight or thought of 

unnecessary suffering, they will not tolerate it. 

They will demand of those in authority that it shall be 

ended — and quickly. 

This is what happened when child labour in mines was 

abolished, when slavery was abolished, when petty theft 

was no longer punishable by death. The time came when 

no jury would convict. The people simply wouldn’t stand it 

— and said so. 

We are reaching that stage today in regard to taxation. 

The people won’t stand it. Not only that, but we believe 

they are in a mood to take effective action. 

This brings us back to the individual citizen — to you 

and me. A grave responsibility rests upon us. 

To accept the infamy of taxation with merely a growl 

is to be a silent and supine accessory to the fraud. 

The first thing — indeed, the basic fact of Democracy 

— is for the elector to feel an abiding sense of his Power 

over politicians and Parliament. 

He must surely realise the truth of the fact that once 

public opinion makes itself definitely articulate upon any 

issue, no democratic Government dares to ignore this 

expression of the popular will. 

History is rich in examples of the power of the public 

opinion, and it is no exaggeration to say that it is the 

greatest power ill the world. The power of public opinion is 

a moral power. It is Democracy at work. 

But we must never forget that public opinion is made 

up of people like you and me. If we weakly and meekly 

accept the economic purgatory handed out to us, then, of 

course, we have no right to complain. 

The alternative to apathetic acceptance is effective 

action. And this brings us back to the question: What 

action can the individual take to make his protest effec- 


Shall he refuse to pay taxes? No action could be more 

futile or more undemocratic. To fight taxation itself is to 

beat your hands in vain against an effect, while leaving the 

cause of taxation, the Private Money Monopoly, 


Not to pay taxation as a matter of principle may be 

heroic; but it is far better to work for the reform of 

financial policy in the constitutional way. 

We are a Democracy, and still enjoy some of the great 

privileges of democratic government. If Parliament enacts 

a law that works against the public interest, we must abide 

by it, but work for its amendment or repeal at the first 


The virtue of the democratic system is that it gives us 

the right to change a bad law into a good one. 

We must confess, of course, that the attitude of 

Parliament to the question of national finance puts a great 

strain upon the toleration of men who see wrong being 

piled upon wrong and treasonable folly added to folly. 

It is precisely this factor which is building up the 

impression in the public mind that the institution of 

Parliament is hostile to the public interest, and that it 

pursues its taxation policy with a brutality that might be 

more reasonably expected in a conquering invader who 

levied tribute from the conquered. 

If Democracy is to Survive 

If Democracy is to survive the many sinister forces 

which challenge its existence, Parliament and people must 

stand upon the ground of a common interest. 


If Communism is to be kept at bay in the British Com- 

monwealth of Nations, the gathering impression must be 

quickly dissipated that Parliament is the enemy of the mass 

and a growing threat to the freedom of the individual. 

We warn those who sit in high places that the obstinate 

refusal of Federal and State Governments to abandon the 

anti-social policy of tax-slavery is rapidly bringing Parlia- 

ment and Parliamentarians into the most cynical regard. 

This attitude, of course, does not absolve the indi- 

vidual from his responsibility. What Parliament is, and the 

evil that Parliament perpetuates, is merely the lengthened 

shadow of the elector’s failure to demand — and get — 

something better. 

If he takes these evils lying down, he simply gets what 

he deserves. “The price of liberty is eternal vigilance”, but 

if electors as a whole are content to resign themselves to 

their heavy chains of economic servitude with a growl, or a 

lukewarm protest, or an indignant resolution, still heavier 

chains will be forged for them. 

Whether we are bondmen or free, hinges upon one 

thing, and one thing only: the fight we are prepared to 

make to assert our sovereignty over Parliament. 

The people asserted their sovereignty when they 

demanded that the national Insurance Act be not pro- 

ceeded with. 

The people asserted their sovereignty when they 

insisted that the most dangerous features of the Reserve 

Bank Amendment Bill be withdrawn. 

They asserted their sovereignty when they demanded 

and received assurances from the Federal Government that 

the National Register would not be used for industrial con 


Great numbers are not always necessary for a success-  

ful assertion of the people’s sovereignty over Parliament. 

What is required is the persistent and intelligent direc- 

tion of clear instructions and demands to the focal point of 

governmental power — the individual Member of Parlia- 


Co-operation rather than hostility is called for. 

We are convinced that the average Member of Parlia- 

ment would much prefer to give his allegiance to his 

electors rather than to his Party. But unless electors assert 

themselves, the prevailing party machines will over-ride the 


Where a sufficient body of public opinion is built up, 

no sitting Member dare disregard it. And if a sufficient 

number of Members are so influenced, no Government 

could proceed with anti-social legislation. 

Point out that taxation is not necessary — that it is a 

monstrous imposition — that it halves your personal free- 

dom and doubles your troubles. 

Insist that the Reserve Bank could — and must — pro- 

vide at least sufficient financial credit, without any tag of 

debt whatever, to pay for public works, national debt 

redemption and substantial tax reduction over a period of 


Insist that the persistence in the present policy is lead- 

ing rapidly to the decadence of democratic government, 

the decay of human society, the decline of individual free- 

dom, and the ultimate death of civilisation itself. 

Above all, don’t resign yourself to the defeatist notion 

that the individual is powerless to effect far-reaching 

changes. Such a notion has no basis of truth. 

The great changes of history have been brought about 

by individual action. The mass of the people were never 

identified with them. 

Great reforms resulted from the efforts of a few 

thousand individuals who knew exactly what they wanted 

and insisted upon getting it. 

They fought on until resistance crumbled. Big organ- 

isations were not, and are not, necessary. 

Take courage from the fact that wherever you are, 

however far removed from town or city, you will be assoc- 

iated with similar action by thousands of other individuals, 

unknown to you, and that it is precisely this associating 

together in a common cause which multiplies your power 

as an individual ten thousand times ten thousand. 

One Last Chance? 

Take a sweeping view of Australia’s position:— 

Indonesia is credited with a population variously esti- 

mated from 100 to 124 millions. China boasts 815 millions, 

increasing at the rate of 18 millions per annum. It is esti- 

mated that the population of China will shortly be over 

one thousand millions! 

And here is Australia with a paltry 15 million people 

trying to settle a vast continent (larger than Europe) with 

white people in a land shadowed by a thousand million 


If this rich outpost of Western civilisation is to be held 

for the white race, great changes in thinking and acting 

must take place at all levels of society, and particularly at 

the highest political and financial levels. 

Any policy that circumscribes Australia’s develop- 

ment, any faint-hearted statesmanship that puts a financial 

brake on Australia’s progress, must be rejected forthwith 

by the people as suicidal. 

* At present we are living in the proverbial fool’s para- 

dise, when the grim facts of the situation demand the most 

vigorous, bold, and imaginative developmental policy that 

can be conceived by resolute statemanship. 

Money must be released for development as though 

Australia were at war — and, indeed, we are at war. At 

war with the vast problem of water conservation in an arid 

continent; at war with the problem of filling out provo- 

catively empty country; and at war with our own national 

lethargy in the face of forces which might well spell out 

subjection, as a free people. 

The conquest of the arid heart of Australia — an area 

which .represents one-half of this continent — calls for 

study and research by the best engineering brains, backed 

by the necessary finance. 

Housing projects on a great scale must be undertaken, 

limited only by manpower and materials. 

The building of first-class highways to link this con- 

tinent and give all parts of it a greater unity of purpose is 

no less urgent. 

The overall policy for Australia’s development must 

be governed by the principle that what is physically 

possible should be financially possible. 

But instead of courage and resolution at high political 

levels, we are the unhappy witnesses of an incredible 

spectacle of political ineptitude, venality, indecision, and 


Adequate military defence, based upon the latest tech- 

nology, is not undertaken because financial orthodoxy 

insists that there is a shortage of adequate funds. 

And, finally, industry itself is languishing for the 

money to develop this young country to a greater pitch of 

self-sufficiency in an uncertain world and an unpredictable 


Confronted with this dispiriting portrait of nation- 

wide frustration, the natural human reaction is one of fear, 

insecurity and indecision. 

There is conflict and confusion politically. There is 

growing chaos economically. There is the threat of collapse 


No wonder, then, there is bewilderment socially. We 

seem to be living in a time of mindless anguish. 

It is opportune that Australians ask themselves if this 

country can long endure on a foundation of everexpanding 


And what nation was ever built on the quicksands of 

tax enslavement? 

Let there be no illusion: If the people don’t destroy 

taxation, taxation will destroy them. 

Simple arithmetic is all that is required to show how 

inevitably it will spell out the doom of ordered society, and 

of those living standards which have taken so long to build 


This is the grim Guignol picture that confronts lis 

now, and it would be stark indeed were it not for the 

simple and obvious way of escape envisaged and outlined 

in this book. 

The glaring evils in the present financial system were 

made by men and can be unmade by men. There is nothing 

immutable in the laws of man. What folly has long con- 

doned, wisdom can undo. 

And once the nation asserts its sovereignty over credit 

power, once it begins to create its own monetary require- 

ments, it will at last begin its escape from defilement with 

the pitch of debt. 


It will begin the long task of liberation from the intol- 

erable yoke of taxation. 

It will begin to use credit power as the greatest 

physical power for good. 

Recall again the words of that wisest of statesmen, 

Abraham Lincoln: “The privilege of creating and issuing 

money is not only the supreme prerogative of Government, 

but it is the Government’s greatest creative opportunity”. 

Australia’s “greatest creative opportunity”. That is 

i he magnificent prospect ahead of us if only we have the 

icsolve to pursue it. 

We have pointed the way. We have given the people 

the facts. 

Time for effective action is short. 




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