"Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile. Once a nation parts with the control of its currency and credit, it matters not who makes that nation's laws. Usury, once in control, will wreck any nation."
What Can Be Done by a Government Issuing Its Own Currency
Along with New Zealand, Australia and other progressive countries, Canada proceeded to fund infrastructure and social programs using national credit issued by its own central bank. The potential of this new credit tool for the Canadian economy was first demonstrated in World War II, in which Canada ranked fourth among the Allies for production of war goods. Under the Returning Veterans Rehabilitation Act of 1945, some 54,000 returning vets were given financial aid to attend university. The Department of Veterans Affairs provided another 80,000 vets with vocational training, and the Veterans' Land Act helped 33,000 vets buy farmland.
After the War, the Industrial Development Bank, a subsidiary of the Bank of Canada, was formed to boost Canadian businesses by offering loans at low interest rates. The Bank of Canada also funded many infrastructure projects and social programs directly. Under the 1950 Trans Canada Highway Act, Canada built the world's longest road and the world's longest inland waterway (a joint venture with the United States), as well as the 28-mile Welland Canal. People over 70, regardless of income or assets, received $40 a month from the government under the Old Age Security Act; and children under 15 got a tax-free allowance of $5-$8 a month.
Canadians first began talking about a government-run health system during the Great Depression, but at that time the government felt it could not afford the service. Various provincial programs were launched in the 1940s, often to care for returning veterans. But it was not until 1957 that the Canadian federal health care system was actually initiated, with funding from the Bank of Canada. A Hospital Act was passed under which the federal government agreed to pay half its citizens' bills at most hospitals; and a Diagnostic Services Act gave all Canadians free acute hospital care, as well as lab and radiology work. In 1966, the Hospital Act was expanded to cover physician services. In 1984, the Canada Health Act ensured that no medically-necessary care would include private fees or a charge to citizens.
A Misguided Economic Policy Kills the Golden Goose
For three decades, Canada paid for these projects through its own government-owned central bank, without sparking price inflation. Then in the late 1960s, a period of "stagflation" set in --rising prices accompanied by high unemployment. According to former Canadian Defense Minister Paul Hellyer, these elevated prices were the result of "cost-push" inflation, which could be traced to a combination of causes. Big labor unions, big government, and big corporations all negotiated top dollar for their contracts. In 1971, President Richard Nixon took the U.S. dollar off the gold standard, putting a strain on currencies in international markets. In 1974, the price of oil quadrupled, following a secret deal between Henry Kissinger and the OPEC countries in which the latter agreed to sell their oil only in U.S. dollars and to deposit the dollars in U.S. banks. Countries without sufficient dollar reserves had to borrow from these banks to buy the oil they needed, setting a debt trap that sprang shut when U.S. Federal Reserve Chairman Paul Volcker raised interest rates to 20% in 1980.
These increased costs drove up prices worldwide; but in Canada, price inflation was blamed on the government drawing money from its own central bank. Under the sway of the classical monetarist theory promoted by U.S. economist Milton Friedman, the Canadian government abandoned its successful experiment in self-funding and began borrowing from private international lenders. These private banks created "credit" on their books just as the Bank of Canada had done; but they lent it to the government at compound interest, creating a soaring national debt. Today, interest on the debt is the Canadian government's single largest budget expenditure -- larger than health care, senior entitlements or national defense.
The provision of government-paid services is gradually being undermined by a combination of cuts to funding and provision of private services.Canada's health care system is suffering along with the rest of the economy, necessitating the cutbacks and long waits for elective procedures described by critics. But the achievements of an earlier debt-free era attest to the sustainability of a system of public health care funded with money issued through the government's own central bank.
Goosing the Economy Again
The Bank of Canada was created to end the hardships of the depression and give the government full responsibility for the health of the economy. As it turned out, the Bank also funded the health of the Canadian people.
The U.S. government could fund universal health coverage in the same way. Ideally, it would nationalize the Federal Reserve or set up a separate government-owned bank for this purpose. However, the same result could be achieved by borrowing from the privately-owned Federal Reserve, which always rebates the interest to the government after deducting its costs. The federal debt is never paid off but is just rolled over from year to year. Interest-free loans rolled over from year to year are the equivalent of debt-free government-issued money.
Contrary to popular belief, adding to the money supply in this way would not be inflationary. Inflation results when "demand" ("money") exceeds "supply" (goods and services). In this case the new money would be used to create new goods and services, so supply would be kept in balance with demand. The result would particularly not be inflationary today, when we are suffering from a deflationary crisis. As in the Great Depression, money is not available to buy products and fund programs because the money supply itself has collapsed. The solution is not to slash programs but to put more money into the economy; and that can be done by authorizing the government to create the funds it needs through its own bank.
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