From The Future is Ours

CHAPTER VII: pg.124-138
by Brynjolf Bjorset (Bryn Beorse)
Meador Publishing Co., Boston, c.1948


This chapter does not contain a necessary ingredient of our generally outlined monetary policy. It could have been omitted altogether without any loss to the general picture, But the clearing method explained in this chapter could become a very useful supplement to a scientific money structure; or, it could be used as an alternative solution. A special reason for explaining this procedure, is that it demonstrates in a very simple way the nature and character of “money” and how money can be and has been created “out of nothing,” though founded on the solid basis of production and productive capacity.

Since the clearing method as explained in this chapter will be linked with a federal works program, a few words about the desirability of such a program may be in order. According to the Gallup Poll, eighty-four per cent of the American people believed in September, 1945, that the United States would have jobs for all for the next five years. They believed in a postwar boom with ample supply of all the good things this country can produce. So far, nothing has happened which could seriously challenge this belief. So, why think about any federal emergency work scheme?

After the last postwar boom followed the greatest depression in our history –but it did not materialize until eleven years after the cessation of hostilities. It started after the large demand created by war savings had been exhausted. and people found themselves “without money.”

There were many reasons other than exhausted war savings for the scarcity of money, as we have seen in previous chapters.

Do we know that the same thing will happen some years after the end of this second world war? Of course we don’t, but if we do not prepare for such an eventuality, it is hard to see how we could deserve any better fate. Depressions have some kind of paralyzing effect. They make us forget the wonderful things we were planning to do before the catastrophe overtook us. Somehow we close our minds and hide, with timid sobs, Even if we try our hand at emergency works, we seem unable to think up anything useful or anything big enough to do the trick, So public works have become synonymous with hanging over a shovel. Obviously we must plan now, during the prosperous times, while our minds are still in good working order. All business men plan and prepare. To coordinate cooperatively all this planning is the climax of private enterprise. If this be not done, planning will be done and enforced by powers outside of business and hostile to it, which is called totalitarianism.

Those who have tried planning business and works on a national scale have soon found that there is no limit to useful and even essential jobs to be done. New designs and gadgets in car manufacturing are even now waiting for hands to shape them in steel. Houses are needed for five million people. Scientists are raring to go ahead on a thousand and one schemes, requiring unskilled labor as well as experts. Education awaits its crusaders. Highways, slum clearance and power projects are screaming for the combined initiative of business and government. As we get going, we will soon discover the need for setting up a priority list, a list of which jobs are most urgent, and which can wait. As far as menial work is concerned, we could keep all hands busy for a thousand years.

Now we can proceed to the financing of such a works scheme.

In ancient Babylon, according to “Handbuch der Finanzwissenschaft” and recent excavations, there existed side by side with private banking houses large government stores to which farmers brought their goods and were credited with the value of these unsold goods. With these credits they bought what they needed and the business men from whom they bought used the same credits to buy supplies for their stores. By this procedure the farmers or business men had not taken away from anyone the use of either his money or credit. The government had simply monetized the farmer’s products so he could use their value for exchange of goods before they had been finally sold. Consequently, there were no regular interest rates involved, nor regular installments of repayment. The “cost” of the credit was the bookkeeping expenses and the “debt” was paid as goods were sold. This method, known as “clearing,” has been used later by many banks and other institutions, and was often surrounded with some secrecy, because the method was so profitable that the operators wanted to keep it to themselves.

Finland’s former ambassador to France, Erik Ehrstrom. was a good friend of the owner and president of the French Bank “Comptoir Central de Credit,” which runs such a clearing service, and was devoted entirely to clearing transactions when it was founded, under the name of “Banque Bonnard,” in 1849, by the grandfather of the present owner. Mr. Ehrstrom returned to Finland in 1936 with the purpose of establishing similar institutions throughout the Scandinavian countries. He, and his cause, were introduced to the writer by an enthusiastic New York business executive, who took time off to be a very active godfather to these enterprises, which may thus be considered as much an American as a Scandinavian venture. The New Yorker wants to remain anonymous. Mr. Ehrstrom writes about “Banque Bonnard”:

“The first clearing banks, from which our present bank and credit system has developed, greatly assisted commerce in that they permitted of settlements on the security of deposits. A number of institutions have, however, gone still further. They have allowed settlements purely on the security of values in the form of goods and services available, without the safeguard of actual deposits.

“A typical example is the Banque Bonnard, opened after the depression in France in 1849, with headquarters in Marseilles and branch offices in Paris and Lyon. This firm served as a kind of exchange or centre of barter where producers, wholesalers, merchants and wage earners of every description could meet for the direct exchange of goods and services. The bank issued “credit notes” by means of which the interested parties were able to exchange their goods and services of a scale which far surpassed what would be done at that time through ordinary commercial channels. This bank enjoyed such great confidence that, on the average, it refused daily four times as much business as it was able to undertake. During its first three years of trading, the Paris office of the firm undertook commissions worth 127 million francs (an equivalent of 635 million francs in 1935) practically without the use of currency and without incurring a single loss, A catalogue from 1857 of the purveyors enrolled, occupies sixty-four pages, It seems to be generally accepted that this bank actually did promote new trade, and did not merely deprive its orthodox competitors of a certain portion of their business. Financial periodicals and other publications refer to this special bank with great sympathy and goodwill. The firm was still extant at a visit to Paris by the author in 1935 and was managed by the founder’s grandson. Apart from its bartering activities, the bank was then dealing with ordinary business.”

In 1936 a “Nordic Clearing Association” was formed, with the purpose of establishing clearing banks similar to Banque Bonnard in the four Scandinavian countries. The association had representatives from Finland, Sweden, Denmark and Norway, and Erik Ehrstrom was elected president. By the end of 1936 the association bore its first fruit, “Norsk Girokredittforening” (Norwegian Giro-credit association) which started operations in Norway, with headquarters in Oslo, and of which the writer was the first general manager.

This Norwegian venture was stopped by the Nazi invasion just when it was about to be expanded to serve a nationally important purpose, so it can hardly be called successful. During its first years it went through other hardships. But I describe this institution because I know it well, and because we may be able to benefit as much by its weaknesses as by its strong points. After a discussion of this undertaking, we shall explain how a similar organization could be formed in the United States for financing the proposed works plan.

The ground was prepared for this kind of undertaking in Norway. Before bank loans became the usual method of financing farming, Norwegian farmers used to build houses or barns or buy equipment by a kind of voluntary mutual aid. The farmers of a certain village would come together and agree on a works plan. They might find that Ola Hansen needed a new barn first, and next Per Olsen would need a shed for his goats. Then all the farmers would give all their spare time and equipment to help build Ola Hansen’s barn first. When that was finished they would take on Per Olsen’s shed and so on down the line. There weren’t many foreclosures in those days for nobody had involved himself in unpayable debts. They had borrowed working hours and the use of equipment from each other by means of the simplest possible form of a clearing organization. In 1934, Professor Ragnar Frisch of the Oslo University drew up a plan for a national clearing organization virtually on the same basis as the old arrangement among Norwegian farmers. The purpose of the Frisch clearing organization was the recovery of trade and employment by clearing products and services on the basis of yearly compiled estimates of supply and demand. This plan was published in the American periodical “Econometrica,” of which Professor Frisch was one of the founders.

While the Norwegian Government was considering the Frisch plan, the “Norsk Girokredittforening” started operations on a small scale by the end of 1936 and a government representative, Mr. Jorgen Dahl, was appointed on its Board of Directors, with the understanding that taxes and public finances should gradually be included in the operations. Other members of the board were Mr. Olaf Dahl, Oslo attorney; President and Chairman of the Board; Mr. Eivind Eckbo, attorney and financier, Vice President; Mr. Finn Jacobsen, coal merchant; Mr. H. Oppegaard, electrical appliances; Mr. Rolf Stenersen, broker and banker; and the writer. The organization started with about a hundred members, growing slowly to a few thousand in a couple of years. Among the original members were some of the largest Oslo firms as well as smaller firms and a number of newcomers in the business field, who left the ranks of the unemployed to become employers themselves.

Each member applied for and was granted a certain “credit” on the books of the clearing association. This meant that they were allowed to buy the products or services of other members up to the amount of the credit–and were likewise obliged to sell up to that amount. The credits could not be cashed, only used for buying from other members by means of a special checkbook. The “check” was nothing more than an order to the bookkeeping office to transfer a given amount from the buyer’s account to the seller’s account.

One day, for example, a dentist came to the clearing center, saying that he had out-of-town patients he could reach if he had a car, but that he could not afford to buy a car and have it financed in the usual way, nor could he say for sure that he would be able to meet strict monthly payments.

After investigating his record the clearing board granted him a “clearing credit” for the amount of the price of the car, and as security held a claim against his dental equipment until such time as he should have paid for the car by dental work.

The dentist paid Colberg and Caspary, car dealers, with a clearing check for the whole amount. Thereby he was cleared with the dealer and had no further business with him. On the same day the dealer bought paint and hardware from two other member firms, for more than the amount received from the dentist. The hardware store and the paint store likewise bought and sold in greater amounts than the cost of the car, without even knowing that a car had been sold to a dentist. They had no financial worries in the matter.

The dentist had his car, but as nobody had lent him the money there was no question of interest or regular monthly payments. When his patients paid him for dental work they paid in clearing checks which were credited to his account. He “paid as he earned,” and after two years the car was paid for. But in the meantime nobody had given up any money or assets to finance the car for him. In a way he owed a debt to the whole clearing association as long as the car was not paid for. But nobody felt the burden of giving up his money, and consequently the dentist did not feel the burden of a borrower, although he enjoyed the advantages of one.

Similarly, a builder, who had a new and efficient method of building, approached the clearing office with the idea of importing steel pipe from Belgium for his business. He bought the pipe from a Norwegian hardware firm which was a member of the clearing association. The hardware firm bought the pipe from Belgium, paid in hard cash and used the clearing account obtained through this deal for purchases at home, from other clearing members.

Since the builder had such a good method, one may ask why he could not have gotten an ordinary bank loan. He might have been able to get it in due time, after having approached men of means who would endorse this loan. But in that case he could not have postponed his first installment of repayment indefinitely until he would have begun to earn from his new work. However accommodating the bank would be, it has to fix a date as it is handling cash money belonging to depositors. The clearing association does not handle depositors’ money, but the ability of its members to deliver. Thus no fixed time limits are strictly necessary, Also, the clearing association has no depositors’ interest to pay and so can grant “loans” on cheaper terms.

The clearing office was financed through a cut of one per cent on each check, the surplus over office expenses and reserve funds reverting to the members. In one Oslo bank the total turnover one way in one year was seven billion Kroner while the bank’s expenses, including allotments to various funds, was seven millions; that is, one-tenth of one per cent of the total turnover. There is, of course, nothing to prevent an association from being financed through a low interest on loans instead of a cut on each check.

Some readers will be interested to know what takes place from the point of view of national economy when clearing credits are issued and clearing operations start. Clearing credits are new additions to the total amount of purchasing media of the nation. Do they have the same effect as printing new money bills? No, because once the new money bills find their way to the banks, they form the basis for the creation of ten-times-greater supply of credit-money. Printing of money bills therefore, has a much greater inflationary possibility than clearing credit, and is less controllable.

Has a clearing credit the same effect as a bank credit? Not exactly. A bank credit at present, may either be based on an old deposit–and in this case it does not increase the total purchasing media of the nation–or the bank credit may be actual creation of new book-entry money. In other words: a bank credit is not as clear and precise, from an economic point of view, as a clearing credit. Apart from that, if the bank credit is a new creation, it is at the same time a debt. It increases the national or private debt, and the interest involved has an additional inflationary effect. The clearing credit, if issued to and by the nation, does not increase the national debt. It represents an issue of money warranted by increased production. The clearing credit is the “clearest” possible form of issuing new money when needed.

Has a clearing credit the same effect as a proposed new issue of book-entry money by Federal Reserve Banks, as described in Chapter VI? A clearing credit is closer related to this kind of book-entry money than to present forms of bank credits, but there is still a difference, as long as clearing only forms part of the whole economy. Clearing credits can be watched, throughout circulation, and may be the safest and easiest way of regulating purchasing media.

The Norwegian clearing centre had many difficulties during the first year of its operation. These, however, did not originate from the nature of the system but from minor details of organization and scope. It had, for example, been asserted in advance by several of the founders that the organization ought to start on a basis sufficiently broad to ensure a general usability of its check. Instead of this, the clearing centre was first set up on an experimental scale and even though the number of members increased gradually, many members, who incautiously collected large accounts with the organization, had some difficulty in using these accounts for immediate purchases. This was particularly the case with importers of coal and fruit. They had been warned that they should not sell for more than they could use easily for home market purchases, such as furniture, stationery and repair of their shops and factories. But they exceeded these limits. With individual forethought these difficulties could have been avoided and the only reason they did turn up was because the clearing center had not been started on a scale broad enough to make its checks as negotiable as currency and personal checks. This could have been achieved with government participation, which was planned, but international thunderstorms interfered.

During the spring of 1940 the Oslo Merchant Association took up the matter of using the clearing center as their main channel of financing and trade. They had observed the slow and often painful growth of the experimental organization, They were people versed in the ways of business and the practical application of economics. They saw clearly the reasons for the difficulties that had been met, and they saw equally clearly how these difficulties could be avoided. They did not confuse these incidents with the main issue.

Then came the Nazi invasion April 9, 1940. The usual financial machinery worked with the greatest difficulty. As it recovered, gradually, it was realized that the Nazis intended to use it for gaining complete control of all economic activities in Norway. This made it more important than ever to try to establish a new and independent financial instrument. The Oslo Merchant Association decided unanimously to adopt the clearing system and go ahead on a large scale. Unacquainted with the technique and ruses of an occupying force, the association incautiously published their plans in their May 25th issue of its weekly bulletin.

The Nazi economists saw this and at once understood what was at stake. They forbade the Oslo merchants to go ahead with their plan and issued an edict to newspapers to write nothing more about it. The reasons were obvious. The Nazis were not interested in a Norwegian trade instrument independently of them. Also, they would dislike any mode of financing by which all transactions would be recorded. They reverted to the old palliatives: the printing press and “borrowing”–to satisfy their gluttonous demand for money. They boosted the volume of all kinds of money to more than five times the original size–while at the same time depleting drastically the stock of goods which was the basis for the volume of money. Such was the contribution of the “New Order” to Norwegian economy, They felt behind them a nine billion Kroner inflationary debt. Had the clearing method been used, there would have been records of every amount paid or received. This would have barred many a shady debt-forming transaction from taking place at all and whatever debt would have been contracted could have been disposed of later by the smooth operations of clearing transactions as previously explained in this chapter.

If the United States should consider the use of clearing methods for financing employment of surplus labor in a works plan, the system would naturally have to be somewhat different, it would have to be put into operation with the assistance of the federal authorities, for example, through the Federal Reserve Banks. Clearing checks would have to be made legal tender. Clearing credits would form an additional volume of purchasing power and should therefore be under federal supervision. This would exclude such initial difficulties in usability of clearing checks as were encountered in the Norwegian venture. Besides, a national works plan, although affecting every state, would be essentially a federal cause.

The Federal Reserve Banks could distribute the total amount of established clearing credits to the private banks in different districts according to each district’s share in the works plan, this distribution to be adjusted as the plan proceeded. The total amount of clearing credits to be distributed would be equal to the cost of the works that would be needed to absorb the eventual unemployment. This total would not be issued at once, but would be reached by a gradual process of trial and error. Using clearing credits instead of the usual sort of bank credit for this purpose, would permit us to keep track of this special issue throughout its course along various financial channels. Clearing checks would be used for paying labor as well as for making purchases of all kinds and thus the clearing “money” would flow into every part of business.

The New York Federal Reserve Bank, as an example, may have been allotted half a billion dollars on its clearing account of which two hundred million dollars may have been redistributed to the Guaranty Trust Company for its newly erected clearing account. Of this amount, ten million dollars may be assigned to a highway project. The management of this project will be supplied with special clearing check books by means of which purchases are made, workmen paid and other expenses met. It may be noted in passing that for the sake of convenience workers should get part of their pay in cash, for small purchases. In Norway a small percentage bonus was paid initially on the amount workers received, in the form of clearing checks, because of the supposed inconvenience in the beginning. For this reason workers preferred clearing checks and often took as much as four-fifths of their pay in this form and only one-fifth as cash, although in Norway the clearing checks were not yet legal tender. The labor unions showed great interest in the scheme because of its ultimate purpose of increasing employment and utilization of resources, eventually resulting in higher real wages.

The worker would deposit his clearing check with his local bank just as he would a personal check, and would use his clearing deposit for purchases by means of a check book. Clearing checks cannot be cashed. The banks can use their clearing accounts for any kind of purchases; for taxes, for advancing clearing credits. The only difference between clearing accounts and their other accounts would be that a clearing account cannot be used as a basis for a cash loan. In this way the clearing method offers some safeguard against credit inflation.

The cash provided for workers’ pay envelopes may be newly created or taken from the existing cash holdings of the Federal Reserve Banks.

Outstanding clearing credits can at any time be reduced or cancelled (if such should be the desire) by the federal authorities, replacing clearing credits with ordinary credits, or they can be absorbed, gradually, in tax payments. Most business men would undoubtedly prefer to use clearing checks rather than personal checks for the payment of their taxes.

If, on the other hand, it should be found desirable to increase the use of clearing credits at the expense of ordinary credits, the Federal Reserve Banks could replace created credits of an ordinary kind with clearing credits, in the accounts with their member banks. If the total amount of purchasing media needed expansion, the Federal Reserve Banks could extend their clearing credit accounts with the member banks without reducing other forms of credit.

It will probably be found gradually by trial and error that clearing credits have a special function in the adjustment of economic life, different from other
forms of credit. According to the barometers of the markets, it would then become the duty of the federal economic experts to alternately contract or expand clearing credit and other forms of credit, but probably not at the same time.

The use of clearing credits on a modest scale for domestic purposes would give us experience for the eventual use of clearing methods in international trade, as proposed in a bold plan by Britain’s Lord John Maynard Keynes in 1943, and advanced to the first meeting of experts from the United Nations as a British first draft. Whatever intermediate steps will be taken, something on the line of the Keynes Clearing plan is bound to turn up again. It would have accomplished the same results in the field of international trade as the plan I have described aims to achieve in the domestic economy of a nation.

One thought on “From The Future is Ours

  1. joannejim says:

    After reading this post I decided to purchase the book The Future is Ours. It was extremely interesting and covered the banking system, money, inflation, deflation and basic stabilizing the economy but with a focus on allowing all citizens to have enough money/buying power as they needed to get by. This current economic crisis that began in 2008 is very relevant to the discussion in the book. It is clear that some of the solutions in the book are based on economic theories and are used to varying extent in our current economy. Likewise infrastructure spending is recommended as a mechanism to increase the money supply when excess capacity exists, but no money in the system to access this capacity.
    It is quite interesting because economics is about human energy or ability and the interaction between humans in the utilization of their energy or goods/services is the essense of economics. In the quotes and theories section of the book Shamcher has questions and then answers them. One is: “How do most of us want it to be?”

    The answer is “Prosperous, adventurous, unrestricted, secure. We want opportunities for realizing our abilities and resources. We want free choice in every walk of life, no shortages in our stream of supplies, good and happy neighbors”

    Economics is about people not money. Economic instability creates imbalance and can cause problems for all society. We need to work towards economic balance for all this will allow our minds to be free to explore more important areas of human existance.

    The chapter quoted in this blog on clearing centres was of extreme interest to me. While Shamcher discusses inflation, deflation, deficits, surpluses, money supply, etc. and the associated solutions to a balanced system. The clearing system discussed above was interwoven into the discussion and its benefit of minimum inflationary impact on the money system was very interesting. But more interesting was the idea of a mechanism for people/businesses to get credit for goods/services and use these to access others goods/services through a clearing system. I recognized this as a way to generate an economy and not being dependent on the money supply. How many communities are money poor but human energy rich and if these energies could be tapped through a clearing system described in this posting we could allow people/businesses to access the goods/services they require in exchange for their goods/services therebye rejuvenating the community and its economy. Another quick thought is look at developing countries and specifically places like Afganistan or Iraq or any other country in distress. Many of the problems stem from lack of jobs which creates money to purchase the goods/services needed to survive. A bank where people could deposit goods/service credits and exchange with others for their requirements would create an economy from the human energy in these places. Likewise it would strengthen the community as they would be creating most of their needs internally.

    Another interesting quote from Shamcher in the book is:

    “The scientific method can be used to explore the the atom, but let it be applied to human affairs and at once the pressure of …. party loyalty, of nationalism, or merely of established customs prevent the acceptance of valid conclusions. It is the full revelation of the spirit of science, and the fact that it envisages all of civilization and not merely useful gadgets that will bring us to the age of science. To call on present science for help is futile. To call on politicians, lawyers, clergymen, economists, is equally futile until they have learned, from science perhaps, the spirit and method of research.”

    The interesting thing about this quote for me is that it suggests that we have to understand research the concept of critical thinking and looking at the facts and coming to a conclusion that makes sense. The “Future is Ours” discusses the facts and issues trying to create understanding. There is so much that needs to happen in the world and the process of faciliating this is through researching and understanding topics and coming to balanced approachs that can be tested and adjusted helping stablize humanity.

    Within the context of the above context I am currnetly interested in two areas of research and development:

    1. The clearing bank model: I am interested in more information on this topic with the goal of fully understanding the various models available. I then plan to develop a framework for these type of bank(s) that could be used to start actual banks. I then hope to start a bank of this type and work with others to do the same. If anyone has further information on these types of banks from the past or current models please let me know.

    2. The second area is the topic of research and development or the scientific model. More specifically this is an area I have been interested in a while in conjunction with some reading I have been doing of Harold Innis works on communication and media as well as some thoughts regarding frameworks for creating venues for dialogue on topics for those interested in researching and developing thoughts and projects in specific areas of human/planetary/universal interest. Again I have a similiar idea of development of a framework for dialogue on topics through multiple medias that could help progress thought and development patterns influencing social/human development. The “spirit and method of research” Shamcher quotes aligned with the ideas regarding dialogue and information that have been purcolating in my mind lately.

    If anyone has any interest in either of these areas or ideas please feel free to contact me for further discussion. I have started writing on # 2 and plan on working on #1 in the near future, further information will be available somewhere on the internet as they progress. I can be reached at


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