More Stagflation because of a failing money system.

In 1968 the country began with another range of new activities that would bear extreme consequences for the development of the economy. Not because of the developments, but because the world's money and banking structure did not adapt its primitive, since 1694 existing reserve banking system, to the economical and technological demands of the second part of the twentieth century.

Again the structure of the money system could not cope with the developments. The Dutch banking environment began with a full scale electronic integration of the flow of bank capital. A computer center in Amstelveen (near Amsterdam) began in 1968 to fully automate the exchange of payments of all banks in the Netherlands. It allowed already in 1968 bank cliënts to deliver their payment orders with magnetic tapes to their local banks. Long before that they had already abandoned the usage of checks by replacing the checks with direct payment orders where the bank of the debtor receives the order to pay the bank of the creditor.

Not one other country in the world offered the same kind of advanced banking service. The developments in the Netherlands were unique. Again the excellent statistical information supplied by the Central Bureau for Statistics of the Netherlands made it possible to discover a worldwide existing shortcoming in the world's banking and money systems. The conclusion was inevitable. In the money field we were and are not able to enter the consequences of the technological developments of the twentieth and twenty-first century. All the economic problems of the last fifty years are in one way or another rooted in the shortcomings of the money and banking systems.

This development and the complicated wages calculations of the country brought several service bureaus to live that solicited the business world to automate their wage calculations. One large player in this environment, based in Rotterdam, built even a fully automatic device connected to a computer that was in 1968 capable to fill weekly wage envelopes, with the needed bank notes and coins.

The competition, not able to do the same automatic filling job, found an even better solution. They offered, in cooperation with the banking world, the ability to begin saving costs by changing their weekly wage payments into monthly wage payments. The offer was quite clear. By calculating the wages only once per month, the processing costs would be about 23% percent of the total costs of weekly processing. By depositing the wages in special wages accounts for the consumers they would even eliminate the costs for the filling of the weekly pay envelopes.

Consequently, the employers began a discussion with the unions for a switch from weekly wage payments to monthly wage payments. The workers in the country received an advanced monthly payment at the beginning of the switch and paid the advanced payment back within six months. Everyone, including the unions agreed with the solutions.

Neither the unions, nor the government, nor the employers, thus the three parties in the settlement, realized that each worker would sacrifice one month purchasing power, during the year of change. Not one economic participant discovered that the internal consumption of the country decreased with one month actual income of each worker in the country who switched from weekly payment to monthly payment. We will see in one of the lessons why did actually happened.

It is obvious that nobody realized the consequences in the capital field. Neither the unions nor the employers saw the trap. The banks became willing to supply the bridge credit to smooth the change from weekly payments to monthly payments. The employers would pay the interest for the advanced payments and the banks became proud of being helpful in solving a small problem.

Nobody recognized that they had just developed an IMMENSE capital problem. Between 1968 and 1973 eighty percent of the Dutch weekly wage earners, nearly eighty percent of the population, switched from weekly wages to monthly wages. Nobody saw that this switch would create an unprecedented lack of capital in the country. I will show you in the following lessons how this lack of capital developed.

The Disaster of the Value Added Tax