A Pro-Life Economic Agenda, Part I

In the previous series on "Personhood and the Ontology of Personalism," we closed with the comment that anyone interested in the details of a possible Pro-Life economic agenda should visit the website of the Center for Economic and Social Justice ("CESJ"), www.cesj.org. Specifically, interested parties should look over the materials on "Capital Homesteading," especially the book, Capital Homesteading for Every Citizen (2004), available as a free download on the CESJ website, as well as in paperback from Amazon and Barnes and Noble.

As we noted in the "Personhood" Series, we've stated the basic principles of Capital Homesteading a number of times on this blog. Still, we felt it would be useful to reiterate the concept, especially in light of the astonishing popularity of the series of postings on personalism. Capital Homesteading is, after all, the best, most consistent, and "person-centered" approach to economic development we've yet come across, although we're open to suggestions about improvements and even other proposals that can demonstrate as close a consistency to the natural moral law as Capital Homesteading.

A couple of caveats need to be inserted here. First, this particular series can only give the broadest and sketchiest outline of Capital Homesteading. If the concept interests you at all, or if you think you find flaws in what is said here, go first to the CESJ website and read up on the subject.

Second, be aware that Capital Homesteading uses a different definition of "money" than the one with which you may be familiar. This is something of which we ourselves only recently realized the full import. Briefly (for we've tried to make this clear as well in previous postings), Capital Homesteading — consistent with CESJ's Aristotelian/Thomist natural law orientation — defines money by its nature and proper use, not as a creature of positive law, that is, of direct State action.

In other words, CESJ understands "money" in ontological terms of what it is, instead of what it happens to do or (more immediately) can be forced to do. The former is based on nature, the latter on will — usually that of the State, which thereby tries to take on the divine aspect of being able to determine reality. This latter is the view of the Keynesian, Monetarist, and Austrian schools of economics. (See, e.g., John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

CESJ defines "money" as anything that can be used in settlement of a debt; it is the "medium of exchange." You don't ordinarily need anybody's permission, especially that of the State, to trade what you have for that which someone else has. As Jean-Baptiste Say explained in his refutation of the scarcity-based economics of Reverend Thomas Malthus, you don't make your purchases of what others produce with "money," per se, but with what you produce by means of your labor or capital. "Money" is simply a "social tool" to facilitate transactions. If some people cannot sell all they produce, it is because other people are not producing. (Letters to Mr. Malthus, 1821, 2)

This definition of "money" is implicit in the tenets of the "Banking School," as well as in the work of Dr. Harold Moulton (notably in his 1935 classic, The Formation of Capital), the binary economics of Louis Kelso and Mortimer Adler, and even the venerable Adam Smith in The Wealth of Nations (1776). This is emphasized in the subtitle of the second book Kelso and Adler co-authored in 1961, The New Capitalists: "A Proposal to Free Economic Growth from the Slavery of Savings."

Finally, be aware that Kelso and Adler made two "mistakes" in the title of their book. One, they carried over the vague term "capitalism" from their first collaboration, The Capitalist Manifesto (1958). In The Capitalist Manifesto they explain that by "capitalism" they mean an economic system in which capital, not labor, is the predominant factor of production. This is less than helpful, for the definition also fits socialist economies. As Chesterton remarked, "If the use of capital is capitalism, then everything is capitalism." (G. K. Chesterton, The Outline of Sanity, 1927, Ch. 1.)

Two, this is not really an error, but the phrase "Slavery of Savings" implies a hostility toward or a rejection of savings. On reading The New Capitalists, however, we quickly discover that the "slavery" to which Kelso and Adler refer is dependence on existing accumulations of savings to finance capital formation. Dependence on past savings or reductions in current consumption restricts capital ownership to those who can afford to save, or who receive redistributed capital from the State (in which case they cannot truly be said to own that wealth).

What Kelso and Adler proposed was to replace past savings with future savings. That is, instead of cutting consumption and accumulating in order to invest, the process is reversed so that investment in new capital generates its own repayment — a basic principle of finance. It is no longer (and never actually was) necessary to cut current consumption. Instead, by creating money backed by the present value of the future stream of income to be generated by the newly-formed capital, current consumption levels can be maintained, even increased, at the same time that income is generated to repay the financing of the very capital that generates the income.

By future savings, we do not mean forced or involuntary savings, terms which have a completely different — and much more complicated — meaning in most modern schools of economics. (It's so complicated and contradictory that it would be counterproductive even to try to explain it here.) We have, confusingly, used "future" and "forced" savings as synonyms in the past — and might in the future (nobody's perfect) — but the reader should be aware that there is, in fact, a significant difference between the future savings concept in binary economics, and the forced savings theory in Keynesian, Monetarist, and Austrian Schools of economics.

Thus, to understand Capital Homesteading, keep in mind that the proposal uses a different understanding of money than is usual today, and that it rejects Malthusian concepts of scarcity as invalid. We will begin to look at how to apply these "revolutionary" ideas in the next posting in this series.

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