THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Tuesday, March 31, 2009

"Let It Be Done According to Your Will"

The Latin word "fiat" means, "Let it be done." In English common law, a "fiat" is "a short order or warrant of a judge or magistrate directing some act to be done; an authority issuing from some competent source for the doing of some legal act." (Black's Law Dictionary) It thus comes across as something more than a coincidence that Mr. Obama's "solution" to the current automakers' crisis is that Chrysler should be acquired by Fiat. Matters have reached such a pitch that we received an unsubstantiated report an hour ago that Cerberus Capital Management, L.P., the company holding the majority of Chrysler shares outstanding (in the neighborhood of 80% we understand) has turned over its shares to the federal government.

We repeat that we have not confirmed this report. If true, it shows an almost complete disregard for an industry that many regard as quintessentially American (regardless who invented the automobile . . .), and the flight overseas not only of jobs, but of basic industries. The sad thing is that we have the capacity in this country not only to save the U.S. auto industry, but CESJ has realized that capacity by helping to develop a specific proposal to have the workers and retirees purchase the companies at a fair market value following a Chapter 11 reorganization.

With so little time to organize a protest over the federal government's narrow vision and heavy-handed approach to the situation, it's not clear what can be done in the time allotted. The fact that any plan has to meet with the approval of the very organization that has already specified what will be acceptable is highly irregular, to say the least. There is no objective third party that can stand back and give a little perspective, or assess the fairness of what is proposed.

We have heard another unsubstantiated report that there will be an effort to organize a "town meeting" in Detroit. Whether such a meeting (if it comes off) will have any effect is hard to say. What is clear, however, is that if you don't want America's auto industry to be moved overseas, or even eliminated entirely to meet the corporate strategy of Fiat, then it may be time now to send an e-mail or telephone your Senators and your Representative in Congress. Let them know that you are in favor of a worker buyout, and not the potential loss of still more jobs and industries overseas.

Monday, March 30, 2009

Will "Going Tribal" Save Ireland?

We've not been able to pay as close attention to the situation in Ireland as we should, and have let our posting on the economic crisis as it affects Ireland slow down some. Part of this is due to the fact that the problems in this country are coming across as almost insurmountable, especially as Mr. Obama and his advisers are ignoring the ownership solution embodied in Capital Homesteading. The other part is that we aren't getting the response rate from Ireland that we got at first. Even the following letter that we sent a little over a week ago hasn't generated any response, although Mr. McWilliams, who wrote an interesting piece in the Irish Independent, seemed open to innovative solutions.

March 18, 2009

David McWilliams
Irish Independent
dmcwilliams@independent.ie

Dear Mr. McWilliams:

Earlier today the Financial Secretary of the Colonel John Fitzgerald Division of the Ancient Order of Hibernians in America, Arlington County, Virginia, USA, forwarded me a copy of your article in today's Irish Independent, "Going Tribal Will Save Us From Economic Oblivion." The article makes a number of very good, even necessary points, but omits one very important factor: how to finance the economic upgrade you recommend for Ireland.

To be blunt, relying on foreign investment, as your example of Israel has done, has made the country a virtual dependency of the United States, with a consequent increase in resentment against an already unpopular group. When times get hard and people search for a scapegoat (as we are seeing at present), Jew-hating increases dramatically, just as it did in the economic chaos in Germany after the First World War. Nor are the Jews the only group targeted. The Irish in the United States were widely reviled from colonial times to as late as the 1950s in some areas for "stealing" jobs that many considered reserved for "WASPs" (White-Anglo-Saxon-Protestants). "No Irish Need Apply" signs were not uncommon even in the 1920s.

There is, however, a better way, one that we at the non-profit Center for Economic and Social Justice ("CESJ") have been working to present to politicians and other influential individuals in a number of countries, including our own United States, Israel, and, yes, Ireland. Some months back we sent e-mails introducing a concept we call "Capital Homesteading" to every member of the Seanad and the Dáil. We even received a number of acknowledgments, and sent bound copies of our book, Capital Homesteading for Every Citizen, to those that sounded most receptive, as well as to Mr. Cowen (we had previously provided a link to the free .pdf on the CESJ web site, www.cesj.org). In particular, Mr. Charlie O'Connor, the member for Dublin South West, brought Capital Homesteading to the attention of Mr. Brian Lenihan, who, for a time before other troubles intervened, appeared to be following up on the possibilities offered by the proposal.

I believe that adding a Capital Homestead feature to your proposal would flesh it out and enhance both its financial and its political feasibility. I encourage you to visit the Capital Homesteading pages on the CESJ web site, as well as the dedicated web page. Once you have looked over the material, you will want to talk to Dr. Norman G. Kurland, president of CESJ, who is one of the world's leading experts on worker ownership and ownership-expanding social technologies. Dr. Kurland may be reached via e-mail or by telephone. Dr. Kurland is very open to interviews, and in fact was interviewed two weeks ago by a journalist in Warsaw, Poland, who was referred to Dr. Kurland by Dr. Norman Bailey, former chief economic advisor to the United States National Security Council under President Reagan.

Friday, March 27, 2009

News from the Network, Vol. 2, No. 13

The most astounding news this week is the apparent ease with which Geithner and Company are seizing control of the most important financial system in the world, all apparently without a thought about the dangers of concentrated power of any kind, but especially economic and financial power. There seems to be very little appreciation of the truth of the dictum that Lord Acton quoted to Mary Gladstone, that power tends to corrupt, absolute power tends to corrupt absolutely.

Nevertheless, there are a few pieces of good news in the Global Justice Movement this past week:
• Mr. Mark Gross, O.P.L. (Lay Fraternity of St. Dominic), editor of Christ in the World!, the newsletter of the Lay Provincial Council of the Western Dominican Province, will be publishing a short piece on Father Andrew F. Morlion, O.P., Ph.D., who was active in CESJ until his death in 1987. Father Morlion referred to his friend, Father William J. Ferree, S.M., Ph.D., as "America's greatest social philosopher" when Father Ferree died in 1985. Contact information can be found on the Council's web site.

• Norman G. Kurland and Michael D. Greaney are in New York City today meeting with Father Kevin Dance, C.P., head of the Passionist NGO at the United Nations. The meeting was arranged by Father Cassian Yuhaus, C.P., Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania. The meeting is to acquaint Father Dance with the Just Third Way and its potential to solve the current global financial crisis, especially as applied in the Abraham Federation and Capital Homesteading.

• We received a note from His Eminence, Achille Cardinal Silvestrini, thanking CESJ for its support in his efforts to educate the youth of today in proper principles of morality and sound reason, especially the Cardinal's school, Villa Nazareth. His Eminence praised CESJ for its own work, and stated his belief that Pope Benedict XVI would bless CESJ's efforts to promote the Just Third Way.

• On Wednesday, Norman Kurland had a meeting on the East St. Louis project in Washington, DC, during which they agreed to join the Coalition for Energy Independence and Citizen Ownership. Mayor Alvin Parks of East St. Louis and Mayor Nathaniel O'Bannon of Brooklyn, Illinois attended the meeting. Antonio Betancourt, Walter Fauntroy, L. Dean Price, Laura Zacher, Rich Vogel of Whiting Turner Construction, and Marvin Warshay who headed the NASA-Louis Advanced Energy Systems were also there.

• Also on Wednesday there was a meeting with Congressman Jerry Costello (D), who had read the MECLC proposal, who indicated he liked it and would do all he could to raise the money for the $70 million prototype, which would be a global exemplar for green energy development and provide a new industry within East St. Louis and fourteen neighboring cities. It would also provide an ownership share in the land leasing and the profits from the exemplar to all the citizens of the area. Congressman Costello said he would be in contact with Senator Dick Durban to get the federal government to fund the project.

• Later that same day, the team met with Senator Dick Durban (D) of Illinois, one of the top three most powerful senators, who was born and raised in East St. Louis. After the senator indicated his interest, the team had an extensive meeting with two of the senator's aides, who indicated some possible sources of funding the projects.

• On Thursday there was a press conference in the morning at the National Press Club on the East St. Louis project, at which a series of excellent presentations were made. The conference was videotaped for presentation on YouTube. We will post a link when the video is up.

• On Thursday after the press conference, the team had a meeting with Congressman John Shimkus (R), on the House Energy Committee, and was very supportive. He said he is a good friend of Congressman Costello, and indicated he would support the $70 million proposal.

• As of this morning, we have had visitors from 48 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, with Canada, the UK, Finland, and the Philippines.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

Thursday, March 26, 2009

Regulation, Part IV: The Federal Reserve Shell Game

The virtual complete freedom of action and lack of accountability with which control over money and credit vests the State is a very, very bad thing. That is why the proposals of Messrs. Obama, Geithner, and Bernanke should make every American citizen extremely nervous. The declaration attributed to Baron Rothschild may be apocryphal, but that doesn't make it any less true: "Give me control over money and credit, and I care not who makes the laws."

Nevertheless, we can't ignore the effect that such concentration of power has on the economy as well as the political order. When faced with the spreading fear and chaos that inevitably accompanies economic disruption on such a scale, people will almost inevitably seek leaders and policies that promise to correct the situation and restore order again.

The fact that such restoration of order comes at a very high price (as the German people found out in 1933) is, when people are terrified, usually considered a price well worth paying . . . sometime in the future, after we're all safely dead. "In the long run," Keynes was fond of saying, "we're all dead." This dictum seems to have been the guiding principle behind Keynesian economics and the political and economic policies based on the teachings of the Great Defunct Economist. We are now faced with having to pay the price for dead generations, and (true to human nature reacting against seriously-flawed institutions) are busily trying to refinance the debt so that future generations will pay instead of us.

Thus a minor problem like a shift in the backing of the currency becomes major when its real effects begin to be felt. To understand what has happened, we should look at things from an accounting perspective.

In accounting terms, the backing of the currency has shifted from current assets to a contingency. A "current asset" is an asset that is either cash, or is expected to turn into cash within one "accounting period" (usually a year). By the terms of the 1913 Federal Reserve Act, all new money created by the Federal Reserve was to be backed by liens on productive assets and the present value of future production. This loan paper was to be "discounted" (sold) to the Federal Reserve for terms not to exceed 90 days, thereby categorizing all such "qualified paper" as "current assets."

A "contingency" on the other hand, is "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (hereinafter a "gain contingency") or loss (hereinafter a "loss contingency") to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur." (FASB No. 5, "Accounting for Contingencies")

Accountants are generally cautioned to avoid listing contingent gains on an organization's financial statements to avoid inflating the value of the company and distorting the picture of the firm to be gained by users of the financial statements — including banks and other financial institutions who, on the basis of a listed contingent gain, might be tempted to lend money to a company that otherwise would not be considered a good credit risk.

By backing the currency with future tax collections, which should be classified as a contingency, not a current asset, the federal government is creating several problems. Most obviously, it is not certain how much can be collected in taxes once the currency has been destabilized in this manner, or whether, in light of the continuing deficits, there will ever be enough collected in taxes to pay off the loans the government has floated.

The more subtle (and much more damaging) problem, however, is that having disconnected money from production by shifting the backing of the currency from production to debt, the federal government has seriously compromised its ability to collect taxes at all. If people cannot obtain financing for productive projects and the financing is not directly linked to the productive project being financed, production will necessarily fall as the number of feasible projects brought to banks and other financial institutions and intermediaries declines. As production falls, people's incomes will decline: production = income. As income declines, the tax base erodes, and the State's tax revenues fall.

What then happens under the current Keynesian paradigm only accelerates the growing financial crisis. As tax revenues fall, the government prints increasing amounts of money backed only by future tax revenues . . . which revenues become increasingly ephemeral as the erosion of the value of the currency progresses. The more money the government creates and spends on non-productive purposes (e.g., bailouts, infrastructure that doesn't generate its own repayment, welfare, political pork, etc.), the worse the situation becomes. The very thing that the State does to cover its expenditures makes it impossible to meet those expenditures, to say nothing of destroying the economy on which the money that the State insists on issuing without an asset backing relies.

Wednesday, March 25, 2009

Free Choice, Union Style

On March 23, 2009, we received the following e-mail from someone who (for obvious reasons) I will not name. The website referred to is the "American Auto Worker Ownership Committee" ("AAWOC").

A volunteer went to work today at Toledo Jeep, and placed information on tables referring workers to our website. Another worker told him that at the monthly union meeting a couple of weeks ago our Union Chairman stated that any employee passing information out about the employee ownership will be disciplined.
Within the last 36 hours, we got a telephone call from another individual associated with the AAWOC. This individual presented the outline of the buyout plan to individuals in management. Their reaction was to ridicule the plan, and label it "communism." They did not explain how, when the plan is for workers to have direct private property stakes in the means of production, it could possibly be described as "communism"!

Frankly, the push for a government bailout is communist. When a company is considered "too big to fail," the plain truth is that, ultimately, that company is too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "communism." Management (or at least some of them) is ridiculing the free market and advocating communism by turning the language upside-down, just as George Orwell predicted in 1984.

As Karl Marx himself declared in The Communist Manifesto (1848), "The theory of the communists can be summed up in the single sentence: the abolition of private property." Evidently the union leaders don't share the late Walter Reuther's openmindedness, while management lacks his knowledge of communism and private property.

With these examples of union pressure and management ridicule before us, it casts grave doubts on the honesty of those campaigning to abolish the secret ballot when voting whether to unionize, and in some cases abolish elections altogether. If the behavior reported to us is any indication, the so-called "Employee Free Choice Act" would simply provide limitless opportunities for union thugs and shoulder strikers to bully and browbeat workers into surrendering their natural rights of liberty and property to the union, while management looks on and cheers.

Rather than threats or ridicule, the UAW and management might want to try delivering justice to the workers and the public at large by reforming themselves as an "Ownership Union." They could trade a percentage of fixed labor costs for unlimited flexible supplemental incomes based on tax-free corporate incomes that flow into the pockets of workers in the form of dividends, productivity bonuses, additional shares of stock and eventually diversified assets. After paying off the credit for purchasing all buyout and modernization shares in the company through a leveraged Employee Stock Ownership Plan ("ESOP"), a portion of future company profits would be used to acquire a diversified tax-exempt portfolio of outside securities for enhancing the retirement security of ESOP participants.

Own or be owned. You have nothing to lose but your chains.

Tuesday, March 24, 2009

"Cut Us In or Cut It Out!"

Early this morning we received the following press release for a press conference to be held on Thursday, March 26, 2009 at the National Press Building in Washington, DC, USA. The conference is to announce the development of a proposal to address the current economic and energy crises in a practical and financially feasible (to say nothing of moral) way.

NEWS RELEASE
The Coalition For Energy Independence And Citizen Ownership
Contact: Laura Filbert Zacher, 314-772-6047 (o); 314-650-9681 (c) or 202-714-1468

"Cut Us In or Cut It Out!"

East St. Louis Delivers Solution
To America's Energy and Economic Crisis

For Immediate Release. On March 26, 2009, 10:00 a.m., at the National Press Building in Washington, D.C., leaders from one of the most poverty-impacted communities in the U.S., the City of East St. Louis and fourteen surrounding communities in Southern Illinois, will travel to the nation's capital to launch a comprehensive stimulus solution of their own, and to call for its support as a viable antidote to the unprecedented financial crisis in the United States.

Millions of Americans who have been devastated by the economic crises that now grip the country and the world have a message for those who are currently designing bailout initiatives: "Cut Us In or Cut It Out!" They are, of course, talking about the "Troubled Asset Relief Program" (TARP) that seems clearly to be a bailout plan for the "wealthy few" on Wall Street but not for the "unmonied many" on the Side Streets and Main Streets of America who are being devastated by mortgage foreclosures, job losses and the collapse of the credit system for both individuals and small businesses. They are saying to their government's policy makers: "Cut us in on the bailout or cut it out for the wealthy few!"

The Hon. Rev. Walter E. Fauntroy, who served for twenty years as D.C. Representative to the U.S. Congress, six years of which were as Chairman of the House Banking Subcommittee on Monetary Policy, will present the Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, Il. They will detail a plan that the people of these communities have developed with the invaluable assistance of a team of political, technology and economic advisors to lift themselves and, indeed, the nation out of the quagmire of public policies that have thus far failed to resolve the crisis.

East St. Louis, IL, has experienced a prolonged unemployment rate of 23%, and overall the poverty rate is 31% in the fifteen communities comprising the East St. Louis Metro East Riverfront Communities area. The project that the two mayors will unveil will introduce a revitalization plan for the region called the American Bottoms that will turn every citizen into a shareholder of the newly formed Metro East Citizens Land Cooperative. The plan calls for advanced renewable energy systems (ARES) to be owned by every local citizen; it is the first step in a national strategy called "capital homesteading" that would finance energy independence and economic empowerment of every citizen.

The first E-Macrosystem advanced renewable energy system and manufacturing center will create approximately 2,100 jobs: 200 full-time and part-time temporary construction jobs (with expected two year duration), 300 full time permanent jobs (after all phases of ramping-up are complete), and 1,600 regional / national enhancement job opportunities (including public services, agriculture, forestry, medical, retail, general services and manufacturing of component parts outside of the East St. Louis region).

The MECLC is based on the model of the for-profit, professionally managed, citizen-owned "Community Investment Corporation." MECLC's planned project will demonstrate integrated technology that produces emissions-free, independent power from all forms of waste and sunlight. Other benefits of the plan are ARES component manufacturing, robust job creation and broad citizen ownership of productive assets. Equity and profits from the new energy systems and local land development will flow to each citizen.

Net profits will be distributed to the citizen-owners from the sales of by-products generated from an E-Macrosystem ARES and manufacturing center. By-product sales include: green Premium Power to the grid (demanded by the pharmaceutical and computer chip industries, among others), potable water, medical oxygen, clean hydrogen, methanol, paraffins, other carbonaceous products, and through the emissions-free disposal of medical and hazardous industrial waste, agricultural waste, and biomass. Additionally, each E-Macrosystem has leasable floor space.

The MECLC plan initiates commercialization of ARES technologies developed in the U.S. space and defense programs. ARES involve solar fuel cell regeneration, waste steam reforming systems, and coal-based complex thermal composite materials for construction. MECLC's turnkey pilot project is ready for final design and construction under the professional oversight of Equitech International, LLC and Whiting Turner Construction Company, a top 5 U.S. construction and bonding firm.

The Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, IL, will be joined by a team of technology advisors to outline the initiative and subsequently will hand deliver a letter for President Obama, outlining the detail of the plan.

###

Other individuals who will be available at the press conference to answer questions regarding the MECLC project:
• Mr. Dean Price, Chairman and Agent for Equitech International, LLC (EI) & ARES, LLC, former University Architect, Georgetown University, Principal Investigator and creator for first academic building 300kW Solar (1983); the first Liquid Fueled Fuel Cell Heavy Duty Bus (30ft), providing the basis for Georgetown's on-going Advanced Vehicle Department. Price managed the University's program for the Solar Fuel Cell Regeneration proof-of-Concept at Edwards AFB, CA, with NASA / JPL.

• Dr. Norman Kurland, pioneer in employee-owned stock plans (ESOPs), leader in establishing for-profit community investment corporations: Managing Director, Equity Expansion International consultants. Co-founder of a Washington-based think tank, Center for Economic and Social Justice.

• Mr. Richard Vogel, EI Chief Executive Construction Manager; Senior Vice President of the Whiting-Turner Contracting Company, a top-5 construction firm, Whiting-Turner has 29 offices nationwide, revenues of $3.9 billion, and a $4 billion bonding capacity.

• Mr. Clarence Pearson, FAIA Architect and EI CEO for Architecture and Engineering, faculty and former Chairman, University of the District of Columbia; background in continuing education in commercial code and contract law, computer-aided architectural design and management, interactive computer systems, and construction management. He has worked on a wide variety of very large convention centers, correctional institution master planning, custom-designed residences and apartment complexes.

• Mr. Jay Laskin, EI Vice President, Fuel Cells and Related Components Research; President of HyEnergy Consulting, LLC, Baltimore MD, an enterprise to provide technical, sales, and marketing expertise related to a wide variety of hydrogen businesses, products and usage; retired from Teledyne Energy Systems Inc. as Director of Marketing and Sales where he was responsible for all commercial / industrial product sales, and overall engineering services, worldwide distribution and sales networks; extensive experience with development and application engineering, manufacturing, scheduling, quality control, and financial management.

• Dr. Marvin Warshay, retired Chief of the Power Propulsion Electro-Chemical Technology Branch, and Chief of Solar Dynamic Programs at NASA Lewis (now Glenn) Research Center; managed all the major development of fuel cell systems and batteries for NASA; he managed DOE, DOD, ARPA and contributed to Georgetown University's Fuel Cell Bus Program.

• Mr. Richard Theodor Kusiolek: EI Telecommunications Chief; President and Chairman of TransGlobal Net, Inc. (TGN); more than 20 years of experience in the voice data convergence with a focus on Satellite and Terrestrial wireless communications networks, quick cycle technology new product introductions, project management, and strategic marketing management; TGN Company was sponsored under the Clinton Administration's Advanced Technology Program in 1994; the proposal was the catalyst for the many initiatives that enhanced the Information Highway.

• Bonnie Horner-Mueller, EI Senior Telecommunications Consultant, CEO Vidisolutions, Inc. Ms. Horner-Mueller was president and chairman of FreBon International. She has in-depth experience in providing advanced specialized communications, video-conferencing, and telemedicine communities.
Location of the Press Conference:

National Press Building
529 14th Street NW (corner of 14th and F St)
13th Floor
Washington, DC 20045

Monday, March 23, 2009

We are Seeing the Future, and It Doesn't Work

We've been letting the Wall Street Journal off the hook for a while, mostly because the stunts being performed by the federal government and the Federal Reserve are, while less amusing, more panic-inducing. Today's "Review & Outlook," however, was just too off-the-wall to ignore, coming as it does from a presumed champion of free markets and limited State involvement in the economy.

Dear Sir(s):

Your "Review & Outlook" commentary in today's issue of the Wall Street Journal ("A Smoot-Hawley Moment?" WSJ, 03/23/09, A14) neglects one small, if significant aspect of using taxpayer money to meet the terms of a contract between AIG and certain employees. The United States taxpayer was not a party to any contract between AIG and its employees. The contract, if any, involving the United States taxpayer and his money was between the federal government and AIG, not the federal government, AIG, and AIG's employees.

All contracts involve a "meeting of the minds." If this is deemed not to have occurred, no valid contract exists. While not explicitly stated, the money was presumably given to AIG on the understanding that it would be used to bail them out from having wasted their shareholders' money speculating in assets of questionable value. All of the discussion about the bailout in the halls of Congress and the media focused on this issue, not amounts due under employment contracts, valid or invalid, earned or unearned, to which the taxpayer was not a party. By using the money to pay bonuses, AIG violated the implied terms of the contract between AIG and the United States taxpayer. As there was no meeting of the minds, there was no valid contract. AIG thus obtained the money under false pretenses.

All of this, however, is actually a diversion from the real issue: should the government be bailing out the private sector, when the free market and the legal system already have adequate remedies available in the form of Chapter 7 and Chapter 11 bankruptcies and reorganizations? A company that is "too big to fail" is, ultimately, too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "socialism."

The Wall Street Journal has placed itself in the uncomfortable position of trying to defend socialism with free market rhetoric; of supporting contracts by violating them; of undermining private property by alleging offenses against private property. Karl Marx couldn't have arranged it better, claiming that, "The last capitalist we hang shall be the one who sold us the rope." AIG and the Wall Street Journal are busily selling rope to politicians and bureaucrats who are all too willing to buy.

Friday, March 20, 2009

News from the Network, Vol. 2, No. 12

Despite a slight decline early today in the stock market, it does not yet appear that the gamblers and speculators on Wall Street have caught on to the fact that the announcement earlier this week that the Federal Reserve plans to pump $1.2 trillion into the market is not exactly a "good thing." Creating money to purchase existing equity shares and debt instruments is a very serious mistake, and one of the primary causes of the current financial and economic meltdown as well as the Crash of 1929.

New money that is not linked directly through private property to the present value of production, whether existing production, or investment in new capital formation intended to produce future marketable goods and services, is purely inflationary. Any rise in share values that results from such an infusion of cash is completely artificial and is not related to an actual increase in the real value of the company underlying the shares. It is, in effect, trying to solve the problems caused by the previous bubble by blowing it up again, thereby setting the system up for another, worse decline.

Nevertheless, our efforts to insert some sanity into the system continue:
• We received word yesterday that the annual rally at the Federal Reserve building in Washington, DC, has been moved from the previously-announced date of Friday, April 17, 2009, to Wednesday, April 15, 2009. Anyone who has managed to file his or her annual declaration of tax dependency (a.k.a., "Federal Form 1040" or some variation thereof) is urged to attend in order to politely and respectfully protest policies by the Federal Reserve and the federal government that distort what should be a just, straightforward, and easy-to-understand tax system for raising revenue to meet current government expenditures without borrowing, and to suggest reforms of the system to restore the Federal Reserve and the Internal Revenue Service to their original functions. Again: The annual rally at the Federal Reserve has been moved to Wednesday, April 15, 2009. Further details will follow.

• CESJ's monthly "Executive Committee Meeting" was held on Wednesday, March 18, 2009. This marked the beginning of an experiment with a new format, in which the business meeting required by the bylaws is held on a different day from the news and information session, used mostly for instructional and educational purposes.

• Review copies of CESJ's publications, Curing World Poverty (1994), Capital Homesteading for Every Citizen (2004), In Defense of Human Dignity (2008) and William Cobbett's The Emigrant's Guide (2008) were, at the suggestion of Anna Lemaire of Liguorian magazine's advertising department, sent to that magazine. The Reverend Cassian Yuhaus, C.P., Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania, also requested a copy of In Defense of Human Dignity.

• Ms. Shirley Starke, coordinator of the "Irish Special Interest Group" of American Mensa, Ltd., sent in some commentary on our "Easter, 1916" posting on March 17, 2009. Ms. Starke stated that the posting was "wonderful," and requested permission (granted) to include the posting in the next issue of the SIG's newsletter.

• We sent a letter to the "Redemptorists," a Catholic religious congregation, that (according to news reports), lost approximately a third of their assets in the Madoff ponzi scheme. We invited them to dialogue with us on ways to implement the Just Third Way as one possible means to help prevent such scandals from reoccurring. If your organization was similarly affected, or if you are simply interested in advancing the cause of economic justice for all, check out the volunteer opportunities listed on the CESJ web site, and consider participating in the rally at the Federal Reserve on April 15, 2009 in Washington, DC.

• As of this morning, we have had visitors from 47 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, with Canada, the UK, the Philippines, and Finland rounding out our "top five" countries where we're read the most. The top spots for the average time spent on the blog, however, go to Venezuela, Jamaica, Ghana, New Zealand, and Brazil, in that order. Our most popular posting is still the one on Abraham Lincoln's 1862 Homestead Act. Of the remaining "Top Ten," except for one news notes posting, all are concerned with the flaws of Keynesian economics. For some reason, the average time spent reading the posting on the Keynesian "paradox of thrift" is more than an hour and a half, which suggests that some people may be studying this particular Keynesian fallacy very closely.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

Thursday, March 19, 2009

Regulation, Part III: The New Dictatorship of Money

By any standard of measurement, the decision of the Federal Reserve to "pump" $1.2 trillion into "the financial system" (meaning the stock market) is enough to terrify anyone who has a modicum of common sense left. ("Fed to Pump $1.2 Trillion Into Markets," Washington Post, 03/19/09, p. A1.) Such a move, a serious indication of stark, raving financial and economic insanity, is virtually guaranteed to begin finishing off what is left of the U.S. economy. Clearly motivated by political rather than economic or financial considerations, the decision is custom-made to destroy whatever confidence remains in the dollar.

The only question is how this situation was allowed to develop in a country presumably run for the benefit "of the people, by the people, and for the people." The answer is actually simple, once we free ourselves of the shackles imposed by the Great Defunct Economist, John Maynard Keynes.

By adhering to the letter rather than to the intent of the law, the federal government and the Federal Reserve have, between them, shifted the backing of the currency. The backing of the currency (or equity shares, or any other type of financial instrument) is what financial experts call the "underlying," with the additional word "asset" understood. The "underlying" of the currency has changed from "qualified industrial, commercial, and agricultural paper" (i.e., hard assets representing existing production and the present value of future production), to the federal government's ability to collect taxes. The currency has thereby shifted from being asset backed, to being debt backed.

This has had the expected effect. The value of the dollar has been falling for decades, prices have been rising, ownership of the means of production has become increasingly concentrated, basic industries have been leaving the country, and fewer and fewer people are able to make a decent income solely by selling their labor.

There are many other factors that have caused this situation, of course, but the virtual monopoly over the creation of money currently enjoyed by the federal government in unacknowledged alliance with the Federal Reserve has all but ensured that the great mass of people will be cut off from access to the means of acquiring and possessing private property. Further, freed from the necessity of having to tax in order to raise the money it needs, the federal government has acquired more and more power over the lives of American citizens, calling to mind the warning voiced by Pope Pius XI in 1931 in his "encyclical" Quadragesimo Anno ("On the Restructuring of the Social Order"), which itself echoed those issued by Henry C. Adams in his 1898 study, Public Debt: An Essay in the Science of Finance. As Pius XI declared,
105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.

106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.
We don't need to be Catholic, or even believe in any God, gods, or goddesses to see the common sense of what Pius XI said and the dangers inherent in ignoring his warning. We need only substitute "State bureaucrats" for the "trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure" to realize the danger of allowing the federal government — or any government, for that matter — to have such enormous control over money and credit, and thus complete mastery over the economic life's blood of every man, woman, and child in the country.

Wednesday, March 18, 2009

Regulation, Part II: The Federal Reserve Ponzi Scheme

Once those irritating systemic regulations such as Glass-Steagall that required separation of function among financial institutions and prevented the formation of financial oligarchies were removed, people immediately began using their new freedoms in a manner consistent with their self-interest. This was no different from what they had done before, and is fully consistent with human nature.

The problem was that now self-interest, instead of being exercised within a system that tried to look to the long-term health of the financial system, was exercised within a system redesigned to promote short-term expedients that bolstered gambling and speculation, favored concentration of financial power, and fostered incompatible functions and contradictory end goals. The "Greater Fool Theory," in which enormous profits are made by luring in new "investors" to the real estate market and other ponzi schemes governed the financial world.

Everything went along swimmingly until the speculative bubble that sustained everything started to implode. This happened when it was discovered that the assets underlying the massive amounts of derivatives either didn't have the value assigned to them, or didn't even exist.

Most people will immediately think of the Madoff scandal when the latter case is mentioned. They fail to realize, however, that the United States government is far more guilty than Madoff of issuing paper with nothing behind it, to the tune of more than $10 trillion. Compared to what the federal government has managed to pull off, Madoff is a piker.

What the federal government has done is undermine the fact that the derivative we call "money" necessarily has production and productive capacity as its underlying asset if we want to enjoy the benefits of a sound currency and stable economy. Since 1917 however, due to a loophole in the Federal Reserve Act of 1913, the United States government and the Federal Reserve have been circumventing the structural, internal regulation embodied in the Act designed and intended to prevent the federal government from being able to "capture" the central bank and use it to monetize its deficits.

Tuesday, March 17, 2009

Easter, 1916

Early this morning we received an e-mail from Mr. Tom Laney, a retired UAW worker involved in the American Auto Worker Ownership Committee effort to organize autoworkers to purchase the Big Three automakers on their own behalf instead of working for the exclusive benefit of others. The e-mail contained a link to a video of the song "James Connolly," performed by "Charlie and the Bhoys," accompanying footage of a reenactment of the Easter Rising of 1916 at the General Post Office in Dublin.

We were already familiar with the song, and more familiar with the history. Connolly, head of the socialist Irish Citizen Army, had achieved a tentative alliance with the Irish Volunteers. Michael Collins, comparing Connolly to Patrick Pearse (first provisional president of the Irish Republic), said that Connolly was a realist while Pearse was the idealist. This was perhaps due to the fact that Pearse had a vision of an Irish Republic born out of the willing sacrifice of the Volunteers, symbolically choosing Easter as the date of the Rising for that reason, while Connolly sought the destruction of the capitalist system and the establishment of a socialist republic, preferably without having to die himself.

Pearse framed the struggle as Irish nationalism against British oppression, while Connolly characterized it as labor v. capital. Unfortunately, the leaders listened to Connolly when developing their strategy for taking over Dublin, and Connolly was convinced that the capitalists would never use artillery in putting down a rebellion, thereby running the risk of damaging or destroying their own property. This led him into the belief that simply holding out as long as possible would give the combined IRC and the IV a victory.

Consequently, the rebels concentrated their forces at the General Post Office, a militarily insignificant target in the center of town on the main street (Sackville Street, later renamed O'Connell Street, after the Great Emancipator, Dan O'Connell), leaving Dublin Castle and the various communication companies and utilities either abandoned or in the hands of the RIC (Royal Irish Constabulary) or the army. A key point in the Irish strategy was reliance on the assumption that the British were tied down in France and couldn't spare troops to put down a rebellion in Ireland. By concentrating their forces and assuming incorrectly that artillery would not be used, however, the rebels made it relatively easy for the British to win with much fewer troops than otherwise.

The rebels were rounded up and taken off to prison through the streets of Dublin, during which the people cursed them, even threw garbage at them. One of the men recalled years later asking the man marching beside him if he thought the British would let them go. The other man replied, "God, I hope not." What changed the opinion of most of the Irish (and even many English) were the secret executions of the leaders, including Connolly, who was already dying. The executions were carried out over the personal protests of King George V, as well as many members of parliament and leading public figures, and announced afterwards.

This outraged the public that, up to then, had been almost uniformly condemning the rebels. The executions were immediately construed as revenge rather than justice, and even today's modern English commentators say it would have been much better to let the leaders lie forgotten in jail, letting what little public support they enjoyed die away over time.

The only leader not executed was an obscure professor of mathematics named Edward (later Eamon) de Valera, an American with an Irish mother and a Spanish father who had failed to formally renounce his American citizenship before joining the rebellion. The British were at this time desperate for American aid for the war in Europe, and didn't execute de Valera. This gave the rebels a single leader to rally around instead of sixteen, ensuring unity at a critical time.

Our recent proposals to the Dáil and Seanad of Ireland, found under the heading "Irish Economics," offer an economically and financially — and peaceful — way to achieve the major goals of the Easter Rising of 1916, with the exception of the establishment of a socialist (or, for that matter, capitalist) republic. Capital Homesteading and the Abraham Federation offer a framework for lasting peace that transcends the usual demands for people to give up everything and gain nothing.

Monday, March 16, 2009

Regulation, Part I: Two Views of Regulation

There are two ways to look at regulation. One, you can set up a system to police itself, so that the institutions of the system operate in a way that optimizes the chance of the desired objective(s) coming to pass. Two, you can hand over the policing of the system (as opposed to the policing of the abuses of the system) to something external — in today's world, usually the State — hoping that the threat of coercion from the outside will force people to act in what are considered appropriate ways, whether or not the system allows people to act in the "appropriate ways."

Any accountant can tell you (or should be able to tell you) that it is far more effective to set up a system that embodies regulation, that is, a system with its own internal checks and balances, than to try and impose them from the outside by increasing the burden of regulation designed and intended to coerce desired results. External regulation may or may not even make sense when considering an organization's mission, the existing institutional environment, or, especially, the dignity of the human persons involved.

For example, it is much better to separate "Payables" and "Receivables" both physically and administratively, making it difficult or impossible for a single individual or group to have control over incompatible functions. This systemic regulation is much more efficient and cost-effective than simply forbidding individuals or groups having control over incompatible functions to do anything wrong. Separation of function makes it more difficult either for honest mistakes to be made, or for actual wrongdoing to take place. Simply forbidding certain acts cannot prevent honest mistakes, and, worse, imposes no structural check or balance to make the forbidden act difficult or impossible without a great deal of effort.

All of this has to do with a fundamental change in how we view regulation. Consistent with the dignity of the human person, regulation should be designed to reinforce the system itself and encourage desired results, not run counter to the whole idea of a system itself and try to force desired results, whether or not the capacity exists to achieve the desired goal. The system itself must be designed to be self-regulating, not have control imposed from the outside. Unfortunately, what we've seen develop in government as well as law and economics is the belief that people must be forced to do whatever people in power want them to do, thereby attaining some bureaucrat's or academic's idea of utopia.

Thanks to the current financial crisis, we see the results of attempting to force people to act in what politicians and academics believe to be desirable ways instead of setting up and maintaining the system so as to allow people to act in desirable ways. The repeal of Glass-Steagall and other regulations in the early 1980s affecting financial institutions removed structural, internal regulation that relied on people acting in most cases to their own advantage, and replaced it with coercive, external regulation that tries to force people to act contrary to their own advantage.

What naturally resulted seems to have surprised virtually everyone: people acted to their own advantage within a system where it was very easy, simply by ignoring external regulations, to gamble and speculate with other people's money, even steal it with impunity, as long as nobody thought to ask the wrong questions. The system, gutted of internal, self-regulation, couldn't — and didn't — send up any signals that would cause people to ask such questions.

Friday, March 13, 2009

News from the Network, Vol. 2, No. 11

As of this morning, the financial world is still riding the wave of what they should realize by this time is yet another artificial burst of euphoria over the prospect of the U.S. government printing more money to bail out an ever-widening circle of clients and dependents. Depending on how long it takes the gamblers and speculators to catch on to the fact that printing money unlinked to production can only make things worse, the stock market will again go into a precipitous decline, and probably sharper than before as reality once again catches up with unfounded optimism. It all comes down to how long people allow themselves to be led by the empty rhetoric of politicians who, to use the old joke, fill the air with speeches, and their speeches with air, refusing to link creation of money to new production of marketable goods and services.

Nevertheless, there is some genuine progress to report.
• On Monday and Wednesday of this week, Norman Kurland and Dawn Brohawn had a series of meetings with Antonio Betancourt and former Congressman Walter Fauntroy of the Summit Council for World Peace. All participants in the meetings agreed that, in view of the worsening economic crisis, now was the time to move forward with the Just Third Way, especially in organizing to present the principles underlying Capital Homesteading and the Abraham Federation, targeting the annual demonstration outside the Federal Reserve Building in Washington, DC on April 17, 2009. A special emphasis needs to be put on opening doors for Norman Kurland to make presentations to prime movers throughout the world. If you have highly-placed connections you believe might be open to hearing about the Just Third Way, refer them first to the CESJ web site, www.cesj.org, and suggest that a meeting be arranged with Norman Kurland.

• Although Mr. Obama seems intent on turning the American automobile industry over to Wall Street (which has done such a smashing job with the rest of the economy), the "American Auto Employee Ownership Committee" has been working very hard over the past several weeks to put together a proposal that would give America's auto workers the power to save their own jobs by opening up the opportunity to purchase the "Big Three" and make them profitable again rather than continue to shovel taxpayer money into the furnace to give Wall Street bankers and brokers a nice warm feeling. The Committee recently carried out a survey to determine attitudes among their fellow UAW members, and reported that of the 1,500 respondents, 95% were in favor of ownership by the workers as a way to revitalize the industry, with 1% opposed. Norman Kurland has been active in offering free consulting services to the Committee.

• On Thursday we received a telephone call from an estate planner in Indiana who got in touch with us because of the description of the Justice-Based Management ("JBM") services offered by Equity Expansion International, Inc., a company founded to put Just Third Way principles into practice within today's legal and business environment as far as the law, conditions, and opportunities allow. With competition for scarce resources such as financing becoming increasingly severe as the economic crisis worsens, a Justice-Based Management culture in a company may give the enterprise the edge necessary not only to survive, but to thrive in difficult times.

• Recently we heard from an entrepreneur in Canada, who is investigating the possibility of installing advanced, "green" energy systems and Justice-Based Employee Stock Ownership Plans "north of the border." At present he is working to surface expert Canadian legal counsel to determine whether existing Canadian law allows for the same or similar arrangements that are possible under U.S. law, or whether existing institutions can be adapted to JBM within the current legal framework.

• As of this morning, we have had visitors from 47 different countries and 52 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, with Canada, the UK, Finland, and the Philippines rounding out our "top five" countries where we're read the most. The top spots for the average time spent on the blog, however, go to Venezuela, Brazil, New Zealand, Mexico, and Poland, in that order. In a surprise move, our most popular posting is the one on Abraham Lincoln's 1862 Homestead Act, which entered that expanded ownership initiative into the sixteenth president's "greatest achievements" contest. While a posting on the stimulus package is trying harder at number 2, general comments on the flaws in Keynesian economics are still the most popular (4 postings). Of the remaining "top ten," 1 is on Capital Homesteading, and 2 are the weekly news updates. Most readers (70% of the "top ten" keyword searches) are using words indicating they want to learn about the serious flaws in Keynesian economics.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

Thursday, March 12, 2009

Democratize the Fed, Part II, William Greider's Response: "Terrific"

On Tuesday of this week I posted a relatively short commentary on Federal Reserve Chairman Benjamin Bernanke's proposal to impose regulatory reform on the nation's commercial banks, using the power of the Federal Reserve, the central bank of the United States, to carry out the reform. Our recommendation, as you can see in the posting, was to start with the Federal Reserve itself, and stop circumventing the spirit and clear intent of the Federal Reserve Act of 1913.

As has become my habit, I sent out links to the posting to the Kelso Binary Economics Discussion Group, some members of which forward the link to their networks, and their networks to their networks, and so on, just as we encourage them to do. To lure people into reading the posting, I added a short introductory blurb to the e-mail:
Some years ago William Greider wrote a best-selling book, Secrets of the Temple: How the Federal Reserve Runs the Country. It might have been better to subtitle the book, "How a Small Group of Politicians and Wall Street Brokers Run the Federal Reserve." Mr. Bernanke's call for "regulatory reform" of the financial system is more than a little shy of addressing this particular aspect of our current problems. It doesn't need to be that way, of course. There are a number of things that could be done from the perspective of the Just Third Way to refound our financial, economic, and, yes, political system on justice, rather than on the advantage of special interest groups. Today's posting addresses this concern.
Norman Kurland, whose many valuable suggestions have resulted in some of our more thought-provoking postings, happens to be acquainted with Mr. Greider, which (to tell the truth) I did not recall while struggling to write something that would inspire people to click on the link. I referenced Mr. Greider only because I am familiar with his book, and the subtitle gave me a good segue into my posting. I did not know until yesterday morning that Norman Kurland forwarded the link to Mr. Greider, with the note, "Bill, I think you'll like this and the blog article. Warm regards, Norm." You can therefore imagine my surprise when I opened my e-mail yesterday and found a cc. from Mr. Greider in my inbox that (to save myself the trouble of composing a posting for today) I will quote in full:
Dear Norm — Thanks for forwarding Michael Greaney's blog — it's terrific. We need to establish (or revive) our dialogue on this subject because it is now ripening quickly. Events have swiftly educated the general public (if not the political establishment) on the deformed nature of the governing system. That is an opportunity for unsanctioned ideas that have long been ignored or suppressed. We should plunge into the vacuum and clear away confusion.

I will send you tomorrow my new piece in the Nation that goes right at the Fed and describes its failure as a central source of this catastrophe. Next I intend a similar piece that addresses how to democratize the central bank (or start over with a clean slate). Kelso provides a highly relevant solution. There are other approaches, as you know, and my views are more eclectic than yours. But let's collaborate on waking up folks to the larger possibilities of this historic moment.

For starters, can you send me a refresher on the original Kelso proposal and how exactly "pure credit" can be used to democratize ownership? I am reminded that it was Kelso who ignited my initial interest in the Federal Reserve in the late 1970s which led me to decide a few years later to do a book on the Fed after I left the Washington Post. Do you remember? You brought Kelso around to the Post and he tried valiantly to educate me. I was clueless and only grasped fragments of what he explained. I recall one or two subsequent sessions with Kelso but of course you were personally pounding on my brain continuously in those days. It's not over, Norm. You are still teaching and I am still trying to understand.

Warm regards, Bill Greider
This could be the (re)starting of serious dialogue on the role of the central bank and of money, credit, and banking in our society.

Wednesday, March 11, 2009

Stereotyping in the Washington Post

Two days ago the Washington Post published a letter from Italy's ambassador to the United States. The Post had previously published an article filled with ethnic stereotypes and playing to American prejudices, intimating that Italy was overrun by Mafia thugs terrorizing the population and that the country was in a state of chaos almost approaching that prevalent in the United States. Knowing full well that any letter to the Post would be ignored, we sent one instead to the Ambassador.

March 9, 2009

The Hon. Giovanni Castellaneta
Ambassador of Italy
Embassy of Italy
3000 Whitehaven Street, N.W.
Washington, DC 20008

Dear Dr. Castellaneta:

Congratulations on your letter to the Washington Post of March 9, 2009. It is heartening to see that at least one country is working hard not to let financial and economic hysteria seize control of the situation, and that those who spread damaging (and erroneous) ethnic stereotypes that flood the American media are called to account.

However, I must be frank and say that I doubt that your pointed letter will have the effect that it should have. Stereotypes are embedded more deeply into the American psyche than even the seriously flawed Keynesian economic theories about banking that have caused the current economic situation. This is ironic because much of modern banking theory was worked out in Italy, which presumably knows how to run banks.

That being the case, I think it would be to your advantage to have a talk with Dr. Norman G. Kurland, president of the non-profit Center for Economic and Social Justice ("CESJ"), a think tank headquartered in Arlington, Virginia. Dr. Kurland may be able to help you develop a strategy to capitalize on Italy's banking strength and provide an exemplar to the rest of the world, instead of a thinly-veiled excuse to indulge in envy.

A program we've developed called "Capital Homesteading for Every Citizen" should be of particular interest to you. Properly implemented, Capital Homesteading has the potential not only to provide the means whereby every citizen in a country could gain an adequate and secure income, but also undermine the justification of and support for terrorism and organized crime.

I invite you to visit our web site, www.cesj.org, and review the materials on Capital Homesteading. After you've visited the web site, you might want to give Dr. Kurland a telephone call to discuss ways in which CESJ's programs and proposals could be of assistance to Italy. I have enclosed some information on Dr. Kurland, CESJ, and Capital Homesteading.

Tuesday, March 10, 2009

Democratize the Fed

If Mr. Bernanke is serious about overhauling the Federal Reserve regulatory system ("Bernanke Says Regulatory Overhaul Needed," Associated Press, 03/10/09) he might want to start with the Federal Reserve itself, and start adhering to the spirit as well as the strict letter of the law of the Federal Reserve Act of 1913. Many people evidently don't realize it, but the Federal Reserve Act, in an effort to prevent the government from being able to monetize its deficits, forbids the Federal Reserve from dealing in primary government securities, that is, securities purchased directly from the federal government.

Unfortunately, there is a loophole in the law. By law, bank reserves must be only in the form of cash or federal government securities. Cash, in this instance, is defined as "vault cash," that is, cash on hand at a commercial bank, and the commercial bank's own demand deposits at the local Federal Reserve Bank. Under fractional reserve banking, the Federal Reserve must have the power to regulate reserve requirements, and in order to do that, it must have the power to buy and sell secondary government securities, that is, securities purchased from a holder in due course other than the original issuer, the federal government.

The fiction that the federal government and the Federal Reserve maintain is that the vast amounts of federal government securities that pass briefly through the hands of a small but select group of special bond brokers are secondary government securities. They can thus be freely bought and sold by the Federal Reserve in their "open market operations." "Open market operations" is something of a euphemism, for they are effectively closed to everyone except the Federal Reserve and the select group of bond brokers who are, to all intents and purposes, agents of the federal government. In consequence, the letter of the law is adhered to, while the spirit is flouted continually.

Four necessary steps suggest themselves — if Mr. Bernanke is serious about genuine reform.

One, reinstitute the separation of function imposed on financial institutions by Glass-Steagal and similar legislation. Avoiding incompatible functions and relying on systemic checks and balances is critical when attempting to regulate a system. The repeal of Glass-Steagal in the early 1980s set the stage for both the Savings and Loan debacle and the current financial meltdown.

Two, institute an immediate 100% reserve requirement for commercial banks, to consist exclusively of vault cash and commercial bank deposits at the local Federal Reserve Bank. This will remove the justification for the Federal Reserve to deal in either primary or secondary government securities. The Open Market Committee can be shut down, and the Federal Reserve can gradually divest itself of its holdings of government securities as the national debt is paid down. The Federal Reserve will itself provide the reserves to commercial banks by discounting qualified industrial, commercial, and agricultural private sector loans, not government securities, resulting in a currency backed by hard assets, not government debt.

Three, enact the Capital Homestead Act. All credit extended through discounting by the Federal Reserve will result in broadened ownership, thereby creating jobs and increasing effective demand for consumer and thus capital goods, as well as rebuilding the tax base.

Four, buy out the current "shareholders" of the Federal Reserve (a term that must be used advisedly, anyway, for the "shares" do not carry dividend or voting rights), and issue every American citizen and permanent legal resident a single lifetime, voting, participating, non-transferable share in this extremely valuable national resource. The shares will cost nothing when issued, but the estate of the holder will also not be compensated at death when the single share is surrendered.

A great deal else needs to be done, of course. These four steps, however, should provide good guidelines as to what sort of thing we should be looking at instead of trying to pass more unworkable laws to police an inherently contradictory system having a serious identity crisis.

Monday, March 9, 2009

Bank Bailout, Part III: What is Money?

The subject of this particular posting in the series was supposed to be on the technical aspects of how a bank ESOP/CSOP might be put together to the advantage of the bank, its customers, and the public at large through increasing the checks and balances in the system, the introduction and maintenance of a sound currency, and taking the State as far as possible out of the actual money creation process. Various discussions over the weekend, however, convinced us that a more fundamental issue needs to be addressed: what is money?

We've already had a number of postings on this subject, but misconceptions about money are so widespread that it bears repeating, albeit in different words. Since we're dealing with a definition, the first place we go is to a dictionary, Webster's Seventh New Collegiate Dictionary, to be precise, which defines "money" as "Something generally accepted as a medium of exchange, a measure of value, or a means of payment."

The first thing we see is that the primary definition doesn't mention currency, whether paper bank notes or coin. That comes later. The primary definition hints at this, of course, by specifying that money is "something generally accepted," but doesn't actually come out and say this. Since most people seem to define "money" solely in terms of currency and demand deposits, we need something more precise. We will therefore go to a law dictionary, Black's Law Dictionary, the 1951 edition, since that is the one we have in the office.

We expect lawyers to hedge a little, and Black's Law Dictionary is no exception. After restating the definition we found in Webster's, the qualifications begin, the most significant of which appears to be, "'Money' has no technical meaning, but is of ambiguous import, and may be interpreted having regard to all surrounding circumstances under which it is used. 'Money' is often and popularly used as equivalent to 'property.' 'Money' means wealth reckoned in terms of money; capital considered as a cash asset: specifically such wealth or capital dealt in as a commodity to be loaned, invested, or the like; wealth considered as a cash asset. . . . In its more comprehensive and general sense, it means wealth, — the representative of commodities of all kinds, of lands, and of everything that can be transferred in commerce. . . . A general, indefinite term for the measure and representative of value."

We're starting to get a good picture here. Obviously, if we restrict the meaning of "money" to coin, currency, and demand deposits, we're going to leave out a significant part of what "money" consists. To put the final pieces of the puzzle together, let's take a look at how Jean-Baptiste Say viewed money. In his Letters to Malthus (1821), Say commented,
All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce.

To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.
In light of this, we come to a somewhat startling conclusion. "Money" is not mere currency, or coin, or demand deposits. "Money" is production; it is anything of value, all wealth that has been produced, anything that can be used in exchange. The fears so often expressed about there not being enough money, or the banks being able to control the entire money supply, and so on, are groundless when we realize what money really is: production. The solution to a mismanaged money supply, then, is not to mismanage it further, but to open up democratic access to the means of acquiring and possessing private, productive property, so that everyone — with or without the help of a bank — can make his or her own money.

Friday, March 6, 2009

News from the Network, Vol. 2, No. 10

The stock market appears to have settled into a pattern: a sharp drop followed by a pep talk from the administration, a brief rally, and then a sharper drop in share values. This possibly reflects the lag in perception as people react positively to Mr. Obama's optimism and shifts in emphasis before realizing that he hasn't effectively addressed yesterday's problem before leaping to the next one. Each crisis seems to be treated as an island, entire of itself, and not a part of the main problem. The principles of the Just Third Way, that we have demonstrated can be applied in a holistic fashion to address not just the series of seemingly new crises, but the structural flaws in our institutions causing the crises, continue to receive short shrift from the powers-that-be. Nevertheless, we are making slow but steady progress in presenting these ideas into circles where they might start receiving serious consideration.
• Early this week, following a minor flood of e-mails consisting mostly of forwards of a brief article by Dr. Robert Moynihan, editor of Inside the Vatican, on an upcoming encyclical on justice, we sent a note to Dr. Moynihan. We briefly explained the basic principles of the Just Third Way and how we think it fits into the framework of Catholic social teaching based on the natural law. Within an hour, we received a reply from Dr. Moynihan, who said our response was just what he had been hoping to surface, and that he would be looking over the recommended web sites and giving CESJ a call. Dr. Steven White, past president of the Catholic Medical Association, has commended CESJ for its outreach efforts in this area.

• The Reverend Cassian Yuhaus, C.P. ("Congregation of the Passionists," a Catholic religious order), Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania, put us in touch with Father Kevin Dance, head of the Passionist Non-Governmental Organization ("NGO") at the United Nations. Among other matters, Father Dance is concerned with the situation in the Holy Land. Father Yuhaus is setting up a meeting, and Norman Kurland and Michael Greaney will be traveling to New York City later in March to meet with Father Dance to discuss the Abraham Federation as a possible solution to the ongoing conflict in the Middle East, as well as other matters relating to a wider understanding and acceptance of Capital Homesteading and the Just Third Way as a viable answer to the tsunami of economic disasters that have swept the world. A native of Australia, Father Dance is co-editor of Compassion magazine.

• While we received no reaction or response from our e-mailing on Capital Homesteading and the Just Third Way to every member of the Icelandic Althing (the legislature), the blog postings commenting on the situation in Iceland have suddenly surged in our informal ratings (below). Most of the viewings come not from Iceland, however, but from countries that have economic and financial interests in Iceland. This might indicate some serious concerns in the international arena as to the ability of the current Icelandic government to handle the situation, and bafflement as to why they aren't willing even to consider something truly different, rather than a rehash of traditional Keynesian neo-socialism.

• Similarly, while the economic news from Ireland continues to worsen, we haven't heard back from any more members of the Dáil or Seanad (the two houses of the Irish legislature) regarding Capital Homesteading. While postings on "Irish economics" have gone down a little in our "ratings," they are still among our most frequently viewed. It may be that the Irish government is preferring to take the "safe" way of implementing accepted Keynesian solutions that are virtually guaranteed to fail, rather than run the risk of implementing bold new initiatives that run the risk of succeeding.

• As of this morning, we have had visitors from 49 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Over the same period we have experienced over 30% increase in total readership, according to the statistics counter of "Google Analytics." (The apparent drop in readership from last week's 80% is deceiving — the 30% is in addition to the 80%, making the increase in the neighborhood of 110% since the beginning of the year.) Most visitors are from the United States, with Canada, the UK, Poland, and Ireland rounding out our "top five" countries where we're read the most. The top spots for the average time spent on the blog, however, go to Venezuela, Croatia, Poland, Austria, and Brazil, in that order. Our general comments on the flaws in Keynesian economics have nudged out related commentary on the stimulus package as our most popular postings, which are now in "second place" — by one "vote." Of the remaining "top ten," 1 is on Abraham Lincoln and the 1862 Homestead Act, 1 is the weekly news roundup, and one is on Iceland. Most readers are using keyword searches indicating they want to learn about the serious flaws in Keynesian economics.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

Thursday, March 5, 2009

Saving Social Security

As everyone knows (or should know, given that the book Capital Homesteading for Every Citizen is available as a free download on the CESJ web site), the Social Security and Medicare systems are headed over an extremely high cliff of bankruptcy in the not-too-distant future, and CESJ developed Capital Homesteading as a way to address this problem. Thus, the subtitle to Capital Homesteading is "A Just Free Market Solution for Saving Social Security," even though the proposals in the book apply to the economy as a whole, not just Social Security and Medicare.

Early this morning we received an e-mail from a student who had read my article on the "Helium" web site on the subject, "Should Social Security Be Reformed to Include Personal Retirement Accounts?" The student's concern was an upcoming presentation on personal retirement accounts and social security for an economics class, and was having trouble with my presentation and the topic in general.

The student asked if I could send my basic talking points on the issue, and why I feel that way. Although the problem with Social Security has not been in the forefront of the news (for some strange reason we're more concerned with the immediate economic disaster than the one projected a few years from now), it is still a critical issue, and must be dealt with. For that reason, we decided to post a slightly revised version of our response to the student.

The best place to go to get the full picture on the proposed reforms of the Social Security system is the web site of the Center for Economic and Social Justice, www.cesj.org, where a free download of the book, Capital Homesteading for Every Citizen, is available, as well as a link to a dedicated web site. The chief talking points are:
• All current promises must be kept. Anyone who paid into the current system is legally entitled to receive the promised benefits.

• All new capital formation (i.e., all new investment in productive assets of all kinds) should be financed not by cutting consumption or out of existing accumulations of savings, but by using the commercial banking system and the central bank (the Federal Reserve System) as designed and intended. That is, per "Say's Law of Markets" and the "Real Bills doctrine," money can be created by the banking system without inflation IF the money created through the extension of bank credit for loans discounted at the central bank is made ONLY to finance capital formation.

• To ensure as far as possible that all new capital formation proves feasible, and that Say's Law and the Real Bills doctrine function properly, the new capital must be broadly — and directly — owned by as many people as possible, so that they will use the income after debt service for consumption, not reinvestment.

• Each citizen will receive — as a right of citizenship — the right to borrow the per capita amount of new capital to be formed during a period. It's important to note that this does not involve printing money and then investing it, but the right to participate in the creation of money via the extension of loans by commercial banks for qualified capital projects. The money is not (and cannot) be created until and unless a financially feasible project is presented to a commercial bank, which then turns around and discounts the loan at the Federal Reserve, which then creates the money. If no feasible investment is found, no money is created.

• Each citizen will be permitted to accumulate up to (we estimate) $1 million of capital assets (i.e., income generating, not speculative) "tax free" by allowing a lifetime total tax deferral of up to $1 million for dividend/investment income used to make payments of principal and interest for assets deposited into a tax sheltered "Capital Homestead Account." Any dividends used for consumption purposes would be taxed as regular income to the recipient, but tax deductible at the corporate level. Any assets removed from the Capital Homestead Account would be taxed as regular income to the account holder, or his or her heirs if distributed due to death of the account holder. (An heir could defer taxes on any such inheritance — or any inheritance, for that matter — by depositing the assets in his or her Capital Homestead Account.) Note that this is a deferral, not an exemption; eventually the accumulations will be taxed. These accumulations will supplement and, eventually, replace Social Security and other entitlements, except in cases where investments fail or there has not been enough accumulated. In that case, the Social Security system can then function as originally intended: as a "safety net" for those who do not have sufficient savings (investments) to generate enough income on which to live in a manner befitting the demands of human dignity. Portfolio insurance would also reduce reliance on Social Security.

• To accelerate these accumulations as fast as possible and pay down the growing deficit, the tax system will be reformed to merge all Social Security and Medicare taxes into the general tax rate. Most deductions would be eliminated, but the personal exemption would be increased to (we estimate) $30,000 for a non-dependent, and $20,000 for a dependent, giving a "typical" family of four a tax-exempt income of $100,000. The tax rate above the increased exemption would be a single rate determined by the size of the budget and whatever was needed to repay a reasonable portion of the deficit. All income would be taxed at this single rate, not excepting inflation-indexed capital gains and dividends. The tax deductibility of dividends at the corporate level added to the ability to finance new capital formation by bank credit collateralized with capital credit insurance would remove the current incentive to retain earnings and withhold dividends from investors.
We believe that these measures (and others) would not only address the coming crisis in Social Security and Medicare, but the current economic meltdown that seems to have baffled politicians and economists from all across the spectrum.

Wednesday, March 4, 2009

Bank Bailout, Part II: The Root of the Problem

In the previous posting on this subject, we raised the possibility of an ESOP/CSOP combination as an alternative to letting the State throw more money at the problem of bankrupt banks and undertaking a program of nationalization of the country's financial institutions. An ESOP/CSOP for a bank, however, raises some special issues.

Ordinarily, a commercial bank is in the business of monetizing the productive capacity of an enterprise so that the enterprise can purchase what it needs to produce marketable goods and services. A commercial bank does this by creating money backed by the present value of whatever the enterprise is financing, and taking a lien on whatever is financed. As the project generates profits, the enterprise repays the loan, and the lien and the money are both cancelled. (In this, a commercial bank is different from a "bank of deposit," which cannot create money, but only lend out whatever people have deposited.)

The first issue is that today's financial institutions have managed to combine a number of incompatible functions, setting up automatic conflicts of interest. For example, from the early 1930s to the early 1980s under the "Glass-Steagall" Act, "commercial banking," "investment banking" insurance companies, brokerage companies, and bond rating agencies in the United States were carefully separated. Commercial banks are "banks of issue" (also called "banks of circulation"), meaning they can create money. Investment banks are banks of deposit, and can only serve as intermediaries to put people with money together with people who have "investment grade" securities to sell. The separation of independent companies involved in different stages of finance built "checks" into the system. For example, people with money demanded that the investment bank and other types of financial firms investigate all the securities they recommended very carefully, for millions, sometimes billions of dollars were at stake.

With the repeal of Glass-Steagall, however, the financial industry moved from independent competitors to vertical and horizontal monopolies. Commercial banks could buy an investment bank or set up their own investment bank departments, while an investment bank could purchase or set up a commercial bank. Similar things happened with respect to other specialized types of financial institutions, such as savings and loans, which (contrary to their established purpose of financing residential real estate) were allowed to lend for commercial real estate, a role traditionally filled by commercial banks.

This led to the great savings and loan meltdown of the 1980s, just as permitting commercial banks to invest in something other than loans to businesses and government securities set the stage for the home mortgage crisis. Giving investment banks direct access to the "money machine" of commercial banks meant that what are now known as "toxic assets" were not properly vetted or investigated, for the simple reason that it was extremely profitable to make and sell the loan, which overshadowed the possibility that the loan might not be serviceable. These bundled speculative assets were eagerly purchased by other financial institutions anxious to cash in on the rapidly appreciating value of the assets behind the loans.

Adding to the problem was the superabundance of loan money in the hands of predatory lenders and brokers. These were desperately seeking places to put the vast amount of "idle" cash from China and other countries that had piled up dollars resulting from the continuing U.S. trade deficits. The housing market, depending on individual consumers who in general lacked the necessary expertise to determine if the financing package they were offered made sense or was even feasible, was custom-made for making large "investments" in projects that were virtually guaranteed not to be scrutinized adequately or even understood by the people on whom the investment depended.

To this was added the fact that homes (except as rental property) do not generate their own repayment by producing a marketable good or service. That meant that the mortgage was only as good as the ability of the borrower to repay the loan out of other income. Unfortunately, because the ability of the borrower to repay was often the last thing the original lender looked at in order to clinch the sale, many of the loans went south the moment the housing bubble burst and real estate prices started to decline. Homeowners typically had no equity, either because they had borrowed against the appreciated value of the home, or because they had not managed to build up any.

Before we can attempt reorganizing individual financial institutions in trouble, then, even as ESOP/CSOP combinations, we need to undertake the task of reorganizing our financial system along more rational lines, building in natural checks and balances, and taking advantage of humanity's unique ability to specialize as individuals, while remaining generalists as a species. That will be the subject of the next posting on this subject.

Tuesday, March 3, 2009

Natural Law and the Principles of Economic Justice

While no doubt the world is agog over the celebration of another ever-popular "Square Root Day" (03/03/09), there are more immediate matters on which we need to focus. We received an e-mail yesterday alerting us to an article on "Catholic News" that an expected encyclical on justice has been delayed due to the economic crisis. That being the case, it would probably be useful for the pope to learn about what the Global Justice Movement has been developing to address the problem. To understand the Just Third Way, however, a little background would be useful.

The chief economic feature of the modern age is the virtually complete alienation of ordinary people from ownership of the means of production. In former days, human labor and direct ownership of productive assets and tools were the predominate means of production. The only way to alienate man from his labor or his possessions was to enslave him, something only valid for criminals who remove themselves from society and require rehabilitation before becoming fit to reenter society.

With the Industrial Revolution, the spread of the wage system, and the development of advanced productive technologies funded by outdated, even anachronistic methods of finance, ownership of the new means of production became concentrated in the hands of a few elite owners. The great mass of people were cut off from the means of becoming owners of the new technologies, and limited to ownership of their labor, something that (in objective terms) was falling in value relative to the new productive technologies.

Industrial capitalism (as opposed to agrarian capitalism or feudalism, which relied on human labor) not only concentrated ownership of the means of production, but power as well. The natural right (that is, absolute, inherent, or inalienable right) that everyone has to be an owner of the means of production was, in capitalism, changed to a limited right that presumably only an elite few possess, while the necessarily limited exercise of private property (that is, what an owner may do with what he possesses) was reinterpreted as absolute for the elite.

Because of the evils of concentrated ownership and the distortion of private property under capitalism, the socialists claimed that private property must be abolished, remaining at best only "prudential matter" for the great mass of people, i.e., not a right at all, but an expedient for the convenience of an all-powerful State. This only succeeded in transforming the superconcentration of ownership of the means of production under capitalism, into the absolute concentration of ownership of the means of production in the hands of an impersonal State. The evils of capitalism are somewhat ameliorated by the fact that capitalism seriously distorts, but does not abolish a natural right.

The abrogation of private property as a natural right under socialism, however, guarantees a non-, even anti-human system, as Pope Pius XI acknowledged in Quadragesimo Anno. This caused the pope to reiterate the Holy See's condemnation of socialism. This condemnation has been largely ignored, primarily as a result of ubiquitous moral relativism, often subtly disguised as concern for humanity, but seemingly inevitably directed at the abolition of private property as a natural right — quickly followed, as we might expect, by abolition of other natural rights, such as life and liberty.

Following the personalism of Pope John Paul II, Pope Benedict XVI has expressed grave concern over this abandonment of the natural law. In response, the "Just Third Way" promoted by CESJ not only counters the trend of modern civilization away from the natural law, but provides a roadmap by means of which society can make its way back and establish a more just and humane future for everyone. The Just Third Way is characterized by reliance on "Four Pillars of an Economically Just Society," which, not coincidentally (due to a common reliance on the natural law), appear to be consistent with Father Heinrich Pesch's "Three Pillars of Economic Society." CESJ's "Four Pillars" are:

1. A limited economic role for the State, securing property and contract rights, but also lifting artificial barriers to ownership of the means of production,

2. Free and open markets within a strong juridical order as the most democratic means of determining just prices, just wages, and just profits,

3. Restoration of the rights of private property, especially within the modern corporation, and

4. Widespread direct ownership of the means of production.
An important application of these principles consists of reconnecting money and production at the individual, local, national, and global levels, a necessary link noted by Jean-Baptiste Say (1767-1832), a French political economist, in his famous "Law of Markets." "Say's Law," rejected by both Karl Marx and John Maynard Keynes, is best stated by Say himself, in a series of open letters Say wrote to the Reverend Thomas Malthus in refutation of the latter's theories on population:
"All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce.

"To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.

"From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce." (Letters to Malthus, 1821)
Louis Kelso saw the common sense of Say's Law, but noted that there were barriers in place that inhibited or prevented most people from producing by means of anything other than labor; that "the means of their capital or their land" was simply not an option for most people because they lacked access to the means of acquiring and possessing private property in capital or land, which George Mason of Gunston Hall described as a natural right. (George Mason was an American "Founding Father" who, although an Anglican, seems to have been familiar with the work of St. Robert Bellarmine, a "Doctor" of the Catholic Church.)

Consistent with the social doctrine developed by Pope Pius XI, Kelso advocated that people organize and gain access to the means of acquiring and possessing private property in capital, a category in which Kelso lumped together all "non-human" factors of production, including land (usually separated from capital in classical economics). Applying the principles of economic justice that he and Dr. Adler later formalized, Kelso invented the Employee Stock Ownership Plan, or "ESOP," as one means of lifting the seemingly insurmountable barrier preventing access to capital credit, the chief means by which ownership of the means of production is acquired today.

CESJ has continued the work of Kelso and Adler, developing a program called "Capital Homesteading," which embodies institutional reforms necessary to restructuring the social order to conform more closely to the demands of the natural law and economic personalism, beginning with reforms of our financial system. A primary goal of Capital Homesteading is to restore the original function of the central bank, so that it can once again finance private sector growth to increase personal wealth and people's control over their own lives, instead of funding government deficits and increasing the power of the State. Inasmuch as the misuse of the financial system is the principal cause of today's economic crisis, Capital Homesteading presents a sane — and practicable — alternative to the bizarre programs and proposals that are only getting us ever-deeper into a seemingly hopeless situation.