The Rich? Who Needs 'Em?

Conventional economic wisdom (which seems to be as much an oxymoron as "government intelligence") declares that you cannot finance the formation of new capital unless you cut consumption, save, and then invest. Logically (once you've accepted this Revelation from the Lord Keynes and his Prophets, Ricardo, Marx, Bagehot, Knapp, and The Usual Gang of Idiots who in off hours edit Mad Magazine), this means that ownership of the means of production must be concentrated, and that the great mass of people must rely exclusively on wages and redistribution for their income.

The reasoning is simple, once you've accepted the erroneous assumption (unsupported assertion, really) that it is impossible to monetize the present value of existing and future marketable goods and services, and that "money" consists exclusively of State-issued coin, banknotes, demand deposits, and some time deposits (i.e., M2). That is, because ordinary people cannot afford to cut consumption and save in appreciable amounts, economic growth absolutely requires a class of extremely rich individuals — the richer, the better — who not only can afford to save, but are actually forced to save because they cannot possibly consume their enormous incomes.

That being the case, the rich reinvest their unconsumed income in additional new capital, thereby creating wage system jobs for the rest of humanity, with the State taxing away any excess for redistribution. As Keynes pontificated, "The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably." (John Maynard Keynes, The Economic Consequences of the Peace, 1919, 2.iii) In other words, unless most people are screwed out of their natural right to own a capital stake large enough to generate a secure income sufficient to meet common domestic needs adequately (Leo XIII, Rerum Novarum ("On Capital and Labor"), 1891, § 46), The World Is Doomed.

That's the theory, anyway. As even Keynes admitted, however, matters don't work out that well in practice. Inevitably, the State has to step in and either create or control (i.e., "own") the "despotic economic dictatorship" (Pius XI, Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, §§ 105-106.) By this means the State is supposed to encourage the rich to save more, thereby reducing effective demand. To correct the decrease in effective demand, the State is forced to regulate the interest rate — the rate of return to capital — and otherwise manipulate the financial system, inflating or deflating the money supply in order to achieve just the right mix to ensure full employment or low inflation, whichever seems more desirable to the politicians at any given point in time.

The problem is that since "power naturally and necessarily follows property" (Daniel Webster in the Massachusetts Constitutional Convention of 1820), what happens is that private interests inevitably take over the State and operate it to their advantage. Walter Bagehot described this process in The English Constitution (1867) and the result of the process in Lombard Street (1873). To Bagehot, "democracy" meant that the "the Upper Ten Thousand," i.e., the financial and moneyed classes ran the British Empire by controlling parliament through the "rotten borough" system. The rest of the people were too stupid ("not quick of apprehension") to run their own lives, much less the Empire.

As Kelso and Adler hinted, however, and as we've stated explicitly several times on this blog and in a number of other forums, the Keynesian approach ignores economic and financial reality. Money is not just a purchase order issued by the State. It can be that, of course, if you really insist on handing over the keys to the money machine to politicians and effectively abolishing private property, as Keynes proposed. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, 1936, VI.24.iii)

A much more logical understanding of money, however, would allow us to achieve all the goals that Keynesian economics futilely pursues and at the same time support human dignity and secure personal sovereignty . . . to say nothing of getting rid of Keynes's incredible and, frankly, horrifying belief that the State has the power of God to transubstantiate reality. He called it, "re-editing the dictionary." (Vide John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace, and Company, 1930, 4.)

Getting away from Keynes's deification of the State and his abolition of private property in the means of production, we can very easily lay to rest the myth that we need either the rich or an all-powerful State to advance economically. To do this we need two things: 1) A definition of money that reflects reality, and 2) Freedom from the economic and political slavery imposed by the dogmatic belief that new capital formation can only be financed out of existing accumulations of savings.

Contrary to Keynes's adulation of Georg Friedrich Knapp's "Chartalism" — the belief that "money" legitimately consists solely of tokens and banknotes minted or printed by the State and spent into circulation, reclaimed through taxation if inflation gets out of hand — money is anything that can be used in settlement of a debt. To be sound as well as in conformity with human nature and the natural right of private property inherent in each person, money can only be construed as symbolizing the present value of existing and future marketable goods and services in which the issuer has a private property right. Money, whatever form it takes, can then be used as the medium of exchange, transferring and conveying property rights among parties to a transaction.

Consistent with the real bills doctrine, the quantity of money can then be increased or decreased without inflation or deflation, respectively. This is done by "drawing bills" (issuing money) with a direct private property link to the present value of the existing or future marketable goods and services being monetized. When the direct private property link is missing or attenuated, as when the State issues currency backed by future tax collections (anticipation notes, as makes up most of the official money supply today), the result is "fictitious bills," i.e., fraudulent or deceptive financial instruments not backed by a definable present value.

This understanding of money, a far cry from Keynes's weird theories (ironically shared by the Monetarists, Austrians, and virtually every other school of economics today), leads naturally into the solution as to where the money is to come from to finance the acquisition of capital by people who are not rich. Given a sound capital project, it is possible to calculate a present value based on the expected future stream of income to be generated by the capital.

Even if the capital does not yet exist, the proposal — if sound — has a present value. Under the real bills doctrine, the owner of the proposal can draw a bill or bills backed by that present value. If other people in the community accept the bills, the issuer can use them the same as any other money to finance the formation of the new capital. If other people in the community prefer their money in a more regulated or "current" form — currency — the issuer takes his or her bill and discounts it at a commercial bank in exchange for currency, for which the commercial bank takes a fee, the "discount."

If there is a central bank, the commercial bank can rediscount the bills at the central bank, thereby ensuring a uniform and, presumably, stable currency in the region served by the central bank. Under the real bills doctrine, there is always sufficient money in the system to finance new capital formation and purchase all the goods and services produced without either inflation or deflation . . . IF ownership of the new capital is broadly owned by people who will use the income generated by the new capital first to repay the capital formation loan and, after the loan is repaid, for consumption purposes, NOT reinvestment in new capital.

Thus, we can say to the rich, "Go and spend your money any way you like. In fact, if you help us get this new source of financing through so that we who currently own little or no capital can become owners, we will, for our part, see that the State stops taxing you so much to redistribute to us. We won't need it anymore, and we'll all be better off.

"Other than that, who needs you?"

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