Friday, October 29, 2010

News from the Network, Vol. 3, No. 43

This morning Richard Foley sent us an article from the Christian Science Monitor, "Is the U.S. System Rigged for the Rich?" by David R. Francis. We have to pay attention to Richard on several counts. One, he's a railroader, and so were my grandfather and great-grandfather — almost a full century of service with the AT&SF, the Needles to Kingman run (and back again, of course). My grandfather and great-ditto, not Richard.  Two, he's a long-time CESJ supporter. Three, he's a railroader. Anyway, to answer the question raised by the article, "Yes. The U.S. system is rigged for the rich. For our own good, of course."

This injustice is based on a fundamental dogma of all three mainstream schools of economics, but especially the Keynesian. It is an assumption disproved by Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, in his book, The Formation of Capital (1935). (Don't stop me if you've heard this. The more often we repeat it, the more chance that you will internalize it and pass it on to others — especially when opening doors.)

The assumption that causes so much injustice is that new capital cannot be financed without first cutting consumption, accumulating money savings, and then investing. This requires a class of people who can afford to cut consumption: the rich — and the richer, the better, due to the high cost of advancing technology. Wage earners cannot afford to cut consumption, therefore (according to Keynes) should not own. Check it out. It's right there in the closing passages of Keynes's General Theory of Employment, Interest, and Money (1936).

Under the "past savings" assumption, if the State wishes to foster new capital formation and thus job creation, it must make it as advantageous as possible for the rich to save, or (so the reasoning goes) there will be no new capital formed, and thus no jobs. In the eyes of today's academics and policymakers, social programs for the poor, while wrongly implemented as a permanent solution to poverty, are construed as if they were short term helps on the way to getting jobs that won't exist unless the rich get enough money to invest — the presumed long term solution.

Unfortunately, to fund job creation, the State has to give back or not take in the first place money from the rich, and make up any perceived slack with subsidies and other "corporate welfare." The poor necessarily take second place to the perceived need for the State to subsidize job creation . . . ostensibly to help the poor, but with advancing technology, fewer and fewer jobs are created, even in periods of rapid growth.

From the perspective of Binary Economics, this is all nuts, but it gets worse.

According to Keynes, the "forced savings" to finance new capital formation doesn't come from the rich, but from wage earners. The government inflates the currency to bring down unemployment . . . but this raises the price level, forcing wage earners to pay more for fewer goods and services. This meets the Keynesian definition of saving, but the benefit does not go to those who are forced to cut consumption, but to producers who realize greater profits for less production. Under Keynesian monetary and fiscal policy, the poor are robbed for the benefit of the rich.

It's even worse than that. Yesterday Reuters pointed out that American companies have accumulated an estimated $1 trillion in cash — half the estimated annual capital growth ring. According to Reuters, this will not be paid out in dividends, as the rights of property demand, nor will it be used to expand plant and equipment, hire new workers, or pay bonuses or additional compensation to existing workers. Instead, the plan is to buy back shares, "going private." This will further concentrate capital ownership by between 3-5%, a very crude estimate. This doesn't sound like much, but add that to the $2 trillion or so of new capital typically created each year and financed in ways that create few, if any new owners, and you have capital ownership concentrating at a rate of 10% or more each year.

If this were an algebraic progression, all wealth would be concentrated in a tiny percentage of owners within a decade, but (small comfort) it's calculus, not algebra — it doesn't go 10% of the original total each year, but 10% of the remaining total, a curve, not a straight line.

Kelso and Adler were absolutely correct in the subtitle of their second book when they called this "the slavery of [past] savings." Not only is the financial system itself set up to concentrate ownership, the State is forced under Keynesian assumptions not only to facilitate this concentration, but accelerate it as fast as possible, just as Keynes asserted in his General Theory and his call for socialization of the economy — to "protect" the poor, the State must allow the rich to accumulate faster and faster, even to the extent of robbing the poor, but the State then steps in and tries to take care of the poor so that they don't suffer too much. The State cannot, however, afford to give the poor as much as it gives the rich, or the whole process is as meaningless as Keynesian economics itself. Keynesian economics permits private "ownership," but only if that ownership is meaningless.

The answer, of course, is Capital Homesteading — but we first have to convince people that, even in today's economy, existing accumulations of savings are rarely used to finance new capital formation in any event — I can prove it to an accountant in minutes, but most people aren't accountants, and most accountants don't care. (In a corporation, "savings" are called "retained earnings." You do not, however, decrease retained earnings when purchasing new capital. Instead, you increase liabilities, or decrease one asset account and increase another; it always has to balance. The only legitimate charge against retained earnings is dividends, not new capital assets. Savings, therefore, are never used directly to purchase new capital. It can't be done.)

Obviously, the sooner we can get the powers-that-be to understand this, the better off all of us are going to be. That means that YOU (not the guy behind the tree) are personally and individually responsible to organize with others and open doors for us to get the word to prime movers. Consequently, here's what we've been doing this week:

• Our "Halloween Horror Special" series of postings has come to an end. Oddly enough, for pieces that were a little bit to the side of serious, they proved to be, for this blog, immensely popular. Readership has tripled while the series has been running. The problem, of course, is that this stuff is so serious and complex that it's difficult to sustain even the rather moderate humor we tried to insert into the postings.

• The big news, of course, is Norman Kurland's trip to China to participate in the Caux Roundtable on ethics in business in Beijing. We'll try to get Norm to submit a full report to expand on what little we have space for here in these news briefs, but the bottom line is that the Chinese scholars seemed extremely interested in what Norm had to say. He was able to distribute copies of all of CESJ's major publications, Curing World Poverty (1994), Capital Homesteading for Every Citizen (2004), Supporting Life (2010) and our most important reprint to date, Dr. Harold G. Moulton's The Formation of Capital, the classic from 1935, but with our 2010 foreword tying Moulton's work into Kelso and Adler. Moulton's work undermines the basic premise of both socialism and capitalism — the alleged necessity of concentrated ownership (whether public or private) of the means of production in order to generate the savings to finance new capital formation — while that of Kelso and Adler shows how each person can benefit directly from ownership financed out of future savings. Capital Homesteading, of course, details a comprehensive program for achieving this end, and Supporting Life ties it into an issue that many people put at the top of their priority list.

• Reverend Virgil Wood, a veteran of the civil rights struggle and one of Martin Luther King, Jr.'s key men, has been making great strides in opening doors for Norm with some of the legends of the civil rights movement. It now appears highly likely that Virgil will succeed in getting Norm a series of meetings with some very well placed individuals who may be able to get Norm to Obama.

• Earlier today a meeting was held to plan for the upcoming annual rally at the Federal Reserve. Participants renewed their commitment to open doors to prime movers who could bring people to the rally and even provide logistical support for the effort.

• Given the lack of resources, the publications program is proceeding very well. We have at least eight additional books that we could get out sooner if we had the resources. We are investigating some of the internet marketing and social media techniques to publicize the new books, especially The Formation of Capital, and may be in a position for a great leap forward by the end of this calendar year.

• 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, the UK, Canada, Brazil and Australia. People in Trinidad and Tobago, Venezuela, Lithuania, the United States, and Belgium spent the most average time on the blog. The most popular posting is "I Do Believe in Spooks" in the current Halloween Horror series, followed by "The New Manifest Destiny," an old posting from 2009 "We are Seeing the Future and It Doesn't Work," "The Keynesian Bloodletting," and "The Severed Hand of Adam Smith."
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.

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