How to Save the Global Economy, Part II

Yesterday we gave suggested texts for a brief e-mail that you could send to Mr. Brian Cowen, Taoiseach (Prime Minister) of Ireland, suggesting that he give serious consideration to Capital Homesteading as a possible solution to the present economic crisis that afflicts not only Ireland, but the world. Today we're taking matters a step further, and giving you some suggested texts for e-mails you can send to the Irish media. We'll give some e-mail addresses at the end of this posting, but you should feel free to google for your preferred recipient(s).

Nor is this an exercise in futility. The reports coming out of Ireland and the European Union "suggest" that, while the Irish banks are certainly relieved of their immediate worries . . . sort of . . . the taxpayers are up in arms. ("Irish Bailout Boosts Banks, Inflames Taxpayers," Associated Press, 11/29/10). Mr. Cowen may have been making one or two noises about the worst being over — but, as the narrator put it in the immortal 1960s Batman, "The worst is yet to come!"

(1)

DATE

MEDIA OUTLET
ADDRESS

Dear Sir(s):

Mr. Pollant Mpofu, a local official with the Labour Party in London, recently sent a letter to Mr. Brian Cowen suggesting that Mr. Cowen give serious consideration to "Capital Homesteading," a proposal developed by the Center for Economic and Social Justice ("CESJ"), as a possible solution to the economic crisis facing Ireland.

Capital Homesteading is a free market, private property-based approach to economic and social development that respects the dignity of each human person. Embodying the precepts of the natural moral law that underpin the social teachings of the world's great religions, and integrating sound economic, financial, and political principles, Capital Homesteading has the potential not only to reestablish the Irish economy, but that of the European Union and the world on a firm and sustainable foundation.

Sincerely,

YOUR NAME AND TITLE

(2)

DATE

MEDIA OUTLET
ADDRESS

Dear Sir(s):

While he and other world leaders are at their wits' end about a solution to the economic crisis, Mr. Brian Cowen has been presented with a possible remedy, "Capital Homesteading," that, in my opinion, should be given serious consideration. I believe that Capital Homesteading has the potential to restore the Irish economy in a manner that not only allows full participation in benefits of growth by every man, woman, and child in Ireland, but shows the way for the rest of the world.

Mr. Pollant Mpofu of London recently sent Mr. Cowen a letter outlining the potential of Capital Homesteading for Ireland. Mr. Cowen may want to study the concept for application in Ireland.

Yours,

YOUR NAME AND TITLE


Irish Independent: independent.letters@independent.ie
RTÉ (Radio/Television Ireland): Studio e-mails at this link.
A number of other Irish media outlets are listed here.

#30#

How to Save the Global Economy, Part I

A journey of a thousand miles, as the saying goes, begins with a single step. Nowhere is this more evident than in the ongoing efforts to present an alternative to the disastrous monetary and fiscal policies dictated by a reliance on Keynesian economics to those who control the world's economies. Last week Mr. Pollant Mpofu decided that sitting around doing nothing was not a good way of dealing with the situation. He sent letters to Mr. Brian Cowen, the Taoiseach (Prime Minister) of Ireland, and Mr. Grant Shapps, British Minister of State for Housing and Planning. The point of the letters was that those who control the world's economies should be looking at Capital Homesteading as a viable alternative to the current mess.

And control they do, whether they admit it or not. As we point out in our foreword to Dr. Harold Moulton's, The Formation of Capital, the unquestioned assumption of the necessity of existing accumulations of savings at the heart of Keynesian economics pervades not only virtually the whole of government monetary and fiscal policy everywhere in the world, but the thinking of ordinary people.

A "free market" tied to existing accumulations of savings is an oxymoron, as Louis Kelso and Mortimer Adler put it in the subtitle to their second book, The New Capitalists: "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." Past savings limits ownership of the means of production either to an already-wealthy private elite (capitalism/Austrian economics), to the State that redefines essential/inalienable rights ("re-edits the dictionary," as Keynes put it in Volume I of A Treatise on Money, 1930) in order to impose socialism without calling it socialism and control the economy for "the people" (socialism/Keynesian economics), or tries to walk a middle ground that ends up satisfying nobody (the "Welfare State"/Chicago/Monetarist economics). The basic flaw in all three arrangements is the common assumption that new capital formation cannot be financed without first saving — "saving" ALWAYS being defined as cutting consumption.

The only question within the past savings paradigm in all three mainstream economic schools is to what degree, if any, the State should intervene to ensure equality of results or keep the lid on to prevent total collapse. The Austrians maintain that no State intervention is acceptable, especially in money and credit. The Monetarists/Chicago schoolers admit some State intervention as an expedient in the short run. The Keynesians advocate total State control through control of money and credit. The Austrians are therefore perceived as heartless fiends, the Monetarists as capitalist dupes, and the Keynesians as saviors of humanity. A "quasi-divine" (un)free market is replaced with a divine, all-powerful State. As one enthusiast put it, "The State is the sole intercessor available to the poor" — neglecting to take into account that the induced inflation and forced savings that are the chief monetary tools of Keynesian economics rob the poor far more effectively than the most heartless capitalist or robber band.

The problem is that none of the three schools take "future savings" into account. Consequently they define money and credit in ways that restrict control of money and credit, and thus ownership of capital to an elite, whether private (capitalism) or public (socialism). All three, therefore, are driving the economy over a cliff, although admittedly the Austrians don't have the pedal to the metal quite as hard as the other two. The only solution is to reorient the economy in accordance with the four pillars of an economically just society:

1. A limited economic role for the State,

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

3. Restoration of the rights of private property, especially in corporate equity, and

4. Widespread direct ownership of the means of production, particularly through opening up democratic access to money and credit by breaking the slavery of past savings (the "fatal omission" from all three mainstream economic schools, and is the primary factor that renders today's markets unfree).

What You Can Do

A single voice, crying in the wilderness or not, has little effect. With your help, however, matters might move forward. All you have to do is, 1) Send a brief note to Mr. Cowen suggesting that he look seriously at Capital Homesteading, and 2) Send a link to this posting to your network (and they to theirs) so that others can send brief notes. Mr. Cowen's official e-mail address is taoiseach@taoiseach.ie. Either cut and paste the address from here, or be very careful in transcribing it — Irish follows different spelling rules than English, and you can easily misspell "taoiseach." Here are some samples of the text you might send. We suggest that you modify the text, but it isn't, strictly speaking, necessary. Politicians often simply count the number of letters and e-mails they receive on a certain subject, pro and con, without reading through them.

Subject Line:

Capital Homesteading

Adopt Capital Homesteading

Capital Homesteading Now

Capital Homesteading for Ireland

Crisis Solution: Capital Homesteading

Capital Homesteading for the People of Ireland and the World

Make Ireland a World Leader through Capital Homesteading

Heading:

DATE (may be omitted)

Mr. Brian Cowen
taoiseach@taoiseach.ie

Dear Mr. Cowen:

Text:

(1)

I support Mr. Pollant Mpofu's recommendation that you give serious consideration to Capital Homesteading as a possible solution to the present economic crisis and as a foundation for growing a sound economy in the future.

Sincerely,

YOUR NAME AND TITLE

(2)

Mr. Pollant Mpofu recently sent you a letter regarding adoption of Capital Homesteading in Ireland as a possible solution for the current economic crisis. I support this initiative and believe that it merits serious consideration, both for Ireland and as a model for the rest of the world.

Yours,

YOUR NAME AND TITLE

(3)

Kindly add my voice to those suggesting that you give serious consideration to Capital Homesteading as a possible solution to Ireland's present economic crisis.

Sincerely yours,

YOUR NAME AND TITLE

[N.B.: The Irish and the English use "kindly" where Americans tend to use "please," and vice versa.]

(4)

Ireland has the opportunity to lead the world in showing the way to a sound solution for the current economic crisis by giving serious consideration to the adoption of Capital Homesteading. I support this initiative by Mr. Pollant Mpofu.

Respectfully,

YOUR NAME AND TITLE


If you want to compose your own note, keep a couple of things in mind:

Keep it short.

Be respectful.

You're not recommending or endorsing Capital Homesteading, only suggesting that Mr. Cowen take a look at the concept and judge it on its own merits. Thus, even if you don't fully support or agree with Capital Homesteading, you can state in all honesty that it is a proposal that should be given serious consideration.

Avoid any phrases such as, "While I disagree completely with Capital Homesteading, the Just Third Way, truth, love, and justice, . . ." We need to get Mr. Cowen to look at Capital Homesteading, not remain firmly ensconced in the Keynesian camp.

#30#

News from the Network, Vol. 3, No. 47

This one is too good to pass up — or too bad (the idiom is "too good," but the news is "all bad"). According to the New York Times of November 23, 2010, (unspecified) American companies posted their highest profits in history in the third quarter of 2010. At the same time, unemployment remains high, new capital investment remains low, and the article was extremely vague about who made all the profits and where they came from. (Catherine Rampell, "Corporate Profits Were the Highest on Record Last Quarter," New York Times, 11/23/10.)

Rather than specify the sources of these profits and who made them, the article immediately began raving at some length about the moderate increases in output, leading the reader to conclude that the profits came from this source . . . although "output" and "sales" are two different things, and there is no necessary correlation between how much you produce, and how much you sell. (We had an "almost-client" once who kept bragging that production in his company was at an all-time high . . . the bulk of which was piling up in over-valued and low-quality inventory, tying up working capital and wasting resources. The company went bankrupt. Twice.)

It doesn't take a great brain to realize that if output increases are moderate and productivity (output per labor hour) is up slightly, then production — and sale — of marketable goods is probably not the source of record profits. Quickly reviewing the financial news stories over the past several months (a number of which we have collected for our research files), we see that, although production and sales of marketable goods and services outside the financial services industry are floundering, exhibiting less-than-anticipated gains and often losses — a bad sign going into the Christmas shopping frenzy (and we anticipate that "Black Friday" may very well acquire a more traditional meaning when today's results are tabulated) — financial service companies have posted gargantuan profits. Similarly, during the hyperinflation in Germany in the 1920s, some individuals and companies made colossal fortunes at a time when production was at a virtual stand-still and the economy was in ruins.

Common Sense Interpretation: the "record profits" are all on paper. The profits appear to result from financial service companies joining in the feeding frenzy on Wall Street. This tends to prove the validity of the "greater fool" theory of investment as the bubble in the secondary stock market continues to divert attention and resources away from the primary productive market and the need to invest in new, broadly owned capital geared to the production of marketable goods and services that real people and productive companies can actually use.

The situation is halfway analogous to that which obtained immediately prior to the Crash of 1929. In the 1920s, there was massive money creation for speculation on Wall Street, yet, at the same time, there was sufficient liquidity for new capital formation. This baffled the experts who assumed then and continue to believe that the "supply of loanable funds" is a fixed quantity, a commodity, and that neither new capital investment nor speculation can be financed except out of existing pools of savings, that there is necessarily a trade-off between the two. Dr. Harold Moulton explained that both past savings and "pure credit" (new money created by the expansion of commercial bank credit) were being used for productive investment and speculation in the 1920s, but that the main problem was the incredible amount of pure credit going into stock market gambling.

The problem today is that, while there is massive money creation for stock market speculation, and existing accumulations of savings are also pouring into the stock market and the commodities market, nothing significant is being done to finance new capital formation. Further, ownership of existing capital is becoming increasingly concentrated at an accelerating rate as companies buy back their own shares instead of distributing dividends or investing in new capital.

All of this activity on Wall Street has generated gigantic profits in the financial sector, while the productive sector that the financial sector presumably serves is going begging. It's as if the physicians in a town judged the general level of health in the area to be excellent by the fact that they managed to keep sick people out of the hospital, generating terrific statistics on hospital mortality and recovery rates, while people were suffering and dying at home or in the street after being turned away from the emergency room.

This manipulation of statistics and definitions — a cornerstone of Keynesian monetary and fiscal policy (vide the comments about "re-editing the dictionary" in Volume I of A Treatise on Money) — should be raising more questions and concern than it does. Why, for instance, does the "Consumer Price Index" leave out most of the things on which consumers spend the bulk of their income? Why is there such a huge discrepancy between the "official" and the "unofficial" unemployment rates reported by the Bureau of Labor Statistics? Why did the Federal Reserve drop "M3" from its definition of money . . . after earlier getting rid of the various "Ms" that tried to account for non-currency and non-demand deposit forms of money, such as bills of exchange?

Why . . . well, you get the idea. It calls to mind an article we read once trying to explain away the estimated 2-4 million people who died during An Gorta Mór, "The Great Hunger" in Ireland in the 1840s, in which it was asserted that few people died of starvation . . . directly. No, weakened by hunger and malnutrition, they fell easy prey to disease, while hundreds of thousands died of exposure by the side of the road after being evicted or trying desperately to reach a port to take ship for America — while those not fortunate enough to book passage on an American or Canadian vessel ended up in the British "coffin ships." But they didn't die of starvation, ergo, the famine was a myth created out of anti-English sentiment.

How are we supposed to counter such antics? Education is the only answer — and to do that we need to be able to educate people . . . and to do that, we need YOU to open doors to prime movers, academics, people in the media, and so on, to get the message across. A part of your "social justice tithing" should be directed to working to open doors so that spokesmen for the Just Third Way can present the case to a broader audience than is currently the case.

And it is successful:

• Norman Kurland's interview on WAIC's "Money America" radio show is now available. This initiative by Mr. Thom Fox of Cambridge Credit Counseling Service, a non-profit consumer credit assistance organization, is not only a valuable educational piece, but shows what can be done by adhering to "Number 17" on the CESJ Code of Ethics: "There are three keys to gaining acceptance of revolutionary ideas: persistence, persistence, and persistence."

• Learning some lessons from our own educational efforts, you should target radio stations in your area, especially those that address consumer, economic, and financial matters. Believe it or not, most of these shows have a slightly harder time than Leno or Letterman rounding up guests who are both interesting and articulate. Presenting, say, Norman Kurland as a potential guest, giving them the link to the "Money America" show, and having them agree to give it a go would be a major contribution to the Just Third Way. Nor is a "travel budget" or set honorarium involved. You'll notice that Norm was interviewed over the phone for the "Money America" show, just as he previously was on Michigan Catholic Radio, Williamsburg Revolutionary Radio, "Blacktalk" Radio, and a number of others, including a show hosted by a biker dude concerned with the direction America has been taking.

• Not that we turn down opportunities to appear on television. Norm has appeared as a guest on the Harold Channer Show, Molly Cheshire's show, and an Islamic television show out of Fairfax, Virginia. (Should we also mention this writer's very brief appearance on Jordanian television some years ago when asked what the UN was missing in all the endless debates about economic and social development?)

• As for newspapers — we've copied our series on the latest Irish financial crisis to the Irish Independent, a newspaper out of Dublin. They haven't responded (yet), but even Ireland might soon be desperate enough to start listening to common sense instead of to Lord Keynes.

• Mr. Pollant Mpofu's letter to the Taoiseach (Prime Minister) of Ireland on which we reported on Wednesday went forward as scheduled. He got a polite reply saying that "they" would be reviewing his letter — which is more than we get by sending e-mails to the White House. Sending your own brief note to Mr. Cowen — taoiseach@taoiseach.ie — might increase the chance of the response being more than a polite brush-off, and inspire "them" actually to look at the Just Third Way as a possible solution to the crisis. As pointed out near the end of Arlo Guthrie's iconic Thanksgiving monologue "Alice's Restaurant Massacree" (the full title), if people stick their heads in the door of the military psychiatrist's office when undergoing medical evaluation when conscripted and tell him that, "You can get anything you want at Alice's Restaurant," it will soon be a movement that will sweep the country . . . and get them out of military service.  What, then, would be the effect if people making fools of themselves in this fashion actually said something worthwhile?

• As of this morning, we have had visitors from 57 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, the UK, Brazil, Canada, and India. People in Japan, the United States, Argentina, Pakistan and Venezuela spent the most average time on the blog. (Some people in Tokyo really like us — now, if the Japanese government would take note of the Just Third Way to get them back on track economically . . .) The most popular posting is Norman Kurlands tribute to Robert P. Woodman, followed by "Keynesian Economics is Socialism Lite," "Thomas Hobbes on Private Property," the "Halloween Horror Special on "Mean Green Mother from Outer Space," and "Preventable Disasters" about the Irish crisis.

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.

#30#

"The Right of the People of Ireland," Part III

It does little good to state a problem, or even to give the basic theoretical framework of a solution, regardless how well thought out, if the matter rests there. We can continue to blame others (usually "they" or "them"), or we can do something constructive and effective. A Mr. Pollant Mpofu, a local official with the Labour Party in London, has decided that "constructive action" is more effective than hand-wringing and whining. Early this morning (very early, as he is on Greenwich Mean Time, and we are on Eastern Standard Time), Mr. Mpofu sent a letter to Mr. Brian Cowen, Taoiseach (Prime Minister) of Ireland (taoiseach@taoiseach.ie), urging Mr. Cowen to take a look at Capital Homesteading as a possible remedy for Ireland's financial and economic woes.

As readers of this blog should be aware, not only Mr. Cowen, but every member of Oireachtas Éireann (the Irish legislature), the Seanad (Upper House) and the Dáil (Lower House), was sent material two years ago — December of 2008 — just as this ongoing crisis was gathering momentum. One member, Charlie O'Connor of Dublin South West, (charlie.oconnor@oireachtas.ie) acknowledged receipt, evidently did his homework and put forth an effort, but was unable to accomplish much working alone and without a show of public support. If he managed actually to get the material to the desk of Mr. Brian Lenihan, Finance Minister (minister@finance.gov.ie), it was ignored. True, Mr. Lenihan was having one or two problems of his own at the time, but he really should not have missed the potential that Capital Homesteading has to solve those of his country.

Be that as it may, we present it here again for consideration as an alternative to the usual Keynesian "solution." We don't even mind if Mr. Cowen uses it to save his career and keep himself in office in the early election for which he is calling. As the late Senator Russell Long of Louisiana told Dr. Norman Kurland back in 1973 during a dinner at the Madison when presented with these ideas, "I don't care who's right. I care what's right — and this is right."

Capital Homesteading for Ireland

The key to implementing the Just Third Way as applied in Capital Homesteading to Ireland is found in the subtitle of the "Illustrated Guide for Statesmen": "A Two-Pronged Strategy for Implementing ESOP Privatizations in a Developing or Transforming Economy." Ireland is not really a "developing" or "transforming" economy, but it might as well be. The situation is similar enough that the same techniques can be applied, even if the ESOP per se is not used.

A developing or transforming economy typically has an economy that relies heavily on centralized State ownership and control over productive capital assets. Just as typically, these so-called "assets" are, as a result of putting political interests ahead of economic interests, in the loss-leader or non-performing category. Ireland recently nationalized its three largest banks, and these banks have in their portfolios a huge amount of "toxic" mortgages, "non-performing assets" any way you look at it. Under the principle that the State should not own anything that can be owned by private citizens, the immediate task of the government is to write-down the value or divest itself of these assets, then privatize the banks.

Problem: acting counter to the common sense embodied in the laws of supply and demand as well as financial responsibility, when the housing market in Ireland went belly-up, the government bailed out the banks that were trying to keep prices up to maintain their balance sheet ratios. Consequently, the inventories of houses for foreclosure sales started to rise. Rather than let prices drop to meet demand (which ran the risk of forcing the banks into the Irish equivalent of Chapter 11 reorganization), the government imposed a moratorium on new home construction until current inventories dropped to an acceptable level. At the same time, willing buyers became impossible to find at the inflated prices. Consequently, the banks were forced into the Irish equivalent of Chapter 11 reorganization anyway, with the new owner being the government instead of private individuals.

Solution: use the Homeowners Equity Corporation ("HEC") or something similar to turn excess inventories of overpriced homes into usable living space at market prices, and generate some cash that can be used to pay down debt. Yes, the banks (and thus the government) would take a hit, but it's all on paper — and it's sound financial and accounting practice as well as good politics to divest a company or a State of non-performing or toxic assets. Non-sales at artificially high prices benefit no one, and cause more problems than they solve. Sales at real market prices recognize reality, and reduce outstanding obligations by the amounts realized.

That, of course, is only the first step. Divestiture of toxic assets and transforming them into productive assets through HECs should kick-start the Irish economy, particularly in that the building trades are seen as a core industry in Ireland. To maintain the momentum, however, it is essential to follow the "Two-Prong Strategy" as closely as possible. One adaptation that would need to be made in the strategy, however, is to apply the techniques to rebuilding the private sector's productive capacity, rather than to privatize the State's uneconomical capital holdings and making non-competitive State-owned enterprises productive; the goal remains the same, and the techniques are virtually identical.

The key is to ensure that all new private sector investment is financed in ways that creates new owners, rather than continues to concentrate ownership of the means of production in a shrinking wealthy elite. The only justification for keeping ownership of capital concentrated is the belief that existing accumulations of savings are essential to finance new capital formation. Under the monetary and tax reforms of the Just Third Way, this is not the case, and concentrated ownership of capital actually works against the maintenance of a stable economy, as Dr. Moulton demonstrated in The Formation of Capital.

In this way, the possibility of establishing and maintaining a Just Third Way economy in Ireland is optimized, and the "four pillars" of an economically just society implemented as a solid foundation for future economic and social development:

• A limited economic role for the State,

• Free and open markets within a strict juridical order as the best means of determining just wages, just prices, and just profits,

• Restoration of the rights of private property in access to money and credit and in corporate equity, and

• Widespread direct ownership of the means of production. (The "fatal omission" from the mainstream schools of economics and finance.)

The right asserted in the Easter Proclamation of 1916 to the ownership of Ireland by the people of Ireland can today be realized in an efficient and just manner, without harming the rights of anyone, whether through redefinition, outright abolition, or any other unjust measures that Keynesian economics deems "necessary":

We declare the right of the people of Ireland to the ownership of Ireland, and to the unfettered control of Irish destinies, to be sovereign and indefeasible. The long usurpation of that right by a foreign people and government has not extinguished the right, nor can it ever be extinguished except by the destruction of the Irish people.

We would have no objection if anyone would send a brief note of encouragement to Mr. Cowen (and be sure to spell "Taoiseach" correctly . . .), urging him to give serious consideration to Mr. Mpofu's letter and to Capital Homesteading as a politically and financially viable solution to the ongoing economic crisis. Nor would it hurt to show support from the international community for Capital Homesteading in Ireland. E-mails from, say, Japan or Brazil, Russia or Zambia (where a candidate for president has declared he is running on the Just Third Way ticket) might pique the Prime Minister's curiosity to the point where he will take a look at the concept.

Well, Mr. Cowen?

#30#

"The Right of the People of Ireland," Part II

Yesterday we looked at what appears to be the single biggest problem when trying to resolve the current economic crisis in Ireland on a permanent basis — or anywhere else, for that matter. That is, the understanding of money and credit, and thus private property and even what it means for somebody or something to be a "person." Money is a contract, nothing more. The right of free association dictates that, as long as the matter of the contract is otherwise lawful and the parties to the transaction are competent, there is no reason why anyone anywhere should not be able to participate in the financing and thus ownership of new capital.

The Restructuring of the Social Order
Now, whether the social order — the aggregation of institutions that constitute our ever-changing milieux or "medium of life," as Father Ferree called it (Introduction to Social Justice, 1948) — is structured in such a way as to eliminate barriers to the fullest possible exercise of our natural rights to life, liberty, property, and the pursuit of happiness is another matter. When the institutions of society are such that they inhibit or prevent the legitimate and effective exercise of any of our natural rights, the proper response is to organize with others and carry out "acts of social justice" to bring our institutions into closer conformity with the precepts of the natural moral law and the demands of the common good.

To say it again, the way in which the social order today is most seriously flawed is in our money and credit systems — money and credit, as the lawyer-economist Henry Dunning Macleod explained, being simply two different aspects of the same thing. ("Money and Credit are essentially of the same nature; Money being only the highest and most general form of Credit." (Henry Dunning Macleod, The Theory of Credit. Longmans, Green and Co., 1894, 82.)) Under the iron dictates of the Currency School, however, all three mainstream schools of economics and most of the others assume as a given that money consists exclusively of coin, currency and (although some disagree) demand deposits and some time deposits. Omitted from this understanding is the vast amount of money issued by private individuals and companies in the form of various types of bills of exchange and promissory notes.

Further, under the Currency School, the coin, currency, and demand deposits must be gold or silver, backed by gold or silver, or government debt. The essential between private property and money is either ignored or removed, and "money" is limited to claims on the present value of existing wealth issued by the State or a State-substitute. (The Austrian School of economics maintains the link between private property and money, but does not extend the concept to present value of future marketable goods and services.) Construing money as representing the present value only of existing inventories of marketable goods and services limits the "supply of loanable funds" to whatever is withheld from consumption; the supply of money and credit, a right of private property and free association, becomes itself construed as a commodity.

Viewing money and credit — the means by which we exercise the "economic franchise" — as a commodity under the control of the State is analogous to the situation in a country in which the governors have decided that there are only 100,000 votes to be divided among 250,000 otherwise qualified adults. These votes will necessarily to be allocated among those individuals or groups that will use the votes to keep the current governors in power most efficiently. Assuming elections are held, votes will be allocated only to those who already have power, with the bulk of the votes going to those with the most power; the "one person/one vote" concept is meaningless when there is only one vote for every 2-1/2 qualified adults. This is analogous to capitalism. If the governors decide simply to keep themselves in power, they will allocate all votes to the existing government. This is analogous to socialism.

This distorted understanding of money and credit thus limits the ability to finance new capital formation to those who already own capital and can therefore either afford to cut consumption, or whose capital is so productive that they cannot possibly consume all of their income and necessarily reinvest the excess in more capital. Absent a redefinition of private property or a coercive redistribution of existing wealth, there is no way for those who currently lack ownership of capital to acquire ownership of capital, save by the exercise of super-heroic effort or by chance.

A "New" Money and Credit System

The answer to the question as to how people without ownership of capital can acquire ownership without changing definitions of money, credit, private property, freedom of association, or anything else, and without redistribution either directly through the tax system or indirectly through inflation, is to open up democratic access to the means of acquiring and possessing private property in capital. This is done by allowing people who have located a financially feasible investment (that is, capital that is expected to generate sufficient income to repay its own cost of acquisition within a reasonable period of time and thereafter provide an income sufficient to meet common domestic needs adequately), to create money backed by their private property stake in the present value of the investment. In other words, democratic access to money and credit is achieved by eliminating barriers that prevent or inhibit people's ability to enter into contracts involving the acquisition of capital. This is the basic principle behind the Employee Stock Ownership Plan, or "ESOP."

If others in the community accept the owner's "paper," that is, privately issued bills of exchange representing the present value of the existing or future marketable goods and services that constitute the matter of the contract, then the owner uses the bills of exchange directly as "money." ("And Scrooge's name was good upon 'Change, for anything he chose to put his hand to" — Charles Dickens, A Christmas Carol, "Stave I.") These are called "merchants' acceptances."

If others in the community do not accept the owner's paper, he or she takes it to a commercial or mercantile bank (a "bank of issue" or "bank of circulation"), "discounts" the bill at the bank, and receives in exchange promissory notes issued by the bank, for which service the bank takes a fee — the discount. This makes the bill a "bankers' acceptance." If there is a central bank, the commercial bank can rediscount the paper at the central bank, thereby ensuring a uniform and stable currency in the entire region served by the central bank. To satisfy the demand for collateral, the "borrower" (the drawer of the original bill of exchange) may use the "risk premium" typically charged on all loans to purchase a capital credit insurance policy to pay off in the event of default.

In this way, those who currently lack ownership of capital can acquire ownership of capital, financed by the future earnings (future savings) generated by the capital itself. This process is described in much more detail in Dr. Harold Moulton's book, The Formation of Capital (1935) as well as Kelso and Adler's The New Capitalists (1961). In this context, the subtitle of the latter is particularly significant: "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." The actual steps are outlined in "An Illustrated Guide for Statesmen," that can be implemented anywhere in the world, but probably with greater ease in Ireland than in many other places.

#30#

"The Right of the People of Ireland," Part I

The nails have evidently been driven into the coffin, and the story is over . . . at least as far as the Wall Street Journal and the other usual suspects are concerned. As Yogi Berra is alleged to have said, however ("alleged" because he also said, "I never said most of the things I said"), "It ain't over 'til it's over." There is no social situation so bad that it cannot be fixed through the proper application of the appropriate techniques of social justice.

Common Ground for Discussion

The problem in Ireland is that both the problem and the solution originate from within a framework based on different principles than those of the Just Third Way. That makes it difficult for the powers-that-be to understand what we're talking about. They're operating from within a different paradigm, using different principles, and even speaking a different language that uses many of the same words. Perhaps G. K. Chesterton analyzed the problem best in the commentary in his brief biography of St. Thomas Aquinas, The Dumb Ox:

Thomas Aquinas understands, what so many defenders of orthodoxy will not understand. It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours. We may do other things instead of arguing, according to our views of what actions are morally permissible; but if we argue we must argue "on the reasons and statements of the philosophers themselves." (pp. 95-96)

 
Different Understandings of Money and Credit

The main point of divergence here — the fundamental principle on which the Just Third Way differs from the framework from within which most people appear to be operating — seems to be the definition of "money," and thus of private property. As Irving Fisher explained, private property and the idea of money are inextricably linked (The Purchasing Power of Money, 1931, 4). The definition of money used in the Just Third Way is the "legal" definition of money. This is the definition of money used in the "British Banking School" of finance: anything that can be used in settlement of a debt. (Vide "Money," Black's Law Dictionary.)

Most politicians and economists — the usual experts — use a definition of money based on the principles of the "British Currency School" of finance. This is briefly summarized as "a general claim on the total wealth of the economy." To this is often added the proviso that, to be legitimate, the State or some State-authorized individual or group must issue the claims and back them with the State's full faith and credit.

Thus, before we can even communicate and discuss the proposals of the Just Third Way, particularly Capital Homesteading, we have to agree on a common set of principles and definitions, or the discussion will not make any sense within the context of Kelsonian Binary Economics. Perhaps Louis Kelso best explained the understanding of money used in the Just Third Way:

Money is not a part of the visible sector of the economy. People do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector. (Louis O. Kelso and Patricia Hetter, Two-Factor Theory: The Economics of Reality. New York: Random House, 1967, 54.)

Stated another way, we can say that, within the framework of the Just Third Way, "money" represents the present value of existing and future marketable goods and services in which the issuer has a private property stake, and is the means of conveying that private property stake between parties to a transaction. In that sense, all money constitutes a contract, just as all contracts constitute money.

Freedom of Association

Money is thus one of the exercises of the right of free association/contract (liberty). This is because money is the means by which we dispose of what we produce, and acquire that which others produce. As Jean-Baptiste Say explained,

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. (Jean-Baptiste Say, Letters to Malthus, 1821, 2)

In addition to money being an exercise of the right of free association/contract, it is also (as noted above) an exercise of the rights of private property, that is, the right to enjoy the fruits of ownership and to dispose of them as the owner wills within the confines of the common good. This is what Pope Leo XIII meant when he explained, "it is precisely in such power of disposal that ownership obtains, whether the property consist of land or chattels." (Rerum Novarum, "On Labor and Capital," 1891, § 5) By the natural rights of private property (ownership) and of free association/contract (liberty), every human being has the inherent right to create money by entering into contracts with others, as long as the matter of the contract does not harm any individual, group, or the common good as a whole, that is, interfere materially with any person's natural right to acquire and develop virtue, and thereby develop more fully as a person ("pursuit of happiness").

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News from the Network, Vol. 3, No. 46

We've been ranting a bit about the situation in Ireland, and how Capital Homesteading might have the potential to solve the current crisis. Our insistence has even raised a little interest in some quarters. Naturally enough the question has come up as to how the concept of Capital Homesteading, designed for the United States, could be applied in the Republic of Ireland. Doesn't the crushing burden of debt preclude the possibility of ownership, or even getting out of debt?

Not at all. First, the answer to getting out from under the burden of debt is the "easiest" to solve: produce. This was how France got out from under the indemnity forced on it by Prussia in the 1870s — an indemnity specifically designed to cripple France forever. Taking advantage of a greatly expanded overseas market for French goods combined with a drastic decline in the world price of silver, France paid Fr 5 billion in barely three years, and prospered in doing it.

CESJ has developed an outline of a program, "An Illustrated Guide for Statesmen," that can be implemented anywhere in the world. Ireland would be the perfect exemplar project to prove the concepts. The only problem is in bringing the program to the attention of the powers-that-be, or even people who can open the doors to the powers-that-be.

We have been making a number of contacts over the past month or so, and continue to reach out. Alas, reporting on networking efforts is much less interesting on reporting on when networking efforts succeed. To that end, we need to increase our efforts, and that means more people reaching out — and that means you. Once we have that, we'll have much more to report than the following:

• Norman Kurland's interview on "Money America" this past Sunday went very well. A station in Richmond, Virginia has enquired about rebroadcasting the show. We're awaiting word from the people at WAIC. When we hear, we'll let you know when and where, at which time we'll also post instructions for any other radio station to request the show.

• We've been making continuing outreach efforts in our endeavor to present the Just Third Way to door openers and prime movers. Very few of them "pay off" — at least directly. This is a "numbers game," however, and the more attempts (good ones, anyway) that are made, the greater the chance that something will click. In the past week, for example, we sent material in response to general inquiries from the Philadelphia Daily News, the Wall Street Journal, and Der Standard, the Austrian equivalent of the Wall Street Journal.

• This past week Norman Kurland and Michael Greaney had a telephone conference with a gentleman in London who appears convinced that the Just Third Way as applied in Capital Homesteading is the best way to implement Prime Minister David Cameron's "Big Society" initiative. Communications have been a little spotty, probably due to the time and distance involved, but the possibility was raised of getting Norm a meeting with Mr. Cameron to discuss ways to adapt Capital Homesteading to the situation in the United Kingdom.

• The proposal to try and see if a meeting could be arranged with the British Prime Minister raised the prospect of leveraging such a meeting to other meetings with other key figures, such as the Prime Minister of Japan, and the Taoiseach (Prime Minister) of Éire.

• As of this morning, we have had visitors from 59 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, Brazil, Canada, and the Netherlands. People in Japan, the United States, Venezuela, Argentina and Egypt spent the most average time on the blog. (That 9 hours and 6 minutes from somebody in Tokyo sounds a little suspicious, however — we suspect somebody either fell asleep, or walked away and forgot the computer was on or something. Or maybe somebody in the government is catching on that Japan needs the Just Third Way as much as the United States does, and studied the matter in great depth.) The most popular posting is Norman Kurland's tribute to Robert P. Woodman, followed by "Keynesian Economics is Socialism Lite," "Thomas Hobbes on Private Property," "Preventable Disasters" about the Irish crisis, and "Mean Green Mother from Outer Space" in the Halloween Horror Specials series. You know, the piece in the Say's Law/Real Bills Doctrine series on Economic Democracy, and some on the real efficiency of government, the political animal, and a couple others have average times of more than three hours, so maybe there was some real studying going on . . .

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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A Matter of Opinion

The Irish financial/economic crisis continues to draw the attention of the world . . . right after the latest sports scores and Eva Longoria's divorce scandal, of course. Less than two days after assuring the Irish people that there would be no bailout, Brian Cowen is assuring the people that there is "no question of loss of sovereignty." ("'No Question of Loss of Sovereignty', Says Taoiseach," Irish Independent, 11/18/10.) It's just our opinion, of course, but we think there's a faint possibility that Ireland's sovereignty — such as it is — might possibly be in danger. This is not merely from the bailout, but from the fact of the colossal debt, a danger to any country's sovereignty.

He was only an American, he's now dead, and he went against the belief that a national debt is a national benefit (strike three), but we tend to agree with the analysis of Henry C. Adams in his book, Public Debt: An Essay in the Science of Finance (1898). As he pointed out in opposition to the late 19th century populist belief that the government should back the currency with debt in order to stimulate the economy to recover from the Great Depression I (1893-1898),

The facts disclosed permit one to understand how deficit financiering, carried so far as to result in an interchange of capital and credit between peoples of varying grades of political advancement, must endanger the autonomy of weaker states unable to meet their debt-payments. Provided only that the interests involved are of sufficient importance to make diplomatic interference worth the while, the claims allowed by international law will certainly be urged against the delinquent states, and the citizens of such states may regard themselves fortunate if they succeed in maintaining their political integrity. (Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 28-29.)

Mr. Cowen ignores this warning, and continues to assure everyone that "It will be the sovereign decision of the Irish Government on behalf of the Irish people that will decide what shape any package would be where we can decide that's in our best interests." (Irish Independent, op. cit.) Adams's take on this?

As self-government was secured through a struggle for mastery over the public purse, so must it be maintained through the exercise by the people of complete control over public expenditure. Money is the vital principle of the body politic; the public treasury is the heart of the state; control over public supplies means control over public affairs. Any method of procedure, therefore, by which a public servant can veil the true meaning of his acts, or which allows the government to enter upon any great enterprise without bringing the fact fairly to the knowledge of the public, must work against the realization of the constitutional idea. This is exactly the state of affairs introduced by a free use of public credit. Under ordinary circumstances, popular attention can not be drawn to public acts, except they touch the pocket of the voters through an increase in taxes; and it follows that a government whose expenditures are met by resort to loans may, for a time, administer affairs independently of those who must finally settle the account. (Adams, op. cit., 22-23.)

English translation: any time the government can finance itself without taxation — for the good of "the people," of course — duck and cover. Both your national and personal sovereignty are in grave danger. As Adams explained,

The great danger to self-government in the United States lies in municipal corruption, and municipal corruption is in large measure traceable to the manner in which cities have used their credit. For American readers, this reference to local government is a pertinent illustration of a most dangerous political tendency of deficit financiering. . . . The tendency of foreign borrowing is in the same direction as that of domestic borrowing. As the latter obstructs the efficiency of constitutional methods, so the former tends to destroy the full autonomy of weak states. The granting of foreign credit is a first step toward the establishment of an aggressive foreign policy, and, under certain conditions, leads inevitably to conquest and occupation. (Ibid., 25.)

Evidently Adams had the common sense belief that you can't go on consuming or spending forever without actually producing something.  The astonishing thing is that people actually seem to be buying into Mr. Cowen's baffling Bernankisms. Not only the powers-that-be, but genuine people seem convinced that you can get out of debt by going deeper into debt, and that you don't need to worry about production, employment, or ownership as long as the government's finger is firmly on the button of the central bank's printing press.

Consequently, the Irish situation is seen as the potential trigger for a continent-wide falling of the financial and economic dominoes. Portugal is seen as the next likely place for a similar crisis, while the "solution" imposed on Greece is timed to fall apart in 2013 when the current system of aid to "Eurozone States" expires ("Irish Head Toward Bailout; Portugal Next in Line?" Associated Press, 11/18/10), or a lot sooner if the debt-backed supply of credit starts to be a little too much to bear.

It's enough to make anyone start echoing another Adams, John this time, and demand to know just how far things have to go before people begin paying attention to the Just Third Way and its potential to solve the underlying problem by implementing Capital Homesteading. As the John Adams character snarled in the musical 1776, "Good God! What in the hell are you waiting for?"

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England's Difficulty

It's a well-worn aphorism in Ireland that "England's difficulty is Ireland's opportunity." That was never more true than now. Ireland's present economic crisis has the potential to leave a rather significant number of creditors holding the bag in the event of a Grecian meltdown. ("Irish Crisis, Contagion Fears Loom Over EU Meeting," Associated Press, 11/16/10) In view of the fact that most Irish debt is held by English banks, this has the English understandably worried. ("Stocks Retreat on Asian Inflation, Euro Debt Fears," Associated Press, 11/16/10) As an Associated Press report explained,

Ireland is more troublesome for Europe than Greece because more of Ireland's debt is held by major banks, especially in England. A default by Ireland could be another blow to banks that have only recently recovered from the global credit crisis. Shares of British banks HSBC and Barclays PLC both fell more than 3 percent. (Ibid.)

Consequently, Ireland's financial fall is seen as the precursor to Spain and Portugal going under. Another factor causing anxiety is that nervousness over the ability of the Emerald Isle to meet its debt service payments and keep the government solvent is seen as endangering the ability of other Euro Zone nations to be able to float enough debt to keep their heads above water. In response, Taoiseach (Prime Minister) Brian Cowen has taken swift and decisive action. He is denying that Ireland is seeking a bailout, or that there are any negotiations for an €80 billion bailout going on. ("Irish Leader Slams EU Aid Rumors as 'Ill-Informed'," Associated Press, 11/16/10.) As the brief news story reports,

Cowen emphasized Tuesday that Ireland's government is fully funded through mid-2011 and has no need of a bailout now. But he says Irish officials have been talking "with our European counterparts to see in what way market risks can be taken out of the equation." (Ibid.)

Now, if by some chance you're wondering how Ireland can be denying that there are any negotiations going on, but that talks are proceeding without once mentioning the possibility of a bailout, we can't say. Maybe we can chalk it up to the ability many people have of ignoring the 800-lb gorilla in the room . . . one that hasn't bathed in a year or two. Or maybe Mr. Cowen uses a different definition of "negotiate" than "to confer, bargain, or discuss," all of which can be included under "talking." We may never know (at least until the non-bailout occurs when Ireland slips back into the non-recession), for Mr. Cowen "declined to elaborate." (Ibid.) In other words, deny, deny, deny . . . and then don't admit anything.

That, in fact, appears to be the case once we look at this morning's Wall Street Journal. According to the page one article, "Sweeping Irish Aid Package In Works," Ireland is resisting a bailout, while the rest of the European Community is insisting on it. None of this is going to solve the underlying problem, however.

So . . . how is England's difficulty in getting roped into buying Irish debt supposed to work to Ireland's advantage? It sounds bad for everybody, no exceptions.

That's only if you assume as a given that there is no way out of the current lose-lose economic paradigm. This is made more problematical due to the fact that all three of the major schools of economics today buy in to today's flawed framework to one degree or another, although Keynesian economics is the worst.

The fact is that England's difficulty is, in this instance, not only Ireland's opportunity, but that of England as well. Both are trapped in erroneous assumptions that make the situation seem very hopeless indeed. Nevertheless, implementing the same solution would benefit both countries — and the rest of the European Union — out the wazoo (technical term). All it takes is a simple (yet not necessarily easy) shift in some basic definitions that far too many people take for granted.

First, "money" is not limited to State-printed or authorized currency or currency substitutes. It's anything (and by "anything" we mean anything) that can be used in settlement of a debt. We won't get disgusting (here, at least), but at various times in history almost everything imaginable has been used as money, even currency ("current money"). There're the obvious things like gold and silver, but also "base" metals such as bronze (considered "sacred money" in ancient Rome), not to mention cattle (many monetary words come from Latin words for cattle, e.g., "capital" — caput — "head" — of cattle, "pecuniary" — pecus — archaic Latin for "cattle"), elephants, tobacco, human skulls . . . okay, maybe a little disgusting . . . cocoa beans, knives, shirts, playing cards, big giant rocks with holes drilled in the middles, chewing gum, cotton, . . . as we might have mentioned at the beginning of this paragraph, the list is, effectively, endless.

What does this mean for Ireland? Other than that they are probably wondering why they ever went off the cattle standard a thousand years ago . . . for which we can blame "the Danes," not the English. It means that anything with value can be turned into money. For a modern economy, the best money is certificates or the equivalent representing a private property stake in the present value of existing and future marketable goods and services.

It follows, then, that the worst money is certificates representing nothing other than the government's promise to pay out of whatever it can wrest from its citizens every April 15, or whenever the English and Irish tax filing deadlines are — you know, the $, £, & € we're using now. All the panic-stricken solutions tossed about yesterday and today are, frankly, simply variations on the same, discredited theme: that "money" is whatever the State says it is, with no direct link to what people produce by means of their labor, capital, or land.

Georg Knapp's "chartalism" (The State Theory of Money, 1924) has triumphed. This is just as Keynes predicted in 1930 in his Treatise on Money (Volume I, if it's important). Private property is effectively abolished. This has been done through State control over the creation of money and credit. The fact that State-created money backed solely by "anticipation notes" in advance of taxes that will probably never be collected because nothing is being produced is considered irrelevant.

The opportunity now exists to reverse this trend. First, of course, not only the Irish and the English governments must realize they've been using the wrong definition of money and credit, but the entire financial system is being forced to do things it was never designed to do (i.e., finance government deficits instead of private sector growth and development), but undermine the currency and the economy for political ends. This seems like a small thing, but, as both Aristotle and Aquinas pointed out, it's small errors in the beginning that lead to big errors in the end — and the present economic crisis that is threatening to spread throughout Europe and then the globe certainly qualifies as a "big error."

Second, consistent with the new, "Just Third Way" understanding of money and credit, immediately implement a "Capital Homesteading"-style economic growth and recovery program. This would provide the foundation to rebuild the economy consistent with the "four pillars of a just market economy":

1. A limited economic role for the State,

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

3. Restoration of the rights of private property, especially in money and credit and corporate equity, and (the "fatal omission" from virtually all schools of economics and finance)

4. Widespread direct ownership of the means of production.

Is Capital Homesteading a silver bullet or Instant Utopia ("Just Add Credit")? Hardly. What it would do is reconnect money and credit with production of marketable goods and services (where it started out), cut the State off from the money machine and inhibit irresponsible spending, restore private property by tying all new money creation to the present value of existing and future marketable goods and services, render the tax system more equitable, restore freedom of association (liberty) through contract, provide the means to meet common domestic needs adequately, and, in general, secure as far as humanly possible equality of opportunity to replace the current emphasis on equality of results.

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Keynes, Bernanke . . . and Private Property?

Yesterday's Wall Street Journal carried a lengthy defense of Federal Reserve Chairman Benjamin Bernanke's efforts to breathe some life into an economy that's been put to death through reliance on the World's Leading Defunct Economist, i.e., John Maynard Keynes. It was everything you'd expect from a panic-stricken Keynesian, especially in light of the evident failure of the $600 billion stimulus.

(According to today's Wall Street Journal, the "experts" are baffled by the fact that, try as the Federal Reserve might by buying up sagillion dollars worth of government securities, bond prices keep rising . . . and so does the interest rate. How is this possible? Hint: as Dr. Harold G. Moulton pointed out, money and credit are not a commodity, and thus the interest rate is not really the "price" of a commodity in limited supply, and there is tremendous speculation going on, anyway.)

(Do I really have to explain it? Okay: "sagillion" = billions and billions; from the late Carl Sagan's habit of trying to give an idea of the colossal size of galaxies, the universe, . . . the national debt . . .)

Anyway, we fired off yet another letter to the Journal, which was promptly ignored, so we publish it here for a much smaller, but evidently more intelligent audience.

Dear Sir(s):

While I assume that Alan Blinder is both well-intentioned and well-versed in the complexities of Keynesian economics ("In Defense of Ben Bernanke," WSJ, 11/15/10, A17), he seems unaware that Keynesian economics is based on an understanding of money and credit, and the role of the State antithetical to personal sovereignty, individual liberty and private property. As Keynes asserted in Volume I of his 1930 Treatise on Money, the State allegedly has the right to abolish freedom of association and contract at will, and to "re-edit the dictionary" to change truth for political ends.

By rejecting Say's Law of Markets and its application in the real bills doctrine, in which money is defined as anything that can be used in settlement of a debt, Keynes effectively abolished private property except for an elite private few, which then holds it only at the sufferance of the State. (General Theory, VI.24.ii-iii.) By upholding Knapp's "chartalism," in which the State prints money — narrowly defined as M1 and M2, ignoring private sector bills of exchange and promissory notes — when it is deemed necessary, and taxes it away when there is "too much," Keynes cut the essential links between money and credit, private property and, especially, production of marketable goods and services. Keynesian economics, as von Hayak hinted, established socialism as public policy.

By advocating manipulation of interest rates, Keynes undermined even the appearance of private property in the economy, making the presumably free market a ludicrous farce. By diverting the Federal Reserve to monetize government spending instead of providing an "elastic currency" to supply the needs of agriculture, industry, and commerce by rediscounting bills of exchange supplemented with limited open market operations in privately issued — not government — securities, Keynes gave the unproductive State the power to grow beyond all reasonable bounds, and to spend money unrestrained by the capacity of the productive private sector to support it.

Yours,

Blah, blah, blah.

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Robert P. Woodman, 1923-2010

Robert P. Woodman, a co-founder of the Center for Economic and Social Justice, died in Lakewood, Ohio, Thursday, November 3, 2010 at the age of 87. Those of us in the Center for Economic Justice share with all members of his family and devoted friends the loss of a great warrior in the War of Ideas now threatening human civilization.

Bob Woodman worked relentlessly and fearlessly to the full measure of his talents and resources to teach and serve as a living example of the virtue of Social Justice — working for the common good — as articulated in the great 1931 social encyclical of Pope Pius XI, Quadragesimo Anno, and the writings of another co-founder, Father William Ferree, S.M., Ph.D., "America's greatest social philosopher."

As some of you know, some of Bob's ancestors came to America on the Mayflower, which must have contributed to his revolutionary spirit and commitment to the hope that America represented to the poor, propertyless and the powerless of the world. When Bob discovered the principles of economic justice and expanded ownership vision of Louis Kelso and Mortimer Adler in early 1960s, he channeled his passion for Social Justice to become one of the earliest pioneers of what is called "the Just Third Way" — a more just free market system that combines the best but avoids the power-concentrating flaws of both Capitalism and Socialism. Now armed with solid principles of social justice and economic justice, Bob became Cleveland's chief architect and social activist for reviving the original American Dream of a "nation of citizen-owners" through a new national plan now known as "Capital Homesteading."

Working with other architects of a better future, Bob spread the message of practical ways to transform, restructure and grow the future of our free enterprise system in sustainable and more democratic ways, uniquely, from the bottom-up. Bob was among the earliest promoters of legislation adopted in 1974 to encourage employee stock ownership plans or "ESOPs," a first step in the plan for "Capital Homesteading" for turning every American man, woman and child, including the poorest of the poor, into empowered citizen-owners of wealth-producing capital assets. The ESOP social technology has enabled 11 million workers in 11,000 companies today to become worker-owners without reducing their consumption incomes or savings. Thanks to visionary thinkers and activists like Bob, other countries, including China, have copied the ESOP model.

Yes, Bob Woodman was a maverick. And the world needs more Bob Woodmans committed to delivering Peace, Prosperity and Freedom through Justice, not only for all Americans but to all members of global society. Most people fear new ideas, especially ideas that that promise to deliver economic and social justice for all. Bob was a living example of how to conquer fear and ignorance. He devoted his life to igniting a peaceful "Second American Revolution," a future in which poverty would be a rarity and all have-nots could become haves, without depending on, targeting or turning those who control money power and ownership today into have-nots.

For his life and commitment to Justice for all, all members of the Center for Economic and Social Justice salute Bob. I feel that God has blessed Bob and will provide him an eternal reward for all his work on behalf of Justice for all and the survival of human civilization.

Norm Kurland
President, Center for Economic and Social Justice
P.O. Box 40711
Washington, D.C. 20016

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News from the Network, Vol. 3, No. 45

As the economic (and thus political) problems of the world continue to accelerate, people are slowly coming around to the realization that only the Just Third Way offers any realistic hope of getting things back on the right track after decades of monetary and economic mismanagement by government bureaucrats who seem completely divorced from reality. Readership of this blog is up, and it's not just because of our cute little series of "Halloween Horror Specials" — although incredibly erudite as well as witty and amusing. No, it's because (as we quoted the late Frank Hall of Ireland's Own magazine in Thursday's posting on "Preventable Disasters"), "We have tried everything else — and it hasn't worked. We're out of ideas and running short of time."

Consequently, we've got a little more news than usual to report, some of which is rather significant:

• Yesterday Norman Kurland taped a segment for "Money America," a radio show out of Cambridge, Massachusetts, co-sponsored by Cambridge Credit Counseling Corp. and American International College (AIC). The topic was how the $600 billion stimulus will affect the economy — if at all. Naturally, Norm's responses brought in the Just Third Way. The hosts, Thomas Fox (Community Outreach Director for Cambridge Credit, a non-profit group that, well, counsels people about credit), and LaValle Smith (a Certified Credit Counselor), were very positive about Norm's talk, and (if properly encouraged) might be open to future guest spots if the subject warrants a discussion of how the Just Third Way fits in. The show will be broadcast on Sunday, November 14, 2010 at 7:00 pm EST on WAIC 91.9 FM (the AIC station), and on the internet on http://www.aic.edu/hot919. Please send this information around to your network(s). To listen on the internet, go to the link, click on "HOT91.9WAIC" right under "LISTEN NOW" and (if necessary) install "Microsoft Silverlight" in order to hear the broadcast. Spreading word of the show will not only help educate your friends (and enemies), but give the folks at "Money America" a little positive reinforcement. (That includes our overseas readers as well — you know who you are. Staying up until 3:00 am to hear Norm over the internet isn't that much of a burden. He's been up that late/early talking to people in the next time zone.)

• Norm's interview resulted from Michael Greaney responding to a question regarding the stimulus, sending a (relatively) brief e-mail about binary economics and the Just Third Way. It was only one of several e-mails sent out that day, but it was the only one that got a response. Door opening is clearly not for anyone who is easily discouraged. You have to remember that there are not all that many open minds out there, and you have to keep trying. Also, don't try to make the "sale" yourself. Just open the door for the CESJ core group.

• Early this week we got a question about the Social Justice Collaboratives. Are any new ones planned? Planned, yes. On the schedule, . . . no. The structure of the Collaboratives is such that CESJ cannot go it alone. We need a sponsoring organization to handle the logistics and administration. We'd like to cover topics such as getting away from the slavery of past savings, restoring the natural law as the basis of the money and credit system, the role of private property, economic personalism (the list is virtually endless), but we need other organizations that share an interest in a particular topic and that have the resources, especially support staff, to carry the project through. For example (just off the top of my head), one Collaborative might be sponsored by the Ancient Order of Hibernians on the subject, "Introducing the Just Third Way to Ireland, Programs and Politics," to discuss what to do, and how to get it to the attention of the floundering Irish government.

• We learned with great sadness of the death of Bob Woodman, a co-founder of CESJ, on November 4, 2010 in Cleveland, Ohio, at the age of 87. A strong supporter of the "four pillars of an economically just society" (too briefly, 1. A limited economic role for the State, 2. Free and open markets as the best determination of just wages, just prices, and just profits, 3. Restoration of the rights of private property, and 4. Widespread direct ownership of the means of production), Bob was a perennial gadfly to the complacent, never hesitating to take on causes on the basis of their justness, not popularity.

• In the "trivial news department," a CESJ in Detroit friend sent this link to liven our spirits . . . with spirits.

• "Renew America" columnist Matt C. Abbott reviewed Supporting Life in his column. Why haven't you?

• Michael D. Greaney, CPA, MBA (and CESJ's Director of Research) was quoted in an article by Brett Owens, "How to Strengthen the CPA/Attorney Relationship" on "Accounting Web." Note the subtle reference to Aristotelian ethics and natural law philosophy.

• Long-time CESJ member out in Kansas, Rudy Wrobel, sent the link to "Preventable Disasters" to Australian economist John Quiggan, author of Zombie Economics. To how many economists, door openers, friends, chance acquaintances, enemies, and presidents and prime ministers of Ireland and members of Dáil Éireann did you send it? (CESJ friend Chris O'Connor sent the substance of the posting to a former U.S. Ambassador to Ireland, as well as submitting a review of Supporting Life to the National Hibernian Digest.)

• Equity Expansion International, Inc., the consulting company founded to implement the principles of the Just Third Way as far as the law allows — and to improve legal systems when the law does not — has been approached by a group in one of the southern U.S. states to help right a decades-old wrong. During the Second World War, land was condemned and taken over by right of eminent domain to build an airstrip. The land was found to be unsuitable, but was not returned. Now developers are attempting to purchase the land from the federal government, but the surviving original owners and the heirs are trying to get ownership back. Individuals representing the original owners and heirs came across the Just Third Way and thought it sounded like the very program to redevelop the land once it is restored to its original owners. We will report progress — and names — when it becomes feasible to do so.

• As of this morning, we have had visitors from 57 different countries and 51 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 the Netherlands. People in Venezuela, the United States, Belgium, Argentina and Finland spent the most average time on the blog. The most popular posting is "Keynesian Economics is Socialism Lite," followed by "Destroy All Monsters" in the "Halloween Horror Special" series, "Thomas Hobbes on Private Property," and two more "Halloween Horror Specials," "The Attack of the Zombie Bankers," and "The Invisible Men."

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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And That Hyperinflation?

Food prices have effectively been rising for some time. There has been a gradual increase in the consumer price index, but the real "hit" has been seen in the sales, something not reflected in the CPI. Items that used to go on sale with relative frequency are now not going on sale, the sale price is nowhere near former levels, or a combination of the two. Example: It's slaughtering time here in Virginia, where "Smithfield hams" are a major product. This creates a surplus of pork shoulders ("picnic hams") that were formerly either sold fresh at a heavy discount, sometimes as much as 60-70% off the regular price, or smoked and sold at a much lower price than the hindquarter, premium hams, often as low as 49¢/lb for fresh or smoked shoulder. This is no longer the case, with few sales, and the sale price usually 99¢, the former "regular" price.

The (lack of) sales phenomenon, however, is only a "leading indicator" of what's coming. Given the way U.S. companies have been pouring money into Wall Street instead of investing in new and replacement agricultural, industrial, and commercial capital, we can expect the price level to start rising in response to this increase in demand-pull inflation. Contrary to Mr. Bernanke's assertions and beliefs, we already have inflation, but it is in the failure of consumer prices to fall as a result of inflation rather than in a rise in prices that we see the effect. Without the excessive government spending, we would be seeing a rapid decline in the price level. Instead,

1. The last three weeks have seen reports that U.S. companies have an estimated $1 trillion in cash that they plan on using to "go private," i.e., purchasing their own shares on the secondary market. This will drive up the prices of those shares, and tend to pull other share values along with them.

2. Financial institutions have been using "excess reserves" not to make new loans to business for new or replacement capital, but to invest in secondary securities, thereby driving up the price level on Wall Street. Incidentally, this was similar to what caused the "Panic of 1907" and contributed to the 1929 Crash: the combination of commercial and investment banking, the separation of which was tossed aside with the full repeal of Glass-Steagall.

3. The federal government and the Federal Reserve have announced that they plan on pumping $600 billion into the economy as a stimulus. Per 1 & 2 above, this will not be used to create jobs by investing in new and replacement capital, but — as was the case in 1928/29, will be put into the stock market since a greater ROI is expected from speculation as opposed to investment.

The misdirection of the supply of loanable funds — a virtual dogma dictated by the reliance of the three mainstream schools of economics on the disproved tenets of the Currency School of finance — means that new and replacement capital will not be financed. This will decrease supply by reducing production of marketable goods and services, of which food is primary — "The farmer is the one who feeds them all." The general price level will rise in response.

Further, a rise in the price level in one area, notably the secondary market for debt and equity instruments, raises expectations that the price level in other areas, e.g., food, will increase. As Costantino Bresciani-Turroni noted in his study of the hyperinflation in Germany 1919-1923 (The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany, 1931), this can — and frequently does — result in rapid rises in the price level, exacerbated by producers raising prices faster than the currency can be inflated out of anticipation. This generates enormous profits for financial institutions and producers with supplies on hand, to the detriment of consumers whose money will not buy as much as formerly. These profits can be multiplied by speculation in foreign exchange when the domestic currency is fluctuating in value relative to other currencies, as well as by taking advantage of the rising stock market. (pp. 286-333.)

Fortunately, there is a simple solution, although one could hardly call it easy. The primary reform that must be accomplished is to return the commercial and central banking system to its proper function of providing the private sector with sufficient liquidity in the form of an "elastic" and stable currency sufficient to meet the needs of agriculture, commerce, and industry, and cut the government off from the ability to raise money except through taxation or by borrowing out of existing accumulations of savings.

This was the orientation of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, with specifics detailed in his 1935 "contra-New Deal" study, The Formation of Capital — the third volume in a series investigating the causes of and possible remedies for the Great Depression (the others being America's Capacity to Produce, 1934, America's Capacity to Consume, 1934, and Income and Economic Progress, 1935).

Louis O. Kelso and Mortimer J. Adler refined Moulton's analysis in the two books they co-authored, The Capitalist Manifesto (1958) and The New Capitalists (1961). The subtitle of the latter is significant, embodying the chief point in Moulton's analysis of the U.S. financial system: "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."

What Kelso and Adler added was the proviso that the financing for new capital formation must not only come from the expansion of commercial bank credit and not from reductions in consumption (Moulton's point), but should be broadly and directly owned by people who will use the income generated by the new capital first to repay the acquisition loan and later as a "second income" to meet consumption needs, not reinvestment in additional new capital. This would keep consumer prices (e.g., food) low, even decrease them, but without harming the profitability of the new capital or starve the private sector of the supply of loanable funds. The economy would experience not deflation of the currency — insufficient money and credit — but appreciation: each unit of currency would buy more because more is produced and the currency is not artificially inflated.

The Center for Economic and Social Justice ("CESJ") has developed a proposed application of Kelso and Adler's ideas called "Capital Homesteading," a national program to empower each individual to acquire capital on credit without risking existing savings or cutting consumption. We estimate that a child born under Capital Homesteading could accumulate an estimated $500 thousand of capital from birth to age 65, and enjoy $1.6 million in dividend income after debt service during that period. Recommended tax reforms would result in a "typical" family of four paying no income taxes until aggregate income exceeded $100,000.

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