Wednesday, November 10, 2010

Preventable Disasters

It was one of the biggest disasters in history, wiping out half the population of a country, either through death or emigration — and it was entirely preventable. An Gorta Mór, "The Great Hunger," that hit Ireland in the 1840s was an artificial situation caused by shipping massive quantities of food out of a country in which the subsistence crop had failed. The situation was made worse by paying lip service to "free market" principles yet preventing the importation of relief supplies until too late to do much good. The argument was that freely choosing to give away food to the starving interfered with the free market. Relief from America was prohibited until a foodstuff — "flint corn" ground into cornmeal — could be found that would not bring down retail prices of other, more familiar food.

While there is otherwise no comparison with the Hunger, the current "financial crisis" afflicting Ireland was, like the "Great Recession" that has been declared "officially" over but still continues in reality, completely preventable. Further, as was the case over 150 years ago, relief is readily at hand. Relief is again prevented, however, by the refusal of the powers-that-be to consider the obvious remedy: abandon disproved Keynesian planned and centrally controlled market principles, and reform the financial system to serve the growth needs of the private sector instead of the State.

Rather than take the obvious course, what we see in today's Wall Street Journal is the continued lament that Ireland's fate is irrevocably linked to the financial health of what Pope Pius XI called, a "despotic economic dictatorship . . . who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure." (Charles Forelle and David Enrich, "Ireland's Fate Tied To Doomed Banks," Wall Street Journal, 11/10/10, A1, A16.) As "the social justice pope" explained,

This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will. (Quadragesimo Anno, §§ 105-106.)
This should come as no surprise. If you saw the Wall Street Journal yesterday morning, "Ireland's Next Blow Could Be Home Loans," C1, you're already aware of the next tsunami facing the Irish economy — 25% of home mortgages are facing foreclosure by the end of the year. Disaster is only being delayed, not diverted, by extending the time it takes for foreclosures to take effect. This will only be effective if a genuine solution can be found and implemented, instead of hoping the horse will learn to sing.

This makes it all the more critical that somebody start paying attention to what Louis Kelso called, "the economics of common sense," binary economics, of which CESJ's proposed application, "Capital Homesteading," holds significant promise not only to halt the continuing decay, but reverse it rather spectacularly.

It's not as if any of this is particularly new — or that the usual solutions are doing anything other than to increase despair. As the late Frank Hall, a columnist in Ireland's most popular family magazine, Ireland's Own, pointed out in response to a letter I sent him on the same problem . . . in 1993 . . . ("Frankly Speaking: We've Tried Everything Else!" Ireland's Own, July 23, 1993, p. 7.), "We have tried everything else — and it hasn't worked. We're out of ideas and running short of time."

And — frankly speaking — what is there to be afraid of? As Mr. Hall said to the Nervous Nellies, "Now, steady on, folks, don't back away from this. It concerns you, unless you have been lucky enough to win top prize in the Lotto."

The fact is, few of us are going to win the lottery. Nor is "the government" going to be able to "create jobs" out of thin air when they can't even save the financial services industry in Ireland that caused the problem in the first place. As Harold Moulton pointed out a few decades ago, the two key factors in any recovery — or in a sound economy, for that matter — are production and employment.

Louis Kelso and Mortimer Adler refined Dr. Moulton's ideas in their two co-authored books, The Capitalist Manifesto (1958) and The New Capitalists (1961). Kelso and Adler added that "employment" should not only include employment of human labor, but of all resources, including capital . . . which must be broadly and directly owned by individual men, women, and children, not conglomerates or colossal corporations owned by a tiny elite and controlled by the State. (Caveat: we've no objections to colossal corporations or conglomerates . . . as long as the free market and the needs of the economy dictated the size and they are broadly and directly owned by people who have the full rights of property.)

And how are ordinary people supposed to become owners, not just of "the corporations," but of all agricultural, industrial, and commercial capital, to say nothing of their own homes and the land itself? That's the simplest part, though probably not very easy, considering the ossified financial and economic thinking that got Ireland (and the United States) into this mess in the first place.

To start, let's talk about the money. As Cyrano said in Rostand's play, "You speak the first word of intelligence!" The usual assumption is that the only way to finance new capital formation — and thus acquisition of capital by those who presently do not own capital — is to cut consumption, accumulate money savings, and then invest.

Not so, as Moulton explained in The Formation of Capital (1935) that, while certainly not as witty and entertaining — or as dangerous — as everybody's favorite big-nosed Gascon, certainly speaks words of intelligence. Financing for both new and replacement capital can be obtained through the expansion of commercial bank credit — for which, significantly, existing accumulations of savings are not required for anything other than as collateral.

By companies and individuals discounting and rediscounting bills of exchange at commercial banks, which can in turn rediscount such qualified paper at the central bank, there will always be sufficient credit available for all financially feasible investment without first having to cut consumption and save. This is why Kelso and Adler called their refinement of Moulton's work "A Proposal to Free Economic Growth from the Slavery of [Past] Savings" — the subtitle of their second collaboration, The New Capitalists.

The Center for Economic and Social Justice has applied Kelso and Adler's principles in developing "Capital Homesteading," a proposal that would make it possible for every man, woman, and child in a country to accumulate capital purchased on credit sufficient to meet common domestic needs adequately. Other vehicles have also been developed, such as the Homeowners Equity Corporation, or "HEC," and the Citizens Land Bank, or "CLB."

By means of these financing and ownership vehicles (particularly adaptable to the Irish situation), plain old "ordinary" people could become direct owners of their own homes and of the land and infrastructure in their communities. Actual flesh-and-blood people would thereby derive the benefits of ownership instead of it going to some absentee landlord, a faceless financial institution, or a spendthrift bureaucrat at Dublin Castle.

So — what's keeping Ireland or the U.S. from adopting Capital Homesteading if it's so good?

You are. Have you bothered to get in touch with any of your contacts, regardless how meek and lowly, or rich and lofty, and let them know there's a solution possible? Have you opened the door to these ideas anywhere? And have you kept at it, not taking, "Oh, yes, I know all about that" (oh, really?) for an answer?

As Father William Ferree pointed out in the conclusion to Introduction to Social Justice,

The theory of Social Justice which has been outlined in this pamphlet is tremendously important and far-reaching. No mere pamphlet could hope to outline the whole theory or to explore all its consequences. That is why this pamphlet is called only an introduction to Social Justice.

The completed doctrine of Social Justice places in our hands instruments of such power as to be inconceivable to former generations.

But let us be clear about what is new and what is old. None of the elements of this theory are new. Institutions, and institutional action, the idea of the Common Good, the relationship of individual to Common Good — all these things are as old as the human race itself. There is nothing more new in those things than in the school boy's discovery that what he has been speaking is prose; nor must we ever believe that God made man a two-legged creature, and then waited for Aristotle to make him rational. Moreover, much of the actual application of these principles to practical life is to be found in older writers under the heading "political prudence."

When all that is admitted, there is still something tremendously new and tremendously important in this work of Pope Pius XI. The power that we have now to change any institution of life, the grip that we have on the social order as a whole, was always there but we did not know it and we did not know how to use it.

Now we know.

That is the difference.

 So — what are you waiting for?

#30#

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