Thursday, December 16, 2010

Games People Play

It's become painfully obvious that the world's most popular sport isn't soccer, baseball, or even texting. It's jumping to conclusions after warming up playing word games. On today's swampy intellectual and moral playing field shadowed over with a heavy positivist cloud cover, even understanding the idea of absolutes of the natural moral law and discerned as far as human capacities permit through the use of reason is virtually unthinkable. People waste their time twisting themselves and their thoughts into moral and intellectual pretzels — and you know what happens if you try to untwist a pretzel.

This makes it all the more difficult to explain the Just Third Way, especially as the principles of the Just Third Way are applied in Binary Economics and compared with today's "mainstream" schools of economics. We've spent the last couple of years on this blog explaining in great detail the philosophical framework of the Just Third Way, its principles (especially as they relate to money and credit, banking, and finance), and how these principles might be applied in Capital Homesteading to bring about a more economically (and politically) just and human(e) future for all.

A major part of the groundwork involved in this effort is surfacing or developing accurate definitions of terms and concepts. One of the more difficult terms to define, for example, is "money." Economists and even banking experts muddy the waters on this one by insisting on defining money by its function, that is, what money does or can be made to do, rather than by its nature, that is, what money is, or the basic principle(s) of money.

Almost as difficult as defining "money" is defining the terms "capitalism" and "socialism." Money has a lot of emotional and historical "baggage" that gets in the way of gaining a true understanding, but capitalism and social certainly give it a run for the, well, money. Call something "socialist," for example, and it seems that nobody actually tries to understand what you mean. Instead, people immediately assume that you're using a pejorative just to score off an opponent, rather than giving an objective and accurate description.

Case in point: a couple of days ago we stated that chartalism, a theory originated by Georg Friedrich Knapp and detailed in his book, The State Theory of Money (1924), is socialist. In its purest form, chartalism puts total control over money and credit in the hands of the State. Today's chartalists modify the form of chartalism by permitting some private control (under State guidance, of course), but this does not change the substantial nature of the theory.

Emphasizing form over substance, a chartalist (or, at least, someone claiming to understand chartalism better than we do) responded by claiming that the modifications and changes introduced by modern chartalists into the application of the pure theory have, in effect, rendered it non-socialist. The debate then continued by claiming that the principles underpinning the Banking School of finance — Say's Law of Markets and the real bills doctrine — are, essentially, hogwash, and the relevant framework is that of the Currency School of finance.

On the contrary! As we have attempted to explain over and over (and are now forced to close the debate with this final posting), you can change the form or application of something, you can even redefine something to suit your personal opinion, but the thing remains what it is. If you change the definition of something, you are either abolishing the thing for what it was and making it something different, or claiming that the thing never was what it was. In either case you are only playing games.

Further, it is a bad argument to try and claim that the financial principles of the Just Third Way, notably Say's Law of Markets and the real bills doctrine, are bad because they are not the principles of the Currency School. Heavy sigh. As G. K. Chesterton explained,

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." (G. K. Chesterton, St. Thomas Aquinas: The "Dumb Ox." New York: Image Books, 1956, 95-96.)
To settle the matter once and for all, then, let's examine what "the authorities" are actually saying. In the Wikipedia, "chartalism" is described as, "a monetary standard in which government-issued tokens are used as the unit of money. In such a system, fiat money is created by government spending. Taxation is employed to reclaim the money and control the total amount of fiat money in existence. Reclaiming most of this issued money via taxation is essential to maintaining its value in exchange." The entry goes on to explain,
Modern Chartalism theory states that under a fiat money system, net currency is created by government through deficit spending. Because the issued currency is not tied to or backed by a commodity, currency can only be created when the government spends. Government may, or may not, ask for that currency back in taxes. The demand to hold and acquire this government issued currency is driven by taxes levied by the state — which typically can only be paid in the state-issued fiat currency.

The theory was developed by economist G.F. Knapp into the 1920s, with important contributions by Alfred Mitchell-Innes also. It was influential on the 1930 Treatise on Money by John Maynard Keynes — Knapp and Chartalism are cited approvingly on its opening pages. Chartalism experienced a revival under Abba P. Lerner, and has a number of modern proponents, who largely identify as post-Keynesian economists.
And what did Keynes say in his Treatise on Money?
It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp's Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized. (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)
If we understand private property (to say nothing of money and credit, banking, and finance), we are forced to the conclusion that, remonstrate as you will, call us whatever names you like, chartalism is, as we stated, a form of socialism. A State that issues money without backing and eliminates the necessary private property stake is socialist — no ifs, ands, or buts.  Thus chartalism — "the doctrine that money is peculiarly a creation of the State" — is, without question, a form of socialism.