Thursday, January 6, 2011

Pure Credit Redux, Redux: Reply to Dr. Bob

Or should that be "Pure Credit Redux Squared"? We announced this response yesterday as a lynch mob for Dr. Crane, but nobody remembered to bring a rope. We'll just have to be satisfied with words, not deeds — verbi non facti, to throw a little of our own knowledge of other languages around a bit. (Of course, that pretty much exhausts our knowledge of ye language of ye Caesars, but we won't tell if you don't.)

Anyway, in response to Dr. Bob's extremely thorough response to our posting on pure credit for student loans, I think we'll stand pat. Basically, from the perspective of accounting theory on which Binary Economics is, in part, based (specifically the "matching principle"), if you cannot tie a stream of income directly to the activity being financed or the expenditure of resources, then activity financed or the expenditure of resources is not an investment, and any charge made by the lender in excess of the amount borrowed or expended is not a profit. Usury — riba — consists of taking a profit where no profit is due, and is therefore contrary to justice — vide Vix Pervenit ("On Usury and Other Dishonest Profit"), 1745. To use pure credit to finance projects or anything that does not pay for itself within a reasonable period of time is therefore contrary to the principles of Binary Economics, whatever Louis Kelso or anyone else may have said.

We would, therefore, support interest-free pure credit loans to be used to finance infrastructural projects (including school buildings and government facilities rented to educational providers and public sector agencies), through commercial bank loans to for-profit Citizens Land Banks. In other words, such projects would be profit-making enterprises leased out, with the citizen-owners sharing in any profits over and above legitimate expenses. The stream of income would be "matched" directly to the project itself.

We would not, however, support the use of interest-free pure credit for education. Rather, we would fund human consumption of citizens' educational needs first by making it possible for people to provide for their own needs by their own efforts, whether by sale of their labor, or income from directly owned capital. Should that prove inadequate, educational needs could be met through vouchers funded by private charity, interest-free non-usurious loans from the rich out of their existing accumulations of savings, or by taxpayer grants financed out of current tax revenues.

Such an arrangement would maximize the opportunity of the young and their families to accumulate Capital Homestead stakes as rapidly as possible, and eventually enable the students to pay for their own educational costs from Capital Homesteading dividend incomes.

To use pure credit to pay for the consumption of educational services would only increase the cost of providing for the salary and retirement incomes of educators. If we stick to confining pure credit for financing highly feasible non-human productive assets, society will reverse the exponential trends of higher educational costs.

In contrast, in an ideal universally prosperous world would, as in Socrates' day (we'll ignore the 99% of the people who were chattel slaves for the sake of the argument), educators as well as students would have all or most of their subsistence needs produced by non-human energy slaves or robots. This would enable educators — now wage slaves — to teach for the love of teaching, with their services provided as cost-free, beyond-economic-toil, leisure work.

That was the vision of Louis Kelso and Mortimer Adler. Expedients should be — actually must be — funded in ways that preserve the integrity of the logic of Kelso's theory of Binary Economics, as we suggested above. To compromise on the consumption of education would open the door to demands for access to pure credit for food, health services, and rents, all of which are critically important, much more so than formal education, for a person's physical wellbeing and development. Using pure credit as the first recourse in such matters adds a confusion factor into the money creation system that will lead inevitably to runaway inflation, chaos, and increasing intervention and power of the State at the expense of human freedom. In sum, we can support (1) and (3) of Dr. Bob's analysis, but offer a more practical and principled way to address concerns the issues raised in (2).


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