Attaining Justice in the Arab World, Part IV: Food and Politics

Events in Libya are starting to bear a strong resemblance to those surrounding the French Revolution. There is, however, one very significant difference. The French Revolution did not result from any great sense on the part of most of the French people that they were being oppressed by the French monarchy. That came later, to justify both the revolution and the execution of Louis XVI, who (unlike Gadhafi) at least had good intentions.

Some authorities trace the root causes of the French Revolution to national financial disorder, the consequent erosion of the tax base, and a series of crop failures. People lacked jobs and were starving, and nothing the government did, for all the concern and sympathy expressed by the king and queen, seemed to have any effect.

A relatively small segment of the people rebelled, seized power, and tried to legislate prosperity. Fiat paper money replaced gold and silver, commercial banks were abolished, and inflation was rampant as the new government tried to cover its deficits by printing "assignats" and their later replacement, the "mandats," both with values that quickly inflated to nothing. Anyone seen as better off than his neighbor (i.e., industrious and productive) ran the risk of being arrested for counterrevolutionary activities, and guillotined. Order was only restored when Napoleon seized power and imposed an effective dictatorship, instituting a program of conquest, first to "extend the revolution," and then to realize his personal destiny. These events in broad outline would be repeated in Germany from 1918 to 1946.

The people in the areas affected by the spreading unrest, especially Libya, now face similar choices: 1) a religious State dictated by the Muslim Brotherhood, 2) a secular State wherein rights are nominally secured and all the outward trappings of political democracy implemented but without any provision for economic democracy, or 3) a State based on fundamental precepts of the natural moral law common to all religions, especially the natural rights to life, liberty, pursuit of happiness, and the right almost always omitted, private property. (Yes, the "Declaration of the Rights of Man and of the Citizen" mentioned property as a natural right, but significantly did not define property or offer protection in the form of a specific bill of rights. Consequently, property, like life and liberty, was continually redefined by the legislature, to the point where all three became effective nullities.)

Commentators have not been blind to the fact that what seems to have inspired the current wave of unrest isn't political oppression, per se. The Egyptian people suffered under Mubarek for three decades, and the Libyan people under Gadhafi even longer. Nor was it the outstanding injustice to a particular individual, although that certainly provided a trigger. No, taking into account the spreading financial distress, disappearance of jobs, and crop failures, the situation begins to look very much like France in the late 1780s, except now on a global scale. People are baffled, angry, and — above all — hungry and scared.

People can put up with a lot as long as they can secure the necessities of life and even a few extras. Hitler was extremely popular as a result of his securing his power base by ensuring that the average German had a job, and a modicum of luxuries. He even had a plan that would enable ordinary people to purchase automobiles. This was in sharp — and welcome — contrast to the post-World War I chaos, both economic and political, that almost destroyed Germany. The average German under Hitler had, relatively speaking, a very good material life until the very end of the war. If a few Jews, Slavs, Gypsies, Balts, and a few score other non-Aryan races had to suffer, well, that was the price that had to be paid to keep society running, just as today many people seem convinced that tax-funded abortion on demand is the price we pay for a social safety net.

Thus the Arab world — and the rest of us — faces a critical choice at this "turning point in history." Will they settle for the outward trappings of democracy in the vain hope that political freedom will be able to deliver prosperity out of the wreckage of a failed economic system? That would only ensure that the first demagogue to come along who promises to deliver change will seize power . . . and soon find himself in a worse position than whoever he replaces.

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News from the Network, Vol. 4, No. 8

After a slight downturn as a result of concern over the rise in oil prices coming from the unrest in the Arab world, the stock market is up . . . and, of course, so is the pump price of gasoline, the latter rising precipitously. Add to that the rapid rise in the price of basic foodstuffs, and you have a very volatile mix. Not to worry, though — the economy is in full recovery, as the stock market rise proves beyond a shadow of a doubt.

All that stuff about the necessity of employment and production as the true indicators of economic recovery . . . bah. Alarmism. This is a jobless recovery. As long as the stock market is doing well, everything must be fine. That's because the secondary market is really the primary market. An economy isn't supposed to produce marketable goods and services for people to use. It's just supposed to move money around, allocate financial resources, and make certain prices on the stock market continue to rise. All those unemployed people and companies that can't get credit to finance new capital and create jobs are just too dumb to realize what really drives the economy.

If you haven't caught on by now, both of the above paragraphs are what we call "sarcasm."

Let's be honest. The current situation, both economically and politically, represent one of the best opportunities for implementing the Just Third Way than we have seen in a long time. Of course, all times are good to act justly and do the right thing. It's just that, with so much going wrong, it's more obvious that the time has come for the Just Third Way. To take advantage of that, here's what we've been doing for the past week:

• CESJ's Director of Research, Michael D. Greaney, will be the featured guest on tomorrow's The Challenge, with your host Russell Williams. Again, it's easiest just to republish the station's press release so you know how to tune in: "Saturday February 12th 2011 marks the debut of THE CHALLENGE with Russell Williams, an innovative weekend talk show focusing and bringing emphasis to economic justice and empowerment. Tune in every Saturday morning at 9 AM Eastern on WKND 1480 AM Windsor-Hartford, CT and online at www.goisradio.com/wknd. Call in and let your voice be heard at 860-218-2173 or 860-218-2174."

• Norman Kurland was down at Harris Neck, Georgia earlier this week for an important meeting with community and religious figures interested in the initiative. He returned to Arlington, Virginia, for a day, and then flew back to participate in a "retreat" for the prime movers in the project, at which he will be the keynote speaker.

• CESJ has made a potentially important connection with the National Lawyers Association, [http://www.nla.org/] that spun off from the American Bar Association when the ABA adopted a policy position contrary to principles of the natural moral law that provide the framework and context of the Declaration of Independence and the U.S. Constitution without the majority consent of its total membership.

• Today is the last day for sales of CESJ and UVM publications to be recorded for February. Possibly due to the growing realization that the natural moral law provides the only sound basis for a just social order, sales of CESJ and UVM books have grown significantly, and this month has set a record for the most sales in February.

• We have been having some interesting conversations with a prospective intern from Brigham Young University. While CESJ internships are unpaid, they frequently offer participants greater scope for creativity and input than other internships. No CESJ intern has ever been sent for coffee, nor made copies for anyone other than him- or herself.

• As of this morning, we have had visitors from 51 different countries and 47 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 Philippines, the UK, Canada, and Pakistan. People in Indonesia, Hong Kong, Venezuela, Brazil, and Canada spent the most average time on the blog. The most popular posting this past week is once again "Thomas Hobbes on Private Property," followed by "Seeing the Nose on Your Face," "The Right to Choose," "Aristotle on Private Property," and "The Problem with Money, Part VI: Say's Law and the Real Bills Doctrine."

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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Attaining Justice in the Arab World, Part III: Wage Slavery

The rapid spread of the discontent that first surfaced in the Arab world has reached out (or at least been linked to) the demonstrations in Wisconsin by people outraged over the budget cuts that Governor Scott Walker believes are necessary in light of the current economic crisis. Supporters in the Arab world have even gone to the extent of purchasing fast food for delivery to the Wisconsin demonstrators as a sign of solidarity.

Feeding the hungry is a commendable act, as is siding with the oppressed and showing support. The problem, however (as with all social activism), is that, the closer they get to succeeding, the people involved have to be very careful what they ask for or demand — they might get exactly what they want. This is especially problematic in this case, as the demands are for wage system jobs.

Here's the problem. The fundamental issue, and the one on which virtually the whole of global monetary and fiscal policy is based, is the belief that new capital formation cannot take place until and unless consumption is reduced, money savings accumulated, and then capital is financed. From this we get the idea that the only legitimate source of income for most people is wages and welfare.

Even though Dr. Harold G. Moulton proved this assumption false (The Formation of Capital, 1935), it is easy to understand, explaining why the basic fallacy has such a strong hold on so many people. If reductions in consumption — "savings" — are necessary to finance new capital, then the world needs a class of very rich people (the fewer, the better, according to Keynes) who cannot consume all of their income, and are virtually "forced" to save. (This is not the related Keynesian "forced savings," which is a much more complicated concept.)

Since most human beings act rationally, the presumption is that these accumulations are not allowed to remain idle, but are invested in additional new capital. This necessarily restricts everyone other than the relatively few rich people to wages and welfare for income. The theory is that the new capital formed and financed by the savings of the rich will create jobs for the non-rich, and judicious redistribution will take care of any slack.

Unfortunately for this neat theory, not only did Dr. Moulton prove the basic assumption about the necessity of cutting consumption to finance new capital wrong, technology and cheaper labor in other areas typically decreases the number of jobs at a faster rate than jobs can be created by capital investment. In the United States, the number of people directly involved in manufacturing has been in decline since the 1920s, even as the number of people employed grew rapidly with the expansion of the economy. The vast majority of new jobs have been in "white-collar" positions as technology takes over the bulk of production. Now, with advances in computer technology, service and administration jobs are beginning to disappear.

The solution, as was pointed out in an editorial in Life magazine in the August 14, 1964 issue, is "If the Machine Wants Our Jobs, Let's Buy It." Don't worry if the machine displaces you from a "job." As long as you own the inputs to production, be they labor or capital, the natural right of private property (which comes under the virtue of justice) means that you have the right to control, and enjoy the fruits (the production or income) generated by what you own.

Demonstrating, even fighting for justice is fine. You should just make certain, however, that what you're fighting for is truly just — and truly what you want.

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Attaining Justice in the Arab World, Part II: Democracy and Human Rights

The news out of the Arab world is both encouraging and discouraging. Even as we write, Moammar Gadhafi is sounding increasingly delusional as he goes down with a ship that he insists isn't sinking at all. Western experts and commentators are trying to sound encouraged about the advance of democracy. The problem is that, especially in politics, "money talks" . . . and you know what walks. The stock market has dropped significantly, the price of oil is up, and, whatever the rhetoric, it's becoming increasingly clear that many of the demonstrators, however great their sincerity, aren't completely solid on democracy. They know it's something good, but . . . .

Understanding this requires that we get back to some basics about the role of the State, and man's place in the State — and what true democracy means. According to classic liberal political philosophy, virtually the sole justification for men coming together to form States is to gain protection of property. (Locke construed "protection of property" as including life, because each of us owns his own life, and liberty, because exercising our freedoms comes under exercising our property in ourselves.) According to classic Aristotelian political philosophy, man being "political by nature," we come together to form a particular State in conformity with our own nature in order to have the proper environment within which we acquire and develop virtue, thereby becoming more fully human.

The chief means by which we acquire and develop virtue is by exercising our natural right to be an owner (the right to property), thereby securing our lives and liberty. Thus, for different reasons, liberal political philosophy and Aristotelian political philosophy agree that private property, the "natural" means by which we secure our material and political wellbeing, is essential to a just social order. When the social order is perceived as unjust, the proper response is to organize and correct the institutions that cause the injustice.

It is a truism — though none the less true for being one — that political democracy cannot survive unless built on a solid foundation of economic democracy.  Leave out the economic democracy, and you run the risk that what follows the tyranny you have just overthrown will be a worse fire than the frying out of which you just leaped.

This, in part, is what appears to have been happening in Tunisia and Egypt, with rumblings of discontent echoing everywhere on the face of the globe. With the example of an apparently successful revolution before them, oppressed people throughout the world might be tempted to have a go at rebellion themselves. It is, after all, highly unlikely that the French Revolution of 1789 would have happened if there had not been the example of the American Revolution of 1776 — itself modeled in part on the "Glorious Revolution" of 1688 — to guide and inspire the revolutionaries.

This is where the danger lies. At present, the people of Egypt believe themselves to be successful, and standing at the dawn of a new era. That is absolutely correct. The only question is whether the new era will be better, or much worse than what preceded it. The French Revolution, while ushered in to cries of "Liberté, Egalité, Fraternité," quickly became far more tyrannical and oppressive than the Bourbon kings could have imagined, much less survived for as long as they did.

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Attaining Justice in the Arab World, Part I: Enough is Enough

The long-overdue ouster of President Mubarek of Egypt is, at one and the same time, one of the most encouraging and potentially dangerous outcomes to the unrest spreading throughout the globe. As of this writing, the unrest that started in Tunisia, then spread to Egypt and the rest of the heart of the Arab world, is threatening the stability of the entire region. Even "strong man" Moammar Gadhafi's regime looks to be crumbling rapidly, and a number of others are on very shaky ground.

Trying to analyze the situation from a Just Third Way perspective, it appears that the causes of the unrest and the reason for its rapid spread fall into four broad categories. First and foremost, there is the moral outrage that people feel at decades of corruption and greed. Second, there is the demand for democracy and respect for human rights. Third, there is a growing demand that the government do something about jobs. Fourth, there is the recent rise in the cost of food as such staples as wheat and corn double and treble in price.

None of these are unimportant. It seems odd, however, that less emphasis seems to be placed on those that are most immediate, i.e., food, followed by the means by which most people obtain food: a wage system job. Respect for your fundamental rights is important, but it doesn't really mean anything unless you're alive. Cleaning up government corruption and overcoming others' greed is important, too, but — face it — if I'm reasonably well-fed, I probably don't care all that much if the king, president, prime minister, or local commissar is whooping it up at a party funded by skimming taxes that somebody else paid. I might even put up with torture and death — as long as it happens to somebody else, I have enough to eat today, and the reasonable expectation that I and my dependents will eat tomorrow. Oppressive regimes can last a long time as long as people don't get too scared or too hungry, and the system seems to be working . . . for them.

That having been said, however, the moral outrage expressed by the people is well-justified — more than justified, really. The corruption and greed shown by those in power is, frankly, sickening in a way that people in the United States cannot truly appreciate. People have put up with far too much for far too long, and enough is enough.

Therein lies the danger, however. People can only take chaos and disorder for so long before they will accept any remedy, reasonable or insane. Hitler came to power when Germany was threatened with collapse for the second time in a little over a decade. He kept power by promising a good life for the average German — and he delivered. The horrors he perpetrated were not on his own people, a lesson today's crop of dictators don't seem to appreciate.

It is essential that the people in the disrupted areas eliminate greed and corruption from the system as far as humanly possible. They must be made aware, however, that simply doing away with the greedy and the corrupt is rarely a satisfactory answer. A new system must be designed and carefully implemented to ensure what accountants call "internal controls" are in place that, while they cannot eliminate greed and corruption, make greed and corruption more obvious (transparent) when they occur, render those responsible directly accountable for their actions, and make such activities less than optimal and reward socially beneficial actions by the structuring of the institutions themselves, not externally imposed regulations or controls.

Such systems do not spring spontaneously into being on the ruins of the old, however much satisfaction we might get from hauling down the once-feared and mighty from their formerly lofty positions and destroying everything in sight that reminds us of them after we've eliminated them. Instead, the situation calls for "acts of social justice," directed at establishing a just political order founded firmly on a just economic order. Briefly summarized, the basics that must be incorporated into any new system from the start if there is to be "a decent respect for the opinions of all mankind" are:

1. A limited economic role for the State,

2. Free and open markets within a clear and understandable legal framework 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.

This last, the "fatal omission" from the system of virtually every nation on the globe, is the chief means by which people secure all other rights, including life, liberty, and the pursuit of happiness. Without direct private ownership of capital in fact, individually or in free association with others, a person is a non-entity with no effective rights, a "masterless slave," as Aristotle put it. As William Cobbett emphasized, "Freedom is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, — and it means nothing else, — the full and quiet enjoyment of your own property. If you have not this, if this be not well secured to you, you may call yourself what you will, but you are a slave."

Own or be owned. That is the choice facing the people of the Islamic world in the days and weeks ahead.

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Own or Be Owned

Possibly "the" catch phrase of the Just Third Way (unless you've got a better one to suggest), "own or be owned" pretty much sums up the basic situation. Of course, it seems inevitable that some people, perhaps more hard of hearing than most or with low grades in reading or listening comprehension, will hear the socialist demand, "Owner, be owned." Disregard this at your peril, for it demonstrates just how widespread misunderstanding of private property has become. This is odd, especially considering the importance of private property as the basis of the civil order. A number of people dispute this claim, but the argument is fairly straightforward.

First, we have to understand that "property" is not the thing owned, but, one, the right each and every person has by nature to be an owner. Because this is a right "by nature," that is, part of what it means to be a human being and thus one of the rights that define each and every human being as automatically a "natural person," the right to be an owner is inherent, inalienable, and absolute.

Two, in everyday life, property consists of the bundle of socially determined rights that define how an owner may use what he or she possesses and even, given sufficient and just cause, what may be owned. By nature, every human being has the inalienable right to own directly, individually or in free association with others, anything that can be owned that does not already have an owner. If we left our understanding of "property" at that, any one of us could own and use atomic weapons, poison gas, bottle rockets, and red dye number 2.

Man being political by nature, however, and finding his full development as a person within a justly structured social order, it's common sense to say that, one, no one should be able to use what he or she possesses to harm him- or herself, other individuals, groups, or the common good as a whole.

Two, there are some things that, for the sake of expedience, the general consensus considers too dangerous or harmful to be under the control of a single individual or group. Therefore (without prejudice to the natural right to be an owner), there are certain things that society restricts to State regulation, control, or outright ownership.

It is in defining the exercise of property where most people seem to come to grief. There are many reasons for this, a few of which we comment on here:

Not understanding that private property is the natural right every person has to be an owner, as well as the bundle of socially determined rights that define how an owner may use what he or she possesses, some people conclude that "absolute" refers not to the fact that each person has by nature the right to be an owner, but to the exercise of property. Some people therefore claim that once they own something, they can do anything they like with what they own, as long as other individuals are not directly harmed. Harm inflicted on individuals indirectly, or harm inflicted on groups or the common good as a whole is not an issue, for other individuals are not directly harmed, and the individual is all that matters.

In reaction against this distorted understanding of human nature, others advance an unequal and opposite distortion. They conclude that, since a justly ordered society clearly requires some limitation on the exercise of property, property may be a right, but it is not an absolute right. This, too, confuses the absolute right to be an owner, with the socially determined exercise of the rights of ownership. It also changes what it means for something to be a "right," and makes something other than nature — usually "society" or something we believe to be God's command — the basis for rights. Since the State in the person of the government stands in for the collective or the community ("society"), the State, not nature, becomes the source of all rights, even in those cases in which the claim is made that the role of the State will be reduced . . . and its place taken by "social groups," which are simply the State under another name.

For theists, the shift from nature to the State as the source of rights has a profound effect. God, as Hugo Grotius reluctantly admitted, becomes a nullity, unless His followers impose what they believe to be His Will by force, and (literally) to Hell with anyone who disagrees. The dictates of church, mosque, temple, or synagogue must be enforced with the coercive power of the State, or God's Will is not being done. The "double whammy" of the totalitarian religious State becomes established as the norm in any society that dismisses private property as a natural right, or where people misunderstand what it means for something to be a natural right.

This is true even if the State is officially atheist, for — as the source of all rights — the State, in effect (and in a gross misreading of Hegel) becomes God. Worship of the State becomes the officially sanctioned religion. Nor are theists free of this danger, for the demand for an established church or official State religion inevitably makes religious teachings a political football, and turns religious authorities into enforcers of political correctness, or of politically inspired or influenced interpretation of religious doctrine.

How does this relate to private property being the basis of a just social order? Isn't, rather, the recognition and protection of human dignity the basis of a just society?

Well . . . yes, of course it is. But what is "human dignity" other than the recognition of protection of each person's natural rights, among which are life, liberty (freedom of association/contract), property, and the pursuit of happiness (the acquisition and development of virtue)? Here another danger surfaces.

If we leave the general "human dignity" as the basis of a just social order, and misunderstand or redefine various natural rights, substituting what we think they should be, rather than what thousands of years of human history have told us they are, we slide very quickly into a totalitarian political order. It is far too easy to admit the truth of the statement that it is an offense against human dignity that people live in poverty, are pushed around, and so on, and then make the leap that, because these things are clearly an offense against human dignity, respecting human dignity necessarily means that the State must ensure that everyone has an income sufficient to meet common domestic needs adequately, is accorded fair treatment, and so on.

That is, if people have a right to something, the State not only makes certain that others do not infringe on that right, it guarantees the results. The right to the means to make a living becomes the right to a living, the right to be free from unjust coercion becomes State enforcement of all demands as long as victim status is established, the "right to choice" becomes taxpayer funded abortions, and so on. In this view, the State in a justly structured social order guarantees not equality of opportunity, but equality of results. If a right can be asserted, then the entire force of the State must be marshaled to ensure that not only is there a reasonable opportunity to exercise that right, but all other rights must be swept away in order to guarantee absolutely that the desired outcome is achieved. Which rights are "enforced" in this way depends on who can best establish victim status.

Once we get specific about our primary natural rights and the secondary, derived rights, however, the orientation shifts back to equality of opportunity — and that means true equality of rights . . . and true equality of rights rests firmly on a foundation of private property:

Life: As Aristotle pointed out and Aquinas reiterated, neither the good life, nor life itself is possible without ownership of the means of production.

Liberty: Within a justly structured social order, liberty — freedom of association — is most commonly understood as freedom to enter into contracts.

All contracts, however, because they are "money," necessarily involve private property — there must be "consideration" or "inducement to enter into a contract," or there is no contract. You cannot promise to perform an act or deliver something of value if you do not have a right to the performance of the act or delivery of the thing of value, i.e., you "own" it; you own the labor by means of which the act is performed, or you own the good that is delivered, otherwise you cannot satisfy the debt created by the offer and acceptance.

Property: As Daniel Webster observed, "Power naturally and necessarily follows property." Property being not the thing owned, but the natural right to own the thing and the socially determined bundle of rights that define what you can do with the thing you own, without property you have no effective right to life or liberty. If you do not own the means of production, whether capital or labor, then you do not have the right to receive what that capital or labor produces. Your only alternatives to ownership are, one, to receive what you need as charity, two, redefine private property individually by stealing what you want or need, or, three, redefine property throughout the society, and base distribution on need rather than equality of exchange, enforcing it with the club of the State.

Of the three alternatives to private property as the basis of a justly structured social order, only charity respects human dignity — with a catch. That is, someone in need has a moral right to receive what he or she needs as charity. He or she does not have a legal right . . . and justice, not charity, is the basis of the law and legal rights in civil society. As Pope Leo XIII pointed out in § 22 of Rerum Novarum, "It is a duty, not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law." (See above about the urge to enforce religious teachings with the coercive power of the State and the dangers thereof.  We won't get into the the dark hint as to what might happen to people who take God's law into their own hands and decide to enforce it; "Vengeance is Mine" or something.)

Pursuit of happiness: That is, the acquisition and development of virtue. As Heinrich Rommen, the student of the great Father Heinrich Pesch, S.J., in agreement with Aristotle and Aquinas, pointed out, "It is morally impossible to exist as a free person without property" — and he did not mean "private property" as redefined by the legal and moral positivists, the religious modernists, or by John Maynard Keynes.

Thus, if you have the right to take what you want from what others produce, either by means of their labor or their capital, regardless who holds legal title, you own those others. If others have the right to take what you produce by means of your labor or capital, whether or not you hold legal title, then those others own you. As William Cobbett explained, "Freedom is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, — and it means nothing else, — the full and quiet enjoyment of your own property. If you have not this, if this be not well secured to you, you may call yourself what you will, but you are a slave." (A History of the Protestant Reformation in England and Ireland, 1827, §456.)

Own or be owned.

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News from the Network, Vol. 4, No. 7

Yesterday's Wall Street Journal carried two very frightening articles. This isn't unusual. The problem is that usually they don't realize just how scary the things they print are, e.g., how money is created, ownership of the means of production are concentrated, how people like Walter Bagehot and J. P. Morgan were actually saviors of the world instead of the architects and engineers of a global financial system with a built-in self-destruct timer.

No, what was different about these two articles was that the danger in what is happening is evident even to non-Binary Economists. "Is Your Job an Endangered Species" (Andy Kessler, WSJ, 02/17/11, A19) and "When Computers Beat Humans on Jeopardy" (Ray Kurzweil, WSJ, 02/17/11, A19) painted a grim picture of the future in an economy — and a world — in which people are turning increasingly to the State to "create jobs" to do things (or nothing) that machines can do better, faster, and cheaper. Frankly, I found "Watson" more personable than Ken Jennings, who always struck me as a trifle more supercilious than his position as a Jeopardy demigod justified. (This gave me a great deal of satisfaction when I was able to provide an answer that none of the contestants, man or machine, could — "Phillip II of Spain," if you want to know. And I knew that Toronto is not a U.S. city.)

Anyway, jobs are disappearing, and the reverse John Henry spectacle of a machine beating men at their own game only highlighted the problem — and removed most of the entertainment value of being able to answer the questions sooner or better than the actual contestants. The only jobs left are, to use an outdated term, boondoggling, meaning make-work that serves only to get income (depersonalized as "effective demand") into the hands of people who will use it on consumption without first necessarily producing anything. In fact, in the Keynesian universe, it's actually better if nothing is produced, because then you don't have to worry about goods and services for which no market demand exists.

The irony is that the articles were only able to point out the problem and spread a little despair when the solution has been staring them in the face for hundreds of years. The Luddites, for example, weren't against technology. Most of them were hand weavers and used some very sophisticated technology themselves. What they tried to destroy was technology that took their jobs. Yet, even to someone as obviously in sympathy with the "small is beautiful" movement as Hilaire Belloc might be thought to be saw the problem. It wasn't technology, but technology that the Luddites didn't own, and which therefore took away not their jobs so much as their income. As Belloc pointed out in The Servile State (1912), had financing techniques been available to the Luddites, they, not the new capitalist class, would have purchased the new machinery, and grown prosperous.

The answer is still staring us in the face. In the August 14, 1964 issue of Life magazine, the lead editorial declared, "If the Machine Wants Our Jobs Let's Buy It." After painting a dreary picture of men replaced by machines for virtually every conceivable job, the editorial pointed out that someone had developed a solution, Louis Kelso and Mortimer Adler in The New Capitalists (1961), and had outlined a practical means by which every man, woman, and child in the world could become an owner of a capital stake sufficient to generate a living income.

Applied in CESJ's Capital Homesteading proposal, the dangers of which Kessler and Kurzweil (and the editors of Life magazine) warn can easily be turned into a great benefit for humanity — if we get busy and pass a Capital Homestead Act by 2012. To move toward this goal, here's what we've been doing this past week:

• Norman Kurland may again be a guest on Russell Williams new radio show, "The Challenge." By all reports, last week's show went very well, and Russell got comments from as far away as Tennessee. We did discover, however, that if you have a Mac instead of a PC you might have trouble tuning in over the internet. The short term solution is to find a friend with a PC. The long-term . . . well, we're working on it. In the meantime, we'll just recopy the station's press release: "Saturday February 12th 2011 marks the debut of THE CHALLENGE with Russell Williams, an innovative weekend talk show focusing and bringing emphasis to economic justice and empowerment. Tune in every Saturday morning at 9 AM Eastern on WKND 1480 AM Windsor-Hartford, CT and online at www.goisradio.com/wknd. Call in and let your voice be heard at 860-218-2173 or 860-218-2174."

• February 17, 2011 (yesterday) marked the 20th anniversary of the death of Louis Kelso, who, with all due respect to Mortimer Adler for his valuable contributions, was the brains behind the expanded ownership revolution, and thus the Just Third Way. While what Kelso advocated seems obvious in retrospect, that is itself the mark of true genius, to see what is so obvious that no one else seems to see it.

• Pollant Mpofu in London is working hard to arrange high-level meetings with government officials in the U.K. for Norman Kurland and Michael Greaney. Pollant believes he may be able to get something nailed down as early as March.

• Norman Kurland will be traveling to Georgia next week to meet with some key people in the Harris Neck initiative. The meetings will be followed by a retreat, during which the board can get to know Norm and learn more about how Capital Homesteading might be used to finance the sustainable development of Harris Neck once the land is returned to its rightful owners.

• Earlier this week we were contacted by an award-winning Japanese journalist in New York who writes a column for The Wall Street Journal Japan, and contributes articles to a great many publications, including Newsweek Japan and The Weekly Economist, the largest business journal in Japan. The contact was initiated through an internet service that allows journalists and others to post questions and requests for assistance. The journalist reacted very favorably, and the article may cite CESJ sources, and appear in The Weekly Economist in March. The journal is read by leading Japanese businessmen and Bank of Japan officials.

• The same service that put us in touch with the Japanese journalist also helped us arrange for Norman Kurland to be interviewed tomorrow on "Unlock Your Wealth" with host Heather Wagenhals which bills itself as the largest internet radio show on personal finance. The "button" to push to hear the show is right above Norm's photo on their homepage. The interview is at 12:30 pm, Saturday, February 19, 2011.

• As of this morning, we have had visitors from 52 different countries and 43 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 Philippines, the UK, Canada, and Germany. People in Indonesia, Venezuela, Hong Kong, Canada, and the United States spent the most average time on the blog. The most popular posting this past week has been "Thomas Hobbes on Private Property," followed by "The 'New' Slavery, Part V: Debt Slavery," "Seeing the Nose on Your Face," "The 'New' Slavery, Part III: Wage and Welfare Slavery," and "Aristotle on Private Property."

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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The "Two-Tiered" Interest Rate, Part III: Some Effects

Some people, especially those on fixed incomes with a significant proportion of their assets (such as they are) invested in, e.g., government bonds, are quite properly worried about their security of income once Capital Homesteading is in place. This is a serious issue, and one that deserves a serious response.

Thus, when we say, "not to worry," we mean just that. True, most retired people would not realize as much as others from Capital Homesteading if it were enacted tomorrow. The benefits don't really start accumulating until you've been purchasing capital for a couple of decades or so. Capital Homesteading does not promote reinvestment of earnings (or, at least, discourages it), so that the "magic of compound interest," or earnings on earnings, does not operate. Consistent with Say's Law of Markets, income is meant to be consumed or used to retire acquisition debt, not accumulated to finance new capital.

There are, however, features of the monetary and fiscal reforms in Capital Homesteading that will greatly benefit those who have cut consumption and saved in the past, even if not in the future. First, of course, there will be a significant tax deferral on current income if existing investments are deposited in a Capital Homestead Account. A retired person might not be able to accumulate $1 million by taking his or her annual capital credit allocation, but could receive the same tax benefits on existing accumulations. And remember — the personal exemption under Capital Homesteading would be raised to an estimated $30,000 per non-dependent. Conceivably, many retired people living on modest incomes might not pay taxes for the rest of their lives.

But what about the fiscal reform that would prohibit the monetization of government deficits, and the proposal to repay the entire outstanding government debt within a generation?

Again, this is nothing to worry about. First, of course, when the government monetizes its deficits by issuing bonds that are purchased on the open market by the Federal Reserve, the currency is inflated, and the purchasing power of anyone on a fixed income is reduced, often even if the number of dollars he or she receives is increased. Wage earners and people on fixed incomes are always hurt to some degree by government deficits. The only people who benefit are owners of capital, who receive higher prices for fewer goods and services — a process Keynes called "forced savings," and relied upon to provide financing so that the rich can acquire even more capital at the expense of the poor.

What about when the government is unable to create money at will and set the interest rate? First, many people are unaware that Federal Reserve profits are not distributed to the nominal owners of the Federal Reserve — the member banks. Instead, profits are turned over to the U.S. Treasury. Effectively, the government pays a small service fee, sometimes not even that if the member banks have paid for services. The government can actually make a profit on Federal Reserve operations, and receive all of its funding for "free." The interest rate on government bonds sold to the Federal Reserve is irrelevant.

Second, under the two-tiered interest rate, the government will not only not be able to borrow from the Federal Reserve any more, whether directly or indirectly, but will have to go to existing accumulations of savings to borrow. Naturally, in accordance with the laws of supply and demand, this will drive the market rate of interest on existing savings very high — the government is a borrowing addict, and will not be able to stop cold turkey. That means that retirees and others invested in government bonds will see their incomes rise significantly as the government is forced to pay actual market-determined rates of interest on what it borrows in competition with all the other borrowers, including consumers, who will be cut off from money creation for anything other than financing new productive capital.

The foundation of this new system is found in Dr. Harold G. Moulton's The Formation of Capital (1935). The idea is that existing accumulations of savings are not a financially feasible source of financing for non-speculative capital investment, but should be used for consumption, including government spending and speculation. All financing for new capital that meets eligibility requirements (including widespread ownership) should be financed using the "pure credit" methods described in The Formation of Capital, and refined by Louis Kelso and Mortimer Adler in The New Capitalists (1961).

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The "Two-Tiered" Interest Rate, Part II: Using Money

As we saw in yesterday's posting, there are two views of money and credit, and thus two views of interest. Within the Currency School, all loans and investment come out of the "supply of loanable funds," and thereby determine the "production possibilities curve." In this view, the only source of investment and consumption funds consists of whatever has been withheld from consumption in the past and is now available for reinvestment. In some of today's schools of economics, if this supply is too large or businesses and consumers are not borrowing enough, the government lowers the interest rate to encourage investment and borrowing, and discourage saving. If the supply is too small, the government raises the interest rate to discourage investment and borrowing and encourage saving.

Within the Banking School, there are two sources of funds. Financing for sound capital investment can be obtained in any amount by drawing bills on the present value of future marketable goods and services, as long as the total of bills drawn does not exceed the present value of the future marketable goods and services (a process called "overtrading" that results in "fictitious," that is, fraudulent bills), and the bills are adequately collateralized. Strictly speaking, such "pure credit" loans (that is, loans not based on existing accumulations of savings) do not carry an interest rate. They carry a discount rate representing the present value of the bill at maturity (the time value of money), and a "risk premium" based on the soundness and creditworthiness of the drawer of the bill. As noted above, these bills can be used directly as money, or discounted at a commercial or central bank and exchanged for the promissory notes of the bank, a more convenient and recognized form of money.

The other source of funds in Banking School theory consists of the present value of existing inventories of marketable goods and services — existing accumulations of savings, if we define "existing savings" as "unconsumed marketable goods and services." Because this supply of funds is limited at any point in time, it can, in a sense, be treated as a commodity, and the interest rate (if allowed to do so) can respond to changes in the supply and demand for the pool of existing savings. If we are consistent with our pure theory, the existing supply of funds should only be used for consumption, government spending, speculation, and capital projects that have a low present value, even zero or less, due to the risk involved.

Thus, within the Just Third Way, pure credit loans should never bear interest, while loans made out of existing accumulations of savings should bear an interest rate reflecting market-determined levels set by the laws of supply and demand. Dr. Norman G. Kurland of the Center for Economic and Social Justice has formalized this understanding of the two sources of loanable funds in his proposed "two-tiered" interest rate. All loans made for sound capital investment by discounting bills drawn on the present value of the future goods and services to be produced by the new capital would not bear interest, being limited to the discount rate reflecting the time value of money, and a risk premium reflecting the creditworthiness of the drawer of the bill. All loans made for any other purpose must come out of existing accumulations of savings, either by cutting consumption and accumulating money savings, or by drawing bills on the present value of existing inventories of marketable goods and services. Such loans would bear an interest rate reflecting the market-determined cost of capital, plus risk premium, regardless for what purpose the loan proceeds were used.

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The "Two-Tiered" Interest Rate, Part I: Defining Money

One of the most serious financial problems today is how we understand money and credit, and thus banking and finance. This has led to massive government deficits, and financing consumption through an ever-increasing burden of consumer debt. Fueled by the belief that it is impossible to finance new capital formation — or anything else — except by cutting consumption, accumulating money savings, then investing, the financial system and the economy as a whole have come to rely on inflation and State price control of an increasing array of goods and services in a failing effort to keep the economy running by undermining its foundation.

What is money? Money is anything that can be used in settlement of a debt. Period.

As for credit, according to Henry Dunning Macleod, credit is simply another form of money (The Theory of Credit, 1894). Unfortunately, at present most authorities define money very narrowly, as coin, banknotes, demand deposits ("checking accounts"), and some time deposits ("savings accounts").

This understanding of money is based on almost universal acceptance of the principles of the "British Currency School" of finance. That is, "money" is restricted to State-issued claims on the present value of existing inventories of marketable goods and services. "Credit" — the "supply of loanable funds" — is limited to what has been accumulated in the past in the form of money savings by cutting consumption. A "bank" is defined as a financial institution that takes deposits and makes loans.

In Currency School theory, the backing of the currency (considered the same as the money supply) is limited to gold and silver (uncommon these days), and government debt. This permits the government to manipulate the value of the currency to achieve political ends through induced inflation and deflation, with the private sector faced with period shortages or surpluses of loanable funds. This in turn results in manipulating the interest rate in order to encourage or discourage private sector investment.

In contrast, the Just Third Way is based on the principles of the "British Banking School" of finance. In this "school," "money" is defined as "anything that can be used in settlement of a debt."

This is the legal and accounting definition of money, and implies that all money is a contract, just as all contracts are money, regardless of the physical form the money takes; currency (coin, banknotes) and currency substitutes (demand deposits and time deposits) are only one form of money. The bulk of the money supply consists of privately issued "bills of exchange" that are either used directly as money by their issuers and holders in due course by discounting and rediscounting until redeemed at maturity ("merchant's acceptances"), or discounted or rediscounted at a commercial/mercantile bank and exchanged for currency or currency substitutes in the form of promissory notes issued by the commercial bank ("banker's acceptances") — a bank being defined as a financial institution that takes deposits, makes loans, and issues promissory notes.

The commercial bank may, in turn, rediscount such paper at the central bank, thereby spreading the risk of default and ensuring a uniform and stable currency backed directly by the present value of private sector hard assets. Because both existing and future inventories of marketable goods and services have present value, the "supply of loanable funds" is not limited to the present value of existing marketable goods and services, but to the present value of any financially feasible capital investment plus existing inventories.

Thus, financing is, in theory, available for any sound capital investment by discounting and rediscounting bills of exchange based on the properly vetted present value of the marketable goods and services to be produced once the capital has been formed. This precludes manipulation of the interest rate in order to encourage or discourage private sector investment. There is exactly enough money in the economy to provide financing for all feasible capital investment. For all capital investment financed by creating money by discounting and rediscounting bills of exchange, the interest rate becomes moot.

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The Right to Choose

The world stands at a crossroads. That, of course, is true about any time in history — and, ironically, the choice is almost always the same one. That is, will humanity conform to its own inherent nature? Or will the desire for transitory and insubstantial goods overcome the ultimate necessity for each individual to acquire and develop virtue, thereby becoming more fully human? This choice faces not only every age, but every individual. The question is whether the choice can be resolved peacefully, in accordance with humanity's political nature, or whether there must be war.

Abortion is possibly the single most divisive issue in society today. There seems to be no common ground on which Pro-Life and Pro-Choice adherents can meet to resolve the issue peacefully and in a way that respects the rights of everyone involved. Practical politics, specifically economics, offers a compromise in which neither side surrenders essential principles, but makes reasonable gains through rational compromises and trade-offs.

By accepting for the sake of argument a "right to choose," the Pro-Life movement gains the basis for halting all government support for abortion. By admitting that the "right to choose" includes the right to choose not to have tax monies used to support abortion, the Pro-Choice movement gains security for the right to choose until an overwhelming consensus is reached that abortion on demand should be abolished — until which time abolition would not be effective in any event. By advocating a rational program of economic restructuring, both sides gain the opportunity for improving the quality of life.

A further problem surfaces when we consider current ideas about economic and social development. Ever since Malthus's discredited theories of scarcity became unquestioned economic orthodoxy (vide Schumpeter, History of Economic Analysis), most economists are absolutely convinced that the only way to finance new capital formation is by cutting consumption, accumulating money savings, then investing.

This is untrue, as U.S. financial history demonstrates (vide Moulton, The Formation of Capital). Unfortunately, in addition to being false, the past savings assumption restricts capital ownership largely to the already wealthy. This suggests that "people are pollution," and that population reduction is an essential precondition to economic development, so that there will be fewer people consuming and thus more savings are possible. The inherent contradiction in the past savings assumption is demonstrated by the reductio ad absurdum in which all production is reinvested in new capital formation, and consumption levels fall to zero.

This, of course, is nonsense, as R. Buckminster Fuller explained (vide Fuller, Utopia or Oblivion). Population growth responds to the level of economic development, not the other way around. As Jane Jacobs pointed out in The Economy of Cities (1970), population pressure provides an incentive both for more production, and innovation to make production more efficient, at which point the rate of population growth decreases naturally. Further, as Moulton demonstrated, the financing of feasible new capital is not achieved by cutting consumption, but by increasing consumption, and creating money for financing by extending credit for new capital goods by backing the credit with the present value of the increased flow of consumption goods and services.

Rather than looking at the situation in this way, however, most debate on the abortion issue focuses on either emotion or faith in a particular religious revelation — with "science" taking the place of religion for some people. While respecting the importance of both sentiment and religious faith, Supporting Life bases its argument for a "Pro-Life economic agenda" on reason, that is, on the natural moral law based on Intellect (lex ratio) rather than Will (lex voluntas). This agrees with what Dr. Charles Rice, professor emeritus of law at the University of Notre Dame said regarding abortion being not a religious issue, but a civil rights issue. By presenting "Capital Homesteading" as a possible "Pro-Life economic agenda" we reach a common ground between two groups dividing society, as well as offering hope for a better life for everyone.

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News from the Network, Vol. 4, No. 6

Back in the mid-1930s, Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, wrote a book titled, The Recovery Problem in the United States. One of Dr. Moulton's most cogent observations in light of the bizarre euphoria over the "recovery" of the stock market then and now, was that genuine recovery necessarily focuses on production and employment, not keeping up consumer prices or supporting inflated values on the secondary market for corporate debt and equity. Nor should there be increased spending in order to "stimulate" the economy through artificial creation of jobs that disappear as soon as the funding is used up.

Rather, the chief responsibility of the government at all levels in an economic recovery is to foster production that leads to job creation naturally, because the labor is in demand. The best way to do this, according to Dr. Moulton, is to reform the financial system. To be more accurate, in view of the virtual takeover of the financial system of the United States by the federal government from 1916 to 1938 by imposing control on the presumably independent Federal Reserve, there was a serious need to reform the Federal Reserve.

In Dr. Moulton's view, there was a serious need to turn the Federal Reserve back to its original purpose of supplying the private sector with adequate liquidity to finance new capital formation, and implement the intended prohibition against the central bank monetizing government deficits. The commercial banking system, backed up by the Federal Reserve, had (and has) the potential to provide all the investment capital the economy requires by discounting and rediscounting bills of exchange in the long or short term. The Federal Reserve was never intended to provide financing of any kind for government at any level. The Federal Reserve was only empowered to deal in secondary issues of government securities in order to retire the National Bank Notes issued under the National Bank Act of 1863 that were backed by government debt, and gradually replace them with Federal Reserve Notes backed by private sector hard assets — a need that no longer exists, as the program to phase out the National Bank Notes was terminated in the late 1930s.

In the late 1950s and early 1960s, Louis O. Kelso and Mortimer J. Adler refined Dr. Moulton's analysis. They added that for Dr. Moulton's recommended financial reforms to be successful, ownership of the new capital financed by discounting and rediscounting bills of exchange ("pure credit") must be broadly owned by people who will use the income from their new capital first to repay the acquisition loan and then for consumption purposes. This would ensure the restoration of Say's Law of Markets by bringing production and consumption back into balance. To satisfy the demand for collateral, traditional collateral would be replaced by capital credit insurance and reinsurance.

To protect the other assets (if any) of small borrowers, pure credit loans made for capital acquisition would be "non-recourse" against the borrower, meaning that, even if the insurance failed to satisfy the debt, the lender could not proceed against the borrower to recover the balance. The idea is both to protect the small borrower and to discourage "overtrading," that is, making bad or dubious loans on "fictitious bills" to get the commission or to force the borrower to repay the full amount of the loan out of other assets in the event of default. As applied in Capital Homesteading, a proposal for economic reform developed by the Center for Economic and Social Justice, the reforms would certainly foster production and full employment, not just of "labor," but of all resources, naturally, without artificial stimulus.

The problem is that all the focus right now seems to be on "cost cutting."

Don't get me wrong. As a CPA, I am all in favor of cost cutting. There should never be an unjustified or unnecessary expense by any business or government. Spending just to spend, or for any other purpose than the benefits to be derived directly from that expenditure is wasteful and counterproductive. Cost cutting, however, never solved any problem except for getting rid of unnecessary expenses. If the underlying problem is insufficient revenue due to lack of production or gainful employment, no amount of cost cutting will solve the problem. The real solution is to foster production by reforming the financial and ownership system and rebuilding the tax base. This is what Capital Homesteading is designed to do — and here's what we've been doing to advance the enactment of a Capital Homestead Act by 2012:


• No sarcasm, this is BIG. We quote from the press release from the radio station: "Saturday February 12th 2011 marks the debut of THE CHALLENGE with Russell Williams, an innovative weekend talk show focusing and bringing emphasis to economic justice and empowerment. Tune in every Saturday morning at 9 AM Eastern on WKND 1480 AM Windsor-Hartford, CT and online at www.goisradio.com/wknd. Call in and let your voice be heard at 860-218-2173 or 860-218-2174." Plans as of this morning were that Dr. Norman G. Kurland, president of CESJ, would be the first-ever guest on the show.

• Two items in connection with Russell Williams's debut. First, of course, tune in and listen. Second, this show has the potential to be picked up by a network or renewed as a permanent feature. If you want to keep a voice for the Just Third Way on the air, let the station know you're listening — "keep those cards and letters coming." If you have a serious comment or question, phone in. In common with every show on radio or television, the show needs sponsors. Sponsors like to spend their money on shows that people listen to or watch, and don't like to spend their money on shows that go into the ether and disappear. A couple of thousand letters (not all from you, Guy) will help convince the station to keep the show as a regular feature and persuade prospective sponsors that their money would be well-spent. We urge all readers of this blog to tune in, turn on to the message, and drop a line to the station.

• Work progresses on the revamping of the CESJ website. As of yet, we do not have a specific date that the new site will be up, but (especially in internet matters), planning is everything.

• Dave Kelly has been making extraordinary gains in the Harris Neck initiative. Norman Kurland has been invited down to Georgia to meet later this month with some "prime movers" interested in the project. Not to tell Host Russell Williams of "The Challenge" what to do, but he might want to consider interviewing Dave about the project in the near future.

• The unrest in Egypt seems to have inspired renewed interest in Dr. Alamgir's book, Notes from a Prison: Bangladesh that CESJ brought out last year. Sales have shown a minor "spike" since the troubles started. Dr. Alamgir's book may offer some insights about the transition from an authoritarian regime to one more democratically oriented.  (This and other Just Third Way-oriented books can be found in the "Just Third Way 'Bookstore'" over to your right.

• As of this morning, we have had visitors from 51 different countries and 42 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 Philippines, the UK, Canada, and Germany. People in Indonesia, Venezuela, South Africa, Canada, and the Philippines spent the most average time on the blog. The most popular posting this past week has been "Thomas Hobbes on Private Property," followed by "The 'New' Slavery, Part V: Debt Slavery," "The 'New' Slavery, Part III: Wage and Welfare Slavery," "The 'New' Slavery, Part I: "Slavery and Its Diagnosis," and "Games People Play."

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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Seeing the Nose on Your Face

We have many expressions for an affliction that seems to hit everyone sooner or later. "He can't see the forest for the trees," "It's as plain as the nose on your face" (which, admittedly, is hard for the nose-owner to see), and so on. The point is that sometimes something is so obvious that you can't see it. This condition can go on for years, or (for some things) you may never recover at all and see the truth. What brought this up was that during a break in rehearsal last night, I suddenly "got" a joke after forty-seven years.

Do you remember the old television comedy/satire The Munsters (1964-1966)? If so, you might recall that "Eddie Munster" (played by Butch Patrick) was seen sometimes clutching a werewolf doll. I doubt that I could duplicate the train of thought that led to the sudden realization while grazing on tortilla chips and grapes that "Eddie" was carrying, not the traditional teddy bear, but a teddy were.

As a revelation, this is no doubt earthshaking, and will appear on CNN at the earliest possible date. Not. It does, however, serve to segue into a serious problem faced by all binary economists sooner or later — usually sooner. That is the fact that binary economics uses a different understanding of private property than is found in any of the three "mainstream" schools of economics, and most of the rivulets as well.

This may seem like a minor thing, but reflect. "Property" (which, as Dorothy Day liked to quote, "is proper to man") is a "natural right," along with life, liberty (freedom of association/contract), and the pursuit of happiness (the acquisition and development of virtue). If we misunderstand property — without which, as Aristotle pointed out, neither the "good life" (the pursuit of virtue) nor life itself is possible — the chances are extremely good that we will not understand any of the other natural rights, nor even the framework — a just social order — within which natural rights assume overriding importance.

But wait! It gets worse! (Much worse, actually.) Private property, as Irving Fisher explained in The Purchasing Power of Money (1911), is the basis of this thing we call "money." Dr. Fisher did not develop this line of thought adequately or consistently, but that doesn't change the basic fact. "Money," best understood as "anything that can be used in settlement of a debt," is a derivative of the present value of existing and future marketable goods and services in which the issuer of "money" has a private property stake, or "owns." Without that ownership stake, someone or some thing may have the coercive power to issue claims against the property of others and mandate its use, but that is simply a complicated form of theft, a violation of private property.

"Currency" or "current money," is also a derivative of the present value of existing and future marketable goods and services, although currency (as with all other forms of money) may be based on other money, and so on in a chain as Henry Thornton pointed out, ad infinitum, as long as the ultimate underlying (as the asset behind the derivative is known) has a definable present value and is not "overtraded." (Vide Thornton, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 1802.)

References in historical financial literature to "overtrading" baffle many of today's economists. It only means drawing more bills (issuing more claims) against the present value of an asset than the asset can support, e.g., making contracts to deliver 2 million bushels of wheat when the expected harvest is only 1 million bushels. This is called issuing "fictitious bills" as opposed to "real bills" backed by the present value of existing or future assets. As all money is a contract (and all contracts are money), overtrading is thus another term for inflating the money supply, a form of theft.

This "real bills doctrine" leads directly into the formulation of Say's Law of Markets, the principle that "money" is only the medium through which we exchange what we produce for what others produce, regardless of the form it takes. Thus, "production equals income, therefore, supply generates its own demand, and demand, its own supply." The definition of money as anything that can be used in settlement of a debt (contract), Say's Law of Markets, and the real bills doctrine are the principles of the "British Banking School" of finance, under which we classify binary economics.

Unfortunately, mainstream economics reformulates Say's Law into a mere tautology, and rejects the real bills doctrine outright, restricting the meaning of "money" to currency and demand deposits, ignoring all other contracts. "Money" is further construed as a general claim on the present value of the existing wealth in the economy, rather than, in the case of currency, a fungible claim (non-currency forms of money may require "specific performance" on maturity and are thus not fungible) on specific wealth consisting of the present value of both existing and future inventories of marketable goods and services tied to the issuance of the currency by private property.

The restatement of Say's Law, rejection of the real bills doctrine, and the redefinition of money are the principles of the "British Currency School" of finance. The principles of the Currency School are the basis for all three mainstream schools of economics, the Keynesian, Monetarist/Chicago, and Austrian. (Some authorities classify Keynesian economics as "Banking School," but that results from confusion between the bullionist-metalist/anti-bullionist-metalist factions that split both the Currency School and the Banking School in the late 18th and early 19th centuries.) Currency School principles lead inevitably to the unquestioned assumption that the only source of financing for new capital formation is existing money savings, narrowly defined as accumulations of currency, achieved by cutting consumption — the "supply of loanable funds."

So commonsense are the principles of the Banking School, and so contrary to experience and the natural law are the principles of the Currency School that, on the whole, binary economists did not realize until recently that mainstream economics rejects Banking School principles! It seems obvious in retrospect, of course, but imagine our confusion when even eminent economists such as Milton Friedman and Paul Samuelson could not explain their opposition to binary economics, or why they believed it to be in error. Such deliberate obtuseness seems the height of intellectual dishonesty.

And, in a sense, it is. By refusing to debate the merits of the basic principles of binary economics, mainstream economists are, in fact, being dishonest. By rejecting the basic principles of the natural moral law (usually by redefinition) that underpin binary economics, and then applying their reformulated principles to binary economics, mainstream economists commit what, to G. K. Chesterton, was the supreme intellectual "crime": judging others by our principles, not by theirs. As 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." (The Dumb Ox, p. 95.)

Dr. Norman G. Kurland, president of the Center for Economic and Social Justice ("CESJ"), has developed a simple technique for dealing with people who claim that there are things wrong with binary economics, the Just Third Way, Capital Homesteading, and so on. It's straightforward, and therefore possibly completely baffling to the modern academic or political mind. It's to demand, "Tell me what's wrong with it."

The problem with this technique is that most critics have, by their lights, already told us what is "wrong" with binary economics, etc.: it's different from what they believe to be true, and, therefore, by that fact alone, wrong. It's "obvious" to them what's wrong with binary economics . . . so obvious, in fact, that they can't see it, and are unable to articulate any specifics because it's outside their frame of reference; they go by their principles, not ours.

It's unnecessary in any event, according to their principles. Telling us again would, as far as they are concerned, be beating a dead horse. "How many times," they lament, "do we have to tell you you're wrong before you realize it? You're just being dishonest or a liar." This justifies making claims that, while having nothing to do with the truth or falsity of binary economics, allegedly "prove" that we are stubbornly resisting the truth . . . as they see it.

The solution? Tell us what's wrong. No, really. Define basic terms and, more important, come to an agreement on what those terms mean, and agree to abide by basic rules of common sense, especially the "law of contradiction," i.e., that nothing can both "be" and "not be" at the same time. We cannot "agree to disagree" when it comes to the crux of the problem. Before there can be any intelligent (or intelligible) discussion of binary economics, we must come to a common understanding of what we mean by such things as private property, money, natural law, rights, justice and charity, and — most important of all — what it means to be human.

Without that, all is "a tale / Told by an idiot, full of sound and fury, / Signifying nothing."

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"I Didn't Raise Taxes Once"

Yesterday's Wall Street Journal carried a short piece about President Obama's declaration that (so far) he has not raised taxes. This might be a bit disingenuous, but evidently the president believed it when he said it. The problem was that he was probably thinking of the personal income tax, not the wide array of other taxes that pervade society.

Naturally, the Wall Street Journal didn't cut the president any slack. Why should they? Doubtless Mr. Obama was sincere, but grossly inaccurate. Like Horton, he really should have said what he meant. He would then not be in the embarrassing position of looking as if he didn't mean what he said, and of coming across as less than 100% faithful to the trust with which he is vested.

The problem was that the Wall Street Journal was itself a trifle off the mark. Possibly because they stand to benefit more than anyone else from inflation and the transfers of purchasing power that results from manipulation of the currency by the State, they forgot about the dangers (both political and economic) that result from the hidden tax of inflation.

Naturally, we weren't going to let that lie, so we fired off yet another letter to the Wall Street Journal which, since it was written from outside their past-savings paradigm, probably went right over their heads. Nevertheless, if only to ensure that it gets published somewhere, we present it here for your edification and enlightenment.

Dear Sir(s):

You could have strengthened your case greatly in "'I Didn't Raise Taxes Once'" (WSJ, 02/08/11, A14). Contrary to his assertions, President Obama has eroded private property and the soundness of the currency through the "hidden tax" of inflation. Government borrowing and the consequent inflation is more devastating than any form of direct taxation — to say nothing of being based on an unsound understanding of money, credit, banking and finance.

President Obama could do much better by reforming the financial system to rebuild the tax base rather than inflict hidden taxes on an increasingly burdened productive sector. Dr. Harold G. Moulton in his contra-New Deal treatise The Formation of Capital (1935) recommended financing new capital by discounting and rediscounting bills of exchange instead of existing accumulations of savings.

To this should be added promoting wealth creation in which all citizens participate through direct ownership instead of redistributing existing wealth through artificial job creation and inflationary stimulus packages. This was suggested by Louis O. Kelso and Mortimer J. Adler in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961), the latter with the provocative, yet insightful subtitle, "A Proposal to Free Economic Growth from the Slavery of Savings."

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The Problem with Money, Part VI: Say's Law and Binary Economics

Yesterday we discovered we're in a serious dilemma if we accept both Say's Law of Markets and its application in the real bills doctrine, and the natural moral law based on God's Essence that is self-realized in His Intellect. (Translation: we base our understanding of what's right on what God is that we see reflected in humanity and discerned by reason — lex ratio — instead of simply accepting on faith what somebody tells us God said — lex voluntas.)

To try and state the dilemma as simply as possible, Say's Law is that we cannot receive what another has produced in an economic transaction unless we offer something we have produced by means of our labor, capital, or land that the other perceives as being of equal or greater value. We cannot receive something simply because we need it, except in extreme cases (Rerum Novarum, § 22). We must have something of at least equivalent value to offer in exchange. The problem is that most of us have nothing of equivalent value to offer in exchange.

This is consistent with the traditional understanding of the natural rights of private property and free association. To be able to offer something in exchange, we have to own it, and we have to be free to dispose of it to whomever we will, and make a contract (create money) to carry out the transaction. We own something either because it has been freely given to us (e.g., our labor because it is inseparable from our bodies, which we own, a gift, inheritance, and so on), or because we have produced something by means of what we own (labor, land, capital) and either consumed it ourselves, or traded what we have produced for the productions of others, to mutual benefit.

In the late 18th and early 19th centuries when Adam Smith and Jean-Baptiste Say wrote, it seemed obvious that human labor was the primary factor of production. Smith, in fact, based his "invisible hand" argument on the assumption that human labor would always be the primary factor of production, and thus the primary mode of distribution. All that labor produces goes by natural right to the owner of labor. All that capital produces goes by natural right to the owner of capital. Because Smith considered human labor "permanently predominant" (our term, not Smith's), no rich man, however "greedy and rapacious" (Smith's terms, not ours — The Theory of Moral Sentiments, 1759), could satisfy his greed without employing the poor. As Smith reasoned, wealth would be distributed as equitably as if "ownership of the earth" was as broadly and evenly distributed as ownership of human labor. Hence, we have the weird distortion of Smith's thought that has cropped up in recent decades that "greed is a virtue," or "greed is good."

The problem is that labor does not have a secure primacy of place in the economic process. The effect of technology is not to enhance human labor, but to replace it. As technology advances, the value of human labor in the productive process decreases relative to that of capital. As capital becomes increasingly productive relative to labor, the market value of labor falls below what the human worker needs to support himself and his dependents in a manner consistent with the demands of human dignity.

Consequently, political demands increase for distribution and redistribution of production based not on equivalence of inputs in a transaction, but on need. To allow this, basic definitions of natural rights, especially private property and freedom of association, have to be changed to accommodate the new situation. This requires a system that employs, as one commentator put it, "a theory of human society peculiar to itself" (Quadragesimo Anno, § 120) in order to shift the understanding of justice from "to each what each is due as an independent other" (contract), to, "to each what each needs as a dependent" (status). This shift is usually called "socialism," but has many other labels, term succeeding term whenever it becomes obvious that what Kelso and Adler called "needism" is contrary to the natural law principles that govern civil society, and thus to essential human nature.

Thus the dilemma: Say's Law claims that if some goods remain unsold, it is because other goods are not produced. If we wish to stimulate effective demand, we must produce something by means of our labor, land, and capital. Most people, however, own nothing other than their labor with which to produce marketable goods and services — and the value of labor is declining relative to capital as an input to production as technology advances. It is therefore critical that "the great mass of people" become owners of capital (Rerum Novarum, § 46), but "But except from pay for work, from what source can a man who has nothing else but work from which to obtain food and the necessaries of life set anything aside for himself through practicing frugality?" (Quadragesimo Anno, § 63)

That is, unless people cut consumption and save, how are they to accumulate money savings in order to purchase the capital that is replacing their labor in the production process and driving down the relative value of their labor to the point where they can no longer survive, much less save?

Keynes thought he had the answer: redefine basic natural rights such as private property and free association, put the State in charge of the economy, and redistribute purchasing power and force savings through inflation. This prescription has driven the world to the brink of bankruptcy, and made the very people it was intended to help worse off than before.

Kelso and Adler had a better answer — and one consistent with essential human nature, that is, the natural moral law: allow ordinary people who currently have only their labor to sell to exercise their natural rights of private property and freedom of association by entering into contracts (create money) to purchase capital, pay for the capital with the future earnings of the capital, and thereafter enjoy capital income to supplement or replace what can be earned by labor. That is, replace the presumed necessity of cutting consumption and accumulating money savings to finance new capital formation, with increasing consumption and using future savings to repay investments already made.

The basic "paradigm" for this type of financing that would restore the functioning of Say's Law of Markets was detailed by Harold Moulton in his contra-New Deal treatise, The Formation of Capital (1935). Kelso and Adler expanded and refined Moulton's analysis in The Capitalist Manifesto (1958) and The New Capitalists (1961). The Center for Economic and Social Justice ("CESJ"), applied the work of Kelso and Adler in Capital Homesteading for Every Citizen (2004), a specific proposal designed to turn the economy around in the shortest possible time to the benefit of all, and with harm to none. (All of these books, by the way, are available in the "Just Third Way 'Bookstore'" over there to your right.)

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The Problem with Money, Part V: Say's Law and the Slavery of Savings

As we noted in the previous posting in this series, Say's Law of Markets is that we cannot consume unless we produce, and we cannot trade for the surplus productions of others unless we ourselves are producing something. As Jean-Baptiste Say explained in his Letters to Malthus, "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." As Say continued to explain to the obtuse Reverend Malthus,

"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."

That's all very well, but if someone doesn't own any capital or land, how is he or she supposed to produce a marketable good or service when the value of the labor that he or she does own is declining in value as an input to production in competition with advancing technology and cheaper labor elsewhere? As most people firmly believe, it is impossible to finance the acquisition of capital without first cutting consumption and accumulating money savings. This is the basic premise what developed into the Currency School of finance, and which Thomas Malthus, David Ricardo, Karl Marx, and others accepted without question, and which was countered by the work of Adam Smith, Henry Thornton, Jean-Baptiste Say, John Fullarton, Henry Dunning Macleod, and Harold Moulton, among others, and which developed in the Banking School of finance.

The most common solution to the conundrum presented by assuming that new capital formation cannot be financed except by cutting consumption and accumulating money savings is to redefine essential principles of the natural moral law, and claim that God or the State mandates the change. Thus, in an effort to break the monopoly that the rich enjoy over existing accumulations of savings as a result of their monopoly over ownership of capital, private property, freedom of association (liberty/contract), and even the pursuit of happiness are redefined in order to allow the State to take over private property, money creation, and individual lives in an effort to make the economy work.

Because no redefinition can really change a natural right such as life, liberty, property, or the pursuit of happiness, however, all such efforts by the State to control the economy necessarily cause bigger problems than the ones they are trying to solve. Not only that, but remedies, effective or not, take longer to benefit people, if they ever do.

As a case in point, the first Great Depression lasted for five years (1893-1898), and was characterized by very little action on the part of the state or federal governments, despite the rising demands that the government "do something," preferably printing more money in the hope that this would spur new investment and create jobs. The second Great Depression, characterized by massive government action and intrusion into the economy, lasted for ten years (1930-1940), and was ended not by the government, but by the Second World War. If the pattern holds, the current Great Depression (2007-date), characterized by ever-increasing government efforts to control the economy, may go on for fifteen or twenty years, at which time there will be no economy left to "stimulate."

The problem is that when you rely exclusively on existing accumulations of savings to finance new capital formation, the only ways that those who don't own capital can get capital is either for the rich to voluntarily divest themselves of their wealth, or for the State to redefine essential natural rights and redistribute — and the first is unlikely, while the second is unjust.

The situation seems hopeless — which it is, if we insist on remaining within the paradigm defined by reliance on existing accumulations of savings as the sole source of financing for new capital formation. There is, however, a way out, which we will describe tomorrow in the final posting in this series.

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News from the Network, Vol. 4, No. 5

We don't have time to go into it in any depth right now (or at all, for that matter), but Dawn K. Brohawn, CESJ's Director of Communications, came across a quote from the collection we've been compiling for many years. It dates from 1982, and concerns the analysis of Dr. Raj Reddy of Carnegie-Mellon. Dr. Reddy predicted, "Currently, around 25 to 28 million people are employed in manufacturing in America. I expect it to go down to less than 3 million by the year 2010. So we have only 30 years to decide what those millions of people are going to be doing."

The standard answer at the time — and one that continues to haunt us today in the never-ending quest for "job-creation" during the "jobless recovery" (a.k.a., "The Great Depression III"), is that new jobs will somehow magically appear in the service industries, leisure, research, and white-collar work. In response, Dr. Reddy said (in effect) "Wanna bet?" As he really said, "even there the same revolution is coming." He went on to comment that, "no one [in power] understands what's happening or grasps the extent of what's coming." ("Artificial Intelligence," Business Week, March 8, 1982.)

So, how accurate was Dr. Reddy's prediction?

Pretty accurate, as the figures from the Bureau of Labor Statistics suggest. The number of people employed in production ("manufacturing") in 2008 was 8,973,000, and in 2009 7,654,000. Doing a straight line regression, this gives us the estimated number of people engaged in production in 2010 (actual figures aren't available yet) as 6,335,000, 2011 as a little over 5 million, and 2012 could be as few as 3.7 million.

Of course, 2008 and 2009 were periods of economic recovery, so we should expect the number of jobs to decline even faster, once the economy gets back on an even keel. (Unless there's something drastically wrong with the claim that the "recession" is over . . . What?  You think that reasoning is any screwier than the claim that the "recession" is over?)

Anyway, as the U.S. economy continues to implode under the illusion that the economic problems have been "fixed" by bloating the financial services industry, increasing State takeover of the private sector, and assuming a gargantuan debt, it becomes painfully clear that, unless Capital Homesteading is adopted by 2012 at the latest, the U.S. can very quickly find itself locked into an irrecoverable economic downward spiral.

You can't have 400 million people supported by the productive efforts of the 0.92% of the population projected to own direct productive labor by 2012, or the less than 1% of the population who own most of the capital — that is, 98% of the population supported by the other 2% — without social disruption, even revolution on a massive scale. As Benjamin Watkins Leigh pointed out in 1820, "Power and Property can be separated for a time by force or fraud — but divorced, never. For as soon as the pang of separation is felt . . . property will purchase Power, or Power will take over Property."

So what have we been doing to extend ownership of capital to the millions being displaced by advancing technology and cheaper labor in other regions?


• Hernando de Soto has weighed in on the troubles in Egypt. With the rather unimportant caveat (at this point) that his orientation is based on existing accumulations of savings, de Soto pinpoints one of the flaws in what may be civil society's most important institution, the legal structures surrounding private property. Many people in Egypt do not have recognized legal title to what they have in their possession, even if they have built it up from scratch. Getting the proper permits and licenses in less than a decade for even a small business is a Herculean task. Credit, collateral, or anything else involving commerce above the level of barter or the smallest of cash transactions? Forget it. As de Soto concluded his op-ed piece in yesterday's Wall Street Journal, "Leaders and governments may change and more democracy might come to Egypt. But unless its existing legal institutions are reformed to allow economic growth from the bottom up, the aspirations for a better life that are motivating so many demonstrating in the streets will remain unfulfilled." ("Egypt's Economic Apartheid," WSJ, 02/03/11, A15).

• We sent out some e-mail follow-ups to the CESJ information packages we sent out last week following the Catholic Radio Association reception at the Columbus School of Law at Catholic University of America the evening before the March for Life. Those whom we had not given a copy of Supporting Life (available through the "bookstore" link to your right) were sent a complimentary copy, along with materials describing CESJ's accomplishments. So far we've heard back from two of the recipients — fortunately, the two highest-placed and thus the ones best able to get the word out about Capital Homesteading as a possible Pro-Life economic agenda.

• The relationship between the principals involved in the Harris Neck, Georgia initiative and CESJ and other Just Third Way organizations continues to deepen. Dave Kelly, the Harris Neck "prime mover," has been very active bringing people together and introducing them to Norman Kurland. Plans are afoot to have Norm attend an important gathering at Harris Neck within the next couple of weeks.

• Russell Williams, CESJ's National Field Secretary, has signed the contract for a 13-week radio show on the Just Third Way. CESJ has pledged support for the effort.

• As of this morning, we have had visitors from 51 different countries and 44 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Germany, and the Philippines. People in Venezuela, South Africa, Poland, the Philippines and Indonesia spent the most average time on the blog. The most popular posting this past week has been "Pure Credit for Student Loans," followed by "Thomas Hobbes on Private Property," "The 'New' Slavery, Part V: Debt Slavery," "The 'New' Slavery, Part III: Wage and Welfare Slavery," and "News from the Network, 4.1."

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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