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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