Opened Letter to George Melloan

On July 28, 2011, Mr. George Melloan published "The Budget Crisis and American Power" in the Wall Street Journal. There is nothing remarkable in that. Mr. Melloan frequently has much to offer in his opinion. In this instance, however, it was not what he said, but what he left out that made all the difference. That being the case, we whipped out a(nother) letter, and waited a reasonable period of time for an acknowledgement or a substantive response. Since we didn't receive either, we decided to use the letter to make our lives easier and use it as today's blog posting. Here goes:

Dear Mr. Melloan:

In your article in today's Wall Street Journal, "The Budget Crisis and American Power," you made the comment, "The U.S. is busted . . . . because America's political leaders have overburdened the productive sector with social obligations that cannot be fulfilled."

That is part of the problem. The other part is that unshackling the productive sector from ineffective external controls in a futile effort to replace effective internal, systemic controls and guarantee results for producing little or nothing in the way of marketable goods and services does not address the misuse of the commercial banking system and the Federal Reserve.

Commercial (mercantile) banking, backed up with a properly run central bank, has the potential to provide funding for any financially feasible capital project by discounting and rediscounting bills of exchange, thereby creating an elastic and asset-backed currency to replace the current debt-backed currency that finances government deficits. It is unnecessary to use existing accumulations of savings achieved by cutting consumption (thereby reducing effective demand) for anything other than to collateralize commercial bank credit, and even that can be replaced with capital credit insurance and reinsurance, freeing trillions of dollars in pent up demand in the form of savings to stimulate the economy naturally.

No government, be it local, state, or national, should be able to monetize its deficits by emitting bills of credit as the legal fiction of "open market operations" now permits the federal government. All new money should be for financially feasible capital projects to increase production of marketable goods and services. To ensure sufficient effective domestic demand and restoration of power to individuals and families, all new capital financed by the expansion of commercial bank credit rediscounted at the Federal Reserve should be broadly and directly owned, and carry with it the full rights of private property, especially voting and full payout of income in the form of dividends tax deductible at the corporate level.

The work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, was instrumental in formulating these contra-Keynesian policy recommendations, summarized in The Formation of Capital (1935), the third volume in a four-volume series that presented an alternative to the New Deal. Moulton's work was refined by Louis Kelso and Mortimer Adler in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961), the latter with the provocative subtitle, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." The Center for Economic and Social Justice (CESJ) has applied the ideas of Moulton and Kelso and Adler in a proposal called "Capital Homesteading for Every Citizen," detailed in the book with the same title.

I invite you to visit the CESJ website, www.cesj.org, and to open up a dialog with Dr. Norman G. Kurland, president of CESJ, to discuss the potential of Capital Homesteading to bring the United States and the rest of the world out of the current crisis and put future economic growth on a sound and sustainable basis.

Thank you.

Yours,

Blah, blah, blah.

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