Opening our e-mail early this morning we got one of those extra-special treats that make our lives easier: an egregious statement that we can quickly refute, and use as a blog posting. It's not exactly the best start for this year's "Halloween Horror Specials," but it will do. (The "Bwa-ha-ha" is the evil laugh we're supposed to give, especially since we can't duplicate that sinister titter of the Crypt Keeper.)
What is the "treat"? We received "Letter #32: Money the Root of All Evil" from Inside the Vatican editor Dr. Robert Moynihan. N.B.: Before you go ballistic, Dr. Moynihan does correct the misimpression in the subject line by noting that what St. Paul really said in his letter to Timothy is that love of money is the root of all evil. That does not, however, excuse Dr. Moynihan's other, far more serious (because less obvious) error:
On 10/2/11 10:38 PM, Dr. Robert Moynihan wrote:
"We know that there are floods of 'money' in our world. (I put the word in quotes, because most of our money is not money at all, but debt, that is, it doesn't exist except as a promise from somebody else to be made good at some future time.)"
Now, you know we can't let that one go by — especially since we had a number of meetings with Dr. Moynihan before he stopped communicating with us, and we thought he understood what we were saying. It's made even worse by the fact that we might expand on St. Paul's admonition by saying it's the love of bad ideas about money — and the fanaticism with which those bad ideas are held — that is the root, if not of all evil, of quite a bit of it . . . and all of it well-intentioned, of course, as, no doubt, Dr. Moynihan's little essay was. So here's our response:
October 3, 2011
Dr. Robert Moynihan, editor
Inside the Vatican magazine
Dear Dr. Moynihan:
The above statement from your "Letter #32" reflects an egregious misunderstanding of money. As defined in the accounting and legal professions, "money" is anything that can be used to settle a debt; as lawyer-economist Henry Dunning Macleod explained, money and credit are simply two different forms of the same thing. All money is consequently a "debt" in that it consists of a "promise from somebody else to be made good at some future time." The question is whether the issuer or creator of the money has the capacity to make good on the promise, not whether it is a promise.
As Jean-Baptiste Say explained to the Reverend Thomas Malthus in refutation of that gentleman's economic theories (in which refutation Louis Kelso and Mortimer Adler concurred), we do not buy what others produce with this thing called "money." Money is simply a symbol, the medium by means of which we exchange what we produce by means of our labor and capital, for what others produce with their labor and capital. Consequently, if there is economic stagnation or a downturn, it is not because there is insufficient money, or because "the government" isn't printing more worthless currency or otherwise manipulating the financial and economic systems. Rather, it is because there is insufficient production in which all people can participate through their direct ownership of the means of production, whether labor or capital, or (as the popes have stressed over and over), both labor and capital.
Money is thus an application of two natural rights, liberty (free association/contract) and private property, that is, the natural right to be an owner, and the correlative socially determined bundle of rights that define how an owner may use what he or she owns. Understood properly, money is fully consistent with the natural law and thus necessarily with Catholic social teaching. To insist, contrary to reality, that "money" consists solely of coin, government-issued or sanctioned banknotes, demand deposits and limited time deposits ("M2") backed exclusively by "bills of credit" (government debt backed by future tax collections — "anticipation notes") is the same as claiming that the State is in charge of every aspect of civil life, and that no one is permitted to exist economically except as "a mere creature of the State." (Pierce v. The Society of Sisters, 1925.) As one delusional ostensibly Catholic academic expressed this fallacy, "The State is the sole intercessor available to the poor."
That the State — an essential tool, but dangerous when permitted to go beyond its proper sphere — is in control of everything was the claim of totalitarian philosopher Thomas Hobbes in Leviathan, was embodied in 19th century economic policy by Walter Bagehot (Lombard Street, 1873), and congealed into an absolute dogma by John Maynard Keynes, who declared in 1930 that the authoritarian State has the power to change the natural law (that is, God's Nature) by "re-editing the dictionary" and unilaterally altering the terms of any contract. (A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace, Jovanovich, 1930, p. 4.) Inevitably this leads to the conclusion, common to both capitalism and socialism, that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings — demonstrably false, as Dr. Harold Moulton proved in 1935 in The Formation of Capital.
Very much the contrary. Money, as anything that can be used to settle a debt, is any instrument, agreement or other vehicle — any contract, in fact, even a handshake — by means of which a property right in the present value of existing and future marketable goods and services is conveyed, to be redeemed on demand or on the occurrence of some future event. In today's economy, this is still predominantly in the form of "bills of exchange," private sector contracts drawn by individuals and businesses to carry out transactions. In 2008, these bills of exchange accounted for approximately 60% of the money supply. In 1916, Dr. Harold Moulton estimated that bills of exchange accounted for 75-80% of the money supply. In the 1830s, Congressman George Tucker estimated that 95-99% of the money supply consisted of bills of exchange. The vast majority of documents that survive from ancient times consist of bills of exchange — "money" — created by private individuals and businesses making and keeping promises.
The "money problem" today consists not of too much money, but rather too much money backed by government promises that rely on collecting taxes out of production that doesn't exist and may never exist, instead of private sector bills of exchange representing the present value of existing and future marketable goods and services. The world is flooded with the former kind of promise that relies for its redemption on politicians being able to tax more than exists or, as in the case of Greece, can exist in any reasonable world, while the latter is restricted by lack of democratic access to capital ownership and the ability of people to participate in the production of marketable goods and services. Capital Homesteading is designed to correct these problems through application of the principles of the Just Third Way, and thus without redistribution, raising taxes, or increasing government debt, as you should be fully aware.
Inasmuch as we explained these matters at length in our meetings with you, and you asked no questions indicating that you did not understand, you have no excuse for making such an error. Please correct it.
Blah, blah, blah.