Monday, January 31, 2011

The Problem with Money, Part I: What IS that Stuff?

No, we mean the other problem. What's that? Oh, sorry. Okay, the other, other problem with money. The first problem, of course, is that those of us who need it can't seem to get it, and the second problem is that most of us lack access to the means of getting it — a different, yet related problem. The other, other problem, then, is that few people really know what the heck "money" is. Oddly enough, it's not all that difficult, once you shed the chains binding you to the slavery of past savings and understand a few basic principles . . . such as life, liberty, property, and the pursuit of happiness.

There are several reasons for this. Primarily (as we noted in last week's News from the Network) most people simply don't bother to think. They just take some authority's word for something. Unfortunately, while that is fine for dogs and children (up to a point), it wreaks havoc when it comes to a tool as socially important as money.

Thus, most people simply copy the "experts" and use the "standard" definition of money within the paradigm established by the British Currency School of finance. That is, "money" consists of coin, banknotes, demand deposits (checking accounts), and certain time deposits (savings accounts). The experts have decided that the State decides of what money consists and under what circumstances . . . and reserves the right to change that definition when it feels like doing it.

Case in point: Benjamin Bernanke's decision to drop "M3" from the "official" definition of money, leaving only "M1" and "M2." (When I was in college, I vaguely recall the "Ms" going up to something like 14 or 15 in an effort to fit definitions to economic and financial reality.) In the opening passages of the first volume of his Treatise on Money (1930), Keynes said that the State has this power (i.e., to change definitions — substantial reality — at will and to interfere in contracts "involving money"), therefore, the State has that power . . . even though that means, effectively, that private property and freedom of association/contract are now, to all intents and purposes, mere noises.

Picky, picky, picky.

What's wrong with that? Doesn't the State create money?

No — at least, not legitimately. The State's role with respect to money is to set the standard of the currency and to enforce contracts in the event of a dispute. Setting the standard is no more "creating money" than when the State decides to use inches and feet is "creating length." There's a very good reason why the Constitution lists the federal government's power to set the standard and regulate the currency under "weights and measures." It was supposed to ensure that nobody would ever think anything as silly as the State creates money, any more than it creates length or weight.

So who "creates money"? Assuming that we're engaged in productive activity, the answer is — we do. That's right. Us'ns. The Concerned Ordinary Citizens Of America, the COCOAs. You see, "money" is not (as some have claimed) "instant purchasing power." Nor is "money" necessarily the same as "currency" (coin and banknotes) or "currency substitutes" (demand deposits). No, money is anything — anything — that can be used in settlement of a debt, that is, used to convey a private property right from one person or persons to another person or persons in fulfillment of a contract. In a very real sense, all money is a contract, just as all contracts are money.

To enter into a contract, that is, to create money, you need to meet a few conditions. First, you have to be competent to enter into a contract. You can't be unconscious, crazy or a convict. Contracts with minor children are voidable, while contracts with those judged incompetent are void, but we don't need to get into the technicalities. All we need to know is that you are presumed competent.

Second, you have to have a right to dispose of that for which you are contracting to deliver. That means, ordinarily, that you have to own it. If you are entering into a labor contract, you have to own your labor. If you are purchasing something in a store, you have to own whatever you tender to the shopkeeper. If you are selling something (and all these things are "contracts") you have to own the thing you're selling.

Third, there has to be "consideration" that passes between the two parties to a contract. That is, genuine value has to be exchanged.

Fourth, it has to be voluntary. A thief who says, "Give me your money or I'll bash your head in" is not making a contract with you, although most people would certainly agree that their own lives have value. It's just not voluntary.

Thus, all contracts are money, and all money is a contract. (Okay, we shouldn't have put it that way; it makes it sound as if we've proved our case. No, we haven't — but there's enough information there that you can figure it out for yourself.)

The bottom line is that "money" is not just coin, banknotes, checking accounts and selected savings accounts. No, money is anything that is used to convey a private property right in or to anything, that is, to settle a debt. As long as the matter of the contract is legal, the State has no say-so as to what form that settlement must take. Contrary to Keynes's assertion that the State has the power to change contractual provisions at will and define "money" any way it likes, the State does not, and could not possibly have that power and preserve the illusion that people's natural rights are being in any way respected.

That leaves us with the question, If (as you say) each and every one of us has the power to create money, how come I don't have any? We'll start to look at the answer to that tomorrow.


Friday, January 28, 2011

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

Recently, as part of our informal "Mortimer Adler Revival," we started rereading How to Read a Book, one of Dr. Adler's earliest bestsellers. One of the points that the "Great Books" philosopher stressed early on is a lesson he learned the hard way: that picking up a book and gliding your eyes over the words — "reading" — doesn't mean that you've actually read the book; in fact, you cannot (in Adler's opinion) be said to have read a book until you've been through it at least three times. Even then, if you haven't read the book in the right way, you still cannot be said actually to have read it.

As a case in point, Adler highlighted the example of academics, even highly placed and influential academics, who — having opened a book once and run their eyes over the pages — are convinced they've read it. In this context, we recall an anecdote related by C. S. Lewis about his acquisition of some books from the library of a renowned scholar. Looking over the first few pages of one of the volumes, he saw that there was heavy annotation. He then settled in to enjoy, for him, the high treat of "conversing" with the scholar by reading the comments in a book he himself had read many times.

Lewis then made a startling discovery. The first few pages of the book contained many notes. The rest of the first chapter had fewer. The second chapter had even fewer, and the third chapter none at all. From the fourth chapter on, the book did not even appear to have been opened. Not surprisingly, Lewis concluded that the noted scholar had approached the book with his mind already made up. He had taken note of things that supported his preconceptions, decided he already knew what the book was about, and discarded it without getting into what Lewis regarded as the substance of the author's work. The other books that Lewis had obtained followed the same pattern.

Why raise this? Two reasons. One, academia is a "primary target" for the Just Third Way. Many of the problems we see around us are rooted in the attitudes and beliefs of academics who have transmitted their attitudes and beliefs, right or wrong, to our (alleged) leaders, who thereby surrender the difficult task of actually thinking, locking the system into whatever weird and wonderful paradigm got the academics their doctorates. As Aubrey de Selincourt quoted one (genuine) scholar, "In a field as well-ploughed as history, an original theory is almost guaranteed to be a perverse theory." — an observation we can apply to economics.

(Anent of that, we've found at least three versions of the quote about people preferring to die rather than think: "Ten percent of the people think; ten percent of the people think they think, and the remaining eighty percent would rather die than think," Mark Twain; "Two percent of the people think, three percent of the people think they think, and the other ninety-five percent would rather die than think," George Bernard Shaw; "Most people would rather die than think, in fact, they do," Bertrand Russell. Take your pick.)

The second reason is that, however often we've pointed out that the three mainstream schools of economic thought, the Keynesian, the Monetarist/Chicago, and the Austrian, all make the same erroneous assumption about money and credit (and thus finance), some people seem to think we're "picking on" the Keynesian "liberals," and ignoring the Keynesian, Monetarist/Chicago, and Austrian "conservatives" — as if there was any substantial disagreement between them on the basic principles, namely, who is sovereign in money matters, the State, or actual, flesh-and-blood people?

Let's be honest. There is no evidence that any of the powers-that-be, liberal or conservative, have a framework that will lead to a viable and sustainable solution. It's just more obvious with the liberals because they seem to have the upper hand at the moment, and thus the ability to have their mistakes affect more people's lives adversely. The question that remains unanswered, even unexamined is, "Who is in charge of the economy?"

Regardless which side of the political, even economic aisle anyone is on, the basic assumption that has determined the course of the investigation and thus the character of any proposed solutions, is that the State is in charge. The question then devolves not into whether the State should be in charge of the economy, but to what degree, e.g., "the government needs to spend more," v. "the government needs to spend less."

None of this takes into account the possibilities that the government should 1) spend only what it needs to spend to carry out its unique role, and 2) must live within its means if the natural rights of the citizens to life, liberty, property, and the pursuit of happiness are to have any effective meaning.

The problem the powers-that-be should be investigating, then, is not how much money the government should be creating through its misuse of the central bank. Rather, they should be asking whether the government should be creating money at all, or be limited by the internal controls of the system to what it can collect in taxes or borrow from existing accumulations of savings in the short term, not raise by monetizing an ever-burgeoning deficit.

From there, they would necessarily examine whether the government should create money by means of the quasi-legal "open market operations," or whether the Federal Reserve should fill the role for which it was designed. As stated in § 1 of the original 1913 Act, the Federal Reserve was to provide an adequate, "elastic" and stable currency for the private sector by rediscounting bills of exchange discounted by member banks, supplemented with limited open market operations in bills of exchange issued by private businesses and non-member banks. The Federal Reserve was only empowered to deal in government securities of any kind in order to replace the National Bank Notes backed by government debt, with Federal Reserve Notes backed by private sector hard assets.

We submit, therefore, that one possible solution that the powers-that-be should be investigating is "Capital Homesteading," a proposal based on the work of Louis O. Kelso and Mortimer J. Adler, and explained in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961), which in turn expanded on the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, and presented, in relevant part, in his 1935 counter-Keynesian examination of the financial system, The Formation of Capital.

So, what are we doing to try and bring the potential inherent in the Just Third Way to the attention of the powers-that-be?

• On Sunday evening Mr. Chris O'Connor, a CESJ volunteer, took time out of his job search to accompany Michael D. Greaney, CESJ's Director of Research, to a reception hosted by the Catholic Radio Association at the Columbus School of Law on the campus of the Catholic University of America, to which CESJ representatives had been invited by Mr. Steve Gojdesik, president of the CRA. The reception was enjoyable both as a social event and as a way of connecting with a number of important people in the Pro-Life movement and the Catholic media. A number of fliers were passed out describing Norman Kurland as the chief spokesman for the Just Third Way as applied in CESJ's proposed "Capital Homestead Act." One Pro-Life "prime mover" expressed interest in discussing a special printing of Michael D. Greaney's book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010), and gave CESJ some leads to others whom she thought should be reading the book.

• Following up on the CRA reception, packages were sent out to a number of people with whom we'd connected. The packages contained a copy of Supporting Life (not wanting to load people down, we carried a very limited number to the reception), along with material describing other publications and CESJ as an organization, notably CESJ's "accomplishments brochure."

• If you are a "media figure" — you don't have to be Catholic — send an e-mail to publications [at] cesj [dot] org, and we will send you a .pdf of the text of Supporting Life, and some of the other materials distributed at the reception and later included in the packages sent out.

• Also on Sunday, Norman and Marie Kurland, along with Dawn and Rowland Brohawn attended a lecture by Wilson Moran at the Smithsonian Anacostia Community Museum, accompanied by a documentary relating the efforts of Lorenzo Dow Turner to trace the origins of an obscure song once common among the Gullah communities in Georgia and the Carolinas. Mr. Moran is the grandson of one of the last people to learn the song, which was a ritual of mourning for the dead. Preserving the unique Gullah culture is one of the goals of the Harris Neck initiative, the prime movers of which have been investigating Capital Homesteading as a way of financing the redevelopment once the land is returned to its rightful owners.

• Norman Kurland traveled to Connecticut on Monday to meet with figures in local politics in Hartford as well as in the state university system. Norm reported that the meetings went well, and the role (and responsibility) of academia in causing many of the problems we face was highlighted.

• A letter to the Peter G. Peterson Foundation in response to the PGPF's initiative to surface possible solutions to the debt crisis that recommended they look at Capital Homesteading among the other alternatives received a polite "thank you" in response.

• Not a Just Third Way news item, but interesting in a twisted way is the announcement by the United States Justice Department that they are investigating various cost-cutting alternatives, among which is the idea of shortening prison sentences.

• As of this morning, we have had visitors from 55 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, Canada, the UK, Germany, and Brazil. People in Venezuela, South Africa, Poland, Indonesia and the United States spent the most average time on the blog. The most popular posting this past week has been "News from the Network III.52," followed by "Pure Credit for Student Loans," "The 'New' Slavery, Part V: Debt Slavery," "Thomas Hobbes on Private Property," and "The 'New' Slavery, Part III: Wage and Welfare Slavery."

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.


Thursday, January 27, 2011

More of the Same

Less than two full days after President Obama's State of the Union address on Tuesday, virtually all discussion and talk has faded away. Trying to cut the president every possible break — he is, after all, got one heck of a hard job to do, and not the best of times in which to do it — he really didn't say all that much worth remembering. Nor is this because he lacks the ability to make meaningful and memorable speeches.

Getting to the root of the problem, the reason that this State of the Union address isn't worth remembering is that President Obama came across with a lot of good-sounding language that, ultimately, didn't mean much. Yes, we're the greatest country on earth . . . but that starts to sound a little hollow when in almost the same breath the president of the United States starts talking about how other countries have surpassed us and continue to surpass us in many ways.

Then there's the repeated claim that we're out of the Great Depression III. Yes, we know it remains officially a recession, and we're in a period of economic recovery — the stock market is booming, corporate profits are at an all time high, and so on . . . but unemployment remains officially at very high levels and unofficially matches the worst years of the Great Depression II. How are high prices on the stock market — all speculative gains with no increase in the production of marketable goods and services to back it up — a good thing? This sort of speculation and money creation/spending without linking the money supply to the present value of marketable goods and services led to the current mess we're in (and we just read that housing is now in a "double dip" recession), as well as to the Savings and Loan crisis, the Crash of 1929, the Panic of 1907, the Panic of 1893, the Panic of 1873 . . . just keep going.

Back in 1937 in The Recovery Problem in the United States, Dr. Harold Moulton, president of the Brookings Institution, stated that there are two critical factors in any economic recovery: employment and production. He didn't mean artificial job creation financed by redistribution, or production for which there was no demand except for government subsidies. No, Dr. Moulton was quite specific. Forget about cutting consumption to force savings to finance new capital and create jobs. Forget about "reflating" the currency, keeping prices high so that overextended companies and those too big to fail continue to make enormous profits. Forget about "innovation" in new technologies that only replace workers from badly needed jobs. What needs to be done is to open up ways for people to be able to produce by means of both labor and capital.

Mr. Obama said that we need to raise American productivity. As he noted, steel companies that once used 100 workers now employ 10 to do the same thing. Evidently we need to do even more of this . . . thereby doing more people out of jobs. "Productivity" is, after all, defined as "output per labor hour." Productivity gains are therefore made by getting rid of workers and replacing them with increasingly advanced technology. Mr. Obama's solution to this is to innovate even more, thereby increasing productivity. This will eliminate jobs, but education will, according to the president, train people for the new jobs that will be created. What new jobs? Technology is eliminating them faster than they can be "created."

There is, however, a solution. Enact Capital Homesteading as soon as possible. As an old article about the ownership revolution many years ago put it, "If the Machine Wants Our Job, Let's Buy It." Does it really matter if you are paid for your ownership of labor, or your ownership of capital, as long as you own it?


Wednesday, January 26, 2011

"Power Naturally and Necessarily Follows Property"

Although yesterday we concluded our short series on the connection between the propertyless condition and the "condition of dependency" — slavery — there is always something more to be said, especially if (as it turned out) people still have questions. This is only to be expected, for there is a serious and widespread lack of understanding about property (private or otherwise) in our society, and consequently widespread misunderstanding of other social institutions based on or derived from private property. These include such things as money and credit, banking, and political power.

It is this last that concerns us today. With all due respect to President Obama and his performance in last night's State of the Union address, he did not say one word about the importance of empowering people politically and economically through direct and sustainable ownership in the means of production, at least that we recall. Rather, the talk was all the need for job creation and for the nation to set aside bipartisan politics and start pulling together to achieve the president's goals.

We agree. There is a serious need to come together to reach a common goal . . . but the goal should be one on which people can agree, rather than on which they "agree to disagree" in order to achieve a superficial and meaningless — and ineffectual — consensus. Obama gave us a salutary and much-needed pep talk, but a State of the Union address is not supposed to be a pep talk. It is supposed to be a forum in which the president presents the current condition of the country and gives solid policy guidelines about what the administration intends to do, not vague promises about Keynesian "job creation" that will magically take place once the other side sees reason and does things his way.

Not that the Republicans have anything positive to offer, either, although they are on target with the need to control spending. What with the president being right about the need to come together, and the Republicans being right about the need to control spending, we have an instance, sadly not unique in history, of two rights making a wrong.

How's that?

As should come as no surprise to readers of this blog, we believe the goal of "job creation" for the sake of providing people with incomes instead of to provide producers with the human factor of production is wasteful as well as pointless and demeaning, to say nothing of being ineffective as a means of bringing about economic recovery from the Great Depression, Part III. "Job creation" is simply an expensive way to achieve redistribution, and helps reinforce the deplorable "entitlement mindset" that has grown up in the United States since the effective end of "free" land in the late 19th century. As F. Ray Marshall, U.S. Secretary of Labor under President Carter, is reported to have said, "There is no more complete rejection of a person than to give them a job you know and they know is useless." (Editorial note: change "a person" to "persons," and we agree 100%.)

The solution to this problem? Focus on production and wealth creation in which everyone can share equitably, participating in that wealth creation by contributing both labor and capital. In short, every citizen should have the effective and meaningful opportunity to become an owner of capital, just as each person is already presumed to own his or her labor. This might require some explanation.

In principle, at least in the United States and the British Commonwealth, every natural person (meaning every human being, man, woman, and child) has the natural rights to life, liberty, property, and the pursuit of happiness (i.e., the acquisition and development of virtue). In reality, trapped by what Louis Kelso and Mortimer Adler called "the slavery of [past] savings," most people are effectively cut off from ownership of a meaningful stake of income-generating assets: capital. Vide Kelso and Adler, The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings. New York: Random House, 1961.

Note that "savings" in this context refers to existing accumulations of wealth, by definition a monopoly of the rich. Kelso and Adler advocated a shift from past savings to "future savings" made available through the functioning of Say's Law of Markets (Jean-Baptiste Say, Letters to Malthus, 1821), and the application of Say's Law in the real bills doctrine explained by Adam Smith (The Wealth of Nations, 1776), Henry Thornton, (An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 1802), and later, after the British Bank Charter Act of 1844, by John Fullarton (On the Regulation of the Currencies of the Bank of England, 1845), and by Kelso and Adler's primary source, Dr. Harold G. Moulton (The Formation of Capital, 1935).


At one time, there was a property qualification to vote. In the United States, this was removed from the Constitution in 1820 on the grounds that no free white male over the age of 21 should be prevented from voting simply because he did not own property in sufficient amount or at all. This was over the protests of such men as Benjamin Watkins Leigh of Virginia and Daniel Webster of Massachusetts. The position of these men and others was that, if non-property owners got the franchise, they would use their political power to take property away from those with property, and redistribute it to those without. As Leigh observed, "Power and property can be separated for a time, but divorced, never. For as soon as the pangs of separation are felt, property will take over power, or power will take over property." Webster concurred: "Power naturally and necessarily follows property."

Consequently, since the 1890s when the "free" land made available by Abraham Lincoln's 1862 Homestead Act effectively ran out (the program continued well into the 20th century, but affected rapidly decreasing numbers of people) and the predominant source of income for most people shifted from ownership of land, to a wage paid by an employer, the federal and state governments have passed increasing numbers of laws intended to redistribute existing wealth in an effort to make the distribution of wealth marginally equitable. As was only to be expected, this has increased government power enormously, as it has vested effective ownership of the means of production in the State. Ownership and control are the same in all codes of law; if you hold legal title to something, yet can only use it as and when I give permission, the law maintains that I, not you, am the owner. Unfortunately, while the social legislation was and remains necessary to keep society together after a fashion, it has done nothing to address the underlying problem: the propertyless condition of the great mass of people. They remain powerless, with the State necessarily stepping in and providing (or, more accurately, trying to provide) that of which the lack of ownership of the means of production has deprived most people.

Thus, Webster and Leigh, while correct, were doing the exact opposite of what they should have done. Rather than restrict the franchise to those who owned a meaningful stake of capital (into which category we can put land as well as technology), the effort should have been to make certain that the universal franchise was matched by universal opportunity to become an owner of capital. Socialism and the Welfare State try to make everyone an owner, but only achieve this by abolishing private property in the means of production, and substituting the State for private owners controlling their own lives with the power with which property vests them.

The State, however, cannot make everyone an owner by destroying ownership. The State can only legitimately provide a level playing field, that is, equality of opportunity, for everyone to be an owner, as Lincoln did with land in the 19th century. What is needed now is a "Capital Homestead Act," a concept discussed on the website of the Center for Economic and Social Justice ("CESJ").


Tuesday, January 25, 2011

The "New" Slavery, Part V: Ending Slavery

As we mentioned previously in this short series, William Cobbett, "the Poor Man's Friend," linked slavery to the condition of propertylessness. This, Cobbett claimed, is true whether one is legally a slave, or is nominally a free man or woman who lacks ownership. Without direct ownership of the means of production recognized as a natural right inhering in every human being, "you may call yourself what you will, but you are a slave." Was this just some early 19th century "radical" mouthing off and venting his considerable spleen at the establishment? Or is there substance behind the rant?

Aristotle seems to have agreed with Cobbett's assessment — as did the fathers of the "distributist" movement, G. K. Chesterton and Hilaire Belloc, who regarded Cobbett as the "Apostle of Distributism." As a matter of fact (if you haven't figured it out already), we, too, believe that Cobbett's analysis is correct. The problem becomes what to do about it.

Again, Cobbett's prescription is, all things considered, pretty much what needs to be done. First, don't be dependent on anyone else for your income, but own a meaningful private property stake of some kind of capital. Second, stay off the welfare rolls, thereby avoiding becoming a slave of the State. Third and finally, live within your means, not becoming a slave of the moneylenders. As Cobbett explained in Advice to Young Men,

The great source of independence, the French express in a precept of three words, 'Vivre de peu,' which I have always very much admired. 'To live upon little' is the great security against slavery; and this precept extends to dress and other things besides food and drink. When DOCTOR JOHNSON wrote his Dictionary, he put in the word pensioner thus: 'PENSIONER — A slave of the state.' After this he himself became a pensioner! And thus, agreeably to his own definition, he lived and died 'a slave of state!' What must this man of great genius, and of great industry too, have felt at receiving this pension! Could he be so callous as not to feel a pang upon seeing his own name placed before his own degrading definition? And what could induce him to submit to this? His wants, his artificial wants, his habit of indulging in the pleasures of the table; his disregard of the precept 'Vivre de peu.' This was the cause; and, be it observed, that indulgences of this sort, while they tend to make men poor and expose them to commit mean acts, tend also to enfeeble the body, and more especially to cloud and to weaken the mind. (Letter I, To A Youth)
This, of course, is something of a contrast to Dr. Kevin Bales's prescription of how to end slavery in the modern world, described in his book, Ending Slavery: How We Free Today's Slaves (Berkeley, California: University of California Press, 2008). Dr. Bales's six-point plan is, all things considered, as good a program that can be developed from within the existing economic and political framework: 1) protecting, 2) arming and 3) cloning the liberators, 4) enacting and 5) enforcing effective antislavery legislation, and 6) helping freed slaves heal.

With all due respect, however (and we mean that — Dr. Bales has done incredible work), the plan does not address the underlying causes of slavery that we have examined in this short series. Dr. Bales appears to take our existing political and, especially, economic institutions for granted.

If someone wanted to help advance Dr. Bales's crusade and quickly bring an end to slavery throughout the world, he or she could do no better than to introduce him to the potential of Capital Homesteading to do that very thing by promoting widespread direct ownership of the means of production.

This does not mean in any way that Dr. Bales's six-point plan isn't essential or would not be effective — but it relies on having other things in place to be able to work to achieve the desired goal. The most important of these "other things" is (as you might expect) access to the means of acquiring and possessing private property in the means of production.

This is what Capital Homesteading is designed to do, and to free humanity not only from the slavery of past savings, but effective "real" slavery, whatever you might want to call it.


Monday, January 24, 2011

The "New" Slavery, Part V: Debt Slavery

In the previous posting in this series, we looked at how money can (and is) created to finance new capital formation without being enslaved to existing accumulations of savings. All you do is back the issuance of new money with the present value of existing and future marketable goods and services. What happens, however, if you don't back the issuance of new money with the present value of existing inventories of goods and services or the new capital to be valued at the present value of the future goods and services to be produced? What happens if, as now, you simply create the money first, backed by the general promise of the State, and hope that the money will eventually end up invested somewhere?

What happens? Inflation. By creating money before you have drawn a bill — entered into a contract conveying ownership of the matter of the contract — based on real, present value, you haven't actually created a claim on valuable new, future wealth. The only thing you've done is create more claims on existing wealth . . . that belongs to somebody else, thereby effectively abolishing private property as a meaningful institution.

Understand, of course, that — consistent with Aquinas's conclusion that potential being and actual being are both different stages of being — the present value of future (potential) goods and services is just as "real" and material — that is, just as valuable — as the present value of existing (actual) inventories of goods and services. It is all "value," and it is "value" in the same way that all value is value. (This is the "analogy of being" . . . and you had no idea a discussion on savings could get this deep, did you?)

Unfortunately, Keynesian economics, the most widespread economics today, restricts all financing for new capital to existing accumulations of savings. Subordinating economics to politics, the question becomes how to manipulate the currency and the law — monetary and fiscal policy — in order to try and ensure that 1) there is sufficient "effective demand" (income) in the economy to keep the economy going, and 2) there is sufficient savings (reductions in consumption) to provide financing for new capital. This is what Moulton called, "the economic dilemma" . . . and then demonstrated that it was, financially and economically speaking, a red herring. (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 26-36.)

The "economic dilemma" is not, however, a red herring to the Keynesians, Monetarists, or Austrians. The main question that seems to obsess adherents of all these schools is if, or to what degree the State should interfere in the market in order to ensure that the economy actually does what it's supposed to do, i.e., allocate resources to meet people's wants and needs. Keynesians recommend virtually total control, while Austrians want no control. The Monetarists tend to fall somewhere in between. What keeps any of the schools from coming up with a viable solution is that they all assume the slavery of past savings as a given.

Of the three mainstream schools of economics, the Austrians seem to have the greatest respect for individual human dignity, at least in regards to the natural rights of life, liberty, and property. Keynesians tend to become diverted in a concern for quality of life in the aggregate, rather than the dignity of specific human beings. As a result, in the Keynesian analysis individual rights of life, liberty, and property tend either to get lost in the shuffle or defined out of existence. Not the Keynesians, the Monetarists nor the Austrians take into account the fact that having a right is not the same as exercising a right — but that is an issue for another day. Right now the question is how, trapped by the slavery of savings, Keynesian economics claims the system comes up with the savings presumed necessary to finance new capital formation and thereby create jobs.

The answer is simple, as least to a Keynesian: inflate the currency and manipulate the interest rate. Keep in mind, however, that Keynesians claim it isn't real or "true" inflation until full employment has been reached (vide Keynes's General Theory, III.10.ii, V.21.v). In the real world, inflating the currency raises prices to consumers. This forces consumers to cut consumption by paying more for less. This meets the definition of "saving" within the past savings paradigm. But how do the savings effected by reductions in consumption make their way to investment in new capital? By increasing the profits to producers. Producers — owners of capital — are getting higher prices for fewer goods and services, thereby enjoying a greater real income. This increases retained earnings (corporate savings) that are then reinvested in new capital.

There are just a couple of things wrong with this Keynesian scenario, however. One, any accountant can tell you that retained earnings are never used to finance new capital formation. The only ordinary charge against retained earnings is dividends, not expenditures for new capital. It just doesn't happen that way.

"Retained earnings" represents prior period income that has already been "retained," that is, reinvested in the corporation. Retained earnings are a statement of owners' equity. "Retained earnings" is not an asset account, as a quick look at any corporate balance sheet will tell you. Cash that has been invested in the business may be used to purchase other assets, but "retained earnings" does not thereby change by so much as one cent. To think otherwise is to confuse — as Keynes clearly did — ownership and the thing owned.

This should come as no surprise. Keynesian economics rides roughshod over private property because Keynes had no real understanding of the institution — and thus of the derivatives of private property, i.e., money, credit, interest, and banking. Keynes's General Theory of Employment, Interest, and Money (1936), possibly, along with Karl Marx's Das Kapital (1867), the most influential book on economics in our day, is based on erroneous ideas of interest and money! Keynes's rejection of Say's Law of Markets suggests further that he didn't truly understand employment, either, but that is a posting for another day.

The other thing wrong with the Keynesian scenario is that, the more the State tries to "stimulate demand" or promote new investment by inflating the currency, the more it has to "tinker" with other things and take over every aspect of the economy. Is the price level rising too fast? Increase the price of money by raising interest rates. (This makes sense if you define inflation as a rise in the price level after reaching full employment, for then you only have to claim that you haven't reached "full employment," and thus the rise in the price level is "due to other factors" than inflation.) Has the price level risen to the point that companies are making too much in profits, with a negative impact on effective demand? Tax the excess away and redistribute.

This last accommodation to the slavery of savings leads directly to yet another form of slavery: debt slavery. This, too, is easy to understand.

It is not politically feasible to raise corporate taxes too high. For one thing, it offends the people who make political contributions. For another, it takes away the savings allegedly needed to finance new capital and thus create jobs. No, it's better to tax "the rich" and redistribute that money than to harm corporate savings.

Taxing "the rich," however, creates another set of problems. First, the amount of money that can be raised by increasing taxes (the tax rate) instead of increasing taxable income (the tax base) is frequently negative in its effect. This is because, faced with increased taxes, the rich have ways of avoiding taxation. A 5% increase in the rate in all tax brackets may look good on paper, but there are ways to reduce your income without in any way reducing your wealth — if you're rich enough. For example, don't vote yourself a dividend, but retain the money in your corporation. That way you avoid the "double tax" on corporate profits . . . reducing the taxes you pay, but retaining the money behind the corporate screen. Besides, if you really need the money, you can sell some of your shares, on which you are taxed only on the net above cost, and then usually at a lower rate than "earned" income. (We won't get into the various ways to generate capital losses to offset gains, thereby zeroing out the effect of selling shares.)

But isn't that shortfall made up by increasing the taxes at the same time on the non-rich? Not really. For one thing, the rich pay more simply because they have more. When they reduce or shelter their income, there is less income in the system to tax. For another, a 5% across the board tax increase means one thing to a rich person who goes from 35% to 40% — a 14.28% increase — and quite another to a poor person who goes from 10% to 15% — a 50% increase. A tax increase to the rich may mean some inconvenience or delaying the enjoyment of one's income for a time. The same increase in the rate to the poor can be a disaster.

The problem with all the tinkering and relying on existing savings to finance new capital formation is that, as Moulton pointed out, the resulting decrease in consumer demand makes the new capital less financially feasible. To keep the economy going, consumer demand has to be made up somewhere. As ownership of capital has become increasingly concentrated, shortfalls in effective demand have increasingly been made up by increases in consumer debt. Non-mortgage debt (we won't get into the mess with mortgage debt) has been rising at a rapid rate since the early 1950s, as this link to the St. Louis Federal Reserve makes clear.

As you can see from the chart, you could have ignored the per capita figure in 1950. By 2008, it had risen to over $8,300. In 2010, it was over $10,000 — and that's per capita, not by household, the datum on which the chart is based. The message is clear. For most people, real income is declining rapidly, and the value lost is being transferred to the already wealthy via inflation caused by government debt and reliance on consumer debt, increasing the growing gap between the rich and the poor at an accelerating rate. The problem is what to do about it.


Friday, January 21, 2011

News from the Network, Vol. 4, No. 3

A few months ago Reuters reported that American companies had accumulated approximately $1 trillion in cash. The news service speculated that the money would be used to "go private," that is, concentrate ownership of the means of production even more so than at present by buying back their own shares from current owners. A few days ago, word was that the cash holdings of American companies had grown to $2 trillion, or approximately 15% of GDP. In other words, the largest U.S. companies, many of them in the financial services industry — the ones that are showing the most rapid growth and the highest profits — have managed in a very short space of time to pile up a mountain of cash equal to the annual "growth ring" of additional new capital that, before the onset of the current depression, was formed each year in this country.

That's a lot of money — but it gets worse. To whom does that money belong? To the companies? Well, yes . . . but who owns those companies? The boards of directors who are refusing to pay out earnings as dividends to the shareholders? No. That money belongs to the shareholders by virtue of the natural right of private property. In other words, the capitalist system, just as Karl Marx claimed in The Communist Manifesto (1848), has abolished private property even for capitalists. Shareholders do not control what they own (otherwise they would have received $2 trillion or so in dividends to spend and stimulate the economy), so they can't truly be said to own. Thus, just as Aristotle pointed out with some democratic behavior undermining democracy, capitalistic behavior is undermining capitalism. No wonder Marx said that the last capitalist will sell the rope used to hang him.

But wait! It gets worse! In The Formation of Capital, Dr. Harold Moulton pointed out that cutting consumption to finance new capital formation — or, worse, simply accumulating cash that remains unspent — undermines the economy and can, conceivably, put it into a permanent tailspin. If people aren't consuming but, instead, piling up income without spending it (especially to the tune of $2 trillion!) then $2 trillion in effective demand has been taken out of the economy, and there is that much less incentive to finance new capital, or to continue to produce using existing capital. Consequently, people lose jobs, companies go bankrupt, and the government continues to inflate the currency to provide greater profits that the corporations can pile up unspent. The end is inevitable, with each advance in the stock market bringing the ultimate reckoning ever-closer.

Inevitable, that is, under the existing system run in accordance with the disproved assumptions of Keynesian economics. These problems will be fixed in large measure by the adoption of a Capital Homestead Act, the sooner the better, but certainly no later than 2012. In the meantime,

• The Just Third Way "Bookstore" has had a surprisingly good turnout, going by the usual measures of such things. Our market research told us that, at best, approximately 2% of the population that looks at this kind of advertising actually purchases something, and, according to Amazon, we've had a 3.61% response rate — meaning that, for every 100 people who have visited the "Bookstore," 3.61 of them have made a purchase. (That point-six-one of a person bothers us . . . does that mean he or she is missing .39 of him- or herself?) We could increase that response rate if you would send the link around to your network. If you're "turned off" by the fact that the fiction has been listed first, take heart. We've completely reformatted the store so that CESJ publications are listed first, then those from the Kelso Institute, and then important books by other publishers.

• One new feature we've added to the "Bookstore" is to put up selected works by Mortimer J. Adler, as well as a link to the Center for the Study of the Great Ideas in Chicago, co-founded by Mortimer Adler and Max Weismann. We can only highlight a couple of Dr. Adler's books at a time (well, it is our bookstore, after all), but we think the ones we've selected should help not only in redirecting people's thinking back to the great ideas, but possibly inspire one or two prime movers in academia to rethink the direction that higher education — or even education in general — has been taking for the past century or so. It might even be that Aristotelian and Thomist philosophy might hold the key to the economic and political problems that accompanied the effective end of the "free" capital in land made available by Abraham Lincoln's 1862 Homestead Act.

• Pollant Mpofu in London continues his efforts to introduce the Just Third Way to the movers and shakers in the U.K. and Éire — and to African leaders as well.

• Dave Kelly has been introducing the concepts of the Just Third Way to the principals and interested parties in the Harris Neck initiative. There have been some very positive reactions to how the ideas of the Just Third Way might be applied to the effort to restore the land to the people from whom it was taken during the Second World War.

• A CESJ delegation will be attending a reception given by the Catholic Radio Association tonight at the Catholic University of America. This will be an opportunity to introduce people connected with the "Catholic radio industry" to the idea of the Just Third Way and Capital Homesteading as a Pro-Life economic agenda — and a potential "common ground" on which "Pro-Life" and "Pro-Choice" groups can meet and promote a common goal: economic empowerment of every person.

• As of this morning, we have had visitors from 52 different countries and 41 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, Brazil, and Germany. People in Croatia, South Africa, Venezuela, Poland and Canada spent the most average time on the blog. Reflecting the widespread confusion about the nature of money and credit, the most popular posting this past week has been "Pure Credit for Student Loans." This is followed by "News from the Network III.52," "News from the Network III.51," "The Problem With Distributism," and "It Ain't Rocket Surgery." After a very slight struggle, we decided not to count visits to the Just Third Way "Bookstore," even though the number of visits is more than double any of the (other) postings. It's a temporary measure until the website is redone, even though we plan on updating the intro and featuring different books at the head of the list, depending on our current areas of focus.

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.


Thursday, January 20, 2011

The "New" Slavery, Part IV: The Slavery of Past Savings

Yesterday we mentioned that there are people — wage and welfare slaves — who are convinced that they are free. The usual grounds for claiming this are the high level of fixed wages, benefits, and welfare they get. This is a bad situation, for how do you free someone who doesn't think he is enslaved, and will even fight to the death to preserve his slavery?

But wait — it gets worse. The fixed idea in virtually all of modern economics, finance, and (alas) politics is that the only way to finance new capital formation is to cut consumption, accumulate money savings, and then invest. That is, economic growth and development are tied irrevocably to what Louis Kelso and Mortimer Adler called, "the slavery of [past] savings."

Now, the actual phrase that Kelso and Adler used in the subtitle of their second collaboration in 1961, The New Capitalists (lousy title, great ideas), was "the slavery of savings." The word "past" is our addition, put in brackets to show the exercise of editorial license. This, of course, raises the issue as to why we differentiate "savings" and "past savings." Aren't all savings the same?

No — and that's the problem. In The New Capitalists, Kelso and Adler define "savings" as, "the use of goods or services to produce capital goods rather than for immediate consumption." (The New Capitalists. New York: Random House, 1961, 9-10 . . . and, sorry, the page references are to the print edition, not the .pdf provided by the Kelso Institute, and won't match up.) But . . . wait a minute. Doesn't that mean that you have to cut consumption in order to divert goods and services to produce capital goods?

No. First, of course, to the supplier of goods and services, whether they are consumed or invested by the purchaser, it's all consumption — there are two sides to every equation, and you need to look at both sides, just as you do in the accounting equation to distinguish ownership from what is owned. With respect to production, consumption, and income, as Adam Smith noted, the purpose of production is consumption. Embodied in Say's Law of Markets, all production is supposed to end up as consumption. If it doesn't, it's because something is out of balance, usually the fact that those who would consume cannot consume because they can't produce. Ideally, however, production not only equals income, it equals consumption.

The key word in this respect in Kelso and Adler's definition is immediate. The seller is indifferent whether the purchaser uses the seller's productions for immediate consumption, or to form capital to produce other goods and services for consumption. All the seller knows — or needs to know (as long as the invoice is paid) — is that the seller's produce is sold. The seller then realizes revenue. Out of this revenue the seller repays the financing of the capital used to produce the goods sold (thereby generating revenue for someone else), or uses as income to purchase goods for immediate consumption (again generating revenue for someone else). In this way, production in the aggregate not only equals income, it also equals consumption.

Thus, from the standpoint of the seller and the system as a whole, there has actually been an increase, not a decrease in consumption. Harold Moulton pointed this out in his comments on Friedrich von Hayek's analysis of the saving process. As Moulton explained, "Hayek assumes that the creation of new capital necessarily involves a diversion of labor and capital from the production of consumption goods to the creation of capital goods. Again he cites no evidence either in support of the diversion theory or to show that the prices of capital goods and consumers' goods move in the ways indicated." (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 166.) As Moulton concluded,

Hayek's analysis breaks down at its very beginning. The assumptions on which he predicates his whole argument are not in accordance with the facts of the business world. Moreover, the central issue in the problem of capital formation, namely, the relationship between consumptive demand and the demand for capital goods, has not been analyzed. (Ibid.)
If it is not necessary to cut consumption in order to save, however, then what is the source of the financing for new capital? Anyone following this blog on a regular basis has the answer to that: expansion of commercial bank credit. As Moulton explained,
Funds with which to finance new capital formation may be procured from the expansion of commercial bank loans and investments. In fact, new flotations of securities are not uncommonly financed — for considerable periods of time, pending their absorption by ultimate investors — by means of an expansion of commercial bank credit. (Ibid., 104.)
To summarize the process very briefly, someone with a productive project — capital — for which he or she has a sound and properly vetted proposal takes the proposal to a commercial bank. The loan officer of the bank looks over the proposal and, if he or she finds that it is sound, agrees to "loan" the money for the project. The "borrower" draws a bill on the present value of the project (creates money), and "discounts" the bill at the commercial bank in exchange for the commercial bank's promissory note.

The bank may use the promissory note to back smaller fungible promissory notes called "banknotes," or a demand deposit created for the borrower, on which the borrower can draw checks, a check being a form of bill of exchange. The borrower finances the new capital with the banknotes or demand deposit, puts the capital into production, markets the good or service, realizes a profit, and repays the loan — more accurately, redeems the original bill of exchange he or she drew on the present value of the new capital. In this way the money supply expands and contracts with the needs of the economy and, assuming most or all the capital projects on which bills are drawn are sound, the currency is both adequate and stable.


Wednesday, January 19, 2011

The "New" Slavery, Part III: The Wage-Welfare System as Slavery

Some years ago we got into a discussion with someone who was convinced that our talk of "wage slavery" was "silly Marxist rhetoric." We will grant the "rhetoric" part, but the "silly" is only applicable if you regard Marxism as such. Now, we may reject Marx's prescriptions for a more just social and economic order. We may believe that, however well-intentioned Marx may have considered himself, he did a great deal of damage. We may disparage his giving in to what seems to be the German national habit of mockery and ridicule in place of actual argument on occasion. We may even believe Marx to be profoundly mistaken on many things.

One thing Marx was not, however, was "silly." Any man whose thought has influenced so many people, caused so much misery, even despair and tragedy, may have been many things — but he was not "silly." To label him as such not only diverts attention away from the real issue, it is just plain wrong. And what is the real issue? Whether the dependency enforced by the wage and welfare system is tantamount to the dependency enforced by the institution of human chattel slavery.

Aristotle certainly thought so. As he commented in The Politics, "for a slave is connected with you for life, but the artificer not so nearly: as near therefore as the artificer approaches to the situation of a slave, just so much ought he to have of the virtues of one; for a mean artificer is to a certain point a slave." (I.xiii.)

Pope Leo XIII evidently agreed. In Rerum Novarum he explained that,

By degrees it has come to pass that working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition. The mischief has been increased by rapacious usury, which, although more than once condemned by the Church, is nevertheless, under a different guise, but with like injustice, still practiced by covetous and grasping men. To this must be added that the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few; so that a small number of very rich men have been able to lay upon the teeming masses of the laboring poor a yoke little better than that of slavery itself. (§ 3.)
But (as some have claimed), doesn't this refer to the refusal of the rich and greedy to pay wages at an adequate level, and the State to make welfare benefits available at a level sufficient to ensure a lifestyle befitting the demands of human dignity?

Well . . . no. Leo XIII went on to explain at some length that it is the dependency enforced by the condition of propertylessness that is the root problem and the cause of the "yoke little better than that of slavery itself," not the low level of wages or lack of social welfare programs. Wage and welfare systems at any level impose a condition of dependency on the recipient. As Pope Pius XII explained in his Christmas Message of 1942 and reiterated in his 1951 encyclical Evangelii Praecones,

To that right [of use] corresponds the fundamental obligation to grant private property, as far as possible, to all. The positive laws regulating private property may change and may grant a more or less restricted use of it; but if such legal provisions are to contribute to the peaceful state of the community, they must save the worker, who is or will be the father of a family, from being condemned to an economic dependence or slavery irreconcilable with his rights as a person. (Evangelii Praecones ("On Promotion of Catholic Missions"), 1951, § 52.)
The critical issue, then, is not the level or amount of income and benefits, but the source thereof . . . and who or what controls that source, that is, who really owns. As Louis Kelso noted, "Property in every day life is the right of control." (Louis O. Kelso, "Karl Marx, the Almost Capitalist," The Journal of the American Bar Association, March, 1957). This is why Pope Pius XI could declare, whether a socialist State permits people to own or control their own lives or anything else, that is not the issue. It is, rather, that the State thereby claims as its own what belongs only to God: the power to create rights and decide whether or not they can be exercised — "there is no place in [socialism] for true social authority, which rests not on temporal and material advantages but descends from God alone, the Creator and last end of all things." (Quadragesimo Anno, § 119)

Pius XI was responding to people who asked, "But what if Socialism has really been so tempered and modified as to the class struggle and private ownership that there is in it no longer anything to be censured on these points? Has it thereby renounced its contradictory nature to the Christian religion?" (Ibid., § 117) No, it has not. Rather, "Whether considered as a doctrine, or an historical fact, or a movement, Socialism, if it remains truly Socialism, even after it has yielded to truth and justice on the points which we have mentioned, cannot be reconciled with the teachings of the Catholic Church because its concept of society itself is utterly foreign to Christian truth." (Ibid.)

That is, by making the State the supreme authority — the "sole intercessor available to the poor," as one enthusiast put it — the Christian (as well as Jewish and Islamic) concept of society as being based on human nature ("Man is by nature a political animal." — Aristotle, The Politics, I.ii) is completely overthrown, and the essence of the natural moral law denied at the most fundamental level. Consequently, "If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist." (Ibid., 120.) The same goes for believers in any faith or philosophy that bases the natural moral law on God's Nature reflected in humanity instead of a private interpretation of God's presumed Will that is actually their own self will projected on to God.

The bottom line? The slavery imposed by dependency on wages and welfare — and thus on the rich and the State — is just as real, and possibly even more debilitating than legal chattel slavery, for the wage and welfare slaves are, in many cases, convinced that they are free.


Tuesday, January 18, 2011

The "New" Slavery, Part II: The Wage System as Slavery

Sometime in the early 1820s, William Cobbett, the "Apostle of Distributism," ran for parliament. Perhaps it would be more accurate to say that he ran from parliament. The account of his campaign (published as a series of pamphlets during the campaign and collected later and republished under the title, The Poor Man's Friend) makes for interesting reading, especially as it has the air of complete accuracy. He names names, specifies times and dates, and— even aside from the picture he paints of voting without the secret ballot — shows how the propertied interests (those later lauded by William Bagehot as the real rulers of the British Empire and then deified by John Maynard Keynes) maintained their positions by threats, intimidation, physical violence, manipulation of the "rotten" or pocket borough system, and so on.

Most commentators stop there, asserting that greater State control and oversight of elections would have corrected the problems, as they allegedly have in our day when government control has managed to insert its way into virtually every part of public, even personal life. Consequently (or so the theory goes) people today are more free, happier, hunger and poverty have been abolished, peace has broken out everywhere, etc., so on, so forth, and all because we have surrendered everything to the State, just as Thomas Hobbes advocated in Leviathan. Private property has been effectively abolished for the great mass of people in socialism, capitalism, and the welfare State, and the wage system with its ever-increasing level of pay and benefits has established universal prosperity, just as Keynes predicted. Economic ills, outbreaks of fighting, unemployment, etc.,— all of these are just temporary glitches on the Road to Utopia until the government can take total control of everyone's lives.

Fortunately for us, Cobbett thought differently. He observed that, the more private property disappeared as an institution in which most people could participate, the more the State took over and intruded into people's lives. As the State was increasingly controlled by those with property, this meant that ordinary people, ostensibly dependents (slaves) of the State were, in reality, the slaves of the rich.

Ironically, the socialists— understanding that the proletariat (the word is Latin for "propertyless worker")— is effectively enslaved to those who own or control the means of production (that which Pope Pius XI called a "despotic economic dictatorship") tried to make the State the protector of the poor. One modern enthusiast has gone so far as to claim (evidently with perfect sincerity) that, "the State is the sole intercessor available to the poor." The fact that when most people own little or nothing in the way of capital and are forced to subsist on wages alone for their incomes puts power over the State directly in the hands of those who own or control the means of production seems to have escaped their notice. By demanding increasing levels of State control over every aspect of life, so-called reformers merely pour gasoline on the fire.

We see this today in the demands for increased regulation of the financial services industry and control by the State. Rather than install obvious "internal controls" in the form of separation of function, prohibiting horizontal and vertical integration (monopolization), ensuring that no institution becomes "too big to fail," and (most effectively) opening up democratic access to the means of acquiring and possessing private property in the means of production, there is an increasing reliance on ineffectual and pointless regulations that only burden honest people, and are easily circumvented by dishonest people.

It escapes those calling for more State control that the very interest groups, industries, and individuals being "regulated" by the State control the State. Essentially, as in subjective tests in which students are asked to give themselves a grade, people are being asked to pass judgment on their own actions— and yet many people seem baffled as to why the current "recovery" is benefiting only the rich and the gamblers on Wall Street!

This irony did not escape William Cobbett's notice. He was fully aware that when you depend on someone else for your income you effectively belong to that someone, that is, you are a slave. As he pointed out in The Poor Man's Friend and reiterated in A History of the Protestant Reformation in England and Ireland,

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.)

As Evelyn Waugh's characters in Love Among the Ruins had the habit of exclaiming, "State save us!"


Monday, January 17, 2011

The "New" Slavery, Part I: Slavery and Its Diagnosis

Depending on who you ask, "slavery" can be construed anything from the normal condition that "they" impose on "us" until such time as "we" can turn the tables and impose it on "them," to a ridiculous (or, depending on your point of view, insulting) dredging up of a discredited institution in a never-ending search for victimhood in an effort to control others through guilt.

The reality of slavery is probably properly located outside the parameters established by such creative victimology and its rejection by thoughtful people. The essence of slavery is not the control imposed on some by others (although that is slavery's most obvious characteristic), but the "condition of dependency" and the consequent deprivation of rights, whether tacit or explicit — a condition of being "wholly subject to the will of another; one who has no freedom of action, but whose person and services are wholly under the control of another." ("Slavery," Black's Law Dictionary.)

This is not to say that all conditions of dependency constitute slavery, or that all slavery is illegitimate. Children are "wholly subject" to the will of their parents until emancipation — although a wise or practical parent will allow greater freedom of action as a child matures as part of the training to become a functioning member of society. (The analogy between slaves and children in this context is so close that the Law of the Twelve Tables considered slaves and children legally equivalent, virtually the only difference being that children could expect emancipation on reaching majority, while slaves might be manumitted as a gift or as the result of self-purchase — but, fortunately, we don't need to get into that discussion, other than to note that, despite the "legal equivalence," even the Romans considered slaves and children as distinct.)

The case of "legitimate slavery" is even more controversial than the analogy between children and slaves. Nevertheless, legitimate slavery exists in the United States, as clearly stated in the Constitution. The Thirteenth Amendment abolished chattel slavery, that is, the power to own human beings as private property. It did not take away the right or responsibility of the State to control absolutely the actions of convicted criminals: "Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction." [Emphasis added.]

Under Roman law — which was the basis for the institution of chattel slavery as it existed in the United States and the justification for depriving convicted criminals of the exercise of their rights — the slave was considered as fully human as the free man. (Note that this discussion is within a legal context. It does not necessarily reflect individual or even group attitudes towards or beliefs about slavery, slaves, former slaves, or the descendents of slaves.) The only legal difference between a slave and a free man under Roman law was the fact of slavery that (again, under the theory in Roman law, not necessarily people's beliefs or actions) was imposed as punishment for a crime — not by nature, as Aristotle and the Greeks believed.

We see this in the different terminology used in Roman law. Today, "emancipation" and "manumission" have the same legal definition: "The act by which one who was unfree, or under the power and control of another, is rendered free, or set at liberty and made his own master" (or words to that effect). In Roman law, however, a child was emancipated, while a slave was manumitted. The sense in the former was that someone has a right to be free, and emancipation recognizes this right, while in the latter someone who does not have the right to be free receives it as a gift, and is recognized as free by manumission. This may be why Abraham Lincoln called his document the "Emancipation Proclamation" instead of the "Manumission Proclamation." The latter term would tacitly have acknowledged that the people being freed had been legitimately held as slaves. On the contrary — they had been enslaved illegitimately, and the language in the Emancipation Proclamation and the Thirteenth Amendment was phrased to reflect that fact.

Do the Emancipation Proclamation and the Thirteenth Amendment, however, mean that — except for convicted criminals — slavery no longer legally exists in the United States or anywhere else in the world?

By no means. Setting aside instances of chattel slavery being tolerated even though technically outlawed (vide Dr. Kevin Bales, Disposable People: New Slavery in the Global Economy. Berkeley, California: University of California Press, 2004), slavery in other forms is pervasive throughout the world, even among people who are convinced that they are free ("Slavery holds many men fast, but many more hold fast to slavery" — Seneca). There is, of course, slavery to sin and to unrestrained human urges, such as for food, drugs, and alcohol, but we're not concerned with that, either (at least, not in this discussion).

No, that with which we are concerned is economic slavery. This is a much more insidious, "hidden" slavery than the forms chronicled so well by Dr. Bales, although he covers even that in great depth when it takes the form of debt slavery or people being sold into prostitution.

In today's global economy, the most widespread form of slavery is the condition of utter dependency imposed on people by their reliance on the wage and welfare system as their sole or primary source of income.


Friday, January 14, 2011

News from the Network, Vol. 4, No. 2

Heavy sigh. A few days ago, in response to the grim news about the economy, all the politicians and policymakers hastened to assure us that All Is Well, The Recession [sic] Is Over, Jobs Are On The Rise, etc., etc., etc. Keynesian print, borrow, and spend has again Saved The Economy. We have Nothing To Worry About.

Uh, huh. That's why this morning, in the wake of "weak jobs data" the powers-that-be are (again) hedging their bets. The "Eurozone," for example, is talking about increasing the bailout fund for countries that get (too far) into debt. China is raising interest rates to "curb inflation" (i.e., rising the price of the most critical input to production in order to forestall a price rise). And so on.

On the "good" side, consumer prices are up as jobs are down, the financial services industry is making mega profits, and the people responsible for shoveling money into companies "too big to fail" are congratulating themselves on how well they saved the economy.

Oh, yes, and did we mention that the experts are already predicting the "next recession" [sic] before we're out of the current one . . . to be caused by the massive debt incurred to bring us out of the current "recession." [sic] Not enough? In response to a "tepid" inflation report, stocks are moving up . . . in other words, inflation.

Is this making sense to anyone?

If it does . . . you're lying. If not, start working to get Capital Homesteading enacted by 2012. Consider penciling in the annual Fed Rally into your busy social schedule. Take a look at the Harris Neck project, and send a message of support (and we may have some more proactive suggestions later). Go to the "Just Third Way Bookstore" and buy a bunch of books. (Okay, that last doesn't really do anything to get Capital Homesteading enacted. It just generates a little money for CESJ through the fees that Amazon Affiliates pays for purchases made through the blog. Every little bit helps. And you might want to send the "Bookstore" link around to your network, or ask us for a copy of the press release you can send around. We'll be working one up for The Formation of Capital soon — i.e., as soon as we make $1 million on the other publications . . . )

In the meantime,

  • We had a meeting on Wednesday with Mr. John Dondanville of Detroit and Mr. Robert Colangelo, executive director of the National Brownfield Association. The main topic was explaining how pure credit could be used to finance new capital formation for the rebuilding and right sizing of cities, but (more importantly) the critical need to get behind the Harris Neck initiative as a "fast track" to develop a pure credit/citizen ownership "proof of concept."

  • Mr. Pollant "PJ" Mpofu of London has been making great strides in connecting with key figures in Éire and the UK. We understand that he has been invited to a meeting with the Hon. Grant Shapps, UK Minister of State for Housing and Community Planning, and recently received a telephone call from the Office of the Taoiseach (the Irish Prime Minister), asking if we have any dietary restrictions or have any difficulty going upstairs. Naturally, we informed them that we are on a strict caviar and tenderloin diet, along with whatever vegetables are expensive and out of season, and that we require sedan chairs carried by dozens of beautiful women to get up any staircase for fear we might slip on the perfumed rose petals strewn in our path.

  • After many trials, traumas, and tribulations, we think we have straightened out the broken links and other minor problems connected with our temporary "Just Third Way Bookstore." You should now be able to order CESJ's publications in relative peace and security. If you are a CESJ member and want the member discount, however, you must order directly from CESJ; Amazon simply isn't set up to accommodate selective discounts of that nature. Also, please note that the books published by Universal Values Media, Inc., while occupying most of the "shelf space" in the "bookstore," do not qualify for the CESJ member discount. The wholesale/bulk discount, applicable to quantities of 10 or more of the same title, applies to both CESJ and UVM . . . but not to the books of other publishers. (If this is getting too complicated, send an e-mail to publications [at] cesj [dot] org, and we'll try to answer your question.)

  •The bottom line to the above item is that you should immediately (if not sooner) go to the "bookstore" and purchase a copy of The Formation of Capital. We've been getting increasing questions that are clearly based on the past savings assumptions, and you probably won't understand our answer if you remain wedded to past saving as the only source of financing for new capital formation.

  • As of this morning, we have had visitors from 46 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, Brazil, and India. People in Croatia, Poland, South Africa, Venezuela and Canada spent the most average time on the blog. Yet again, and still possibly due to the growing perception that something is wrong with the basic assumptions of Keynesian economics (as well as other schools of economics based on the Currency School of finance), the most popular posting by far is one from a while back, "Thomas Hobbes on Private Property," that briefly explains the similarities in the way Keynes and Hobbes abolish private property. This is followed by a new entry, our "Just Third Way Bookstore" (which we probably shouldn't count, as it's not really a blog, but a way of having a storefront without having a storefront . . . ) We then have "Games People Play," "The Problem With Distributism," "Why Government Debt is Really Bad," and the discussion on "Pure Credit for Student Loans."

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.


Thursday, January 13, 2011

Some Capital Homesteading Questions, Part IV: Back to the Land

A number of social and economic movements today advocate a return to a simpler, more human lifestyle. Usually this takes the form of promoting a return to small, family owned farms and artisan-type workshops using technology that a single individual can build, own, and operate. In this way, life can come down to human scale and the world will not only be more livable, but be more friendly and agreeable, there will be less war and conflict, and so on, so forth.

Consistent with that, our correspondent's final question was, "Were you aware there's an actual present-day movement to have a real-estate Homestead Act (I believe involving government held land for self-sustainable agriculture)?"

Yes. The effort is based on a limited asset, land, and thus embodies all the weaknesses of the original Homestead Act. It relies on existing accumulations of savings to finance development of the land. The proposal could be fitted into Capital Homesteading, but it could never be a permanent solution in and of itself, or anything more than a bandage unless part of a larger Capital Homesteading program.

The fact is, if we get rid of modern technology and force people to return to subsistence agriculture, most of the people on earth will starve to death in a matter of weeks. There is simply not enough arable land available on earth — including all forests and grasslands — to keep 98% of the people fed when farmed using subsistence methods. (This of course begs the question as to how many people would have to be killed to force the survivors into subsistence agriculture.)

Thus, we again hit the brick wall of past savings. The whole "small is beautiful" approach assumes without question that new capital can only be financed out of existing accumulations of savings — by definition a monopoly of the rich.

Given the past savings assumption, the rich will own all new capital, "ownership" will have to be redefined in order to permit "everyone" to "own" in some fashion, or there will be some mixture of the two in an effort to keep things going.

Unfortunately, as the past savings assumption is contrary to reality, it doesn't matter which arrangement of society you make to try and accommodate to it. If the rich own all new capital (capitalism), the poor will become increasingly worse off as the rich keep the fruits of ownership to themselves and advancing technology replaces human labor as the predominant factor of production. If you redefine ownership — private property — in such a way as to change the character (essence/substantial nature) of ownership to include everybody in the benefits of ownership regardless who holds actual title (socialism), you effectively abolish private property, as Dr. Heinrich Rommen (a student of the great Father Heinrich Pesch, S.J., the founder of solidarism) explained:

Property is an original right of the individual but burdened with a changing social mortgage, depending upon the intensity of social symbiosis and the rules of social justice. In its definition, property is exclusive, supreme, and full ownership of a thing, although not all things can become property: not men, not spiritual things. But property and its use are always under the law restricting its use, and the owner himself may invest rights of others in his property, though he himself retains the property and remains the owner. Yet, though property and its use may thus be restricted, even very much restricted, it still continues to exist. If it should cease to exist as an institution, the natural right to property would be abolished. (Heinrich Rommen, The State in Catholic Thought. St. Louis, Missouri: B. Herder Book Company, 1947, 401.)
(This agrees with the analysis of Pope Pius XII in his 1942 "Christmas Message," quoted in § 52 of his encyclical Evangelii Praecones ("On Promotion of Catholic Missions"), 1951: "The dignity of the human person then, speaking generally, requires as a natural foundation of life the right to the use of the goods of the earth. To this right corresponds the fundamental obligation to grant private ownership of property, if possible, to all. Positive legislation, regulating private ownership may change and more or less restrict its use. But if legislation is to play its part in the pacification of the community, it must see to it that the worker, who is or will be the father of a family, is not condemned to an economic dependence and servitude which is irreconcilable with his rights as a person.")

Finally, if you attempt to combine private accumulations of savings with State control, especially State control of money and credit, you end up with socialism under a different name: the "Welfare State." Ultimately, with humanity enslaved to past savings as the only recognized source of financing for new capital formation, there is no way to avoid disaster, as current global leaders and policymakers are starting to discover.

The "small is beautiful" movement, along with distributism, social credit, georgism, as well as the three mainstream schools of economics (Keynesian, Monetarist/Chicago, and Austrian) are all trapped by the slavery of past savings. They are forced by their assumption about how capital formation is financed to turn into heartless capitalists, brainless socialists, or social-capitalists/market-socialists in order to try and make an unworkable system work.

Whichever way it goes, either people or human rights suffer. Under socialism, individual human rights of the few are sacrificed in the ephemeral hope that by this means most people will satisfy their material wants and needs. Under capitalism, the legitimate wants and needs of most people are sacrificed to maintain the individual rights of a few. Under the Welfare State, the effort to protect individual rights — up to a point — at the same time that the wants and needs of the great mass of people are satisfied — up to a point — ensures that neither individual rights will be respected, nor the wants and needs of the great mass of people satisfied.

Thus, regardless in what direction we go within the area circumscribed by the slavery of past savings, we end up at the same place: misery, want, and despair on the part of most people within a system seemingly custom-made to fail.

The flaws of capitalism are obvious to most people, so we should look at socialism and the small is beautiful movement to demonstrate the problems inherent in the approach. These can be summarized as the redefinition of the natural right of private property, the reliance on existing accumulations of savings to finance growth, and an understanding of money and credit that obviates the legal and accounting definitions of those uniquely social goods.

The most obvious problem with the "small is beautiful" approach, however, is that it assumes as a given that small scale enterprises are automatically the optimal size, both socially and economically — which even G. K. Chesterton stated was not the case. By denying people the power to choose to own advanced technology as part owners — thereby bringing even the largest enterprises down to human scale through vesting owners with the full rights of private property — the small is beautiful movement unconsciously relies on increasingly intrusive State control of the economy by mandating what, how, and, especially, if people can own. This is a fundamental redefinition of the natural right of private property. Many supporters of the small is beautiful approach claim to want less State involvement, but, by insisting on mandates, necessarily use the coercive power of the State or something that is the State in all but name to impose desired results. Imposition of results is one of the hallmarks of socialism, as well as assigning a type of power to the State that both Mortimer Adler and Heinrich Rommen had no qualms identifying as totalitarian.

Even the idea of "human scale" is distorted in the small is beautiful movement. Kirkpatrick Sale, for example, rants about human scale continually, yet at the same time rejects the idea of humanity as a standard: "Anthropocentrism, and its expression in both humanism and monotheism, is the ruling principle of that civilization, to which must be opposed the principle of biocentrism and the spiritual identification of the human with all living species and systems." (Kirkpatrick Sale, "Lessons from the Luddites" The Nation, June 5, 1995.)

We are also afflicted with "distributists" — keeping in mind that "distributism" is a system based on widespread ownership of ("private property in") the means of production, with a preference for small, family-owned farms and artisan workshops — who appear to have no idea of what private property consists! We once attended a lecture by a Leading Figure in the Distributist Movement in which the "LFDM" stated that Chesterton's thesis was that "man is building machines he cannot control."

This was an astounding claim for a distributist to make. "Ownership" and "control" are (as Louis Kelso pointed out and as every lawyer should be able to tell you) the same in all codes of law: "Property in every day life is the right of control." (Louis O. Kelso, "Karl Marx, the Almost Capitalist," The Journal of the American Bar Association, March, 1957.) The reasonable interpretation of the claim that man is building machines he cannot control, is that man is building machines he cannot own — a claim directly contrary to the stated principles of distributism.

The bottom line? Before any progress can be made toward a better world, we are going to have to understand the problem — and the problem is not "them." No, it's not the capitalists, the socialists, the Jooz, the neo-cons, the Republicans, the Democrats, the Pro-Lifers, the Pro-Choicers, or even Obama. It's the unquestioned assumption that we are all slaves of past savings.

People of the World Unite!
You Have Nothing to Use But Your Brains!