Wednesday, August 31, 2011

How Steve Jobs Could Boot the Working Class

It seems the media are getting geared up for Labor Day next week. This is not easy to do, given the official v. unofficial unemployment rate, inflation, stock market gyrations, the Great Hotdog Hoodwink, and (with apologies to Grantland Rice and Miller, Layden, Crowley and Stuhldreher) the Four Horsemen of the Apocalypse.

Nevertheless, they're doing it. The plaints seem to be focusing on the failure of "the government" to "do something" and create jobs. A growing chorus, however, is highlighting the presumed greed of American corporations as evidenced by their hanging on to the $2 trillion or so in cash when they could be paying it out to workers in the form of higher wages and benefits.

Yesterday's posting explained why corporations might be hanging on to this money, but there is a better reason why the companies shouldn't be using it to create jobs or pay higher wages. For one thing, the money doesn't really belong to the companies. It belongs to the shareholders who, by natural right of private property should be able to receive that stored up cash in the form of dividends. They could then use the cash to satisfy their own consumption wants and needs, thereby stimulating the economy naturally without government intervention.

For another, raise wages and benefits without corresponding increases in real productivity, and a lot of workers are going to lose their jobs. All of a sudden, companies won't be able to afford to keep them on, not being able to make enough profits to cover the added costs. And this applies across the board to all companies. You can't raise costs to one company without doing it for all of them, and despite the fact that some companies are loaded, a lot aren't, and are operating on the edge.

What about the workers? Shouldn't they get some of the loot?

Well . . . yes. We've been saying that for years, if you've been paying attention. The problem is that you really can't justify taking away the rights of shareholders just because you think workers should get more money. What's the solution?

It's rather simple, really. It's so simple, they've thought of it before: make workers into shareholders so that they can get income increases from the bottom line as profit sharing, rather than increasing costs by raising wage and benefits. Charles Morrison recommended this in his 1854 Essay on the Relations Between Labour and Capital. William Cobbett also made noises along this line, as did William Thornton and Henry Fawcett — you know, all the guys. Louis Kelso and Mortimer Adler came along and showed how it could be done without redistribution or inflationary government spending.

That's why, in a way, it was so discouraging to read in today's Washington Post (Harold Meyerson, "How Steve Jobs Could Reboot the Working Class," The Washington Post, 08/31/11, A17) that Henry Ford is being held up as a model on what corporations should do with All That Cash. The story in brief: in 1914 Ford more than doubled the basic rate of pay at his factory, from $2.34 per day to $5.00 per day. At first this was intended to apply only to men with families, highly skilled mechanics, and widows with children. When everybody else threatened to go on strike unless they, too, were cut in on the plunder, Ford had to increase wages across the board. Riots broke out anyway among workers unable to convince Ford to hire them, and other automobile manufacturers took a serious financial hit.

This reminded us of something we'd read in Boswell's Life of Johnson some years ago. As Boswell related,

"Though by no means niggardly, his [Samuel Johnson's] attention to what was generally right was so minute, that having observed at one of the stages that I ostentatiously gave a shilling [twelve pence-about twenty cents] to the coachman, when the custom was for each passenger to give only sixpence, he took me aside and scolded me, saying that what I had done would make the coachman dissatisfied with all the rest of the passengers, who gave him no more than his due. This was a just reprimand; for in whatever way a man may indulge his generosity or his vanity in spending his money, for the sake of others he ought not to raise the price of any article for which there is a constant demand."

So, what should Ford have done rather than lock America into a permanent inflationary wage-price spiral? We'll let the late Walter Reuther of the U.A.W. field that question for us. As he said in testimony before the Joint Economic Committee of Congress on the President's Economic Report, February 20, 1967,

"Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America's vast corporate wealth which is today appallingly undemocratic and unhealthy.

"The Federal Reserve Board recently published data from which it is possible to estimate the degree of concentration in the ownership of publicly traded stock held by individuals and families as of December 1962. Preliminary analysis of these data indicates that, despite all the talk of a "people's capitalism" in the United States, little more than one percent of all consumer units owned approximately 70 percent of all such stock.

"Fewer than 8 percent of all consumer units owned approximately 97 percent — which means, conversely, that the total direct ownership interest of more than 92 percent of America's consumer units in the corporation-operated productive wealth of this country was approximately 3 percent. Profit sharing in a form that would help to correct this shocking maldistribution would be highly desirable for that reason alone. . . .

"If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm's products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices."

Maybe Reuther had something there.


Tuesday, August 30, 2011

Mythbusters II: The Great Hotdog Hoodwink

"They" keep telling us that Americans are deficient in math skills. That's when "they" are not telling us that we're deficient in the other two Rs, our knowledge of science, our rate of savings, our sensitivity, our coffee drinking, or whatever the cause du jour happens to be on a slow news day. One would think that the media are in the business of making us feel bad about ourselves instead of filling their proper position as peddlers of prurient pabulum to pacify the purposeless populace (you didn't think I could do it, did you).

You know something? "They" may be right. This morning's Wall Street Journal tootled that consumer spending is up. Since (as every semi-educated non-economist knows) consumer demand drives the demand for new capital, and thus new, sustainable job creation, that's a good thing.

No, really. As Dr. Harold Moulton analyzed the situation in The Formation of Capital (1935), consumer demand leads and provides the justification for investment in new capital. As he explained,

"The general conclusion reached in this and the preceding chapter, that a growth of capital does not take place unless expansion of consumption is also occurring, does not appear upon close analysis to be surprising. The motivating force in all economic activity, under a system of private initiative, is the wants and demands of people. The base of the economic pyramid is the production of consumption goods — first, primary necessities, and then comforts and luxuries. In the ascending scale of goods that are relatively indispensable we find new plant and equipment at the top. This is simply because the demand for plant and equipment is derived from the demand for the consumption goods which such plant and equipment can produce." (Harold G. Moulton, The Formation of Capital. Washington, DC: The Brookings Institution, 1935, 71-72.)

Okay, it's clearly evident that we have to increase consumption if we want to have a sustainable economic recovery. That should be easy, for there are all kinds of people in the United States alone who are currently not able to satisfy ordinary wants and needs. Plus, if we manage to provide sufficient marketable goods and services to the people in the U.S., there's millions, maybe billions of people in the world whose needs are not being adequately met, much less their wants.

Here's the problem. The Keynesian solution to kick-starting economic recovery — "priming the pump" — is to inflate the currency by increasing government spending, permitting the government to emit bills of credit backed by the present value of future tax collections, thereby spreading effective demand out through the economy. This will stimulate consumption, and thus provide an incentive for producers to form new capital and create jobs.

So far, so good, right? Wrong. Printing money does increase effective demand. That is correct as far as it goes. More money in circulation allows more people to buy more products. Again, that's fine, as far as it goes.

Unfortunately, it goes a little further. Just printing money that is backed by the present value of future taxes that the State might collect (emitting bills of credit), instead of the present value of future marketable goods and services that a private sector business is reasonably certain to produce (bills of exchange) is an iffy proposition . . . to put it mildly.

For one thing, the citizens might get fed up with the rate of taxation and refuse to give their consent to the present rate of taxation, much less any additional taxes in the future needed to pay off the increased debt. This could result in a stalemate in Congress, as legislators try to balance the demand for increased spending against the desire to make somebody else pay for it.

Could? It did. Remember the Tea Party and the debt ceiling crisis?

For another, creating money by emitting bills of credit doesn't really create effective demand. It redistributes existing demand, taking from some for the benefit of others through the "hidden tax" of inflation. Because there is no real increase in consumption, there is no true incentive for producers to finance new capital formation. Increased government spending is an artificial stimulus. As was shown by the "Depression within the Depression" in the mid-1930s, past a certain point the stimulant ceases to have the desired effect, and simply causes inflation without new capital investment or job creation until it caves in itself.

Artificially induced inflation causes what we have decided (at least for this posting) to call "The Hotdog Effect." If you've been in the grocery store lately, you might have noticed that prices seem to be increasing. You don't see this too much in the newspapers or on television, because food and fuel are not factored in to the official statistics.

Thus, while no one seems to be taking official notice, food is costing you more. We'll take hotdogs for an example, simply because we noticed it there first. In the store we frequent, hotdogs and that sort of thing are right after fruits and vegetables and fresh meats, both of which are more subject to price changes and sales than non-seasonable items like processed meats and cheeses.

A year or so ago we noticed that the 50¢ pound packages of hotdogs that we'd been buying for 79¢ seemed to level out at 99¢. We also noticed that the $2.99 three-pound packages of kielbasa we'd been getting had plateaued at $4.99. Then, some months back, the hotdog section was festooned with signs declaring that a number of products had been discontinued.

Discontinued? That seemed odd. Our increasing demand for the raw materials for hotdogs and rice, or sausage in paprika gravy alone should have been sufficient to keep the products in stock. Why would they be discontinued?

A few weeks later, it appeared that maybe some (other) customers had complained, for the products were all back in stock, although at pretty hefty price increases. The polish sausage was now $5.99 a package (20% increase), while the hotdogs were $1.25 (25%). Something of an ouch, but we supposed it was bearable. Barely.

We picked up a package of the kielbasa to put it in the cart, and noticed that it felt "funny." Looking closer, we discovered that the formerly 3 pound package for $4.99 was now a 2-1/2 pound package for $5.99. We decided to look at the hotdogs. The 99¢ pound package was now a $1.25 12-ounce package.

You can do the kielbasa kalculation yourself, but we did the wiener workout in our head. It was a nearly 70% increase in price — 66.67%, meaning the price was two-thirds more than the old price. That's a bit more than 25% (one-fourth), and was enough to cause us to return both the polish sausage and the hotdogs to the case. A 66.67% increase is almost double the price.

Going through the store, we noticed other, similar changes. Different brands of the same product in different sized packages were "unit priced" differently as if the object were to make comparison-shopping on the basis of price more difficult. A 9.5-ounce package of something might be unit priced in ounces, while the 12-ounce package right beside it unit priced in pounds, and the 16-ounce package unit priced in . . . units, or the number of items in the package!

And (in case you were wondering) the eight-count package of hotdog buns that cost 50¢ two years ago is now $1.25.

The point to this is that it illustrates the fundamental problem with the Keynesian "solution." The Wall Street Journal might trumpet that consumer spending is up by a tiny fraction, but the sort of hoodwinking we've seen in hotdogs hides what's happening. (Sorry, that alliteration just slipped out.) Yes, people are spending more, but they're getting less. Consumption spending is up, but consumption is down.

Do you see the problem yet?

Okay, here's the giant swindle of Keynesian "pump priming": the demand for new capital is derived from increases in consumption, not consumption spending.

The problem?

The Keynesian idea is that inflationary price increases force people to reduce consumption, and thereby meet the presumed necessity to reduce consumption so that producers have the wherewithal — "savings," always defined as "reductions in consumption" — for them to be able to finance new capital. Government spending redistributes existing demand so that people who couldn't consume before are now able to consume. Consumption in aggregate goes down, but because consumer demand is less elastic than the money supply, prices go up faster than consumption decreases. This provides a safety margin that buys time for the new capital formation to create jobs and generate new effective demand without the government having to keep pumping money into the economy to redistribute existing effective demand.

What we've seen is that, yes, producers are accumulating vast amounts of cash — savings — possibly in excess of $2 trillion in the U.S. at this point. What is baffling to the Powers-that-Be, however, is that producers are not using this cash to finance new capital and create jobs. The government has pumped trillions of dollars into the economy, prices are up, consumer spending is up, and yet producers stubbornly resist carrying out their part of the bargain: they aren't financing new capital and creating jobs.

Why? It should be obvious. No sane producer is going to finance new capital formation until and unless there is a solid and sustainable increase in consumption to make the new capital financially viable.

"But," the Keynesians wail, "there IS an increase in consumption! The statistics say so!"

Alas, no. Keynesian economics is built on the assumption that you can have your cake, and eat it, too, that is, you can contradict yourself. By manipulating the currency, you apparently increase effective demand at the same time that you decrease consumption.

The Keynesian sleight-of-hand is insidious. You apparently avoid what Moulton called "the economic dilemma" — you can't finance capital except by cutting consumption, but if you cut consumption you won't finance capital — by playing word games.

Redistribution through inflation seems to increase demand at the same time that it decreases consumption — but that is only because you have, at one and the same time, defined increases in "effective demand" as both inflationary increases in the money supply that cut consumption, and increases in real income that increase consumption.

Yes, it's complicated, a lot more so than this attempted simplified explanation. The bottom line is that, while consumer spending is up, consumption is down. Nevertheless, the demand for new capital (and thus new jobs) does not depend on increased consumer spending, but on increased consumption.

Consequently, producers have no real incentive to finance new capital. They're making more money at present levels of production, getting more for less as inflation accelerates, and real consumer demand is falling.

A better solution, as Moulton pointed out in Income and Economic Progress (1935), would be to let prices fall, rather than raise them. Consistent with the laws of supply and demand, this would increase demand as consumers could get more for less instead of the Keynesian less for more. Consumption would go up, and producers, seeing a chance to make a profit by increasing production, would finance new capital and create jobs. Instead of Keynesian "forced savings" that shifts value from consumers to producers through inflation so that producers can accumulate cash, financing for new capital should come from the expansion of commercial bank credit.

The best solution? As Kelso and Adler pointed out in The Capitalist Manifesto (1958) and The New Capitalists (1961), make certain that all new capital financed through the use of "pure credit" (that is, without relying on past savings), is broadly owned so that sustainable consumption demand from production instead of taxation or inflationary redistribution is spread throughout the economy.

Then maybe we could afford to buy a hotdog every once in a while.


Monday, August 29, 2011

One Take on Debt and Money

Over the weekend a CESJ member sent us a link to an interesting interview on the origins of money on "Naked Capitalism." The interviewee was economic anthropologist David Graeber, who holds the position of "Reader" in Social Anthropology at Goldsmiths University in London, and was formerly an associate professor of anthropology at Yale. Philip Pilkington, a writer in Dublin, Éire, interviewed Dr. Graeber. The interview is titled, "What Is Debt? An Interview With Economic Anthropologist David Graeber."

Before we get into the meat, we have to settle two things. One, citing a blog titled "Naked Capitalism" in no way alters our commitment to the Just Third Way or our aversion to public nudity. In any event, a quick review of the blog suggests that none of the contributors is addressing what we define as the chief characteristic of capitalism: concentration of ownership/control of capital in private hands. (Which dovetails nicely into our definition of socialism: the abolition of private property in capital and concentration of ownership/control in the hands of the State.) Instead, the contributors seem to be defining capitalism as "that which is not socialism," just as socialists of all schools tend to define their position as "that which is not capitalism." The bottom line here is that, due to the "negative" nature of such definitions, it's probably better to jettison the labels and get to work on the definitions, as we've tried to do with the CESJ glossary.

Two, okay, we admit it. We had to look up what the heck a "Reader" is at a British university. It's "A university teacher, especially one ranking next below a professor. (Chiefly British.)" (The Farlex Free Dictionary.) Who knew? Well, evidently the British . . . .

Now down to brass tacks . . . which is probably not what you want to find in your meat, but it's better than lead buckshot, and, anyway, let's not worry too much about mixed metaphors at this point. The confusion over debt and money and mixing up the two is much more serious. We understand "debt" and "credit" as simply two names for the same thing. We also take "credit" and "money" as two forms of the same thing, basing this on the work of Henry Dunning Macleod. These mix-ups and confusion have hampered discussion in this area for far too long. This has, in our opinion, seriously crippled the ability of the Powers-that-Be to recognize the potential inherent in the Just Third Way, especially as applied in Capital Homesteading, to solve today's economic (and thus political) problems.

Dr. Graeber is the author of Debt: The First 5,000 Years, which just came out in July, and is rated high on Amazon's sales list — less than 700 as of this morning. This is not a review of Dr. Graeber's book. We haven't read it, although we intend to . . . as soon as we get that crate of Round Tuits we ordered a decade ago.

No, all we want to do in this posting is make a few observations, and direct you to the interview and, possibly, the book. After reading them, you can form your own opinion — and maybe do a 500-word review of the book from a binary economics perspective that we can post on this blog (thereby doing my day's work for me).  Yes, Dr. Graeber describes himself as an anarchist, and a member of the IWW, but that doesn't mean he can't have some good ideas.

Oh, yes. One more thing we should mention before we start. Dr. Graeber appears to be "Currency School," and binary economics is "Banking School." All that means is that on occasion we'll be using the same terms for different things, and different terms for the same things. We'll try to explain any differences as we go along — they appear to be semantic, which accounts for the verbosity of this introduction, which is almost as long as our observations.

The usual story (which Dr. Graeber traces to Adam Smith's The Wealth of Nations, 1776), is that money arose out of barter. Ookamagook had a surplus of something that he traded to Ugh, both going away satisfied. Thus was barter and The Spirit of Capitalism born, out of which money developed.

Dr. Graeber contends that, no, what happened in One Million Years B.C. (B.C.E. for the P.C.) was that Raquel Welch saw a fur bra that she wanted and went into debt to get it, promising Ghu-Knows-What in exchange at some future date (maybe a peek under the bra). As the system of exchange became regularized, money came into being. Not necessarily coined money, of course. That didn't come on the scene until around 750 B.C., depending on your source. The money was in the form of bills of exchange, maybe clay tablets, sometimes papyrus sheets, maybe even just a handshake, that promised delivery of something of value at some future date in exchange for something of value received at the present time.

Here's our first semantic speedbump. If you define money (as we do) as "anything that can be used to settle a debt," then the invention of debt and money — two sides of the same coin Cumal — were concurrent events. Money doesn't necessarily mean currency, although currency (assuming it's not counterfeit or something) necessarily means money.

This, however, is semantic quibbling in The Greater Scheme of Things, just as discussion whether Smith came up with the original theories as to the origin of money, or whether Sir William Petty or John Locke, or Ivan Ivanovitch did isn't germane to the issue. Yes, it's probably important, but we're discussing the theory, not who developed it.

What caught our attention here is that, contrary to most thought, Dr. Graeber's contention appears to put credit where it belongs: first in line. Thus, to be absolutely correct, you'd have to say that money is a form of credit, not that credit is a form of money.

Of course, this is something of a chicken-or-the-egg type statement. If money is anything that can be used to settle a debt, then credit and money appeared simultaneously — you can, after all, settle a debt by giving back the item for which you traded a promise to pay.

Does this make any difference, then? Well, yes. Conceptually it's a big help in understanding money (and credit), or credit (and money). If we understand that money, as "anything that can be used to settle a debt," is the flip side of debt itself, then all money is a debt, a promise that must be redeemed.

Which, of course, leads directly into, "redeemed with what?"

With production of marketable goods and services.

It's a basic principle of binary economics (and one branch of classical economics, i.e., that of Smith, Thornton, Say, Fullarton, Moulton, et al.), as well as plain common sense, that you have to produce something before you consume it. The purpose of production, as Adam Smith pointed out, is consumption . . . not reinvestment. We don't produce in order to produce more. Rather, we produce in order to have lunch.

Thus, it makes sense that matters might have proceeded along the lines suggested by Dr. Graeber. Ugh the caveman sees that Ookamagook has two spears when Ookamagook only needs one. Ugh gets the bright idea that if he had a spear he could get a little hunting in, have a nice dinner with the missus, maybe take the little woman to a fertility dance or two, and so on.

The problem is that Ugh flunked spear-making 101 at good old Mammoth U, and has been subsisting on roots and berries, which is not what Mrs. Ugh was led to expect when Ugh gave her father that basket of acorns as the bride price. Mrs. Oop gets real meat twice a week and has a bear-claw necklace. And furthermore, if I'd known what a lazy, shiftless, good-for-nothing you really were, I'd never . . . where are you going? I'm not finished talking to you!

Where's he going? Over to Ookamagook's cave to see if he can come to a deal about that extra spear, say, his next two kills in exchange for the capital tool necessary to produce future meals, and possibly a warranty should the spear not prove suitable even if used as directed. Of course, the deal depends on whether Ookamagook accepts Ugh's bills of exchange, that is, Ugh's creditworthiness, and believes that Ugh will deliver the goods as promised. Once Ugh's creditworthiness has been established, of course, then the deal can go through, and both parties are better off: Ugh gets the means of hunting effectively and obtaining some protein and a quieter spouse, and Ookamagook gets a quantity of meat for which he didn't have to slog through the bog and fight the heelflies and sabertoothed tigers.

Once this sort of thing becomes well-established, specialization can step in and people get the bright idea of producing for market instead of just for themselves. Jane Jacobs, in fact, in The Economy of Cities (1970), posited that hunter-gatherers, not farmers, were the cause of permanent settlements, as professional hunting took over from occasional surpluses that had to be disposed of. Farming developed later. (We're not saying we accept that, but it is an interesting hypothesis . . . that we have no intention of dealing with. Binary economics is interesting enough, thank you.)

What Dr. Graeber's analysis does is cast grave doubts on the validity of Keynesian economics, indeed, the whole of the Currency Principle. If debt conceptually precedes money (even if both are created simultaneously and by the same operation), and we keep in mind that production must precede consumption — or, obviously, you can't consume, can you? — then the Currency School principle that saving must precede investment is clearly in error. It's based on a paradox: how do you cut consumption in order to save to have the wherewithal to form capital so that you can produce marketable goods and services if you haven't produced anything first out of which you can save?

Going into this a little bit deeper, we see that, while until the 17th century or so most capital was, in fact, financed by reducing consumption and accumulating money savings, two problems crop up. One, the process had to start somewhere, and it had to start with extension of credit in order to be able to produce anything in order to have something to save. Future savings — the present value of future production — not past savings, necessarily started the process, just as Dr. Graeber contends.

Two, from the 17th century onward (and look at a development curve), most capital was not financed out of past savings, but future savings. As long as capital was financed out of past savings, development was a long, slow, and painful process. Once development could be financed by future savings — as was possible with the reintroduction of commercial banking and the invention of central banking — the "development rocket" took off. The rate of capital formation after the 17th century is almost vertical, where previous to that it was pretty much horizontal.

Dr. Graeber's analysis might very well help a number of people realize that economic development need not be tied to past savings, but can be financed using future savings. That is, we can change from our perception that we are tied to cuts in past and current consumption to finance new capital, and realize that we can use increases in future production. We are no longer bound to the slavery of past savings, just as Moulton explained in The Formation of Capital (1935).

Adding in Louis Kelso's insights as to the necessity of expanding the base of capital owners throughout the world, and we have an answer to the mess that the politicians and academic economists have gotten us into by relying on bad assumptions about money and credit, private property, and banking and finance.

It's something to think about — so you might want to look into Dr. Graeber's book and get back to us. There are a couple of jogs in the interview — we're not convinced of his claims about chartalism and its prevalence during the Middle Ages, for example — but that's piddly stuff, and doesn't affect the basic question here. Dr. Graeber's work is well worth looking into.


Friday, August 26, 2011

News from the Network, Vol. 4, No. 34

It has been an interesting week, what with earthquakes and hurricanes coming one right after another. And that was just the stock market . . . .

Of greater importance than the stock market is the news from Jackson, Wyoming. (By the way, that is almost always miscalled "Jackson Hole." No, "Jackson Hole" is the name of the valley. "Jackson" is the name of the town in the valley.) Mr. Bernanke has made it clear that he has no idea what to do in the short run, or to kick off America's long-term economic recovery. He "knows" it's coming. He just doesn't know when.

Here's a clue: unless the U.S. goes with a Capital Homestead Act in the relatively near future, there isn't going to be much of a long-term. The long-term is made up of a lot of short- and mid-terms. If you can't come up with a viable means of getting out of the short-term mess other than to chant the Keynesian mantra that in the long-run we're all dead, chances are the economy isn't going to turn around.

If Mr. Bernanke needs a few ideas other than to remind us that everything will be fine after we're all dead and gone, he might want to familiarize himself with our efforts, such as:

• We sent out a number of letters to the Washington Post and the Wall Street Journal. Once in a while we get an auto-response that assures us that they read every letter. Perhaps if they got more letters from different people on the Just Third Way and Capital Homesteading — it's a free country, and you can send all the letters you want — they might actually start paying attention to them.

James Kutney's review of Supporting Life: The Case for a Pro-Life Economic Agenda has been posted on Amazon. Mr. Kutney gave the book four stars out of a total of five. Why only an 80% approval rating? He wanted to know more. That means that you aren't getting the word out. The CESJ core group and Executive Committee can't do it all.

• The Mater Dei High School alumni magazine, Red & Gold, featured Michael D. Greaney in its summer issue, focusing on his work with CESJ and the books — especially Supporting Life — that he has authored. Make certain your alumni magazine(s) know what you're doing . . . and that you've got enough Just Third Way news for them to report, such as the doors you've opened for Norm for meetings with legislators.

• There have been a number of interesting discussions on the Just Third Way and Capital Homesteading on the LinkedIn network. A number of people appear to have been surprised that a potentially viable alternative to the current mess exists. Be sure to spread the word in your networks.

• The Woodman clan in Cleveland has been working to get Just Third Way ideas on the table in Ohio. They've been reaching out to local, state and federal officials and legislators. We're currently working on an editorial that they might be able to get placed in a local newspaper, such as the Plain Dealer.

• The first draft of the Wikipedia entry on binary economics has been completed. It is currently in review. The consensus seems to be that it needs a lot of work, but the skeleton is there. The piece should be very useful in correcting some of the misimpressions about binary economics that have been creeping into the marketplace of ideas.

• We've been going through and editing Jean-Baptiste Say's Treatise on Political Economy, the 1821 English translation of it, anyway. What becomes increasingly clear from reading the somewhat massive tome is that the ideas that many of today's academic economists and politicians have congealed into unquestioned dogma are not written in stone. Many of today's ideas are, in fact, based on egregious misunderstanding of Adam Smith and Jean-Baptiste Say (among others), and the fixed belief that these thinkers were saying things other than what they clearly were saying.

• As a result of the discussions in the LinkedIn groups this week, some individuals have expressed interest in getting Norm interviews on radio and television and in the print media. This is good, because we cannot "market" ourselves. We need "third party endorsements" from people like you.

• Also as a result of the LinkedIn discussions, we have been discussing a possible "webinar" on Capital Homesteading monetary and financial reforms. Stay tuned for more details.

• The Coalition for Capital Homesteading had its monthly meeting today, with a number of people present, and the rest telephoning in from across the country.

• As of this morning, we have had visitors from 47 different countries and 46 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, India, and the Philippines. People in Italy, Malaysia, Uganda, Zambia and Canada spent the most average time on the blog. The most popular posting this past week was "History of Binary Economics . . . Sort Of" "Panic in the Streets, Part I," Panic in the Streets, Part II," "Alternative to the Stimulus, Part II," and "Panic in the Streets, Part IV."

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, August 25, 2011

"Just Say 'Bah!'"

Almost any performance by the late, great William Powell (1892-1984) is a pleasure to watch. The Thin Man films are classic sophisticated crime comedy-drama without being stuffy or condescending. A typical Nora Charles comment to her low-life husband Nick when he asked the identity of a couple who hailed them from a limousine in After the Thin Man (1936) was, "Oh, you wouldn't know them, darling. They're respectable." A quick sketch of Nick's character that managed not to insult or put down. Much.

Of course, you can always get too much of a good thing. While on an audit trip in Germany once, the only film that the Armed Forces Network seemed to have was Life With Father (1947). It followed Soul Train almost every day. And preceded it, too. As a result, the scenes are engrained in my brain. Deeply.

One of these is the scene in which Clarence Day, Sr. — played by William Powell, of course — is telling his wife (played by Irene Dunn) how to feel better when she's under the weather. Father — Mr. Day — is unaware that the boys slipped some patent medicine into her tea . . . because the label said it was "good for women's complaints" . . . "And Mother's been complaining!" a young Martin Milner (later Officer Jim Reed on Adam-12) as George says brightly.

Father's pep talk to Mother on "How To Feel Better" is quintessential Father. He doesn't let anything get him down. If he feels poorly, he just banishes the illness by saying, "Bah!" and goes about his business. Self-confidence is everything. It's all how you look at it. You refuse to give in. Just say "Bah!" Mother, a Typical Incomprehensible Female, runs crying from the room wailing that "Clare" just doesn't understand, while Father stands there completely baffled at his wife's refusal to take such sound advice.

Of course, when Father finds out that what made Mother sick was a dose of something that killed the neighbor's dog, he relents and calls the doctor and the minister. Father might be pompous and bursting with self-confidence, but he is no fool.

And that brings us to the point. In today's Washington Post, Robert Samuelson lets loose with a verbose "Bah!" about the economic downturn and the remedies proposed ("Inflation is Not the Answer," 08/25/11, A15). True, he's right that inflation is not the answer. You don't get out of a hole by digging it deeper.

You also don't get out of a hole using only the Power of Positive Thinking and maintaining that all problems are due to a lack of confidence. Be confident. Just say "Bah!" and everything will be all right.

Except that the economy has been slipped a rather heavy dose of dog poison, and nobody has thought to call the doctor.

Just saying "Bah!" isn't going to a thing. What is needed is substantial tax reform and meaningful financial reform.

Okay, you've heard this before, so we'll just quickly recap.

One, eliminate most deductions, tax credits, and all the other complications that have burdened the Internal Revenue Code and turned tax preparation from a painful civic duty into a living hell. I read a few years ago that in one major corporation the IRS maintains a permanent office and staff for continuous audit, and the corporation's annual tax return is the equivalent of 45,000 pages.

Two, end payroll taxes, merge Social Security and Medicare into general tax revenues and tax all income from whatever source derived above a meaningful personal exemption — say $30,000 per non-dependent and $20,000 per dependent — at the same rate.

Three, prohibit the Federal Reserve from dealing in government securities of any type, except to divest itself of existing holdings as the debt is repaid.

Four, provide financing for new capital formation and economic development directly to the private sector by reopening the discount window for qualified industrial, commercial and agricultural paper issued interest-free (but not cost-free) by commercial banks to finance capital projects.

Five, extend such credit in ways that make new owners out of people who currently own little or no capital.

If you want to advance these goals, don't just sit (or stand) around saying "Bah!" and wondering at the ineffectiveness of your solution. Join the Coalition for Capital Homesteading. Father (we don't know about William Powell) would approve.


Wednesday, August 24, 2011

Who Ya Gonna Call? Mythbusters!

Yes, there's definitely something strange in the neighborhood. The sheer volume of myth-information (with apologies to Robert Asprin) about the world's monetary and fiscal systems is so great (in the sense of volume, not quality) that we thought we would start an occasional (i.e., whenever we feel like it, and not consecutive) series about the most damaging myths. We have to make it occasional, because just the number of these things floating around is mind-boggling . . . and it infects even (or especially) the hallowed halls of academe and of Congress.

So little time! So much to do! Which myth shall we select for debunking first?

Let's do something easy: the income tax. According to many people, the process for passing the 16th Amendment to the Constitution of the United States was flawed. That being the case, the income tax is unconstitutional, and should be abolished.

Let's take this in easy steps. Flawed in process or not, the 16th is part of the Constitution. It can't be unconstitutional. Whether the 16th Amendment is legitimately a part of the Constitution is a different issue, and one that does not affect the amendment's constitutionality. A flawed process may be grounds for removing it, but as long as it's there, it's constitutional.

The next one is almost as easy. It's asserted that an income tax was unconstitutional before the 16th Amendment, therefore, removing the 16th Amendment would make the income tax illegal, immoral, and fattening.

Not quite. Here's a shocker. Sit down and take a blue pill.  No, not that kind.  A nerve pill.

An income tax has always been constitutional!

Say what?!?!?!?!?

That's right. The Constitution gives the Congress the right to levy taxes. What taxes and in what form is a matter of expedience and political prudence, but to deny that the Congress has the right to levy taxes in any form is to deny that it has the right at all. It's right there in the Constitution:

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States."

There it is, in black and white. As the United States Court of Appeals for the Third Circuit explained in Penn Mutual Indemnity Co. v. Commissioner (32 T.C. 653 at 659 (1959)),

"It did not take a constitutional amendment to entitle the United States to impose an income tax. Pollock . . . only held that a tax on the income derived from real or personal property was so close to a tax on that property that it could not be imposed without apportionment. The Sixteenth Amendment removed that barrier. Indeed, the requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes. . . . Congress has the power to impose taxes generally, and if the particular imposition does not run afoul of any constitutional restrictions then the tax is lawful, call it what you will."

So what's the fuss? That little thing called "apportionment": "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."


Okay, here goes. Prior to 1895 (when the above-referenced "Pollock" case came before the Supreme Court), the Congress construed the income tax as an indirect tax on property. Most people got their income from working with their capital, whether in the form of land or technology. Thus, so the reasoning went, a tax on income is really an indirect tax on property and persons, not a direct tax.

As America became more industrialized following the Civil War, more and more people were restricted to wages, not profits from capital, for income. Congress started having second thoughts, and repealed the income tax that had been imposed during the Civil War, but didn't really settle the issue as to whether an income tax is direct or indirect.

Meanwhile, back at the ranch, the "Robber Barons" were piling up huge fortunes, realizing gigantic profits that they distributed to themselves and on which they paid no taxes. The Socialist Party first advocated restoring the income tax, and the Populists soon took up the cause. Why, after all, should the poor working stiff have to pay all the taxes instead of the Idle Rich?

Consequently, during the Great Depression of 1893-1898, the Congress passed another income tax. It was pretty low by today's standards, something like 3-4%, and only on incomes in excess of $4,000 (and who made that much money?). It was, however, a Populist and Socialist victory, and clearly directed at the wealthy.

You know — those people with all the money . . . and political pull. Somebody filed a lawsuit, Pollock v. Farmers' Loan & Trust Co. (157 U.S. 429, 158 U.S. 601 (1895)), and got the income tax declared a direct tax — and therefore unconstitutional without apportionment. Not "unconstitutional," mind you. Unconstitutional without apportionment as a result of being tantamount to a direct tax on property. If the Congress had been willing to add apportionment to the law, the income tax would have been constitutional, and could have been levied.

That was one thing the Congress wasn't about to do. They might have to bend to the Supreme Court in the matter of the constitutionality of the income tax without apportionment, thereby permitting the rich to escape taxation, but they were not going to apportion the damned thing among the states on the basis of population. If they did that, a state with a few extremely rich people would pay less in taxes than a state with many poor people. That would be manifestly unjust, and everyone who voted for such a thing would have lost his seat in the next election. Rich people may have more money, but poor people have more votes.

The solution? The 16th Amendment, along with the Federal Reserve Act a Populist — and Progressive — triumph. The 16th Amendment didn't make the income tax constitutional. No, what it did was make the income tax constitutional without apportionment. Read it carefully. Here it is:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

See? Apportionment, not constitutionality, was the issue.

Now you know why you should have stayed awake in Civics.


Tuesday, August 23, 2011

Fairy Gold

In the Wall Street Journal of August 19, 2011, Stephen Moore put his finger on what may be the most colossal swindle of the 20th and 21st centuries: the Keynesian multiplier theory. As Moore pointed out, "The multiplier theory only works if you believe there's a fairy passing out free dollars."

Exactly. This was the contention of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, on pages 77 through 90 of The Formation of Capital (1935), volume three in a four-past series presenting an alternative to the Keynesian New Deal. Production and employment, not inflation and increased spending, are the keys to sustainable economic recovery.

Money to finance economic growth should not come from State-emitted bills of credit that simply redistribute existing wealth through inflation and debauch the currency. Sound money to finance sustainable economic growth, create jobs naturally, balance the budget, eliminate the national debt, and provide a stable, elastic, asset-backed currency can come from monetizing the present value of existing and future private sector marketable goods and services by discounting and rediscounting bills of exchange, whether between businesses, or at commercial banks and the Federal Reserve.

When, as Louis Kelso and Mortimer Adler added in The Capitalist Manifesto (1958) and The New Capitalists (1961), the ownership of all new capital financed with such "pure credit" and collateralized with capital credit insurance and reinsurance instead of existing investment is spread out, sufficient effective demand is generated to sustain economic growth without constant artificial and inflationary "stimulus."


Monday, August 22, 2011


Living within the Washington, DC Beltway, one tends to forget that there is a real world out there. The idea permeates these environs that The Government can do anything, solve any problem, so on, so forth. The humor of Ronald Reagan, another Midwestern boy, falls flat among people who tend to deify themselves even more than do the slavish mobs that lionize them in this hothouse atmosphere.

As a case in point, there is the unquestioned faith in the disproved "Currency Principle," the bane of "the dismal science" (and the reason economics is called "the dismal science") since congealed into economic orthodoxy with the widespread acceptance of Malthusian theory, and the enshrining of past savings as the sole determinant of the future. As regular readers of this blog are aware, the Reverend Thomas Malthus's projections about food production and other marketable goods and services were predicated on the disproved assumption that economic development can only be financed by cutting consumption and accumulating money savings, rather than monetizing the present value of future marketable goods and services. If you go back and re-read some of our postings over the years, you'll realize that accepting the "slavery of past savings" demonstrates a complete misunderstanding of money, credit, banking, finance, and the natural right of private property — which inevitably leads to redefining life and liberty (freedom of association/contract), thereby providing a solid foundation for the Culture of Death.

Let's face facts. Unless the United States — and the world — can get its economic house in order, we're looking at a major crackup very soon. (Yeah, I know — you thought it had already happened. Just wait.) You can't keep dividing up a shrinking pie. Keynesian delusions to the contrary, you can't consume without producing. Neither can you continue to redistribute what some produce for the benefit of non-producers. It leads to demands for population control and a few other things, like war.

Education, however, is only one (albeit extremely important) aspect of the Just Third Way. The main emphasis is on promoting structural change in the system, such as the Capital Homestead Act, that would empower every child, woman, and man with (as George Mason put it in the Virginia Declaration of Rights) the means of acquiring and possessing private property. The Founding Fathers and Abraham Lincoln's 1862 Homestead Act concentrated on land. There's nothing wrong with that, but Capital Homesteading extends the concept to all forms of productive assets, not just land. The land frontier was, after all, limited, and was effectively closed by 1893 when the first Great Depression hit.

We believe that Frederick Jackson Turner was right in the thesis of the paper he delivered at the Columbian Exposition in Chicago in 1893. The end of "free" land in America means the eventual end of democracy. That is, unless you can replace the limited land frontier with the effectively unlimited commercial and industrial frontier, and ensure that everybody has a chance to own a meaningful capital stake and derive direct benefits therefrom.

Nor should this be limited to America. Capital Homesteading must be implemented in every country in the world if we want to avoid the sort of economic and political antics we see increasing on every side. This was the subject of CESJ's two papal audiences, and the seminar for heads of religious orders we gave at the Vatican on the role of private property in economic and social development.

The moral rebirth of society is essential — but as long as people are bound by the slavery of past savings, and kept propertyless by disproved assumptions about money, credit, banking, and finance, they will be continue to be trapped in what Pope Leo XIII described in Rerum Novarum (1891) as "a yoke little better than that of slavery itself." They will be subject to the whims of their masters, many (if not all) of which have an agenda at odds with the Culture of Life. If our political and academic leaders say you must sacrifice others to obtain a higher wage and benefits package, increased welfare payments or a secure government job, then so be it — as long as you insist on operating within the current paradigm.

The answer to getting out of the current paradigm is to end reliance on past savings as the only source of financing for new capital formation, and to use advanced techniques of finance to make as many people as possible owners of capital as well as labor. Since, as Daniel Webster observed (and Benjamin Watkins Leigh concurred), "power naturally and necessarily follows property," this is the best way to overcome the Culture of Death.

Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, showed how new capital could be financed without first requiring cuts in consumption in his alternative to the Keynesian New Deal, The Formation of Capital (1935). The past savings assumption, as Keynes admitted in The Economic Consequences of the Peace (1919), restricts ownership of most new capital to the already wealthy, and keeps the rest of us poor or dependent on a private elite or the State.

Louis Kelso and Mortimer Adler refined Moulton's work in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961) by adding that all new capital financed without reliance on existing accumulations of savings — even for collateral (which can be replaced with capital credit insurance and reinsurance) — should be broadly owned. CESJ's Capital Homesteading proposal takes the process even further by presenting a package of reforms that has the potential, as R. Buckminster Fuller put it, "to make the world work for 100% of humanity in the shortest possible time through spontaneous cooperation and without ecological offense or the disadvantage of anyone."

What can you do?

First, go to the CESJ website and read. It's easy — and it's free. Many of the books in the bookstore are also available at no cost in .pdf.

Second, support organizations like CESJ — we're a 501(c)(3), so it's tax deductible. That's a little ironic for an organization that advocates sweeping tax reform, including ending virtually all personal deductions — and getting real about the personal exemption, raising it to, say, $30,000 for a non-dependent and $20,000 for a dependent. We're being practical, though. We have to work within the existing system until we can change it, and, if the existing system says it's tax deductible, we're going to take advantage of it.

Third, join the Coalition for Capital Homesteading. Don't cost nothin'.

Fourth, start opening doors to prime movers. Capital Homesteading is a great idea . . . but not if the people who will have to lead the effort in Congress don't know about it. Help set up a meeting for Norman Kurland on Capitol Hill with your Representative or Senators. Most legislators don't take e-mails from anyone except constituents, so you, not we, have to do it.

Fifth, if the spirit moves you, search out opportunities to spread out ownership of capital within the current system. True, there aren't many, and they usually rely on past savings (although we've worked out one way around that, if the conditions are right), but they do exist. Check out the website for Equity Expansion International, Inc.

Sixth, volunteer for CESJ.

That's all I can think of at the moment. Doubtless I'll think of more when it comes down to the wire for the news items that get posted every Friday on this blog. Especially if someone sends in an item or two about efforts to advance the Just Third Way and the goal of Capital Homesteading by 2012.


Friday, August 19, 2011

News from the Network, Vol. 4, No. 33

The main focus of this week's news items is door-opening. It may be that the reason Capital Homesteading strikes so many people as being "out of the box" is simply that people inside the box haven't heard about it from a credible source: you. If you don't tell anybody about it, chances are nobody will. The ideas and the initiative can be killed more effectively with silence and ignorance than from any other cause.

Your goals are simple and straightforward. Present the idea of Capital Homesteading to potential door-openers and prime movers as a possible way out of this current economic malaise. Do you have to know everything about Capital Homesteading? No. You just have to know enough to get people hooked. You don't have to be the expert. That's our job. Your job is to direct people to CESJ once you've intrigued them.

Just Third Way Heroes Contest

Tell you what. To the first person who opens a door that leads to Norman Kurland having a meeting of at least twenty minutes with a Congress Critter or Senator — not the aides, the legislator him- or herself — we will send a free copy of Capital Homesteading for Every Citizen, autographed by all the authors, and a custom-made CESJ Certificate of Appreciation on parchment (like) paper, suitable for framing, signed by the CESJ Executive Committee. Anyone who arranges subsequent meetings with legislators or candidates for public office, or significant prime mover at the national level will get a CESJ Certificate of Appreciation. Each winner will be announced in the News from the Network after the completion of the meeting.  Everyone may enter.  There is no limit to the number of times you may enter — or win!  Heck.  You don't even have to be a natural person.  "You" can be an organization that wants to gain undying fame as helping to lead the march toward economic and social justice.

The only people not eligible for these awards are members of the CESJ Executive Committee. You do not have to be a member of CESJ or even smarter than a fifth grader. (And if you happen to be a fifth grader, you're eligible, in case you were wondering. Show the grownups how it's done.) Just get the meeting. This offer is good until revoked in writing on this website. Get busy. The whim may move us at any time.

Along the same lines, anyone who sets up a substantive (i.e., more than a photo-op) meeting with a Head of State currently in office will receive complimentary copies of every CESJ publication in print, autographed by the (living) authors as well as a CESJ Certificate of Appreciation. You will also (unless you expressively state that you do not want public recognition) be mentioned in news items like the following:

• The 329th consecutive CESJ monthly meeting was held on Wednesday when the executive committee came together. The main topic of the meeting was getting CESJ members and friends to use their contacts and open doors to potential leaders and prime movers to introduce Capital Homesteading as a possible solution to economic problems in the United States and throughout the world.

• Among the many issues discussed at the Executive Committee meeting was continued support for Russell Williams's radio show, The Challenge. After a lively debate, it was decided that CESJ officially supports the show, and urges all CESJ members, friends, and casual passersby to tune in for some entertainment, and possibly learn something.

• You don't have to be an economist to understand that Capital Homesteading probably represents the best hope for recovery from the current Great Depression, Part III. You just have to have the common sense to realize that no country, regardless how powerful it thinks it is, or how good its cheerleading, can hope to spend without producing, or spend more than it produces. That's Say's Law of Markets, a bit of obvious common sense ridiculed by Keynes and rejected by Marx. Realizing this, the National Lawyers Association is looking into Capital Homesteading as a possible "Pro-Life economic agenda," to advance the cause of economic justice for all.

• For years we've been questioning the assertion that the economy is "recovering." Now it appears that even the media are becoming convinced that "another" recession is in the offing . . . before we've gotten out of the first one (which is really a depression, Part III of the series that began with the Panic of 1893). Typical of the doubletalk by means of which people are given what passes for hope these days is, "job growth has been consistent, though below what's needed to reduce the unemployment rate." In other words, jobs are being "created," but not as fast as jobs are being lost. Throwing the word "growth" in, however, makes it sound better.

• The bottom line is that the "financial services industry" needs to orient itself away from government and consumer spending and stock market gambling, and start serving — the meaning of "providing services" — the productive sector, as it was designed and intended to do. The first step? Emancipation from the "Slavery of Past Savings," and going to pure credit to finance feasible new capital, the ownership of which much be widely distributed in conformity with the principles of economic justice.

• Consistent with the need to surface a genuine leader to spearhead the move to sanity, we've been trying to get word about Capital Homesteading to Michele Bachmann's campaign. Why don't you write in and suggest she look into Capital Homesteading? — info [at] michelebachmann [dot] com.

• Possibly recognizing that the "same old thing" isn't going to work, the Washington Post put out a call for suggestions on how to reduce the deficit. All you have to do is send an e-mail to them with "Reducing the Deficit" on the subject line, and in 200 words or less suggesting that they look into Capital Homesteading. Send the e-mail to "letters [at] washpost [dot] com.

• Here's a shocking suggestion. If you're Pro-Choice, write to Pro-Life movers and shakers, suggesting that they look at Capital Homesteading as a Pro-Life economic agenda that would remove all economic rationalizations for abortion. You can disagree on fundamental principles, but — unless you think that people who don't want abortions should be forced to have them anyway — there's no reason why you should object to allowing a truly free choice uninhibited by economic or political pressures.

• Send an e-mail to your congressman and both senators — most of them won't accept e-mails from anyone except constituents — suggesting that he or she read Supporting Life. If the legislator is Pro-Choice, point out that Capital Homesteading would ensure a truly free choice. If the legislator is Pro-Life, point out that "power naturally and necessarily follows property." If you want to empower individuals and families to resist the Culture of Death, you won't do it by turning everybody into a government wage or welfare slave through artificial "job creation" and deficit spending. True empowerment only comes through access to the means of acquiring and possessing private property in capital, and real economic growth through producing marketable goods and services. If you hook any of them, set up a meeting with Norman Kurland (see the Just Third Way Hero Contest, above).

• Why don't you go to Amazon and post a review of any of CESJ's publications? It doesn't cost anything, and helps give the message credibility.

• President Obama has come out in favor of a stimulus package that relies on cutting taxes (revenue) and increasing spending (expenditures). This is a perfect example of trying to get out of a hole by digging it deeper. Why not send an e-mail to the White House suggesting that it might be a good idea to look at Capital Homesteading? To keep the riffraff out they no longer accept regular e-mails. Instead, you have to fill out an internet form.

• As of this morning, we have had visitors from 44 different countries and 46 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, India, and the Philippines. People in Italy, Canada, Malaysia, Guatemala and the United States spent the most average time on the blog. The most popular posting this past week was "History of Binary Economics . . . Sort Of" "Panic in the Streets, Part I," Panic in the Streets, Part II," "Alternative to the Stimulus, Part II," and "Panic in the Streets, Part IV."

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, August 18, 2011

"Obama to Push Stimulus Plan"

Tearing ourselves away from the photographs of Barack Obama and Michele-with-one-l Bachmann trying to show each of them has the common touch ("Obama and Bachmann Step Up to the Plate on Dueling Road Trips," The Wall Street Journal, 08/18/11. A1), we are left with the impression that there must be something more to a presidential campaign at a critical time in history than showing how you, too, can chow down at the local eatery.

Okay, the Washington Post for once managed not to run the same story as the Wall Street Journal, and actually had some hard news: Obama's new proposal for economic stimulus. In a nutshell, cut taxes and increase spending.

It's worked so well up to now.

Anyway, there might be one or two things wrong with the president's plan to stimulate the economy by cutting taxes and increasing spending. Like, for one, wouldn't that increase the deficit . . . and wasn't it the deficit that just caused Standard and Poors to downgrade the U.S. credit rating?

And how about them jobs? Jobs that are created by artificially stimulating demand through inflation tend to disappear just as fast as they were created once the stimulus money runs out.

Is there a solution that doesn't rely on trying to get out of a hole by digging it deeper? Well, you know that we have something, or we wouldn't have brought it up. Take, for instance, the wise words of one of the gurus of the Just Third Way, Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952.

Moulton pointed out in 1936 — which is when he predicted the "depression within the depression" — that there are two keys to sustainable economic recovery. These are, one, employment and two, production. Further, it must be real employment. The employment must increase production of marketable goods and services, not just provide income for doing an unnecessary job.

If you want a stimulus package, there is more than enough in savings to do that without the artificial stimulus of inflation. Savings should be used for consumption anyway, not reinvestment. Financing for feasible new capital formation should come from commercial bank rediscounting of qualified loans at the Federal Reserve — you know, what the Federal Reserve was invented to do instead of financing government spending.

And, of course, as you are aware, Kelso and Adler added that all new capital should be broadly owned to stimulate demand naturally, with the acquisition collateralized with capital credit insurance instead of savings.

CESJ came up with a proposal for a "Capital Homestead Act" that would rebuild the economy, restore the tax base, eliminate the deficit, and pay down the debt. And all without inflating the currency or putting it on the backs of the taxpayers.

Now — do you want a "stimulus" that makes things worse, or a genuine stimulus that makes things better? It's up to you.


Wednesday, August 17, 2011

The Job of the Fed

One of the hardest tasks we face, evidently, is a kind of economic and financial aphasia with which students of binary economics seem to be afflicted. In English, nobody seems to know what we’re talking about when we use words that we think have plain meanings. We even define our words, and still the meaning seems to zip right over the heads of whoever it is we’re speaking to.

Take, for instance, when we discourse on banking. We’ve droned on at great length about the difference between deposit banking and issue banking, the role of the central bank, the difference between pure credit and past savings-based credit, so on, so forth, etc., as it were, blah, blah.

So what are we to think when we pick up the newspaper and read something so at odds not only with everything we say, but reality itself? It’s as if the media, academia, the politicians, and even ordinary citizens are engaged in what Winston Smith in 1984 called “improvising history.”

We think it’s time to fire off yet another letter that the editors aren’t equipped to understand, and will sweep under the rug. It does, however, have the advantage in that it writes our blog for the day . . . .

The Washington Post

Dear Sir(s):

In today's Post Neil Irwin asserts, "It is the job of the Fed, or any central bank, to print money." Unqualified, that statement hands the government a blank check. The original Federal Reserve Act of 1913 states the job of the Fed is "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish more effective supervision of banking in the United States, and for other purposes." In this way the Fed would provide liquidity for private sector development when existing savings were insufficient.

Under "other purposes" the Fed was empowered to deal in outstanding government securities backing the National Bank Notes and Treasury Notes of 1890. The intent was to replace the government debt-backed currency with private sector asset-backed Federal Reserve Notes. Nevertheless, the primary purpose of open market operations was to supplement the Fed's rediscounting power by dealing in paper issued by private sector businesses and non-member banks, not monetize government debt.

The proper use of the banking system is described in Dr. Harold Moulton's, The Formation of Capital (1935), written to present an alternative to the Keynesian New Deal.


Hastur the Unspeakable

(Not really. We just wanted to see if anybody is reading this.)


Tuesday, August 16, 2011

The Wall Street Model of Education

We recently received a series of e-mails between two brothers, Mike and Dan, discussing the state of education today. There are a number of allusions and references that we left in that might confuse the casual reader, but there's enough information to get the point — you don't need any more. We thought it might make a good posting for today.


I worry about the application of Wall Street models to education, although I have always been highly impressed with KIPP ("Knowledge Is Power Program") as an organization. No Child Left Behind (NCLB) has mandated performance goals that I suspect are unattainable. I think the minimal goals have led to an inflation of testing data tied to yesterday's skills, and a false sense that schools are continually improving.

Personally, I feel that schools and school personnel have far too much incentive to "game" the numbers. I would not be in the least surprised if we were to see a bubble in education scores, just like we saw a bubble in financial markets. I seriously doubt that NCLB has taken much of a bite in the 30% national dropout rate. This is not because measurements and accountability are bad things, but because the wrong things are being measured. As the computing aphorism has it, garbage in, garbage out.

This is not a rant — or, at least, not much of one. It's just an explanation of how complex teaching even a single subject such as reading is. As my reading professor frequently repeated, "reading is rocket science." Most elementary teachers teach a minimum of 4 subjects. During the fall, I'll read the latest research on best practices in teaching math. Very exciting!

The scientifically validated practice of providing opportunities for students to respond 8 times per minute is to get students responding to new information immediately. If students aren't responding systematically, they aren't learning.

There are many different ways and levels of responses. Your brain is far more powerful than you give yourself credit for. Think of all the responses per second you make while riding a motorcycle at 80 miles per hour on the Beltway! Learners like Olivia, who are being raised in a language rich environment, have a tremendous advantage when they enter school over children of poverty. Their brains have had exponentially greater opportunities to respond than the brains of many of the children I have worked with in Title I Schools.

At six, Olivia can fluently read a label that says, "Smoked Spanish Paprika," has tasted how the spice changes the flavor of the melted cheese, knows the difference in the aroma between that and regular paprika, and is responding in complete sentences in daily conversations with lyrical fluency and phrasing.

I'm sure you are aware of the rat studies where the brains of rats raised in engaging environments have been compared to those of rats raised in impoverished environments. How the learning environment is structured matters developmentally. If we want to take a bite out of the 30 percent national dropout rate, we need to find ways to make learning environments systematically more engaging for all learners. In too many examples, what No Child Left Behind has left behind is sterile learning environments in which nobody is being uplifted, because everybody is "teaching to the test," i.e., telling students what they need to pass a test, not to learn. There are far better ways to handle the accountability issue than the current setup.

I totally agree with your argument that self-improvement is critical. I decided to enter a master's program so that I can become dual-licensed. I knew that I needed to become better at differentiating instruction, assessing progress, and become a more effective collaborator. In my experience, however, teachers learn best in collaboration with knowledgeable and supportive teams. I would never have been able to launch a Kindergarten class in a Title I School last fall without collaboration with a 17-year veteran who introduced me to the Reading and Math Specialists. I already knew that Rambos don't last long in the classroom, not even in Kindergarten. Thus, I gratefully accepted the guidance of Veteran teachers, which helped me manage a steep learning curve. Trying to go it alone simply hasn't worked for me.

We need to get past the fallacy that Super Star teachers and Super Star, i.e., highly paid administrators, are responsible for student success. Why do you think the young lady, who was obviously an asset to the field of education, ultimately left the field of education? Obviously, the promise of cash was not sufficient incentive to soldier on within a toxic working environment. The prevailing mindset in the field of education, based on the same failed Wall Street model that led to the S&L crisis, is fundamentally flawed. A teacher who relies on self-improvement alone won't make much of an impact. There is simply too much ground to cover in too little time to try to go it alone.


Monday, August 15, 2011

A Little Unsolicited Advice to Michele Bachmann

As many of our faithful readers know, an important "prong" in the "Four Prong Strategy" to implement (and maintain) the Just Third Way is getting to "prime movers." We've identified (as if it were difficult) two key prime movers: the president of the United States, and the pope. We've actually gotten to the previous incumbent of the See of Peter twice, having had two audiences with Blessed John Paul II and received his encouragement of CESJ's work. Now we're working on getting a meeting to introduce these ideas to His Holiness, Pope Benedict XVI, and present a possible plan of action.

We've had less success getting to the president, although you'd think it would be easier, since the pope has the ultimate care of a billion or so people, while the president of the U.S. has partial responsibility for about a third of that number. That's why we need to get to possibly viable candidates for president. And that's why we sent this e-mail this morning:

August 15, 2011

Mrs. Michele Bachmann
c/o Bachmann for President
P. O. Box 96891
Washington, D.C. 20090-6891

Dear Mrs. Bachmann:

While we admire your stand on many things, may we offer some unsolicited advice from the Center for Economic and Social Justice (CESJ), a natural law-based think tank in Arlington, Virginia?

One, we think you need a Pro-Life economic agenda that can appeal across the board to all Americans. We make the case for this in our book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010). We would be happy to send you a complimentary copy. The agenda itself is available in detail on the CESJ website. [N.B.: Blog readers are encouraged to go to Amazon and post (good) reviews of the book. Just the book. Amazon removes any reviews that allude to or mention other reviews.]

Two, as a tax attorney and member of Congress you are more aware than we are of the desperate need for tax and monetary reform. Ironically, the income tax system, designed to fund government operations, has been diverted to social engineering and attempting to provide funding for economic growth. At the same time, the Federal Reserve, intended to finance private sector economic growth by providing an elastic currency by means of rediscounting private sector bills of exchange for qualified agricultural, commercial and industrial development, has been used to finance government.

The result has been the establishment of a currency backed by government bills of credit (debt) instead of private sector bills of exchange (assets). Because bills of credit — "anticipation notes" — are backed by politicians' idea of the present value of future tax collections by the government instead of the present value of existing and future private sector marketable goods and services, it is possible, indeed, almost inevitable that governments will assume far more debt than can be repaid in order to meet current political objectives with no connection to productive capacity or taxing ability. Consequently, an economic program to reform both the tax system and the financial system is essential — as is a financially feasible program of rapid economic growth to repay existing debt and raise living standards . . . to say nothing of eliminating all economic rationalizations for abortion.

Three, there is the issue of jobs. There are two primary sources of income for people, aside from alms and redistribution: labor and capital. Labor income is called wages. Capital income is called profits or dividends. When the value of labor falls relative to capital as an input to production, common sense as well as respect for human dignity suggests that propertyless workers should become owners of capital to supplement or replace wage income.

Anyone who argues that the great mass of people must not own capital and must be restricted to wages and welfare for income — as did Keynes — does not understand money, credit, banking, or finance. New capital can be financed not by cutting consumption and accumulating money savings, as Keynes declared (without proof) is necessarily the case, but by monetizing the present value of future marketable goods and services to be produced by the capital being financed by discounting and rediscounting bills of exchange, either "business to business" (cir. 60% of economic activity in 2008), or discounted at commercial banks and rediscounted at the Federal Reserve. Financially speaking, sustainable economic growth is not tied down by what we have produced in the past, but limited only by what we can produce in the future, as any graph of economic development and population growth from the 16th century onwards reveals. Focus on jobs for the sake of income is a diversion. The focus should be on employment of all resources, both labor and capital, for the sake of production — and getting us out of debt.

Four, have you considered Senator Tom Coburn of Oklahoma as a running mate?

If any of this intrigues you, you should meet with Norman G. Kurland, president of CESJ. A lawyer-economist who attended the University of Chicago, he is possibly the world's leading expert on what we call "the Just Third Way" and its application in "Capital Homesteading." Capital Homesteading is a way for every child, woman, and man to become a direct owner of enough capital through tax-deferred accumulation of assets to generate ownership income sufficient to meet common domestic needs. Given the proposed monetary and fiscal reforms embodied in Capital Homesteading, we estimate that a "typical" family of four would pay no taxes of any kind until aggregate income exceeds $100,000, and an individual from birth to age 65 could accumulate capital assets of cir. $500,000 generating a conservatively estimated $50,000 per year.

Thank you. We look forward to hearing from you.

Yours, blah, blah.


Anyway, you know that just one e-mail isn't going to do it. We did get a nice auto-response from Ms. Bachmann's campaign HQ, but, face it, she's clearly becoming a top GOP contender, and is getting a LOT of e-mails. Nobody is going to notice one e-mail raising issues that, frankly, are more than a little outside the box.

That's where you come in. Send a brief e-mail to "Bachmann for President." The e-mail address is "info [at] michelebachmann [dot] com. Suggest that she look into Capital Homesteading as a growth-oriented economic program that respects life and pays down debt, and that she and her advisors meet with Norman Kurland.

There. Wasn't that easy?


Friday, August 12, 2011

News from the Network, Vol. 4, No. 32

Evidently the general feeling on Wall Street today is that "the worst" is over, and the markets can now begin a "gradual" recovery; all will be well. If you've been reading this blog over the past week, you already know that we disagree with that assessment. Frankly the continued failure to address the serious and fundamental problems underlying the wild swings in the market will only lead to worse problems in the future.

What can you do about it? If nothing else, send the links to the four postings in the "Panic in the Streets" series around to your network, and see if you can stir up the interest of any door openers and prime movers. After all, that's what we've been doing for the past week:

• On Wednesday, Monica Woodman attended an AFL-CIO in Cleveland. As she reported, "A few weeks back I got a telephone message from someone letting me know about a teleconference organized by the AFL-CIO regarding SB 5 which I called into. Then I went on the AFL-CIO's web site and found out about the meeting tonight. I brought along some Capital Homestead printouts to hand out. Ben Waxman spoke on behalf of the president of the AFL-CIO and I spoke to him afterward. I gave him the Capital Homestead piece and asked him to read it. A bit later he asked me what union I belonged to and when I told him that I was a realtor and not with a union and how I found out about the teleconference and how I found out about the event he gave me his card and asked me to contact him. He told me he would like to do a story about the way I found out about the meeting. I told him that I would contact him and that I would really like him to read the information I gave him." Evidently networking pays off.

• Over this past weekend, Norman Kurland sent out e-mail follow-ups to a number of business executives he met at the CAUX Global Roundtable. Already we've heard back from a gentleman in Tokyo, who after he completes some commitments in three weeks, wants to explore introducing Just Third Way concepts into influential circles in Japan.

• In response to an article in the Wall Street Journal by Governor Jeb Bush of Florida and Kevin Warsh of the Hoover Institution at Stanford University, we sent e-mails suggesting that they might find CESJ's Just Third Way as applied in Capital Homesteading to be a feasible way to stimulate the sustainable economic growth for which they called.

• This week's blog series titled "Panic in the Streets" has resulted in nearly tripling the blog's usual readership, and has generated a number of comments from various "LinkedIn" groups from people intrigued by the Capital Homesteading concept as an alternative to the way Wall Street and Washington think they're running the country, notably from some people interested in Capital Homesteading as a politically and financially feasible Pro-Life economic agenda. If you think the series has merit, copy and paste the links from the blog on those postings, and send them around to your network. Who knows? Maybe one of your e-mails will be the one to spark the interest of a prime mover and result in the passage of a Capital Homestead Act by 2012.

• As of this morning, we have had visitors from 43 different countries and 46 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, India, and the Philippines. People in Italy, Slovenia, Malaysia, Guatemala, and the United States spent the most average time on the blog. The most popular posting this past week was "History of Binary Economics . . . Sort Of" "Panic in the Streets, Part I," "Panic in the Streets, Part II," "Stimulus, Part II," and "What History Teaches Us About the Welfare State."

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.