After World War I, it looked as if things could get back to normal. With the Second Liberty Loan issue and the Victory Loan issue successfully floated and funded by the Federal Reserve, the government could start collecting taxes to repay the loans, and the Federal Reserve could get back to its main purpose. That was to provide liquidity as the lender of last resort to the private sector by rediscounting bills from member commercial banks, and engaging in limited open market operations involving businesses and non-member banks, and retiring the government bonds backing the National Bank Notes and the Treasury Notes of 1890.
Swift action by the Federal Reserve is considered responsible for staving off a potential financial panic in the early 1920s when it announced it was ready to expand rediscounting of private sector bills to ensure an adequate money supply to meet the needs of commerce. What must astonish today's politicians faced with the ineffectiveness of endless rounds of "stimulus" and "quantitative easing" is that the Federal Reserve didn't actually have to increase rediscounts in order to restore confidence and avoid a financial panic. The simple announcement that the Federal Reserve stood ready to provide adequate private sector liquidity was sufficient to restore confidence in the system.
Today's politicians, however, being trained in the dogmas of Keynesian economics, don't understand the significance of the difference between the Federal Reserve's assurance in the early 1920s that it stood ready to provide adequate asset-backed currency to the private sector, and today's flooding the channels of commerce with massive amounts of currency backed only by government debt. The former is precisely what the Federal Reserve was designed to do, while the latter is what the institution has been corrupted into doing. For this we can put the blame squarely where it belongs: on the economics of John Maynard Keynes.
The financing of the First World War with government debt seemed to confirm the tenets of the Currency School, although the hyperinflation that subsequently hit Germany and Austria-Hungary still cannot be explained within that framework. It should therefore come as no surprise that Keynes, who viewed government debt as the only legitimate backing for the currency, was able to leverage his expertise at telling the politicians precisely what they want to hear into a position as the most influential economist of the 20th and 21st century, establishing his reputation in 1919 with the publication of The Economic Consequences of the Peace (1919).
This did not happen immediately, however. During the decade following the war, the Federal Reserve served as lender of last resort to the private sector, and worked to reduce outstanding government debt from the war. It also achieved its objective of replacing the National Bank Notes and the Treasury Notes of 1890 with Federal Reserve Bank Notes. The program was terminated in the late 1930s, by which time all remaining National Bank Notes and Treasury Notes of 1890 remaining in circulation were to be construed as Federal Reserve Bank Notes.
Unfortunately, given the remaining outstanding debt from World War I, the debt-backed Federal Reserve Bank Notes could not be replaced with asset-backed Federal Reserve Notes at the same rate. At the same time, while the Federal Reserve was reducing non-productive government debt and backing up the asset-backed lending of the commercial banking system, the commercial banking system was also creating massive amounts of money for speculation that was channeled into the stock market, creating the "bubble" of the 1920s.
#30#
Tuesday, July 31, 2012
Monday, July 30, 2012
Lies, Damned Lies, and Definitions, XXIII: Hijacking the Federal Reserve
In the previous posting in this series we saw how the Federal Reserve was carefully designed to meet the legitimate demands of all parties and interests. Properly employed, there could never again be a "currency famine" as had happened in 1893 following the Panic, nor could there be a run on a bank that would deplete its reserves, as had caused the Panic of 1907. The inelastic, currency of the National Bank system backed by government debt that had caused so many problems would gradually be replaced with an elastic Federal Reserve Note currency backed by private sector hard assets.
The idea was that the Federal Reserve would gradually purchase the government bonds that backed the National Bank Notes. They would thus assume the liability for the National Bank Notes, and replace them with "Federal Reserve Bank Notes," which would then be backed by the government bonds the Federal Reserve had purchased on the open market from the National Banks. These government debt-backed Federal Reserve Bank Notes would in turn be replaced with "Federal Reserve Notes" that would be backed by private sector bills of exchange rediscounted from member commercial banks.
This would just be a book entry, reducing the holdings of government debt and replacing government securities with private sector bills of exchange. The Federal Reserve Bank Notes and the Federal Reserve Notes were indistinguishable in appearance, so it would be unnecessary actually to print new notes — just change the backing of the notes. In this way the debt-backed currency would become an asset-backed currency.
The system was allowed to work properly for two years before World War I changed everything. Salmon P. Chase had decided to finance the Union war effort during the Civil War by issuing debt instead of raising taxes. Chase wanted to be president, and raising taxes is a very unpopular move. According to Charles Conant and other financial experts, had Chase imposed the higher taxes he was eventually forced to adopt even a year earlier, the country would have avoided most of the 600% inflation that eventually destroyed a large number of small businessmen and farmers when the government had to restore its "faith and credit" after the war, and used deflation to do so.
In 1917 the politicians made the same decision as Chase, although in their case it was so they would remain in office rather than get elected. The effect was the same, however. Borrowing money or monetizing deficits is always more popular than raising taxes, even though the potential for harm is infinitely greater, as the world has found to its cost with the current economic downturn and global debt crisis.
The First Liberty Loan issue drained virtually all available liquidity out of the system. When the Second Liberty Loan issue came out, no one had any money to buy the bonds. The commercial banks then stepped in and patriotically purchased the bonds — using the loophole in the Federal Reserve Act intended to provide for the gradual retirement of the National Bank Notes — then turned around and sold the bonds to the Federal Reserve on the "open market." A way had been found to circumvent the intended prohibition against monetizing government deficits.
#30#
The idea was that the Federal Reserve would gradually purchase the government bonds that backed the National Bank Notes. They would thus assume the liability for the National Bank Notes, and replace them with "Federal Reserve Bank Notes," which would then be backed by the government bonds the Federal Reserve had purchased on the open market from the National Banks. These government debt-backed Federal Reserve Bank Notes would in turn be replaced with "Federal Reserve Notes" that would be backed by private sector bills of exchange rediscounted from member commercial banks.
This would just be a book entry, reducing the holdings of government debt and replacing government securities with private sector bills of exchange. The Federal Reserve Bank Notes and the Federal Reserve Notes were indistinguishable in appearance, so it would be unnecessary actually to print new notes — just change the backing of the notes. In this way the debt-backed currency would become an asset-backed currency.
The system was allowed to work properly for two years before World War I changed everything. Salmon P. Chase had decided to finance the Union war effort during the Civil War by issuing debt instead of raising taxes. Chase wanted to be president, and raising taxes is a very unpopular move. According to Charles Conant and other financial experts, had Chase imposed the higher taxes he was eventually forced to adopt even a year earlier, the country would have avoided most of the 600% inflation that eventually destroyed a large number of small businessmen and farmers when the government had to restore its "faith and credit" after the war, and used deflation to do so.
In 1917 the politicians made the same decision as Chase, although in their case it was so they would remain in office rather than get elected. The effect was the same, however. Borrowing money or monetizing deficits is always more popular than raising taxes, even though the potential for harm is infinitely greater, as the world has found to its cost with the current economic downturn and global debt crisis.
The First Liberty Loan issue drained virtually all available liquidity out of the system. When the Second Liberty Loan issue came out, no one had any money to buy the bonds. The commercial banks then stepped in and patriotically purchased the bonds — using the loophole in the Federal Reserve Act intended to provide for the gradual retirement of the National Bank Notes — then turned around and sold the bonds to the Federal Reserve on the "open market." A way had been found to circumvent the intended prohibition against monetizing government deficits.
#30#
Friday, July 27, 2012
News from the Network, Vol. 5, No. 30
As of this writing the Dow is up over 13,000. That may or may not be the case by the time the market closes, but for now the "investing community" (i.e., gambling club) is jubilant. The reason given in the news reports (after the gloom and doom of the possibility of the European debt crisis spreading its tentacles into the U.S.) is that the Federal Reserve is contemplating yet another round of stimulus spending. In other words, the market plunged over fears that the European governments were borrowing too much money to spend, and went wild over the possibility that the U.S. government would borrow more money to spend.
This is not as crazy as you might think. The money the Europeans keep pouring into the situation gets spent directly by the governments, usually in the form of some kind of public benefits paid to people who will use it for consumption. There is no possibility of a return on this money, so the Europeans are, naturally, hesitant about printing up more money. All it does is increase inflationary pressure on the economy.
The U.S. situation is a little different. The stimulus money does not get paid directly to people who will use it for consumption, or to companies that will use it to expand operations to produce marketable goods and services. Instead, the stimulus money generally ends up by one route or another in the stock market.
Strange as it may seem, while this fuels speculation and price inflation on Wall Street, it is not the cause of the inflation U.S. consumers are experiencing. That is due to other factors, giving the illusion that, as Keynes asserted, a rise in the price level before full employment is reached is not "real" inflation.
The proposed stimulus would be a boon to the gamblers on Wall Street because it would add to the volatility of the market. This is one instance where the lack of capital ownership in the form of corporate equity by most people is something of a benefit, although of the form the Germans call "Shattenfreude," or "shadow joy." Not owning shares, ordinary people won't suffer the consequences of the inevitable crash. They'll just take a bath from the fact that the productive sector will take a hit — unless Capital Homesteading has been implemented.
Once Capital Homesteading is in place, of course, let the gamblers on Wall Street play all they want, just as long as they use their own money, not something for which the taxpayer is eventually on the hook. To see if we can hurry that day along a little, here's what we've been doing this week:
• This past week the CESJ research library received a copy of Franz H. Mueller's The Church and the Social Question (1984), a brief history of the development of Catholic social thought in the United States. Dr. Mueller was a colleague of Oswald von Nell-Breuning, Gustav Gundlach, Heinrich Rommen and Goetz Briefs of the Königswinterkreis, all of whom were students of Heinrich Pesch. Not surprisingly, much of what Dr. Mueller had to say fits in very well with our analysis of the omission from Vocation of the Business Leader, the recent document from the Pontifical Council for Justice and Peace. What was surprising (given the insistence of some experts who call themselves "solidarists") is that Dr. Mueller drew the same conclusion regarding the tendency among many Catholics and others to push for a return to a social order based on status rather than contract (distribution based on need rather than equivalence or proportionality of inputs), an arrangement that would seriously hamper the functioning of both solidarity and subsidiarity, and necessarily assigns far too great a role to the State.
• Another interesting bit of information from Dr. Meuller's book is that, despite the enthusiasm then and now for the Keynesian New Deal, the Catholic Central Verein of America (the first organization in the U.S. with a mandate for Catholic Action) expressed reservations about the socialist and statist tendencies of the New Deal and Msgr. John A. Ryan's support for it.
• A number of CESJ publications are being featured in the first "issue" of an e-flyer that will be sent out by the Irish Special Interest Group of American Mensa. If you would like to receive the flyer (and forward it to your network, and your network to theirs, and so on), visit the website of the Irish SIG and sign up for the free subscription to the Irish SIG newsletter, Litir Scéala an tSIG Gaelach. Be sure to do this before Tuesday, July 31, 2012 and "validate" your subscription by clicking on the link that Google will send you, or you will not receive the flyer. This is a test to see how well the Just Third Way network can use the social media to help spread the word in the most efficient and cost-effective manner.
• Guy S. in Iowa has been posting a great many items about the compatibility of the Just Third Way with the thought of Bishop Fulton Sheen, a TV personality back when "TV" stood for "thoughtful" and "visionary." Sheen's comments, especially in Communism and the Conscience of the West (1948), are a refreshing change of pace from so much social thought that seems to take for granted that anything social is necessarily socialist — an assumption that neither capitalists nor socialists question.
• As of this morning, we have had visitors from 51 different countries and 48 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Poland, Germany, Iran, the United States and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "News from the Network Vol. 5 No. 27," and "Thomas Hobbes on Private Property."
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.
#30#
This is not as crazy as you might think. The money the Europeans keep pouring into the situation gets spent directly by the governments, usually in the form of some kind of public benefits paid to people who will use it for consumption. There is no possibility of a return on this money, so the Europeans are, naturally, hesitant about printing up more money. All it does is increase inflationary pressure on the economy.
The U.S. situation is a little different. The stimulus money does not get paid directly to people who will use it for consumption, or to companies that will use it to expand operations to produce marketable goods and services. Instead, the stimulus money generally ends up by one route or another in the stock market.
Strange as it may seem, while this fuels speculation and price inflation on Wall Street, it is not the cause of the inflation U.S. consumers are experiencing. That is due to other factors, giving the illusion that, as Keynes asserted, a rise in the price level before full employment is reached is not "real" inflation.
The proposed stimulus would be a boon to the gamblers on Wall Street because it would add to the volatility of the market. This is one instance where the lack of capital ownership in the form of corporate equity by most people is something of a benefit, although of the form the Germans call "Shattenfreude," or "shadow joy." Not owning shares, ordinary people won't suffer the consequences of the inevitable crash. They'll just take a bath from the fact that the productive sector will take a hit — unless Capital Homesteading has been implemented.
Once Capital Homesteading is in place, of course, let the gamblers on Wall Street play all they want, just as long as they use their own money, not something for which the taxpayer is eventually on the hook. To see if we can hurry that day along a little, here's what we've been doing this week:
• This past week the CESJ research library received a copy of Franz H. Mueller's The Church and the Social Question (1984), a brief history of the development of Catholic social thought in the United States. Dr. Mueller was a colleague of Oswald von Nell-Breuning, Gustav Gundlach, Heinrich Rommen and Goetz Briefs of the Königswinterkreis, all of whom were students of Heinrich Pesch. Not surprisingly, much of what Dr. Mueller had to say fits in very well with our analysis of the omission from Vocation of the Business Leader, the recent document from the Pontifical Council for Justice and Peace. What was surprising (given the insistence of some experts who call themselves "solidarists") is that Dr. Mueller drew the same conclusion regarding the tendency among many Catholics and others to push for a return to a social order based on status rather than contract (distribution based on need rather than equivalence or proportionality of inputs), an arrangement that would seriously hamper the functioning of both solidarity and subsidiarity, and necessarily assigns far too great a role to the State.
• Another interesting bit of information from Dr. Meuller's book is that, despite the enthusiasm then and now for the Keynesian New Deal, the Catholic Central Verein of America (the first organization in the U.S. with a mandate for Catholic Action) expressed reservations about the socialist and statist tendencies of the New Deal and Msgr. John A. Ryan's support for it.
• A number of CESJ publications are being featured in the first "issue" of an e-flyer that will be sent out by the Irish Special Interest Group of American Mensa. If you would like to receive the flyer (and forward it to your network, and your network to theirs, and so on), visit the website of the Irish SIG and sign up for the free subscription to the Irish SIG newsletter, Litir Scéala an tSIG Gaelach. Be sure to do this before Tuesday, July 31, 2012 and "validate" your subscription by clicking on the link that Google will send you, or you will not receive the flyer. This is a test to see how well the Just Third Way network can use the social media to help spread the word in the most efficient and cost-effective manner.
• Guy S. in Iowa has been posting a great many items about the compatibility of the Just Third Way with the thought of Bishop Fulton Sheen, a TV personality back when "TV" stood for "thoughtful" and "visionary." Sheen's comments, especially in Communism and the Conscience of the West (1948), are a refreshing change of pace from so much social thought that seems to take for granted that anything social is necessarily socialist — an assumption that neither capitalists nor socialists question.
• As of this morning, we have had visitors from 51 different countries and 48 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Poland, Germany, Iran, the United States and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "News from the Network Vol. 5 No. 27," and "Thomas Hobbes on Private Property."
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.
#30#
Thursday, July 26, 2012
Lies, Damned Lies, and Definitions, XXII: Currency School v. Banking School
As we saw in yesterday's posting, bad assumptions about how new capital is financed virtually ensured that only the rich had an equitable opportunity to acquire the increasingly expensive advancing technology. While commentators like Henry Adams might wax philosophical and muse with vague bafflement over the differences in societies oriented toward the Virgin or the Dynamo, characterizing one as human and the other anti-human, they ignored the real problem of the lack of access to the means of acquiring and possessing capital. Man was only building machines he could not control — control, as Kelso observed, being ownership in all codes of law — because the people working with the machines, and the people purchasing the products of the machines didn't own the machines.
Abraham Lincoln's 1862 Homestead Act opened up access to landed capital, but it did not address either other forms of capital, or the means of properly developing any capital once obtained. As a result, it seemed as if the growing disparities in wealth were a law of nature, required if there were to be any economic growth. As Keynes asserted without a shred of proof, "The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably." (John Maynard Keynes, The Economic Consequences of the Peace (1919), 2.iii.)
The problem was that Keynes considered Walter Bagehot one of the greatest economic thinkers of the 19th century — and said so, in his first major published article in 1915, "The Works of Walter Bagehot." (The Economic Journal, 25:369-375.) Not only was Bagehot an elitist who wrote favorably of the contributions of Thomas Hobbes to political science and sneered at Magna Charta, his economic and financial thinking was pure "currency school."
That is, Bagehot dismissed Say's Law of Markets, ridiculed the real bills doctrine, maintained the fiction that the only way to finance new capital formation is to cut consumption and save, and defined money as currency, limiting it to gold, silver, and government-emitted bills of credit. Keynes adopted Bagehot's views almost in their entirety, with the exception that Keynes, buying in to Georg Friedrich Knapp's "chartalism" that is the basis of "Modern Monetary Theory," saw no need for a gold and silver currency if the government had the power to force its bills of credit on the economy as a fiat currency.
Superficially similar to an asset-backed currency resulting from the discounting and rediscounting of private sector bills of credit, a government debt-backed fiat currency is one of the most deceptive weapons in the Keynesian arsenal. Most people either see no difference between a commercial or central bank creating money backed by private sector assets, and the same institutions creating money backed by government debt, or are convinced that, given the belief that only the State should create money, all private sector bills of exchange must be outlawed, and the whole of the money supply should consist of government-issued bills of credit.
Prior to World War I, the "bullionist" faction of the currency school held center stage. Due to the flood of silver on world markets, a silver-based or bimetallic currency was considered inadequate, unsafe, or inflationary. This left gold as the preferred monetary metal, and silver was largely demonetized throughout the world by the end of the 19th century. Still, not realizing that the bulk of financial transactions in any advanced economy were carried out by means of private sector bills of exchange, the debate among most economists was whether a specie currency of gold or backed by gold, a paper currency backed by government debt, or some combination thereof was the soundest arrangement.
By and large, it was felt that a gold currency supplemented with a government debt-backed paper currency was the safest. The financial upheavals of the 19th century, starting with the Panic of 1825, made politicians leery of relying too heavily on government debt, but the supply of gold was clearly inadequate for the needs of commerce. An inelastic (that is, fixed) currency that preserved the faith and credit of the government so that future debt issues could be easily floated at need was what the politicians wanted to hear — and that is what Bagehot told them.
The U.S. Federal Reserve System, following the lead of the Reichsbank, broke away from the currency school model in 1913, and adopted the banking school model based on Say's Law of Markets and the real bills doctrine. The banking school model provides for an elastic currency that expands and contracts directly with the needs of commerce. This is done by discounting and rediscounting bills of exchange, thereby backing the paper currency with private sector hard assets.
As a conservative measure to satisfy Republican demands, the fixed or "inelastic" portion of the currency would consist of gold. Satisfying Democratic demands, there would be an "elastic" portion of the currency — but it would be backed by private sector hard assets, not government debt. Thus the country would have a sound currency convertible into gold on demand, but at the same time have the capacity to expand and contract if more or less money was needed in the economy, but without the need for government action to increase or decrease outstanding debt.
Meeting the political needs of both parties as well as the financial and economic needs of all sectors of the economy, the Federal Reserve Act was considered one of the greatest legislative achievements ever made by Congress. It lasted for two years before the politicians found a way to circumvent the system for their own advantage.
#30#
Abraham Lincoln's 1862 Homestead Act opened up access to landed capital, but it did not address either other forms of capital, or the means of properly developing any capital once obtained. As a result, it seemed as if the growing disparities in wealth were a law of nature, required if there were to be any economic growth. As Keynes asserted without a shred of proof, "The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably." (John Maynard Keynes, The Economic Consequences of the Peace (1919), 2.iii.)
The problem was that Keynes considered Walter Bagehot one of the greatest economic thinkers of the 19th century — and said so, in his first major published article in 1915, "The Works of Walter Bagehot." (The Economic Journal, 25:369-375.) Not only was Bagehot an elitist who wrote favorably of the contributions of Thomas Hobbes to political science and sneered at Magna Charta, his economic and financial thinking was pure "currency school."
That is, Bagehot dismissed Say's Law of Markets, ridiculed the real bills doctrine, maintained the fiction that the only way to finance new capital formation is to cut consumption and save, and defined money as currency, limiting it to gold, silver, and government-emitted bills of credit. Keynes adopted Bagehot's views almost in their entirety, with the exception that Keynes, buying in to Georg Friedrich Knapp's "chartalism" that is the basis of "Modern Monetary Theory," saw no need for a gold and silver currency if the government had the power to force its bills of credit on the economy as a fiat currency.
Superficially similar to an asset-backed currency resulting from the discounting and rediscounting of private sector bills of credit, a government debt-backed fiat currency is one of the most deceptive weapons in the Keynesian arsenal. Most people either see no difference between a commercial or central bank creating money backed by private sector assets, and the same institutions creating money backed by government debt, or are convinced that, given the belief that only the State should create money, all private sector bills of exchange must be outlawed, and the whole of the money supply should consist of government-issued bills of credit.
Prior to World War I, the "bullionist" faction of the currency school held center stage. Due to the flood of silver on world markets, a silver-based or bimetallic currency was considered inadequate, unsafe, or inflationary. This left gold as the preferred monetary metal, and silver was largely demonetized throughout the world by the end of the 19th century. Still, not realizing that the bulk of financial transactions in any advanced economy were carried out by means of private sector bills of exchange, the debate among most economists was whether a specie currency of gold or backed by gold, a paper currency backed by government debt, or some combination thereof was the soundest arrangement.
By and large, it was felt that a gold currency supplemented with a government debt-backed paper currency was the safest. The financial upheavals of the 19th century, starting with the Panic of 1825, made politicians leery of relying too heavily on government debt, but the supply of gold was clearly inadequate for the needs of commerce. An inelastic (that is, fixed) currency that preserved the faith and credit of the government so that future debt issues could be easily floated at need was what the politicians wanted to hear — and that is what Bagehot told them.
The U.S. Federal Reserve System, following the lead of the Reichsbank, broke away from the currency school model in 1913, and adopted the banking school model based on Say's Law of Markets and the real bills doctrine. The banking school model provides for an elastic currency that expands and contracts directly with the needs of commerce. This is done by discounting and rediscounting bills of exchange, thereby backing the paper currency with private sector hard assets.
As a conservative measure to satisfy Republican demands, the fixed or "inelastic" portion of the currency would consist of gold. Satisfying Democratic demands, there would be an "elastic" portion of the currency — but it would be backed by private sector hard assets, not government debt. Thus the country would have a sound currency convertible into gold on demand, but at the same time have the capacity to expand and contract if more or less money was needed in the economy, but without the need for government action to increase or decrease outstanding debt.
Meeting the political needs of both parties as well as the financial and economic needs of all sectors of the economy, the Federal Reserve Act was considered one of the greatest legislative achievements ever made by Congress. It lasted for two years before the politicians found a way to circumvent the system for their own advantage.
#30#
Wednesday, July 25, 2012
Lies, Damned Lies, and Definitions, XXI: The Economics of Banking
In his Essay on the Restoration of Property (1936), Hilaire Belloc observed that the "small" man, that is, someone who is not rich, is not as "interesting" (read "profitable") to bankers as the "large" man. This makes sense. A bank is in business to make a profit. It is much easier to service one large account than a hundred smaller accounts that total the same amount loaned. The gross revenue generated by many small accounts is greater than that realized from a large account for the same amount, but so are the costs and the time and trouble.
The real problem, however, is not the added costs of servicing many small accounts. The loan process can be streamlined without sacrificing proper scrutiny, especially with modern communications. With the proper system and oversight, a commercial bank could make at least as much servicing a large number of small accounts, rather than a small number of large accounts.
The real problem is the way commercial banking has usually operated. There is a "double standard" when it comes to how loans are made, and has been at least since the British Bank Charter Act of 1844 and its clone, the National Banking Act of 1863, as amended 1864. This is because loans for the "small" man most often come out of existing accumulations of savings, whereas loans for the "large" man typically involve creating new money by accepting bills of exchange.
In theory, of course, a bill of exchange offered for discounting or rediscounting at a commercial bank can be in any amount. In practice, the minimum denomination of the promissory note — "commercial paper" — that is issued by a bank on acceptance of a bill is $100,000, with million-dollar multiples being more usual. A commercial bank with excess reserves — existing savings — may lend them directly to "small" men, and reserve its money creation power to "large" men, if only because it is easier for the bank to rediscount large denomination commercial paper and make an immediate profit, than wait to redeem the paper on maturity.
This was the case in the United States following the Civil War. The National Banking Act of 1863 imposed an inelastic paper currency backed with government debt on the country — the National Bank Notes. This was to replace the inflated United States Notes (the "Greenbacks") with which the federal government had financed the war. The idea was to deflate the Greenback currency to restore parity with gold, resume convertibility of the Greenbacks into gold once the faith and credit of the federal government was restored, then meet the needs of daily commerce with the National Bank Notes (also convertible into gold), supplemented with gold and token silver.
The problem was that standard banking practice limited the "small" men to existing pools of savings. During this period the policy of deflation (at first official, then unofficial) to restore parity of the paper currency with gold drained existing savings out of the economy.
Primarily this was to meet loan payments for debts incurred when prices were high, and that now had to be repaid when prices were low. As William Jennings Bryan put it, farmers had taken out loans when wheat was (for example) $2 per bushel, and now had to pay back the loans when wheat was 50¢ per bushel. A farmer thus had to pay back four times what he had borrowed, plus the interest on the loan.
Consequently, the homesteaders and small businessmen were unable to get sufficient credit to develop their holdings properly. They generally relied on mortgages rather than traditional commercial loans, paying the interest and refinancing when the balloon payment came due. This destroyed many farms during the Great Depression of the 1930s when banks stopped renewing mortgages that had in some cases been outstanding for sixty or seventy years or more.
At the same time, the "large" men were able to get all the credit they needed (and then some) by drawing bills of exchange and either using them directly as money, or discounting them at commercial banks. Their access to credit was limited only by the financial feasibility of the capital projects in which they invested, not by the amount by which consumption had been decreased in the past.
#30#
The real problem, however, is not the added costs of servicing many small accounts. The loan process can be streamlined without sacrificing proper scrutiny, especially with modern communications. With the proper system and oversight, a commercial bank could make at least as much servicing a large number of small accounts, rather than a small number of large accounts.
The real problem is the way commercial banking has usually operated. There is a "double standard" when it comes to how loans are made, and has been at least since the British Bank Charter Act of 1844 and its clone, the National Banking Act of 1863, as amended 1864. This is because loans for the "small" man most often come out of existing accumulations of savings, whereas loans for the "large" man typically involve creating new money by accepting bills of exchange.
In theory, of course, a bill of exchange offered for discounting or rediscounting at a commercial bank can be in any amount. In practice, the minimum denomination of the promissory note — "commercial paper" — that is issued by a bank on acceptance of a bill is $100,000, with million-dollar multiples being more usual. A commercial bank with excess reserves — existing savings — may lend them directly to "small" men, and reserve its money creation power to "large" men, if only because it is easier for the bank to rediscount large denomination commercial paper and make an immediate profit, than wait to redeem the paper on maturity.
This was the case in the United States following the Civil War. The National Banking Act of 1863 imposed an inelastic paper currency backed with government debt on the country — the National Bank Notes. This was to replace the inflated United States Notes (the "Greenbacks") with which the federal government had financed the war. The idea was to deflate the Greenback currency to restore parity with gold, resume convertibility of the Greenbacks into gold once the faith and credit of the federal government was restored, then meet the needs of daily commerce with the National Bank Notes (also convertible into gold), supplemented with gold and token silver.
The problem was that standard banking practice limited the "small" men to existing pools of savings. During this period the policy of deflation (at first official, then unofficial) to restore parity of the paper currency with gold drained existing savings out of the economy.
Primarily this was to meet loan payments for debts incurred when prices were high, and that now had to be repaid when prices were low. As William Jennings Bryan put it, farmers had taken out loans when wheat was (for example) $2 per bushel, and now had to pay back the loans when wheat was 50¢ per bushel. A farmer thus had to pay back four times what he had borrowed, plus the interest on the loan.
Consequently, the homesteaders and small businessmen were unable to get sufficient credit to develop their holdings properly. They generally relied on mortgages rather than traditional commercial loans, paying the interest and refinancing when the balloon payment came due. This destroyed many farms during the Great Depression of the 1930s when banks stopped renewing mortgages that had in some cases been outstanding for sixty or seventy years or more.
At the same time, the "large" men were able to get all the credit they needed (and then some) by drawing bills of exchange and either using them directly as money, or discounting them at commercial banks. Their access to credit was limited only by the financial feasibility of the capital projects in which they invested, not by the amount by which consumption had been decreased in the past.
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Tuesday, July 24, 2012
Lies, Damned Lies, and Definitions, XX: The British Bank Charter Act of 1844
Rather disingenuously, on the first page of Lombard Street — in the first paragraph, in fact — Bagehot declared that he would not be taking part in the controversies surrounding Sir Robert Peel's Bank Charter Act of 1844. This was more than a little hypocritical, for he then proceeded to speak of the Act in favorable terms, and to base his entire analysis on the presumption that the Act was permanently valid and a sound expression of guidelines for the regulation of money, credit, and banking.
The framers of the act, faithful adherents of the inelastic currency faction of the British Currency School of finance, considered gold the only "real" money. Banknotes were considered, at best, a substitute for gold. Under the Currency School, then, a commercial bank's power to create demand deposits backed by bills of exchange drawn by private sector individuals and businesses was not affected — or even considered, as John Fullarton and N. G. Pierson noted. (Moulton, Principles of Money and Banking, op. cit., II.234.)
Some authorities consider the Act the beginning of the gold standard in Great Britain, but this had already effectively been implemented with the "New Coinage" of 1816, which made silver subsidiary to gold, although paradoxically the official unit of value remained the Roman pound of silver, the "pound sterling," divided into 240 pennyweights. By 1816, of course, the so-called pound sterling was worth nowhere near the value of an actual Roman pound of silver. Attempts to maintain bimetallism (that is, a fixed rate of exchange between gold and silver) had virtually destroyed the British currency in the 18th century.
British banks that had previously issued bank notes were permitted to maintain those already in circulation, but the Act was intended to discourage further issues and force withdrawal of existing notes. The government was permitted to issue up to £14 million worth of notes backed by State securities, euphemistically referred to as "government stock." By the time Bagehot wrote in 1873, the statutory amount had been adjusted a number of times in response to recurring financial crises brought on by reliance on an inelastic currency. The ruling assumption was that any increase in the currency was to come from an increase in the gold supply; all new issues of notes by the Bank of England were to be subject to a 100% reserve requirement in gold.
The Bank Charter Act of 1844 (consistent with the view that the State and not the people is sovereign) was not absolute. The government retained the power to suspend the Act in cases of financial emergency, and to have the Bank of England issue additional notes backed by government securities, thus granting the State the power to impose an elastic, debt-backed currency at will, despite the official commitment to an inelastic, gold-backed currency. Not surprisingly, this happened regularly, almost every ten years: 1847, 1857, and 1866, incidents that Bagehot made a great effort to justify.
Thus, while the Act was considered a victory for the inelastic currency faction of the British Currency School and its doctrine that the issue of new banknotes was in and of itself a major cause of price inflation, the Act was only allowed to function when it suited the government — meaning (according to Bagehot) the propertied classes who controlled the House of Commons, who used their protected monopoly on existing accumulations of savings to great advantage.
Further (as we have seen), because of the naiveté over money, credit, and banking embodied in the Act, demand deposits were not considered part of the money supply. This is understandable, for if gold is the only "real" money, everything else is either a substitute or replacement for gold. Consistent with divine right, however, the State, in the person of the king or queen (or, for Bagehot, the House of Commons), can declare that State debt is as "good as gold." If anyone else attempted this same operation it would be theft, for no one other than a divine right sovereign can have the same God-given power of financial transubstantiation to turn government debt paper into bars of gold, having the outward appearance of paper, but which in reality is precious metal.
Demand deposits as well as bills of exchange fall outside this rather limited understanding of the institution of money. Demand deposits — "checking accounts" — ultimately involve exchanges and contracts between private individuals, not the State, and a check is not legal tender currency. Nevertheless, as Harold Moulton was to observe in his 1935 classic work on the science of finance, The Formation of Capital, extension of bank credit supplied the primary financing for capital formation in the United States during the 19th century. Obviously, given the similar dramatic increase in demand deposits in Great Britain during the same period, economic growth and development may have been hampered somewhat by the Bank Charter Act of 1844 and the antics of the government, but it was not halted.
What was hampered by the Act and other factors (such as the lack of limited liability for corporations in the United Kingdom until 1855) was widespread access to the means of acquiring and possessing property. While bank credit was supplying the primary financing for economic growth, the universal requirement that commercial loans be adequately collateralized (a requirement based, in part, on the belief that only accumulated savings could be used to finance capital formation) restricted ownership of most new capital to the already wealthy. At the same time, new conceptions of property that dismissed its roots in the natural law allowed control over the capital to pass to a new rising management class that, in many cases, did not own: Pius XI's "economic dictatorship." (See Kelso and Adler, The Capitalist Manifesto, op. cit., 117-129, esp., 119-120 in the discussion on Milovan Djilas's book, The New Class (1957).)
#30#
The framers of the act, faithful adherents of the inelastic currency faction of the British Currency School of finance, considered gold the only "real" money. Banknotes were considered, at best, a substitute for gold. Under the Currency School, then, a commercial bank's power to create demand deposits backed by bills of exchange drawn by private sector individuals and businesses was not affected — or even considered, as John Fullarton and N. G. Pierson noted. (Moulton, Principles of Money and Banking, op. cit., II.234.)
Some authorities consider the Act the beginning of the gold standard in Great Britain, but this had already effectively been implemented with the "New Coinage" of 1816, which made silver subsidiary to gold, although paradoxically the official unit of value remained the Roman pound of silver, the "pound sterling," divided into 240 pennyweights. By 1816, of course, the so-called pound sterling was worth nowhere near the value of an actual Roman pound of silver. Attempts to maintain bimetallism (that is, a fixed rate of exchange between gold and silver) had virtually destroyed the British currency in the 18th century.
British banks that had previously issued bank notes were permitted to maintain those already in circulation, but the Act was intended to discourage further issues and force withdrawal of existing notes. The government was permitted to issue up to £14 million worth of notes backed by State securities, euphemistically referred to as "government stock." By the time Bagehot wrote in 1873, the statutory amount had been adjusted a number of times in response to recurring financial crises brought on by reliance on an inelastic currency. The ruling assumption was that any increase in the currency was to come from an increase in the gold supply; all new issues of notes by the Bank of England were to be subject to a 100% reserve requirement in gold.
The Bank Charter Act of 1844 (consistent with the view that the State and not the people is sovereign) was not absolute. The government retained the power to suspend the Act in cases of financial emergency, and to have the Bank of England issue additional notes backed by government securities, thus granting the State the power to impose an elastic, debt-backed currency at will, despite the official commitment to an inelastic, gold-backed currency. Not surprisingly, this happened regularly, almost every ten years: 1847, 1857, and 1866, incidents that Bagehot made a great effort to justify.
Thus, while the Act was considered a victory for the inelastic currency faction of the British Currency School and its doctrine that the issue of new banknotes was in and of itself a major cause of price inflation, the Act was only allowed to function when it suited the government — meaning (according to Bagehot) the propertied classes who controlled the House of Commons, who used their protected monopoly on existing accumulations of savings to great advantage.
Further (as we have seen), because of the naiveté over money, credit, and banking embodied in the Act, demand deposits were not considered part of the money supply. This is understandable, for if gold is the only "real" money, everything else is either a substitute or replacement for gold. Consistent with divine right, however, the State, in the person of the king or queen (or, for Bagehot, the House of Commons), can declare that State debt is as "good as gold." If anyone else attempted this same operation it would be theft, for no one other than a divine right sovereign can have the same God-given power of financial transubstantiation to turn government debt paper into bars of gold, having the outward appearance of paper, but which in reality is precious metal.
Demand deposits as well as bills of exchange fall outside this rather limited understanding of the institution of money. Demand deposits — "checking accounts" — ultimately involve exchanges and contracts between private individuals, not the State, and a check is not legal tender currency. Nevertheless, as Harold Moulton was to observe in his 1935 classic work on the science of finance, The Formation of Capital, extension of bank credit supplied the primary financing for capital formation in the United States during the 19th century. Obviously, given the similar dramatic increase in demand deposits in Great Britain during the same period, economic growth and development may have been hampered somewhat by the Bank Charter Act of 1844 and the antics of the government, but it was not halted.
What was hampered by the Act and other factors (such as the lack of limited liability for corporations in the United Kingdom until 1855) was widespread access to the means of acquiring and possessing property. While bank credit was supplying the primary financing for economic growth, the universal requirement that commercial loans be adequately collateralized (a requirement based, in part, on the belief that only accumulated savings could be used to finance capital formation) restricted ownership of most new capital to the already wealthy. At the same time, new conceptions of property that dismissed its roots in the natural law allowed control over the capital to pass to a new rising management class that, in many cases, did not own: Pius XI's "economic dictatorship." (See Kelso and Adler, The Capitalist Manifesto, op. cit., 117-129, esp., 119-120 in the discussion on Milovan Djilas's book, The New Class (1957).)
#30#
Monday, July 23, 2012
Lies, Damned Lies, and Definitions, XIX: Lombard Street
Bagehot's 1873 book, Lombard Street: A Description of the Money Market, is an application of Bagehot's theories of sovereignty described in The English Constitution. In this, we can draw an analogy: The English Constitution is to Lombard Street, as Smith's The Theory of Moral Sentiments (1759) is to The Wealth of Nations (1776). Both men applied their philosophical orientation more or less consistently in books that attempt to describe the way economic society works.
There is, however, a significant difference between these two influential thinkers. Where Smith dismissed the idea of widespread ownership of the means of production as essentially irrelevant, falling into an inadvertent elitism, Bagehot embraced a political — and thus economic — system that assumed a political (and thereby financial) elite as a given and a positive good, as a necessity, in fact, if society is to advance socially, economically, and politically. Less than half a century later Keynes would take Bagehot's assertions as proven fact, and base his entire economic theory on the assumption of the absolute necessity for existing accumulations of savings to finance capital formation.
On the other hand, consistent with his "invisible hand" argument, Smith believed that the fundamental human right to own a meaningful amount of capital is adequately secured through our possession of human labor. Since he reasoned that those with property in capital will always require the labor of those without property in capital to satisfy their wants and needs, human labor will always be in demand. The worker who owns no capital will always be able to enjoy an adequate and secure income through the sale of his labor. Legal title to the means of production doesn't matter because (as others came to accept as a matter of course), "Neither capital can do without labor, nor labor without capital." (Leo XIII, Rerum Novarum, § 28.)
A problem surfaces, however, when technology begins to take over the bulk of the manual input to production, replacing human toil. As Charles Babbage pointed out in his essay, On the Economy of Machinery and Manufactures (1835), while technology makes for an independent (though not autonomous) addition to the mere animal power of humanity, it does not change a human being's physical capabilities:
"(4.) The advantages which are derived from machinery and manufactures seem to arise principally from three sources: The addition which they make to human power. — The economy they produce of human time. — The conversion of substances apparently common and worthless into valuable products.
"(5.) Of additions to human power. With respect to the first of these causes, the forces derived from wind, from water, and from steam, present themselves to the mind of every one; these are, in fact, additions to human power, and will be considered in a future page: there are, however, other sources of its increase, by which the animal force of the individual is itself made to act with far greater than its unassisted power; and to these we shall at present confine our observations." (Charles Babbage, On the Economy of Machinery and Manufactures. London: Charles Knight, 1835, 6.)
Because the income generated by technology belongs by natural right to the owner(s) of the technology, the propertyless worker is left out in the cold. A similar problem happens when companies shift factories to areas or countries that have lower wage rates. Jobs disappear, and society is disrupted. Technological advance and globalization, morally neutral yet potentially beneficial things, become perceived as inherently and objectively evil.
What Smith might consider an unfortunate but inevitable working of economic laws (actually a distortion of economic laws), however, Bagehot, and Keynes after him, regarded as the proper ordering of society. Like Keynes, Bagehot rejected the substance of democracy, while calling his system democratic. The only real issue was whether the elite that controlled the economy should be an unaccountable private elite, as Bagehot supposed, or a marginally accountable public elite, as Keynes proposed. This, of course, depended on who controlled money and credit, and thus both political and economic power.
#30#
There is, however, a significant difference between these two influential thinkers. Where Smith dismissed the idea of widespread ownership of the means of production as essentially irrelevant, falling into an inadvertent elitism, Bagehot embraced a political — and thus economic — system that assumed a political (and thereby financial) elite as a given and a positive good, as a necessity, in fact, if society is to advance socially, economically, and politically. Less than half a century later Keynes would take Bagehot's assertions as proven fact, and base his entire economic theory on the assumption of the absolute necessity for existing accumulations of savings to finance capital formation.
On the other hand, consistent with his "invisible hand" argument, Smith believed that the fundamental human right to own a meaningful amount of capital is adequately secured through our possession of human labor. Since he reasoned that those with property in capital will always require the labor of those without property in capital to satisfy their wants and needs, human labor will always be in demand. The worker who owns no capital will always be able to enjoy an adequate and secure income through the sale of his labor. Legal title to the means of production doesn't matter because (as others came to accept as a matter of course), "Neither capital can do without labor, nor labor without capital." (Leo XIII, Rerum Novarum, § 28.)
A problem surfaces, however, when technology begins to take over the bulk of the manual input to production, replacing human toil. As Charles Babbage pointed out in his essay, On the Economy of Machinery and Manufactures (1835), while technology makes for an independent (though not autonomous) addition to the mere animal power of humanity, it does not change a human being's physical capabilities:
"(4.) The advantages which are derived from machinery and manufactures seem to arise principally from three sources: The addition which they make to human power. — The economy they produce of human time. — The conversion of substances apparently common and worthless into valuable products.
"(5.) Of additions to human power. With respect to the first of these causes, the forces derived from wind, from water, and from steam, present themselves to the mind of every one; these are, in fact, additions to human power, and will be considered in a future page: there are, however, other sources of its increase, by which the animal force of the individual is itself made to act with far greater than its unassisted power; and to these we shall at present confine our observations." (Charles Babbage, On the Economy of Machinery and Manufactures. London: Charles Knight, 1835, 6.)
Because the income generated by technology belongs by natural right to the owner(s) of the technology, the propertyless worker is left out in the cold. A similar problem happens when companies shift factories to areas or countries that have lower wage rates. Jobs disappear, and society is disrupted. Technological advance and globalization, morally neutral yet potentially beneficial things, become perceived as inherently and objectively evil.
What Smith might consider an unfortunate but inevitable working of economic laws (actually a distortion of economic laws), however, Bagehot, and Keynes after him, regarded as the proper ordering of society. Like Keynes, Bagehot rejected the substance of democracy, while calling his system democratic. The only real issue was whether the elite that controlled the economy should be an unaccountable private elite, as Bagehot supposed, or a marginally accountable public elite, as Keynes proposed. This, of course, depended on who controlled money and credit, and thus both political and economic power.
#30#
Friday, July 20, 2012
News from the Network, Vol. 5, No. 29
The fluctuations in the stock market continue to get wider and wider. At the same time, there are bad signals coming from Greece and Spain. Ireland, fortunately, seems to have the right approach: get busy and get to work producing marketable goods and services. Unfortunately, the economic, financial and political mavens aren't paying too much attention to the Emerald Isle — though they should be. With a few Just Third Way financing and broad-based ownership tweaks, the "can do" attitude that belies all the negative stereotypes could very easily help the Irish save civilization — again. (Truth in Propaganda: This writer is only 62 1/2% Irish and an American citizen, so it's okay to give free plugs and not have any interested motive at all.)
Despite the good attitude and actions we see coming out of Ireland, they're still operating within the flawed "Past Savings Paradigm," which slows things down. Still, there are others who might want to keep an eye on things there to see how they develop. We list a few of them here:
• Today's Wall Street Journal ("Lenders of First Resort," 07/20/12, A10) bemoans the fact that central banks are creating money in response to government stimulus packages, virtually forcing commercial banks to make unsound loans just to use up the money. The solution, of course, is obvious. First, create money only by discounting and rediscounting "real bills," that is, bills of exchange based on creditworthy projects that are reasonably expected to produce marketable goods and services within a reasonable period of time. This will create a private sector asset-backed currency. Second, stop monetizing government deficits by purchasing government securities on the "open market." This will eliminate the government debt-backed currency. Finally, make certain that all newly formed capital is broadly owned by people who will use the dividends first to pay for the capital, then for consumption. This will generate the mass purchasing power needed to make the new capital financially feasible.
• Monica and Jackie in Cleveland are moving forward with working to implement Just Third Way ideas in Cleveland. Thursday night of this week we had an hour and a half "education session" to discuss various aspects of the Citizens Land Bank proposed for the Cleveland area.
• The CESJ quarterly Board Meeting is scheduled for Saturday, July 21, 2012. Due to the heat wave and the usual "Summer Slowdown," the meeting is expected to be brief, and only the required business will be covered.
• CESJ expects to release a new publication on the restoration of property within the next 60 days. This will be in our "Paradigm Papers" series, and will probably be priced around $10-12. We'll keep you posted about advance publication sales in bulk as well as the availability of review copies in .pdf.
• We are preparing a commentary on a recent document from the Pontifical Council for Justice and Peace, Vocation of the Business Leader: A Reflection. Our position is that it could have said more about the need to open up universal access to the means of acquiring and possessing private property in capital. Not emphasizing this point usually results in people trapped in the Short Attention Span Mode (SASM) forgetting about the constant iteration of the importance of widespread direct ownership of capital in the social encyclicals.
• As of this morning, we have had visitors from 55 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Germany, Poland, Iran, the United States and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," "Thomas Hobbes on Private Property," and "Book Value v. Fair Market Value."
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.
#30#
Despite the good attitude and actions we see coming out of Ireland, they're still operating within the flawed "Past Savings Paradigm," which slows things down. Still, there are others who might want to keep an eye on things there to see how they develop. We list a few of them here:
• Today's Wall Street Journal ("Lenders of First Resort," 07/20/12, A10) bemoans the fact that central banks are creating money in response to government stimulus packages, virtually forcing commercial banks to make unsound loans just to use up the money. The solution, of course, is obvious. First, create money only by discounting and rediscounting "real bills," that is, bills of exchange based on creditworthy projects that are reasonably expected to produce marketable goods and services within a reasonable period of time. This will create a private sector asset-backed currency. Second, stop monetizing government deficits by purchasing government securities on the "open market." This will eliminate the government debt-backed currency. Finally, make certain that all newly formed capital is broadly owned by people who will use the dividends first to pay for the capital, then for consumption. This will generate the mass purchasing power needed to make the new capital financially feasible.
• Monica and Jackie in Cleveland are moving forward with working to implement Just Third Way ideas in Cleveland. Thursday night of this week we had an hour and a half "education session" to discuss various aspects of the Citizens Land Bank proposed for the Cleveland area.
• The CESJ quarterly Board Meeting is scheduled for Saturday, July 21, 2012. Due to the heat wave and the usual "Summer Slowdown," the meeting is expected to be brief, and only the required business will be covered.
• CESJ expects to release a new publication on the restoration of property within the next 60 days. This will be in our "Paradigm Papers" series, and will probably be priced around $10-12. We'll keep you posted about advance publication sales in bulk as well as the availability of review copies in .pdf.
• We are preparing a commentary on a recent document from the Pontifical Council for Justice and Peace, Vocation of the Business Leader: A Reflection. Our position is that it could have said more about the need to open up universal access to the means of acquiring and possessing private property in capital. Not emphasizing this point usually results in people trapped in the Short Attention Span Mode (SASM) forgetting about the constant iteration of the importance of widespread direct ownership of capital in the social encyclicals.
• As of this morning, we have had visitors from 55 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Germany, Poland, Iran, the United States and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," "Thomas Hobbes on Private Property," and "Book Value v. Fair Market Value."
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.
#30#
Thursday, July 19, 2012
Lies, Damned Lies, and Definitions, XVIII: Bagehot's Political Economy
As we saw in yesterday's posting, Walter Bagehot employed a Hobbesian analysis in his study of the English Constitution. This is critical in understanding his economic analysis, which was based on his (actually Hobbes's) political philosophy. (This is not unusual; to understand Adam Smith's Wealth of Nations, 1776, it is a good idea to read his Theory of Moral Sentiments, 1759.)
Bagehot's reliance on totalitarian political philosophy had the expected effect. Natural rights, the judiciary, — such things are ignored. They are unimportant because they are not "efficient," that is, they do not increase the effectiveness of government, the purpose of which is to protect the interests of the propertied classes who run the country. Weaknesses appear in government to the extent that the State administration departs from the principles of business, e.g., lack of efficient structure, unnecessary redundancy, etc. The fact that many of these structures were at least initially intended to provide accountability to the citizens is irrelevant. The capitalist of Bagehot's day — or, more accurately, the non-owning manager — was not accountable to his workforce or his customers, so the government should not be accountable to the citizens it governed.
We have seen a similar development since the 1980s in the United States with the repeal of systemic, internal control legislation such as Glass-Steagall, "the Banking Act of 1933" (Pub.L. 73_66, 48 Stat. 162, H.R. 5661), in the name of efficiency and increased competitiveness, and its replacement of sound internal controls with unenforceable government external regulation. Moulton believed that the current integration of the banking system was a grave danger to the economic and financial health of the country. Writing in 1916, Moulton stated,
"It was originally intended that the banks which created these demand obligations in exchange for short-time promises to pay would as a matter of course, and virtually of necessity, make loans for strictly commercial purposes, for unless they made commercial loans the obligations could not be liquidated within a short time. In practice, however, a large proportion of the loans made by 'commercial' banks are for investment purposes, and out of this practice have grown some of our most serious banking problems." (Moulton, Principles of Money and Banking, op. cit., II.49-50.)
Bagehot did not appear to understand that the State is not a business corporation owned by a small capitalist elite. While principles of sound business (as opposed to the structures that have grown up to support and protect capitalism and socialism) can be applied in government to great advantage, ultimately there comes a parting of the ways. A business corporation exists to make a profit and benefit the individual workers, shareholders, and customers. A government exists to keep order and care for the common good; it is not an enterprise to be run for individual benefit or profit.
By focusing solely on what was expedient ("efficient"), Bagehot dismissed the importance of personal sovereignty and the dignity of the human person, the protection and development of which is the ultimate justification for government. When a government undermines or goes against the dignity of every person, or does not respect that of various individuals or groups by securing to them their natural rights, that government dissolves the contract that binds its citizens to it. This in turn justifies a change in rulers, or even in the form of government. This was, in fact, the justification given by Thomas Jefferson in the Declaration of Independence, the basis of the U.S. Constitution . . . possibly explaining Bagehot's otherwise incomprehensible hostility toward the U.S. Constitution.
Ironically, what may have excited Bagehot's ire appears to be the very thing that led Pope Leo XIII to praise the American political system.
Leo XIII's 1899 "Apostolic Letter" to the Bishops of the United States, Testem Benevolentia. Cf. "Furthermore, the same Pope Pius IX, who supposedly was antidemocratic in his official teaching, praised the position of the Catholic Church in the United States and lauded the American Constitution as almost every pope since then has done. When the majority of the French hierarchy, according to its traditional monarchism, resisted Leo XIII's policy of ralliement to reconcile French Catholicism with the Third Republic and its democratic institutions, at the same time we hear the Apostolic Delegate, Cardinal Satolli, express the following opinion: 'The Magna Chartas of mankind are the Gospel of our Lord and the Constitution of the United States. . . . Forward on the way of progress: in one hand the book of Christian truth, the Gospels of our Lord; in the other hand the Constitution of the United States.' (Note in text: "Cf. O'Connell, 'Une idée nouvelle dans la vie du Père Hecker.' Compte rendu du 4ieme Congrès scientifique internationale des Catholiques (Fribourg, IV, 1897, 78); and Archbishop Ireland, The Church and Modern Society, I, 127.")." (Rommen, The State in Catholic Thought, op. cit., 481.)
#30#
Bagehot's reliance on totalitarian political philosophy had the expected effect. Natural rights, the judiciary, — such things are ignored. They are unimportant because they are not "efficient," that is, they do not increase the effectiveness of government, the purpose of which is to protect the interests of the propertied classes who run the country. Weaknesses appear in government to the extent that the State administration departs from the principles of business, e.g., lack of efficient structure, unnecessary redundancy, etc. The fact that many of these structures were at least initially intended to provide accountability to the citizens is irrelevant. The capitalist of Bagehot's day — or, more accurately, the non-owning manager — was not accountable to his workforce or his customers, so the government should not be accountable to the citizens it governed.
We have seen a similar development since the 1980s in the United States with the repeal of systemic, internal control legislation such as Glass-Steagall, "the Banking Act of 1933" (Pub.L. 73_66, 48 Stat. 162, H.R. 5661), in the name of efficiency and increased competitiveness, and its replacement of sound internal controls with unenforceable government external regulation. Moulton believed that the current integration of the banking system was a grave danger to the economic and financial health of the country. Writing in 1916, Moulton stated,
"It was originally intended that the banks which created these demand obligations in exchange for short-time promises to pay would as a matter of course, and virtually of necessity, make loans for strictly commercial purposes, for unless they made commercial loans the obligations could not be liquidated within a short time. In practice, however, a large proportion of the loans made by 'commercial' banks are for investment purposes, and out of this practice have grown some of our most serious banking problems." (Moulton, Principles of Money and Banking, op. cit., II.49-50.)
Bagehot did not appear to understand that the State is not a business corporation owned by a small capitalist elite. While principles of sound business (as opposed to the structures that have grown up to support and protect capitalism and socialism) can be applied in government to great advantage, ultimately there comes a parting of the ways. A business corporation exists to make a profit and benefit the individual workers, shareholders, and customers. A government exists to keep order and care for the common good; it is not an enterprise to be run for individual benefit or profit.
By focusing solely on what was expedient ("efficient"), Bagehot dismissed the importance of personal sovereignty and the dignity of the human person, the protection and development of which is the ultimate justification for government. When a government undermines or goes against the dignity of every person, or does not respect that of various individuals or groups by securing to them their natural rights, that government dissolves the contract that binds its citizens to it. This in turn justifies a change in rulers, or even in the form of government. This was, in fact, the justification given by Thomas Jefferson in the Declaration of Independence, the basis of the U.S. Constitution . . . possibly explaining Bagehot's otherwise incomprehensible hostility toward the U.S. Constitution.
Ironically, what may have excited Bagehot's ire appears to be the very thing that led Pope Leo XIII to praise the American political system.
Leo XIII's 1899 "Apostolic Letter" to the Bishops of the United States, Testem Benevolentia. Cf. "Furthermore, the same Pope Pius IX, who supposedly was antidemocratic in his official teaching, praised the position of the Catholic Church in the United States and lauded the American Constitution as almost every pope since then has done. When the majority of the French hierarchy, according to its traditional monarchism, resisted Leo XIII's policy of ralliement to reconcile French Catholicism with the Third Republic and its democratic institutions, at the same time we hear the Apostolic Delegate, Cardinal Satolli, express the following opinion: 'The Magna Chartas of mankind are the Gospel of our Lord and the Constitution of the United States. . . . Forward on the way of progress: in one hand the book of Christian truth, the Gospels of our Lord; in the other hand the Constitution of the United States.' (Note in text: "Cf. O'Connell, 'Une idée nouvelle dans la vie du Père Hecker.' Compte rendu du 4ieme Congrès scientifique internationale des Catholiques (Fribourg, IV, 1897, 78); and Archbishop Ireland, The Church and Modern Society, I, 127.")." (Rommen, The State in Catholic Thought, op. cit., 481.)
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Wednesday, July 18, 2012
Lies, Damned Lies, and Definitions, XVIII: The English Constitution
The Hobbesian Absolutist State was the framework within which Walter Bagehot developed his political and economic theories. According to his analysis, published in 1867 in The English Constitution (Walter Bagehot, The English Constitution. Portland, Oregon: Sussex Academic Press, 1997), a relatively small economic elite (not to be confused with the "Upper Ten Thousand" that ruled "society") were the real power in the country. They had gradually usurped political power since the days of the Tudors, and (according to Bagehot) properly so.
Bagehot carefully distinguished leadership in "society" (meaning parties, balls, race meets, and so on) from leadership in government and the economy. The Queen (a "retired widow") and the Prince of Wales ("an unemployed youth") were the leaders of "society" and played an important role in providing the lower classes with the easily understood fallacy that the monarch ruled the country. Bagehot called this the "dignified" aspect of the English Constitution, a social convention to pacify the unintelligent masses.
The real power, according to Bagehot, resided in the House of Commons, the House of Lords being another "dignified" aspect of the Constitution of the country. The House of Commons was "efficient" as opposed to "dignified," and, so far as the traditional structures of government allowed, ran the country essentially as a business corporation. The propertied classes were (in a sense) the shareholders of the national corporation. Common unpropertied people, as well as aristocrats whose wealth and power were in decline as agriculture diminished in relative importance, were to some extent supernumeraries, that is, redundant employees and pensioners of the national corporate State.
"Corporate State" can be taken here both as meaning a nation run as a private business enterprise for the benefit of the economic and financial elite, even if ostensibly for the benefit of all citizens — whom Bagehot held in open contempt — or as a proto fascist State, an almost inevitable outcome when the "slavery of past savings" is the basis of the economic order.
The House of Commons, elected by a relatively small number of voters, was, essentially, the board of directors of the country, "a class . . . trained to thought, full of money, and yet trained to business." (Ibid., 66.) In other words, the governing body of the British Empire was a carbon copy of the owners and upper management of the Great East India Company, a private enterprise that governed India for the Crown until 1858, eight years before Bagehot wrote The English Constitution.
Contrary to his assertion that ultimate power resided in the House of Commons, Bagehot did not support popular sovereignty. The electorate at the time he wrote, 1867, was extremely small, and composed exclusively of men of property, a financial elite which thereby secured a self-perpetuating political power — the "pocket" or "rotten borough" system. This was only right as far as Bagehot was concerned. He believed that the masses were too stupid to be able to vote or do anything other than take orders:
•"We have in a great community like England crowds of people scarcely more civilized than the majority of two thousand years ago; we have others, even more numerous, such as the best people were a thousand years since. The lower orders, the middle orders, are still, when tried by what is the standard of the educated 'ten thousand', narrow-minded, unintelligent, incurious." (Ibid., 6.)
•"We have whole classes unable to comprehend the idea of a constitution." (Ibid., 23.)
•"A free nation rarely can be — and the English nation is not — quick of apprehension." (Ibid., 74.)
According to Bagehot, "The principle of popular government is that the supreme power, the determining efficacy in matters political, resides in the people — not necessarily or commonly in the whole people, in the numerical majority, but in a chosen people, a picked and selected people." (Ibid., 17.) [Emphasis in original.] Not surprisingly, one of the "defects" Bagehot listed in the American system is the impossibility of a dictatorship in times of national emergency. (Ibid., 20.) Another problem is that Americans do not accept the opinions of their betters without question: "They have not a public opinion finished and chastened as that of the English has been finished and chastened." (Ibid., 13.)
#30#
Bagehot carefully distinguished leadership in "society" (meaning parties, balls, race meets, and so on) from leadership in government and the economy. The Queen (a "retired widow") and the Prince of Wales ("an unemployed youth") were the leaders of "society" and played an important role in providing the lower classes with the easily understood fallacy that the monarch ruled the country. Bagehot called this the "dignified" aspect of the English Constitution, a social convention to pacify the unintelligent masses.
The real power, according to Bagehot, resided in the House of Commons, the House of Lords being another "dignified" aspect of the Constitution of the country. The House of Commons was "efficient" as opposed to "dignified," and, so far as the traditional structures of government allowed, ran the country essentially as a business corporation. The propertied classes were (in a sense) the shareholders of the national corporation. Common unpropertied people, as well as aristocrats whose wealth and power were in decline as agriculture diminished in relative importance, were to some extent supernumeraries, that is, redundant employees and pensioners of the national corporate State.
"Corporate State" can be taken here both as meaning a nation run as a private business enterprise for the benefit of the economic and financial elite, even if ostensibly for the benefit of all citizens — whom Bagehot held in open contempt — or as a proto fascist State, an almost inevitable outcome when the "slavery of past savings" is the basis of the economic order.
The House of Commons, elected by a relatively small number of voters, was, essentially, the board of directors of the country, "a class . . . trained to thought, full of money, and yet trained to business." (Ibid., 66.) In other words, the governing body of the British Empire was a carbon copy of the owners and upper management of the Great East India Company, a private enterprise that governed India for the Crown until 1858, eight years before Bagehot wrote The English Constitution.
Contrary to his assertion that ultimate power resided in the House of Commons, Bagehot did not support popular sovereignty. The electorate at the time he wrote, 1867, was extremely small, and composed exclusively of men of property, a financial elite which thereby secured a self-perpetuating political power — the "pocket" or "rotten borough" system. This was only right as far as Bagehot was concerned. He believed that the masses were too stupid to be able to vote or do anything other than take orders:
•"We have in a great community like England crowds of people scarcely more civilized than the majority of two thousand years ago; we have others, even more numerous, such as the best people were a thousand years since. The lower orders, the middle orders, are still, when tried by what is the standard of the educated 'ten thousand', narrow-minded, unintelligent, incurious." (Ibid., 6.)
•"We have whole classes unable to comprehend the idea of a constitution." (Ibid., 23.)
•"A free nation rarely can be — and the English nation is not — quick of apprehension." (Ibid., 74.)
According to Bagehot, "The principle of popular government is that the supreme power, the determining efficacy in matters political, resides in the people — not necessarily or commonly in the whole people, in the numerical majority, but in a chosen people, a picked and selected people." (Ibid., 17.) [Emphasis in original.] Not surprisingly, one of the "defects" Bagehot listed in the American system is the impossibility of a dictatorship in times of national emergency. (Ibid., 20.) Another problem is that Americans do not accept the opinions of their betters without question: "They have not a public opinion finished and chastened as that of the English has been finished and chastened." (Ibid., 13.)
#30#
Tuesday, July 17, 2012
Lies, Damned Lies, and Definitions, XVII: The Hobbesian Paradigm
With the consolidation of economic and thus political power beginning in England in the 15th century, new ideas of sovereignty and property began to spread. State absolutism became the "right" view on political sovereignty. At the same time, and as exemplified by the political philosophy of Thomas Hobbes, concentrated ownership became the "right" view on political economy.
The idea that capital ownership must be concentrated if society is to advance economically is due to the limited understanding of money and credit combined with the belief that the only way to finance new capital formation is to cut consumption and accumulate money savings. This presumably necessitates a small wealthy elite that can afford to cut consumption in the required amounts. The only question is whether a private or a public elite is to control the economy, and thus the political order.
The belief that new capital could not be financed without first cutting consumption, combined with the new ideas about the natural law that arose during the 15th century (i.e., the shift from the "Intellect" (reason) to the "Will" (faith) as the basis of the natural law) led to a change in the understanding of private property as a natural right. The belief that capital cannot be financed without restricting consumption led inevitably to the conclusion that, since only a wealthy elite presumably has the capacity to finance new capital, only that same wealthy elite should own capital. This, in turn, led to the belief that the propertyless masses do not have the natural capacity or right to own capital . . . and must be protected by the State.
Consequently, as Heinrich Rommen pointed out, "In ownership lies the guaranty not only of security of the material conditions of existence, but also of the specifically human perfection, greater personal freedom. To state the matter negatively, whoever has no property all too easily becomes property, a mere means in the hands of one who possesses a superabundance of property." (Rommen, The Natural Law, op. cit., 208.)
Within the Hobbesian framework, "natural rights" become no longer universally applicable, that is, absolute or inherent in every human being. In this framework, whether a particular individual or group has a natural right becomes a matter of political expedience or prudence. It does not matter whether the elite making the determination is public or private, that is, whether the elite is capitalist or socialist. The great mass of people remains propertyless. The quarrel between capitalism and socialism is not whether private property is to be abolished. As Karl Marx pointed out in The Communist Manifesto, the question is moot for most people. As far as those in power are concerned, the real issue is whether the elite that controls property is nominally private or public.
Thus, the ancient concept of the right to be an owner as absolute in every person (although, admittedly, not all human beings were always and everywhere considered "persons"), together with the limited exercise of property within the common good — generally construed as freedom to do whatever one wishes with what is owned as long as others are not thereby harmed — had, by the 16th century, been substantially transformed. Outside of a relatively small group of Thomist natural law adherents, the understanding of property was now that the right to be an owner was limited to a privileged elite, while that elite had absolute exercise of its property.
The 17th and 18th century English State, in general, supported this interpretation, only disagreeing as to whether a private elite or public elite should control the means of production. (A different situation prevailed in the American colonies, which, by and large, adhered closer to the English ideal, as opposed to the English practice of constitutional law.) Limited liability was only conferred on corporations as a special grant from the Crown, while after the "South Sea Bubble" of the early 18th century, the Law of Partnerships severely restricted incorporation. While the corporation is custom-made to spread out ownership, the assumption that rights come only from the State, combined with the virtual dogma of past savings as the only way in which new capital formation can be financed made the corporation into the most effective tool possible for concentrating ownership of the means of production, and thus power.
#30#
The idea that capital ownership must be concentrated if society is to advance economically is due to the limited understanding of money and credit combined with the belief that the only way to finance new capital formation is to cut consumption and accumulate money savings. This presumably necessitates a small wealthy elite that can afford to cut consumption in the required amounts. The only question is whether a private or a public elite is to control the economy, and thus the political order.
The belief that new capital could not be financed without first cutting consumption, combined with the new ideas about the natural law that arose during the 15th century (i.e., the shift from the "Intellect" (reason) to the "Will" (faith) as the basis of the natural law) led to a change in the understanding of private property as a natural right. The belief that capital cannot be financed without restricting consumption led inevitably to the conclusion that, since only a wealthy elite presumably has the capacity to finance new capital, only that same wealthy elite should own capital. This, in turn, led to the belief that the propertyless masses do not have the natural capacity or right to own capital . . . and must be protected by the State.
Consequently, as Heinrich Rommen pointed out, "In ownership lies the guaranty not only of security of the material conditions of existence, but also of the specifically human perfection, greater personal freedom. To state the matter negatively, whoever has no property all too easily becomes property, a mere means in the hands of one who possesses a superabundance of property." (Rommen, The Natural Law, op. cit., 208.)
Within the Hobbesian framework, "natural rights" become no longer universally applicable, that is, absolute or inherent in every human being. In this framework, whether a particular individual or group has a natural right becomes a matter of political expedience or prudence. It does not matter whether the elite making the determination is public or private, that is, whether the elite is capitalist or socialist. The great mass of people remains propertyless. The quarrel between capitalism and socialism is not whether private property is to be abolished. As Karl Marx pointed out in The Communist Manifesto, the question is moot for most people. As far as those in power are concerned, the real issue is whether the elite that controls property is nominally private or public.
Thus, the ancient concept of the right to be an owner as absolute in every person (although, admittedly, not all human beings were always and everywhere considered "persons"), together with the limited exercise of property within the common good — generally construed as freedom to do whatever one wishes with what is owned as long as others are not thereby harmed — had, by the 16th century, been substantially transformed. Outside of a relatively small group of Thomist natural law adherents, the understanding of property was now that the right to be an owner was limited to a privileged elite, while that elite had absolute exercise of its property.
The 17th and 18th century English State, in general, supported this interpretation, only disagreeing as to whether a private elite or public elite should control the means of production. (A different situation prevailed in the American colonies, which, by and large, adhered closer to the English ideal, as opposed to the English practice of constitutional law.) Limited liability was only conferred on corporations as a special grant from the Crown, while after the "South Sea Bubble" of the early 18th century, the Law of Partnerships severely restricted incorporation. While the corporation is custom-made to spread out ownership, the assumption that rights come only from the State, combined with the virtual dogma of past savings as the only way in which new capital formation can be financed made the corporation into the most effective tool possible for concentrating ownership of the means of production, and thus power.
#30#
Monday, July 16, 2012
Lies, Damned Lies, and Definitions, XVI: The Road to Nihilism — Hobbes's Absolutism
As we have already noted in this series, John Maynard Keynes claimed, in the opening passages of his Theory of Money, Volume I, The Pure Theory of Money, that the State has the power to "re-edit the dictionary." As we will demonstrate later on in this series, this is rooted in the totalitarian political philosophy of Thomas Hobbes, which is itself rooted in Hobbes's abolition of the natural law and his enthronement of the State as a virtual god.
What concerns us in today's posting is the fact that William of Occam's distortions of the thought of Duns Scotus by allowing — even relying on — the redefinition of the precepts of the natural law, as Rommen pointed out, "wrought havoc in theology as well as in metaphysics and ethics." As Rommen explained,
"Reason had been rendered barren. The so-called Reformers had drawn the ultimate conclusions from Occamism with respect to theology. Contemptuous of reason, they had arrived at a pregnant voluntarism in theology as well as at the doctrine of natura deleta, of nature as destroyed by original sin. Thereby the traditional natural law became speculatively impossible." (Rommen, The Natural Law, op. cit., 54.)
Not surprisingly, this allowed various thinkers to do whatever they wanted, and to say anything, for truth lost all meaning, e.g., "The spirit of the Renaissance, too, had made use of Occam's separation of faith and knowledge to emancipate secular thought or worldly wisdom, and to place it in opposition to sacred learning. Pomponazzi (1462-1530), after the manner of the Averrosits, had spoken of a twofold truth: what is true in philosophy may be false in theology, and vice versa. Law as such was separated in a positivist fashion from the eternal law when the natural moral law had been made into a positive act of God's absolute will." (Ibid.)
In other words, Occam's achievement was to allow anyone with a glib tongue or a large club to have his cake and eat it, too, as long as people refused to think logically, or lacked the power to resist the coercive power brought to bear on them to conform to the wishes of others with power. Might makes right. The upshot in politics was that "[t]he absolute power of God in Occam's doctrine became at the hands of Thomas Hobbes the absolute sovereignty of the king." (Ibid., 54-55.)
Thus we can see why Keynes and others were so insistent on depriving ordinary people of property. Having property, people are vested with the power to resist unjust inroads on their lives by the State or wealthy private interests, which of course interferes with State control of the economy. For someone who knows what's right for everyone else (as is one of the claims of a divine right monarchy), absolute power is essential, because people will otherwise refuse to go along with things that benefit others at their expense.
As Rommen commented, "The entire theory of Thomas Hobbes (1588-1679) amounts at bottom to a denial of the natural law." (Ibid., 73.) As Rommen goes on to explain the development of this in Hobbes's thought,
"Like Epicurus in Greek antiquity, Hobbes thought that man is intrinsically evil, that he is driven by the reckless pursuit of selfish interests and passions uncontrolled by reason, that he is a lawless being. . . . There must be a transfer of all individual rights to the sovereign political power, a concentration of might which will forcibly uphold order and peace among men. Compulsion and obedience are the topics of Hobbes' theory. The state's power must be unlimited because man is selfish, reckless, and evil. Out of the surrendered liberty arises, then, the omnipotent Leviathan. There is only one will, the will of the state. There is only one power, the supreme power. Outside of this there is no right: not that of the Church as an independent society, not that of the autonomous groups such as feudalism or the medieval guilds had built. There is nothing but the Leviathan, and there must be nothing more, or else the forces of evil passions, the ruthless selfishness of man, would destroy this toilsomely established order. Thus the fundamentally evil nature of man is the origin of the state and its lasting justification." (Rommen, The State in Catholic Thought, op. cit., 61.)
As Rommen concluded this passage, "There must be order and peace. Truth is negligible, order alone is essential, and order is the product of an omnipotent will." (Ibid.) As he sums up the trend of Hobbes's thought, "The theories just mentioned . . . are in the last analysis unchristian. The gentle gospel of the God-man is forgotten by the mere secular humanism of Rousseau and has not overcome Hobbes' pre-Christian contempt for the specific Christian virtues of truth, charity, and humility." (Ibid., 62.)
In the next posting in this series we will begin to trace the process of how Hobbes's totalitarian philosophy became applied almost universally through the implementation of Keynesian economics.
#30#
What concerns us in today's posting is the fact that William of Occam's distortions of the thought of Duns Scotus by allowing — even relying on — the redefinition of the precepts of the natural law, as Rommen pointed out, "wrought havoc in theology as well as in metaphysics and ethics." As Rommen explained,
"Reason had been rendered barren. The so-called Reformers had drawn the ultimate conclusions from Occamism with respect to theology. Contemptuous of reason, they had arrived at a pregnant voluntarism in theology as well as at the doctrine of natura deleta, of nature as destroyed by original sin. Thereby the traditional natural law became speculatively impossible." (Rommen, The Natural Law, op. cit., 54.)
Not surprisingly, this allowed various thinkers to do whatever they wanted, and to say anything, for truth lost all meaning, e.g., "The spirit of the Renaissance, too, had made use of Occam's separation of faith and knowledge to emancipate secular thought or worldly wisdom, and to place it in opposition to sacred learning. Pomponazzi (1462-1530), after the manner of the Averrosits, had spoken of a twofold truth: what is true in philosophy may be false in theology, and vice versa. Law as such was separated in a positivist fashion from the eternal law when the natural moral law had been made into a positive act of God's absolute will." (Ibid.)
In other words, Occam's achievement was to allow anyone with a glib tongue or a large club to have his cake and eat it, too, as long as people refused to think logically, or lacked the power to resist the coercive power brought to bear on them to conform to the wishes of others with power. Might makes right. The upshot in politics was that "[t]he absolute power of God in Occam's doctrine became at the hands of Thomas Hobbes the absolute sovereignty of the king." (Ibid., 54-55.)
Thus we can see why Keynes and others were so insistent on depriving ordinary people of property. Having property, people are vested with the power to resist unjust inroads on their lives by the State or wealthy private interests, which of course interferes with State control of the economy. For someone who knows what's right for everyone else (as is one of the claims of a divine right monarchy), absolute power is essential, because people will otherwise refuse to go along with things that benefit others at their expense.
As Rommen commented, "The entire theory of Thomas Hobbes (1588-1679) amounts at bottom to a denial of the natural law." (Ibid., 73.) As Rommen goes on to explain the development of this in Hobbes's thought,
"Like Epicurus in Greek antiquity, Hobbes thought that man is intrinsically evil, that he is driven by the reckless pursuit of selfish interests and passions uncontrolled by reason, that he is a lawless being. . . . There must be a transfer of all individual rights to the sovereign political power, a concentration of might which will forcibly uphold order and peace among men. Compulsion and obedience are the topics of Hobbes' theory. The state's power must be unlimited because man is selfish, reckless, and evil. Out of the surrendered liberty arises, then, the omnipotent Leviathan. There is only one will, the will of the state. There is only one power, the supreme power. Outside of this there is no right: not that of the Church as an independent society, not that of the autonomous groups such as feudalism or the medieval guilds had built. There is nothing but the Leviathan, and there must be nothing more, or else the forces of evil passions, the ruthless selfishness of man, would destroy this toilsomely established order. Thus the fundamentally evil nature of man is the origin of the state and its lasting justification." (Rommen, The State in Catholic Thought, op. cit., 61.)
As Rommen concluded this passage, "There must be order and peace. Truth is negligible, order alone is essential, and order is the product of an omnipotent will." (Ibid.) As he sums up the trend of Hobbes's thought, "The theories just mentioned . . . are in the last analysis unchristian. The gentle gospel of the God-man is forgotten by the mere secular humanism of Rousseau and has not overcome Hobbes' pre-Christian contempt for the specific Christian virtues of truth, charity, and humility." (Ibid., 62.)
In the next posting in this series we will begin to trace the process of how Hobbes's totalitarian philosophy became applied almost universally through the implementation of Keynesian economics.
#30#
Friday, July 13, 2012
News from the Network, Vol. 5, No. 28
In this week's "Bizarro Stock Market News," the Dow is soaring on news that China's economy appears to be slowing down, and J. P. Morgan announced that it had concealed $5.8 billion in losses. How this is good news is not entirely clear.
Be that as it may, most of what CESJ is doing at the moment is preparing for some big pushes to take place later in the summer. In the meantime, the financial news continues to demonstrate just how badly the Just Third Way reforms are needed:
• One of the basic principles of social justice is that social justice cannot be practiced by anyone outside the group or institution; results cannot be imposed. Not coincidentally, this is also a basic principle of "internal control" — you cannot force a system from the outside to do something that the system either isn't designed to do, or that goes against the system. That is why the calls for more and more government regulation of the financial system is not only an expensive waste of time, it diverts attention away from the need to engage in genuine reform of the financial system, e.g., separation of function such as reinstating the separation of commercial banking from investment banking as in the repealed Glass-Steagall.
• Monica W. in Cleveland has been meeting with the movers and shakers there, and has a meeting scheduled on the 19th to discuss the Citizens Land Bank. She's also been dialoging with people who have connections with the Cleveland Foundation.
• Rob W. has been investigating the possibility of another effort for a worker buyout of the cargo vessels on the Great Lakes.
• According to Atlantic's latest list of 400 richest people in America, no one got rich by working for a wage and saving, or even purchasing capital on credit and using the dividends to pay for the capital. No, they got rich by already having money and speculating in the stock market. The wild fluctuations in the stock market and "hedging" make this possible, so that, whether the market goes up or down, those who speculate instead of investing are likely to win all the time.
• The Federal Reserve has announced that it will consider another round of stimulus spending instead of financing new capital formation through broadened ownership vehicles.
• As of this morning, we have had visitors from 55 different countries and 51 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Cambodia, Spain, Germany, Poland and the United States spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," and "News from the Network, Vol. 5, No. 27."
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.
#30#
Be that as it may, most of what CESJ is doing at the moment is preparing for some big pushes to take place later in the summer. In the meantime, the financial news continues to demonstrate just how badly the Just Third Way reforms are needed:
• One of the basic principles of social justice is that social justice cannot be practiced by anyone outside the group or institution; results cannot be imposed. Not coincidentally, this is also a basic principle of "internal control" — you cannot force a system from the outside to do something that the system either isn't designed to do, or that goes against the system. That is why the calls for more and more government regulation of the financial system is not only an expensive waste of time, it diverts attention away from the need to engage in genuine reform of the financial system, e.g., separation of function such as reinstating the separation of commercial banking from investment banking as in the repealed Glass-Steagall.
• Monica W. in Cleveland has been meeting with the movers and shakers there, and has a meeting scheduled on the 19th to discuss the Citizens Land Bank. She's also been dialoging with people who have connections with the Cleveland Foundation.
• Rob W. has been investigating the possibility of another effort for a worker buyout of the cargo vessels on the Great Lakes.
• According to Atlantic's latest list of 400 richest people in America, no one got rich by working for a wage and saving, or even purchasing capital on credit and using the dividends to pay for the capital. No, they got rich by already having money and speculating in the stock market. The wild fluctuations in the stock market and "hedging" make this possible, so that, whether the market goes up or down, those who speculate instead of investing are likely to win all the time.
• The Federal Reserve has announced that it will consider another round of stimulus spending instead of financing new capital formation through broadened ownership vehicles.
• As of this morning, we have had visitors from 55 different countries and 51 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, the UK, and India. People in Cambodia, Spain, Germany, Poland and the United States spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," and "News from the Network, Vol. 5, No. 27."
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.
#30#
Thursday, July 12, 2012
Lies, Damned Lies, and Definitions, XV: The Road to Nihilism — Hobbes
In the previous posting in this series we had a quote from Heinrich Rommen explaining how, in the belief that civil liberties and democratic institutions were founded upon the Protestant principle of religious individualism, the Romanticists who opposed divine right monarchy and State absolutism tended to do so on the grounds that State absolutism and divine right were presumably Catholic.
We can see the error here immediately. Whether Catholics or Protestants are correct on the issue of religious individualism is, frankly, a red herring in the discussion. That is a matter of faith, not reason. The important issue is whether divine right monarchy and State absolutism, or civil liberties and democratic institutions are consistent with human nature — and that is a matter of reason, not faith.
Algernon Sidney made this clear in his Discourses Concerning Government, in which he was refuting the claims made by Sir Robert Filmer in Patriarcha. Basing his argument on the work of St. Robert Cardinal Bellarmine (a "Doctor" of the Catholic Church whose refutations of divine right theory were so comprehensive that King James and his advisors thought "Bellarmine" was a pseudonym for an entire committee of scholars), Sidney carefully explained that he disagreed with St. Robert on his theology — but that he had nothing but praise for the Cardinal's political philosophy.
John Locke, whose patron was the violently anti-Catholic Lord Shaftsbury, did not give an accurate picture of Bellarmine's work in his Two Treatises on Government. Whether that was out of honest ignorance, his own anti-Catholicism, or a way of currying favor with his patron, the man behind the notorious Titus Oates "Conspiracy," is impossible to say.
Both Locke and Sidney concentrated on refuting Filmer's ideas about divine right, expressed in Filmer's Patriarcha, an overblown and poorly argued defense of James I/VI Stuart's claim to rule by divine right. Consequently, Locke and Sidney's arguments are best employed today in support of democracy, not in refutation of a political theory that no one but a few fanatics takes seriously today — at least as Filmer expressed it.
This is unfortunate, because the most serious and dangerous advocate for divine right and State absolutism was not the ineffectual Filmer. Rather, the champion of the absolutist State was the brilliant and able Thomas Hobbes. Hobbes's Leviathan is a practical manual for totalitarianism. Virtually every government on earth follows its principles today, primarily through having been embedded in the principles of Keynesian economics. As Heinrich Rommen analyzed Hobbes's political philosophy,
"Hobbes was the first, since the beginning of the Christian era, who made sovereignty legally and morally absolute, without intrinsic limits, engulfing man in his entire existence. Against this sovereignty, accordingly, there is appeal neither to God and to the law of nature nor to the people. The only appeal is to internal war, and Hobbes does not tire of pointing out that the sovereign must therefore be so powerful that an appeal of the subjects to arms will have no chance to succeed. In Hobbes' concept of sovereignty there is lost the essence of relative sovereignty, the idea that it involves, in the case of abuse, a legal or moral appeal to the law of nature, to the dignity of the human person (expressed positively in the bill of rights), to God and the divine law against tyranny. He ignores all these vigorous distinctions, for he abolishes natural law, he lets it disappear in the will of the sovereign. He does not acknowledge inalienable rights of the person; such rights are alienated by conferring them on the sovereign in the pact of subjection. He does not acknowledge the spiritual body, the Church, as a perfect society; he makes it a department of the state. He forgets about the rights of the intermediary organizations between the individual person and the state: the family, the vocational and professional groups, which he compares to worms in the body of a living man. Hobbes' ideal state became interiorly the prototype of absolutism, the centralized police state, regarding the Church as a gendarme useful for policing the minds; exteriorly it expressed itself in power politics in foreign affairs." (Rommen, The State in Catholic Thought, op. cit., 267.)
Certain elements of Hobbes's thought that derive directly from the abolition of natural law are of particular note: the abolition of the natural rights of liberty and property — with life, stripped of its chief supports, becoming somewhat equivocal. Hobbes developed this logically as he applied his thought to contract, corporations (organizations that mediate between the State and the individual), and his theory of State absolutism.
Contract — freedom of association/liberty — is obvious. As far as Hobbes was concerned, to expect people to respect each others' rights is hopeless. Man is nothing but an animal until led by a divine right monarch into a civilized condition, with life outside society remaining (as Hobbes famously put it), "nasty, brutish and short." Agreements among men — covenants or contracts — are therefore meaningless unless there is an effective government to compel obedience as no one can be expected to keep an agreement voluntarily. As Hobbes declared, "Covenants without the sword, are but words, and of no strength to secure a man at all." (Leviathan, I.17.)
In this we see the basis for Hobbes's theory of "the corporation" that is the basis for Fascism, and against which Pope Pius XI argued in Divini Redemptoris (§ 54), the control by the State of all intermediate bodies. In an astounding misunderstanding that only makes sense when we realize that many people have unconsciously internalized Hobbesian principles, Pius XI's refutation of Hobbes's abolition of all intermediary bodies in the State has been interpreted as supporting it in the form of the Fascist ("Corporate") State! As George Sabine explained Hobbes's conclusions,
"Any distinction between society and the state is a mere confusion, and the same is true of a distinction between the state and its government. Except there be a tangible government — individuals with the power to enforce their will — there is neither state nor society but a literally 'headless' multitude. Few writers have held this opinion as consistently as Hobbes. It follows also that any distinction between law and morals is a confusion. For society has only one voice with which it can speak and one will which it can enforce, that of the sovereign who makes it a society. Very properly does Hobbes call his sovereign a 'mortal God' and unite in his hands both the sword and the crozier." (Sabine, A History of Political Theory, op. cit., 469-470.)
This leaves absolutism, which we will cover in the next posting in this series.
#30#
We can see the error here immediately. Whether Catholics or Protestants are correct on the issue of religious individualism is, frankly, a red herring in the discussion. That is a matter of faith, not reason. The important issue is whether divine right monarchy and State absolutism, or civil liberties and democratic institutions are consistent with human nature — and that is a matter of reason, not faith.
Algernon Sidney made this clear in his Discourses Concerning Government, in which he was refuting the claims made by Sir Robert Filmer in Patriarcha. Basing his argument on the work of St. Robert Cardinal Bellarmine (a "Doctor" of the Catholic Church whose refutations of divine right theory were so comprehensive that King James and his advisors thought "Bellarmine" was a pseudonym for an entire committee of scholars), Sidney carefully explained that he disagreed with St. Robert on his theology — but that he had nothing but praise for the Cardinal's political philosophy.
John Locke, whose patron was the violently anti-Catholic Lord Shaftsbury, did not give an accurate picture of Bellarmine's work in his Two Treatises on Government. Whether that was out of honest ignorance, his own anti-Catholicism, or a way of currying favor with his patron, the man behind the notorious Titus Oates "Conspiracy," is impossible to say.
Both Locke and Sidney concentrated on refuting Filmer's ideas about divine right, expressed in Filmer's Patriarcha, an overblown and poorly argued defense of James I/VI Stuart's claim to rule by divine right. Consequently, Locke and Sidney's arguments are best employed today in support of democracy, not in refutation of a political theory that no one but a few fanatics takes seriously today — at least as Filmer expressed it.
This is unfortunate, because the most serious and dangerous advocate for divine right and State absolutism was not the ineffectual Filmer. Rather, the champion of the absolutist State was the brilliant and able Thomas Hobbes. Hobbes's Leviathan is a practical manual for totalitarianism. Virtually every government on earth follows its principles today, primarily through having been embedded in the principles of Keynesian economics. As Heinrich Rommen analyzed Hobbes's political philosophy,
"Hobbes was the first, since the beginning of the Christian era, who made sovereignty legally and morally absolute, without intrinsic limits, engulfing man in his entire existence. Against this sovereignty, accordingly, there is appeal neither to God and to the law of nature nor to the people. The only appeal is to internal war, and Hobbes does not tire of pointing out that the sovereign must therefore be so powerful that an appeal of the subjects to arms will have no chance to succeed. In Hobbes' concept of sovereignty there is lost the essence of relative sovereignty, the idea that it involves, in the case of abuse, a legal or moral appeal to the law of nature, to the dignity of the human person (expressed positively in the bill of rights), to God and the divine law against tyranny. He ignores all these vigorous distinctions, for he abolishes natural law, he lets it disappear in the will of the sovereign. He does not acknowledge inalienable rights of the person; such rights are alienated by conferring them on the sovereign in the pact of subjection. He does not acknowledge the spiritual body, the Church, as a perfect society; he makes it a department of the state. He forgets about the rights of the intermediary organizations between the individual person and the state: the family, the vocational and professional groups, which he compares to worms in the body of a living man. Hobbes' ideal state became interiorly the prototype of absolutism, the centralized police state, regarding the Church as a gendarme useful for policing the minds; exteriorly it expressed itself in power politics in foreign affairs." (Rommen, The State in Catholic Thought, op. cit., 267.)
Certain elements of Hobbes's thought that derive directly from the abolition of natural law are of particular note: the abolition of the natural rights of liberty and property — with life, stripped of its chief supports, becoming somewhat equivocal. Hobbes developed this logically as he applied his thought to contract, corporations (organizations that mediate between the State and the individual), and his theory of State absolutism.
Contract — freedom of association/liberty — is obvious. As far as Hobbes was concerned, to expect people to respect each others' rights is hopeless. Man is nothing but an animal until led by a divine right monarch into a civilized condition, with life outside society remaining (as Hobbes famously put it), "nasty, brutish and short." Agreements among men — covenants or contracts — are therefore meaningless unless there is an effective government to compel obedience as no one can be expected to keep an agreement voluntarily. As Hobbes declared, "Covenants without the sword, are but words, and of no strength to secure a man at all." (Leviathan, I.17.)
In this we see the basis for Hobbes's theory of "the corporation" that is the basis for Fascism, and against which Pope Pius XI argued in Divini Redemptoris (§ 54), the control by the State of all intermediate bodies. In an astounding misunderstanding that only makes sense when we realize that many people have unconsciously internalized Hobbesian principles, Pius XI's refutation of Hobbes's abolition of all intermediary bodies in the State has been interpreted as supporting it in the form of the Fascist ("Corporate") State! As George Sabine explained Hobbes's conclusions,
"Any distinction between society and the state is a mere confusion, and the same is true of a distinction between the state and its government. Except there be a tangible government — individuals with the power to enforce their will — there is neither state nor society but a literally 'headless' multitude. Few writers have held this opinion as consistently as Hobbes. It follows also that any distinction between law and morals is a confusion. For society has only one voice with which it can speak and one will which it can enforce, that of the sovereign who makes it a society. Very properly does Hobbes call his sovereign a 'mortal God' and unite in his hands both the sword and the crozier." (Sabine, A History of Political Theory, op. cit., 469-470.)
This leaves absolutism, which we will cover in the next posting in this series.
#30#
Wednesday, July 11, 2012
Lies, Damned Lies, and Definitions, XIV: The Road to Nihilism — The Rise of Absolutism
Ancient Roman political theory (on which, however distorted, the western system is based), divided human society into three discrete "sub" societies. These were Domestic Society (the Family), Civil Society (the State), and Religious Society (the Temple, or as we say today, the Church).
The Romans being a very orderly people, none of the societies had any power in the others. This sometimes got a little complicated. When, for example, the State required some duty that came under the purview of Religious Society — such as certain types of diplomatic missions — the officials had to have standing in both Religious and Civil Society, e.g., the ambassador had to be a priest as well. This is why Caesar was named Pontifex Maximus — High Priest — so that he had the authority to call upon the various temples when necessary to carry out their duties to the State.
There was separation of Church, State and Family in the sense that the administration was completely separate, not that there was some kind of "wall of separation" between Church, State and Family, with each one ignoring or being actively hostile to the other two. The laws of one society did not apply to the others, especially the power to tax; people — that is, citizens — were taxed, not families or temples. Non-citizens paid taxes to their own governments (which then paid tribute, not taxes, to Rome) and obeyed their own laws.
This last resulted in some extremely complicated legal cases, especially in the late Empire, when even different groups of Roman imperial citizens came under their own national laws, and a judge had to determine which body of law applied when, e.g., a Gothic-Roman and a Frankish-Roman might be involved in a dispute with an Italian-Roman over a Burgundian-Roman matter — or even if it came under his purview at all, which it might not as a domestic or religious matter.
For example, recall the apparent contradiction in the New Testament in which a woman caught in adultery was about to be stoned to death, and St. Stephen was killed — and yet the mob at Jesus's trial claimed that they had no law to put a man to death! This is easily understood once we realize that the woman caught in adultery had committed a crime against Domestic Society, while St. Stephen's alleged offense was against Religious Society, neither of which was of concern to the Romans, even if the woman or St. Stephen had been Roman citizens.
Jesus's alleged crime, however, was to set Himself up as a civil authority in opposition to Caesar. This was a very serious civil offense, and one which concerned the Romans a great deal . . . and the Jews had no law to punish offenses against the Roman civil authorities. Even capital cases under Jewish civil law, given Herod's rather tenuous position, may have required ratification by the Romans.
There is a good reason for bringing up what some might consider a rather esoteric subject. The change in the understanding of the natural law from being based on God's Nature, self-realized in His Intellect, to something someone with enough coercive power believes to be God's expressed Will, occasioned a shift away from the traditional political philosophy on which recognition of these three discrete societies is based.
As Sir Robert Filmer's Patriarcha explained the "proper" ordering of human society, both religious society and domestic society became subsumed into civil society under a divine right monarch who ruled both Church and State as "father" — patriarch — of the national family. All distinctions between the different societies were either ignored or abolished. Both Church and Family were construed as branches of the government, something unheard-of in either classical or medieval jurisprudence or political theory. As Heinrich Rommen explained,
"[T]he individualistic principle of the Reformation contradicted such an all-embracing absolutism of the identity of monarchy and the national Church, since in its extreme form this principle had to lead to the dissolution of the Church as a divinely instituted community with her sacramental law, her hierarchical order, and her ecclesiastical government.
"Now that the monarchy and the established Church (state Church) were united in the absolute king of divine right, i.e., of unrestricted sovereignty, it was again from the individualistic principle that the problem of sovereignty had to be attacked. On the other hand, the personalism of the Renaissance with its enthusiasm for the personal freedom of worldly wisdom, of an aristocratic republicanism, brought forth this same problem of the origins and restrictions of sovereignty. Thus the centuries are filled with discussions about divine rights, that is, absolute sovereignty of the king and chief bishop versus popular sovereignty and freedom of religion. The question of freedom of the individual from compulsory membership in the established Church arose.
"From this original freedom of religion, other freedoms were later derived, such as freedom of the person, of speech, of association, though these 'civil liberties' do not rest exclusively on this individualistic concept of freedom of religion. It was not Man versus the State, but the individual conscience against the summepiscopus and absolute monarch, and civil liberties and constitutional rights of participation in sovereign legislation against unrestricted princely government, and popular sovereignty versus conformity and subjection in spiritual and secular matters to an unrestricted monarchic sovereignty which was ultimately justifiable only if divinely instituted. Thus the civil liberties and the democratic institutions in the eyes of the writers of political Romanticism seemed to be founded upon the Protestant principle of religious individualism. This conclusion was not cogent, since these rights and institutions can be considered also from the standpoint of natural law. Yet the romantic political philosophy was induced to see in the opposite political institutions (e.g., in monarchy) a consequence of Catholic theology. Thus they fought one pretended political theology by constructing another one just as precarious as the first." (Rommen, The State in Catholic Thought, op. cit., 101-102.)
The results have been catastrophic. Even in the United States, explicitly founded on the traditional concept of popular sovereignty — as the "We, the People" in the Preamble to the Constitution acknowledges — the State has redefined marriage in a number of cases, and has undertaken to redefine traditional religious practices as not religious in character. Marriage, of course, is a domestic institution, and thus not covered by the Constitution at all, a document that applies to civil society. Then, defining or controlling religious practices (as opposed to regulating for the common good) is a clear infringement of the right to religious freedom guaranteed in the Constitution.
This has only been possible because the economic system has operated to strip most people of the economic and thus political power necessary to be able to resist such overweening intrusion by the State. "Power," as Daniel Webster reminded us in the debates during the Massachusetts Constitutional Convention of 1820, "naturally and necessarily follows property." Unfortunately, Keynesian economics is based on the assumption that most people are naturally and necessarily stripped of property — and thus power, helpless before the might of the State. Not surprisingly, we can trace Keynes's economic theories back to the totalitarian political philosophy of Thomas Hobbes.
#30#
The Romans being a very orderly people, none of the societies had any power in the others. This sometimes got a little complicated. When, for example, the State required some duty that came under the purview of Religious Society — such as certain types of diplomatic missions — the officials had to have standing in both Religious and Civil Society, e.g., the ambassador had to be a priest as well. This is why Caesar was named Pontifex Maximus — High Priest — so that he had the authority to call upon the various temples when necessary to carry out their duties to the State.
There was separation of Church, State and Family in the sense that the administration was completely separate, not that there was some kind of "wall of separation" between Church, State and Family, with each one ignoring or being actively hostile to the other two. The laws of one society did not apply to the others, especially the power to tax; people — that is, citizens — were taxed, not families or temples. Non-citizens paid taxes to their own governments (which then paid tribute, not taxes, to Rome) and obeyed their own laws.
This last resulted in some extremely complicated legal cases, especially in the late Empire, when even different groups of Roman imperial citizens came under their own national laws, and a judge had to determine which body of law applied when, e.g., a Gothic-Roman and a Frankish-Roman might be involved in a dispute with an Italian-Roman over a Burgundian-Roman matter — or even if it came under his purview at all, which it might not as a domestic or religious matter.
For example, recall the apparent contradiction in the New Testament in which a woman caught in adultery was about to be stoned to death, and St. Stephen was killed — and yet the mob at Jesus's trial claimed that they had no law to put a man to death! This is easily understood once we realize that the woman caught in adultery had committed a crime against Domestic Society, while St. Stephen's alleged offense was against Religious Society, neither of which was of concern to the Romans, even if the woman or St. Stephen had been Roman citizens.
Jesus's alleged crime, however, was to set Himself up as a civil authority in opposition to Caesar. This was a very serious civil offense, and one which concerned the Romans a great deal . . . and the Jews had no law to punish offenses against the Roman civil authorities. Even capital cases under Jewish civil law, given Herod's rather tenuous position, may have required ratification by the Romans.
There is a good reason for bringing up what some might consider a rather esoteric subject. The change in the understanding of the natural law from being based on God's Nature, self-realized in His Intellect, to something someone with enough coercive power believes to be God's expressed Will, occasioned a shift away from the traditional political philosophy on which recognition of these three discrete societies is based.
As Sir Robert Filmer's Patriarcha explained the "proper" ordering of human society, both religious society and domestic society became subsumed into civil society under a divine right monarch who ruled both Church and State as "father" — patriarch — of the national family. All distinctions between the different societies were either ignored or abolished. Both Church and Family were construed as branches of the government, something unheard-of in either classical or medieval jurisprudence or political theory. As Heinrich Rommen explained,
"[T]he individualistic principle of the Reformation contradicted such an all-embracing absolutism of the identity of monarchy and the national Church, since in its extreme form this principle had to lead to the dissolution of the Church as a divinely instituted community with her sacramental law, her hierarchical order, and her ecclesiastical government.
"Now that the monarchy and the established Church (state Church) were united in the absolute king of divine right, i.e., of unrestricted sovereignty, it was again from the individualistic principle that the problem of sovereignty had to be attacked. On the other hand, the personalism of the Renaissance with its enthusiasm for the personal freedom of worldly wisdom, of an aristocratic republicanism, brought forth this same problem of the origins and restrictions of sovereignty. Thus the centuries are filled with discussions about divine rights, that is, absolute sovereignty of the king and chief bishop versus popular sovereignty and freedom of religion. The question of freedom of the individual from compulsory membership in the established Church arose.
"From this original freedom of religion, other freedoms were later derived, such as freedom of the person, of speech, of association, though these 'civil liberties' do not rest exclusively on this individualistic concept of freedom of religion. It was not Man versus the State, but the individual conscience against the summepiscopus and absolute monarch, and civil liberties and constitutional rights of participation in sovereign legislation against unrestricted princely government, and popular sovereignty versus conformity and subjection in spiritual and secular matters to an unrestricted monarchic sovereignty which was ultimately justifiable only if divinely instituted. Thus the civil liberties and the democratic institutions in the eyes of the writers of political Romanticism seemed to be founded upon the Protestant principle of religious individualism. This conclusion was not cogent, since these rights and institutions can be considered also from the standpoint of natural law. Yet the romantic political philosophy was induced to see in the opposite political institutions (e.g., in monarchy) a consequence of Catholic theology. Thus they fought one pretended political theology by constructing another one just as precarious as the first." (Rommen, The State in Catholic Thought, op. cit., 101-102.)
The results have been catastrophic. Even in the United States, explicitly founded on the traditional concept of popular sovereignty — as the "We, the People" in the Preamble to the Constitution acknowledges — the State has redefined marriage in a number of cases, and has undertaken to redefine traditional religious practices as not religious in character. Marriage, of course, is a domestic institution, and thus not covered by the Constitution at all, a document that applies to civil society. Then, defining or controlling religious practices (as opposed to regulating for the common good) is a clear infringement of the right to religious freedom guaranteed in the Constitution.
This has only been possible because the economic system has operated to strip most people of the economic and thus political power necessary to be able to resist such overweening intrusion by the State. "Power," as Daniel Webster reminded us in the debates during the Massachusetts Constitutional Convention of 1820, "naturally and necessarily follows property." Unfortunately, Keynesian economics is based on the assumption that most people are naturally and necessarily stripped of property — and thus power, helpless before the might of the State. Not surprisingly, we can trace Keynes's economic theories back to the totalitarian political philosophy of Thomas Hobbes.
#30#
Tuesday, July 10, 2012
Lies, Damned Lies, and Definitions, XIII: The Road to Nihilism — What God?
In yesterday's posting we saw that Hugo Grotius resolved his paradox of giving equal standing to faith and reason by effectively dethroning reason while remaining a rationalist. This is, in fact, child's play for someone who bases the natural law on his own private interpretation of something he believes to be a command from God. The problem here is, what God are we supposed to use in all this?
That the God of Abraham, Isaac and Jacob is the God whose Word we are to obey, and that He gave humanity the Bible — "Holy Scripture" — as His infallible Word and the vessel containing the natural law is a matter of faith, not reason. It is therefore opinion, not knowledge. We cannot know by reason alone that God speaks to us in the Bible; the Bible is a book written by believers for believers, and cannot apply to anyone who does not believe that the Bible is the Word of God.
By giving opinion the same status as knowledge, Grotius laid the foundation for the massive confusion we see around us today. All people being equally human, all opinions are equally valid . . . unless, of course, you don't mind clubbing anyone who happens to disagree with you. In that case the one who can force others to do his will must be in the right. Might makes right. When I want your opinion, I'll give it to you.
Grotius's system could only work by his becoming very vague on definition, and — despite his doubletalk about the use of reason — by shifting the basis of the natural law from God's Nature, self-realized in His Intellect, to his personal interpretation of something he believed to be God's expressed Will, from reason to faith.
More honest (though less consistent) than Occam, however, Grotius insisted that God cannot turn evil into good by His mere command; that the natural law, even though based on God's Will, cannot be changed by God's Will. This, too, is a confusing paradox, because in effect it removes the necessity of God from the universe — to say nothing of making God's commands greater than God Himself! As Grotius himself admitted,
"What we have been saying would have a degree of validity even if we should concede that which cannot be conceded without the utmost wickedness, that there is no God, or that the affairs of men are of no concern to Him." (Prolegomena, II.)
Grotius's great achievement was to put forth a concept of international law that would operate among nation-states even in times of war. This was a return to the idea of the essential unity of the human race found in the scholastic philosophers of the Middle Ages. The problem was that this was accomplished only at a very high cost, and established on a very unstable foundation: the shift in the basis of the law from Intellect to Will. As Rommen analyzed Grotius's position,
"Grotius was a rationalist. He believed it possible to derive by strict logic a suitable system of rational law having force that would be great enough to bind the will: a body of law with detailed prescriptions covering debts and property, the family institution and inheritance. The Scholastics, on the other hand, considered only the general institutions themselves of marriage, property, and contract as belonging to natural law, not the particular prescriptions about marriage and the family, possession and the form of private ownership, and the like." (Rommen, The Natural Law, op. cit., 65.)
It is easy to see in this the roots of Keynes's contention that the State has the power to "re-edit the dictionary." Objective and demonstrable truth of anything becomes irrelevant when not accepted on the basis of faith; "It's not our way" becomes a valid excuse for ignoring or attacking something or someone for the fact of differing. Being different, in fact, becomes a crime, to be punished sometimes with death.
#30#
That the God of Abraham, Isaac and Jacob is the God whose Word we are to obey, and that He gave humanity the Bible — "Holy Scripture" — as His infallible Word and the vessel containing the natural law is a matter of faith, not reason. It is therefore opinion, not knowledge. We cannot know by reason alone that God speaks to us in the Bible; the Bible is a book written by believers for believers, and cannot apply to anyone who does not believe that the Bible is the Word of God.
By giving opinion the same status as knowledge, Grotius laid the foundation for the massive confusion we see around us today. All people being equally human, all opinions are equally valid . . . unless, of course, you don't mind clubbing anyone who happens to disagree with you. In that case the one who can force others to do his will must be in the right. Might makes right. When I want your opinion, I'll give it to you.
Grotius's system could only work by his becoming very vague on definition, and — despite his doubletalk about the use of reason — by shifting the basis of the natural law from God's Nature, self-realized in His Intellect, to his personal interpretation of something he believed to be God's expressed Will, from reason to faith.
More honest (though less consistent) than Occam, however, Grotius insisted that God cannot turn evil into good by His mere command; that the natural law, even though based on God's Will, cannot be changed by God's Will. This, too, is a confusing paradox, because in effect it removes the necessity of God from the universe — to say nothing of making God's commands greater than God Himself! As Grotius himself admitted,
"What we have been saying would have a degree of validity even if we should concede that which cannot be conceded without the utmost wickedness, that there is no God, or that the affairs of men are of no concern to Him." (Prolegomena, II.)
Grotius's great achievement was to put forth a concept of international law that would operate among nation-states even in times of war. This was a return to the idea of the essential unity of the human race found in the scholastic philosophers of the Middle Ages. The problem was that this was accomplished only at a very high cost, and established on a very unstable foundation: the shift in the basis of the law from Intellect to Will. As Rommen analyzed Grotius's position,
"Grotius was a rationalist. He believed it possible to derive by strict logic a suitable system of rational law having force that would be great enough to bind the will: a body of law with detailed prescriptions covering debts and property, the family institution and inheritance. The Scholastics, on the other hand, considered only the general institutions themselves of marriage, property, and contract as belonging to natural law, not the particular prescriptions about marriage and the family, possession and the form of private ownership, and the like." (Rommen, The Natural Law, op. cit., 65.)
It is easy to see in this the roots of Keynes's contention that the State has the power to "re-edit the dictionary." Objective and demonstrable truth of anything becomes irrelevant when not accepted on the basis of faith; "It's not our way" becomes a valid excuse for ignoring or attacking something or someone for the fact of differing. Being different, in fact, becomes a crime, to be punished sometimes with death.
#30#
Monday, July 9, 2012
Lies, Damned Lies, and Definitions, XII: The Road to Nihilism — Grotius
Often erroneously referred to as "the Father of Natural Law," Hugo Grotius may have done more than anyone else to throw the whole concept into confusion and disrepute. Part of the problem is that modern commentators ignorant of history and more than a little hazy about the principles of Aristotelian and Thomist philosophy assume that Grotius developed his thought out of nothing.
Very much the contrary. Grotius made the first formal presentation of a discussion of the respective roles of natural law and positive law in the new field of international law. That, however, had been discussed and argued for centuries. What was new in Grotius's thought was the distinction between national law and international law.
Grotius's work was in response to the growth of the concept of the absolutist ruler and the nation-state and the new political doctrine of divine right that developed during the Reformation. These were a concept and doctrine that (as Heinrich Rommen pointed out), "contradicted utterly" the individualistic principle of personal interpretation of scripture and religious liberty that constituted the raison d'etre of the Reformation. (Heinrich Rommen, The State in Catholic Thought, op. cit., 101.)
Grotius was therefore faced with a paradox. His primary goal was to support the absolutist divine right monarchy of James I/VI Stuart of England/Scotland. He had to do this in such a way, however, as to demonstrate the continuity of the new concepts and doctrines with medieval philosophy.
This is because the Reformation claimed to be a restoration of the purity of original Christianity. Consequently the reformers could only claim to be tossing out additions and accretions, not the substance of what constituted (in their opinion) true Christianity. Besides, King James's mother had been a Catholic. Piling paradox upon paradox, James's presumed divine right to rule came from or through the Catholic tradition, which could not be discredited without calling divine right itself into question . . . even as the Catholic Church's political philosophy rejected divine right. (See St. Robert Cardinal Bellarmine, De Laicis, the Treatise on Civil Government.)
As we might expect, Grotius was able to resolve the contradictions by the simple expedient of developing new and confusing definitions of terms. We see this, for example, in his definition of "sovereignty." As George Sabine explained,
"Grotius, more than Althusius, was hampered in his thinking about philosophical principles by his fidelity to the letter of positive law. After defining sovereignty as a power not subject to the legal control of another, he distinguished between a common and a special possessor, or subject, of the power. The common subject of sovereignty is the state itself, the special subject is one or more persons, according to the constitutional law of each state. The sovereign is therefore either the political body itself (Althusius's state) or the government, a use of terms which hardly made for clearness." (George H. Sabine, A History of Political Theory, Third Edition, op. cit., 420-421.)
Here in Sabine's analysis we see both the problem and Grotius's resolution of it: "his fidelity to the letter of positive law." As Rommen described the conflict, "Grotius did not profess the implied complete autonomy of human reason as the sole and not merely the proximate source of the natural law. He considered God to be the highest source of the natural law, and he likewise regarded Holy Scripture as a principle of knowledge on an equal footing with reason." (Rommen, The Natural Law, op. cit., 63.) As Grotius explained this,
"The law of nature is a dictate of right reason, which points out that an act, according as it is or is not in conformity with rational nature, has in it a quality of moral baseness or moral necessity; and that, in consequence, such an act is either forbidden or enjoined by the author of nature, God." (Hugo Grotius, Book I, Ch. I, § x, 1.)
The contradiction should be immediately evident. Grotius first acknowledged that, "the law of nature is a dictate of right reason." This is all well and good. He then stated that, "an act is either forbidden or enjoined by . . . God."
This is an insurmountable problem. That there is a God can be known by reason alone, as can the content of the natural law, as the Catholic Church teaches. (Pius XII, Humani Generis, §§ 1-2.) Thus it can be established by the process of inductive reasoning that a God exists, that He (and it is legitimate at this point in the argument to add "She or It") is a perfect Being, and that this perfect nature is self-realized in His Intellect, thereby being discernible by reason alone. This is a matter of true and certain knowledge, not opinion. But there's more.
#30#
Very much the contrary. Grotius made the first formal presentation of a discussion of the respective roles of natural law and positive law in the new field of international law. That, however, had been discussed and argued for centuries. What was new in Grotius's thought was the distinction between national law and international law.
Grotius's work was in response to the growth of the concept of the absolutist ruler and the nation-state and the new political doctrine of divine right that developed during the Reformation. These were a concept and doctrine that (as Heinrich Rommen pointed out), "contradicted utterly" the individualistic principle of personal interpretation of scripture and religious liberty that constituted the raison d'etre of the Reformation. (Heinrich Rommen, The State in Catholic Thought, op. cit., 101.)
Grotius was therefore faced with a paradox. His primary goal was to support the absolutist divine right monarchy of James I/VI Stuart of England/Scotland. He had to do this in such a way, however, as to demonstrate the continuity of the new concepts and doctrines with medieval philosophy.
This is because the Reformation claimed to be a restoration of the purity of original Christianity. Consequently the reformers could only claim to be tossing out additions and accretions, not the substance of what constituted (in their opinion) true Christianity. Besides, King James's mother had been a Catholic. Piling paradox upon paradox, James's presumed divine right to rule came from or through the Catholic tradition, which could not be discredited without calling divine right itself into question . . . even as the Catholic Church's political philosophy rejected divine right. (See St. Robert Cardinal Bellarmine, De Laicis, the Treatise on Civil Government.)
As we might expect, Grotius was able to resolve the contradictions by the simple expedient of developing new and confusing definitions of terms. We see this, for example, in his definition of "sovereignty." As George Sabine explained,
"Grotius, more than Althusius, was hampered in his thinking about philosophical principles by his fidelity to the letter of positive law. After defining sovereignty as a power not subject to the legal control of another, he distinguished between a common and a special possessor, or subject, of the power. The common subject of sovereignty is the state itself, the special subject is one or more persons, according to the constitutional law of each state. The sovereign is therefore either the political body itself (Althusius's state) or the government, a use of terms which hardly made for clearness." (George H. Sabine, A History of Political Theory, Third Edition, op. cit., 420-421.)
Here in Sabine's analysis we see both the problem and Grotius's resolution of it: "his fidelity to the letter of positive law." As Rommen described the conflict, "Grotius did not profess the implied complete autonomy of human reason as the sole and not merely the proximate source of the natural law. He considered God to be the highest source of the natural law, and he likewise regarded Holy Scripture as a principle of knowledge on an equal footing with reason." (Rommen, The Natural Law, op. cit., 63.) As Grotius explained this,
"The law of nature is a dictate of right reason, which points out that an act, according as it is or is not in conformity with rational nature, has in it a quality of moral baseness or moral necessity; and that, in consequence, such an act is either forbidden or enjoined by the author of nature, God." (Hugo Grotius, Book I, Ch. I, § x, 1.)
The contradiction should be immediately evident. Grotius first acknowledged that, "the law of nature is a dictate of right reason." This is all well and good. He then stated that, "an act is either forbidden or enjoined by . . . God."
This is an insurmountable problem. That there is a God can be known by reason alone, as can the content of the natural law, as the Catholic Church teaches. (Pius XII, Humani Generis, §§ 1-2.) Thus it can be established by the process of inductive reasoning that a God exists, that He (and it is legitimate at this point in the argument to add "She or It") is a perfect Being, and that this perfect nature is self-realized in His Intellect, thereby being discernible by reason alone. This is a matter of true and certain knowledge, not opinion. But there's more.
#30#
Friday, July 6, 2012
News from the Network, Vol. 5, No. 27
As the global economic and political situation continues to worsen, the reliance of the powers-that-be on solutions that have never worked becomes ever more baffling. Even more puzzling is the silence of those same powers-that-be and their academic gurus when presented with a potential solution such as Capital Homesteading. After giving it probably more thought than it deserves, however, we may have come up with an explanation: hysteria.
No, not the screaming, ranting, raving, jumping-up-and-down sort of thing that most people refer to as hysteria — "Behavior exhibiting excessive or uncontrollable emotion, such as fear or panic." We're talking the clinical kind, "A mental disorder characterized by emotional excitability and sometimes by amnesia or a physical deficit, such as paralysis, or a sensory deficit, without an organic cause."
The fact is that far too many people in positions of power or trust — especially in academia — may rant and rave about the evils of the current system, but it's mostly just talk. The system has been very good to them. Nor do they understand how a system that has been good to them shouldn't be good for everyone else. They have great faith that the way things are is the way things were meant to be.
That being the case, there must be some conspiracy, usually by the greedy or the stupid, that prevents the benefits of the system from being spread around. Consequently, they don't see the flaws in the system that prevent everyone from benefiting from a system designed to fail.
Because this position is based on faith instead of reason, they cannot handle anyone questioning them or presenting them with evidence to the contrary. They react either with emotional excitability, even at times amnesia about events, but more usually with an intellectual paralysis. Unable to deal with something like the Just Third Way that lies outside of their faith-based paradigm, they ignore even overwhelming evidence that their understanding is incomplete or even in error, and remain silent, pretending that reality doesn't exist.
In any event, the best thing we can do when faced with hysterical reactions of this type is to go around them — as we've been doing this week:
• Yesterday's Wall Street Journal carried an op-ed blaming the 2008 market crash on "low interest rates and international capital flows" instead of a "saving glut." ("Monetary Policy and the Next Crisis," 07/05/12, A11.) A closer examination of the facts would reveal that it was not interest rates, high or low, or the mere shifting of aggregations of savings, however massive, that caused the meltdown. As in 1929, it was using those savings to bid up the prices of speculative assets, and the even more massive money creation for the same purpose that caused the Crash. In other words, it was not the use of credit, but the misuse of credit — a problem almost impossible to explain today when the distinction between real bills backed by the present value of actual private sector hard assets, and fictitious bills backed by nothing but speculative gains or a government's promise to pay out of non-existent future tax collections has been discarded.
• The release of "Affording Universal Healthcare: A Private Sector Alternative to Mandates," CESJ's proposed alternative to "ObamaCare" on July 4, 2012 to a limited audience was very well received. It is being forwarded to a number of civic and religious leaders concerned about the growing intrusion of government into everyday life and the consequent loss of civil liberties — and, yes, freedom of religion is a civil liberty.
• An issue that no one appears to be addressing is whether — presuming the legitimacy of legislation by judiciary in the first place — the Supreme Court can legislate on religious doctrine and practice as it has on science. The prohibition against teaching "creationism" in public schools is, after all, effectively a declaration by the Court that the theory of evolution is established scientific fact, not simply a theory, and it is illegal to teach anything else in a government-funded institution. (Being a Supreme Being, of course, the Court was able to do what the 1897 Indiana General Assembly could not in Bill No. 246 that attempted to legislate the mathematical impossibility of squaring the circle.) Refusing to extend an exemption to religious institutions engaged in what Christians call the corporal works of mercy and other faiths recognize as meritorious now extends the Court's power over both science and religion. This is analogous to the situation described by Dr. Leo Alexander, chief medical advisor to Telford Taylor at the Nuremburg War Crimes Trials, in his paper "Medical Science Under Dictatorship," published in the New England Journal of Medicine (1949, 241 (2): 39-47). As Dr. Alexander stated, "science under dictatorship becomes subordinated to the guiding philosophy of the dictatorship."
• The fixed belief that education (and high wages and better healthcare, etc., etc.) will automatically bring about the economic growth necessary to pay for the education, high wages, better healthcare, etc., etc., continues to shackle genuine economic growth by putting the cart before the horse — to say nothing of burdening students with unrepayable debt that they cannot discharge even in bankruptcy. Rather than being the ticket to the good life, education has become the fast track to permanent economic servitude for many. Even the Wall Street Journal seems to be starting to question the dogma that a good education means a good job and a high salary ("A New Market for Schools," 07/05/12, B5), but don't quite know what to do about it. Of course, an aggressive program of universal capital ownership financed by the expansion of commercial bank credit backed by the present value of the new capital being financed instead of existing savings, taxpayer subsidies or government deficits, and collateralized by capital credit insurance and reinsurance (such as Capital Homesteading), but such a possibility goes directly contrary to the principles taught by that same education. Thus, just as slaves and convicts are told that escape is impossible, modern academics have been taught that the education that keeps them in economic servitude is the only possible system. You'd think somebody would start to catch on after a while.
• Michael D. Greaney, CESJ's Director of Research, is being "profiled" by Connect Ireland, a program by the Irish government to highlight people who are being most effective in publicizing and implementing the innovative program.
• As of this morning, we have had visitors from 59 different countries and 52 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, the Philippines, and India. People in Sweden, Cambodia, Qatar, Spain and Germany spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "CESJ's Orientation in Brief," Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," and "Catholic Social Teaching and Economic Justice, I: Introduction."
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.
#30#
No, not the screaming, ranting, raving, jumping-up-and-down sort of thing that most people refer to as hysteria — "Behavior exhibiting excessive or uncontrollable emotion, such as fear or panic." We're talking the clinical kind, "A mental disorder characterized by emotional excitability and sometimes by amnesia or a physical deficit, such as paralysis, or a sensory deficit, without an organic cause."
The fact is that far too many people in positions of power or trust — especially in academia — may rant and rave about the evils of the current system, but it's mostly just talk. The system has been very good to them. Nor do they understand how a system that has been good to them shouldn't be good for everyone else. They have great faith that the way things are is the way things were meant to be.
That being the case, there must be some conspiracy, usually by the greedy or the stupid, that prevents the benefits of the system from being spread around. Consequently, they don't see the flaws in the system that prevent everyone from benefiting from a system designed to fail.
Because this position is based on faith instead of reason, they cannot handle anyone questioning them or presenting them with evidence to the contrary. They react either with emotional excitability, even at times amnesia about events, but more usually with an intellectual paralysis. Unable to deal with something like the Just Third Way that lies outside of their faith-based paradigm, they ignore even overwhelming evidence that their understanding is incomplete or even in error, and remain silent, pretending that reality doesn't exist.
In any event, the best thing we can do when faced with hysterical reactions of this type is to go around them — as we've been doing this week:
• Yesterday's Wall Street Journal carried an op-ed blaming the 2008 market crash on "low interest rates and international capital flows" instead of a "saving glut." ("Monetary Policy and the Next Crisis," 07/05/12, A11.) A closer examination of the facts would reveal that it was not interest rates, high or low, or the mere shifting of aggregations of savings, however massive, that caused the meltdown. As in 1929, it was using those savings to bid up the prices of speculative assets, and the even more massive money creation for the same purpose that caused the Crash. In other words, it was not the use of credit, but the misuse of credit — a problem almost impossible to explain today when the distinction between real bills backed by the present value of actual private sector hard assets, and fictitious bills backed by nothing but speculative gains or a government's promise to pay out of non-existent future tax collections has been discarded.
• The release of "Affording Universal Healthcare: A Private Sector Alternative to Mandates," CESJ's proposed alternative to "ObamaCare" on July 4, 2012 to a limited audience was very well received. It is being forwarded to a number of civic and religious leaders concerned about the growing intrusion of government into everyday life and the consequent loss of civil liberties — and, yes, freedom of religion is a civil liberty.
• An issue that no one appears to be addressing is whether — presuming the legitimacy of legislation by judiciary in the first place — the Supreme Court can legislate on religious doctrine and practice as it has on science. The prohibition against teaching "creationism" in public schools is, after all, effectively a declaration by the Court that the theory of evolution is established scientific fact, not simply a theory, and it is illegal to teach anything else in a government-funded institution. (Being a Supreme Being, of course, the Court was able to do what the 1897 Indiana General Assembly could not in Bill No. 246 that attempted to legislate the mathematical impossibility of squaring the circle.) Refusing to extend an exemption to religious institutions engaged in what Christians call the corporal works of mercy and other faiths recognize as meritorious now extends the Court's power over both science and religion. This is analogous to the situation described by Dr. Leo Alexander, chief medical advisor to Telford Taylor at the Nuremburg War Crimes Trials, in his paper "Medical Science Under Dictatorship," published in the New England Journal of Medicine (1949, 241 (2): 39-47). As Dr. Alexander stated, "science under dictatorship becomes subordinated to the guiding philosophy of the dictatorship."
• The fixed belief that education (and high wages and better healthcare, etc., etc.) will automatically bring about the economic growth necessary to pay for the education, high wages, better healthcare, etc., etc., continues to shackle genuine economic growth by putting the cart before the horse — to say nothing of burdening students with unrepayable debt that they cannot discharge even in bankruptcy. Rather than being the ticket to the good life, education has become the fast track to permanent economic servitude for many. Even the Wall Street Journal seems to be starting to question the dogma that a good education means a good job and a high salary ("A New Market for Schools," 07/05/12, B5), but don't quite know what to do about it. Of course, an aggressive program of universal capital ownership financed by the expansion of commercial bank credit backed by the present value of the new capital being financed instead of existing savings, taxpayer subsidies or government deficits, and collateralized by capital credit insurance and reinsurance (such as Capital Homesteading), but such a possibility goes directly contrary to the principles taught by that same education. Thus, just as slaves and convicts are told that escape is impossible, modern academics have been taught that the education that keeps them in economic servitude is the only possible system. You'd think somebody would start to catch on after a while.
• Michael D. Greaney, CESJ's Director of Research, is being "profiled" by Connect Ireland, a program by the Irish government to highlight people who are being most effective in publicizing and implementing the innovative program.
• As of this morning, we have had visitors from 59 different countries and 52 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, the Philippines, and India. People in Sweden, Cambodia, Qatar, Spain and Germany spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "CESJ's Orientation in Brief," Lies, Damned Lies, and Definitions, VIII: Abandonment of the Natural Law," and "Catholic Social Teaching and Economic Justice, I: Introduction."
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.
#30#
Thursday, July 5, 2012
Lies, Damned Lies, and Definitions, XI: The Road to Nihilism — Occam
The doctrine of William of Occam (d. cir. 1349) has had an astonishingly negative effect on the very faith that it tried to reinforce. Ironically, many "papal Catholics," i.e., those who consider themselves absolutely loyal to the pope, use Occam's distortion of Duns Scotus's emphasis on the primacy of the Will to support their position.
As far as they are concerned, something is true because the pope says it, not because the Holy Spirit has granted the pope as pope a special power to discern truth in the area of faith and morals. No, the ultra-ultramontane insists, every utterance of the pope is infallible because he's the pope.
Occam, however, not only rejected the correct understanding of papal infallibility (and would have been astounded that his philosophy was being used to assert even an incorrect understanding of the doctrine), he believed that the papacy itself is heretical as an institution. As George Sabine analyzed Occam's position,
"For William papal sovereignty is, from the standpoint of Christianity, a heresy, and from the standpoint of policy, a disastrous innovation that has filled all Europe with strife, has destroyed Christian freedom, and has led to an invasion of the rights of secular rulers. . . . His primary purpose was to assert the independence of the whole body of Christian believers against the pretensions of an heretical pope." (George H. Sabine, A History of Political Theory, Third Edition. New York: Holt, Rinehart and Winston, 1961, 205.)
Not surprisingly, Occam joined with Michael of Cessena, Father General of the Franciscans, in redefining private property from a natural right to prudential matter. This, along with intemperate attacks on the papacy resulted in Michael of Cessena's excommunication in 1328 and the issuance of the papal bull Quia Vir Reprobus ("That Evil Man") in 1329. Occam had already been condemned as a heretic in 1326.
The conclusions that necessarily follow Occam's philosophy are surprisingly modern — or, perhaps, not so surprising once we realize that virtually the whole of political, social and religious life is, consciously or not, based on his thought. As Heinrich Rommen explained,
"For Occam the natural moral law is positive law, divine will. An action is not good because of its suitableness to the essential nature of man, wherein God's archetypal idea of man is represented according to being and oughtness, but because God so wills. God's will could possess the same binding force as that which is now valid — which, indeed, has validity only as long as God's absolute will so determines. Law is will, pure will without any foundation in reality, without foundation in the essential nature of things. Thus, too, sin no longer contains any intrinsic element of immorality, or what is unjust, any inner element of injustice; it is an external offense against the will of God." (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 52.)
In other words, if you can find an authority to say what you want to hear, then it must be authentic Catholic teaching. Nothing is objectively wrong if you can find someone to say so, or if it interferes with something you want.
Also, if you can bully someone or browbeat him or her into saying what you want, that works, too. That proves your interpretation of God's Will must be right because your faith is great, and your coercive power is even greater. Might makes right.
Further, if the State replaces God (as it has to a large extent in our day), then whatever the State says is legal is also moral, automatically. As Keynes declared, the State has the power to "re-edit the dictionary." This replaces God with the State as the Great Re-Editor, and makes everything okay if the State says so. As for the reason that the popes have taught is the means by which we discern both the existence of God and the basic precepts of the natural law (Humani Generis, §§ 1-2), it is discarded. Consequently, as Rommen explained,
"Moral goodness consists in mere external agreement with God's absolute will, which, subject only to His arbitrary decree, can always change. . . . Man sins, therefore, because and only so far as a positive law, by which he is bound, stands over him. God, on the other hand, cannot sin because no law stands above Him, not because it is repugnant to His holiness. Hence there exists no unchangeable lex naturalis, no natural law that inwardly governs the positive law. Positive law and natural law, which indeed is also positive law, stand likewise in no inner relation to each other. The identity of this thought structure with The Prince of Machiavelli, with the Leviathan of Hobbes, and with the theory of will of modern positivism (the will of the absolute sovereign is law, because no higher norm stands above him) is here quite obvious." (The Natural Law, op. cit., 53.)
Thus, if your faith is great, then you must be right, and everybody who disagrees with you on anything is irredeemably evil. This is rather contradictory for an orientation allegedly based on amor instead of iustitia, but it follows logically from the shift from objective nature to subjective will.
#30#
As far as they are concerned, something is true because the pope says it, not because the Holy Spirit has granted the pope as pope a special power to discern truth in the area of faith and morals. No, the ultra-ultramontane insists, every utterance of the pope is infallible because he's the pope.
Occam, however, not only rejected the correct understanding of papal infallibility (and would have been astounded that his philosophy was being used to assert even an incorrect understanding of the doctrine), he believed that the papacy itself is heretical as an institution. As George Sabine analyzed Occam's position,
"For William papal sovereignty is, from the standpoint of Christianity, a heresy, and from the standpoint of policy, a disastrous innovation that has filled all Europe with strife, has destroyed Christian freedom, and has led to an invasion of the rights of secular rulers. . . . His primary purpose was to assert the independence of the whole body of Christian believers against the pretensions of an heretical pope." (George H. Sabine, A History of Political Theory, Third Edition. New York: Holt, Rinehart and Winston, 1961, 205.)
Not surprisingly, Occam joined with Michael of Cessena, Father General of the Franciscans, in redefining private property from a natural right to prudential matter. This, along with intemperate attacks on the papacy resulted in Michael of Cessena's excommunication in 1328 and the issuance of the papal bull Quia Vir Reprobus ("That Evil Man") in 1329. Occam had already been condemned as a heretic in 1326.
The conclusions that necessarily follow Occam's philosophy are surprisingly modern — or, perhaps, not so surprising once we realize that virtually the whole of political, social and religious life is, consciously or not, based on his thought. As Heinrich Rommen explained,
"For Occam the natural moral law is positive law, divine will. An action is not good because of its suitableness to the essential nature of man, wherein God's archetypal idea of man is represented according to being and oughtness, but because God so wills. God's will could possess the same binding force as that which is now valid — which, indeed, has validity only as long as God's absolute will so determines. Law is will, pure will without any foundation in reality, without foundation in the essential nature of things. Thus, too, sin no longer contains any intrinsic element of immorality, or what is unjust, any inner element of injustice; it is an external offense against the will of God." (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 52.)
In other words, if you can find an authority to say what you want to hear, then it must be authentic Catholic teaching. Nothing is objectively wrong if you can find someone to say so, or if it interferes with something you want.
Also, if you can bully someone or browbeat him or her into saying what you want, that works, too. That proves your interpretation of God's Will must be right because your faith is great, and your coercive power is even greater. Might makes right.
Further, if the State replaces God (as it has to a large extent in our day), then whatever the State says is legal is also moral, automatically. As Keynes declared, the State has the power to "re-edit the dictionary." This replaces God with the State as the Great Re-Editor, and makes everything okay if the State says so. As for the reason that the popes have taught is the means by which we discern both the existence of God and the basic precepts of the natural law (Humani Generis, §§ 1-2), it is discarded. Consequently, as Rommen explained,
"Moral goodness consists in mere external agreement with God's absolute will, which, subject only to His arbitrary decree, can always change. . . . Man sins, therefore, because and only so far as a positive law, by which he is bound, stands over him. God, on the other hand, cannot sin because no law stands above Him, not because it is repugnant to His holiness. Hence there exists no unchangeable lex naturalis, no natural law that inwardly governs the positive law. Positive law and natural law, which indeed is also positive law, stand likewise in no inner relation to each other. The identity of this thought structure with The Prince of Machiavelli, with the Leviathan of Hobbes, and with the theory of will of modern positivism (the will of the absolute sovereign is law, because no higher norm stands above him) is here quite obvious." (The Natural Law, op. cit., 53.)
Thus, if your faith is great, then you must be right, and everybody who disagrees with you on anything is irredeemably evil. This is rather contradictory for an orientation allegedly based on amor instead of iustitia, but it follows logically from the shift from objective nature to subjective will.
#30#