Thursday, August 30, 2012

A Short Video on Distributism, I: A Few Problems

Recently someone brought a presentation on "distributism" to our attention. Unlike some treatments of the subject it didn't descend too obviously into the "let's-fix-everything-by-hating-everybody-who-disagrees-with-me" mindset. The presenter actually offered some positive suggestions on how to live in accordance with the principles of distributism as far as possible within the current system.
 

There were, however, a few problems. For one, the presenter gave two contradictory definitions of "capitalism." The first definition is a system in which capital is owned by people who produce for a profit. The second definition is in which capital is owned by a few.

The first definition of capitalism could as easily apply to distributism. The presenter acknowledged that profit is a good, and (defining "profit" as the residual after cost) is necessary if you want to produce a surplus to consume yourself or trade to others for what they produce.

Absent coercion or subsidy, no rational person produces without the possibility of profit. We agree with Chesterton's definition of capitalism, but the first definition in the video inserted an unsubstantiated and vague moral judgment into the argument. Basing economics on morality — the natural law — is essential, but you don't do anyone any favors by asserting without presenting an argument or proof. You merely come off as pompous and dogmatic.

Another problem is that the presenter seemed to define money as currency. This was substantiated by one of the illustrations. Yes, all currency is money, but not all money is currency. He implied the "chartalist" (now "Modern Monetary Theory") definition of money used by John Maynard Keynes: bills of credit issued by the State and either used directly as money, or exchanged for bank-issued promissory notes and demand deposits that are used as money.

A bill of credit is a financial instrument issued by a duly constituted government and backed by the faith and credit of the government. It represents the present value of the ability of the government to collect taxes to redeem its bills on maturity. Most currency today is "fiat money" ("fiat" = "Let it be") that the government can force people to accept.

The legal and accounting (and banking school) definition of money is "anything that can be accepted in settlement of a debt." All money is a contract (offer, acceptance, and consideration), just as all contracts are money. Ordinarily, forcing people to accept a contract invalidates the contract. The ability to force people to enter into contracts with the government against their will is the source of power of the Leviathan — Totalitarian — State.

Until fairly recently the bulk of the money supply in the U.S. was not government fiat money, but private sector "bills of exchange" — contracts offered by private individuals and companies either accepted in commerce directly, or taken to a commercial bank and "discounted" (purchased) in exchange for the bank's promissory note, which could then be accepted as money in the community in lieu of the bill of exchange, or used to back a new demand deposit that serves as money.

Relying on government fiat money as the sole or principal money supply restricts capital ownership to those to whom the government distributes its largesse — socialism. Relying on private sector bills of exchange, absent democratic access to capital credit in the form of commercial bank promissory notes, restricts capital ownership to those who meet the bank's qualifications for borrowing. Given the universal collateralization requirement, this restricts ownership of most new capital to those who already own the wealth necessary to pledge as collateral — capitalism.

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