Wednesday, February 29, 2012

Power to the People, III: Countering the Culture of Death

This is our 1,000th posting on the blog, no doubt a cause for great celebration throughout the world. (If not, it should be, as the Just Third Way — the paradigm, not the blog — is pretty much the only hope for returning the world to a more sane course.) In any event, it's probably appropriate that it falls on February 29th, which comes around about as often as a 1,000th posting. It's also appropriate that today's posting finishes off our short series on "Power to the People" and (more importantly), points in the direction of a solution.

While we appreciate the urge of people in the Pro-Life movement to turn the tables on the Culture of Death, we do have to point out that it really isn't the best way to go. Pro-Life adherents clearly don't realize that it is increasing State power itself, and the effective enslavement of people by wages and welfare, that is the root cause of the spread of the Culture of Death, not merely the "wrong" (i.e., what we disagree with) use of that power.

Attempting to use the power of the State to reverse the trend of modern society is not only ineffective — that is, socially unjust — it actually reinforces and strengthens the Culture of Death. People become increasingly susceptible to "Welfare Blackmail," i.e., accepting abortion, same-sex "marriage," inflation, war, a gigantic national debt, and so on, in order to secure increasingly uncertain benefits coerced, guaranteed, or provided directly by the State. Give the State an inch without retaining effective power in the people through capital ownership and control over the purse strings, and the State will not only take a mile, it will take everything.

There is, frankly, only one way to reverse the trend toward increasing State control of every aspect of life. That is to recognize, as Daniel Webster declared in the Massachusetts Constitutional Convention of 1820, that "Power naturally and necessarily follows property." The only way to reverse the total takeover of society by the State and defeat the Culture of Death is to secure to each child, woman and man the means of acquiring and possessing private property in capital.

The only program that has the potential to do that at this late date is Capital Homesteading, for only Capital Homesteading eliminates the slavery of past savings from the financing of new capital formation, thereby taking power away from the State that has usurped it, and returning "power to the people," from whence the power came in the first place, and where it belongs in accordance with the dignity of the human person under God and the realization that the State was made for man, not man for the State.

This is, in part, the argument we made in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010). The foreword is by Father Edward Krause, C.S.C., Ph.D., chaplain of the Society of Catholic Social Scientists, professor of social ethics at Gannon University and editor in chief of Social Justice Review, the official journal of the Central Bureau of the Catholic Central Union of America in St. Louis, Missouri.

Unfortunately, people remain trapped by the slavery of past savings, and are, evidently, terrified of rocking the boat or of risking losing the benefits that the State presumably guarantees. Some people, upset with them if they step out of line, might even call them names!

People who toe the "party line" on this — e.g., as one misguided enthusiast gushed, "The State is the sold intercessor available to the poor" (Rupert J. Ederer, "Solidaristic Economics," Fidelity magazine, July, 1994, 9-15) — forget that the State, which produces nothing, cannot continue to redistribute what others produce. Neither can the State continue to punish the productive for the benefit of the non-productive, and make it difficult to impossible for ordinary people to become productive through the direct ownership of capital as their labor declines in value relative to advancing technology and cheaper labor in other countries.

Nor can the State continue to try and control every aspect of every person's life in a fruitless effort to care for every conceivable individual good, letting the common good continue degenerate in consequence. Something has to give, as the situation in Greece demonstrates. The price of increasingly ineffectual State control is high, as is shown by every aborted infant, and it is a price that never should have been paid, however initially attractive high wages and guaranteed State benefits appear on the surface. With Capital Homesteading, the payments can be stopped. Without Capital Homesteading, the situation will only get worse.


Tuesday, February 28, 2012

Power to the People, II: The Loss of Virtue

The 1951 film Duck and Cover (starring Bert the Turtle) was intended to present possible survival techniques in the event of a nuclear attack . . . unless, of course, one happened to be at "ground zero." The idea was that, upon seeing the flash of a nuclear explosion, you would immediately seek shelter from the radiation and the shock wave. If adequate shelter could not be found, rolling yourself into a ball would provide some protection and minimize the burn area.

Unfortunately, these days the light of truth seems to be as greatly feared as the flash of a nuclear bomb. When confronted with the verifiable facts and supported arguments of the Just Third Way, the standard reaction is to emulate Bert the Turtle and seek shelter immediately from the shock that you might have made one or two mistakes in your reasoning, thereby undermining your conclusion(s) — especially the one that the only way to finance new capital formation is to cut consumption and save.

Are there flaws in our arguments? Can our proofs be, well, disproved? It's always possible, and we try to be open to reasoned arguments and evidence that points in the other direction. We don't get too much of that, however — or any at all, for that matter. What we get is bare assertions that we're wrong, wrong, wrong, and that's all there is to it . . . usually from people who haven't read or (in many cases) understood what we've written.

As we said, nowhere is this more evident than when we come up against people who adhere to the belief that only existing accumulations of savings can be used to finance new capital formation as if it were religious revelation. As we saw in yesterday's posting, however, the slavery of past savings leads inevitably to the growth of the totalitarian State, which cannot tolerate any competing power, whether it be voluntary associations of citizens, or even the family or organized religion.

Within the past savings framework, the State necessarily takes over more and more of the business of living, intruding into and controlling every aspect of life. Interestingly, as the State takes over more and more of the business of living for everyone and imposes a condition of dependency — slavery to State-guaranteed wages and welfare (Belloc's "Servile State") — on as many people as possible, there is an observable decrease in the acquisition and development of virtue among people generally, even as the State works overtime to try and force people to be virtuous — on its terms, of course.

This makes sense. Confusing cause and effect, Aristotle defined a natural slave as a human-appearing being that completely lacks the capacity to acquire and develop virtue — "human-ness." This is, of course, backwards. It's not that someone is a slave because he or she cannot acquire and develop virtue. Rather, slavery renders someone generally incapable of acquiring and developing virtue. By taking away the exercise of our natural rights, the State renders us unfit for life as free citizens — and then claims that we are slaves by nature, and must be looked after by the State. Aristotle was wrong, but at least he wasn't a hypocrite.

The exercise of our natural rights, especially life, liberty and property, is the chief means by which we as political animals acquire and develop virtue. Being allegedly incapable of acquiring and developing virtue, a slave (as we might expect) has no rights — he doesn't need them. He has a master to take care of him, and provide for his every need. All those whips and chains and shackles (and the occasional salutary crucifixion for saying the wrong thing or looking funny), well, that's just the price you have to pay for the safe and secure life of a slave, and that week of vacation during the Saturnalia.

The problem is that nominally free people who own no capital — capital ownership, the chief support of life and liberty, being ordinarily the means by which people acquire and develop virtue — are, in effect, "masterless slaves." That being the case, they need someone to take care of them. The modern absolutist State is ready and willing (it's ability, especially in light of the current economic crisis, is questionable) to assume this role, and to guarantee everyone's individual good — at a price: ownership of everything, as the totalitarian philosopher Thomas Hobbes made clear in Leviathan.

As socialism is the abolition of private property — private property being the right to control and enjoy the fruits — socialism is the only answer. It is assumed in light of the myth of past savings that the fact that the popes have condemned socialism is either a mistake, or socialism is not really socialism, i.e., is something other than the abolition of private property. As Keynes declared, the State has the right to "re-edit the dictionary," so why not, if it can get you absolute power?

Capital ownership becomes something that would be nice to have if it could be done, say, by a willing redistribution of wealth by private owners, or a program by the State, but the important thing is to guarantee adequate wages, welfare, healthcare, and any other individual good or alleged good that some bureaucrat has decided is desirable, such as abortion on demand, or same sex "marriage."

All of this is in sharp contrast to the Just Third Way, which is based on the three principles of economic justice,


Distribution, and


and embodied in the "Four Pillars of an Economically Just Society" . . . all of which, while fully consistent with the natural law, are impossible under the past savings assumption (thereby arguing that the past savings assumption is contrary to the natural law):

1. A limited economic role for the State (past savings requires increasing State control to keep a dying system on life support),

2. Free and open markets as the best means for determining just wages, just prices and just profits (past savings requires State control of wages, prices and profits to guarantee results),

3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization (past savings requires that small and minority owners be deprived of the fruits of ownership — control and income — to ensure the accumulation of sufficient savings), and

4. Widespread direct ownership of capital (small and minority owners would use their income for consumption, not reinvestment as required by the past savings assumption).

The ineffectiveness of the Pro-Life movement is a graphic example of what happens when we are trapped by the slavery of past savings. Seeing no other way to end abortion on demand, they attempt to capture the State and use it to advance the Pro-Life cause, thereby turning the tables on the Culture of Death.  This effort to use the weapons of the Culture of Death against them is (as we might expect) self-defeating.

The end, contrary to what Machiavelli claimed, does not justify the means.  We cannot licitly use the coercive power of the State to force our views on others, however correct we believe those views to be.  Our claim that we are using the power of the State for good instead of evil is the very claim made by the totalitarians . . . the other totalitarians, that is.  By demanding "all or nothing" we become the very thing we are opposing.

There is also the problem that, even in a totalitarian system, an "all or nothing" demand generally results in the latter.


Monday, February 27, 2012

Power to the People, I: The Myth of Past Savings

In his article, "Under the Control of the State" (The Catholic World Report blog, 02/17/12) Father James Schall, S.J., of Georgetown University raises an issue that we have addressed many times on this blog. Most recently this has been in the "Raw Judicial Power" series and the 02/22/12 posting on the false equality concept that pervades today's politics.

While Father Schall's article is insightful, he unfortunately avoids addressing the underlying cause of the immense growth of government power he deplores. That is the fixed belief that the only way to finance new capital formation is to cut consumption and accumulate money savings.

As regular readers are well aware, the myth of past savings (we use "myth" here not in the sense of guiding world view, but of "false story") necessarily leads to concentrated ownership of capital as technology advances and becomes increasingly expensive. Only the very rich — and the richer, the better — have the capacity to restrict their consumption to that degree. The rich actually find it impossible, as Louis Kelso pointed out, to consume the vast amount of income generated by the capital they own. Being rational, the money is reinvested in yet more capital, exacerbating the problem.

The past savings myth that only an elite can afford to finance new capital formation leads to the creation of a number of other damaging myths. One of the most harmful is the belief that advancing technology is evil. As Chesterton scholar Father Ian Boyd has analyzed the situation, "man is building machines he cannot control." "Control" and "ownership" being the same in all codes of law, what Father Boyd is really saying is that "man is building machines he cannot own." As a corollary, if technology were not advancing, it would remain simple, and ordinary people could afford to cut consumption and save to acquire it — and 99% of the people on earth would starve to death in a matter of weeks.

These are logical conclusions in light of the slavery of past savings into which humanity has sold itself. It comes as no surprise that Father Boyd, who does not appear to understand Kelso's financing techniques that would emancipate humanity from the slavery of past savings, rejects the Just Third Way on the vague grounds that "It's not our way."

The myth that technology is evil leads to another myth, that any technology beyond a nebulous "human scale" must be eliminated or put under the control of the State, not left in the hands of untrustworthy private interests.

The problem is that State control to the degree necessary to regulate the economy to achieve politically desirable ends is contrary to nature. The right to be an owner is a natural right, as Leo XIII made painfully clear in Rerum Novarum. Thus, once it has begun the process of trying to guarantee results to any degree, the State is "forced" to exercise increasing control and intrude into every aspect of life in every sphere in an increasingly desperate yet nevertheless futile attempt to impose desired results.

The reasoning is sound, even though the premises are false:

1. Shackled by the myth of past savings, it is assumed that ordinary individuals cannot control — own — these vast machines and systems because they do not have the savings to purchase them, and lack the capacity to restrict consumption in order to accumulate the necessary cash.

2. Contradicting the fact that nothing created by God can be intrinsically evil, private owners of capital — capitalists — are assumed to be inherently greedy. As such, they cannot be trusted to exercise proper stewardship of their wealth for the good of all humanity, for which the wealth was created.

3. Since all production comes from labor (another myth), the rich must be thieves, because nobody's labor is worth that much, so the only way to accumulate so much is to have stolen it. Justice demands that the rich be punished for their gargantuan thefts, unless they voluntarily redistribute their ill-gotten gains.

4. Since the State is the guardian of the common good — always misunderstood as the aggregation of individual goods, not correctly understood as the vast network of institutions within which humanity as political animals acquires and develops virtue — the State must assume absolute power as Keynes declared, and either control or own outright first money and credit, then key industries, then all industries, and, ultimately, take over both domestic and religious society, abolishing or nullifying humanity's natural rights to life, liberty (freedom of association/contract), and property.

Not surprisingly, within this frame of reference a viable solution becomes impossible. If we try to make every citizen an owner of enough capital to generate an adequate and secure income sufficient to meet common domestic needs satisfactorily, the only source of that capital within a system in which all capital must be financed out of existing accumulations of savings are the wealthy who, by definition, own those savings.

If the rich prove obstinate — as people tend to do when being called thieves and someone demands all or a portion of their wealth — then the only recourse is to confiscate and redistribute, either the capital itself, or the income generated by the capital. Since property is the right to control what you own and derive the fruits — the income — therefrom, the only way to restore property within a system based on the past savings assumption is to destroy the meaning of property.

Is, however, the slavery of past savings the only option? Is there a way that people can retain their natural rights and exercise those rights at the same time? Or is the phrase "the rights of man" as empty as the totalitarian and absolutist State would have us believe?


Friday, February 24, 2012

News from the Network, Vol. 5, No. 8

This has been another busy week at CESJ, albeit one a trifle easier to write about than last week (which was also pretty full). Our meetings are productive . . . but they aren't the most fun or even informative to read about, even in short news items. Be that as it may, we have been making some significant progress:

• According to the NCEO Bulletin, the percentage of worker ownership in the private sector has been in a slight decline since reaching a plateau some years ago. A number of reasons are cited for this development, among them the general economic decline, loss of tax credits, and so on. Although this was not addressed, it may also be that, with growing government control of the economy — the federal deficit is projected to be 72.5% of GDP this year, as opposed to 40% four years ago, and every dollar of government debt means a dollar spent into the economy for government purposes, and a future dollar in taxes that must be collected to redeem the debt — workers are less willing to take responsibility for their own welfare, and companies are less willing to risk it. It might also be that, with the perception that government is willing to bail out failed companies considered "too big to fail," there is less incentive to implement worker ownership with its greater concern for the viability of the company.

• Supporters of the Just Third Way are urged to start preparing for the annual "Rally at the Fed" in April in Washington, DC. With the heightened focus on the economy and the failure (so far) of any of the incumbents and candidates to come up with a viable solution that doesn't involve a permanent outstanding government debt, a proposal that has the potential to eliminate deficits and the debt in a generation or so and achieve full employment without inflation should make for a lively topic of discussion. You should plan on attending just to see the (metaphorical) fireworks.

• It's well known that some of the people in CESJ and the Just Third Way are involved in the American Revolutionary Party. While there is no organizational affiliation, and CESJ does not endorse or support any candidate or party, the ARP has included much of what CESJ proposes for Capital Homesteading in its platform. Recently there were questions raised about the "don't subsidize, don't criminalize" position on abortion, with some people holding that removal of any government support is tantamount to criminalizing abortion, and others taking the position that not advocating criminalization is tantamount to supporting it. We believe that, while the arguments on both sides have some merit, there is no cause for concern. As explained in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010) — available from both Amazon and Barnes and Noble in trade paperback, and in Amazon's Kindle format — we think that the "don't criminalize, don't subsidize" position is consistent with the natural law and thus the social teachings of Judaism, Christianity and Islam (among others), and satisfies the demand for continued availability of abortion until such time as what A. V. Dicey called "public opinion" can come up with something that will completely satisfy both the Pro-Choice and the Pro-Life position — as we must admit is possible if we treat people holding a position that differs from our own as fellow human beings rather than demons. It's a complex argument, so don't expect to get it in the weekly news notes. You'll have to read the book.

• The CESJ core group had a very interesting and informative discussion with the president of the Foundation for Enterprise Development on Thursday. She is very concerned with how to foster entrepreneurship through worker ownership while maintaining a viable and vital corporate culture. That is something that Justice-Based Management is concerned with as well. There might be some common ground for future collaboration.

• Guy S. in Iowa put us in touch with a leader in Santorum's campaign. This represented the fruit of a lot of effort on Guy's part, and may help significantly in setting up another meeting between Rick Santorum and Norman Kurland. Not that we're limiting ourselves to a single candidate or party. If someone will listen and is willing to hear about something that has the potential to turn this country around (to say nothing of restoring the personal and individual sovereignty that supports the human dignity that is the hallmark of what America means), we are more than happy to give of our time.

• As of this morning, we have had visitors from 57 different countries and 49 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 Venezuela, Hong Kong, Australia, the United States and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Raw Judicial Power, Part XI: The Slaughterhouse Cases," "Aristotle on Private Property," "E. J. Dionne v. Citizens United," and "Raw Judicial Power, Part XIII: The Slaughterhouse Cases, Effects."

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.


Thursday, February 23, 2012

Some Just Third Way Terms

As we've mentioned a couple of times in the weekly News from the Network, we're working on an updating of Capital Homesteading for Every Citizen, which we published in 2004 before one or two things happened. Part of the task involves revising and adding to the "Just Third Way Glossary" that proved to be such an important part of the book. For today's posting, we thought we'd present some of the revised and new entries to the Glossary.

Acceptance. In financial terms, an "acceptance" is a negotiable instrument, such as a bill of exchange, mortgage, or bill of credit, that is accepted in settlement of a debt. Anything accepted in settlement of a debt is considered "money." When the offer and acceptance of an instrument is between non-bank private parties, the instrument is known as a "merchants" or "trade" acceptance, and is to all intents and purposes, privately issued money. When the offer and acceptance of an instrument is between a non-bank private party and a bank of issue, or between two banks of issue, the instrument is known as a "bankers acceptance."

Anticipation Note. See "Bill of Credit."

Bank of Deposit. A bank of deposit is defined as a financial institution that takes deposits and makes loans. It is limited in the amount of loans it can make by the amount of its capitalization and deposits. A bank of deposit cannot create money. The most common types of bank of deposit are credit unions, savings and loans, and investment banks.

Bank of Issue. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A bank of issue can create money by "accepting" and "discounting" or "rediscounting" private sector "bills of exchange" or government "bills of credit," for which the bank issues a promissory note. The promissory note is used to back demand deposits or (rarely nowadays) smaller promissory notes known as "banknotes." When a bank of issue accepts private sector bills of exchange, the money supply is asset-backed and represents the present value of future marketable goods and services conveyed by discounting or rediscounting bills of exchange. When a bank of issue accepts government bills of credit, the money supply is debt-backed and represents the present value of anticipated future tax collections by the State conveyed by purchasing the State's "anticipation notes," as bills of credit are also known. The most common types of bank of issue are commercial and mercantile banks. A central bank is a special type of bank of issue, possibly best understood as "a bank of issue for banks of issue," intended primarily to provide rediscounting accommodation for member commercial banks.

Bank, Central. A "bank of issue for banks of issue." A central bank functions as a bank of issue for a region's commercial banks, usually being the only financial institution permitted to "monetize" assets for circulation as legal tender currency. A central bank differs from other banks of issue in that it accepts negotiable instruments that have already been made or issued by other banks and financial institutions, businesses, or individuals. A central bank accepts such assets by rediscounting the instruments issued by member banks, or purchasing the instruments issued by non-member banks, businesses or individuals on the open market. A central bank pays for the instruments by printing currency, striking coin, or creating demand deposits denominated in units of the currency. This money is cancelled or retired when the original issuer of the instrument redeems the instrument. A central bank regulates the creation of money and credit, and sets interest rate policy, provides member banks with reserves on an emergency basis, and oversees clearinghouse operations. If operated properly, a central bank thereby establishes a uniform and stable asset-backed currency that has the capacity to expand and contract directly with the needs of private sector industry, commerce, and agriculture.

Bank, Commercial. Also known as a "Mercantile Bank." A financial institution that takes deposits, makes loans and issues promissory notes — a "bank of issue" — to facilitate commercial transactions. A commercial bank creates money for carrying on a society's economic transactions by accepting bills of exchange for discounting. If permitted by law, a commercial bank may also function as a savings bank ("bank of deposit") offering personal financial services to individuals.

Bank, Investment. A financial institution that takes deposits and makes loans to facilitate the buying and selling of securities, e.g., shares of company stock and corporate debt instruments. The special function of an investment bank is to intermediate between "savers" — usually brokers handling individual, corporate, or institutional accounts (past savers), and banks of issue that have created money on behalf of their customers by accepting bills of exchange (future savers) — and the issuers or holders in due course of primary or secondary issues of securities. An investment bank thus serves as a middleman between the primary or original issuer of a security, and the ultimate secondary purchaser.

Bank. There are two basic types of institutions known as "banks." These are (1) Banks of Deposit, and (2) Banks of Issue. A bank of deposit is defined as a financial institution that takes deposits and makes loans. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A Central Bank is a special type of bank of issue intended to function as a "bank of issue for banks of issue."

Bill of Credit. A "bill of credit" is a special "constitutional" type of bill of exchange issued ("emitted") by a government. Also known as an "anticipation note" (from "anticipated tax revenues"), a bill of credit is not backed by assets, per se, but by the "faith and credit" of the government, that is, the ability of the government to redeem the bill of credit out of future tax revenues.

Bill of Exchange. A bill of exchange is a private sector negotiable instrument backed by the general creditworthiness of the "drawer" or issuer. The present value of the bill is thus based on the present value of the anticipated future marketable goods and services the drawer expects to produce and sell, thereby generating the means to redeem the bill upon maturity. Assuming an honestly run and properly regulated banking system with enforcement of adequate internal controls (especially separation of commercial from investment banking — see "Glass-Steagall"), the amount of bills of exchange drawn is necessarily limited by the present value of potential financially feasible capital projects in the economy. Bills of exchange should be carefully distinguished from mortgages and bills of credit.

Chicago Plan. A proposal from the 1930s to implement a 100% reserve requirement (i.e., full asset backing behind all bank loans) as a means of addressing the financial chaos resulting from speculative loans that resulted in the stock market crash of 1929. The weakness of the Chicago Plan was that it did not take into account Say's Law of Markets as applied in the real bills doctrine. Consequently, the special function of commercial banks and the Federal Reserve in creating money by accepting bills of exchange for discounting and rediscounting was ignored. The proposal was to transform all commercial banks and the Federal Reserve into purely depository institutions — banks of deposit — and back the whole of the money supply with government debt. By prohibiting money creation by discounting and rediscounting private sector bills of exchange, the Chicago Plan would have put the U.S. economy under the control of the federal government, a problem that Henry Simons, who developed the Plan, was not able to reconcile with his anti-monopoly stand.

Discount Rate. The percentage by which a central bank reduces the amount of cash printed or demand deposit created to purchase qualified securities from member banks and financial institutions. While often erroneously construed as an interest rate, under binary economic policy, this rate takes the form of a service fee, estimated at 0.5%, to cover all central banking and regulatory costs of monetizing Capital Homesteading loans made by commercial banks and other qualified financial institutions for broadening the ownership of new capital. The discount rate is a recognition of the time value of money, and should reflect the present value of the face amount of the instrument due on maturity and the risk associated with the possibility that the drawer of the bill will not redeem the bill on maturity. In binary monetary policy, the risk premium is separated from the time value of money and used to purchase capital credit insurance to compensate the holder in due course of the instrument in the event of default.

Discounting. A bill of exchange is always offered and accepted in commerce at the present value of the future redemption amount denominated on the face of the bill. Because the present value of a future sum is almost always less than the face value of the instrument, the initial process of offering and accepting a bill of exchange is called "discounting." For example, on a $10,000 loan discounted at 0.5%, the lender would give the borrower $9,950 ($10,000-$50) in cash. The "discount rate" is not an interest charge, but a recognition of the time value of money as well as the risk that the bill will not be redeemed on maturity. All subsequent offers and acceptance of the same bill are called "rediscounting." The initial discounting of a bill creates new money, while rediscounting transfers existing money. A bill of exchange that has a present value in excess of the face amount is said to pass at a "premium," but the offer and acceptance is still called discounting and rediscounting. While central banks may discount bills directly from the public, the primary function of a central bank is to accept rediscounts from member banks, supplemented with open market operations in the securities issued by non-member banks, private businesses and individuals. In all cases, a central bank purchases qualified loans by printing currency or creating demand deposits.

Glass-Steagall Act. There are two acts known as "Glass-Steagall," after the sponsors, Senator Carter Glass of Virginia, and Senator Henry Steagall of Alabama. The first is the Banking Act of 1932, which permitted the Federal Reserve to accept government bills of credit intermediated by special brokers instead of member commercial banks, thereby streamlining the process of monetizing government deficits. The second is the Banking Act of 1933, Pub.L. 73-66, 48 Stat. 162 (June 16, 1933) that, among other reforms, established the FDIC and separated commercial and investment banking as a systemic or internal control to prevent speculation and conflicts of interest. The partial repeal of the 1933 Glass-Steagall in the early 1980s (The Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Depository Institutions Act of 1982) led to the savings and loan crisis of the late 1980s and early 1990s and permitted mergers that led to the formation of financial institutions considered "too big to fail." The full repeal of Glass-Steagall in 1999 in response to the unification of the financial services industry in Europe due to the introduction of the Euro on January 1, 1999 abolished systemic internal controls in the U.S. financial services industry and led directly to the financial crisis of 2007 and the subsequent economic downturn.

Mortgage. A mortgage is a private sector negotiable instrument backed by the present value of existing marketable goods and services owned by the "drawer" or issuer. The present value of the mortgage is thus based on the current value of the goods and services on which the mortgage is drawn. In the event a drawer of a mortgage fails to redeem the mortgage on maturity, the holder in due course of the mortgage becomes the owner of the goods and services. The home or real estate mortgage is most familiar, but not the most common type of mortgage, which is widely used in commerce, usually in the form of a secured debenture.

Real Bills Doctrine. An application of "Say's Law of Markets." The real bills doctrine is that, everything else being equal, as long as the present value of the bills of exchange discounted in the economy in aggregate equals the present value of future marketable goods and services there will be neither inflation nor deflation, but a uniform, stable, and elastic money supply that exactly meets the needs of the economy.

Reserves. Cash or cash equivalents (currently usually government securities) that a commercial bank has on hand to cover transactions demand for cash on deposit, and to satisfy the demand for convertibility of the bank's obligations into legal tender. It is important to note that reserves do not back the bank's obligations. The bank's obligations (promissory notes and demand deposits) are backed by the present value of the bank's capitalization, deposits, and accepted bills of exchange.


Wednesday, February 22, 2012

The Crimes of Rick Santorum

In his column in today's Washington Post, Dana Milbank goes to some trouble to convince his readers that Rick Santorum has been calling President Obama a Nazi. If Milbank's claim is correct, then Santorum is guilty of behavior that can only be described as despicable. The world may have known worse tyrants — Joseph Stalin comes to mind as a possibility — but none causes the visceral reaction of associating someone with Adolf Hitler, head of the National Socialist ("Nazi") Party. Calling President Obama a Nazi is, given his position as Head of State, tantamount to calling him another Hitler.

Despite Milbank's best efforts, the evidence is, at best, thin. He bases it on Santorum's oft-used comparisons between various Nazi programs, and those of today's federal government. Milbank does not cite one single instance where Santorum has called anyone except an actual member of the Nazi Party a Nazi, but assumes that drawing comparisons as a rhetorical device is the same as spewing out hate speech.

No, Milbank presents no evidence to prove that Santorum has ever called President Obama a Nazi or compared him to Hitler. There is plenty of innuendo, however. Take, for example, Milbank's statement, "Santorum is such a stranger to democratic give-and-take that he thinks it's okay to label everybody else as Nazis."

Notice the cleverness of Milbank's statement. He does not state as a fact that Santorum has ever at any time called anyone a Nazi. Even given the rather tepid protection public figures have against libel that might get Milbank into trouble.

No, what Milbank says is that — in his opinion (unless Milbank claims the power to read minds) — Santorum thinks it's okay to call everybody else Nazis. In other words, based on his less-than-generous and rather slanted interpretation of various statements and actions by Santorum, Milbank is actually saying what he thinks Santorum thinks.

Thus, without actually saying so, Milbank leaves the reader with the impression that Santorum habitually calls anyone with whom he disagrees a Nazi, when, in strict truth, Milbank has not presented any evidence to prove that Santorum has ever done any such thing. Nor would a reasonable person without an ax to grind infer any such thing from the quotes Milbank gives or the incidents he cites.

Googling "Santorum is calling Obama a Nazi" gave approximately 21.8 million matches. A quick check revealed that possibly a third of them were claims that Santorum was calling President Obama a Nazi or Hitler, but citing no specific instance. About two-thirds seemed to be denials by Santorum that he has ever done any such thing. Nowhere was there an actual quote by Santorum given.

All Milbank did was give the standard unanswerable — and completely dishonest — argument, "I know what you're thinking." If you deny that is what you are thinking, you're a liar. If you don't deny it, you're guilty. As anyone who has ever tried to respond to a furious boy- or girlfriend who pulls out that argument, there's no way you're going to win. The only thing anyone can do is retreat and get out of the line of fire until things cool down . . . such as after the election, which would probably suit Milbank just fine.

What is baffling about the allegation that Santorum calls President Obama and, apparently, everyone else on earth Nazis is (aside from the lack of evidence), however, the utter disingenuousness of the accusation. For eight years people called George Bush a Hitler, even coining a neologism, "Bushitler," that not only explicitly called Bush a reincarnation of the man many people regard as the greatest monster in history, but also hinted at large masses of bovine residue. Googling "Bushitler" gave 13,500 matches, while "Bush is Hitler" gave 28.5 million. Putting quotes around the words so that the exact phrase pops up gave 19,700 matches. "Bush is a Nazi" gave 12,600 matches.

The computer word count for this blog is 666. You know what that means.


Tuesday, February 21, 2012

Toward a False Equality

This past Friday the Alabama Supreme Court overturned a DeKalb Circuit Court summary judgment in favor of defendants who maintained that a wrongful-death action could not be maintained because an unborn child is not viable. Pro-Life activists are hailing the decision by Justice Thomas Parker as a great victory, and a further erosion of the U.S. Supreme Court's ruling in Roe v. Wade. As technology advances, the issue of viability of the fetus becomes in many cases irrelevant. As one commentator put it, "What stays constant is that at the moment of conception the child is a human being."

There's the problem. In Roe v. Wade the Supreme Court did not deny that a fetus is a human being. Logically and legally the Court could do no such thing. They could equivocate and feign ignorance of a self-evident fact, claiming that they did not know whether a fetus is a human being, but they could not deny that fact outright. "Being" is the quality or state of having existence. The fact that a fetus exists from the moment of conception is not the issue. Abortion is a meaningless act if there is nothing there to abort.

What the justices could do and did was deny that, whatever a fetus happens to be, it is not a person, and therefore not entitled to protection under the law. "Person" is a legal and social concept, where "being" is a simple statement of fact. What Roe v. Wade did was make personality dependent on something other than mere humanity or being. This is similar to what the Court did in Scott v. Sandford in 1857 when Justice Roger Brooke Taney declared in his opinion that,

"It is difficult at this day to realize the state of public opinion in regard to that unfortunate race which prevailed in the civilized and enlightened portions of the world at the time of the Declaration of Independence, and when the Constitution of the United States was framed and adopted; but the public history of every European nation displays it in a manner too plain to be mistaken. They had for more than a century before been regarded as beings of an inferior order, and altogether unfit to associate with the white race, either in social or political relations, and so far unfit that they had no rights which the white man was bound to respect."

The ruling in Scott v. Sandford upheld the presumed principle of the natural inferiority of blacks, whether slave or free, maintaining, in effect, that members of "that unfortunate race" may be human beings, but they are not human persons. Only persons have rights. When the natural law is jettisoned, it is entirely "logical" to take the position that Dred Scott or a fetus may be a human being, but he is not a human person.

Thus, it seems evident that, however encouraged people in the Pro-Life movement may be about the decision by the Alabama Supreme Court, it really changes nothing. The probability is that, given the U.S. Supreme Court's orientation toward legal (and moral) positivism, the argument would not be admitted.

As became clear in the recent blog series on "Raw Judicial Power" when analyzing the U.S. Supreme Court's re-writing of the Constitution beginning with Marbury v. Madison in 1803, but reaching its nadir with Scott v. Sandford in 1857, the Slaughterhouse Cases in 1873 and Roe v. Wade in 1973, the Court can make the words in any part of the Constitution mean anything they want in any set of circumstances. As William Crosskey observed regarding the ruling in the Slaughterhouse Cases, the opinion was so vaguely worded as to allow the Court to make decisions 180 degrees from one another, using the same precedent — and the ruling in Slaughterhouse as it pertains to the meaning of "person" in the 14th Amendment is the basis for Roe v. Wade.

In their book The Basic Symbols of the American Political Tradition (1970), Willmoore Kendall and George Carey maintained that Congress has the power to reverse any decision of the Supreme Court and put it back in its place, but it simply does not do so. Perhaps the object lesson of how the Court was able to effectively nullify the 14th Amendment — specifically intended to overturn Scott v. Sandford — and use the same reasoning in Slaughterhouse, giving the Court power over the other two branches of government is too graphic a reminder of their own, self-imposed impotence.

The Congress can amend the Constitution all it wants, and other courts can hand down decisions to their hearts' content, but until the Court — and, before it, the people and the other branches of the government — reorient themselves and their philosophy toward "virtue" (in the Aristotelian sense), nothing is going to happen except pendulum swings between whichever group holds power at the moment. As John Adams noted, "Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other." The history of the decisions of the Supreme Court demonstrates the truth of Adams's observation in the most graphic manner possible.

The problem is that the United States has fallen victim to the very thing against which Alexis de Tocqueville warned as being the single greatest danger to democracy in America: false notions of equality. As de Tocqueville concluded the second volume of Democracy in America (1840),

"Providence has not created mankind entirely independent or entirely free. It is true that around every man a fatal circle is traced, beyond which he cannot pass; but within the wide verge of that circle he is powerful and free: as it is with man, so with communities. The nations of our time cannot prevent the conditions of men from becoming equal; but it depends upon themselves whether the principle of equality is to lead them to servitude or freedom, to knowledge or barbarism, to prosperity or to wretchedness." (Alexis de Tocqueville, Democracy in America, II.4.viii.)

Kendall and Carey make the same point, although they tend to muddy the water by giving too much weight to modern understandings of the false notions of equality, neglecting the obvious Thomist understanding as it applies in the "analogy of being" of equality of opportunity or capacity for virtue. Whatever your specific frame of reference, however, people today seem to have forgotten that the State is not the source of all good. The demand has grown, from Coxey's Army in 1894 to today's "Occupy" movement, that the State guarantee everyone an adequate material standard of living, imposing an acceptable equality of results by whatever means deemed necessary.

This is directly contrary to the role the State is intended by nature to play. The State is the primary (but not sole) guardian of the common good, not each individual's personal good. The common good, properly understood, is that network of institutions within which people, as special creations of God, acquire and develop virtue, thereby becoming more fully human — and the State a more perfect union to enable people to pursue their personal good within the limits imposed by membership in a free society.

Consistent with the belief that, contrary to the precepts of the natural law and Catholic social teaching, the State, and the State alone, is the guarantor of all individual goods ("the State is the sole intercessor available to the poor," as one misguided enthusiast put it), and the sole guardian of the common good, leads directly into decisions such as Roe v. Wade.

Worse, the fixed belief that all good comes from the State makes people susceptible to "Welfare Blackmail." People begin to accept abortion and intrusive State control of every aspect of their lives as the presumably necessary price for material benefits conferred by the State. The misguided enthusiast cited above (we'll grant him anonymity for obvious reasons), has, in fact, while proclaiming himself to be "Pro-Life," criticized others for agitating against abortion when war, poverty, and lack of adequate wages abound.

That the demand that the State take care of everyone's material needs and impose an equality of condition — especially economic condition — involves the complete economic disenfranchisement of ordinary people through the effective abolition of private property is either ignored (by the capitalists), or viewed as a positive good (by the socialists). This is why the popes have harshly criticized capitalism, but condemned socialism outright. While both the criticism and the condemnation were necessary and salutary, the ease with which both have been widely misunderstood, reinterpreted, or ignored by Catholics and non-Catholics alike suggests that what is needed at this point is the explication of principles that, when applied in a consistent and logical manner, will lead to something above and beyond both capitalism and socialism.

Absent that, the popes can claim all they like that widespread direct ownership of capital is a moral and social necessity, but it will have no effect. People will continue to reinterpret what the popes say in light of discredited economic theory that, for example, asserts contrary to established fact that the only way to finance new capital formation is by cutting consumption and accumulating money savings. The legal, social and economic "experts" will simply continue to ignore or suppress papal teachings on the grounds that it contradicts what they have chosen to accept as economic dogma.

Without private property in capital, however, we cannot hope to reverse the current trends in this country or around the globe. "Power," as Daniel Webster observed, "naturally and necessarily follows property." Ownership of capital is also the means by which we interact in society in a meaningful way — as far as Aristotle was concerned, a nominally free person who owns no capital is a masterless slave. Ownership of capital — and, as Leo XIII observed, we have that right by nature itself — not a declaration by the Supreme Court or Congress, makes us "persons," at the same time that it vests us with the power to protect that very personality and the other rights of life and liberty that necessarily accompany it.

This is why we at CESJ advocate Capital Homesteading as a Pro-Life economic agenda. By vesting ordinary people with ownership of capital, "the rest of us" gain the power necessary to reverse the social and political trends that led to Roe v. Wade — and, incidentally, eliminate the debt that threatens to enslave future generations even more than is the case today. Not until we have a society characterized by widespread direct ownership of capital will the Pro-Life movement make any headway. The Congress can pass all the laws it wants, the Constitution can be amended, but until ordinary people are vested with the power that ownership brings, and thus the means of acquiring and developing virtue, the Court, the president and even Congress will continue to interpret the Constitution and even the role of the State in a way that furthers the goal of false equality against which de Tocqueville warned.


Monday, February 20, 2012

Foreword to W. T. Thornton's "A Plea for Peasant Proprietors" (5)

The root cause of lack of democratic access to capital credit is a fixed belief, found primarily in Keynesian economics, but also in the Monetarist/Chicago and Austrian schools. Keynes held that for new capital to be financed, consumption must be reduced and money savings accumulated. This has resulted in a situation in modern Ireland with disturbing parallels to the 1840s. A similar problem afflicts virtually every nation on earth. The world's "social safety nets," while they have staved off the worst effects so far, are nearly bankrupt in most countries.

Fortunately, today's economic problems in Ireland and elsewhere are amenable to the same solution Thornton proposed: establish and maintain universal direct ownership of capital as fast as possible. Equally fortunate, the problem of how to finance a program of rapid capital expansion— in agricultural, industrial, and commercial capital — can easily be solved by applying advanced techniques of corporate finance, and maintained by applying sound principles of justice and market economies in our management systems.

Perhaps not surprisingly, however, while Thornton's observations and remedies can readily be applied to the current crisis, there remains a great deal of built-in resistance in politics and academia — the same barriers that Thornton faced in his day. Nevertheless, if we understand that both land and technology are simply different forms of capital, and that we don't have to confiscate, condemn, or redistribute existing capital that belongs to some people so that other people can become owners, then we quickly realize that it is possible for everyone on earth to become an owner of a capital stake that could generate an income sufficient to meet common household needs. The financing of new capital would not come from existing savings, but from the present value, the "future savings," of the capital that has yet to be formed.

We can sit idly or helplessly by while discontent, anger and despair continue to grow throughout the world. We can blame government indifference, corporate greed, or the selfishness of the developed countries or the wealthy. Or, we can look to a new way to avert the crisis and repair the economic system - empowering every citizen to become an owner of productive capital. As Thornton presaged in the concluding chapter of his 1874 revision:

"In every quarter of the United Kingdom a storm against landlordism is audibly brewing, which, if allowed to break, will shake the edifice to its foundations, not, assuredly, leaving undislocated the superstructure. Yet landlordism, even if a hundred times more unpopular than it has, so far, become amongst ourselves, might be rendered one of the most popular of institutions, by simply having its privileges, now so invidiously concentrated, made freely accessible to all - the meanest farm laborer included; and to this change in its character the only remaining impediments are legal ones, of which landlords and their legal advisers are the chief upholders." (Thornton, A Plea for Peasant Proprietors, op. cit., 265.)


Friday, February 17, 2012

News from the Network, Vol. 5, No. 7

What with the government deficit projected to rise to 72.5% of GDP this year (up from 40% four years ago), all the talk about the evils of ownership, the bleakness of the prospects for trying to change the system when "they" are in charge, you'd think things would look pretty grim.

The truth of the matter is, yes, if you continue to operate within the current paradigm, things are not only "pretty grim," they are utterly hopeless. That's "within the current paradigm," however. Once you step out of the current paradigm, with its disproved assumptions and degradation of human dignity, it's remarkable how much things start looking up. For example:

• The monthly CESJ Executive Committee meeting was held on Wednesday, February 15. Among the many issues discussed was a new model for financing an "aquaponics" proposal, a proposal to use shipping containers as low-cost housing, and an effort to save a hospital in an inner city. Also discussed was motivating the CESJ network to promote both the ideas and specific publications in an organized and systematic way in order to increase visibility of CESJ in a positive manner.

• Continuing efforts are now bearing fruit in the drive to circulate a petition to have governments at all levels adopt a resolution supporting the Declaration of Monetary Justice.

• CESJ just received a book by Dr. Young K. Leigh, who recently earned his doctorate on the subject of Justice-Based Management. Dr. Leigh's book, Employee Ownership Company: An Enlightened Management and Employee Ownership Model for 21st Century Business Enterprises, is the first serious treatment of JBM to come out of academia.

• CESJ had an interesting discussion with Gordon Godwin, whose "Big Phat Band" just won a "Grammy" for a swing version of Gershwin's Rhapsody in Blue, about the CESJ ode, 16 Bills.

• As of this morning, we have had visitors from 57 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, Canada, the UK, Australia, and the Philippines. People in Venezuela, Hong Kong, Australia, Portugal and the United States spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Raw Judicial Power, Part IX: Scott v. Sandford," "Raw Judicial Power, Part XI: The Slaughterhouse Cases," "Raw Judicial Power, Part VIII: Cotton is King," and "Raw Judicial Power, Part XIII: The Slaughterhouse Cases, Effects."

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.


Thursday, February 16, 2012

Raw Judicial Power XXIII: Solution

A search for a viable solution for the current political and economic situation is, as we have seen, handicapped by an unspoken, possibly unconscious assumption at work. We have gone into this in some depth in this blog series, explaining how, in a country presumably based on the natural law, natural rights are often ignored or redefined in order to achieve political or economic goals. What we have to do now is come up with a solution.

Fortunately, coming from the perspective of the Just Third Way, that is a relatively straightforward process. First, however, we have to "re-educate" ourselves about that critical assumption. The best way to do this is to take a look at how the presumably mutually exclusive systems of capitalism and socialism operate within the "past savings paradigm."

Both capitalists and socialists assume as a given that the only way to finance new capital formation is to reduce consumption, accumulate money savings, then invest. (If you just said, "Of course" to yourself, that does not mean you are necessarily a capitalist or socialist, but that you have made the same assumption that leads inevitably to one or the other.)

That being the case, it follows that as capital instruments become increasingly expensive as technology advances (and replaces labor in the production process), there must be a class of persons, necessarily small, who cannot consume all the income their capital generates. Assuming they act rationally, such people reinvest their excess consumption income in additional capital. This presumably creates jobs for everyone else. In capitalism the class of owners is a small private elite, the smaller, the better in order to finance increasingly expensive capital instruments. In socialism, it is the State.

We are, obviously, defining capitalism as concentrated private ownership of capital, and socialism as concentrated public ownership of capital.

As technology replaces labor as the predominant input to production, the market value of labor declines relative to capital. This creates problems, for when ordinary people lack sufficient income, there is insufficient demand to clear production at market prices.

Capitalists claim that new jobs will be created by investment in new capital. This is true up to a point, but eventually the productive capacity of the new capital itself outstrips the need for additional labor input. When that happens, the number of new jobs, and then existing jobs, starts to decline.

For example, from 1919 to 1929 when the U.S. economy was rapidly expanding and creating millions of new jobs, the number of people engaged in direct manufacturing declined dramatically. The new jobs came in administration, sales, and logistical support — jobs that are now disappearing in response to advances in computer technology.

The socialist solution to the inequities of concentrated ownership of capital is for the State to take over either ownership directly, or exercise a degree of control that amounts to de facto ownership. The economy is manipulated to achieve political ends.

The solution to the problems seen in both capitalism and socialism was given by Leo XIII in 1891 in Rerum Novarum: "We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (§ 46.)

This, however, gets us right back where we started . . . if we assume that the only way to finance new capital formation is to cut consumption and save. Most people clearly cannot afford to save. They don't even have enough income on which to survive now. The pope, therefore (so the reasoning of both capitalists and socialists goes) must have been giving a prudential suggestion, because what he's talking about is impossible . . . if we assume that the only way to finance new capital formation is to cut consumption and save.

The argument between socialists and capitalists can never end, because both sides make valid points — but points based on a false assumption: that in order to finance new capital formation, you must cut consumption and save.

Fortunately, there is a way out. As Adam Smith explained in Book II of the Wealth of Nations (1776), Henry Thornton in The Paper Credit of Great Britain (1803), Jean-Baptiste Say in his Treatise on Political Economy and Letters to Malthus (1821), and Harold Moulton in his counter proposal to the New Deal, The Formation of Capital (1935), the optimal method of financing new capital formation is not to reduce consumption.

Reducing consumption to finance new capital actually makes the new capital less feasible. Consequently, a rational investor will not put his or her money into capital that is not expected to make a profit. Socialists substitute State subsidies, punitive taxation, and other measures to make it profitable (or at least less economically harmful) to finance new capital and thereby presumably create jobs, but that misses the point. If capital will not pay for itself out of future profits, it is contrary to common sense to finance it.

If, however, it is reasonably certain that the new capital will pay for itself out of future profits, then the present value of those future profits can be "monetized" by drawing up a contract to deliver a portion of those profits when they are realized to someone who will accept that contract in exchange for what is necessary to form the new capital. This contract is called a "bill of exchange." It can either be used directly as money, or taken to a commercial bank and exchanged for the bank's promissory note. To ensure a uniform and stable currency, commercial banks should have their own bank, a central bank, so that all the member banks use the same standard(s).

Because capital can be (and usually is) financed in this way instead of by cutting consumption and saving (retained earnings are, one, not cash, but ownership of assets of the business, and two, used as collateral, not direct expenditure for capital), anyone who can come up with a financially feasible project can become an owner, simply by using increases in production in the future ("future savings") rather than decreases in consumption from the past ("past savings") to finance the capital.

The remaining problem is collateral. That can be solved by using capital credit insurance in place of traditional collateral in the form of accumulated wealth.

A proposal that integrates these principles is called "Capital Homesteading." Capital Homesteading is an analogue of the nineteenth century American programs enacted to bring about a broad distribution of the ownership of land. Capital Homesteading expands the concept to include ownership of advanced technologies, including management, marketing and distribution systems, through equity shares in enterprises capable of competing without special protections within a free and just global economy.

Under "Capital Homesteading," a citizen's tax-sheltered capital asset accumulation account, similar to an Individual Retirement Account (IRA). Each capital homesteader's account would be able to receive annual allocations of interest-free, productive credit and new asset-backed money issued by the central bank and administered by local commercial banks. This new money and credit would then be invested in feasible private sector capital formation and expansion projects of businesses that would issue new shares to be purchased and sheltered in the citizen's Capital Homestead Account. After the "future savings" (future profits) generated by the productive assets paid off each year's Capital Homestead investment (loan), the citizen would continue to receive in the form of dividends the incomes generated by those capital assets.

The goal of Capital Homesteading is the enactment of a Capital Homestead Act. Such an act would be a national economic policy based on the binary growth model, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. A Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.


Wednesday, February 15, 2012

Raw Judicial Power XXII: Summary

As we have seen in this series, the abandonment of the natural law as the basis for the social order and the framework for understanding the Constitution of the United States is, in part, due to a misunderstanding of money, credit, banking and finance. A moment's reflection will demonstrate the truth of this proposition.

As long as new capital formation was financed by cutting consumption and accumulating money savings (i.e., savings not — yet — in the form of investment in capital), the rate of economic growth remained slow. Bound by the supply of existing savings in the system, the development curve was almost flat until the middle of the 17th century.

It was then that the reinvention of commercial banking and, toward the end of the century, the invention of central banking began to affect the rate of capital formation, as did the concept of insurance. As a result of shifting from the present value of existing savings (reductions in consumption) as the source for capital investment, to the present value of the profits from future marketable goods and services (increases in production) the development curve went from nearly horizontal to almost vertical. Freeing economic development from the limits imposed by what had been accumulated in the past, to what could be produced in the future meant that a reasonable standard of living became possible for everyone.

The problem was that government monetary and tax policy has tended to adhere to the idea that existing savings generated by reducing consumption are the only source of financing for new capital. Added to this was the idea that only government, which produces nothing, has the power to create money. That is, only a non-productive entity, the State, could supply the means whereby people could engage in industry, commerce and agriculture and produce marketable goods and services. This led not only to socialism as the remedy for the evils of capitalism, but to the mistaken ideas about scarcity popularized by the Reverend Thomas Malthus and embodied in the "currency principle" that rejected or redefined Say's Law of Markets and its application in the real bills doctrine.

Say's Law, as we have seen, is best summarized by realizing that we do not purchase what others produce with "money." Money is only the medium through which we exchange what we produce with our labor and capital, for what others produce with their labor and capital. The real bills doctrine can be summarized as, if the amount of money created by offering and accepting all forms of "bills of exchange" (negotiable contracts) equals the present value of existing and future marketable goods and services in an economy, there will, ceteris paribus, be neither inflation or deflation, but a stable, uniform and "elastic" asset-backed money supply.

Rejecting or redefining Say's Law of Markets and rejecting the real bills doctrine locks an economy into acting as if existing accumulations of savings are the only possible source of financing for new capital formation. This in turn leads to what Harold Moulton called "the economic dilemma": if you cannot finance new capital except by cutting consumption, then the increase in consumer demand that justifies investment in new capital will not exist. Consequently, no new capital will be financed because it cannot be justified, i.e., shown to be "financially feasible" — able to pay for itself out of its own future profits.

An even more damaging result of the belief that only existing accumulations of savings can be used to finance new capital formation is that it requires that ownership or control (the same thing in law) of capital be concentrated, and the more concentrated, the better in order to generate sufficient savings to finance the increasingly expensive new capital. Since an owner of immense wealth cannot possibly consume all the income generated by the capital owned, the excess is reinvested in more capital. This presumably results in hiring more wage workers and keeps the economy in balance. As noted, it also leads to either capitalism (concentrated private ownership of capital) or socialism (concentrated State ownership of capital) as the only perceived alternatives.

One problem is that, since the vast bulk of new capital formation is not actually financed out of existing accumulations of savings, the "past savings assumption" leads to serious distortions in the economy. Among the more serious distortions are the "business cycle" and the belief that an outstanding government debt is necessary if the economy is to have an adequate money supply. An even more serious problem is that, since the past savings assumption is, considered as the sole source of capital finance, false, both the private sector and the government are forced to change definitions of natural rights to life, liberty and property — "re-edit the dictionary," as Keynes put it — in order to try and make the system work in both capitalist and socialist economies.

The first target in the redefinition process in an economy in bondage to the currency principle is almost always private property, then liberty (freedom of association/contract), and, ultimately, life itself. The situation in the United States is somewhat anomalous, due to the relative ease of acquiring and possessing landed capital before the Civil War, the generally low level of industrial and commercial development at that time, and the institution of chattel slavery.

That being the case, liberty, not property, was the first casualty in the United States in Scott v. Sandford, the Dred Scott case. Admittedly, the issue was related to private property, and maintaining illegitimate exercise of the legitimate, even essential right to be an owner was inextricably linked with the issue of humanity's natural right to liberty. The fact remains, however, that in America, because it was possible to become an owner of capital, the ground and the "terms of engagement"
shifted in the culture war. This was the case until the "free" land available under the Homestead Act of 1862 ran out.

The result, however, was the same as in societies in which all access to the means of acquiring and possessing capital was cut off for most people. In what could only be described as a desperate attempt to maintain chattel slavery in the face of changing social, economic and political conditions, as well as world opinion, the Supreme Court of the United States changed the whole basis for understanding the Constitution from the natural law, to political and, especially, economic expedience. The "living constitution" was "born."

It is thus no coincidence that Scott v. Sandford in 1857 followed hard on the heels of the publication of David Christy's Cotton is King in 1855. Christy's book, with its claim that the economic survival of the United States and the British Empire depended absolutely on slave cultivation of agricultural commodities, chiefly "King Cotton," was the most persuasive economic argument for the continuance and expansion of slavery published in the 19th century. It was rendered all the more powerful because Christy, a former abolitionist, professed to abhor slavery personally, but clearly believed that economic expedience and the needs of the State came before humanity's natural right to liberty.

As a result of Scott v. Sandford and Cotton is King, natural rights — personality — were no longer understood as inalienable, that is, inhering absolutely in each human being by nature itself. Instead, rights were viewed as coming from the State. The exercise of formerly inalienable rights could therefore be limited, abridged, redefined, or even abolished entirely without reference to the underlying natural right (and thus the dignity of the human person) if, in the considered judgment or even whim of those in power, it would achieve some desired end.

Consequently, in such cases as Dodge v. Ford Motor Company (1919) and Citizens United v. Federal Election Commission (2010), the natural right to private property, and the significance of what it means to be a natural person, respectively, were ignored in furtherance of economic or political goals. Roe v. Wade, far from being an anomaly, was simply another application of an approach to law established by precedent for more than a century, and which had provided the guiding philosophy of the Supreme Court almost from the beginning in an effort to preserve slavery.

The American Civil War could thus be viewed, as Orestes Brownson pointed out, as a struggle between two forms of capitalism. These were the well-entrenched yet economically decaying agrarian capitalism of the South, and the new and increasingly powerful industrial and commercial capitalism of the North. With the Northern victory, the struggle shifted from between two forms of capitalism, to between capitalism and socialism.

Following the Civil War, two factors stood in the way of the triumph of either capitalism or socialism. The first was the natural right to private property, already secured in the Constitution with its basis in the natural law. The second was the opportunity to exercise private property, open to everyone who would take advantage of it through the Homestead Act of 1862.

As we have seen, however, the exercise of private property was limited by being confined to land. Land is a form of capital in fixed supply, and cannot expand to meet the needs of a growing economy. The natural limitation on land was exacerbated by the artificial limitation on money and credit, resulting in a lack of access to capital credit by small owners to develop the land properly. This left the right to be an owner, presumed absolute in each human being by nature itself, as the target. The Fourteenth Amendment that secured the full spectrum of natural rights to each human being stood in the way of the redefinition of personality, and thus the concentrated control — ownership — of capital that both capitalism and socialism require.

Consequently, in the Slaughterhouse Cases the United States Supreme Court effectively nullified the Fourteenth Amendment. As William Crosskey pointed out, the opinion in Slaughterhouse was so vaguely worded as to allow the Court to do whatever it wanted in the future, regardless of anything the Constitution might actually say, or the intent of the framers.

Thus, depending on whether states' rights or those of the central government favored the Court's agenda, the Court could go either way, and still claim to be acting constitutionally. Similarly, the Court could force a capitalist or socialist interpretation on the Constitution by re-editing private property, life and liberty, whatever suited the current needs or desires of the Court.

The underlying issue was, as always, the natural law, and the restrictions that the natural law, centered on humanity, necessarily puts on the growth of State power. While the "slavery of past savings" and the perceived need to support capitalism or socialism was the underlying cause of the Court's actions, it could not justify them.

The problem then becomes what to do about this situation.


Tuesday, February 14, 2012

Raw Judicial Power XXI: Roe v. Wade, Effects

Public reaction to Roe v. Wade was immediate. The decision was widely seen, as dissenting Justice Byron White put it, as an exercise of "raw judicial power." The Supreme Court's decision seemed to many people to be a new philosophy of jurisprudence and understanding of the role of the State, even a revolution. The ruling was so contrary to public opinion that it could only have been forced on a nation with an almost inherent respect, even reverence for its own laws and traditions, and where the great mass of people had lost virtually all ability to act directly on the common good through the disappearance of widespread ownership of capital.

Still, given the violence that often characterizes fundamental social change in other parts of the world, the generally peaceful acceptance of such a profoundly flawed decision in the United States is a virtual anomaly. Other laws that went against the public conscious, such as the Fugitive Slave Act of 1850 and the Volstead Act (Prohibition) were widely flouted. Only the fact that no one was forced to go against his or her conscience kept the public outcry within bounds — that and the concurrent decay of the principle of subsidiarity, in consequence of which many (if not most) people felt completely helpless in the face of an obviously unjust situation.

The principle of subsidiarity involves resolving issues through social action and the formation of associations by individuals at levels "below" that of government rather than by force of arms or other coercion. It was noted by de Tocqueville as the chief characteristic of political life in the United States. Its decay has the unfortunate effect of obscuring the fact that the decision in Roe v. Wade was actually a logical development of a chain of events that began as an effort to preserve the archaic institution of chattel slavery, and continued to preserve outdated assumptions about financing new capital formation that, seemingly inevitably, concentrated ownership of capital in a small private elite or State bureaucracy.

Paradoxically, even though rooted in the principle of subsidiarity, however distorted, the chain of events barely outlined in this blog series culminated in the belief that only the State has the power — and thus the right and duty — to control every aspect of life for both individuals and groups. This belief grew apace as America shifted from being a nation of owners, to being a nation of wage workers following the Civil War as a result of the loss of the opportunity to own landed capital was not replaced with the opportunity and means — access to capital credit — to own industrial and commercial capital.

Without the buffer of institutions between them and the government, people became increasingly dependent on the State and isolated from one another in furtherance of their personal survival. The habit of organizing for the common good faded, and, in many cases disappeared altogether, except in a collective sense under State authority as socialism took greater hold through State manipulation of the monetary and financial system.

As people lost the power over their own lives through loss of ownership of capital, the State took over more and more of the business of daily life, and the feeling of individual helplessness increased. The idea that the State is made for man, not man for the State was necessarily discarded. The human person (recognized as such only when expedient for the State) became, ipso facto, a "mere creature of the State," recognized and protected as a person only as an expedient insofar as it advanced the interests of the State.

The primary institutions that traditionally intermediated between the individual and the State — religion and the family — began to be perceived as threats to the all-encompassing power of the State. Cloaked under the issues of "separation of Church and State," and "Gay Rights," both religious society ("Church") and domestic society ("Family") have been targets of abolition by redefinition, just as the natural rights to life, liberty and property have been eliminated by "re-editing the dictionary." It seems not to occur to anyone in power that the First Amendment clearly states that Congress shall make no law respecting establishment of religion, not "shall only make punitive laws"; the First Amendment is a recognition that religious society is distinct from civil society over which the State exercises its power, not a declaration of war.

Keeping in mind the politicization of the Church of England after Henry VIII declared himself head of the Church of England and established religion as a branch of the government, the intent of the First Amendment is to keep religious society qua religious society safe from government interference and from being used by the government to carry out mandates in civil society. Purely religious rights and matters do not come under the purview of the State. Nor can the State legitimately require that people or institutions — even civil institutions — act against the dictates of a well-formed conscience.

Further, as religion is the primary interpreter and teacher of natural law in any society, the State's abolition of natural rights in civil society cannot justly be applied to religious society however expedient it may be politically. The State can only intervene in religious society when civil rights, not religious rights, are violated, just as the authorities of religious society have the right to intervene in civil affairs when actions by the State threaten religious rights.

Similarly, domestic society — the Family — is, under common law, distinct from civil society; "a man's home is his castle," the "Castle Doctrine," is a recognition of this separation of civil and domestic society. As long as the civil rights of family members are not violated, the State has no right to intervene in domestic society. It doesn't seem to occur to anyone in the "same sex marriage" controversy that marriage is a domestic right, not a civil right.

The State may regulate marriage to a degree, e.g., require a license or forbid bigamy or polygamy in the interests of the common good or to protect individuals. The State, however, lacks the competence to redefine marriage, abolish it, or to regulate it out of existence. The claim that marriage is a civil right protected under the penumbra of rights allegedly "granted" by the State under the Fourteenth or any other Amendment reveals a profound misunderstanding of the Constitution, the role of the State, and even society itself, to say nothing of the political philosophy on which the United States is based.

No civil court can rule that a ban on same sex marriage is unconstitutional, because the State has no competence under the Constitution (the highest civil law) to define marriage, an institution in domestic society. Any constitutional amendment defining marriage in any form would, in effect, extend State power even further than before by granting the State a power it never had. The most any such amendment could do would be to declare that the Congress shall make no law affecting the definition of the family or marriage, or words to that effect.

Thus, what quickly became the Pro-Life movement in the wake of Roe v. Wade was caught off guard by a profound yet seemingly unnoticed fundamental shift in the general understanding of essential human dignity and the respective roles of individuals and the State, and in mistaking Roe v. Wade for the cause, rather than an effect of the breakdown of the culture. The Pro-Life movement has been struggling ever since to secure the high political ground as well as the high moral ground. Not understanding or appreciating the relationship between economic power and political power, however, the Pro-Life movement has stressed the necessity of conforming human positive law to the natural law, but without the effective power to do so. The movement as a whole has ignored or viewed as a diversion efforts to secure political power through implementing and maintaining the principles of economic justice.

Since the entrenched philosophy that led to Roe v. Wade takes for granted certain economic — and thus political — assumptions, downplaying or even ignoring the importance of a Pro-Life economic agenda has been both a tactical and a strategic disaster for the Pro-Life movement. Even worse has been the fixed belief that the State necessarily controls the whole of society, and that the only real quarrel is which draconian measures best meet the material needs of the citizens, not which arrangement of the social order best conforms to the demands of human dignity.

This virtual "State worship" has led to otherwise charitable religious people giving in to what can only be described as "Welfare Blackmail" and viciously attacking anyone who would reduce the role of the State and put both political and economic sovereignty back in the family and the individual. Within the framework dictated by the Supreme Court since the Dred Scott case, the State is viewed as necessarily all-powerful. Efforts to decrease the role of the State are thus believed to represent a serious danger to material wellbeing.

After all, the reasoning appears to go, the only possible alternatives for social and economic development are capitalism and socialism. Private individuals — as the capitalists themselves sometimes aver — are motivated solely and exclusively by greed; "greed is good," as the late Nobel Laureate Milton Friedman declared in an interview with Phil Donohue. That being the case, only the State can be trusted to control economic and social life and ensure an acceptable material standard of life for everyone. If abortion is the price the nation must pay in order to secure State control and thus the material welfare of its citizens, the cost is high, but unavoidable — at least until "we" can seize control of the State and force "our" views on everyone else the way "they" have forced theirs on "us."


Monday, February 13, 2012

Raw Judicial Power XX: Roe v. Wade (1973)

As one of the most controversial decisions by the United States Supreme Court, Roe v. Wade has split the nation into factions in what is now a global culture war. Unlike similar conflicts in the past, however, violence between factions (at least in the United States) has been minimal. This is despite the standard Pro-Choice rhetoric, now largely symbolic and ritualized, about the inherent vicious tendencies of the "antis," as they are almost exclusively known in the mainstream media.

What is even more surprising about the effort to overturn Roe v. Wade, however, is the ineffectiveness of the political strategy and the tactics chosen to implement that strategy: public demonstrations to raise consciousness of the problem and exert pressure on Congress and the President. As Father William J. Ferree explained the proper role of such tactics in his uncompleted manuscript, Forty Years After . . . A Second Call to Battle (cir. 1984),

"The favorite 'social technique' of our own time is the 'peaceful' demonstration, especially when media coverage is likely or can be arranged. Subsidiary aspects of the demonstration are boycotts, sit-ins, organized lobbying pressures, single-issue 'advocacy' and then — crossing an invisible line which is hard to define and harder still to hold — civil disobedience, violent demonstrations, and, ultimately, terrorism!

"Despite the social intent of all such techniques, and their almost universal arrogation to themselves of the terms 'Social Justice' or 'Justice and Peace,' these techniques are all radically individualistic. There are several criteria which can be applied to test this:

"1) They are directed immediately to some specific solution already determined in the mind of the 'activist'; they are never a willingness to dialogue with other and differing opinions on what the problem really is.

"2) They are always intensely concerned with the methodologies of pressure, not with those of competence in the matter in question.

"3) They all require 'time out' from the day-to-day social intercourse of life, and raise the question of how many objects one can juggle at any one time without dropping some or all.

"4) Any 'demonstration' is by definition a demand on someone else to do something. It takes for granted that whatever is wrong is the personal work of someone else, not the common agony of all; and it always knows exactly who and where the someone is.

"All this can be summed up in the observation that the 'social activist' as we have seen them so far, is an earnest amateur by profession.

"This is not to say that such 'professional amateurism' is always wrong. It is wrong as a normal methodology. If it obeys the same principals which would permit a just war, or the insurrection against an entrenched tyrant, more power to it! But it is a hopeless and hence unjust substitute for the patient and full-time organization of every aspect of life which we have seen in the necessary implementation of Social Justice and in the now defunct techniques of 'Catholic Action.'"

The problem, of course, is obvious. The objects of all these demonstrations are not the most effective targets. It does minimal social good (although sometimes immense individual good, such as when a life is saved) to demonstrate outside abortion clinics or in public venues, and write letters to Congress and the president.

This is because decisions such as Roe v. Wade — and, as we have seen, Scott v. Sandford and the Slaughterhouse Cases — are rooted in a profoundly flawed understanding of the natural law basis of the United States Constitution by the United States Supreme Court. A "personhood amendment" or "right to life amendment" to the Constitution would do nothing to overturn Roe v. Wade. Such an amendment would be nullified at the first opportunity, just as the Fourteenth Amendment, intended in part to overturn Scott v. Sandford, was nullified by the decision in the Slaughterhouse Cases, and just as Scott effectively nullified the Constitution itself by its redefinition of "person."

As Crosskey pointed out in his book, Politics and the Constitution in the History of the United States (1953), the words of the Constitution have been twisted to mean anything that the Supreme Court wants them to mean. This is so much so that modern constitutional scholars can claim with a straight face that "the theory that the Constitution is a written document is a legal fiction." (Charles A. Beard and William Beard, The American Leviathan. New York: The MacMillan Company, 1930, 39, quoted in Charles Herman Pritchett, The American Constitution. New York: McGraw-Hill, 1977, vi.)

How this was accomplished in the case of Roe v. Wade demonstrates graphically how the Supreme Court has wielded "raw judicial power" to the detriment of individual sovereignty, the common sense of the Constitution, and American civilization as a whole.

In the first place, it appears extremely doubtful that, had it not been for its alleged power to rewrite the Constitution, the Supreme Court had the power to make any decision at all in Roe v. Wade. It is a basic principle of U.S. constitutional law that federal courts have no power to hear moot cases — and this includes the U.S. Supreme Court. As one source put it, "The US Supreme Court does not hear cases that are moot, hypothetical or consist of intellectual exercises. If a valid case becomes moot, they will deny certiorari, remove the case from the docket, or issue a per curiam decision declaring the case moot if they've already granted cert." (, accessed Friday, February 10, 2012)

The fact is that "Jane Roe" had already had the baby and put the child up for adoption — three years before the case reached the Supreme Court. Any decision that the Court would make could not possibly affect the outcome as it had already taken place; the matter was settled. In American law, a point is "moot" when it has become irrelevant, and it would not change anything in the case to consider the matter further. "Jane Roe" did not have the abortion, and that should have ended the matter right there. As the Wikipedia explains the issue,

"In the U.S. federal judicial system, a moot case must be dismissed, there being a constitutional limitation on the jurisdiction of the federal courts. The reason for this is that Article Three of the United States Constitution limits the jurisdiction of all federal courts to 'cases and controversies'. Thus, a civil action or appeal in which the court's decision will not affect the rights of the parties is ordinarily beyond the power of the court to decide, provided it does not fall within one of the recognized exceptions.

"A textbook example of such a case is the United States Supreme Court case DeFunis v. Odegaard, 416 U.S. 312 (1974). The plaintiff was a student who had been denied admission to law school, and had then been provisionally admitted during the pendancy of the case. Because the student was slated to graduate within a few months at the time the decision was rendered, and there was no action the law school could take to prevent that, the Court determined that a decision on its part would have no effect on the student's rights. Therefore, the case was dismissed as moot."

The Wikipedia entry is extremely useful here because it includes something that the Supreme Court effectively added in its rewrite of the Constitution. The underlined phrase, "provided it does not fall within one of the recognized exceptions," is, in constitutional terms, utterly meaningless except as a way of nullifying Article Three of the Constitution that limits the power of the Court to actual cases!

If the Constitution has any meaning at all, the fact that Article Three allows no such exceptions means that there aren't any. If a case is moot, it is moot, and cannot be heard by the Supreme Court. Period. To "recognize" an exception, all the Supreme Court need do is, obviously, to admit it, and, ipso facto, the Court excuses itself from being bound by the Constitution!

Like the "Scopes Monkey Trial" of the 1920s, Roe v. Wade was a put-up job, intended to overturn existing laws by circumventing the legislative process. The difference was that the Scopes trial did not involve a moot point. Scopes had broken the law, and the Tennessee Supreme Court upheld the law as constitutional. John Scopes's conviction was overturned on a legal technicality — and the law against teaching evolution was repealed in the proper way, through the state legislature.

Another apparent contradiction in the Roe v. Wade decision is that it was based on the understanding of the Fourteenth Amendment that came out of the Slaughterhouse Cases. In the Slaughterhouse Cases, however, the Supreme Court decided that states' rights — and thus laws — were somehow superior to privileges and immunities granted under the U.S. Constitution in the original Bill of Rights and the Fourteenth Amendment . . . where in Roe v. Wade the Court did exactly the opposite, claiming that state law could not contravene the "penumbra of rights" (privileges and immunities) covered in the Fourteenth Amendment. Evidently Crosskey was correct when he claimed that the Slaughterhouse opinion was written as it was in order to give the Supreme Court what amounts to absolute power over the Constitution, to make it mean anything the Court pleases, so long as it advances the Court's agenda.

Perhaps the most remarkable thing of all relating to Roe v. Wade is the way in which the Pro-Life movement has accepted the Court's right to (as Keynes put it) "re-edit the dictionary" when it comes to natural rights guaranteed in the document that gives the Court its power. By controlling the interpretation of the Constitution uninhibited by any constraints imposed by natural law or original intent, the Court removes all checks on its own power except for public opinion, which is worse than useless in this case.  Demonstrations without the power to back up the demands gives the illusion that something is being done when, in point of fact, nothing is being accomplished in social justice.

The problem with public opinion is that, absent the empowering aspect of widespread direct ownership of capital, people can say what they want in public, but in the privacy of the voting booth will necessarily elect the people whom they believe will best secure their material wellbeing. For the past forty years at least, that has been an illiberal elite that uses welfare benefits as blackmail to ensure acceptance of less palatable items on the agenda, and have a vested interest in promoting and protecting decisions such as Roe v. Wade, much as the pro-slavery forces were the chief motive behind the decision in Scott v. Sandford.

Putting pressure where it belongs, on the Supreme Court, is virtually impossible because the Court is, to all intents and purposes, unaccountable to anybody, which means it can get away with anything, even the effective nullification of the Constitution. Even given our admittedly limited understanding of constitutional law, the decision in Roe v. Wade appears to be seriously flawed with respect to both procedure (no power to try moot cases) and substance (abolition of natural rights guaranteed by the Constitution). Lacking the power that only direct ownership of capital vests in the citizens, however, the Supreme Court may do as it will, and thumb its collective noses at the Constitution, the natural law, and common humanity.