Friday, August 31, 2012

News from the Network, Vol. 5, No. 35

At least as of early afternoon today, the stock market is rebounding slightly on the news from the Federal Reserve that there does not appear any need for more "quantitative easing," i.e., increasing non-productive spending to stimulate the economy to engage in even more non-productive spending. The world is saved again.

Of course, had the Federal Reserve announced another round of quantitative easing, the stock market really would have taken off in anticipation of all that lovely money being poured into the market to drive prices up. That is, we'd get an increase in government spending intended to channel massive amounts of cash to companies that will in turn channel it to the stock market because the returns are so much greater there for gambling with existing wealth than in the productive sector that provides actual marketable goods and services.

Of course, if we wanted to do something to spur a genuine sustainable economic recovery in which everyone can participate, we would need a Capital Homestead Act. To get there, here's what we've been doing over the past week:

• If you've seen the blog posting from earlier today, you already know that CESJ's latest publication, The Restoration of Property, is already available on Amazon. The Amazon web page says that it's not yet available, but it is. If you order it, the order will be sent to the distributor to be filled, not filed. To commemorate the publication, we've put together a "flyer" with two other "distributist" classics, William Thomas Thornton's A Plea for Peasant Proprietors, and William Cobbett's The Emigrant's Guide.

• Work proceeds on revising Curing World Poverty and Capital Homesteading for Every Citizen. We hope to have the revised editions available before the end of the year. Even the current editions are useful to explain the concepts and principles, if not the latest financial projections and applications.

• On Tuesday night Norman Kurland and Michael Greaney participated in the America's Party/ Independent Party's "Restore the Republic" teleconference to explain aspects of Capital Homesteading. The two and a half hour conference was lively and informative. The conference can be heard here.

• On Wednesday, Norman Kurland, Michael Greaney, and Bob and Astra Brantley from CESJ attended a conference held by the Universal Peace Federation in downtown Washington, DC. The conference looked at the root causes of the current economic crisis, discussed the principles underlying the Capital Homesteading proposal, and then examined the proper role of government.

• Dr. Robert Ornelas (D.D.), a major influence on various tribal communities throughout the United States, especially the Navajo, largely by bringing in a positive music to replace negative music. He is the America's Party and the Independent Party of California's Vice Presidential candidate for 2012. He listened in on the conference call on Tuesday, August 28, 2012, on the America's Summit/Restore the Republic conference call. After listening, he made contact with CESJ and had a conversation with Norman Kurland. He supported the idea "that [the American Independent Party] needs an economic plan." The American Independent Party represents a meta party to restore the vision of America's founders. This was a connection from Guy Stevenson in Iowa. Dr. Ornelas is also very well connected in Hollywood and the music business. He sounded very enthusiastic about what he read on the website about Capital Homesteading, and saw that it could be very good throughout the U.S. He went on to Thursday's teleconference to tell people about the potential of Capital Homesteading. We expect to meet with him in late September when he is in Washington to attend a Congressional Prayer Breakfast. Norman Kurland referred him to the website of the American Revolutionary Party.

• As of this morning, we have had visitors from 46 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, India, the Philippines, and the United Kingdom. People in Nepal, Spain, Poland, Qatar, and the United States spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "The Coming Crash," "Thomas Hobbes on Private Property," "Lies, Damned Lies, and Definitions, XXVI: The Depression," and "Is Private Property in Capital 'Catholic'?."

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.


Distributist Classics — and More!

A Plea for Peasant Proprietors

During the Great Famine in Ireland (1846-1852), William T. Thornton (1813-1880), an English economist, proposed that unused land be purchased by the government and sold on credit to families that would put it into production. In this way funds spent on famine relief would be turned from an expenditure into an investment, the economy rebuilt, jobs created, and the benefits of widespread capital ownership accrue to individuals, families and the nation.

Although the proposal was never adopted, later thinkers, offering a principled, growth-oriented approach for the 21st Century, refined Thornton's vision. As the global economy continues to go from crisis to crisis, Thornton's book shines light on the path out of today's dilemma.

Originally published in 1848, this newly annotated and indexed edition of A Plea for Peasant Proprietors was prepared from Thornton's 1874 revision. It includes a foreword that examines a new framework for solving the global economic crisis, financing economic growth and enabling every citizen to become an owner of productive capital, as well as appendices explaining topical references and the political and economic environment within which Thornton worked.

ISBN: 978-0944997109, 364 pages

Price: $25.00


Barnes and Noble

The Restoration of Property

In 1936 Hilaire Belloc, with G. K. Chesterton revered as one of the founders of "distributism," wrote of "the restoration of property." Trapped within what Louis Kelso and Mortimer Adler called the slavery of past savings, however, Belloc's insightful analysis suffered from the lack of an effective program of implementation. The best he could do was to recommend burdening the rich with laws and regulations to keep them from using their power to prevent capital acquisition by others — or just wait for the imminent collapse.

A better, "Just Third Way" solution that doesn't rely on a collapse of the world economy would be to remove systemic barriers in the form of flawed tax, monetary, financial and legal systems that inhibit or prevent capital acquisition by the non-rich. At a time when most people are focused on the results of seriously flawed tax, monetary and fiscal policy, and seek government assistance to stave off the effects of generations of bad decisions, this new book by Michael D. Greaney, Director of Research for the Center for Economic and Social Justice (CESJ), suggests a better alternative: focus on the causes of the growing wealth gap and other problems.

We need to take a hard look at our institutions, especially taxation, money and credit, and determine how these hinder access to the means of acquiring and possessing property in capital today, and what needs to be changed so they can help us rather than hinder us tomorrow. Mr. Greaney is also the author of In Defense of Human Dignity (2008) and Supporting Life: The Case for a Pro-Life Economic Agenda (2010).

ISBN: 978-0944997079, 136 pages

Price: $10.00                Amazon          Barnes and Noble


  The Emigrant's Guide

William Cobbett, considered by G. K. Chesterton as the "Apostle of Distributism," wrote The Emigrant's Guide in 1829 toward the end of a long and fruitful career as a journalist, traveler, economic commentator, and political activist. Frustrated with trying to change the system in England, Cobbett broke his rule against advising English men and women to stay in their own country, and urged them to go to the United States, where instead of working for others and being effective slaves of the English government and upper classes, they could obtain some small ownership of land or other capital and become independent — owners instead of being owned themselves.

The Emigrant's Guide includes the texts of letters written home to England by people considered useless in England, providing a valuable source of sociological and economic data of early 19th century America, as well as giving us an understanding why the United States was considered the "Land of Opportunity" for so long. As one immigrant expressed his enthusiasm for his new country, in which he had easily become a landowner, "America forever for me!" The Emigrant's Guide provides an incentive to modern politicians and policymakers to restore the greatness that was once America's, and begin to spread true economic democracy throughout the globe.

ISBN: 978-0944997017, 264 pages

Price: $20.00


 Barnes and Noble

Ordering Information

Individual copies of the books in this flyer may be purchased from Amazon and Barnes and Noble by following the links, as well as by special order from many bookstores.

Bulk/Wholesale orders (10 copies or more) may be purchased directly from the publisher for 20% off the cover price, plus shipping. Please send an e-mail to publications [at] cesj [dot] org for details.

Please forward this flyer to your network.

You can receive future publications flyers and daily blog postings from "The Just Third Way" by going to the blog and becoming an "e-mail subscriber." All postings, news reports, and announcements will then be sent to your specified e-mail address automatically.


Thursday, August 30, 2012

A Short Video on Distributism, I: A Few Problems

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

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

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

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

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

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

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

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

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


Wednesday, August 29, 2012

The Wall Street Journal (Again)

We figure that the Wall Street Journal either has a black list, or restricts the number of letters from a single individual they even bother to read. Possibly both. In any event, right after the editorial to which we responded on August 14, the Journal had another one on the European debt crisis. Not astonishingly, our analysis was similar. Even less astonishing, the Journal didn't publish this letter, either.

Dear Sir:

The Eurozone's problems are a direct result of being the first currency based on the principles of "Modern Monetary Theory." Per Knapp's "chartalism," the money supply consists entirely of State-emitted bills of credit. A bill of credit is backed solely by the present value of future taxes, i.e., the "faith and credit" of the issuing government. As the productive capacity of the European economy erodes, the present value of future taxes declines.

Paradoxically, transforming the Euro from a debt-backed to an asset-backed currency is simple, although not easy:

• One, phase out central bank open market operations in government securities.

• Two, supply liquidity to the private sector to rebuild the tax base and spur economic growth by discounting and rediscounting qualified bills of exchange.

• Three, implement an aggressive program of expanded capital ownership financed by discounting bills of exchange collateralized with capital credit insurance, thereby increasing consumer demand naturally to sustain the economy and reducing the need for State assistance.

• Four, as tax revenues increase over costs, pay down the debt, eliminating debt-backed money from the economy, stabilizing the currency and providing a foundation for sound economic growth.


Tuesday, August 28, 2012

Response to the Wall Street Journal

A couple of weeks ago we saw an interesting item regarding the now-perennial European debt crisis on the editorial page of the Wall Street Journal. The basic problem, of course, is that the Euro has been mishandled from the very beginning. Unlike most currencies throughout history it was not originally asset-backed, falling by default into debt backing as governments increased their hold on the economy by assuming control over the currency, and then restricting the money supply for consumption to government-issued bills of credit. No, the Euro was from the first a managed currency on the Keynesian model, almost pure chartalism, a certain recipe for disaster.

Naturally the letter was not published, but we present it now to you for your edification and enjoyment:

Dear Sir:

Solving the problems noted in "Germany's Wealth Grab" (WSJ, 08/14/12, A14) is straightforward. Given that the purpose of production is consumption, the proper use of existing savings (past reductions in consumption) is to spend on consumption, not to reinvest in new capital. Financing for new capital should come from future increases in production, not past decreases in consumption.

Financing for new capital can come from monetizing the present value of the future marketable goods and services to be produced by the very capital being financed. Discounting bills representing the present value of future increases in production at a commercial bank, and then rediscounting the bills at the Federal Reserve, as Dr. Harold Moulton of the Brookings Institution noted in his book, The Formation of Capital (1935), can provide adequate, asset-backed financing for all feasible capital projects, replacing the current money supply backed predominantly by government debt.

This is what the Federal Reserve was designed to do, not finance government deficits by monetizing the present value of the government's ability to collect taxes in the future. Adding a proviso that all new capital financed in this way be broadly owned by people who will first use the capital income to repay the acquisition debt and then for consumption will ensure that consumption levels can be maintained without increasing consumer debt or government manipulation of the currency to "stimulate" demand.


Monday, August 27, 2012

Is Private Property in Capital "Catholic"?, VIII: What is Social Justice?

As we saw in the previous posting in this series, the whole theory of social justice rests on the assumption that the common good, contrary to the claims of traditional philosophers, can be accessed directly by ordinary people, not just indirectly by people acting virtuously or the State passing good laws and people obeying them.

The difference between social justice and individual justice (aside from the fact that individual justice looks to individual good and social justice looks to the common good, i.e., humanity's capacity to acquire and develop virtue) is that access to the common good, a network of institutions is not possible for individuals as individuals. It is only possible for individuals as members of groups, that is, of institutions or "corporate bodies," also variously translated as "corporations," "vocational groups," and so on.

Membership in these groups, however, is only open to people who share equal political status. As Pius XI emphasized, these groups must be free (he says it seven times in one paragraph, § 87) — and that necessarily implies that they are based on contractual agreements between people of equal status. You can't be free if you are not equal, and you can't be equal if you are not free:

"Moreover, just as inhabitants of a town are wont to found associations with the widest diversity of purposes, which each is quite free to join or not, so those engaged in the same industry or profession will combine with one another into associations equally free for purposes connected in some manner with the pursuit of the calling itself. Since these free associations are clearly and lucidly explained by Our Predecessor of illustrious memory, We consider it enough to emphasize this one point: People are quite free not only to found such associations, which are a matter of private order and private right, but also in respect to them "freely to adopt the organization and the rules which they judge most appropriate to achieve their purpose." The same freedom must be asserted for founding associations that go beyond the boundaries of individual callings. And may these free organizations, now flourishing and rejoicing in their salutary fruits, set before themselves the task of preparing the way, in conformity with the mind of Christian social teaching, for those larger and more important guilds, Industries and Professions, which We mentioned before, and make every possible effort to bring them to realization."

The power to enter into contracts without coercion (which would not be contracts if coerced) depends on equality of political status, which in turn depends on the power vested in the owner of capital. You cannot ordinarily become a member of a group without some form of coercion if you do not own capital, and you cannot carry out an act of social justice unless you are a member of a group. Thus, social justice depends on free association/contract, and free association/contract ordinarily depend on capital ownership.

The philosophical/theological basis for equality of political status in civil society is along the same lines. Every human being has an "analogously complete" capacity to acquire and develop virtue — this defines us as human, and every human being is as fully human, and is human in the same way as every other human.

As we may have noted once or twice before, we acquire and develop virtue by exercising our natural rights within the limits of the common good — ordinarily we may not use our rights — our power/ability for doing — in a way that harms other individuals, groups, or the common good itself. The exercise of rights necessarily implies political equality within the common good, for everyone is equally human, and therefore necessarily has the same rights as everyone else. No one is above the law.

Then she came back and said she didn't understand a word of it. We cannot change things now. Equality is based on the liberalism of John Locke, Adam Smith and other fiends. The United States was founded as a result of the illegal overthrow of the British Crown by an anti-Catholic Masonic-Jewish conspiracy. End the Fed. Free silver (and no doubt Willy). The Apocalypse is coming. Afterwards property will be abolished and we will have the civilization of love envisioned by John Paul II.

We gave up.


Friday, August 24, 2012

News from the Network, Vol. 5, No. 34

You have to hand it to Ben Bernanke, Chairman of the Federal Reserve. He is not the sort to let economic reality interfere with any proposed action by the central bank of the United States. Today's big story is that "Bernanke Sees More Scope for Easing to Spur U.S. Economy." You know what a spur is. It's a little pointy thing on a horseman's heel that he or she digs into the horse's flank to force it to do something it wouldn't do naturally, causing unnecessary pain and sometimes bleeding. Spur a horse enough and it can run itself to death.

Thus, the headline makes perfect sense. Pour enough funny money into the economy in the hope that the banks will start lending or the corporations start spending, thereby giving the illusion that things are going fine when all you're really doing is killing the economy. It would make so much more sense just to adopt Capital Homesteading, but then, who said that current monetary and fiscal policy make any sense?

On to this week's news items:

• Thanks to a number of bulk orders, CESJ's best-selling book at the moment is Dr. Muhiuddin Khan Alamgir's Notes from a Prison: Bangladesh (2010). You can order individual copies of this and other CESJ books from Amazon and Barnes and Noble, or special order at many bookstores. For bulk orders on quantities of ten or more, you can order direct from CESJ at a 20% discount off the cover price, plus shipping. Send an e-mail to publications [at] cesj [dot] org for ordering information.

• Speaking of books, we submitted The Restoration of Property by CESJ Director of Research Michael D. Greaney to the printer this week. We expect the proof copy sometime next week, which means we can anticipate that bulk orders will likely be "acceptable" (meaning they can be filled) the week after next. The cover price is $10.00, so an order for ten or more will be $8.00 per copy, plus shipping.

• We couldn't resist this one. Occasionally we get a comment or two (or six or a thousand) to the effect that the writing on this blog is a little above the head of the "average reader." The obvious response, of course, is, "Why do you think that readers of this blog are in any way 'average'?" Anyway, just in case someone makes that remark in the near future, please direct them to the "Distributism" blog. It's a treat . . . sort of. Brief sample: "If one examines Sartreist Sartre-concepts, one is faced with a choice: either accept dialectic neotextual theory or conclude that narrativity is used to oppress minorities. In Madonna-works, Madonna reiterates deconstructive economics situationism; in Madonna-works, however, Madonna affirms Sartreist Sartre-concepts. Derrida promotes the use of precultural t-shirt discourse to challenge hierarchy. But if the neoconstructivist paradigm of reality holds, the works of Madonna are not postmodern." Sweartagod Ah din't make that up. It's in the second paragraph. It is the second paragraph. Quick — what does "Postsemiotic T-shirt Narrative and Dialectic Distributionism Nationalism: Realities of Rubicon" mean? (In 2 million words or less.)

• You want to know the worst of it? CESJ is listed first in the Distributism blog's library under "The Just Third Way: Basic Principles of Economic and Social Justice." Actually, we think the whole thing may be a computer-generated gag, playing on the pomposity and, frankly, general obtuseness of today's neo-distributist movement, which even the noted distributist Joseph Pearce said, "is sometimes as far from real distributism as neo-conservatism is from real conservatism."

• We don't really need the 200 mph (although it certainly played well for Bill Cosby's comedy routine — "I need a car that goes at least 180 mph to get to work in the morning"), but the 69 mpg and 2,000 miles to the tank sound pretty good. Of course, a true alternative fuel like hydrogen or something would sound even better. Trident is taking orders next month for fulfillment starting in December for a car that claims all this at the low, low, starting price of $119,000 . . . and, in a pinch, can run on used McDonald's fry vat fat. You just have to beat Homer Simpson to the fuel supply.

• As of this morning, we have had visitors from 47 different countries and 51 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, India, the Philippines, and the United Kingdom. People in Nepal, Spain, Qatar, Indonesia and Poland spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "The Coming Crash," "Lies, Damned Lies, and Definitions, XXVI: The Depression," and "Lies, Damned Lies, and Definitions, XXIII: Hijacking the Federal Reserve."

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


Thursday, August 23, 2012

Is Private Property in Capital "Catholic"?, VII: What is Social Justice?

We thought we were finished with this discussion, but again our commentator came back. She claimed she had read Father Ferree's Introduction to Social Justice . . . but didn't understand what we meant by "social justice," nor "equality of status." This tends to suggest, of course, that she didn't really read Introduction to Social Justice, at least in the sense that Mortimer Adler meant it in How to Read a Book. Today we'll address what we mean by social justice, and then finish off by explaining why equality of status is so important in carrying out acts of social justice.

It's actually pretty straightforward. Social justice is the virtue directed at the common good, which in this context is the vast network of institutions within which humanity as "political animals" acquire and develop virtue — habits of doing good.

It is this capacity to acquire and develop virtue that defines us as human beings. Virtue, in fact, signifies "human-ness." The problem is that in traditional individualistic philosophy, nobody has the power to access the common good directly. It can only be affected indirectly (so traditional philosophers tell us) by people being individually virtuous, thereby setting the general "tone" of society which guides the functioning of institutions and how well they do their jobs. If people are virtuous, society will function properly.

Except that it doesn't. Leo XIII realized that if we want to affect our institutions, we must act institutionally, that is, socially. We can't do it as individuals. We can only affect the common good directly as members of groups. Otherwise, we can all be personally virtuous, but our badly designed or flawed institutions prevent society from working.

Pius XI's breakthrough in moral philosophy was to take the techniques of social justice described by Leo XIII and develop a completed doctrine of social justice — the discernment of a particular "act" of social justice by means of which we can access the common good directly. This was to respond to the traditional philosophers who continued to insist that Leo XIII couldn't possibly have meant what he said, for it was clearly impossible. As Pius XI explained,

"The redemption of the non-owning workers — this is the goal that Our Predecessor declared must necessarily be sought. And the point is the more emphatically to be asserted and more insistently repeated because the commands of the Pontiff, salutary as they are, have not infrequently been consigned to oblivion either because they were deliberately suppressed by silence or thought impracticable although they both can and ought to be put into effect." (Quadragesimo Anno, § 59.)


Wednesday, August 22, 2012

Is Private Property in Capital "Catholic"?, VI: Is Property God?

Sometimes we think that we have made an unanswerable argument by giving the plain, common sense meaning of something as we have reasoned it out. In today's climate of moral relativism, however, that never seems to be enough. People who disagree with reason can always find reasons for that disagreement, as paradoxical as that sounds.

Thus we should not have been surprised when our correspondent came back after the last response and claimed that we were saying that property is God. We stated the obvious — that we had never said anything so dumb — and requested that she stop putting words in our mouth. Or does the "editorial we" have more than one mouth?

Anyway, it had become clear that our commentator had, consciously or not, shifted the basis of the natural law from God's Nature or Essence, self-realized in His Intellect, to her private interpretation of something she accepted as God's expressed Will. This is precisely the error against which Pius XII warned in Humani Generis, "Concerning Some False Opinions Threatening to Undermine the Foundations of Catholic Doctrine," in 1950 — using faith to do the job of reason, and vice versa.

This is very bad news. In essence, we were speaking two different languages. She was intent upon proving us wrong based on a set of principles that she determined, and which were based on assumptions fundamentally different from ours. We were therefore not engaged in a genuine argument, for we did not even agree on what the words we were using mean. We might even have been saying the same thing in different ways, but when she automatically gainsaid whatever we posted, we would never know. Our correspondent forgot to keep in mind Chesterton's advice from The Dumb Ox:

"At the top of his fury, Thomas Aquinas understands, what so many defenders of orthodoxy will not understand. It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours. We may do other things instead of arguing, according to our views of what actions are morally permissible; but if we argue we must argue 'on the reasons and statements of the philosophers themselves.'"


Tuesday, August 21, 2012

Is Private Property in Capital "Catholic"?, V: What is Economic Personalism?

We didn't finish yesterday's response, if only because the commentator raised another important issue. She accused us of implying that charity is not the heart of Catholic social teaching — something we never said. Justice — which necessarily implies the natural rights of life, liberty and property — is to be infused with charity, but we cannot speak of charity until and unless the demands of justice have been met — and justice is not fulfilled until all free adults share equal political status, which only capital ownership secures and protects. As Blessed John Paul II made clear in Laborem Exercens, private property in capital is the basis of a just economic order.

We suggested that if the commentator can find one of the rare copies, she should read Heinrich Rommen's The State in Catholic Thought. She might have a hard time finding one, though. Ave Maria School of Law seems to have bought up all available copies, and we can't find who owns the copyright since B. Herder went out of business.

Rommen's The Natural Law is available, however, although not quite as in-depth as it addresses only the issue of the distortions that have crept into the general understanding of the natural law. Rommen was a student of Father Heinrich Pesch, S.J., and a member of the Königswinterkreis before being forced to leave Germany to escape from the Nazis.

Rommen taught at Georgetown University, along with another member of the Königswinterkreis, Goetz Briefs, and both agreed on the importance of private property in Catholic social teaching. It is (as Rommen said) "the dowry of the personality," which, as Rommen was a lawyer, has a specific meaning, tying in directly with John Paul II's economic personalism. A "person" is that which has rights, a natural person is that which has rights by nature, that is, by the natural law.

The most important natural rights are life, liberty (freedom of association/contract) and property, meaning that we cannot exist as "persons" without these rights being secured to us. Thus, for John Paul II to speak of personalism and not be clearly understood as referring specifically to the means of securing and protecting life and liberty — private property in capital — simply does not make sense.


Monday, August 20, 2012

Is Private Property in Capital "Catholic"?, IV: Needism or Private Property?

In Two-Factor Theory: The Economics of Reality (1967), Louis Kelso explains that there are two principles of distribution. These are needism, that is, individuals, groups or governments distribute benefits or enter into exchanges on some basis other than equality or equivalence (status), and private property, that is, individuals, groups or governments distribute benefits or enter into exchanges based on free association or contract.

Ordinarily, transactions between individuals and groups of equal status are based on private property — contract. Governments, because they are charged with the care of the common good and not individual good (at least usually), act primarily on the basis of need. Chaos results when people get the different roles of government and that of citizens and their free associations confused.

The government is to look after the general welfare — the common good — as its usual business, and individual welfare (individual good) as an expedient at need. Individuals and free associations within the State are there to look after individual welfare — individual goods — as their usual business, but with the responsibility to organize and correct flaws in the institutional structures of the common good at need.

All of this made the response to the last posting in this series puzzling indeed. We were informed that the later encyclicals, particularly Centesimus Annus, did not mention property, therefore it is not important.

This was, in essence, a restatement of the same claim the commentator had made regarding Rerum Novarum, and the frankly bizarre notion that Rerum Novarum made no reference to the importance of capital ownership. § 42 of Centesimus Annus refers to the free market, necessarily based on property, circumscribed within a strict juridical order.

The commentator's response, however, ignored the fact that I did not say that Centesimus Annus referred to property — even though it does. Had she taken the time actually to reread what we wrote, we clearly stated that later encyclicals have stressed the emergency measures to be taken on the way to an ownership society.

This in no way detracts from the importance of private property or could possibly contradict earlier teachings without impugning papal infallibility. This is particularly so in that ownership provides the basis for the politically equal status on which the principles of subsidiarity and solidarity depend. Groups — contractual relationships — cannot be formed by persons of unequal status, and solidarism requires groups, persons who come together in solidarity.


Friday, August 17, 2012

News from the Network, Vol. 5, No. 33

And you thought your vacation was lousy. Earlier today an Air France jetliner en route from Paris to Beirut, Lebanon, was diverted to Damascus. "Just in case" the crew asked the passengers if they had any spare cash with which to purchase fuel.  It could have been worse. They could have been using a galley for transport and been asked if they minded taking a turn at the oars . . . and the captain wants to go water skiing.

However bizarre, this actually segues into the Just Third Way approach on two accounts. One, a Just Third Way economy would spur research into alternate sources of fuel, making sanctions less likely to complicate the lives of travelers or the course of business. Two, a global economy based on the four pillars of an economically just society. . . .

• A limited economic role for the State,

• Free and open markets within an understandable and fair system of laws as the most objective and democratic means for determining just prices, just wages and just profits — the residual after all goods or services are sold,

• Restoration of private property, especially in corporate equity and other forms of business organization, and

• Widespread capital ownership, individually or in free association with others, achieved through universal access to capital credit repayable with "future savings" (profits) from the future goods and services for which each new growth investment is reasonably expected to produce. Thus, the poor and middle class without past savings are enabled to acquire direct ownership of capital in an advanced economy.

. . . . would make the underlying causes of the sanctions much less likely. So, to avoid the possibility of being asked to chip in for gas on your next airline flight (especially in mid-air . . . over the Pacific), work for adoption of a Capital Homestead Act at the earliest possible date. Here's what we've been doing so that we don't have to learn how to swim:

• On Thursday, members of the CESJ core group had an extended telephone conversation with the president of Centesimus Annus Pro Pontifice, Inc., a 501(c)(3) in Connecticut that is affiliated with the Centesimus Annus Foundation at the Vatican. During the two-hour meeting the president made some very positive comments regarding the compatibility of CESJ's Core Values with Catholic social teaching (and thus the natural law). Representatives of CESJ were invited to a number of upcoming events to explore the possibility of future collaboration.

• Russell W. heard back from the Human Rights representative for Montgomery County, Maryland, who gave him a contact in Columbus, Ohio. Russell also got to the Executive Director of Gamaliel, a group that does organizing within the faith-based groups in about 18 states. The Director is trying to get leadership to act on projects, e.g., the creation of a million jobs. Russell is still sounding them out to see if they will be compatible with the Just Third Way.

• Guy S. reported that he has affiliated with America's Party, and they have a third party candidate for president. Although Guy has been doing this for four years, he is now making progress. They've been discussing Capital Homesteading in a number of their forums, and he has now been encouraged to ask Norman Kurland to a conference call later this month and two follow up meetings. Guy is requesting other members of the core group to participate to show numbers and offer support. The focus will be on the national debt and Social Security.

• Guy has been in contact with Dr. Robert Ornellis, an American Indian, America's Independent Party's candidate for Vice President. Guy believes that Dr. Ornellis might be ideal to champion Capital Homesteading. He is on the ballot in California. They are the largest third party. They have 600,000 registered voters in California. They have affiliations with a number of other third parties. None of them have a plan, however, so Guy is hoping that meeting with him will result in his adopting Capital Homesteading as part of his platform.

• Paul Ryan went to Davenport, Iowa, on Thursday. Guy was hoping to deliver CESJ's updated healthcare paper and material on Capital Homesteading.

• Monica W. set up a number of meetings for Norman Kurland. Last Friday she met with the Director of R&D for ESOP ("Empowering and Strengthening Ohio's People"). ESOP is working on solving the foreclosure crisis. Monica thought he was tracking on the Just Third Way and, especially, the information on the Homeowners Equity Corporation (HEC). He asked about how the discount window of the Federal Reserve works, and took notes. He seemed to understand what Norman Kurland was talking about, although he probably didn't get all his questions answered due to time constraints. He had to leave, but he agreed to another meeting to discuss how to implement a pilot program of the HEC in Cleveland

• Senator Robert Casey of Pennsylvania was given a copy of CESJ's edition of A Plea for Peasant Proprietors. If Casey is reelected, there is a possibility of a meeting with Norman Kurland to discuss Capital Homesteading. The Senator is Irish American on both sides; his Pro-Life stance suggests a willingness to think for himself regardless of the official party position, which bodes well for possible openness to Capital Homesteading.

• As of this morning, we have had visitors from 47 different countries and 52 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the Philippines, the United Kingdom, and India. People in Nepal, Indonesia, Spain, Poland, and the Netherlands spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, XXVI: The Depression," "The Coming Crash," and "Lies, Damned Lies, and Definitions, XXIII: Hijacking the Federal Reserve."

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


Thursday, August 16, 2012

Is Private Property in Capital "Catholic"?, III: Can Catholic Teaching Change?

One thing we've found when attempting to respond to people who assert that (for example) the encyclicals say not one word about the importance of widespread capital ownership is that they are never at a loss for a rationalization for their position. Even explicit statements in the encyclicals are not to be taken as explicit statements, because later encyclicals presumably say exactly the opposite!

That, at least, was essentially the response we got when we posted the original of yesterday's comments. That forced us into the position of having to point out to our correspondent that what she was saying could not possibly be the case.

The encyclicals that followed Quadragesimo Anno and Divini Redemptoris expand and elaborate what was laid out in Rerum Novarum, but they do not — and cannot — contradict it, or we'd be admitting that the Church changes its teachings, which (if you subscribe to Catholic teaching) can never be the case. Even for non-Catholics who apply common sense to the discussion, it is hardly likely that an institution that claims it never changes its teachings would do so deliberately.

The fact is that Leo XIII was addressing a problem that had been growing in magnitude since the 15th century when, after all the progress that had been made since the so-called "fall" of Rome, ordinary people began to lose capital ownership. People tended, however, to retain their political rights, especially since the ruling elite (both political and economic) realized that without capital ownership, political rights mean nothing. As Daniel Webster observed during the Massachusetts Constitutional Convention in 1820, "Power naturally and necessarily follows property."

The consequence was that by 1891 you had a large number of people in the world who had equal political status, but unequal economic status. They therefore lacked the power to restructure the institutions of the common good, the flaws in which were causing so many problems.

The only way to have the political power to restructure the social order is to have the economic power that ownership brings. This mandates widespread capital ownership if you want to have a just society.

In the meantime, however, you can't let people starve or suffer ill-treatment. That mandates increased levels of charity, even imposed living wages, benefits, and State welfare until such time as the great mass of people achieve capital ownership and can take care of themselves.

The problem, however, is that not only have most commentators mistaken short term expedients for the solution, they have not even implemented the expedients, sometimes for good reason, other times because they mistake the emergency measures for the solution, and can see that they are destructive when instituted on a permanent basis, as the current global economic and debt crisis has shown.

Consequently, the popes after Pius XI have stressed the emergency measures over the ultimate goal simply because you've got a victim bleeding to death and that takes precedence — what some call the law of the urgent over the important.

Thus, private property is at least as important as it ever was (more, considering that virtually nothing is being done to advance it, and the global situation is about ready to implode), but you have an emergency on hand that isn't being addressed. That is the point of the later encyclicals, not a change in Catholic social teaching.


Wednesday, August 15, 2012

Is Private Property in Capital "Catholic"?, II: Is Property Mentioned?

Naturally, a mention of the importance of private property was not allowed to go unchallenged. "Everyone knows" that Jesus was an enemy of the rich and everything connected with them, especially private property, a plot by the capitalists to justify concentrating wealth when people are in need. The comment was made that there is nothing in Rerum Novarum about capital ownership, much less widespread capital ownership.

Our response was the pithy, "NOTHING?!?!?!?"

We didn't really want to shout, but we advised the commentator that he really should read §§ 1-47 of Rerum Novarum. These sections go into exhaustive detail why productive property — capital — must be regarded as sacred, why the heads of families must own property, why it is natural, why it is economically and socially important, and even what is to be done in the interim on the way to rebuilding an ownership society, concluding that "The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners."

Rerum Novarum was written specifically to counter the rapid growth of socialism that accompanied the loss of capital on the part of the working classes, even in America where the "free" land available under the Homestead Act of 1862 was coming to an end (the lack of which was fundamentally changing American society, and not in a good way, as Frederick Jackson Turner noted in 1893 in his "frontier thesis").

That property in capital is the focus of the encyclical was hardly a secret. Agrarian socialist Henry George was so incensed by the encyclical that he whipped out a 30,000-word "open letter" to the pope (published September 11, 1891) that went on at great length just why the pope was wrong to uphold the traditional teaching on property.

At least, however, George was polite, unlike some so-called "Catholic" economists today who call the pope's virtual mandate for universal ownership of capital "twaddle" and viciously attack anyone who dares to take papal teachings at face value. (Of course, the one who called it that has also claimed that Catholics are focusing too much on trying to end abortion when workers aren't paid enough and the all-powerful State — "the sole intercessor available to the poor" (we've been given to understand from our staff Catholics that it is the Holy Spirit and the saints . . .) — isn't distributing enough in benefits or creating enough jobs out of nothing.

So, we must disagree with the disagreement that Rerum Novarum says nothing about the fact that people need capital ownership. The entire first half of the encyclical is on nothing else, while the balance is on how to go about doing it and temporary measures to relieve distress in the interim.


Tuesday, August 14, 2012

Is Private Property in Capital "Catholic"?, I: Organizing in Social Justice

First, I admit that the title to this brief series is double-plus-ungood. Only natural persons (God, men, angels) can be Catholic — or Jewish or Muslim — in the sense of belonging to a religion. Slapping "Catholic" (or, if you insist, "Jewish" or "Muslim") in front of something is often a dishonest way of trying to clinch an otherwise weak or non-existent argument. It allows whoever is using his or her faith as a crutch to accuse others of being in bad faith without having to make an argument or present any proof or evidence either that his or her claims are true, or that whoever is in disagreement is thereby automatically a "bad" Catholic, Jew, or Muslim.

So much for stating the obvious.

The question arose in a recent FaceBook discussion as to whether in Catholic social teaching workers have the right not to join a union, i.e., whether a state that passes a "right to work" law is in conformity with Catholic social teaching that seems to mandate unions of some form. Our response was to see what the encyclicals actually say.

What Rerum Novarum stresses above all else is workers (and everybody else) owning a meaningful amount of capital: "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)

The means to do this is for people to organize and work directly on the common good; the act of organization establishes the necessary equality of political status essential to being able to access the common good directly instead of indirectly through State action. Such organization must, of course, be free, or there is no true contractual relationship — a coerced contract, or an agreement between persons of unequal status is not a contract.

Unfortunately, what has happened is that the right of free association/contract in Catholic social teaching has almost universally been understood solely as the right of labor to organize for better pay, benefits, conditions, and so on — which is actually only a part of what liberty means in the economic or political order, and the organizations themselves — intended to secure equality of status through contract — are construed as the oxymoronic "status corporate bodies" based on inequality of status and distribution on the basis of need, not equality of inputs.

So, yes, one application of the principles in Rerum Novarum (and Quadragesimo Anno) is that workers should be free to join unions or not — but focusing on that is to miss the whole point of the social doctrine of Leo XIII and Pius XI, which is to effect a restructuring of the entire social order by means of the act of social justice, not retreat to a position built on inequality of status in which the great mass of people are forced to live under "a yoke little better than that of slavery itself." (Rerum Novarum, § 3)

The whole issue could be avoided, however, simply by reforming today's labor and craft unions as "ownership unions" intended to secure and protect everyone's right to own capital as well as the means to do so.


Monday, August 13, 2012

The Coming Crash

A short time ago someone referred us to a video about the upcoming financial crash (which, truth to tell, we rather expect ourselves unless Capital Homesteading is adopted soon). The problem is that there was just enough truth in the video to be misleading. Two things in particular undermined the credibility of the presentation:

1. They used the wrong definition of money. Kelso described it very well in Two-Factor Theory as a mere symbol, but it can be summarized even better by giving the legal and accounting definition: anything that can be accepted in settlement of a debt. The video commentators were using the standard Keynesian-Monetarist-Austrian understanding, which is 180 degrees from Kelso.

2. They were correct that in 1929 the private sector was creating money at a tremendous rate for speculation, and at a lesser, but still rapid rate for investment in new capital formation, while today the government is creating money at an even more tremendous rate for non-productive spending. The commentators made no distinction between good uses of credit, and bad uses of credit, however. They made it sound as if all credit is bad, per se, and all that is needed is to stimulate consumption.

The main difference between 1929 and the situation today is that money creation for both productive and non-productive purposes was going hand-in-hand. In the productive sector of the economy, this resulted in a temporary over-capacity, just as it had in 1873 and 1893. Had ownership of the new capital been widespread as Kelso advocated, there would have been no problem, as the expansion of productive capacity and the ability to consume would have grown at the same rate, and the Panics of 1873 and 1893 would likely never have happened, and the video's concern about the drop in consumption from 50 to death would not even be an issue.

Today, however, there is no expansion of productive capacity; demand is drying up as people lose their jobs and do not replace labor income with capital income. Instead, what demand there is comes from inflationary government spending and private sector money creation through expansion of consumer credit.

In 1929 after the Crash, banks stopped lending because the equity shares many businesses were using as collateral, and the market value of the businesses themselves (and thus their creditworthiness) had declined drastically. Again, Kelso's idea of capital credit insurance to replace traditional collateral would have prevented the slowdown in lending that led to the (second) Great Depression. Had not bank lending declined, there would have been no Great Depression simply because there was no other connection between the productive sector and the secondary market for equity.

Today's situation is more akin to what precipitated the Panic of 1825 than the Crash of 1929. In 1825 there was widespread speculation (they called it "investment," of course) in what is today known as "sovereign debt." As a result of new theories of money and credit and national sovereignty, private sector money (bills of exchange) was no longer considered money, only gold, silver, and government-emitted bills of credit. The money supply had become disconnected from the productive sector.

The new republics in Central and South America, including one fictional country, the "Republic of Poyais" ("The greatest fraud in history"), floated large amounts of sovereign debt to get their governments up and running. Since these debt issues were backed by tax bases that no longer existed in most cases, the crash was probably inevitable, and the Panic of 1825 is considered the start of the modern business cycle.

From a Kelsonian perspective, of course, there is no reason there should even be a "business cycle"; it is the result of separating money creation from production and allowing governments to monetize their deficits. The so-called Keynesian counter-cyclical approach is thus a contrived solution to an artificial (man-made) problem, and has the effect of pouring gasoline on the fire.


Friday, August 10, 2012

News from the Network, Vol. 5, No. 32

An interesting effect of the current phase of the Great Depression is that the "Recession Generation" is opting to rent consumer items that used to be standard purchases for the upwardly mobile, i.e., dwellings, automobiles, furniture, even clothing. On the upside, this allows people to conform to the general trend in modern society to avoid permanent commitment at any level, and to have certain things that would otherwise be beyond the reach of under- and unemployed people.

The downside is that, just as Americans were largely stripped of capital ownership following the first two phases of the Great Depression (1893-1898, 1930-1939), they are now losing the opportunity and means to purchase the consumer durables that, in some small measure, offset the traditional wealth-building in the form of capital. A house in which you live does not generate income and thus is not a true investment, but at least it had value that, in a pinch, could be liquidated. Now even this is disappearing.

Clearly the only solution to the current global financial and economic crisis is either Capital Homesteading, or something so like it as to be indistinguishable. If any more evidence is needed, here it is:

• The pigeons are coming home to roost. Or maybe it's chickens. However the aphorism goes, generations of students have been "plucked" by the lie that a college degree guarantees you a good job. This is in the mistaken belief that the ability to parrot back what some professor wants to hear will somehow enhance creativity and entrepreneurship, resulting in automatic economic growth. As the Wall Street Journal reported in its headline yesterday, however, college debt is "hitting" the well-to-do. People who pushed increasingly expensive higher education in the hope that it would result in a better life actually put the cart before the horse and reversed cause and effect. It's the better life that results in higher education. Better education, healthcare, liberal attitudes, voting for politicians who give you what you want rather than what you need — all this comes as a result of economic growth. It doesn't cause it. Spending massive amounts of money on such things without first implementing a system such as Capital Homesteading to pay for them virtually ensures a financial disaster, first for individuals, then groups, then nations and, as the global debt crisis only continues to worsen, the world.

• In a similar vein, over the past week we attempted to respond to some questions in an internet discussion group regarding binary economics and Capital Homesteading. Fortunately, having had some exposure to logic, we quickly realized what one of the participants in the discussion was doing — making a string of assertions, claiming these disproved everything about binary economics and Capital Homesteading, and then demanding proof that what he was saying in presumed refutation is not the case. The extremely subtle "trick" being pulled was to make proponents of the Just Third Way "guilty until proven innocent," in a manner of speaking. The participant was, in so many words, demanding that we prove that what he was saying is not true. He was, in short, demanding that we prove a negative, which is a logical impossibility. It was an object lesson in what all supporters of the Just Third Way have to be aware of — and also demonstrates the quality of so much of the extremely expensive higher education that afflicts the world, since many of the critics of the Just Third Way have Ph.D.s and even Nobel Prizes, yet employ such tricks that shouldn't fool a second grader.

• All of this is a graphic demonstration of the need for Justice University, which should probably include remedial classes in simple logic as well as basic philosophy and ethics.

• As of this morning, we have had visitors from 49 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, Canada, Australia, and India. People in Nepal, Indonesia, the Netherlands, Poland, and Spain spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "Lies, Damned Lies, and Definitions, XXVI: The Depression," "Lies, Damned Lies, and Definitions, XXIII: Hijacking the Federal Reserve," and "Lies, Damned Lies, and Definitions, XXI: The Economics of Banking."

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


Thursday, August 9, 2012

Lies, Damned Lies, and Definitions, XXX: Keynes to the "Rescue" — Editing Truth!

From the point of view of logical consistency — plain common sense — the Keynesian claim that the State has the power to "re-edit the dictionary" may be the most outrageous and damaging premise of that entire economic system. Properly understood, the implications of Keynes's seemingly trivial statement that the State has the power to "re-edit the dictionary" are shattering.

First, let's look at what Keynes said exactly:

"It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp's Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized." (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4)

The first sentence in this brief passage completely eliminates the natural right of liberty, that is, freedom of association/contract, and implies that the whole trend of civilization for four millennia has been for the authoritarian State to force society to return to being based on status and away from contract. This, however, is almost incidental to Keynes's goal, which is to assert without proof that "money" is whatever the State says it is.

On the contrary, as any lawyer or accountant should be able to explain, money is correctly defined as "anything that can be accepted in settlement of a debt." This is why private sector bills of exchange are known as "merchants" or "trade acceptances," and "bankers acceptances." Then, technically, all contracts are "money contracts," consisting of offer, acceptance, and consideration. Keynes simply performed some verbal sleight-of-hand by re-defining money as whatever the State says it is.

Reading carefully, however, we realize that even Keynes's abolition of the natural right of liberty and redefinition of money (money being an institution, as Irving Fisher acknowledged in The Purchasing Power of Money, based on the natural right of private property) is not the most astonishing thing in this passage. This we find in Keynes's declaration that, "[The State] claims the right to re-edit the dictionary

As far as Keynes was concerned, then, the State has the power to change the substantial nature of reality. This is something that even God cannot do, as reality is based on His unchanging and unchangeable Nature. There is no other interpretation that can be put on this passage. God, after all, as a perfect Being cannot contradict Himself; He cannot change, for change implies imperfection.

The Keynesian State, however, has the power to change God . . . at least, according to Keynes. This, as was the case with Thomas Hobbes and his characterization of the State as a "Mortall God," opens the door to pure moral relativism and the abolition of the whole of the natural law, and thus civil society based on contract, to say nothing of the establishment of the totalitarian State and the imposition of status as the basis for civil society.

This is probably because Keynes based his fundamental principles of political economy on the work of Walter Bagehot (Lombard Street), who, in The English Constitution (1867) lauded the political theory of Hobbes while denigrating Magna Charta and the whole concept of natural rights. It comes as no surprise that virtually every provision of Magna Charta, a charter based on contract, was repealed in the 19th century and replaced with legislation based on status during the long reign of what eventually evolved into Keynesian economics. Bagehot was also a social Darwinist.

This, then, brings us to the whole point of this series. We live in an age of almost complete moral relativism. Nowhere is this more obvious — or more damaging -than in the near-universal adherence to Keynesian economics. In Keynesian economics the State can do anything simply by changing a definition and forcing it on the citizens. The only possible course of action is to implement an economic system that relies on fundamental definitions of things that are consistent with human nature rather than some politician's or special interest group's wants or needs — and that means binary economics as applied in Capital Homesteading.


Wednesday, August 8, 2012

Lies, Damned Lies, and Definitions, XXIX: Keynes to the "Rescue" — Money!

As the predominant form of "Currency School" economics today, Keynesianism's chief tenet is that "money" consists exclusively of State-emitted bills of credit. That sounds innocuous enough until we know what it entails.

Prior to the "Financial Revolution" of the 17th century and up through the early 19th century, the non-owning free worker (politically with the status of an adult, but economically with the status of a child) was relatively rare. As we have seen, it was then that the rediscovery of commercial banking and the development of central banking made it possible to finance new technologies and even entire industries by abandoning past reductions in consumption as the chief source of financing for new capital, and using future increases in production.

Before then, "money" consisted of coin, occasional negotiable instruments, and a tremendous amount of barter. Money, in fact, doesn't have to take a specific form in order to be money. It merely has to be accepted in payment of a debt. "Bills of exchange" representing the present value of something of value the bearer expected to receive in the future from the issuer (and in which the issuer had a private property stake) could be used to finance new capital without first having to cut consumption and save.

The availability of this "new" source of financing made the Industrial Revolution possible. Due to the demand for collateral on the part of a bank or other lender accepting a bill, however, this method of finance also restricted ownership of the new capital to the already wealthy. Having existing savings to offer the new commercial banks to securitize loans made to finance new capital, the rich were, as a rule, the only ones able to own the new machinery. Consequently, the rich were able to control the economy — and the development of economic theory — for their own benefit.

Nor was the situation improved when, as a result of the "Currency Crisis of 1797" the Bank of England suspended convertibility of banknotes into gold. Governments realized they could issue fiat money backed only by government debt. This changed the definition of money from anything that can be accepted in settlement of a debt, to whatever the State issued or sanctioned and had the power to force on an economy — bills of credit. This creates a situation Keynes claimed was ideal in the opening passages of his Treatise on Money (1930).

By being able to issue what amounts to general claims against the wealth of society backed only by the State's power to tax future production, governments are able to exercise a de facto ownership of a nation's wealth where Hobbes only asserted a theory. Speculation in what is today known as "sovereign debt" began to be a significant portion of the business of the financial markets. The "Panic of 1825," presumed to be the event that ushered in the "business cycle," was not caused by fluctuations in private sector production of marketable goods and services. That had been going on since the dawn of civilization and before. The Panic of 1825 was caused by government manipulation of the currency and the issuance of vast amounts of non-productive debt paper to finance State operations and programs, primarily by the new republics in Central and South America — one of which, the "Republic of Poyais," did not even exist.

By this means governments are today able to exercise effective control over the economy to the extent government currency backed by debt displaces private sector money backed by hard assets. Government debt money also accelerates the devolution of society from contract to status. Taxes are, in part, collected on the basis of ability to pay, while growing reliance on government mandated or supported jobs, wages and benefits funded increasingly by debt imposes a condition of dependency on the part of the recipient. The political status of citizens shifts from all being equal, to being divided into a large number of special interest groups of differing status, depending on the power of a group to garner government-funded benefits and special treatment.


Tuesday, August 7, 2012

Lies, Damned Lies, and Definitions, XXVIII: Keynes to the "Rescue" — Labor Alone!

The idea that labor alone is responsible for all production permeates not only Keynesian economics, but is a cornerstone of current U.S. economic policy. The Employment Act of 1946 (ch. 33, section 2, 60 Stat. 23) was intended to put the responsibility for attaining economic stability of inflation and unemployment onto the federal government. Supporters claimed that it was not Keynesian, but that is simply not true. The specific techniques were not considered "Keynesian," but that is a meaningless quibble. Making the government responsible for the economy is precisely what Keynes advocated in his General Theory of Employment, Interest, and Money (1936). As he said,

"I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; thought this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary." (Keynes, General Theory, V.24.iii.)

Setting aside the question as to how "a somewhat comprehensive socialisation" is in any way different from "Just Plain Socialism," let's focus on the implication in the 1946 Act that turning over control of the economy to the government so that bureaucrats could determine how to balance off the alleged Scylla and Charibdis of inflation and unemployment will achieve economic stability. (We'll also ignore the ridiculousness of the presumed trade-off, since full employment has been reached quite a few times without inflation — under conditions of deflation, in fact, which causes other problems.)

Inherent in the Act is the assumption that labor alone is productive, and this ties in perfectly with Keynes's emphasis on "full employment" — what Kelso called "needism" — instead of private property in capital as the sole means by which ordinary people are supposed to gain income. There shouldn't even be small investors ("rentiers") in a well-run (i.e., "government controlled") economy, because small investors are so foolish as to use their income from capital for consumption purposes.

This inserts a paradox into Keynesian economics — one of many, in fact, but we're only concerned with this one for now. All Keynesian programs are directed to establishing and maintaining full employment. This is because a wage system job and redistribution of existing wealth through direct confiscation or inflation are the only ways for most people to gain income because they can't or shouldn't own capital.

Redistribution, however, necessarily implies that there must be something other than labor that is productive — unless you subscribe to Marx's theory that the capitalists steal "surplus value" from workers and consumers, "capital" being merely "congealed labor." Some Keynesians are, in fact, Marxist in their analysis, while others differ on whether capital only enhances labor, or is independently productive. It's hard to tell where Keynes stood on this, for he implied that labor alone is productive when he misstated Say's Law of Markets in order to demolish his own straw man argument, but then implied that capital is in some degree productive in order to justify government control of resource allocation and interest rates.

It doesn't really matter, of course. Sometimes the same economist will espouse a different position if that's what it takes to win the argument, claiming that of course capital is a factor of production if the question is who has a right to own new capital, but of course is not when it comes to who has a right to what the capital produces. What concerns us here is that "productivity" in U.S. government policy is officially defined as output per labor hour. This necessarily implies that all production is due exclusively and directly to labor.

In any event, the idea that labor alone is directly responsible for all production can easily be refuted using Kelso's example of an automated elevator. Unless you are going to argue that the work required to press the button for the floor you select is all that is required to lift or lower the elevator car several floors, you must admit that the machinery is doing the lifting or lowering. The minimal effort of pressing the button gives the robot its instructions on what to do, nothing more. The machine does the work.

Given the definition of productivity as output per labor hour, however, the productivity of the elevator is infinite or irrational, whichever you prefer, for you cannot divide by zero and get a meaningful answer. The conclusion we necessarily draw is that capital is in some measure at least independently productive without a direct labor input, and that the figures supplied by the Bureau of Labor Statistics don't mean anything . . . unless you want them to, in which case they mean anything you want (which probably explains the recent gyrations of the stock market as well, an irrational response to a meaningless number).


Monday, August 6, 2012

Lies, Damned Lies, and Definitions, XXVII: Keynes to the "Rescue" — Cut Consumption!

The Brookings Institution's four-volume study on America's potential to recover from the Great Depression of the 1930s, Distribution of Wealth and Income in Relation to Economic Progress, was, in essence, an application of Say's Law of Markets. Unfortunately, the study was published after the Roosevelt administration had implemented the Keynesian New Deal. While it could, of course, have been reversed at any time (and still can be), the fact was that America was now locked into a set of assumptions and economic prescriptions of doubtful validity that have not only not worked, the preponderance of evidence suggests — after eighty years — they can't work. Still, the powers-that-be keep insisting on them.

The basic assumptions of the Keynesian framework are:

1. New capital formation is impossible without first cutting consumption,

2. Labor is the sole factor of production, capital only enhances labor, and

3. Money consists solely of State-issued or sanctioned debt instruments backed only by the general creditworthiness ("faith and credit") of the government.

4. The State has the power to "re-edit the dictionary," i.e., change substantial reality, and abolish freedom of association/contract (liberty) and private property.

Everything in Keynesian economics appears either to be derived from these assumptions, or is an application of them. Nevertheless, all four are false, as we can readily demonstrate.  We'll take them one at a time:

New Capital Formation by Cutting Consumption

This is the easiest of the Keynesian assumptions to disprove. It was why, in fact, Keynes declared in 1919 in The Economic Consequences of the Peace that the world could not have reached its then-present state of development had not wealth been concentrated. The rationale is that poor people can't cut consumption to the degree required to finance the increasingly expensive capital instruments needed in a modern industrial economy. Only the rich can do so, and, in fact, the richer, the better.

First off, of course, if labor is the sole factor of production and capital only enhances labor, why are increasingly expensive capital instruments needed? It's all an illusion. Given that illusion, however, it is utter nonsense that the world requires concentrated ownership of capital in order to advance economically. This can only be justified if we accept that cutting consumption is the only way to finance new capital.

The facts of history tell us otherwise. In The Formation of Capital, the third volume in Distribution of Wealth and Income in Relation to Economic Progress, Harold Moulton proved that periods of rapid capital expansion were, in every case, preceded not by reductions in consumption, but increases. This justified the vastly increased amount of new capital formation that then resulted. As Moulton concluded, the demand for new capital goods is derived from the demand for new consumer goods. During periods of rapid expansion, consumption and capital expansion occur at the same time. It is not a case of one or the other.

That being so, where did the savings come from to finance the new capital? After all, if consumption increased before production, or increased at the same time as production, then savings were clearly being used to finance consumption, not investment. Savings were already being depleted by the increased consumption, and there would have been no existing savings to finance new capital.

The obvious conclusion is that the new capital was not financed by past cuts in consumption, but by future increases in production. Commercial banks were invented thousands of years ago to take advantage of this financing technique. Someone with a sound capital project prepares a contract — an offer — called a "bill of exchange." The drawer of the bill then either offers it directly to someone who promises to build or supply whatever capital is wanted, or takes it to a commercial bank that substitutes its own promise for that of the borrower.

If either a private individual or a bank accepts the offer, it is money, and can be used to purchase the capital. These acceptances can then be used as money between other people, as long as the original issuer makes good on the promise when it is presented for payment on maturity.

No capital — or even the materials with which to build the capital — has to exist before the decision is made to form the new capital. All that is necessary is for two people to exchange promises, and to make good on those promises by the due date. These promises can also be passed around the community in offers and acceptances between other people, creating a circulating medium or "currency" — "current money."

So, no, you don't need to cut consumption in the past in order to finance new capital formation. You only need to be able to increase production in the future, and to do so if that is what you promised to do.


Friday, August 3, 2012

News from the Network, Vol. 5, No. 31

Thanks to a less than dismal jobs report, the stock market is again skyrocketing. At least as of this writing. Perhaps the record sales experienced by Chick-fil-A on "Chick-fil-A Appreciation Day" has contributed to the rise . . . who knows? None of this is exactly rational. Not a publicly traded company? So what? "Job creation" is — if we understand it correctly — a lagging economic indicator. (Yes, it's classified as a leading indicator . . . but that conveniently neglects the fact that new hires only occur after consumer demand warrants adding more workers, and existing workers just can't handle any more overtime,) The stock market that reacts to an increase in "job creation" is also a lagging indicator. (Yeah, yeah, yeah, it's classified as leading, but it's reacting — or is supposed to be reacting — to improvements in historical financial data from companies . . . that's a lagging indicator in our book. It only becomes leading when you factor in speculative gains, which have little or no connection with what a company is actually producing or its profitability.)

The fact is, the economic and financial experts have it exactly backwards due to their assumption that you cannot finance new capital formation unless you restrict consumption. That is, in order to finance new capital, you have to cut consumption and save. Unfortunately, if you cut consumption in order to save to have the money to finance new capital, then there is no reason to finance new capital because there is no consumer demand to justify the investment in new capital.

As Harold Moulton observed, however, periods of rapid capital formation have always been preceded not by decreases in consumption, but by increases. Financing for new capital came not from past savings, but from future savings. Remarkably, however, the chief leading economic indicator — the increase in consumption — is not even on the list of leading economic indicators! It's "sort of" on the list of lagging economic indicators in the form of the ratio of consumer borrowing to consumer income, but that reverses the actual chain of events.

And if you think that's crazy, check out these news stories:

• The whole Chick-fil-A imbroglio teaches us a lesson on the power of capital ownership. As the social order is now structured, especially the financial part of it, most people lack virtually all power because they own virtually no capital. Consequently, whatever those with ownership — and thus power — want, they can, in general, get due to the propertylessness of people who think otherwise. Nowhere has this been more evident than in the dilemma that Catholics and others who oppose artificial contraception face with the HHS mandate. Were people able to gain enough income from both labor and capital to pay for their own healthcare needs, the whole issue would disappear — as would the political power of those who seek to impose their morality on others. Instead, many people believe themselves forced to accept the mandate because they might lose the other things the State provides. So what does "Chick-fil-A Appreciation Day" teach us? That when people have economic power they will exercise it in support of what they really believe, not what the State or whoever controls the State tells them they have to accept, with the implied "or else" hanging over them. Fortunately for Chick-fil-A, a meal there costs around $5 (according to a brief and unscientific internet survey; this writer has never been in a Chick-fil-A restaurant nor eaten their product, although seriously tempted recently to break a self-imposed ban on eating in fast food restaurants . . . unless somebody else is buying), well within the reach of most people. Given the chance and the economic power to exercise their choice, people voted — and Chick-fil-A experienced its best sales ever on a single day. Thousands of people stood in line at Chick-fil-A restaurants for hours to buy a meal. In contrast, a "Kiss-Off" protest of same-sex couples meeting outside Chick-fil-A restaurants to smooch scheduled for this evening doesn't seem to be garnering the same sort of enthusiasm, despite the fact that it costs nothing to participate and the media are giving it the liberal seal of approval.

• Past Polish President Lech Walesa has endorsed Mitt Romney for president — which ought to secure him one or two votes around Chicago. The problem is that Romney is still not saying anything about the need to implement an aggressive program of expanded capital ownership as the foundation for rebuilding the economy. Significantly, when CESJ met with Pope John Paul II, it was along with members of Polish Solidarity. His Holiness encouraged CESJ in its work, but few people seem to realize just why (or how) the unique combination of the social doctrine of Pius XI and the economic justice principles developed by Louis Kelso and Mortimer Adler that we call the "Just Third Way" may very well be the "last, great hope of mankind."

• Plummeting sales of American-made goods overseas as foreign economies continue to crumble and their currencies weaken are another area of concern in the upcoming election. This, however, would not be a problem if, as Harold Moulton pointed out, the U.S. economy (and other economies throughout the world, for that matter) would concentrate first on meeting domestic needs and building mass consumption power into us ordinary folk. Unfortunately, this cannot be done by inflating and thus weakening the U.S. currency, creating artificial stimulus for consumer demand through redistribution, or by mandates. It can only be done, as Kelso and Adler pointed out, by ordinary people being empowered with the means of acquiring and possessing capital, and then using the income from that capital first to pay for the capital, then for consumption. This would restore Say's Law and solve the problem of trying to increase market share in a declining economy, or trying to get people with no money to buy things they don't need.

• As of this morning, we have had visitors from 47 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, the Philippines, Canada, the UK, and India. People in Nepal, Indonesia, Spain, the Netherlands and Poland spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "News from the Network Vol. 5 No. 27," "Lies, Damned Lies, and Definitions, IX: The Road to Nihilism — Scotus," and "Orestes Brownson and Socialism."

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


Thursday, August 2, 2012

Lies, Damned Lies, and Definitions, XXVI: The Depression

Given that the primary cause of the Great Depression was that lending for productive purposes virtually disappeared, it is a tribute to the strength of the U.S. economy at that time that unemployment only went to about a quarter of the workforce. Most business financing was coming from reinvesting profits instead of new debt or equity. Even so, the fall in consumption power that resulted from the drop in production reduced the profits that businesses needed to pay workers, many of which were laid off in consequence.

Had businesses been able to borrow for working capital to make up for the fall in profits, the economic downturn would likely have been of extremely short duration. The banks, however, weren't lending because businesses didn't have adequate collateral — if any at all. Kelso's concept of capital credit insurance would have tied the economy over the hump.

Capital credit insurance wouldn't have done anything to address the underlying problem, however, which was lack of widespread capital ownership. The stock market crash itself was (although this sounds shocking) a problem that affected what should have been a relatively minor market sector, the secondary market for equity and debt. This eroded the value of collateral and the creditworthiness of businesses, but did not affect the consumption income of ordinary people.

The most important factors affecting consumption income were the displacement of human labor from the production process and the lack of widespread capital ownership. Moulton noted that between 1919 and 1929 the number of people engaged in the direct production of marketable goods and services declined rapidly. At the same time the number of jobs mushroomed.

This was because the increasing productivity of capital and the greatly expanded market required an enormous increase in the need for logistical and administrative support — jobs from which people are now being displaced by technology at an even faster rate than they were from direct production.

The consequence was that every job involving direct manufacturing that disappeared involved a multiple of jobs lost in a ripple effect throughout the economy. You don't need typists or stenographers when there are no letters to write, nor do you need salesmen or even stores when there's nothing to sell. One farmer or factory worker provided jobs for more than just him- or herself. Without bank credit in the short run, and capital ownership in the long run, the impact on the economy was devastating.