Tuesday, April 8, 2014

Focus on the Fed, II: Say’s Law, or, No Consumption Without Production

As we saw in yesterday’s posting, the monetary reforms of the Just Third Way assume as a given that the purpose of production is consumption.  This is the basis of “Say’s Law of Markets,” which both Karl Marx and John Maynard Keynes reject.

Another view of Jean-Baptiste Say
Named after Jean-Bapiste Say (1767-1832), who did not invent the law, but gave it its clearest expression, Say’s Law of Markets is an application of the common sense principle that it is impossible to consume what has not been produced, and thus does not exist.  Further, under ordinary circumstances, only private property gives someone the right to consume.

Including land as a form of capital (albeit one with special considerations, which is why the classical economists separated land from other forms of capital), there are only two ways to produce marketable goods and services: labor and capital.

“Labor” includes all human inputs to production.  “Capital” includes all non-human inputs to production.  Owning labor gives the owner the right to the fruits of labor.  Owning capital gives the owner the right to the fruits of capital.

"He who does not work shall not eat."
In an early application of Say’s Law, St. Paul instructed the Thessalonians, “if any man will not work, neither let him eat.” (2 Thessalonians 3:10.)  This does not mean that those who cannot labor or own capital should not be taken care of as charity (“extreme cases” are an exception that falls outside this discussion).  It means that those who are able to gain an adequate income through productive activity are morally required to do so.

The Role of Money


As Jean-Baptiste Say explained to the Reverend Thomas Malthus in refutation of the latter’s “scarcity economics,” we do not purchase what others produce with “money.”  Money is only the medium through which we exchange what we produce by means of our labor and capital, for what others produce with their labor and capital.

Louis Kelso: Money is not wealth.
As Louis Kelso elaborated on Say’s explanation, money is only a symbol of the marketable goods and services that are the real matter of exchange.  Money is not the wealth itself.

“Money” is therefore anything that can be accepted in settlement of a debt.  Understood in this way, all money is a contract, just as (in a sense) all contracts are money.

All contracts consist of offer, acceptance, and consideration, “consideration” being the inducement to enter into a contract, that is, the matter or thing of value being exchanged.  If any of these elements is missing, the contract is not a true contract; the money is counterfeit.

The Role of Currency


Currency means “current money,” that is, a uniform and stable standard and store of value by means of which we carry out exchanges.  All currency is money, although not all money is currency.

Commerce and industry require standard weights and measures
To ensure uniformity and stability of the currency, some authority, usually government, has the responsibility for setting the standard and enforcing compliance with the standard.  For example, anyone who uses yards that are not 36 standard inches in length in a legally enforceable contract that specifies standard yards may be subject to prosecution.

Similarly, anyone who enters into a contract specifying a particular currency must fulfill the terms of the contract in that currency, or be subject to prosecution.  Uniformity and stability of the currency and all other weights and measures is therefore of primary importance to the maintenance of a just economy.

To stress the importance of a sound, uniform currency, CESJ is joining the Coalition for Capital Homesteading at the 10th annual Rally at the Fed this coming Friday, April 11, 2014, at the Federal Reserve Board of Governors Building on Constitution Avenue in Washington, DC, from 11:00 am to 1:30 pm.  Join us there to demonstrate your support for a common sense approach to money and credit.


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