Tuesday, July 14, 2015

Solving the Greek Debt Crisis, VII: Property and Money


Making every child, woman, and man productive is key to solving the Greek — or any other — debt crisis.  Figuring out how to make everybody productive, or at least providing the opportunity and means whereby they can become productive is quite another.  (We say “opportunity,” for everyone should be free to decide not to be productive, assuming that no one else is compelled to support anyone who freely chooses not to be productive.)

"Because I Say's so!"
If we accept Say’s Law of Markets — and it should be evident that this blog is written from the perspective that assumes the validity of Say’s Law — there are three ways in which people can be productive, all involving ownership.  We own our labor by nature, we can own land, and we can own technology, the latter two by natural right.

In binary economics, we categorize the factors of production as human (labor) and non-human (land and technology), or “labor” and “capital.”  Land being non-human, we group it with capital, although we also admit that, due to its limited nature, different forms of ownership are usually necessary to ensure that everyone has the same opportunity and means to own land privately as other forms of capital.

There is a problem with owning anything other than your own labor, however.  Everything else being equal, you are born with your ability to work.  It’s an inherent part of you.  You can’t separate humanity from labor, even by enslaving someone.  If you could separate labor from the human being, slavery would be nonsensical as well as unjust.

You can, however, separate non-human things from human beings.  You do that every time you take off your clothes to take a bath.  Things are not inherent parts of the human being.

"Life, liberty, and property are inherent, i.e., natural rights."
What is an inherent part of what it means to be human is the right to acquire and possess things.  This is called the natural right to be an owner, the right to property.  It is no more just to deny people the right to own capital by preventing them from exercising property, than it is to enslave people to obtain their labor by preventing them from exercising liberty.

The right to be an owner is part of what it means to be human.  This is “the generic right of dominion,” meaning it’s part and parcel of every human being who ever is, was, or will be.

What is not a part of what it means to be human is what you can do with what you own — as long as what you do with what you own doesn’t undermine or destroy yours or anyone else’s right to be an owner in the first place.  This is “the universal destination of all goods,” meaning that your exercise of the rights of property are in part determined by the effect on you, other individuals, groups, and the common good as a whole.  As a general rule, you may not materially harm even yourself, much less others, by the exercise of your rights.  This is “the social dimension” of property.

This becomes a key issue in today’s world as technology — things — takes over the burden of production, reducing the role of human labor.  It becomes essential that human beings own capital as well as labor so that they can be productive, and they need to be productive so they can consume.

The problem is that the people who need to own capital are the very ones who lack the means to acquire it . . . as long as economic growth remains tied to the assumption that in order to purchase capital, you must consume less than you produce.  That’s a very big problem for somewhere like Greece where people don’t produce enough to consume, much less set aside something to finance new capital.

Henry Carter Adams (1851-1921)
The answer lies in changing how money is created and enters the system.  Right now, a bunch of people (usually the people who will be doing the spending) decide how much money should be created by having the State emit what they call “bills of credit” in order to have X amount of production, inflation, consumption, etc., etc., take place.  Of course, as Henry Carter Adams pointed out in Public Debts: An Essay in the Science of Finance (1898) and Harold G. Moulton confirmed in The New Philosophy of Public Debt (1943), this inevitably changes to how much money can the politicians get away with creating to spend on achieving political ends, i.e., staying in power.

Whether to meet political or economic goals, however, this gets everything backwards.  The amount of production, inflation, consumption, etc. isn’t determined by the amount of money in a rationally structured system.  No, the amount of production, etc., determines the amount of money!

“Demand-Pull” inflation — issuing currency not backed by the present value of existing and future marketable goods and services — is the market’s way of adjusting the value of the currency to conform to the real value of goods and services available.  Create money not directly linked to and backed by the present value of existing and future marketable goods and services in the economy through a contract (known as a mortgage or bill of exchange, respectively), and the value of the currency falls against goods and services, meaning people are forced to pay more and get less.

"Money" is only a symbol of real wealth to facilitate exchange.
This is consistent with Say’s Law of Markets.  Money is not valuable in and of itself.  Money is only valuable because of what stands behind it.  If what stands behind the money is the present value of existing and future marketable goods and services, then money is truly what part of its definition says it is: the medium of exchange, that is, the means by which I exchange what I produce for what you produce.  If what stands behind the money is the present value of the government’s ability to collect taxes in the future (i.e., the faith and credit of the government), then the money will be worth whatever the government says it’s worth . . . at least, for as long as you can trust what the government tells you. . . .

Right now not too many people trust the government of Greece.  As of this writing, the negotiations have reached the “I will gladly pay you Tuesday for a hamburger today” stage, that is, Greece has promised to enact austerity measures after they get the money they need to stay afloat.  Since they tried that stunt before, it remains to be seen if the rest of the EU goes along with it.  We’ll see.

#30#

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