Last
Thursday we noted how central banking was diverted from its original purpose
from the very beginning in 1694, away from providing liquidity and
“accommodation” for the private sector, and forced into the role of government
finance. This was done to such good
effect that virtually every history book that bothers to mention central
banking makes the erroneous claim that central banking was invented to provide
banking services for government.
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| Hobbes: the State is a Mortall God. |
We
shouldn’t be too surprised at this. After
all, we’re talking about the Bank of England that was established in a
political environment formed by the thought of the totalitarian philosopher
Thomas Hobbes. According to Hobbes, the
State, a “Mortall God,” is the ultimate owner of everything in the State, no
ifs, ands, or buts. As he explained in
Chapter XXIX of Leviathan,
“Of Those Things That Weaken, or Tend to the Dissolution of a Common-Wealth”:
Attributing Of Absolute Propriety To The Subjects
A Fifth doctrine, that tendeth
to the Dissolution of a Common-wealth, is, "That every private man has an
absolute Propriety in his Goods; such, as excludeth the Right of the
Soveraign." Every man has indeed a Propriety that excludes the Right of
every other Subject: And he has it onely from the Soveraign Power; without the
protection whereof, every other man should have equall Right to the same. But
if the Right of the Soveraign also be excluded, he cannot performe the office
they have put him into; which is, to defend them both from forraign enemies,
and from the injuries of one another; and consequently there is no longer a
Common-wealth.
Translated
into more modern English, what Hobbes said is that your natural, inherent,
inalienable none-genuine-without-this-seal right of private property (“absolute
Propriety in his Goods”) is only proof against ordinary mortals. The State, a “Mortall God,” is the real
owner.
Why? Because the State may take what it wants,
when it wants, in order to carry out its mission. The Immortal God may create “human beings,”
but the State, a “Mortall God,” creates “persons,” defining a “person” as “that
which has rights.”
Is
that true? Can the State by some
inherent right simply take what it wants, any time it wants, because it creates
persons and calls it a tax? Or are human
beings “natural persons” with inherent, absolute, inalienable rights that
cannot be violated simply because they are human beings, and it’s the State
that only has such rights as human beings grant to the State, including taxes?
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| Locke: taxes unjust without consent. |
If
that last sounds familiar, it’s because that was what John Locke and the
Founding Fathers of the United States thought.
As Locke explained in his Second
Treatise of Government,
Sect. 140. It is true,
governments cannot be supported without great charge, and it is fit every one
who enjoys his share of the protection, should pay out of his estate his
proportion for the maintenance of it. But still it must be with his own
consent, i.e. the consent of the
majority, giving it either by themselves, or their representatives chosen by
them: for if any one shall claim a power to lay and levy taxes on the people,
by his own authority, and without such consent of the people, he thereby
invades the fundamental law of property, and subverts the end of government:
for what property have I in that, which another may by right take, when he
pleases, to himself?
So,
last Thursday we learned that the whole central banking concept was hijacked at
its very inception by politicians — yes, a king is a politician; he’s head of
the executive branch, if you believe Blackstone’s Commentaries — in order to finance government without raising
taxes, at least immediately. Gradually
this evolved until (according to Keynes) you can have a permanent outstanding
government debt . . . as long as you don’t owe the money outside the country.
This
has continued to evolve until today it doesn’t matter who holds the debt. If a
country has too much debt, somebody else will come along and bail it out. Free money!
Goodies for everybody!!
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| Moulton: Consumer demand drives economic growth. |
Of
course, Harold G. Moulton pointed out the problems with government debt owned
completely by citizens of the government that issued the debt in The New Philosophy of Public Debt
(1943). Turns out that if a government
expects to be able to make promises (incur debts) in the future, it had better
be prepared — and able — to keep those it made in the past. You can’t just keep spending forever, even if
the government is the ultimate owner
of everything. Eventually somebody is going to stop and say,
“Hey! Wait a minute!”
Then
the currency collapses, the government falls, and Hitler comes in to restore
order. It’s happened before.
Can
anything be done about this? Most
assuredly. A crash doesn't have to be a
disaster . . . except for the speculators and the politicians who want to keep
on spending without being accountable to anyone. Three things are needed to stave off an
economic meltdown, two of which can be done right now, and another that could
be put in place in a matter of weeks or months:
1. An elastic asset-backed
reserve currency. This is what the Federal
Reserve was instituted to do. Stop monetizing government debt, and use the
central bank to finance private sector agricultural, commercial, and industrial
projects. This could be done today simply by allowing commercial banks to
rediscount their qualified paper. You don't need existing accumulations of
savings for that.
2. Capital credit insurance
and reinsurance. With a stock market crash,
the value of existing collateral falls. We need an instant substitute for
traditional collateral. This can take the form of insurance policies to replace
or supplement existing collateral the value of which declines as the result of
a fall in prices.
Wait
a minute! Isn’t there something missing here? You bet there is: consumer demand, what
drives the economy. Without that, there’s
not much sense in doing the first two.
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| Smith: the purpose of production is consumption. |
Why? As Adam Smith explained in The Wealth of Nations, the first
principle of economics is “Consumption is the sole end and purpose of all
production.” (Book IV, Chapter 8, if you care.)
You can have the soundest currency in the world, and everybody can have
the means and opportunity to participate in the creation and use of money, but
unless there is consumer demand to drive the whole process, why bother? As Moulton explained,
[W]hen the managers of modern business
corporations contemplate the expansion of capital goods they are forced to
consider whether such capital will be profitable. . . . To be sure, there are
certain types of speculative enterprise in which capital will be risked for
considerable periods of time in the hope of large ultimate profits; but, in the
main, returns have to be in prospect relatively soon.
Now the ability to earn interest
or profits on new capital depends directly upon the ability to sell the goods
which that new capital will produce, and this depends, in the main, upon an
expansion in the aggregate demand of the people for consumption goods. A
particular corporation may, to be sure, construct new plant and equipment in
the face of a declining aggregate demand from consumers, hoping by lower costs
and price concessions to take business away from competitors, whose capital will
thereby be rendered obsolete; but if the aggregate capital supply of a nation
is to be steadily increased it is necessary that the demand for consumption
goods expand in rough proportion to the increase in the supply of capital. (Dr. Harold G. Moulton, The Formation of Capital.
Washington, DC: The Brookings Institution, 1935, 29.)
Moulton
then went into several pages of more explanation to demonstrate the truth of
what he said. He concluded, “a
growth of capital does not take place unless expansion of consumption is also
occurring, . . . The motivating force in all economic activity, under a system
of private initiative, is the wants and demands of people. The base of the economic pyramid is the
production of consumption goods.” (Ibid., 71.) Or (as Adam Smith put it) “Consumption is the
sole end and purpose of all production.”
So the third
thing on the list — that is actually the first
thing?
3. Expanded capital ownership,
with money created and credit extended in ways that create new owners who will
use their dividend income first to pay for their newly issued shares, and then
on consumption to maintain the demand that sustains economic growth.
The
question now becomes, how can this be done — and done justly, without taking
anything away from others? We’ll look at
that tomorrow.
#30#
