Friday, July 15, 2016

News from the Network, Vol. 9, No. 28

We recently (this week) heard from our correspondent in Germany, located near Ulm, in the state of Hesse, right over the border from Bavaria.  Like you care.  Anyway, one of her questions — all of them rather insightful for someone without an education in economics (or maybe because of that) was to ask why, when obviously many people aren’t being productive, and things are generally on the skids in Germany and elsewhere, why is the stock market booming?  And why are the more conservative financial analysts looking so scared?
100% debt-backed currency.
We could only say that the Euro is — in common with most other currencies — backed completely by government debt, not private sector hard assets . . . and that means the currency is worth something only as long as people think it’s worth something, not because it’s worth something.  Much of this, of course, we can blame on the virtually worldwide adherence to the economic theories of John Maynard Keynes. . . .
And now for the news:
• Somewhat to our surprise (but not much), in reading Edward Pease’s The History of the Fabian Society (1916) we discovered that the economics of John Maynard Keynes and the proposals of the Fabian Society are virtually identical, particularly the emphasis on “full employment” and the necessity of a job as the only source of income for the great mass of people.  Interestingly, the Fabian socialist E.F. Schumacher, author of “the New Age Guide to Economics,” Small Is Beautiful (1973), was a protégé of Keynes, bringing the thing full circle.
Edward R. Pease
• Other interesting tidbits from Pease’s book are that Hilaire Belloc wrote his most important book, The Servile State (1912) as a harsh criticism of the Fabian program (especially the mandatory full employment proposal), while Belloc and Chesterton developed their theory of “distributism” (which the Fabians called “distributivism” for some reason), as a moral alternative to Fabian socialism and its offshoots, such as Arthur Penty’s (or Richard Orage’s or George Cole’s, whomever you prefer) guild socialism and Major Douglas’s social credit.  Oddly, today’s Chestertonians and distributists promote the work of Schumacher, Penty, and Douglas almost as much as that of Chesterton and Belloc for some reason.  Another odd thing is that, while non-socialists have no trouble seeing the similarities, and Fabian socialism begat guild socialism, and guild socialism begat social credit, adherents of the systems insist to this day that they are completely different . . . except when they are the same!  As Pease insisted, they were all still true socialists, but they just couldn’t get along because those others (not the Fabians, of course, they made a mantra of being open minded — and, by golly, their brains did fall out!) insisted on everyone doing it their way; “it’s not our way” was sufficient to cut off communication.  Ultimately what mattered for all of them was not whether anyone was a socialist, of course, but whether they put socialism in place, whatever anyone called it.
• The CESJ Quarterly Board Meeting is scheduled for Monday of next week.
Msgr. John A. Ryan ... modernist?
• Guy Stevenson recently gave CESJ a book on the New Deal from a liberal Catholic perspective.  Interestingly, all mentions of Archbishop Fulton J. Sheen are rather negative, giving the impression that he was against organized labor.  Msgr. John A. Ryan, for whom the Msgr. John A. Ryan Institute for Catholic Social Thought is named, is portrayed as a modernist, or (in non-Catholic language) a dissenter from Catholic social thought.  The book is useful in demonstrating how little someone has to know in order to get a Ph.D., teach at a university, and write a book.
• Fr. Edward Krause, a member of the CESJ Board of Counselors, reported that he had made contact with the “Censor Librorum” who had reviewed Easter Witness for an imprimatur.  The Censor claimed he had concluded that an imprimatur was not required, but said he would review it again, especially since he had forgotten to inform CESJ of his decision.  We await the results of the second review.
• CESJ’s latest book, Easter Witness: From Broken Dream to a New Vision for Ireland, is available from Amazon and Barnes and Noble, as well as by special order from many “regular” bookstores.  The book can also be ordered in bulk, which we define as ten copies or more of the same title, at a 20% discount.  A full case is twenty-six copies, and non-institutional/non-vendor purchasers get a 20% discount off the $20 cover price on wholesale lots ($416/case).  Shipping is extra.  Send enquiries to  An additional discount may be available for institutions such as schools, clubs, and other organizations as well as retailers.
• Here’s the usual announcement about the Amazon Smile program, albeit moved to the bottom of the page so you don’t get tired of seeing it.  To participate in the Amazon Smile program for CESJ, go to  Next, sign in to your account.  (If you don’t have an account with Amazon, you can create one by clicking on the tiny little link below the “Sign in using our secure server” button.)  Once you have signed into your account, you need to select CESJ as your charity — and you have to be careful to do it exactly this way: in the space provided for “Or select your own charitable organization” type “Center for Economic and Social Justice Arlington.”  If you type anything else, you will either get no results or more than you want to sift through.  Once you’ve typed (or copied and pasted) “Center for Economic and Social Justice Arlington” into the space provided, hit “Select” — and you will be taken to the Amazon shopping site, all ready to go.
• As of this morning, we have had visitors from 54 different countries and 47 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 United Kingdom, Brazil, Germany, and the Philippines. The most popular postings this past week in descending order were “Book Review: A Field Guide for the Hero’s Journey,” “Thomas Hobbes on Private Property,” “The Purpose of Production,” “Wilson and the Fed, XV: The Fight for Reform,” and “Why Did Nixon Take the Dollar Off the Gold Standard?”
Those are the happenings for this week, at least those 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, so we’ll see it before it goes up.


Jonsgold said...

When the U.S. decided to go off precious metal-backed currency was there any negative blow back on money-markets at the time. I've often wondered how Keyes' influenced that decision and how instrumental was this decision has it impacted upon our system of trade and commerce since then. Many thanks. JKM

Michael D. Greaney said...

Getting off the gold standard had been Keynes's goal ever since he became an economist. As a follower of Georg Friedrich Knapp, he believed that the entire money supply should consist of government debt — "bills of credit" . . . which the individual states are expressly prohibited from issuing, and the Congress does not have the power to emit (the language that would have permitted Congress to do so was removed from the first draft of the Constitution).

Keynes's reasoning was that gold is both expensive and insufficient to serve as a currency. In that he was correct . . . but he didn't realize that gold and silver have never served as the primary currency. Instead, the bulk of the money supply has from ancient times has consisted of financial paper representing private sector hard assets, i.e., mortgages and bills of exchange. A gold or silver standard for the currency was useful to help people measure the value of other money, e.g., this bill of exchange for 100 sheep has the same value as 100 ounces of silver of the weight of Troyes. Convertibility of non-coin money into coined money (gold and silver) was to establish and maintain public confidence in the currency, whatever it consisted of.

In the U.S. in 1933 right before Keynes induced Roosevelt to take the U.S. off the gold standard the only currency backed specifically by gold were the gold certificates. The United States Notes ("Greenbacks") and the National Bank Notes were backed by government debt (by 1933 the government debt-backed Treasury Notes of 1890 had been withdrawn), but the intent of the Federal Reserve Act of 1913 was to replace the debt backed Greenbacks and the National Bank Notes with debt backed Federal Reserve Bank Notes, and then the debt backed Federal Reserve Bank Notes with indistinguishable asset-backed Federal Reserve Notes as the debt was paid down and member banks presented qualified paper for rediscounting.

As a result of financing WWI on debt, the government realized it could emit bills of credit by sneaking through the loophole left open to redeem the Greenbacks and National Bank Notes. Keynes used this to start shifting the currency from a backing of private sector assets, to government debt, thereby giving the State total control of the economy . . . presumably. (Keynes didn't realize that the money supply, technically, consists of all contracts, not just government debt or "money contracts.")

Taking away convertibility of the U.S. money supply into gold caused an instant drop in the value of the U.S. dollar, cheapening it, thereby allegedly giving the U.S. a more favorable trade position unfairly . . . which was one of Japan's complaints against the U.S. that led to Pearl Harbor. How Keynes persuaded Roosevelt to do this is a mystery, although evidence suggests that FDR was already a fascist-socialist before Keynes came on the scene. Keynes was able to show him how to increase the power of the State exponentially by manipulating the currency, and redistribute wealth from the poor to the rich (no, I don't have that backwards, Keynes believed that concentrated wealth and most people living at the subsistence level was a positive social good) in order to finance new capital. Keynes, of course, rejected the whole idea of future savings, which would have addressed all the problems he thought he was solving by increasing government power.