Recently we began
doing a little research into the life of Giacomo Pecci, who in 1878 was elected
to the papacy and took the name Leo XIII.
After all, if you want to know where someone is coming from, it’s generally
a good idea to find out where he’s coming from.
One of the things
we found out was that commentators and “authoritative sources” opining on the
real meaning of Catholic social teaching often have no real idea what they’re
talking about, especially when they try to interpret, say, Rerum Novarum, as mandating a vastly increased role for the State.
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| First movie star pope. |
No, one of the
first things you learn about Father-Monsignor-Bishop-Archbishop Pecci/Pope Leo
XIII is that he really, really, really
viewed the civil power — the social tool of the State — with a very cautious, if not suspicious
eye. Yes, the State is an essential
social tool . . . but that’s all it is.
It is not, repeat, not Thomas
Hobbes’s “Mortall God,” and it most certainly is not “the sole intercessor
available to the poor” as one enthusiast put it. (Dr. Rupert J. Ederer, “Solidaristic Economics,” Fidelity
magazine, July 1994, 9-15.)
Frankly, § 318 of
Economic Justice for All, the 1986
U.S. bishops’ pastoral on the economy, would have utterly baffled Leo XIII
: “A
modern economy without governmental interventions of the sort we have alluded
to is inconceivable.” After all, Leo
XIII struggled
for more than seventy years in a fight to resist State intrusion into
religion and the family. His take on the matter?
There is no need
to bring in the State. Man precedes the State, and possesses, prior to the
formation of any State, the right of providing for the substance of his
body. (Rerum Novarum, § 7.)
Of course, this
raises the question of how people are to take care of themselves without
massive State intrusion and control. Leo
XIII’s answer to that? Not a wage system
job or the Fabian socialist goal of “full employment,” but widespread capital
ownership. As he said,
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. (Rerum Novarum, § 46.)
That sounds
pretty good, of course, but how are you going to do it? After all, the rich aren’t going to give up
what they own voluntarily, and if the State redistributes, it destroys private
ownership. Leo XIII had an answer for
that, too. As he said,
If a workman's
wages be sufficient to enable him comfortably to support himself, his wife, and
his children, he will find it easy, if he be a sensible man, to practice
thrift, and he will not fail, by cutting down expenses, to put by some little
savings and thus secure a modest source of income. (Ibid.)
Now, maybe this
isn’t as crazy as it sounds. Maybe by
1891 when Leo XIII wrote that, however, it was a little impractical. After all, one of the things about advancing
technology and improved capital instruments is that they tend to cost a lot of
money, more than most people have. Some
decades earlier, however, Leo XIII had given a practical demonstration of the
feasibility of his solution. As related
in his official biography, as Cardinal-Archbishop of Perugia he had sponsored
various ways for people to become economically independent without relying on State-supported
wages or welfare — which, as he well knew — put people into a condition of utter
dependency on the State, what G.K. Chesterton's cohort Hilaire Belloc called "the Servile State":
So that no sex or
age or class, or pressing need of mind, of heart, of soul or body, was left
uncared for, unprovided for by this good shepherd of Christ’s flock.
No, not even the
industrial and commercial wants of the struggling, laborious, and thrifty
classes. Cardinal Pecci founded,
revived, improved, or developed the Monti
di Pietà, the poor man’s blessed resource in the Catholic Italy that was,
where for the money loaned to those who wished to rise from poverty to independence,
or to increase their thrift, no interest, or nothing approaching to modern
interest for money, was ever asked.
It was he who
inspired the Perugians to found their savings-bank, furnishing himself a good
part of the capital. (Bernard O’Reilly, Life
of Leo XIII. London: Sampson Low,
Marston & Co., 1903, 160-161.)
Thus, the industrial and commercial capital
(productive technology and merchandising) for the poor (in addition to land, of course, if it was offered for sale) was not a gift of the rich or redistribution by the State. The means to acquire ownership was a gift to
the extent that no interest was demanded, but the capital itself was purchased
in the usual way and paid for by the new owners exercising “thrift.”
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| Peace through prosperity, not revolution. |
You see the
problem, of course. Leo XIII’s program
specifics can only work at a relatively low level of technology since they are
based on "past savings." The basic
principle, however, is absolutely sound: anyone can be an owner if all new
capital formed can pay for itself out of its own future profits that the owner
“thriftily” applies to the purchase price and then enjoys as consumption income
once the debt is repaid. If the money
can be found for the purchase of self-liquidating capital, everything else
falls naturally into place.
This is where the
breakthrough of Louis O. Kelso comes in.
As a lawyer-economist, Kelso knew full well that the rich don’t use their
own money to finance new capital formation.
Nor do they use other people’s money.
Instead, the rich figured out centuries ago how to create new money to
finance new
capital
using “future savings,” which
could then be redeemed and cancelled once the new
capital paid for itself out of its own future profits.
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| Kelso: Money is a symbol of wealth. It isn't wealth. |
How? By understanding what “money” really is! Most people today think of money as coins,
banknotes, demand deposits (checking accounts), or time deposits (savings
accounts) that they can spend. That’s
not incorrect, but it is limited — too
limited. Take, for instance, the somewhat broader
definition of money Kelso used:
Money is not a
part of the visible sector of the economy.
People do not consume money. Money is not a physical factor of
production, but rather a yardstick for measuring economic input, economic outtake
and the relative values of the real goods and services of the economic
world. Money provides a method of
measuring obligations, rights, powers and privileges. It provides a means whereby certain
individuals can accumulate claims against others, or against the economy as a
whole, or against many economies. It is
a system of symbols that many economists substitute for the visible sector and
its productive enterprises, goods and services, thereby losing sight of the
fact that a monetary system is a part only of the invisible sector of the
economy, and that its adequacy can only be measured by its effect upon the
visible sector. (Louis O. Kelso and
Patricia Hetter, Two-Factor Theory: The
Economics of Reality. New York: Random House, 1967, 54-55.)
Kelso took his
understanding of money and credit from Dr. Harold G. Moulton, who was president
of the Brookings Institution in Washington, DC from 1928 to 1952. During the Great Depression of the 1930s,
Moulton and his team presented a body of economic and monetary theory to
counter the statist New Deal based on the theories of John Maynard Keynes.
At the heart of
Moulton’s analysis, presented in The
Formation of Capital (1935), was the concept of “future savings,” where
Keynes’s theories and Roosevelt’s programs assumed that only “past savings”
could be used to finance new capital . . . which meant that — according to Keynes
— only the rich or the State could own or control capital . . . which was not
something that would have appealed to Leo XIII or any other pope.
Putting it a bit more
simply, money is really anything that can be accepted in settlement of a debt. Anything. The bottom line is that all money is a
contract, just as all contracts are — in a sense — money. If you’ve got the three essential elements of
a contract (offer, acceptance, and consideration, the last-named being the
thing of value you’re dealing with), you’ve got money.
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| Contracts are money. |
Anybody who can
enter into a contract can thus create money.
People do it all the time, every day.
Every time you buy something on credit you are creating money, and when
you pay your bills, you redeem the money you issued, either by delivering a
good or service, or with somebody else’s money that you accepted.
All commercial
and central banks do is make this process easier to carry out. All the State is supposed to do in this
process (especially since it is not, despite what the socialists say, a
producer of wealth) is to set standards and enforce (not manipulate) contracts.
Obviously, the
worst way to create money is for consumption or gambling. The best way to create money is to buy
something that pays for itself out of its own future profits.
And that’s the
secret the rich have kept from the rest of us: create money for things that pay
for themselves out of their own future profits, and use your existing wealth as
collateral to secure the loan. They
don’t mind the rest of us buying consumer goods and services on credit. That’s just locking in their profits a little
earlier, plus a bit of usury for the privilege of mortgaging your future
income.
The key is that
the rich really shouldn’t mind the rest of us buying capital on credit, and using insurance instead of savings in lieu of traditional collateral . . . if only
because that gives them what they wanted in the first place: “CWMs,” or
“Customers With Money.” If you can
produce, you can enter into contracts for what you produce, and if you can
enter into contracts, you can create money . . . and with money you can buy
what other people produce; you’re a CWM.
And that’s the
whole idea behind Capital
Homesteading, which is explained in greater detail on the CESJ website.
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