Ultimately, there are two ways to make money. One respects the dignity and personal sovereignty of the individual, and is based on the right every human being has by nature to be an owner of productive assets as well as his or her own labor. The other rejects personal sovereignty, and assumes as a given that rights belong to humanity as a whole, not to individual human beings.
|Everybody is fully human as a human being; all have equal rights.|
Under the first way of making money, private property is an extension of human personality. Private property is the primary means by which an individual has a “social identity” by fundamental right, simply because he or she is a human being.
Under the second way of making money, private property is an expedient. It may be allowed if it is seen as benefitting humanity or society as a whole, not because it secures other individual rights such as life and liberty, thereby protecting and maintaining human dignity and personal sovereignty.
Capitalism grossly distorts private property and uses the first way of making money to concentrate ownership, while socialism abolishes private property, and uses the second way of making money to subvert ownership. The Just Third Way works to restore the full meaning of private property, and use the first way of making money to expand ownership.
The question, then, is how to make money work for people, rather than to make people work for money, i.e., recognize that money is a useful tool — but that’s all it is. As we have seen in the postings in this occasional series, “money” is simply the medium through which I exchange what I produce, for what you produce. That’s all.
In order to get away from the distortions of capitalism and the errors of socialism, then, the money and credit system is the key. As it is, locked into what we can legitimately call the slavery of past savings, the economic growth model is either going to be capitalist or socialist. There can be no third alternative.
|"Everyone as good as I? Okay, but I don't like it."|
We know from the fact that we talk about a “Just Third Way,” however, and the popes and people like G.K. Chesterton and Hilaire Belloc insist there must be something other than capitalism or socialism, that some people at least believe that something else is possible. The question is how to do it when past savings — the sole acknowledged means of financing new capital formation — are a monopoly of the already-wealthy (capitalism) or the State (socialism).
So what can we do to break this stalemate?
That is where the genius of Louis Kelso comes in. If past savings prove to be a problem . . . switch to future savings! What could be easier?
Well . . . a lot of things, actually, like falling off a log, but this is almost as easy, once you know it can be done.
|Medieval banking: only for an élite. We need it for all.|
As we saw previously, you don’t have to have a marketable good or service in your possession right this very minute in order to create a promise — money — to deliver that good or service at a future date. All you need is someone who believes that your word to deliver that good or service is good. It’s called being “creditworthy.” Creditworthiness is just other people’s faith in you that you will keep your promises.
To create your own money, then, you need to locate a financially feasible project. “Financial feasibility” just means that the project is expected to pay for itself within a reasonable period of time, and thereafter generate a stream of income for its owner(s).
Having located a project that is for sale, you draw up an offer called a “bill of exchange.” A bill of exchange is just a potential contract that is based on the creditworthiness of the issuer, that is, the person making the offer — you.
|Medieval banking realm of the Fuggers|
You take your offer down to a commercial bank, a financial institution invented to accept such offers to create money. The banker looks it over (and looks you over) to decide if it is a good risk, and (if so) how good. Almost always what tips the scale in your favor is if you have enough other wealth, a loan guarantor, or capital credit insurance to make good on your promise if something goes wrong and your capital project doesn’t pay off. The banker is, after all, on the hook for your promise once he or she accepts it and makes it the bank’s promise.
If everything looks good, the banker “buys” your contract (accepts your offer), and issues a promissory note to do so. After you sign the note, the banker uses the promissory to back a new issue (or reissue) of banknotes (almost never done these days), or create a demand deposit (“checking account”) in your name.
You are now obligated to repay the promissory note within the stipulated period of time. If you’re smart, you take the newly created money, and purchase the new capital with it. You put the capital to work producing marketable goods and services, which you sell and generate cash.
You then take the case to the bank and redeem the promissory note, buying back your bill of exchange. The banker cancels the promissory note (and thus the money it backed), and you cancel the bill of exchange.
In this way it is possible for you to finance a capital acquisition without first having to accumulate savings or borrow someone else’s accumulation.
Now — expand this to the entire economy, and make it possible for every child, woman, and man to purchase capital in this way. That’s the idea behind Capital Homesteading, and how the Just Third Way can be implemented and maintained.