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.
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| 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.
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| "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.
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| 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.
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| 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.
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