As we may have
mentioned one or two . . . dozen times before, we like it when somebody tosses
us a question or a comment to which we can respond with a recyclable answer
that can be turned into a blog posting.
Like this one regarding the prevalence of consumer credit debt among
presumably affluent Americans who have suddenly found themselves bereft of that
weekly paycheck they were living on from day to day, grossly supplemented with
more than a modicum of consumer credit (edited for anonymity to protect the
guilty):
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| Consumer credit might be a little harebrained. . . . |
Oh,
guess what? I had one of my former history, math and economics students who
graduated in 2006 say, “Yo, Teach” [yeah, that was one of the things we edited
as it sort of gave a name], you were right. I should have put money into savings and not
taken out so many credit cards.” I like
it that he and-or she ‘fessed-up. However,
sometimes OLD FOGGIES [yup, another edit; we won’t use the word originally
used] know what we are talking about. Educators
such as my close friend Professor Seville Barber and historian friends like Margie Figaro, what
do you think? Professor Barber, you and I have been pals since 1970,
what do college professors think about this?
We’ll cut
straight to the chase. For years we have taken the
position that credit, a great social good, is easily, even egregiously misused
in the world today. We could give a
(very) long discourse on how things got this way, but we’ll take a short cut
and blame it on the virtual global domination of Keynesian economics.
First, however, we need a
little background.
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| "Ned Ludd" and his Swingkettles |
Keynesian economics limits
most people to wages and welfare for income.
This is due to the disproved belief that accumulated savings are
essential to finance new capital formation.
Since most (if not all) workers cannot earn enough from wages to be able
to save to purchase advanced capital instruments,* they are perforce trapped in
the wage system, backed up with the welfare system when they can no longer
work.
*
For example, ‘way back in the ancient days of the eighteenth century when the
power loom was invented, hand weavers (who had formerly made very good livings
as the only source of cloth), found themselves not only out of jobs as the power
loom could weave far better, faster, and cheaper than they ever could, they
were cut off from owning the new machinery because it was so very expensive to
purchase originally, although its productiveness made it incredibly cheaper for
the consumer. Hilaire Belloc thought
that had the hand weavers been able to pool their savings to purchase the new
machinery, but that is unrealistic. What
the hand weavers needed was not past savings, but future savings, i.e.,
access to self-liquidating capital credit, and thus the ability to purchase
capital equipment without past savings. This resulted in the Luddites, who were not so much opposed to machinery as to losing their jobs.
Workers are less productive
than advancing technology, thereby making technology relatively cheaper than
labor. As a result, workers are
displaced from jobs by advancing technology, and often have to take lower-paying
jobs as competition with advancing technology lowers the market value of human
labor relative to technology. Naturally,
what that means is that to keep some income rolling in, wages must remain low
or it becomes profitable to replace labor with technology!
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| William Cobbett |
Rather than take the obvious
course and enable workers to own capital (as authorities as diverse as William
Cobbett, Charles Morrison, Pope Leo XIII et seq., Louis Kelso, Walter
Reuther, Ronald Reagan, etc., etc., etc. recommended), the
Keynesian solution is to raise fixed wages and benefits, thereby increasing
costs and raising prices. Modern
Monetary Theory (MMT) is a complex body of theory rooted in Keynesian
assumptions geared toward manipulating the money supply in various ways to
achieve three ends:
·
Create
“full employment” (a wage system job for everyone) in order to have sufficient
consumer demand to keep the economy running,
·
Redistribute
purchasing power from wage earners and savers, to consumers to clear production
and sustain demand to keep the economy running, and
·
Redistribute
value from consumers to producers via the “forced savings” of higher prices so
producers can purchase more machinery to displace workers from employment.
Naturally, the experts don’t
put it that way, but that’s what it boils down to. Keynesian economics is one giant shell game
that continually shifts purchasing power around by currency manipulation for
political ends.
 |
| Pope Leo XIII |
There’s just one
problem. Consumers who rely on wages for
their consumption needs find themselves continually short of cash. Their real income is always declining as MMT
relies on inflation to redistribute purchasing power. They have “more” money, but the money in
total buys less than “less” money did before.
More and more, workers’
decline in real income is increasingly made up out of various transfer payments
and, especially, with consumer credit. Since
the late 1950s with the advent of Diners Club, the first commercially
successful credit card, consumer credit has been extraordinarily easy to obtain.
As a result, per capita non-mortgage
consumer debt is at the highest it has ever been in the United States.
Consequently (believe it or
not), global wealth statistics ironically put the developed economies like the
U.S. in the lowest level of net wealth due to this accumulated personal debt. In the richest country on Earth we have the
poorest people in terms of net worth . . . as the current situation graphically
demonstrates as people living very affluent lifestyles find themselves in
serious financial difficulties after less than a month of no pay.
 |
| Walter Reuther |
Nevertheless, credit is a
very good thing — if used properly. When
used to purchase consumer goods it can be a convenience (that can easily get
out of hand), but when used to purchase self-liquidating capital, it is
essential.
Ever since the invention of
central banking in 1694 with the establishment of the Bank of England, most
private sector economic development has been financed on “pure credit,” i.e.,
credit extended by banks based on the expectation that what is purchased will
pay for itself out of future profits. As
Dr. Harold Moulton pointed out in his 1935 book, The
Formation of Capital, from 1830 to 1930 the United States experienced
the greatest economic expansion in history, virtually all of which was financed
on commercial bank credit.
That, however, does not solve
the problem of consumer debt . . . directly. In 1958, however, Louis Kelso and Mortimer
Adler published a great book with a terrible title, The Capitalist Manifesto.
In The Capitalist
Manifesto (along with the principles of economic justice), Kelso and Adler advocated
letting ordinary people use pure credit to acquire capital assets, supplementing
and even replacing wage income with dividend income. Walter Reuther, head of the United Auto
Workers and formerly a socialist, advocated this, as did President Ronald Reagan.
Under the name “Capital Homesteading,”
CESJ advocates a program of expanded capital ownership for every child, woman,
and man in the U.S. and the world. We
even have free books on
the subject!
#30#