Have you figured out why the stock
market surges when things look the worst, and drops when it looks as if the
situation might improve? Neither have
we. So let’s get straight to this week’s
news items:
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| Henry Thornton, repudiated "fictitious bills." |
• Bitcoin Derivatives? Are they kidding? Just when you thought things couldn’t get any
more surreal, we just found out about Bitcoin and other cryptocurrency derivatives. It
seems they’ve been around for a bit (sorry), but we’d never come across them
until we received an enquiry from a journalist asking for information (read
“investment and speculation tips”) about them.
You know, of course, that the Bitcoin (in common with every other
cryptocurrency of which we have knowledge) is issued to no standard and has no
backing. It is a “virtual commodity”
with no “underlying” — that is, is tied to nothing that “underlies” its
presumed value — and therefore is what the classical economists of the Banking
School used to call a “fictitious bill” and governments in the pre-Keynesian
era used to call “counterfeiting.” To
issue derivatives with Bitcoin as the underlying is to have a derivative with
an underlying derivative (money is a derivative of what backs it) that itself has
no underlying! As Indian sages used to
ask, What is the tortoise on which the world rests walking on? It seems to be something along the lines of
the sound of one hand clapping.
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| Harold Moulton, a sound understanding of money. |
• Magical Money. Speaking of derivatives with no underlying,
the New York Times had an interesting article on the modern money
question, “How the Government Pulls Coronavirus Relief
Money Out of Thin Air.” From the perspective of the Banking Principle
that we have addressed a number of times on this blog, there are a number of
theoretical and practical problems with the article, but none with the general
point being made: Where is the money coming from? Essentially, what has happened is that the
government has obtained a magic lamp that it can rub to get all the money it
wants just by asking for it. This is the
logical end of Keynesian economics and Modern Monetary Theory, in which “money”
consists of a non-repayable debt the nation owes itself. See Harold G. Moulton, The New Philosophy
of Public Debt. Washington, DC: The
Brookings Institution, 1943, for a dissenting analysis. The coronavirus relief package is, frankly,
exactly what the Keynesians have wanted for years: the entire money supply
under the complete control of the State.
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| "I'm not a hoarder. I'm just full of . . . apprehension." |
• The Brave Little Store Manager. Every once in a while what goes
around, comes around, and someone gets what is coming to him. It recently happened in South Australia. We won’t use the language (or the accent) of
the commentator or the store manager, but you can watch it yourself. It
seems that a customer who had purchased 4,800 rolls of toilet paper (more than
thirteen years’ supply at a roll per day, even counting leap years) and 150
liters of hand sanitizer (nearly forty gallons) wanted a refund. As the store manager said, some people have
been buying everything in sight, even things they can’t possibly use, depriving
others of essential goods. The store
manager informed the customer that he was part of the problem, and flipped him
off.
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| "DARE YE NOT QUESTION ME!" |
• Frightening Debt Figures.
For a number of reasons that can be spelled K-E-Y-N-E-S, there is a
widespread myth that “money” must be backed by government debt or it isn’t
really money. As we have shown for years
on this blog, however, not only is this belief misleading, it has led to a
situation in which most people have become dependent on government (as Keynes
intended) and the world is saddled with what appears to be an unrepayable
burden of debt. To illustrate this sad
condition, we recently received a link to an expanded “debt clock” that
supplements (or replaces if you like) the National
(U.S.) Debt Clock we’ve been referencing.
This World Debt Clock
gives data for the world, not just the U.S.
Of course, this is not a solution.
We think that only abandoning Keynesian economics as well as all other
“Currency Principle” schools of economics will get things back on track and
virtually eliminate government debt as the major factor in the world’s money
supply (yes, we know, financial heresy to Keynesians and quite a few others),
but that’s a story for another day (or you could just go back and review past
postings on the subject. We haven’t
exactly been silent on the subject).
• Paid in the U.S.A. Approximately 12% of U.S. GDP is exports of
domestically produced goods and services.
China accounts for less than 8% of that, or approximately 1% of total
U.S. GDP. What would happen if the United
States moved all production from China back to the U.S., automated production
as much as possible, and gave every child, woman, and man in the U.S. the
opportunity and means to become owners of domestic productive capacity as
described in the proposed Capital Homestead Act? By
increasing consumption by an average of 1% across the board, the increase in
domestic consumption would offset the loss of everything China purchases from
the U.S., per capita disposable income would increase as U.S. citizens
received labor and ownership income, and the monetary and tax reforms alone
would enable the U.S. to redeem all the U.S. debt held by China within a
generation.
• Chinese GDP. As noted above,
exports to China account for 1% of U.S. GDP, and overall are 12% of the U.S.
economy. In contrast, exports account
for 40% of China’s GDP. Clearly this is
unsustainable. As has been known for
centuries, such trade imbalances endanger the sovereignty of debtor nations as
well as their economic stability and strengthen the position of creditor
nations . . . and China is becoming the single largest creditor nation on Earth. Neither individuals nor countries can consume
without producing for very long, but that is exactly what a trade imbalance
is. The temptation for creditors is
always to eliminate those who consume without producing (the Nazi “liquidation”
of “useless eaters” and “life unworthy of life”) or take over the debtor, which
can go from economic warfare to the more usual kind.
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| Commercial banks can create money for business and trade. |
• Impossible Finance. The
Small Business Administration reports that it
has run out of money less than two weeks into the program, running through
almost $350 billion in 13 days. This
graphically illustrates the immediate danger associated with relying on
existing money to finance growth.
Operated properly, any economy with a commercial banking system backed
up with a central bank cannot run out of money, as money is created by the
banking system by loaning it out for financially feasible projects. This is why commercial and central banks were
invented: to provide “adequate accommodation” so that there need never be a
feasible project that could not be financed.
To say you’ve run out of money for business is like saying you’ve run
out of inches for measuring. It simply
doesn’t make sense. If the SBA had,
instead, offered loan guarantees or even arranged for private sector capital
credit insurance and reinsurance to collateralize standard commercial bank
loans rediscounted at the Federal Reserve, it wouldn’t have had to spend any
money at all until and unless there was a loan default, and then it would be
far less than making the loans in the first place,
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| G.K. Chesterton |
• Pity G.K. Chesterton. You have to feel sorry for G.K. Chesterton,
writer, amateur philosopher (as everyone should be, doing it for love, not
money), Christian apologist, critic (in a good way), and promoter of “distributism,”
a policy of widely distributed private property. The poor guy has always suffered more from
his friends than from his enemies. Most
modern distributists, for example, assume as a matter of course that
distributism is a form of either socialism or of capitalism. This leaves them wide-open for criticisms
such as found in this article. You
see, the problem with assuming that everything must be either capitalism or
socialism means that you effectively limit ownership to a few to preserve
private property (capitalism), or you abolish private property to broaden “ownership”
(socialism). A careful reading of what
Chesterton actually said shows he was trying to get away from both
systems . . . which cannot be done within the prevailing economic climate that
is based on disproved assumptions, e.g., that new capital formation
absolutely requires accumulated savings.
This “slavery of savings” necessarily restricts ownership of new capital
to the wealthy who can afford to save (capitalism), or to the State that can
take away ownership and redistribute (socialism). This is why Chesterton very carefully
refrained from giving specifics on how to get from what we have now (the
Capitalist, Socialist, or Servile/Welfare State). When Chesterton’s confrere Hilaire Belloc
tried to present a program, he fell into de facto socialism and gave up
in near despair (An Essay on the Restoration of Property, 1936). The “distributist movement” fell into the
hands of adherents of the very “new things” of socialism, modernism, and the
New Age that Chesterton devoted his life to countering, and has never gotten
away from them. This is demonstrated by
their associating distributism with the proposals of, e.g., Henry
George, Arthur Penty, Major Douglas, R.H. Tawney, E.F. Schumacher, and other
socialists. Once it is realized that new
capital can be financed by monetizing the future stream of income expected from
the capital, however, widespread ownership becomes possible without abolishing
private property, and a practical “distributism” such as Capital Homesteading,
can be implemented and maintained.
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| "I AM smiling!" |
• Shop online and support CESJ’s work! Did you know that by making
your purchases through the Amazon Smile
program, Amazon will make a contribution to CESJ? Here’s how: First, go to https://smile.amazon.com/. Next, sign in to your Amazon 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.
• Blog Readership. We have had visitors from 44 different
countries and 43 states and provinces in the United States and Canada to this
blog over the past week. Most visitors are from the United States, Canada, Spain,
the United Kingdom, and Argentina. The
most popular postings this past week in descending order were “The
Idea of Social Justice,” “News
from the Network, Vol. 13, No. 15,” “How
Commercial Banks Create Money,” “Pope
Francis and the UBI,” and “It Was
Automation.”
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.” Due to imprudent
language on the part of some commentators, we removed temptation and disabled
comments.
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