A constant theme among people dissatisfied with modern civilization is that a return to the simple life in one form or another will solve most, if not all, of our problems, and that a stronger faith and personal virtue will restore society to something more human. That, at least, seemed to be theme of an article that appeared recently in Catholic World Report, “Facing Industrial-Strength Problems In an Industrial-Driven Society” by James Kalb. As he stated,
[I]ndustrialism is dehumanizing and to all appearances can’t stop being so. It has greatly contributed to the current abolition of history, culture, religion, and even human nature as socially-recognized realities. After all, what do faith, ancestral heritage, or the distinction between man and woman have to do with a chemical plant, computer network, financial system, or code of government regulations? And if the latter are the things we live by, why bother with irrelevancies?
Well . . . maybe not. Many of the problems with an industrial economy derive not from the fact of industrialization, but from the way it is carried out, and the way most people are alienated from the means of being productive as a result of the method of financing new capital formation.
Frankly, a large part of the problem is the mistaken belief in Keynesian economics that consumers must pay more for less by inflating the currency so that producers can accumulate savings to finance new capital formation. This presumably “creates jobs” which — since wages and welfare are the only source of income for most people in Keynesianism — ensures that most people not only should not own capital, they must not own capital; Keynes even called for the “euthanasia of the rentier” — the small investor who uses his or her capital income for consumption instead of reinvesting it.
The bottom line of Keynesian economics is that because a wealth and income gap is presumably essential to finance new capital, people must be satisfied with lower quality goods at a higher price. At the same time, immense waste is encouraged along with consumerism to generate more and more savings for the rich so they can presumably provide the rest of us with jobs and welfare.
|"Marx and Keynes don't like me."|
The idea that everyone can be a capital owner and produce with both labor and capital only what is actually wanted or needed for consumption (Say’s Law of Markets, that Keynes ridiculed) is alien to Keynesians. Keynesian economics (and economists) insists that we must have wasteful production to provide jobs and to generate savings. They reject self-liquidating capital investment by means of which everyone can own capital on the same terms as the rich.
Having said that, we got a few comments from other readers, which we reproduce here as written:
If your [sic] are going to get in [sic] economics, suggest you start reading and learning about Austrain [sic] Economics. More specifically spend some time reading Hayek, you could also take in a little bit of Uncle Milton Friedman [sic]. The useful part of both of these economists for Catholics as [sic] that their approach in the end focuses on the individual and I will dare to say the Catholic principle of subsideriarity [sic].
To this another reader responded:
Yeah! A Catholic who doesn’t deplore Austrian Economics as Godless.
To be blunt, we didn’t quite grasp the point that the first commentator was making, nor the relevance of the comments by either the first or second reader. Still, we did the best we could by responding.
|"My labor theory of value rules!"|
Whatever their relevance to the question at hand, the Austrians (von Hayek, von Mises) and Chicago/Monetarist (Fisher, Simons, Friedman) share with Keynes adherence to “the Currency Principle” derived from Ricardo through McCullough. Most simply put, the Currency Principle is that the quantity of money determines the level of economic activity. Adherents of the Currency Principle reject the idea of self-liquidating capital credit as a matter of course, automatically assuming that it is impossible to finance new capital formation without first restricting consumption and accumulating money savings.
Economic personalism is based on “the Banking Principle” of Smith, Say, Thornton, Moulton, and Kelso, derived from Smith’s first principle of economics: “Consumption is the sole end and purpose of all production.” Most simply put, the Banking Principle is that the level of economic activity determines the quantity of money; it is tied in with the “real bills” doctrine on which commercial/mercantile/central banking is based.
That is, instead of relying on past reductions in consumption to finance new capital (mortgage financing), the Banking Principle includes the possibility of financing with future increases in production monetized by issuing bills of exchange. That is why the first principle of finance is to know the difference between a mortgage (past savings) and a bill of exchange (future savings).
The Banking Principle is actually closer to the natural law principles underlying Catholic social teaching and thus the twin principles of solidarity and subsidiarity. To compare or critique economic personalism based on the Banking Principle with the economic systems based on the Currency Principle is to try and mix apples and oranges.