The Just Third Way

Raw Judicial Power XIV: The War Against Property

2012-01-30T15:39:00.000-05:00

As Orestes Brownson made clear in The American Republic, the Union victory in the Civil War marked the end of the conflict between Northern industrial and commercial capitalism, and Southern agrarian capitalism, and the beginning of the struggle between all forms of capitalism and its reaction, socialism. The development of both capitalism and socialism, as is now generally recognized, is an inevitable consequence of the lack of capital ownership on the part of ordinary people, and both are equally disastrous for anyone in the lower income group. As Irish economist George O'Brien noted,

"The dissolution of the monasteries in England and the confiscation of ecclesiastical land was followed by consequences of the gravest character to the condition of the poorer classes; . . . . it resulted in the encouragement of an individualistic and irresponsible conception of the functions of property, or in so far as it points to a revolutionary and socialistic spirit, displaying itself in a contempt for vested and prescriptive rights." (George O'Brien, An Essay on the Economic Effects of the Reformation. Westminster, Maryland: The Newman Bookshop, 1944, 11; originally published 1923.)

The genius of Abraham Lincoln and the Homestead Act of 1862 forestalled the conflict and the effects of the conflict between capitalism and socialism for a time. By the 1870s, however, the mismanaged monetary policy implemented to finance the war effort and the equally mismanaged corrective in the form of the National Bank Act of 1863 had combined to lock the United States into the swings of the business or economic cycle.

The economic cycle had been a characteristic of the economies of Europe since the Panic of 1825. The Panic, considered the first financial downturn caused by the operation of the financial system itself, resulted from increasingly concentrated ownership of capital in fewer and fewer hands. This funneled increasing amounts of income into the hands of people who could not consume it all, and caused a decrease in overall consumer demand relative to the productive capacity of the economy.

According to popular wisdom, the savings generated in this fashion were presumably reinvested to finance additional new capital. While this is true to a degree, most savings were already invested, and were not in the form of cash. The actual use of savings was (and remains) as collateral to secure bills drawn for the financing of new capital, and discounted either with suppliers of capital, or at a mercantile or commercial bank.

Excess cash (as opposed to the vast bulk of savings already in the form of investment) began to be funneled into the speculative stock market. This was nothing new. It had happened in the "South Sea Bubble" in the early 18th century, financing speculative companies, some of which sounded particularly shady even then, such as one formed for "undisclosed purposes"! Similarly, in the 1820s, a company was founded and a stock issue floated to recover the gold lost by the Egyptians when they pursued Moses and the Israelites into the Red Sea.

What was different in the Panic of 1825 — and which should cause serious alarm today — was the new importance of "sovereign debt" in the market, particularly the new issues of the recently established republics of Central and South America. A financial panic thereby afflicted not simply the wealthy who invested their surplus income in private speculations and the presumably safe government securities, but every citizen of a country that defaulted on its securities, or was unable to raise sufficient cash to keep the new country running until it could build up the tax base. Further, the massive investments in sovereign debt diverted people away from productive investment, especially when they believed themselves bound by existing accumulations of savings, which were determined by the degree to which consumption had been restricted in the past.

Prior to the American Civil War, most of the people in the United States were engaged in small business or small agriculture. The development of agriculture, industry and commerce developed at more or less the same pace. This, along with the fact that all three were typically small enterprises, spread out capital ownership and kept productive capacity and consumption capacity more or less in equilibrium. The various financial panics, especially "Hard Times" of the 1830s, were clearly due to factors other than the economic cycle.

There were some rich people with large business interests, but they did not set the tone for either society or the economy. The Civil War spawned the birth of big business. The new National Bank system was, along with the greenbacks (United States Notes), used to finance the war effort, not new ownership of capital. Private individuals financed the new capital during the war to expand existing industry and commerce by drawing bills on the present value of the future production and collateralized them with existing capital, virtually all existing savings having been drained out of the economy by the war effort. They naturally discounted the bills for their own benefit. This concentrated ownership of the new capital.

After the war the pace of industrial and commercial development accelerated at a tremendous rate. The Homestead Act spurred agricultural development, but not at the same frantic rate at which commerce and industry developed. This was due to two factors. One, agricultural development takes more time than industry or commerce. Given the agricultural technology of the 19th century, it could take three to five years for a farming or ranching operation to become financially feasible.

At the same time, an industrial or commercial enterprise could become financially feasible in months, on occasion days, where agriculture required years. Western folklore and written history are replete with stories of someone's wagon breaking down in the morning and starting a store or a blacksmith shop by the side of the trail or a river crossing, or making a gold strike, and by nightfall a tent city springing up, complete with boarding houses, saloons, and restaurants, even theaters. "Hell on Wheels," the rolling towns consisting of gambling dens and whorehouses that accompanied the railroads as they moved west, could open for business in minutes at "End of Track," with towns built up around them in less than a week.

Consequently, productive capacity consistently outpaced consumptive capacity due to the concentrated ownership of the rapidly expanding commercial and industrial base, throwing the economy out of equilibrium. Making the situation worse, the new large commercial and industrial enterprises could obtain all the financing they wanted at the state banks and the National Banks by discounting bills, but the small farmer, homesteader and businessman were locked into the existing pool of savings for financing development.

Because the policy of the federal government was to deflate the paper currency to reestablish parity with gold and restore the "faith and credit" of the United States, there was insufficient money and credit to finance small enterprises at the same rate as the large enterprises. Making matters worse, farmers and small businessmen had taken out loans during the war when prices were high and money in the form of the inflated greenback currency was plentiful, and were now forced to repay the loans when prices were falling and money was scarce.

The result was the Panic of 1873, which began in Europe as a result of German Chancellor Prince Otto von Bismarck's financial machinations intended to weaken the Austro-Hungarian Empire (after dealing what he thought was a death blow to the French Empire in the Franco-Prussian War) and make the new German Reich the top political and financial power in Europe. The Panic spread to the United States and caused a depression that lasted until 1879.

Twenty years later many people blamed the depression and subsequent financial troubles of the country on the Coinage Act of 1873, the "Crime of '73." This explanation, while it entered conspiracy lore, fails to take into account the fact that the business failures that triggered the panic in the United States had next-to-nothing to do with the shift to the gold standard, and everything to do with the lack of consumer demand to sustain the rapidly expanding railroads and other industrial and commercial expansion.

In response, both populism and socialism got a kick start. Both originally clearly differentiated, populism was strongest in the South and the West, where you had the tradition of ownership. In the East, with its growing population of propertyless workers, socialism was strongest. As the understanding — and fact — of small property began to erode rapidly hard upon the heels of the drying up of capital credit for small development, populism began in many cases to be another form of socialism.

In order to promote socialism or save capitalism (depending on how we want to look at it), American intellectuals began using the vague decision in the Slaughterhouse Cases to redefine property. Capitalist apologists argued in favor of the absolute exercise of the previously limited exercise of property, and acted to limit ownership to (in Walter Bagehot's words) a chosen people. (Bagehot's emphasis.) Those inclined to socialism argued against private ownership or control, claiming that no one should be able to own the means of production as private property, and thereby enjoy the result of the phenomenal increase in productive capacity made possible by technological advances.

Things reached such a pitch that by 1891, when Pope Leo XIII issued his encyclical Rerum Novarum ("On Labor and Capital"), his strictures about the importance of ordinary people owning capital — based solidly on the philosophy of Aristotle and Aquinas — were taken by many people as dangerous innovations, and rejected by both capitalists and socialists! In an argument you find repeated even today, the head of the Catholic Church — an institution that bases its legitimacy in part on the claim that it has never altered the truths that have been granted to it — was accused even by faithful Catholics of inventing an entirely new truth about private property.

The tipping point, however, came in 1893, with the Panic of 1893 and the Great Depression of 1893 to 1898. Serious weaknesses were revealed in the financial system. In response to the stress resulting from the changes in the economy with the drying up of opportunities for ordinary people to own landed capital with the effective end of the "free" land available under the Homestead Act, populism completely failed to address the underlying causes of the situation. Populism's failure, even under the inspired leadership of William Jennings Bryan, led to the development of widespread acceptance of "the conspiracy" as a way of explaining things. It also led to the first widespread demands that the government take over control of the economy for the common good.

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News from the Network, Vol. 5, No. 4

2012-01-27T15:57:00.000-05:00

The disappointment over President Obama's State of the Union Address was almost palpable. While the response of domestic commentators was, from a Just Third Way perspective, somewhat muffled, foreign news commentators had an unvarnished and un-spun reaction: what Mr. Obama called for was "from each according to his ability, to each according to his needs." From our perspective, it will be an easier "sell" than the Republicans' "Don't tax the rich" gambit. Of course, something along the lines of Capital Homesteading would beat it all hollow, so here's what we've been doing to move things forward:

• Due to the press of business, we've not been debriefed on the Economic Justice Summit in Hartford last week, other than to say that things went well. We hope to have a full report by next week.

• Norman Kurland has been interviewed on Rick Tormala's Tuesday With Tormala show, and is stirring up a great deal of interest in the ideas of the Just Third Way, especially their conformity with the essential principles of Chesterton and Belloc's "distributism."

• Universal Values Media, Inc., one of the companies dedicated to Justice Based Management and to spreading the word about the Just Third Way, has started a new program providing e-books in Kindle, [] each of which explores in fictional form some aspect of the Just Third Way, usually expanded capital ownership. These are planned to be short "novellas" of approximately 25-30 words each, and are priced to sell at the token price of 99¢. The first three are out now, and are in the "humorous science fiction" subgenre. If you want some "lite" entertainment to take a break from the in-depth material on the CESJ website and this blog, give the e-books a try. We think you'll enjoy them — and tell your friends about them. We may not have the "pitch" down right, but we're refining it. The books themselves are fine.

• Norman Kurland had a meeting with Rob, a restaurateur in Washington, DC on Thursday. The meeting went well, and was intrigued by what he heard.

• Monica in Ohio has been working hard to get a handle on the complex monetary and financial theory of the Just Third Way, and is looking forward to applying the concepts, both in CESJ and for EEI.

• Chris O. and Michael Greaney represented CESJ at the pre-March for Life reception of the Catholic Radio Association hosted by the Columbia School of Law at the Catholic University of America. A number of brochures were distributed for Supporting Life, and a number of people seemed interested in the idea of a Pro-Life economic agenda as a way of moving things forward. A CESJ representative may be invited to participate in the Catholic Radio Association's annual "Radiothon" in April to talk about these ideas and the application of principles of social justice to the movement.

• As of this morning, we have had visitors from 54 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Australia, the United States, the UK and the Netherlands spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Ron Paul and Creating Money," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Thomas Hobbes on Private Property" and "Raw Judicial Power, Part IX: Scott v. Sandford."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Raw Judicial Power XIII: The Effect of the Slaughterhouse Cases

2012-01-26T11:14:00.002-05:00

As we saw in the previous postings in this series, the Supreme Court's attacks on liberty and property in Scott v. Sandford (1857) and the Slaughterhouse Cases (1873), respectively, laid the foundation for an entirely new conception of government, at least in the United States. Common as the authoritarian State was at times in Europe (although not as common as many modern pundits believe), the United States had been founded on the assumption of the sovereignty of the human person as the basis of the social order; "We, the People," was not construed as a statement of collectivism, but of an assembly representing sovereign individuals coming together as political animals to form a particular State that best served their needs in a manner compatible with essential human nature.

By undermining the natural right of liberty (freedom of association/contract), the Dred Scott case reinforced the denial of basic human rights to a specific group. The group was not simply black slaves, but all people of Sub-Saharan African birth or descent. This made the determination of whether any group could be "persons" (that is, have rights) under the Constitution no longer a matter of natural right, and thus inhering in every human being, but a matter of political expedience. Previously slavery had been admitted as an expedient, an abrogation of natural liberty for the good of the State and the economic survival of the nation. Slavery was now under Scott considered the natural order, with liberty being conferred as expedient.

Liberty — and, by implication, all other natural rights — was now dependent on the needs of the State or the desires of whoever had power. The Scott decision even expanded the concept of "slave" — legally a condition of being without rights — from those held in bondage, to all members of a class, whether slave or free: black Africans and their descendants. Man was no longer by nature to be considered free, and thus a "person," but depended on the say-so of the State.

This was directly contrary to the conception of the State and its power in the western tradition that gave birth to the United States, and, lacking the act of social justice or a more realistic framework to understand economic and social development, forced the country into civil war. It must certainly be acknowledged that the new country had integrated a fundamental flaw into its constitution by admitting, even defending chattel slavery. Some of the Founding Fathers, notably George Mason of Gunston Hall, recognized this contradiction, and worked (albeit unsuccessfully) to remove it. As Abraham Lincoln reminded everyone decades later, a nation cannot endure half-slave and half-free.

We can make the same comment today about the Welfare State that is half-capitalism and half-socialism, but with even more force. There is, after all, the possibility of a nation enduring that is all slave, and certainly all free, but no nation can survive being either capitalist or socialist, regardless of the immense efforts to make either work over the past two centuries — an effort for which we are now paying the price, with the paradox of enormous personal wealth side-by-side with immense poverty and insurmountable debt, both public and private.

The fact is, in the Dred Scott case, the Supreme Court effectively set itself up as the supreme power in creation, with the power to re-define the natural law and thus the basis of society itself. This is directly contrary both to the clear intent of the Founders, as William Crosskey demonstrated, and to the whole conception of the State in the western tradition. As the solidarist Wilhelm Schwer explained,

"As in its nature, so also in its activity the state is subject to laws that are above it. Although it is the highest power on earth, yet it is incorporated in a moral order that binds and limits it. Consequently state power finds its principal and insurmountable barrier in natural and divine law. It is also limited through the existence and realm of activity that natural law grants to the individual, the family, and, to a certain extent, to the free associations." (Wilhelm Schwer, S.T.D., Catholic Social Theory. St. Louis, Missouri: B. Herder Book Co., 1940, 270-271.)

In other words, man is not made for the State. The State is made for man. The decision of the Supreme Court in Scott v. Sandford, however, undermined, if not completely eliminated reference to the natural law from the consideration of constitutional issues. It thereby sowed the seeds of confusion that not only led to the Civil War, but to the great conflict between capitalism and socialism that continues to this day, the focus on which completely obviates consideration of a viable and just third way, to say nothing of a workable solution to the debate over legalized abortion.

Assuming that there is a necessary conflict between natural rights and the ability of the State to confer benefits on selected groups at the expense of others leads to taking positions that are both inherently contradictory and directly at odds with common sense. As one allegedly Pro-Life economist asserted in an effort to justify easing up on efforts to end legalized abortion to secure socialist welfare and redistribution without, evidently, considering what he was saying, "We need to recognize that there are Ten Commandments, not one or two. Along with the Fifth Commandment (murder of the innocent) and the Sixth Commandment (against sodomy) there is also the Seventh, about stealing (depriving the working man of his just wages), and the Eighth, about lying (a devastating war based on lying)." (Dr. Rupert J. Ederer, Letter to The Wanderer, 12/07/2006.)

Thus, in a startling paradox, the Supreme Court's decision in Scott took a "socialist" view of the State to defend the agrarian capitalism of the American South, against the industrial and commercial capitalism of the North. Perhaps even more surprising is that the South, by and large, accepted the defense. This is another paradox mirrored in the 20th century when, to defend his absolute exercise of private property over the Ford Motor Company, Henry Ford destroyed the property rights of minority owners (Dodge v. Ford Motor Company, 1919). The 14th Amendment attempted to reverse this descent into legal, social and moral positivism — which, as Heinrich Rommen commented, leads eventually into complete moral relativism and, finally, nihilism — but was in turn nullified by the Supreme Court's decision in the Slaughterhouse Cases.

To pile paradox upon paradox — all derived, evidently, from the perceived necessity of using only previously accumulated savings to finance new capital formation — both capitalism and socialism would use the new conception of the role of the State to justify their respective positions. Impartial observers could thus legitimately claim to see no real difference between the two systems, except for the critical recognition of the right to private property in capitalism — a right that socialism simply rejects outright, and that capitalism renders impossible to exercise for most people.

Thus we can justly say that where socialism is completely in the wrong, being ideologically committed to rejecting the natural law, capitalism is almost completely in the wrong, and being right in one small area for the wrong reasons!

To explain, by rejecting the natural law outright, socialism attempts to use the power of the State to coerce desired, even necessary ends. This is by the simple — if completely unworkable — expedient of changing definitions of essential rights, especially private property, but ultimately liberty and life as well. The State thereby arrogates to itself the power of God by using the principles of charity instead of justice to achieve desired ends. This, as Leo XIII reminded us, is "a duty not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law. But the laws and judgments of men must yield place to the laws and judgments of Christ the true God, who in many ways urges on His followers the practice of almsgiving." (Rerum Novarum, § 22.)

Obviously, the State's desire to "play God" and redefine basic natural rights is not something that the Catholic Church, or any other religious body adhering to the Aristotelian ideas of ethics and politics, can excuse or admit. We cannot let our frustrations overcome us and use either our own bullying or the coercive power of the State to force ends, however desirable, on others, either individually or as a group. The end result is always to use the power gained in less acceptable ways, such as to eliminate entire populations of presumed undesirables, such as the Jews, or to permit abortion for individual expedience.

Thus, Pope Pius XI could declare, "If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist." (Quadragesimo Anno, § 120.) The same is equally true of Judaism and Islam, as well as every other ethical or religious system based on the natural law.

Given Karl Marx's definition of socialism, "the abolition of private property," we can understand the solidarist position on ownership and the fundamental importance of the correct understanding of private property and its widespread participation for a just social order: "[A]ll theories of property that deny the justification of private ownership or try to limit it to certain categories of goods, are erroneous. Also the soil, upon which human existence and society are based, can be the rightfully and legally protected property of the individual. This view should be maintained against agrarian communism and nationalization of land and socialization of housing, and against Rousseau, who wished that a superman would destroy all boundaries." (Schwer, op. cit., 318.)

This does not, however, admit the capitalist theory that the exercise of property is to be considered as absolute as the right to be an owner, inherent in every human being, or that the exercise of property, even limited by the needs of the common good, is to be confined to a small elite. Everyone has the absolute right to be an owner, but no one has the right to exercise his or her property absolutely. As Schwer explained, "Ownership is dominion. As master of his property the individual is subordinate to God, who never renounces and never can renounce His divine right of possession. Therefore no property is without obligations and responsibilities, no power over earthly goods is absolute and unlimited." (Ibid., 319-320.)

Every human being consequently has the right by nature to be an owner, and is therefore a natural person, which status cannot be taken away or redefined by the State, however powerful, or however plausible the reason. The State, nevertheless, has the task, in accordance with the wants and needs of its citizens or for legitimate political expedience, to define in what manner property may be exercised (usually in such a way as not to harm other individuals, groups, or the common good as a whole), and even, in some cases, what may be owned.

Nevertheless, this power that the State has to define the exercise of rights necessarily falls within strict limits; the power of the State is not absolute. The State's power to define the exercise of rights must never turn into re-definition, thereby abrogating rights instead of limiting them for the optimal benefit of individuals and the functioning of the common good. As Pius XII commented in his encyclical Evangelii Praecones (1951), quoting from his Christmas Message of 1942,

"The dignity of the human person then, speaking generally, requires as a natural foundation of life the right to the use of the goods of the earth. To this right corresponds the fundamental obligation to grant private ownership of property, if possible, to all. Positive legislation, regulating private ownership may change and more or less restrict its use. But if legislation is to play its part in the pacification of the community, it must see to it that the worker, who is or will be the father of a family, is not condemned to an economic dependence and servitude which is irreconcilable with his rights as a person.

"'Whether this servitude arises from the exploitation of private capital or from state absolutism, the result is the same. Indeed, under the pressure of a State which dominates all and controls the whole field of public and private life, even going into the realm of personal opinions, projects and beliefs, the loss of liberty is so great that still more serious consequences can follow, as experience proves.'" (§§ 52-53)

In other words, while the State has a heavy responsibility to define the exercise of natural rights properly, it may never use its power to define them improperly, that is, in such a way as to nullify the underlying natural right, resulting in the loss of liberty.

The problem was that, with the Slaughterhouse Cases, the Supreme Court — as it did in Scott v. Sandford — did not simply single out an individual or group for denial of fundamental rights. That was bad enough, especially in the climate of legal positivism growing up, for it set a precedent that individuals and even entire groups could be deprived of rights without just cause, despite the due process carried out.

The real issue in the Slaughterhouse Cases, and what outraged William Crosskey, was that the Supreme Court managed to change the entire meaning and even nature of the U.S. Constitution. The effect of the Slaughterhouse Cases was to convert the Constitution from a written document embodying a clear political philosophy based on the natural law and intended to protect the rights of the individual within a social setting, to a means of seizing absolute power through the denial by redefinition of the very rights the Court was established to protect.

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Raw Judicial Power XII: The Slaughterhouse Cases, Aftermath

2012-01-25T08:24:00.001-05:00

As we saw in yesterday's posting, the immediate effect of the Slaughterhouse Cases of 1873 was to undermine the institution of private property. This, from the position of America's Founders, was a disaster — but it was not the worst part of the situation. That was reserved for the cementing of the evident assumption of the Court, seen at its previous worst in Scott v. Sandford in 1857, that all rights come from the State, and that nothing, whether liberty (Scott), property (Slaughterhouse), or, eventually, life itself in Roe v. Wade, could truly be said to be an inalienable, natural (absolute) right if the Supreme Court of the United States chose to deny it.

Orestes Brownson had seen what was coming. In The American Republic (1865) he had foretold barely eight years before the Court's decision in the Slaughterhouse Cases that the basis of the conflict — the "culture war," if you will — would shift. Before the Civil War, as well as the war itself, the conflict had been between the industrial and commercial capitalism of the North, and the agrarian capitalism of the South (the former relying on wage slavery, the latter on chattel slavery). It now shifted to being between capitalism — whether industrial, commercial or agrarian — and socialism . . . the former relying on turning almost everyone into a wage slave, the latter on making everyone a welfare slave.

The Homestead Act of 1862 forestalled the total victory of either capitalism or socialism. By fostering widespread ownership of agricultural capital, and, even more, by preserving the idea of widespread ownership, a counter was set up to the concentration of industrial and commercial capital in fewer and fewer hands as the 19th century progressed. The momentum provided by the dynamic pre-war democratic culture, chronicled by Alexis de Tocqueville in Democracy in America (1835, 1840), also helped.

As ownership of commercial and industrial capital became increasingly concentrated and society consequently increasingly complex, however, and the opportunities for "ordinary" people to acquire capital in land faded as the "free" land under the Homestead Act was taken — the "closing of the American frontier" described by Frederick Jackson Turner in 1893 — capitalism and socialism came into direct conflict.

From the standpoint of political economy, especially binary economics, the basic problem was the fixed belief that new capital could only be financed out of existing accumulations of savings. This — and an unhealthy admixture of personality conflicts, especially between Andrew Jackson and Nicholas Biddle — had led to the "War Against the Bank" in the 1830s. Proponents of the banking principle and the currency principle, mirroring the struggle going on in England at the same time, fought to see which idea of money and credit (and, ultimately, of private property, even liberty and life) would prevail.

The currency principle, the idea that "money" is a peculiar creation of the State, won. The banking principle, that "money" is anything that can be accepted in settlement of a debt, lost. In Great Britain the new conception of money was embedded into public policy in the Bank Charter Act of 1844, while in the United States the National Bank Act of 1863 achieved the same end.

Evidently unrealized at the time was the fact that the understanding of money found in the currency principle restricted the direct benefits of economic development to those who controlled existing accumulations of savings (the rich under capitalism), or who were believed to have the exclusive power to create money, and thus redistribute wealth through inflation or deflation (the State under socialism). The wage or chattel slavery of capitalism, and the welfare slavery of socialism were natural, even necessary adjuncts to the perceived reliance on past savings to supply the financing for new capital formation.

Ironically, the entire conflict — and many of the problems that accompanied the rapid economic development that followed the Civil War — could have been avoided had people realized how that same development was really being financed. The problem was that money and credit for small agricultural, commercial, and industrial development was virtually unobtainable, thanks to the policy of deflation to restore parity of the paper currency and gold after the inflation during the war. Ownership for the non-rich was systemically linked to existing accumulations of savings, that which had been withheld from consumption in the past . . . and the non-rich, by definition, do not have savings!

Large development, however (especially the railroads), could obtain all the money and credit desired. This was by subsidy, grant, or — more usually — by drawing and discounting bills of exchange at the new National Banks or state banks, which, at the same time they served as banks of deposit for the non-rich, functioned as banks of issue (commercial banks) for the rich and for the federal government. Ownership for the rich was systemically linked to future savings, what the new capital could produce in the future, not what had been withheld from consumption in the past.

Consequently, the people best able to cut consumption and save for investment in new capital were those who didn't need to use past savings because they had access to future savings. This gave the rich a virtually unbreakable monopoly on the means of acquiring and possessing private property in capital. There were only two ways for those without access to either existing savings or "pure credit" (credit not dependent on existing savings) to become capital owners.

The first was to come up with some new product or service that was somehow self-financing — immediately and highly profitable — to a degree sufficient to make it financially feasible almost from the start, or to enable the entrepreneur to buy out those who provided the start-up financing, and still have sufficient profits left over for consumption purposes and future financing. The second was simply to take what already belonged to someone else, or which was there for the taking.

The Homestead Act was a combination of taking the land by force, but making it freely available to those who met certain conditions. Keynesian "forced savings" is a modern theory of how capitalists force the presumably necessary cuts in consumption by raising prices, and taking the benefits of saving for new investment.

The Court's decision in the Slaughterhouse Cases laid the groundwork for the socialist principle that all rights come from the State. Had not the economy already become oriented toward the presumed dependence on existing accumulations of savings to finance new capital investment, however, it is likely that the Supreme Court's power grab would have been ineffectual.

Unfortunately, coming at a time when capitalism and socialism were coming into conflict — and with the decision so vaguely worded as to mean anything anyone wanted to read into it — both the capitalists and the socialists were able to use the new conception of property to their advantage. Based on the implicit assumption in the decision in Slaughterhouse that all rights come from the State, and could thus no longer be construed as inalienable or inherent (absolute) in the human person, the capitalists were able to assert absolute exercise of private property, while the socialists could — consistently with the same line of reasoning! — claim that private property did not even exist.

The Slaughterhouse Cases, even more than Scott v. Sandford, were a watershed. The decision asserted the rights of the State over the individual, and the virtual negation or nullification of much of the Constitution. Development of this idea has been carried to the point where some Constitutional scholars could (as we have already seen) claim that the idea of the Constitution derived from the ideals expressed in the Declaration of Independence is a written document is a legal fiction!

Individual rights — the very thing the Constitution was expressly written and adopted to protect — were transformed from something inherent in each human being, to whatever the Court wanted them to mean. As Crosskey noted, the decision in Slaughterhouse was "written so as to enable the Court, with a good face, in future cases, to jump either way: to observe the intended meaning of the Privileges and Immunities Clause if that seemed unavoidable, or, in the alternative, to destroy the clause utterly if this seemed safe."

The way was thus paved for an entirely new conception of the role of the State, one directly at odds with the orientation of the Founders of the American republic, and the western tradition of humanity's status as a special creation of a deity with the unique character of a "political animal."

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Raw Judicial Power XI: The Slaughterhouse Cases (1873)

2012-01-24T11:33:00.000-05:00

It should come as no surprise that following the Civil War Congress saw the necessity of overturning the Dred Scott decision. Language was carefully written into the 14th Amendment to preclude such an exercise of "raw judicial power" from ever again taking place.

What Congress did not take into account was the "the spirit of revolutionary change" that had "long been disturbing the nations of the world" noted a generation later by Pope Leo XIII. The abandonment of the absolutes of the natural law in favor of political expedience made the explicit statement of absolute principles in the Constitution something of a farce with the development of the concept of the "living Constitution." Orestes Brownson had noted this when he commented that the war had resulted in the abolition of slavery — and the ending of that disgrace was a very good thing — but on the grounds of political expedience, not the principles of natural law. One proponent of the expedient view of the Constitution went so far as to declare that,

". . . the theory that the Constitution is a written document is a legal fiction. The idea that it can be understood by a study of its language and the history of its past development is equally mythical. It is what the Government and the people who count in public affairs recognize and respect as such, what they think it is. More than this. It is not merely what it has been, or what it is today. It is always becoming something else and those who criticize it and the acts done under it, as well as those who praise, help to make it what it will be tomorrow." (Charles A. Beard and William Beard, The American Leviathan: The Republic in the Machine Age. New York: The Macmillan Company, 1930, 39.)

As far as Crosskey was concerned, the 14th Amendment was intended to counter such a view of the Constitution. The framers of the amendment, however, failed to take into account that the surrounding culture, the political goals of the Supreme Court, and the fact that the Supreme Court had managed to change its own role in a profound and significant manner ensured that the clear meaning of the amendment would not be how it was understood and applied. As soon as the opportunity presented itself, every effort would be made to nullify the 14th Amendment. This opportunity came with the "Slaughterhouse Cases," the decision on which also ensured that the "new things" noted by Leo XIII would pass "beyond the sphere of politics" and make their "influence felt in the cognate sphere of practical economics."

The effect of the 14th Amendment was to take away the powers the Supreme Court had managed to acquire since Marbury v. Madison (1803) — a correct decision that was later misused to expand "judicial review." The power of the Court, however obtained, reached its height with the Dred Scott case. It suffered a serious eclipse with the passage of the 14th Amendment. Consequently, as Crosskey saw it, the Court was not slow to act when the opportunity presented itself to nullify the 14th Amendment.

The opportunity came with what are collectively known as "the Slaughterhouse Cases." According to Crosskey, the Court used the Slaughterhouse Cases to bring about an effective abrogation of the 9th and 10th Amendments, and a partial abrogation of the 14th Amendment. This was to have serious consequences down to the present day, especially on the concept of private property and other individual natural rights, particularly life and liberty. As a result of the decision in the Slaughterhouse Cases, the Supreme Court gained immense power at the expense of both the Congress and the people. This is why the 14th Amendment is often cited in "landmark" cases such as Roe v. Wade.

The facts in the Slaughterhouse Cases are relatively straightforward. The slaughterhouses that served New Orleans were located about a mile and a half upstream of the city. Waste was simply dumped into the water. As a result, the city's drinking water was unfit for human consumption, and the city suffered from eleven cholera epidemics between 1832 and 1869. A New Orleans grand jury recommended that the slaughterhouses be moved downstream, but it lacked jurisdiction. Then, in 1869, the Louisiana legislature passed "An Act to Protect the Health of the City of New Orleans, to Locate the Stock Landings and Slaughter Houses, and to incorporate the Crescent City Livestock Landing and Slaughter-House Company."

This seems simple enough, and the story is so related in popular sources, e.g., the Wikipedia. For the public good, all butchers operating in and around New Orleans would be required to use the facilities provided by the new corporation, be subject to inspection, and no individual or company would face discrimination in access to the facilities. The subsequent lawsuits by various individual butchers, companies, and associations thus seem, on the surface, to be an example of typical 19th century laissez faire capitalist assertion of property rights over human rights. As Crosskey related the story, however, additional details come to light:

"The state act there under attack had been passed by the 'carpet-bag' legislature of Louisiana, under 'a shallow pretence,' as Justice Stephen J. Field, of California, put it in his dissenting opinion, of enacting 'sanitary regulations' for the protection of the meat supply of the city of New Orleans. In actual fact, the act was one to incorporate seventeen favored citizens as the Crescent City Live-Stock Landing and Slaughter-House Company and to grant to them, in the corporate capacity thus conferred, a twenty-five-year monopoly of the business of maintaining stock-landings, stock-yards, and slaughter-houses, within an area of some twelve hundred square miles in and around the city in question. The sanitary regulations consisted merely of a stock-inspection provision and certain restrictions as to the areas in which the new company's facilities might be erected; but if the company could conduct its business subject to these simple regulations with safety to the public health, there was, as Justice Field persuasively observed, no reason why the individual butchers compelled by the act to hire the facilities of the defendants could not, with safety to the public, do the same. So, the sanitary excuse was a pretty transparent cover for a state-created monopoly; and because every such monopoly consists essentially in a giving to the monopolist of a specific protection which is denied to others, the fact that the Louisiana act was in plain violation of the Equal Protection Clause of the new amendment, under anything like a literal and straightforward reading, cannot very well be denied. In that sense, then, the act 'abridged' an 'immunity' belonging to the whole class of 'citizens of the United States' and was, accordingly, in violation, technically, of the Privileges and Immunities Clause of the amendment, as well."

The clear intention of the 14th Amendment was to secure basic natural rights and the same civil rights enjoyed by all other citizens to people who had previously been denied protection for those rights. Further, there was to be no denial of these rights in the future. What the Court did, however, was shift the ground from whether or not someone's or some group's natural or civil rights had been violated, to the "non issue" as to whether rights conferred by a state, or those conferred by the federal government were superior. In the process, the basis on which the Dred Scott decision had been rendered was egregiously misstated.

The presumed conflict between state and federal governments as the source of rights is why the Slaughterhouse Cases are considered pivotal in civil rights law — and why the Court's decision didn't even address the civil rights — inherent in each person, not delegated from the State! — that were violated. The Court did not, in fact, address the issue whether anyone's rights were violated under the Equal Protection Clause. Instead, "What they did deny was that the Equal Protection Clause, or any other provision of the Constitution applying to the states, had been violated."

The fact that there were four dissenting opinions did not alter the basic decision of the Court, or its future interpretation. As Crosskey related, the four dissenting justices disagreed with the majority that the privileges and immunities of U.S. citizens should be limited to those specifically enumerated in the Constitution. This point, manifest in the Constitution, was brought forcefully home to the majority, the language being extraordinarily inflammatory, the minority going so far as to accuse the majority of an unlawful purpose in promoting such an obviously unjust reading of the language of the Amendment.

Unfortunately, the dissenting justices then undermined their own position by confusing the meanings of the terms used, and thus the natural right to be an owner, with the legitimate role the State plays in defining what an owner may do with what he or she owns. The dissenting justices claimed that limitation of a right, in the sense of defining the proper exercise thereof, was tantamount to "abridgment" of that right, and that, consequently, as Crosskey explained, "the Privileges and Immunities Clause forbade the states to 'abridge' any of an indeterminate number of vague and indefinite 'privileges and immunities which of right belong[ed],' so the minority said, 'to the citizens of all free governments."

Further, the evidence suggests (as Crosskey related) that the minority justices were absolutely convinced that they were defining basic rights accurately. The fact that their analyses were directly at odds with the natural law basis of the Constitution, and that they were actually assisting the majority in changing the nature of what it means for something to be "owned" does nothing to alter their deep sincerity. It is a testament to the inherent honesty of the minority in the face of what they saw as an exercise of what would a century hence in Roe v. Wade be termed "raw judicial power" that years later, in 1892, Justice Field repudiated his earlier stand that, effectively, gave the federal government in the person of the Supreme Court the power to grant and revoke natural rights. As Crosskey related,

"'After much reflection,' Justice Field confessed, in dissent from the Court's decision [in the matter of O'Neil v. Vermont], 'I think the definition given at one time before this court by a distinguished advocate — John Randolph Tucker, of Virginia — is correct, that the privileges and immunities of citizens of the United States are such as have their recognition in or guaranty from the Constitution of the United States'."

In other words, the State, whether in the person of local, state, or federal governments, does not grant rights. The State can only recognize or guarantee rights, not create them.

In light of this confusion, the majority justices in Slaughterhouse could, according to Crosskey, easily have dealt with this issue by explaining that they were using the term "abridge" in the sense of proper limitation, not "abridge" in the sense of violation. The majority did not do so, suggesting that they knew full well they were inserting an unacceptable degree of ambiguity into the interpretation of the law so as to increase the power of the Court, and render the 14th Amendment meaningless. As Crosskey concluded his discussion on this point, "And all this being true, the fact that the majority chose, as we shall see, rather to be ambiguous and evasive upon this point, strongly suggests that the minority Justices knew whereof they spoke; a conclusion well confirmed by other evidence." In summing up, Crosskey concluded,

"So, the Court's opinion in the Slaughter-House Cases was, undoubtedly, most craftily written; written so as to enable the Court, with a good face, in future cases, to jump either way: to observe the intended meaning of the Privileges and Immunities Clause if that seemed unavoidable, or, in the alternative, to destroy the clause utterly if this seemed safe. And the fact that this elaborate preparation was made also means that the majority Justices saw and fully comprehended the possibility of the intermediate, plain, and sensible meaning of the Privileges and Immunities Clause here expounded, to which, indeed, Justice Bradley called attention, in his dissenting opinion. So, the majority must, as the minority charged, already have determined, if they dared, to destroy this new provision of the Constitution completely."

Thus, in a baffling paradox, the Slaughterhouse Cases should have been a simple case of defining the legitimate exercise of private property within a system in which the underlying right itself (the right be an owner) remained untouched. Instead, the situation became a pawn in an effort to increase the power of the Court at the expense of basic human rights held by the people, and those delegated by the people to the other branches of government, culminating in 1973 with the decision in Roe v. Wade.

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Raw Judicial Power X: The Fourteenth Amendment

2012-01-23T15:39:00.000-05:00

In the previous posting in this series, we discovered that Scott v. Sandford, the infamous "Dred Scott decision," was even more sweeping in its implications than most of the history books today tell us. Not merely an injustice against a single individual, the case was the basis for what amounted to a new interpretation of the U.S. Constitution and a vastly expanded role for the Supreme Court of the United States. It should come as no surprise, then, that one of the first things that Congress did once the war was over was to adopt the "Reconstruction Amendments," the 13th and 14th Amendments to the Constitution.

The Dred Scott decision overturned the Missouri Compromise made the half-slave/half-free system unworkable by denying the basis of the system itself. Civil war became inevitable as slave owners, convinced that their economic survival depended on the slave cultivation of American agricultural products, especially cotton, saw their "peculiar institution" and cherished way of life threatened by increasing pressure for abolition.

The choice appeared to be clear. In order for the United States to be preserved as a unified system as the Founding Fathers envisioned, the contradiction of slavery would have to be removed. The alternative would be to invoke "the judgment of heaven" on the new country, as George Mason predicted. This meant that the country would have to be either all slave, or all free, just as Abraham Lincoln declared in his "House Divided" speech. There could not, at one and the same time, be a middle ground where natural rights to life, liberty, or property were both protected and denied.

During the period between the adoption of the Constitution and the Civil War, however, the operation of the federal government had been minimal, almost to the point of actual neglect. As de Tocqueville noted in the 1830s,

"In some countries a power exists which, though it is in a degree foreign to the social body, directs it, and forces it to pursue a certain track. In others the ruling force is divided, being partly within and partly without the ranks of the people. But nothing of the kind is to be seen in the United States; there society governs itself for itself. All power centers in its bosom; and scarcely an individual is to be meet with who would venture to conceive, or, still less, to express, the idea of seeking it elsewhere. The nation participates in the making of its laws by the choice of its legislators, and in the execution of them by the choice of the agents of the executive government; it may almost be said to govern itself, so feeble and so restricted is the share left to the administration, so little do the authorities forget their popular origin and the power from which they emanate." (Alexis de Tocqueville, "The Principle of Sovereignty of the People in America," Democracy in America, I.iv.)

This principle of subsidiarity came to be interpreted as proving that "states' rights" were superior over those of the federal government. The correct view is that each level of government, as well as the individual citizens, has its proper sphere of action within a uniform system of law.

During the Civil War, however, the thrust became to deemphasize the powers of the states and emphasize those of the federal government. This was not an improvement, as it, in effect, only substituted one error for another, with individual natural rights suffering in consequence. The strengthening of the executive at the expense of the legislative was largely through the efforts of a man with the unwieldy name of Oliver Hazard Perry Throck Morton, the 14th governor of Indiana, who justified what amounted to continual usurpation of the powers of the Indiana legislature on the grounds that the country was in a state of emergency. Morton's efforts were so effective that they were taken as a model for the federal government.

Following the Civil War, there was an effort to restore individual rights, ostensibly for the newly freed slaves, but applying to everyone. It was not a question of states' rights versus those of the central government, or vice versa, but of each person's natural rights against the government, whether local, state, or federal, and centers of entrenched economic and political power. As Crosskey's analysis showed, the careful wording of the 14th Amendment was an attempt to clarify the principle of subsidiarity and the proper role of both the state and federal governments. As adopted, the relevant portion of the 14th Amendment reads,

"Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."

The careful wording was an effort to avoid the sort of linguistic and logical leaps applied by Justice Taney in rendering his opinion in Scott. Given his theory of constitutional law, Crosskey viewed the 14th Amendment (at least as far as § 1 was concerned) as somewhat redundant. The "privileges and immunities" protected by the Amendment were, according to Crosskey, already in the Constitution.

It was only the creative interpretations by justices like Taney, combined with decades of misinterpretation and the expedient actions taken during the war that made something like the 14th Amendment necessary. Even then the legal philosophy that was rapidly displacing Crosskey's evident natural law orientation would very quickly result in an effective negation of the 14th Amendment within five years of its adoption. As Crosskey explained, "It is a fact universally recognized that the opening clause of the foregoing section of the Fourteenth Amendment was intended to nullify, as a proposition of constitutional law, the central doctrine of the famous case of Dred Scott v. Sandford, decided by the Supreme Court, in 1857."

As Crosskey continued, "This fact was freely conceded by the Court itself, in the Slaughter-House Cases, of 1873, which were the first cases that came to it under this new amendment. The Court's decisions since that time have been consistent with this view; and to this limited extent, the true and intended meaning of the 14th Amendment has undoubtedly been observed by the Court."

That sounds all well and good, but Crosskey did not stop there. As he observed — and which constitutes the heart of the second volume of Politics and the Constitution — "The same, however, cannot be said of what that body [the Supreme Court] has done under the remaining parts of the above-quoted first section: the Equal Protection Clause, the Due Process Clause, and the clause — generally known as the Privileges and Immunities Clause of the amendment [emphasis in original] — which prohibits all state 'abridgments' of 'the privileges [and] immunities of citizens of the United States'."

This raises the question as to what, exactly, the framers meant by the 14th Amendment. It seems patently clear from a natural law orientation. That is, people have rights. Those rights emanate directly or immediately from the people (constitutionally, the ultimate or mediate source is irrelevant), and the federal government shall neither make nor enforce any law that takes away those rights. Crosskey declared that there is no other conceivable meaning that could be placed on the language in the 14th Amendment, or the 1st, 2nd, 4th, 15th, or 19th. Further, this simple fact was already in the Constitution in the Bill of Rights, and was (according to Crosskey) repeated yet again in the 10th Amendment.

Why, then, add an amendment that simply repeats what is already in the Constitution many times over? Evidently, for the same reason virtually every pope since Leo XIII has stressed the necessity for widespread direct ownership of the means of production. People either weren't listening, or were reinterpreting the Constitution to suit their own particular wants and needs — as Justice Taney had done for the somewhat dubious benefit of the South in the Dred Scott case, Congress had done in financing the Civil War, and the executive had done in strengthening its power at the expense of Congress. Further, Crosskey made the case that ambiguities had been forced on the understanding of the Constitution from the very beginning, starting with James Madison's "editorial ingenuity," in response to political expedience. We can speculate whether this was due to the perceived need to defend the institution of slavery at all costs, but (whatever the actual reason) Crosskey made an excellent case.

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News from the Network, Vol. 5, No. 3

2012-01-20T17:43:00.001-05:00

Last week it was the Twinkies. This week it's the Brownies. Not the cookies or the girl's group, but the Kodak camera. It's been a bad year so far for companies with defined benefit pension plans. As today's Wall Street Journal stated, "Here's one way of understanding Eastman Kodak Co.'s problems: The company has twice as many retirees drawing benefits in the U.S. as it has active employees world-wide." ("Retirees' Benefits In the Cross Hairs," WSJ, 01/20/12, B1.) In other words, for every active Kodak employee in the entire world, there are two retired employees in the United States. Add to that the Kodak retirees outside the U.S., and it starts to get a little frightening.

All of this was predicted in the 1930s by Goetz Briefs, the labor economist and student of the solidarist philosopher, Father Heinrich Pesch, S.J., in Briefs's book, The Proletariat: A Challenge to Western Civilization (1937). As more and more people are without capital ownership, States either force private companies to start picking up the welfare tab, try to do it themselves, or both. We see the result around the world today, with massive government debts and private companies going headlong into bankruptcy, all floundering under a burden of debt based on anything except what can redeem the debt: production of marketable goods and services. To reverse this trend, here's what we've been doing this week:

• We don't have a report yet from the Economic Justice Summit that took place last week in Hartford, Connecticut. We expect to have details next week. Early verbal reports indicate that things went very well, and it was well worth the effort.

• Lydia Fisher, a blogger for the Huffington Post and author of Cinderella of Wall Street, wrote an interesting piece this week, and even mentioned CESJ and the Just Third Way. Here's a link to the article, so pass it on to your network.

• Michael Greaney was able to place a notice about A Plea for Peasant Proprietors in the e-mail version of Notre Dame's Class of 1977 Class Notes, and the editor of University of Evansville magazine said a notice will appear there as well in the next issue.

• We sent an e-mail to the "Orestes Brownson Council," a student group at the University of Notre Dame formed to discuss the classics of Catholic thought, giving them links to the recent blog series on "Orestes Brownson and Socialism."

• We also sent an e-mail with the same information to "Calvert House" at the University of Chicago, a group that started in 1903 as the Brownson Club, then merged with the Newman Club to become the Calvert Club. At least, we think we got that straight. We didn't send anything to the Orestes Brownson Study Club No. 3 in Fargo, North Dakota, a club for women interested in the Catholic intellectual tradition founded in 1923. As far as we can tell, the club folded in 1977. (If you're a member of the club and the club is still in existence, let us know and we'll correct that. And then try and get you interested in the Just Third Way.)

• As of this morning, we have had visitors from 53 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Germany, Australia, the United States, and the UK spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Ron Paul and Creating Money," "News from the Network," and "Thomas Hobbes on Private Property."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Foreword to W. T. Thornton's "A Plea for Peasant Proprietors" (3)

2012-01-19T16:18:00.000-05:00

We got so interested today in hearing from all the people who are phoning and e-mailing in comments about the “Raw Judicial Power” series that we forgot to finish writing today’s installment! Still, today’s “substitute” posting, the third in the "Thornton foreword series," does relate to the Raw Judicial Power series.

This is because the Great Famine in Ireland seemed to confirm Malthusian theory. Population had, evidently, outstripped existing food supplies. The Four Horseman of the Apocalypse — Famine, Disease, War, and Death — had consequently put in their expected appearance.

The irony is that Ireland was one of the few food exporting countries in Europe. The land provided more than enough to feed the Irish and the propertyless workers of England. Even in 1847, the worst year of the Great Famine, there were massive exports of food from Ireland. (Christine Kinealy, This Great Calamity: The Irish Famine, 1845-1852. Dublin: Gill and Macmillan, 1995, 354.)

To Thornton, the Great Famine represented not a confirmation of Malthusian theory, but its refutation. As he had argued in 1846, "over-population" is caused by systemic poverty and lack of widespread ownership of capital, not the other way around. In Europe, the potato blight caused hardship, as small landowners who depended on the potato for their basic subsistence had to shift to more expensive foodstuffs.

In Ireland, with virtually no small landowning class and afflicted with "tenancy-at-will" (which meant that landlords could evict a tenant for any reason or none at all), the blight was a disaster of unprecedented magnitude. More than enough food was grown in Ireland to stave off the Great Famine, but it did not belong to the common people. They died by the hundreds of thousands as food was shipped out of the country.

Unfortunately, the British government paid no attention to Thornton's proposal for Ireland. As he complained in 1874 in his revision of the Plea, "The time for creating a numerous peasant proprietary in the summary mode suggested has, however, long gone by, and is not now to be recovered. How seldom, alas, does England, in respect of Irish reforms, take time by the forelock!" (William T. Thornton, A Plea for Peasant Proprietors. London: Macmillan and Company, 1874, 261.)

This might be something to keep in mind during the March for Life on Monday of next week.

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Raw Judicial Power IX: "Scott v. Sandford"

2012-01-18T12:06:00.001-05:00

Despite Thomas Dixon and Margaret Mitchell, authors of The Clansman (1905) and Gone With the Wind (1936), respectively, the period before the Civil War in the American South was anything but halcyon. This was due principally to the abomination of chattel slavery. (We're ignoring, for the sake of the argument, the condition of factory workers in the North as being, except for the fact of political liberty itself, anything to brag about.)

William Crosskey contended that the power grab by the Supreme Court that resulted in the decision in Scott v. Sandford in 1857 (the Dred Scott case) was the culmination of a decades-long effort to defend and extend slavery. To accomplish this, the theory of "states rights" had been invented, and judicial review expanded far beyond what the Founders had ever intended.

Economically, Scott v. Sandford was a triumph of southern agrarian capitalism over northern industrial, commercial and financial capitalism. The struggle between the two forms of capitalism undermined the natural law basis of the Constitution, and fostered the belief that socialism was the only alternative — viable or otherwise — to capitalism. It can be said that the southern agrarian capitalists found their position justified by the economic arguments best presented in David Christy's Cotton is King (1855). At the same time, the emotional presentation in Harriet Beecher Stowe's Uncle Tom's Cabin (1852) inspired the northern "socialist" humanitarians in their abolitionist crusade.

Thus we can say that while opposition to slavery shifted from reason to humanitarianism, support for slavery shifted from reason to economic necessity. Neither Christy nor Stowe really addressed the essential natural right of liberty that was being violated. Cotton is King did give a distorted concept of natural law, but it was clearly twisted to justify the presumed economic necessity.

All of this led directly into the Dred Scott case, Scott v. Sandford, in 1857, which overturned the Missouri Compromise, and set the stage for the Civil War as a conflict between two forms of capitalism. It was, as one Confederate soldier remarked, a "rich man's war, poor man's fight."

Like most legal cases that manage to get all the way to the Supreme Court, the facts are not as clear-cut as the history books have them. Of course, it's not the job of elementary and high school history texts to give an in-depth treatment of every issue. It's enough in most cases to get the facts straight and be consistent with the orientation of the historian(s) writing the text. And, no, there is no such thing as "objective history." All historical writing necessarily takes a point of view, or it becomes incomprehensible.

The "trick" is often trying to find out the point of view of the author so that the reader can weigh the interpretation, even the selection of facts, judiciously, and reach a reasonable conclusion. This becomes problematical when the authors themselves don't realize what their points of view are, or the implications of their unconscious assumptions. The reader's critical faculties have to shift into high gear, as Mortimer Adler made clear in How to Read a Book (1940).

For example, most people who write about such things as the rapid industrial and commercial growth that took place throughout the world in the latter half of the 19th century assume as a given that all of it was financed by cutting consumption, accumulating money savings, then investing. Comparing the "wealth of nations" at the beginning of the century with that at the end of it, however, reveals a phenomenal increase that cannot be accounted for by reductions in consumption. This was combined with vast fortunes of a very few people, and dire poverty of a great number.

The socialists claimed that, since no one could possibly accumulate such vast wealth honestly, it could only have come by stealing surplus value from workers and consumers. The capitalists claimed that those who accumulated vast wealth were of a special breed, and the wealth accumulation reflected the value of the entrepreneurship that made them special and put them above the average, especially the ability to out-produce everybody and everything at a level previously unheard-of.

Neither group considered the possibility that the true state of affairs might be that the vast increase hadn't been financed by cutting consumption at all, but by increasing production. The rich had financed the new capital by promising to pay for it out of future increases in production, rather than past reductions in consumption.

Paradoxically, those who financed new capital in this way were often unaware of the technique they were using. Like the driver of an automobile who knows how to drive expertly but not how to so much as change a flat tire, they took advantage of the system without really knowing how it worked, or why (or what to do when things went wrong).

Similarly, the U.S. Supreme Court in Roe v. Wade used a line of reasoning and a legal philosophy of which they seem to have been in ignorance. Surprisingly, the Pro-Life movement has done the same thing. The Pro-Life movement has focused on overturning Roe v. Wade, either through direct court action, or through a constitutional amendment, ignoring or even silencing potentially effective measures, tactics, and even strategies that differ from the unconsciously accepted parameters.

What leaders in the Pro-Life movement fail to realize is that there is already a constitutional amendment — more than one, in fact — that would, if interpreted correctly, render the decision in Roe v. Wade unconstitutional, that is, illegal. By accepting the current system of constitutional interpretation as a given, and attempting to work within the existing system instead of reform the system at its most basic level by working for a Pro-Life economic agenda consistent with the natural law foundations of the Just Third Way, the Pro-Life movement has, in effect, played right into the hands of the Culture of Death, and has managed to arrive at an unbreakable impasse.

As we have seen in the previous postings in this series, the legal reasoning in Roe v. Wade has a long and dishonorable history stretching back to the founding of the United States. Unfortunately for Dred Scott, the self-interest of the Supreme Court, the toadying of Chief Justice Roger Taney, and the political and economic power of the South combined to deprive not only Scott, but every member of any class not favored by the Supreme Court of allegedly unalienable natural rights, in Scott's case, liberty, which encompasses freedom of association and contract.

To summarize, the effect of Scott v. Sandford [sic — the Court misspelled the defendant's, John Sanford's, name] was to make slavery legal in all U.S. territories. Scott was a slave whose master, a U.S. Army officer, had taken him from Missouri, a slave state, to a series of free states in the course of his career, and then back to Missouri. Scott sued for his freedom in Missouri in 1846, claiming his residence in a free state and a free territory had made him free. He had also attempted a number of times to purchase his freedom, and the offer had been refused.

The opinion of Chief Justice Roger B. Taney was that Scott was not entitled to rights as a U.S. citizen and, in fact, had "no rights which any white man was bound to respect." Taney and six other justices struck down the Missouri Compromise of 1820 as unconstitutional. The Court maintained that, under the alleged doctrine of "states' rights," Congress had no power to prohibit slavery in the territories.

This was exactly the position the politically powerful southern states had been pushing for years. All they needed was an acquiescent Court willing to bend to political pressure instead of the clear sense of the Constitution. They found their man in Justice Taney, who was already notorious as a political hack willing to do anything to curry favor with the powerful.

Taney had first come into prominence as the only Secretary of the Treasury willing to follow Andrew Jackson's ill-advised orders to shut down the Second Bank of the United States. Taney's actions in the 1830s led to "Hard Times," the depression of the 1830s. In 1857, they led directly to the Civil War by making the system unworkable by denying the basis of the system itself. Civil war became inevitable as slave owners, convinced that their economic survival depended on the slave cultivation of American agricultural products, especially cotton, saw their "peculiar institution" and cherished way of life threatened by increasing pressure for abolition.

As Crosskey analyzed the Dred Scott case, the question decided had been whether any "'man of African descent, whether a slave or not,' could enjoy, under the Constitution of the United States, any right or protection whatsoever. All such men were left, by the principles of the Dred Scott case, to the absolute, unrestrained power of the separate states."

In other words, as far as the Court was concerned, a black man, slave or free, was not a "person" as that term was used in the Constitution — the possession of rights being the defining characteristic of a "person." The determination as to whether an individual of African birth or descent, slave or free, was a "person" was an issue to be decided by the various states, not the federal government.

Keep that point in mind, for it is absolutely critical to understanding what Crosskey called the "craftiness" of the Supreme Court, and we will return to it when we get to Roe v. Wade. Whether anyone is a person was an issue to be decided by the individual states, not the federal government.

As Crosskey concluded, the full import of Scott was not that human beings of African descent were to be permanently deprived of citizenship, but that such individuals were not persons as the term is used in the Constitution. Black Americans, slave or free, therefore had no rights under the Constitution, and were, in fact, "to be bereft thereafter of all rights and protection, under the Constitution of the United States, whatsoever." [Emphasis in Crosskey.]

As Crosskey commented, "This, to the present-day mind, seems an unbelievable decision; but to those familiar with the political demands of the South of the time when the decision was rendered, such a tenor in the Court's holding will not be difficult to credit. For it was exactly what the South, for a long time, had been demanding."

What, apparently, was "gone with the wind" was any semblance of a jurisprudence based on anything other than raw judicial power, or "might makes right" — the philosophy of "legal realism."

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Raw Judicial Power VIII: Cotton is King

2012-01-17T12:23:00.000-05:00

In the previous posting in this series we saw that, as a result of the perceived necessity of preserving chattel slavery, a conflict was built into the new country. Following the Civil War, in his study of the United States, The American Republic (1865) Orestes Brownson would characterize this conflict as being between the rising industrial capitalism of the North, and the agrarian capitalism of the South.

Economically speaking, the 19th century was characterized by a shift toward capital-intensive production, and away from labor-intensive production. There were some anomalies, such as the invention of the cotton gin. The cotton gin made human chattel slavery economically viable by increasing dramatically the speed at which cotton could be processed. This removed a bottleneck in production. (Parke Pierson. "Seeds of conflict," America's Civil War, September 2009, Vol. 22, No. 4, 25.) As David Christy argued in Cotton is King (1855), this increased the demand for slave-cultivated cotton. It gave the illusion that the economic wellbeing of the United States and the British Empire depended on the continuance of slavery, just as today the widespread illusion is that prosperity depends on the wage system and massive government debt.

Usually, however, advancing technology results in elimination of direct human labor in the production process. This phenomenon accelerated in the 20th century, and is a virtual pandemic in the 21st. Even as productivity is measured in terms of labor hours, human labor has become more important as the basis for justifying the redistribution of purchasing power than as a factor of production.

As technology advances, jobs begin to disappear at a rate faster than new ones are created. Exacerbating the problem is the shift away from small, widely distributed ownership, to highly concentrated ownership. As capital instruments increase in cost, the assumption that only existing accumulations of savings can be used to finance new capital formation causes ownership of the capital to become increasingly concentrated at an accelerating rate.

Within the past savings paradigm, "capital breeds capital." While valid only within the rigidly applied if fallacious principles of the Currency School of finance that rely on income from capital being diverted to reinvestment, this causes increasing concentrations of wealth. Locked into the past savings assumption, and absent State redistribution through inflation or the tax system, the great mass of people will be forced into destitution and dependency as their labor becomes less valuable in the production process relative to capital.

Crosskey's thesis in Politics and the Constitution was that the new Constitution of 1789 set up not a federal or federated system, per se, but a unified system of law binding on the individual states and all "commerce" (a term not restricted to mere business in the 18th century, but extending to all gainful activity.) between them, with the end of protecting each person's natural rights. In accordance with the principle of subsidiarity, states kept autonomy in local matters, but (to oversimplify somewhat) no state could pass a law that contradicted the unified system established by the Constitution.

Slavery, of course, was an exception to this general principle. Thus slavery was to a large degree responsible for undermining the system that Crosskey saw the Founding Fathers envision — hence the importance of measures that come across to us today as equivocations, such as the "Missouri Compromise" of 1820. These were efforts to make a system containing an inherent contradiction work, much like the "just wage" based on need is an inherently contradictory expedient to make a system based on past savings operable within marginally acceptable parameters. The contradiction of slavery, like the wage system, was a denial of natural rights, explicit and tacit, within a system based on a declaration of universal applicability and inalienable character of natural rights.

The choice appeared to be clear. In order for the United States to be preserved as a unified system as the Founding Fathers envisioned, the contradiction would have to be removed. The alternative would be to invoke "the judgment of heaven" on the new country, as George Mason predicted. (Robert A. Rutland, George Mason: Reluctant Statesman. Baton Rouge, Louisiana: Louisiana State University Press, 1961, 86-89.) This meant that the country would have to be either all slave, or all free, just as Abraham Lincoln declared in his "House Divided" speech. (Republican State Convention, Springfield, Illinois, June 16, 1858.) There could not, at one and the same time, be a middle ground where natural rights to life, liberty, or property were both protected and denied.

During the period between the adoption of the Constitution and the Civil War, however, the operation of the federal government had been minimal, almost to the point of actual neglect. As de Tocqueville noted in the 1830s,

"In some countries a power exists which, though it is in a degree foreign to the social body, directs it, and forces it to pursue a certain track. In others the ruling force is divided, being partly within and partly without the ranks of the people. But nothing of the kind is to be seen in the United States; there society governs itself for itself. All power centers in its bosom; and scarcely an individual is to be meet with who would venture to conceive, or, still less, to express, the idea of seeking it elsewhere. The nation participates in the making of its laws by the choice of its legislators, and in the execution of them by the choice of the agents of the executive government; it may almost be said to govern itself, so feeble and so restricted is the share left to the administration, so little do the authorities forget their popular origin and the power from which they emanate." (Alexis de Tocqueville, "The Principle of Sovereignty of the People in America," Democracy in America, I.iv.)

This principle of subsidiarity came to be interpreted as proving that "states' rights" were superior over those of the federal government. The correct view is that each level of government, as well as the individual citizens, has its proper sphere of action within a uniform system of law.

The Constitution of the United States was being grossly misinterpreted in order to maintain an egregiously unjust system. It could not last, and matters were about to come to a head in one of the three most infamous cases in the history of the United States Supreme Court: Scott v. Sandford, the "Dred Scott case."

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Raw Judicial Power VII: "All Men are Created Equal"

2012-01-16T11:18:00.000-05:00

On July 4, 1776 the Continental Congress of the United Colonies declared to the world that all men are created equal, and are endowed by their Creator with certain inalienable rights, among them life, liberty, and the pursuit of happiness. The language of the Declaration of Independence was clearly inspired by the Virginia Declaration of Rights adopted nearly a month before on June 12.

Both documents obviously espoused an Aristotelian understanding of the natural law as refined by the Medieval scholastic philosophers, notably Thomas Aquinas. Robert Bellarmine, a 17th century Italian Catholic Cardinal, translated this into the idiom of modern political science. This was a result of his struggle against proponents of the divine right of kings, and transmitted to the revolutionaries largely through the work of John Locke and Algernon Sidney.

The basis for the new government was thus clearly derived from "Catholic" political theory: the natural law based on God's Nature and reflected in human nature, not someone's opinion about something that might or might not be an expression of God's Will. There was, however, a serious problem thrown into the mix: chattel slavery.

Defenders of slavery were quick to point out that slavery is not contrary to the natural law. That is absolutely correct. The problem was that, to be in conformity with the natural law, the enslaved individual has to be personally guilty of some crime for which slavery is imposed as punishment and a means of rehabilitation. To impose or maintain slavery based on the alleged inability of a single individual, much less an entire group, to function as free people, absent actual crimes of which they are personally and individually guilty, is directly contrary to natural law. You cannot punish people for something they might do. You can only punish someone for what he or she has actually done — and for which you have demonstrable proof.

Thus you had a conflict built into the constitution of the new country from the very beginning. Everything in the new Constitution except slavery was clearly established on a solid foundation of the natural law as found in Aristotelian philosophy corrected by Aquinas. In order to protect slavery, however, distortions and even contradictions became the order of the day. This caused problems that have lasted down to the present day, reaching what many regard as their epitome in Roe v. Wade.

According to William Crosskey, the perceived need to preserve slavery was behind the development of the theory of "state's rights" and the expansion of "judicial review" far beyond the intent of the framers of the Constitution. This promoted an encroachment by the Supreme Court on the powers of Congress before the Civil War in an effort to placate the politically powerful South, and after the war in opposition to the growth of the power of the Executive and the diminution of the power of Congress.

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News from the Network, Vol. 5, No. 2

2012-01-13T15:04:00.000-05:00

Possibly the most earth-shaking event this week is the bankruptcy of the company that makes Hostess Twinkies, to say nothing of Ding Dongs, Sno-Balls, cream-filled cupcakes with twisty little icing squiggles on top, HoHos and other snacks, as well as Wonderbread (and no jokes about it being called that because you wonder why it's called bread).

While the public has been assured that the Twinkie Train will not be derailed, the relevant news to Just Third Way adherents is that the rather large bale of straw that broke the Twinkie's back and left it a little yellow and white smear on the floor of the Quik-E Mart is the nearly $1 billion in unfunded defined benefit pension plan liabilities the company has accrued and owes to the union's pension trust.

Depending on your addiction to brightly colored and tasty — if empty — calories, the Twinkie meltdown may dwarf the negligible problem of the nearly $7 trillion in unfunded defined benefit pension plan liabilities incurred by federal, state, and local governments. After all, the federal government can always just print more money by emitting bills of credit to bail itself or state and local governments out, but they can't bake Twinkies. Or produce anything else to generate income to meet its obligations. Senator Orrin Hatch is just an alarmist, especially when he says that the defined benefit plan is unsustainable. The bulwark of union power a dinosaur? Oh, yeah? Well . . . Mr. Hatch, you're another. So there!

Of course, if Senator Hatch is right, we're up the proverbial creek, and the only way out is a Capital Homestead Act as soon as possible, say, next week. So here's what we're doing to try and bring this about:

• Russell Williams, a Hartford activist and former President of the Greater Hartford NAACP who serves as one of the National Field Directors for the Center For Economic and Social Justice, has organized a Martin Luther King Jr. Economic Justice & Empowerment Summit to be held in Hartford on Saturday, January 14, 2012, from 10:00 am to 2:00 pm at the Bushnell Center for the Performing Arts on 166 Capital Avenue in the city. Admission is free and the public is invited. The auditorium will open at 9:00 am. The Connecticut Coalition for Capital Homesteading, the Connecticut State Baptist Convention, and Service for Peace are hosting the event. Norman Kurland, president of CESJ and managing director of Equity Expansion International, Inc., is the principal speaker.

• More interest is being generated in CESJ's new annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors. Everyone is encouraged to visit the book's website and download a free copy of the e-text for reviews, comments, and endorsements.

• Dr. Scott H. initiated an interesting discussion by locating a poll on the internet that found most people think having a wage system job is the single most important issue today. Dr. H. pointed out that few people seem to be aware of the importance of widespread capital ownership, or are willing to compromise in order to obtain the immediate — if ephemeral — benefits of the Servile State and a guaranteed fixed wage and benefits package over their long-term self-interest in becoming capital owners.

• We were able to respond to Karl D., who asked a question some time ago regarding the possibility that the monetary reforms under Capital Homesteading might lead to unwise uses of credit for unsound capital projects, speculation, or consumption. We explained the additional checks and balances added into the system by using capital credit insurance and limiting the allocation that goes to each person.

• We responded to John McC., a long-time supporter of expanded ownership who, nevertheless, appeared not to understand the Kelso-Adler principles of economic justice, the social doctrine of Pope Pius XI, the need for economic democracy to support political democracy, or the role of the Federal Reserve (or any other central bank) in breaking the "slavery of past savings" and creating money to finance widespread capital ownership instead of government deficits.

• As of this morning, we have had visitors from 60 different countries and 44 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Australia. People in Croatia, Germany, Argentina, and Venezuela spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Ron Paul and Creating Money," "'The Market Must Never Neglect Solidarity'," and "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Foreword to W. T. Thornton's "A Plea for Peasant Proprietors" (2)

2012-01-12T14:27:00.000-05:00

In order to make life easier for us (at least today), we’re having a short break in our series on “Raw Judicial Power” and posting the second of three parts of our foreword to William Thomas Thornton’s A Plea for Peasant Proprietors. Our new annotated edition is starting to generate a little interest in some quarters. Take advantage of the free download on the “Plea” website and (if the spirit moves you) you can get a 20% discount on purchases in bulk (10 or more copies) . . . plus shipping. Or you can just go to Amazon or Barnes and Noble and get an individual copy.

So why all the fuss? Especially at this time of year when “everybody” is focused on the March for Life or the Republican shenanigans in trying to pick someone who can defeat President Obama when they’d be better off trying to find somebody who can do the job better instead of no worse.

Thornton's proposal was a logical development of an analysis he had published two years before. In his first major work in 1846, Over-Population and Its Remedy, (William Thomas Thornton, London: Longman, Brown, Green, and Longmans, 1846.) Thornton refuted Thomas Malthus's scarcity-based theories. Thornton's analysis in A Plea for Peasant Proprietors countered an idea implicit in Malthus's Essay: that ownership of capital must be concentrated if the rich are to accumulate sufficient savings to finance new capital and provide jobs for workers who own nothing except consumer goods and their own labor. Like other philosophers and political scientists through the ages, (A brief list includes Aristotle, the Gracchi (noted by Thornton), Plutarch, the 6th century Byzantine "Farmers' Law," John Locke, George Mason, William Cobbett, Benjamin Watkins Leigh, and Daniel Webster.) Thornton made clear that a program of widespread capital ownership has the potential to make people politically as well as economically free.

Nor did Thornton ignore the rights or concerns of propertyless non-agricultural workers. In fact, Thornton's proposal bears a striking resemblance to that of Louis Kelso and Mortimer Adler published in the late 1950s and early 1960s. (See Louis O. Kelso and Mortimer Adler, The Capitalist Manifesto. New York: Random House, 1958; The New Capitalists. New York: Random House, 1961) In 1869, Thornton published A Treatise On Labour: Its Wrongful Claims and Rightful Dues, Its Actual Present and Possible Future, (London: Macmillan and Company, 1869) revising it in 1870. This work strengthened his point that the only solution to the conflict between "labor" and "capital" is for workers and owners to form an alliance, with workers becoming owners with defined rights to profits and control. As he summarized the benefits of such an alliance,

"For mistrust and dislike or indifference on the one side, and for envy and jealousy on the other, would be substituted something of that fellow-feeling which can scarcely help growing up between those who, in serving themselves, are helping each other. With those laborers who had taken shares, some sympathy with capital would tincture the old headlong passion in favor of labor. With those who had not yet become shareholders the possibility of their becoming so subsequently would have a like effect." (William Thomas Thornton, On Labour: Its Wrongful Claims and Rightful Dues, Its Actual Present and Possible Future, Second Edition. London: Macmillan and Company, 1870, 394.)

Not surprisingly, this had also been the contention of Charles Morrison in his pivotal An Essay on the Relations Between Labour and Capital (London: Longman, Brown, Green, and Longmans, 1854. Morrison's book was influential in the reform of the Law of Partnerships and adoption of the Limited Liability Act of 1855 (18 & 19 Vict c 133), his goal being to lift one of the chief barriers preventing or inhibiting worker ownership.) published in 1854 — and would be repeated by Pope Leo XIII in the epochal Rerum Novarum in 1891, usually regarded as the first social encyclical, "On Capital and Labor": (Pope Leo XIII, Rerum Novarum ("On Capital and Labor"), 1891. N.B.: "On Capital and Labor" is the current official title in English. Many other titles have been used.)

"We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (Rerum Novarum, § 46.)

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Raw Judicial Power VI: "Crosskey's Once and Future Constitution"

2012-01-11T11:37:00.000-05:00

As we saw in the previous posting in this series, to understand what happened in the Roe v. Wade decision, we first have to understand the basis of law assumed by the framers of the U.S. Constitution. We then have a task much harder than most people are willing to undertake. That is to realize that Roe v. Wade was not an isolated instance. It was, rather, the result of the development of a line of thought that has plagued humanity from the beginning of the idea, even the nature of law itself.

If we study the analysis of William Winslow Crosskey (1894-1968) in his uncompleted magnum opus, Politics and the Constitution in the History of the United States (Chicago, Illinois: University of Chicago Press, 1953), we might conclude that the United States Supreme Court has been engaged in what amounts to a power-grab almost from the moment of its establishment. This has resulted in the United States government operating in a manner never intended by the Founding Fathers of the American Republic. The inevitable consequence has been a usurpation of individual sovereignty and the undermining of the natural law on which the government of the United States is based.

Legislation by judiciary has been responsible for the effective emasculation not only of the individual natural rights protected by the 9th and 10th Amendments to the Constitution, but of the powers of Congress itself. Congress, while intended as the direct representative of the people to be the chief governing body of the country, has seen its role diminish. In response there has been a growth of overreaching executive power.

With the inability of the Congress to act in many cases as a result of the restriction of its powers by the expansion of the concept of judicial review beyond all bounds, the more general powers of the executive, being less amenable to judicial review, have necessarily stepped in to fill the void. Nature abhors a vacuum, and nowhere is this more true than when power is the issue.

This is, according to Crosskey, directly contrary to what the Founders intended. As one commentator on Crosskey's work summarized Crosskey's analysis (page references are to Politics and the Constitution, op. cit.),

"The separation of powers was to be complete enough that each branch, including the dominant legislative branch, would interpret its own powers (pp. 1008-1035). There were certain checks and balances, to be sure, but judicial review by the Supreme Court of acts of Congress was not among them, except to the limited extent of protecting judicial prerogatives (pp. 1002-1007)." (Laurin A. Wollan, Jr., "Crosskey's Once and Future Constitution," The Political Science Reviewer, Volume 5, No. 1, Fall 1975, 131.)

As matters have developed, however, the only check on the growth of the power of the United States Supreme Court is that the Court can only act in response to specific legislation; it is necessarily passive, and cannot take an active role. The Court can only act when a case is brought before it. As the history of the Court has amply demonstrated, however, this check has been far from adequate.

In order to understand how to counter this state of affairs and restore the natural law to its primacy of place in the United States, we have to know how the situation developed. As far as we have been able to determine, the decision in Roe v. Wade was the culmination of a long process that began even before the adoption of the U.S. Constitution.

The attack on the natural right to life was preceded by attacks on liberty in Scott v. Sandford in 1857, and on property in the Slaughterhouse Cases in 1873. The mindset that led to the pro-slavery decision in the Dred Scott case and the anti-property decision in the Slaughterhouse Cases is the same that led to the anti-life decision in Roe v. Wade.

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Raw Judicial Power V: The Nature of Law

2012-01-10T10:11:00.001-05:00

The fixed idea today is that passing a law or handing down a court decision makes it so. Supporters of abortion endlessly chant the mantra, "It's perfectly legal," even though that declaration and the orientation behind it are flawed on many levels. The problem is that the orientation that the judiciary can somehow create law instead of being restricted to interpreting and applying the law is legal positivism at its finest — or worst, depending on your orientation.

This surfaces another problem, one with which the Pro-Life movement has failed — in some cases refused — to deal with. A proper understanding of the decision in Roe v. Wade reveals the "soft underbelly" of the Pro-Choice position: the idea that the State in the person of the Supreme Court, the Congress or the President can decide on basic issues of right and wrong, that is, the natural law, and thus what comprises a law or court decision that is consistent with the Constitution of the United States, a document based on the natural law.

This shifts power away from both individuals as themselves and organized into groups in an exercise of personal sovereignty and freedom of association, to what is effectively an all-powerful State. Inalienable rights become alienable by the simple expedient of redefining basic terms, and are viewed as bestowed by the State as expedient or prudent, and not because they inhere absolutely in each human being.

Nevertheless, as we saw in the previous posting in this series, human positive law — if it is to be considered just — is necessarily grounded in what our study of human nature and our reason reveal to be right or wrong: the natural law. The chief precept of the natural law is that good is to be done, and evil avoided. Aristotle defines "good" as that which is in conformity with nature. Thus, anything that goes contrary to nature, especially if it violates humanity's natural rights to life, liberty (freedom of association/contract), property and the pursuit of happiness, must be construed as wrong, regardless how many or how strong the proponents advocating the change. Might does not make right.

As Harry V. Jaffa pointed out in his book on the Constitution (Original Intent and the Framers of the Constitution. New York: Regnery Publishing Company, 1994), and as William Winslow Crosskey took as his thesis in his monumental Politics and the Constitution in the History of the United States (Chicago, Illinois: University of Chicago Press, 1953), no one, including the U.S. Supreme Court, can interpret the Constitution — constantly cited as "the law of the land" by supporters of Roe v. Wade — without knowing what the words mean . . . and, especially, what the framers of the Constitution meant by those words. In spite of that, as Crosskey related, the constitutional history of the United States has been a long chronicle of ongoing efforts to subvert the original intent and accepted definitions of terms in the U.S. Constitution from the system envisioned by the Founders, to what is politically expedient or desirable to advance special interests.

The subversion of the U.S. Constitution by the very body established as its chief defender has been an absolute disaster. The whole idea of the proper role of the State and man's place in the State is turned on its head. Rather than the government existing for the benefit of the people and by the consent of the governed, each human being becomes "a mere creature of the State." Each human being has only such rights as the State chooses to recognize (and is thus a person only to that extent), and even, as Hilaire Belloc pointed out in The Servile State (1912), is permitted to exist — when permitted to exist — only on such terms as the State dictates.

Rather than work for the restoration of the U.S. Constitution on terms that would effectively overturn Roe v. Wade by making it obviously in violation of our natural right to life, the Pro-Life movement has allowed itself to be diverted into using the same legal philosophy, even the same judicial weapons as the Pro-Choice movement. If one court decision can take away the right to life (so they appear to reason), then another court decision can give it back.

On the contrary — overturning Roe v. Wade would do absolutely nothing if the Supreme Court of the United States continues to abrogate the natural law basis of the Constitution and assert its alleged power to decide what a person is. In natural law, all human beings are de facto persons as a result of the inalienable rights possessed by each human being. It is the possession of rights — not a court decision or even a constitutional amendment — that makes someone or something a person.

Neither the courts nor the legislature, nor even a presidential decree creates a natural person — and all human beings are automatically natural persons by the mere fact of their humanity. The natural personality of each human being is a fact established by definition, and cannot be taken away by redefinition, even though totalitarian political philosophy would have it so. Nor can personality be subject to a popular vote.

Thus, the tactic that the Pro-Life movement should be pursuing (not that there should be any diminution in the protests and demonstrations), is to prove that, in Roe v. Wade and other court decisions, the U.S. Supreme Court has violated the chief precept of the natural law: good is to be done. Given that the reason for life is to acquire and develop virtue and so develop more fully as human beings, this necessarily bases law on morality, that is, that which is good. The natural law written in the hearts of all men dictates what is good, thus the basic precept of the natural law is good is to be done, evil avoided.

Man being by nature a political animal, the State is made for man as an assist to the acquisition and development of virtue. Man is not made for the State. Therefore, anything that subordinates a natural right to political or economic expedience is a direct attack on the natural law, and thus undermines the very justification for having the State in the first place.

Consistent with the laws and characteristics of social justice (William J. Ferree, S.M., Ph.D., Introduction to Social Justice. New York: Paulist Press, 1948), the way to overturn Roe v. Wade is not to work directly on the decision itself, but on the "environment" — the legal philosophy — that made the decision possible. Restoring the original intent of the Constitution is more than merely passing laws or handing down court decisions. It is a matter of our whole approach to life and politics. If that remains unchanged, and the natural law continues to be rejected as the basis for society and government, all the court decisions, laws, or even constitutional amendments will not do one bit of good.

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Raw Judicial Power IV: The Idea of Law

2012-01-09T12:06:00.000-05:00

In the previous posting in this series we noted that (at least in the western political tradition), man is by nature a political animal. This is a possibly unique combination on Earth of an individual and social being, that is, a member of a group that retains individuality. The problem becomes how to balance individuality with the demands of being a member of a group.

Individualists try to solve this problem by asserting that while man is by nature an individual, he voluntarily joins with others in order to gain the mutual advantages that accrue to living in a group. This necessarily involves surrendering some rights in order to protect others, but that is the price you pay to gain safety and protection of your property. The job of each member of the group is to keep an eye on the governing body, and make certain that it doesn't take away any more rights than necessary to ensure the security of the remaining rights.

Collectivists argue that, since man is by nature a social animal, he is naturally a member of society. He joins with others because it is natural for him to do so, and he thus has no choice in the matter. All rights come from the group, being doled out only as necessary to keep people happy, and only so far as the exercise of individual rights does not come into conflict with the needs of the group.

The actual case is somewhat different. An Aristotelian or Thomist would point out that, since political is a combination of both individual and social, it is not an "either/or" situation. Man naturally gathers together in groups because our political nature necessarily implies the existence of a group, of others. "All politics is local" (attributed to "Tip" O'Neill), but it is not as local as to be limited to a single individual.

Yet, while it is natural for humanity to gather together into groups, the specific group is, up to a point, a matter of voluntary choice. People come together to form a particular society in response to humanity's social nature and to meet specific needs, but the formation of the group is generally voluntary, as is the particular form and function the group assumes in order to meet the social need for which the group is organized.

Further, while an individual may have no choice into which group, e.g., he or she was born into, continuation as a member of that group must be a matter of free choice, either implicit or explicit, once the individual reaches the age of reason or legal majority. That being the case, each member of a group has a personal responsibility for the maintenance of the group, and for its reform should the group no longer fulfill its social purpose.

There is no question of people surrendering some rights in order to secure others. Rights by their nature are only realized within a social setting, that is, within a group, "in society." A right is defined as the power to do or not do some act or acts in relation to others. This necessarily implies the existence of "others" in the group against whom rights are exercised. Each human being retains the full spectrum of natural rights vested in each person by human nature itself, but each group has to define the exercise of those rights so as to obtain the optimal enjoyment of rights by the individual without harm to other members of the group, or the institutions — the common good — of the group as a whole.

Each group, being formed for a specific purpose, must serve the general purpose of promoting the wellbeing of each member of the group. In Aristotelian philosophy this general purpose is to provide the opportunity and means for each member of the group to realize his or her fullest potential as a human being — to acquire and develop "virtue," that is, "human-ness": become more fully human. This involves establishing and maintaining the institutions, the "social tools" that humanity as a political animal normally requires to assist each individual in acquiring and developing virtue. All groups — including the State itself — are thus made for man, not man for the State.

All institutions should therefore be in material conformity with human nature — the natural law — or they are not fulfilling their proper function. The most obvious institutions in any society are manmade laws, that is, human positive law, but these are actually the least important institutions in the daily life of any group. As A. V. Dicey pointed out, without custom, tradition, and belief (what Dicey called "public opinion") to back up human positive law, few laws will be effective, or have the desired result.

Ordinarily the State formalizes into human positive law what the citizens already accept as law, or even the best-intentioned law can cause massive social disruption, even anarchy. Even the threat of a law that does not have popular support or goes contrary to accepted custom or tradition has the potential to destroy a society, as the belief prevalent in the American South that Abraham Lincoln would abolish slavery caused the Civil War, and Pro-Life agitation is seen by many people as a threat to a peaceful society and an attack on individual rights.

This raises another problem. The extreme individualist will assert that each person should obey only such laws (including custom and tradition) as he or she believes to be just or acceptable. Ultimately the sole standard against which to measure anything is individual opinion. The extreme collectivist will assert that all rights — and thus all laws (which alone are binding, negating custom and tradition) — come from the State, and must be obeyed without question simply because it is the law. The only standard that has any meaning or relevance is the needs of the State. Thus, while the orientations are at opposite ends of the spectrum, both the individualist and the collectivist end up in the same place: complete moral relativism and a rejection of anything that can be used as an objective and absolute standard against which to measure right and wrong, or the objective goodness or badness of human laws.

Moral relativism, however, whether it springs from individualism or collectivism, is not a sound basis for human society. By rejecting absolutes that can be discerned by reason alone and that apply to every member of the human race, or by denying inherent standards that apply outside a specific group, moral relativism takes a distorted view of the human person and thus human society based on human nature. As Heinrich Rommen explained,

"The idea of a natural law can emerge only when men come to perceive that not all law is unalterable and unchanging divine law. If can emerge only when critical reason, looking back over history, notes the profound changes that have occurred in the realm of law and mores and becomes aware of the diversity of the legal and moral institutions of its own people in the course of its history; and when, furthermore, gazing beyond the confines of its own city-state or tribe, it notices the dissimilarity of the institutions of neighboring peoples. When, therefore, human reason wonderingly verifies this diversity, it first arrives at the distinction between divine and human law. But it soon has to grapple with the natural law, with the question of the moral basis of human laws. This is at the same time the problem of why laws are binding. How can laws bind the conscience of an individual? Wherein lies, properly speaking, the ethical foundation of the coercive power of the state's legal and moral order?" (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 4.)

Thus, our idea of law should not be that it is something instituted to coerce people to act in ways that the most powerful or most popular have deemed desirable. It can be that, of course, and can even be just — assuming that the basis for what the powerful or popular have decided is desirable is in material conformity with human nature, with what people have discerned through the use of their reason to be good.

As a general rule, however, the whim of the mighty or the caprice of the crowd is not a good indicator of what is good. Laws based on mere power or popularity may not be what constitutes the optimal assistance each human being should receive from the institutions of society in order to develop more fully as a human being.

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News from the Network, Vol. 5, No. 1

2012-01-06T15:49:00.000-05:00

Welcome to the first issue of Volume Five of News from the Network. We have two predictions for the coming year. One, as what passes for global leadership continues to drift farther and farther (or is that "further and further"? we're never sure about that one . . . "flammable" or "inflammable," anyone?) from the principles of the Just Third Way, uncertainty and chaos will increase geometrically.

Two, if nothing is done to adopt Capital Homesteading in the world, we will see an acceleration of bankruptcies and failures from the individual level right up to the Nation-State. As one expert predicts, several "institutional" brands are in serious danger. If Sears is in trouble, you can bet that governments that have been increasing their "sovereign debt" loads without figuring out how to rebuild their tax bases are in even bigger trouble.

We hope that these predictions do not come true. To make sure that they do not, here's what we've been doing for the first week of 2012:

• On Tuesday, Monica W. in Cleveland attended a press conference of the Neighborhood Housing Services and met with Jim Rokakis, Director of Thriving Community Institute. She will be rescheduling a conference call with Norm in the near future. Jim is putting together county land banks across northern Ohio. She also met with Representative Dennis Kucinich, who told her to schedule a meeting through his secretary. Monica also spoke with Representative Marci Kaptur who, due to redistricting, will be running against Representative Kucinich in a three-way race against . . . Joe the Plumber. Joe Lunchbucket is standing out this election. Representative Kaptur agreed to a half-hour meeting (Monica asked for an hour). Monica also touched base with Lou Tisler, Executive Director of Neighborhood Housing Services, who said he wanted to meet. Monica also spoke with Cleveland City Council Member Anthony Brancatelli, who is very involved in the foreclosure crisis. He was part of what was called a "mocumentry," a mock trial titled Cleveland vs. Wall Street that focused on the Cleveland foreclosure crisis. It was a big hit at the Cleveland film festival last year (no surprise!) and made it to local theaters in the area. He agreed to a meeting and gave Monica his card and even wrote his cell phone number on the back. To top it off, Monica also got a handshake from Senator Sherrod Brown, but couldn't follow up as the Fourth Estate crowded around instantly.

• Also on Tuesday we met with Dr. Scott H., a physician with the Michigan Department of Corrections. Scott, who is a distributist, had heard Norm interviewed on Tuesdays With Tormala out of Grand Rapids, Michigan, and got in touch. Lunch was served following the meeting, where we met Scott's wife and six children. In a flurry of follow-up, Scott has already posted a review of In Defense of Human Dignity (2008) on Amazon, and is preparing to send out information on the Just Third Way to his entire internet network. In Defense of Human Dignity is already selling more copies, and Scott is preparing other reviews.

• Baron McGrath of Sealand is considering endorsing CESJ's annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors.

• CESJ friend Lydia Fisher, author of Cinderella of Wall Street, (not to be confused with Lydia Jane Fisher, author of Letters from the Kingdom of Kerry in the Year 1845) posted a most thought-provoking piece on the Huffington Post under the title, "Everyone is Called to One Human Vocation — That of Being a Good Citizen and a Thoughtful Human Being . . ." The piece was inspired — surprise! — by an interview with Mortimer J. Adler Lydia viewed recently. You'll get more out of the article by reading it first-hand rather than a summary, so we'll just say that it is consistent with the natural law principles of the Just Third Way, as you might expect from something inspired by Adler.

• As of this morning, we have had visitors from 61 different countries and 48 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Australia. People in Germany, Russia, Argentina, Australia, and the U.K. spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Aristotle on Private Property," "'The Market Must Never Neglect Solidarity'," and "Ron Paul and Creating Money."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Foreword to W. T. Thornton's "A Plea for Peasant Proprietors" (1)

2012-01-05T15:04:00.001-05:00

Often the exigencies of modern life take their toll. Nowhere is this more evident than when trying to keep up with a daily blog when your time gets taken up elsewhere and you don't have the next installment of your planned series drafted. Since that is the case today, we will sneak in a brief snippet from the foreword to our annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors. If you can't wait for the next unscheduled installment, you can go to the book's website and download the free .pdf or follow the links on the website to Amazon and Barnes and Noble. Anyway, here goes:

Ireland is in crisis. Its economy is on the verge of collapse. Short-term "solutions" are only buying time until the next disaster. Politicians, academics, and business leaders are floundering helplessly in the face of the failure of a global financial system that they never understood in the first place. Proposals to correct the problem are only making matters worse and increasing the magnitude of the inevitable breakdown. In this, Ireland is a bellwether of where the global economy is headed.

Growing agitation about the crisis is spreading throughout the world. People from across the political spectrum are complaining about the economy. From the "Tea Party" movement in the United States, to the recent "Occupy Wall Street" phenomenon, complaints are becoming louder, in some cases violent — but nobody is doing or suggesting anything more than proposals that have already failed miserably.

There is a solution — and one that applies not only to Ireland, but to the United States and the rest of the global economy. The solution is one developed more than a century and a half ago to address a catastrophe in comparison with which today's problems pale in significance. While it was ignored then, Thornton's solution and vision of a more just and humane future for all was relevant 150 years ago. Updated to the needs of a technologically advanced civilization, it is even more relevant today.

Following "Black '47," the worst year of the Great Famine in Ireland (1846-1852), William Thomas Thornton, a clerk in the London office of the East India Company, proposed a solution to the disaster that had struck Ireland. Thornton's remedy was revolutionary, though hardly new or unique: vest the common people of Ireland with direct ownership of the landed capital of Ireland. Thornton believed his solution would end the famine, eliminate widespread poverty, diminish the threat of violence and rebellion, and establish a native "middle class." He published his proposal in 1848 as A Plea for Peasant Proprietors.

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Raw Judicial Power III: The Role of the Group

2012-01-04T12:39:00.000-05:00

Aristotle characterized man as being by nature a political animal. This is a possibly unique combination on Earth of individual and social natures combined in a single being. As an individual, each human being has certain powers to do or not do acts. Because human beings are naturally political, that is, members of society, these powers are always exercised in relation to others in that society. These powers exercised in relation to others are called "rights." The existence of a right necessarily implies society — "others" against whom rights are to be exercised; rights cannot be exercised in a social vacuum.

A right therefore necessarily consists of the powers inherent or vested in the individual to require other individuals or groups to do or not do some act in relation to the right holder. Someone or something (rights can be delegated, even to things) that has rights is called a "person." Someone that has rights by nature is called a "natural person." Something that has rights delegated to it is called an "artificial person." The only natural persons recognized legally in the United States are human beings.

An artificial person can be a thing or a natural person. This sounds paradoxical, but is not. An individual human being is a natural person. A group of natural persons, however, is a thing. If a group is organized, there must be some individual or subgroup in charge for the purposes of governance, even if the subgroup is a "committee of the whole," that is, the group makes every decision by consulting every member of the group.

A governing individual or subgroup only receives the right to make decisions by delegation from the members of the main group. This process, however, is not direct. The members of a group first delegate the decision-making power to the group. The members of the group then select the governing individual or body, which thereby receives the right to govern from the group as a whole.

Were this not the case, any member of a group could withdraw his or her consent to the selection of the governing individual or body simply by rejecting the governor's authority on the grounds that he or she chose not to accept that authority. Because, however, the delegation of the right to govern was vested first in the group as a corporate body, and then from the group to the group's selected governor, the individual members of the group no longer retain the right to reject the authority of the group's chosen governor arbitrarily. They can only do so for just cause and through due process.

While individuals retain the right to disassociate themselves from the group and thereby reject the duly appointed governor's authority for just cause and by following due process, this is not always prudent or expedient. Aquinas advised that, even in the face of glaring injustice, a change of governors or, especially, the system itself be undertaken only after due consideration and in concert with "the best people" in the community. (William J. Ferree, S.M., Ph.D., analyzed this process in The Act of Social Justice, Washington, DC: The Catholic University of America Press, 1943, and summarized the presentation in Introduction to Social Justice, New York: The Paulist Press, 1948.)

The point to be made here, however, is that a governor of a group, whether a single individual or a governing body composed of a number of individuals or smaller groups within the larger group, has two distinct characters. An individual, regardless of his or her position in a group, always remains an individual, a natural person, entitled to all the rights, and subject to all the duties of any other natural person in that group.

At the same time, filling an official position gives a natural person the additional character of an artificial person, exercising rights on behalf of the group, and subject to duties adhering to him or her not as an individual, but as the delegated agent of the group. The individual as an individual remains a natural person with natural rights, regardless of his or her official position. At the same time, as a member of a group that has been vested with powers by the group, the governor is also an artificial person with only those rights that the group has delegated to the governor as an agent of the group.

The question then becomes, Why form groups in the first place? The answer is that, because man is by nature a political animal, it is natural to do things politically, that is, in an organized group that, at the same time that it is engaged in social action, respects the individual rights of every member of the group. Individual people thus ordinarily organize in free association with others of their kind in order to satisfy their wants and needs, whether the purely material, or the highest spiritual.

At one time, this political nature of humanity was realized most fully in the United States. As Alexis de Tocqueville observed,

"Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds — religious, moral, serious, futile, extensive, or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools. If it be proposed to advance some truth, or to foster some feeling by the encouragement of a great example, they form a society. Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association. I met with several kinds of associations in America, of which I confess I had no previous notion; and I have often admired the extreme skill with which the inhabitants of the United States succeed in proposing a common object to the exertions of a great many men, and in getting them voluntarily to pursue it. I have since travelled over England, whence the Americans have taken some of their laws and many of their customs; and it seemed to me that the principle of association was by no means so constantly or so adroitly used in that country. The English often perform great things singly; whereas the Americans form associations for the smallest undertakings. It is evident that the former people consider association as a powerful means of action, but the latter seem to regard it as the only means they have of acting." (Alexis de Tocqueville, "Of The Use Which The Americans Make Of Public Associations In Civil Life" Democracy in America, Volume II, 1840.)

The bottom line is that any group, from the family on up to the most powerful Nation-State, only exists ultimately to serve the needs of individuals, and to provide an environment within which it is ordinarily possible for the average individual to develop more fully as a human being. Thus we say that the State is made for man, not man for the State.

Sometimes the needs of the State or of the common good require an extraordinary sacrifice from some citizens. This, however, can only be justified if the sacrifice in no way violates those persons' inherent, natural rights, and if the sacrifice is required to preserve the common good. It is never justifiable to sacrifice an innocent person or violate his or her rights, even to obtain the greatest perceived good for any individual or group.

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Raw Judicial Power II: Bad Assumptions Make Bad Law

2012-01-03T11:45:00.000-05:00

It is a standard legal aphorism — albeit one typically ignored by legislators — that "hard cases make bad law." As Oliver Wendell Holmes, Jr. commented in his dissenting opinion in Northern Securities Company v. The United States (193 U.S. 197 (1904)), "Great cases like hard cases make bad law. For great cases are called great, not by reason of their importance . . . but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment." We see this especially in court cases like The State of Tennessee v. John Thomas Scopes (1925) — "the Scopes Monkey Trial" — and Roe v. Wade (410 U.S. 113 (1973)) that were deliberately used as "test cases" to change a law through judicial action rather than the legislative process.

We can expand on Justice Holmes's comment by adding that bad assumptions, like hard cases, make bad law. How it is possible for a court to create law and to understand what happened in the Roe v. Wade decision, we first have to understand the basis of law assumed by the framers of the U.S. Constitution, how that has been changed and then — perhaps a task much harder than most people are willing to undertake — realize that Roe v. Wade was not an isolated instance. Roe v. Wade is, instead, the logical result of the development of a line of thought that has plagued humanity from the beginning of the idea of law itself. Understanding this is of primary importance if the Pro-Life movement is to make any lasting advances that can be sustained on a foundation of the natural law.

The Pro-Life movement has been hamstrung from the very beginning by a number of assumptions. Ironically, many of these assumptions are based on the same flawed understanding of law that led to the decision in Roe v. Wade. These assumptions take for granted the bloated role of the State, distorted concepts of human dignity and sovereignty, even the complete separation of morality and law that the Pro-Choice movement also accepts without question.

These assumptions affect the awareness of man as a political animal. This, in turn, influences our understanding and definition of the exercise of natural rights of life, liberty and property, and the application of those rights within the common good. Our understanding of man as a political animal and the natural law affects especially our acceptance of the "analogously complete" capacity of each human being to acquire and develop virtue — "pursue happiness" — and thereby become more fully human.

Thus, where the Pro-Choice movement bases a large part of its justification for its position on the decision in Roe v. Wade, the Pro-Life movement concentrates on overturning Roe v. Wade and, in part, agitating for the adoption of a constitutional amendment to guarantee the natural right to life. Not considered is the fact that our constitutional history as related by William Crosskey demonstrates the futility of a constitutional amendment to oppose special interests championed by the United States Supreme Court.

There are many reasons why a constitutional amendment would not have the desired effect, especially in the prevailing climate of legal and moral positivism. Some of these have to do with the nature of law itself, others with the nature of politics. In no particular order, some of the major reasons are:

Misguided or Poorly Formed Public Opinion. No law, custom or tradition will be effective unless what constitutional scholar Albert Venn Dicey described as "public opinion" is behind it. Regardless of the justice or injustice of a particular law, custom or tradition, people must accept the law and be prepared to obey it, for whatever reason. Otherwise a law may have no effect, have a different effect than what was intended, or even have the opposite effect of what was intended. If the public as a whole has a poorly formed conscience or moral sense, this will be reflected in the laws that are accepted.

Expanded Role of the State. One of the "four pillars" of a just society in terms of the natural law is a limited economic role for the State. The more a society subordinates anything that is true in order to reach a political goal, the more unjust a society becomes, and the more the coercive power of the State is employed in an effort to maintain the status quo. Paradoxically, the more the State interferes to maintain the status quo or impose a false or superficial solidarity, the more quickly the social order degenerates as a result of violating the fundamental principles of subsidiarity and solidarity. Looking to the State to pass a law in order to impose a desired result is often self-defeating. Even when successful the effort undermines essential human dignity and violates the sovereignty of the human person by unnecessarily or unjustly restricting human liberty.

Rejection of Free Markets. A free market is essential to maintaining individual human sovereignty and thus securing and protecting human dignity through the exercise of liberty and private property, that is, freedom of association and contract involving the free exchange of marketable goods and services. By "free market," however, we do not mean a market in which "anything goes," but a market that all are free to enter and participate in as consumers and producers, and where the rules are clear, understandable, and enforced without prejudice. Misunderstanding this principle or interpreting it as promoting a "law of the jungle" environment sets the stage for what is effectively anarchy and "might makes right," or fascism in a misguided effort to bring order out of chaos.

Misunderstanding of Private Property. Understanding private property is crucial to recognizing and protecting essential human dignity and the sovereignty of the human person. Many people confuse "property" — ownership — with what is owned. On the contrary, property is, one, the natural right that every human being has to be an owner, and, two, the socially determined bundle of rights that define how an owner may use what he or she possesses, and (depending on the needs of the common good) what and how much can be possessed, as long as limitations do not unjustly or unnecessarily infringe on the underlying natural right to be an owner. Distortions of property that assert absolute exercise, or that the right to be an owner is not inherent (absolute) in the human person equally undermine private property as the chief support for the natural rights of life and liberty.

Alleged Economic Necessity. One of the strongest motivators for accepting even an unjust law is the need to make a living. In this respect, it is noteworthy that David Christy, author of Cotton is King (1855), one of the most persuasive defenses of chattel slavery in the American south before the Civil War, was a former abolitionist. While Christy continued to abhor slavery as an institution, he defended it on the grounds of economic necessity. Christy contended that the economic survival of the United States and the British Empire depended absolutely on the continuance of slavery in order to secure adequate supplies of American agricultural products, especially cotton, to support the industrial revolution. The modern wage system and concentrated ownership of capital, whether in private hands (capitalism) or the State (socialism) are justified on similar grounds, predominantly the need to secure adequate financing for new capital formation out of past savings.

All of these reasons — and more — demonstrate the degree to which the idea of the natural law has decayed in our society. Each one represents a more or less successful effort to undermine the natural law by subverting a common sense understanding of one or more natural rights, especially life, liberty, property, and the acquisition and development of virtue (pursuit of happiness), and making something other than truth the justification for changing the law or the social order.

The acquisition and development of virtue, especially, and somewhat paradoxically, is critical. It is a natural right itself to develop more fully as a person by acquiring and developing virtue — "pursuing happiness." The exercise of the right to acquire and develop virtue, however, necessarily implies the right to exercise the other natural rights, especially life, liberty and property. This is because exercising rights is the means by which human beings acquire and develop virtue. Thus, unless the right to develop more fully as a person is recognized and protected as the reason for even having rights at all, the probability is high that the exercise or even existence of life, liberty and property will either be denied or distorted.

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Raw Judicial Power I: The Assault of Legal Positivism

2012-01-02T16:55:00.000-05:00

In 1953 a constitutional scholar named William Winslow Crosskey (1894-1968) who taught at the University of Chicago published a remarkable book with the title, Politics and the Constitution in the History of the United States. (Chicago, Illinois: University of Chicago Press, 1953.) Ordinarily a book on such a subject wouldn't excite too much interest outside the legal community — or inside it, for that matter. The difference was that Crosskey took a "slightly" different view of the U.S. Constitution than that to which lawyers and judges have become accustomed over the past century and a half or so. In contrast to the orientation of much legal thought today, Crosskey went directly contrary to the prevailing concept of "legal positivism."

This requires a little explanation. The traditional western idea of law, as expressed by philosophers such as Mortimer Adler and jurists such as Heinrich Rommen, is that law is based on concepts of right and wrong that are inherent in human beings. This is called "the natural law." The natural law is based on reason and what is discernible about human nature through observation. In this context, what is legal and what is moral are inextricably linked. Natural law philosophers and jurists tie the legitimacy of manmade law to how closely it conforms to human nature. Since conformity with nature is to pursue the good, or "virtue," as Aristotle called it, law must be moral, or it is not valid law.

In contrast, legal positivism is a philosophy of law claiming that, far from being a reflection of transcendent absolute standards valid for every human being, law is only a set of manmade rules that can change as circumstances, needs, or desires change, and are valid only so long as people accept them. There is thus no inherent or necessary connection of human positive law with morality — an essential aspect that all Aristotelian philosophers insist exist for a law to be legitimate; human law cannot go contrary to nature and be considered legitimate, regardless how popular the law or how necessary it seems.

Legal positivism is the basis for the idea of the U.S. Constitution as a "living" document, so that the meanings of the words change as our understanding of the document evolves. There are two justifications for this view. One justification is called the "pragmatic" view. This is that we cannot let presumably outdated or outmoded ideas of the past (such as the concept of inalienable rights of life, liberty and property) bind us and prevent us from setting policies to achieve today's political or economic goals. The other is that the framers of the Constitution were deliberately vague so as to allow broad interpretations to meet modern needs.

Crosskey disagreed with both of these ideas. Consequently, Crosskey's contention that the U.S. Constitution is based on the natural law, and embodies certain absolute principles — as well as a degree of specificity unappreciated by many — was met with what can only be described as outrage. One otherwise liberal lawyer so far forgot his principles as to declare, "Today I join the ranks of the book-burners."

We can therefore understand how legal positivists and liberals would reject Crosskey's work. What is puzzling, however, is that the Pro-Life movement, ostensibly dedicated to preservation of our natural right to life, seems to have rejected it as well.

We don't know if Crosskey was Pro-Life, Pro-Choice, or anything else. We do believe, however, that he would have thought that the understanding of the 14th Amendment embodied in Roe v. Wade was grossly in error. Not coincidentally, Roe v. Wade was based on two cases that Crosskey considered the worst decisions ever made by the Supreme Court of the United States. These were Scott v. Sandford (the Dred Scott Case) in 1857, and the Slaughterhouse Cases in 1873.

Obviously Crosskey, who died in 1968, did not include Roe v. Wade in his book. From his analysis of the Dred Scott case, the 14th Amendment, and the Slaughterhouse Cases, however, we think we have a good idea of what his opinion of the decision would have been — whether or not he believed abortion to be a right.

That is what we hope to cover in this brief blog series, and show how the legal philosophy that led to Roe v. Wade was substantially the same that led to Scott v. Sandford and the Slaughterhouse Cases, and that the three cases combined constitute what amounts to a full frontal attack on the fundamental triad of natural rights that define and protect essential human dignity: life, liberty and property.

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News from the Network, Vol. 4, No. 52

2011-12-30T15:44:00.000-05:00

Things are shaping up well to make 2012 the Year of Capital Homesteading. A number of initiatives to reach prime movers have moved forward exceptionally well, and there has been an increasing level of media outreach. Mostly this has been on radio, with Norman Kurland getting several interviews on nearly a dozen different radio shows across the country, including Build Your Wealth, The Challenge, The Meshorn Daniels Show, and Tuesdays With Tormala, and even Michael Greaney appeared on Russell Williams's The Challenge out of Hartford, Connecticut and The Skip Mahaffey Show out of Tampa Bay, Florida.

As for other initiatives:

• Work is progressing on the web-based "Capital Homesteading Education and Marketing Campaign." Cartoonist Bert Dodson is working on how to present some rather esoteric ideas in picture form, while Dave Kelly is working on developing some scripts on the subjects, "Where's the Money Going to Come from?" and "The Joe Lunchbucket Story."

• Michael Cong has completed his work in Hawaii with the Japan-America Institute of Management Science in Honolulu. He received a high grade on his work, and reported that the professor sounded very interested in the Just Third Way. Michael is now ready to begin work on revising the Chinese translation of Curing World Poverty. We have completed our first run-through of the revision of the English language version, and expect to complete the next phase before the end of January.

• Monica W. has been wending her way through the non-profit and political bureaucratic labyrinth in Cleveland. She reported that she has been referred to Neighborhood Housing Services and the Thriving Community Institute. The issue was raised whether progress might pick up after the New Year when people are more prepared to focus on new ideas and solutions to old problems.

• CESJ obtained a DVD of some talks by Mortimer J. Adler and Charles Van Doren on "How to Read a Book." The DVD is available on the website of the Center for the Study of the Great Ideas, and is available for a $24.95 donation plus $5.00 shipping anywhere in the world. It is well worth the money, and will leave you nodding your head in agreement — and shaking your head at the condition of today's educational system. You might even pick up a few pointers on how to read a book.

• Russell Williams has been moving forward with arranging for a Summit on Economic Justice to take place in Waterbury, Connecticut, in the middle of January.

• We have received some endorsements for A Plea for Peasant Proprietors by William Thomas Thornton. Consider sending us your own endorsement, posting a review on Amazon or Barnes and Noble, or both.

• Bestselling author William Greider had a conversation this past week with Norman Kurland. They discussed the importance of dealing with the money and credit issue in light of the current global situation. Greider asked about the Just Third Way take on chartalism, or "Modern Monetary Theory."

• As of this morning, we have had visitors from 59 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Australia. People in Trinidad and Tobago, Russia, Germany, Australia, and Poland spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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A Short Dissertation on Thomas Hobbes

2011-12-29T15:36:00.000-05:00

Some time ago we posted a discussion on Thomas Hobbes's views on private property, relating it through Walter Bagehot to the economics of John Maynard Keynes. Somewhat to our surprise, the posting has, week after week, continued to be among the "top five" postings. Many visitors who read the posting on "Thomas Hobbes and Private Property" are, interestingly enough, from the former communist countries in eastern and central Europe.

Keeping that in mind, we thought we would take a look at what Mortimer Adler — the "Adler" of "Kelso and Adler" — thought about Hobbes, and if his assessment of the great defender of the divine right of kings matched ours. To begin, let's refresh our memories about what Hobbes said in Leviathan (1651) concerning what John Locke considered the cornerstone of a free society: private property. (Please excuse the archaic spelling, but we wanted to give you Hobbes's own words in Hobbes's own words.)

"Propriety Of A Subject Excludes Not The Dominion Of The Soveraign, But Onely Of Another Subject

"From whence we may collect, that the Propriety which a subject hath in his lands, consisteth in a right to exclude all other subjects from the use of them; and not to exclude their Soveraign, be it an Assembly, or a Monarch." (Leviathan, XXIV.)

"Attributing Of Absolute Propriety To The Subjects (XXIX)

"A Fifth doctrine, that tendeth to the Dissolution of a Common-wealth, is, "That every private man has an absolute Propriety in his Goods, such, as excludeth the Right of the Soveraign." Every man has indeed a Propriety that excludes the Right of every other Subject: And he has it onely from the Soveraign Power; without the protection whereof, every other man should have equall Right to the same. But if the Right of the Soveraign also be excluded, he cannot performe the office they have put him into; which is, to defend them both from forraign enemies, and from the injuries of one another; and consequently there is no longer a Common-wealth." (Leviathan, XXIX.)

Given this, what does Adler have to say? We took the following passage from the "Cooperative Individualism" website, from the article titled, "The Nature of Natural Law" by Mortimer Adler:

"You ask whether natural law is relevant to modern conditions. My answer is that if justice is still relevant, then natural law is. Indeed, interest in natural law has increased especially during the past half century, with its experience of the kind of positive laws which have been imposed by totalitarian regimes. On what grounds could a decent German citizen in Nazi times justify his opposition to the laws of the land? On private sentiments or merely personal opinion? Even purely inner resistance to iniquity must be rooted in firmer grounds. 'A law which is not just is a law in name only,' says Augustine. And Aquinas adds: 'Every human law has just so much of the nature of law as it is derived from the law of nature. But if in any point it departs from the law of nature, it is no longer a law but a perversion of the law.'

"The naturalists, as that name indicates, affirm the existence of natural justice, of natural and unalienable rights, of the natural moral law, and of valid prescriptive oughts that elicit our assent, both independently of and prior to the existence of positive law. The positivists deny all this and affirm the opposite. For them, the positive law - the man-made law of the state - provides the only prescriptive oughts that human beings are compelled to obey. According to them, nothing is just or unjust until it has been declared so by a command or prohibition of positive law. . . .

"The positivist view is recurrent in later centuries with the recurrence of later despotisms. It was expressed by the Roman jurisconsult, Ulpian, who, defending the absolutism of the Caesars, declared that whatever pleases the prince has the force of law. Still later, in the sixteenth century, the same view was set forth by another defender of absolute government, Thomas Hobbes, in 'The Leviathan'; and later, in the nineteenth century, by John Austin, in his 'Analytical Jurisprudence.'

"Neither Austin nor the twentieth-century legal positivists who follow him regard themselves as defenders of absolute government or despotism. That is what they are, however - perhaps not as explicitly as their predecessors, but by implication at least. The denial of natural rights, the natural moral law, and natural justice leads not only to the positivist conclusion that man made law alone determines what is just and unjust. It also leads to a corollary which inexorably attaches itself to that conclusion - 'that might makes right' - this is the very essence of absolute or despotic government."

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Ron Paul and Creating Money

2011-12-28T15:37:00.001-05:00

The other day the Washington Post (which has been running a series of articles on potential contenders to President Obama) did a piece on Ron Paul. Paul has made quite a name for himself by advocating various measures designed to "End the Fed" and turn the power over monetary policy back to Congress. As Paul has declared, "The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank." ("End the Fed," by Ron Paul)

Well . . . not according to Alexander Hamilton ("Opinion as to the Constitutionality of the Bank of the United States," 1791) and Justice John Marshall (McCulloch v. Maryland, 1819). According to the first Secretary of the Treasury and the fourth (and longest-serving) Chief Justice of the United States Supreme Court, Congress had and has every right to establish a private corporation and delegate public business to that corporation, particularly with respect to money and credit.

Whether Congress should do that, or whether the power has been misused or corrupted is a different question. What is beyond the shadow of a doubt is that the Federal Reserve is a fully legal and duly authorized private corporation that is charged with carrying out the functions of any other central bank. Even though we contend that the powers of the Federal Reserve have been misused and diverted to serve dubious political ends, the central bank of the United States fills a necessary role in the economy and the financial system. As it functions today, the Federal Reserve is subjected to a bad use of a very good thing.

The United States has, in fact, had some institution that filled the central banking role for most of its history. The longest period without a central bank was from 1837 to 1862, inclusive, following Andrew Jackson's "war" against the Second Bank of the United States and the passage of the National Bank Act of 1863. The National Bank system was badly designed and functioned mostly to make the rich richer while draining the country of liquidity available to farmers and small businesses. Had it not been for the Homestead Act, the United States would probably not have even the token small ownership it has today.

What we want to look at today, however, is not Ron Paul's shaky historical facts, but his dubious understanding of money and credit. Evidently as part of his campaign to undermine the Federal Reserve (as if others hadn't already beaten him to the punch), he wants to give the Federal Reserve some competition, and give private individuals the right to coin money. He has sponsored a bill to that effect, H.R. 1098, "The Free Competition in Currency Act of 2011."

From 1787 to 1863 many people believed that it was legal for U.S. citizens to strike their own coinage. Individual state governments could not issue coins, but private individuals and companies seemed to be okay. The federal government seems to have concurred — at least, there were some federal investigations of the Bechtlers, a family that owned a private mint and struck gold coins to the U.S. standard, and the business was not shut down. The Confederate States of America made the Bechtler's coinage legal tender. Moffat and Company became the San Francisco Assay Office, which later evolved into the San Francisco Mint, and Moffat's coins seem to have had a quasi-legal tender status, being accepted in payment of customs duties.

What Ron Paul evidently doesn't understand is that Federal Reserve notes and demand deposits are not the entire money supply. They are actually the smaller part of it. The bulk of the money supply is comprised of bills of exchange issued by private individuals and companies. As late as 2008, a crude calculation puts the amount of the money supply represented by bills of exchange at more than 60%.

The vast majority of these bills fall into the category of "real bills," that is, they are backed by the general creditworthiness of the drawer. They are money once they have been accepted. Every individual or business that has purchased anything on credit has "drawn a bill," and — given that it was accepted — has thereby created money. American commerce, industry and agriculture could not possibly function if people couldn't create money in this fashion. The productive economy — or what's left of it — runs largely on bills of exchange. Most new capital is financed using some form of a bill of exchange, and repaid out of the future profits of the capital itself. Credit used to purchase capital that pays for itself is a good use of a good thing.

And, yes, you too create money every time you purchase something on credit. The problem is that, while consumer bills of exchange, most often drawn by using a credit card, are real bills (obtaining credit that you know you can't repay is a crime) consumer bills are a bad use of a very good thing.

The trick is not to give citizens the right to do what they are already doing, and to their own detriment. If Ron Paul wants to help America and put the economy and the financial system back on a solid footing, he should sponsor legislation that would help citizens create money to purchase capital that pays for itself, not consumer goods.

Such a proposal is the Capital Homestead Act. It contains a number of provisions that Ron Paul should find very attractive — such as no more monetizing of government debt by the Federal Reserve. Instead, return the Federal Reserve to its original purpose of providing credit to the private sector by discounting eligible industrial, commercial and agricultural paper.

And one more thing: give each citizen the right to participate in the ownership of all new capital financed in this way. Permit each and every child, woman, and man to create money to finance new capital formation. This would end the debt-backed currency we now have, and replace it with an asset-backed currency.

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A Taxing Problem, V: "I'll Have My Bond!"

2011-12-27T09:50:00.000-05:00

As you might recall from yesterday's posting, our critic proposed a tax system that, at first glance, appears to be more straightforward than the Capital Homesteading reforms: "I was thinking of two federal taxes, one a national sales tax to be used just to pay off the national debt, and the other a flat income tax with few or no exemptions or deductions but NO tax on interest income from savings or income from retirement investments, whether private (since it was already taxed) or a Social Security check." The critic expressed the concern "that if by law some citizens are excluded from paying any tax at all, what direct interest do they have in a prudent use of the taxes collected? None."

Isn't it easy to answer your own question, giving the person you are chastising no opportunity to respond (usually by running away before he . . . okay, I can answer)? Unfortunately for the critic, this chastisee has a blog, and, with nearly thirty years' experience as a CPA and a specialist in the administration of qualified retirement plans, happens to know a little something about both tax theory and practice, as well as the treatment of retirement contributions and income for tax purposes.

For an explanation of how citizens who pay no taxes would have an interest in good government, we need look no further than William Cobbett in his History of the Protestant Reformation in England and Ireland (1827). Cobbett was commenting on the fact that the "Catholic forebears" of the then-modern English had not, as a usual thing, paid taxes, the costs of government being met out of revenues of public lands:

"You may twist the word freedom as long as you please, but at last it comes to quiet enjoyment of your own property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of parliament? Oh! because they shall then have an influence over the conduct of those members. And of what use is that? Oh! then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have." A History of the Protestant Reformation in England and Ireland, 1827, §456.

Thus, the citizens, through the desire not to pay taxes, will keep a close watch on their elected representatives and the level of expenditure. In any event, Capital Homesteading is intended to put every citizen in the position of being able to have sufficient income to be able to pay taxes, not maintain the current system that taxes in order to control, and gives back as charity what was taken unjustly — and thus unnecessarily — maintaining people in a permanent condition of dependency, as Alexis de Tocqueville pointed out in his Memoir on Pauperism.

Yes, every citizen is responsible for contributing to the cost of government, just as every member of a family is obliged to contribute to the family, and a member of a religion to the support of that religion — but only to the extent that he or she is not thereby deprived of what he or she needs to live on, i.e., what is required to meet common domestic needs adequately (Quadragesimo Anno, § 71 — the reference is to wages, but as Leo XIII pointed out, property income — all income from productive activity, in fact — is simply "wages" under another form, Rerum Novarum, § 5). Otherwise we find ourselves in the ludicrous position of taking money away from people in order to give it back, thereby substituting a false charity for true justice.

Our critic made a couple of factual errors as well. For one, the critic asserted that interest income on savings is somehow taxed twice. On the contrary, interest a company or bank pays on its obligations or savings accounts is deductible as a legitimate business expense; it is not an after-tax distribution, and thus is not an instance of "double taxation" under the current system. We would shift corporate finance to non-interest bearing bills of exchange based on the general creditworthiness of the drawer, limiting interest to charges on accumulations of existing savings lent out. The charges on bills would be limited to the discount or rediscount (a reflection of the bill's present value), and the risk premium, which would be shifted to purchase capital credit insurance and reinsurance in lieu of traditional collateral.

For another, the critic claimed that income from private retirement investments "was already taxed." Really? The critic has evidently never heard of the IRA (that's "Individual Retirement Account" for our readers outside the U.S.) and other qualified retirement plans, both defined benefit and defined contribution, the contributions to which are (within limits) funded with pre-tax, not after-tax dollars. This lack of knowledge is, frankly, inexcusable, either for someone proposing sweeping tax reform or who is in the legislature. In addition to a basic unfamiliarity with the principles of taxation (efficiency, understandability, equity, and benefit), the critic clearly has no idea what the U.S. tax code says about retirement income, or why the present Social Security system is almost universally misunderstood.

To avoid the double tax on corporate profits and to encourage full dividend payout (thereby increasing personal taxable income), we would make all dividends tax deductible at the corporate level, but fully taxable at the individual level above the exemption. With all financing for new capital formation coming out of non-interest bearing "pure credit" loans, the necessity for accumulating money savings — and restricting consumption — to finance new capital investment (and, yes, "create jobs") would be obviated.

While all current promises must be met, in the future we would make Social Security and other entitlements need-based after meeting those promises, with the bulk of retirement income coming from assets in a tax-deferred Capital Homestead Account, financed by discounting bills of exchange at commercial banks, and rediscounting at the Federal Reserve. As such, Social Security or other welfare would not be taxed, as "need" would be defined as someone having an income less than the exemption.

A national sales tax, like all ad valorem taxes, is both strongly regressive, and therefore unjust, falling most heavily on those least able to pay, and adds the "double whammy" in that it is a dollar-for-dollar reduction in the very consumption that justifies new capital formation and thus job creation. An income tax inhibits new investment by reducing the incentive to invest by taking a percentage of profits, but ad valorem taxes take away the very reason to invest in the first place by diverting 100% of each dollar spent on the tax away from consumption. If you're trying to rebuild your economy, ad valorem taxes are a really, really bad idea.

As Harold Moulton explained in The Formation of Capital (1935), the demand for new capital is derived from consumer demand. Anything, therefore (such as the Keynesian insistence that new capital can only be financed out of reductions in consumption), that decreases consumption negates the very capital investment it finances. This is the "economic dilemma," unavoidable under Keynesian assumptions, yet non-existent under the Just Third Way reforms embodied in Capital Homesteading.

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A Taxing Problem, IV: Widows and Orphans

2011-12-26T12:27:00.000-05:00

We seem to have upset some people with the tax reforms proposed under Capital Homesteading, specifically the generous exemption from taxation of an amount sufficient to meet common domestic needs adequately. According to a recent critic, "My concern is that if by law some citizens are excluded from paying any tax at all, what direct interest do they have in a prudent use of the taxes collected? None." Thus (in the opinion of the critic) everyone — regardless of his or her ability to pay! — must pay something in taxes.

Our critic justified this position by citing a private interpretation of the Bible: "If I am looking back correctly, there were two taxes imposed in ancient Israel, a head or temple tax (the same for rich and poor alike) and the ten percent tax now called a tithe, which, while collected by the Levitical priests was nevertheless used to run the governmental operations of Israel road building, defense, helping the poor, etc., that is until the people demanded a King who would become rapacious in his taxing appetite."

Our critic proposed a tax system that, at first glance, appears to be more straightforward than the Capital Homesteading reforms: "I was thinking of two federal taxes, one a national sales tax to be used just to pay off the national debt, and the other a flat income tax with few or no exemptions or deductions but NO tax on interest income from savings or income from retirement investments, whether private (since it was already taxed) or a Social Security check."

To begin, even to address the critic's comments, we have to set aside the fact that you can't prove anything from the Bible that you don't already believe. It is a book written by believers for believers. Something is in the Bible because the people who put it together believed it to be true; it is not true because it is in the Bible. Thus, the only thing you can prove by the fact that something is in the Bible is the fact that something is in the Bible.

For example, the story that Abraham was apparently commanded to sacrifice his son does not prove that God commands us to sacrifice our children to Him. The story could be relating an instance where Abraham thought he was carrying out what seemed to be God's command (private interpretation again), but was stopped at the last minute by direct divine intervention from doing something stupid. We don't even know as a provable fact that the story is not allegorical — there are no "witnesses" or evidence other than the story itself. We need competent teaching authority and common sense, not an interested motive, to understand the story.

With that in mind, let's first take a look at the head or temple tax. This was a silver half-shekel (about two day's wages) per adult Jewish male per year, with (somewhat ironically) the shekel of the Phoenician city state of Tyre bearing the image of a pagan god named as the "official" temple coin accepted in payment. Thus, contrary to our critic's assertion, the temple tax was not the same for rich and poor alike. Women and girls did not pay it at all, while only males over the age of thirteen paid, being considered adults.

Further, if we read the Bible closely, we realize that the temple "tax" was actually a voluntary contribution. If you wanted to be considered an adult Jewish male, you paid the "tax," otherwise, not. An exemption for those who simply did not have the money or who did not want to be considered "official" Jews is implied in a passage in the Gospel of Matthew — and Matthew, as a tax collector, knew the system. In Matthew 17:24-27, someone asks Peter if Jesus pays the temple "tax."

The question would not make sense if the temple "tribute" (as it has it in the King James Version) did not have a voluntary aspect, that is, if it was a true tax in the modern meaning of the term. With respect to only being levied on those able to pay, it is important to note that neither Peter nor Jesus paid the tax until after the question was asked — they didn't have the money.

In response to the question, Jesus instructs Peter to go fishing, and says that in the mouth of the fish Peter catches he will find a coin sufficient to pay for both. The clear implication, of course, is that to avoid scandal ("Lest we should offend them" — KJV) Peter and Jesus pay, even though (as we necessarily infer from the very fact of the question) they are not obligated to do so based on their inability to pay, and (for Jesus) the added reason that, as the Son of God, He is not liable in any event for paying taxes to Himself.

As for the tithe — the widow, the orphan, the poor and the stranger were objects of special concern to the God of the Jews. In Exodus 22:21-24, we find the clear statement, "Thou shalt neither vex a stranger, nor oppress him: for ye were strangers in the land of Egypt. Ye shall not afflict any widow, or fatherless child. If thou afflict them in any wise, and they cry at all unto Me, I will surely hear their cry, and My wrath shall wax hot, and I will kill you with the sword; and your wives shall be widows, and your children fatherless."

The tithe for the support of the poor, the widow, and the orphan was levied every third year of a five-year cycle, not annually (Deuteronomy 26:12-14). Otherwise, the tithe was to be used to purchase goods for human consumption in the Temple and for personal use at religious festivals (Deuteronomy 14:22-27). Forcing the poor, the widow, and the orphan to pay a tax when they cannot reasonably be expected to pay would, by most people, be considered "afflicting" them in a very important "wise." Taxing them incurs the "hot wrath" of God, and death by the sword, with your own wife and children put into the position of being oppressed by others as you yourself have oppressed the widow, the orphan, and the stranger. The God of Abraham, Isaac, and Jacob is clearly prepared to take strong action against such injustice, for "He doth execute the judgment of the fatherless and widow, and loveth the stranger, in giving him food and raiment" (Deuteronomy 10:18).

If the tithe was supposed to be imposed on everyone, regardless of ability to pay, then the Israelites — and their God — were hypocrites. This is because the tithe was, in part, intended to provide for the support of the poor, the widow and the orphan (Deuteronomy 14:28-29). Taxing the poor, the widow and the orphan for the support of the poor, the widow and the orphan would thus be a case of robbing Peter to pay Peter, that is, taking money from someone in order to give it back!

Further, if we take the "benefit principle" as our sole rule of taxation (as our critic evidently did) distorting it all out of proportion to common sense, even political expedience, we have to ignore the fact that the God of the Jews specifically commanded that widows and orphans were to be included in the benefits of being members of the community, even though they obviously did not pay the tithe. By the explicit command of God Himself they were not to be excluded from the festivities celebrating the Feasts of the Lord (Deuteronomy 16:11, 14), but were to be considered full members of the community, not second-class citizens.

Thus, if we look at the Law of Moses closely, we see exemptions for the poor, the widow, the orphan and the stranger. It is, and always was unjust to take from people what they need to meet their material needs adequately, forcing them to rely on private charity or a return from the State of what is properly theirs, coercing them into a condition of dependency.

As Pius XI explained in Quadragesimo Anno, § 49, quoting Leo XIII in Rerum Novarum, "it is grossly unjust for a State to exhaust private wealth through the weight of imposts and taxes." How much more unjust could it be, then, not only to "exhaust private wealth" of those who have it so they have nothing left on which to live, but to tax away what people don't even have in the first place!

Tomorrow we will conclude our response to our critic and address the rest of the concerns raised.

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News from the Network, Vol. 4, No. 51

2011-12-23T11:55:00.000-05:00

This past week we came across another reference to the "Panic of 1825" and the fact that one of the contributing factors to the panic was the issuance of securities by the Republic of Poyais in South America . . . a country that never existed except in the mind of "Sir" Gregor MacGregor, who claimed to have been created Cacique (Prince) of Poyais by the native king George Frederic Augustus I of the Miskito Tribe, an indigenous people in what is now Honduras.

"His Highness" (as he called himself), in what has been described as "the most audacious fraud in history" (David Sinclair, The Land That Never Was. Cambridge, Massachusetts: Da Capo Press, 2003), printed currency (Poyais Dollars), emitted bills of credit, and made land grants and accepted investors. Similar to what had happened with the "South Sea Bubble" a century before, nearly three hundred colonists were lured to the Mosquito Coast, largely on the strength of a book by "Thomas Strangeways, Knight of the Green Cross" (a probable pseudonym of Gregor MacGregor), Sketch of the Mosquito Shore, published in Edinburgh in 1822. There they found nothing as described in the book. Fewer than fifty returned alive to England.

The ensuing "Panic of 1825" is considered the first financial downturn caused by the new phenomenon of "economic cycles." From the perspective provided by binary economics, however, "economic cycles" themselves have two causes.

One, there had been a shift away from Say's Law of Markets and its application in the Banking Principle and the real bills doctrine. The backing of the currency shifted from private sector hard assets represented by bills of exchange, to government securities (bills of credit) representing the present value of future tax collections — from assets to debt. This broke the essential link between the money supply ("demand") and production. Governments began believing they could create or reduce demand simply by manipulating the currency, a demonstrably false belief that has affected monetary and fiscal policy down to the present day.

As we have seen in the current global economic crisis, however, when a government that issues bills of credit finds itself unable to collect enough in taxes to make good on its promises, the currency falls in value, and can become worthless. In that case, the bills are termed "fictitious bills." When the government that issues bills of credit doesn't even exist (as in the case of the "Republic of Poyais"), the worthlessness of the currency should be even more obvious.

Two, as capital ownership becomes concentrated and technology advances, replacing human labor with capital in the production process, Say's Law ceases to function because income from capital goes to people who can't possibly spend it all on consumption, and are virtually "forced" to invest the excess in new capital formation. (Do not confuse this with Keynesian "forced savings," which is something different.) Production outstrips the capacity of people who own no capital to consume, resulting in the phenomenon of "economic cycles" as the economy readjusts for what superficially comes across as "over-production."

Thus, in 1825 matters came to a head and caused the first "economic cycle." Both the financial system and the distribution of ownership combined to ensure that Say's Law and its applications would not function. Capital Homesteading reforms address these issues, as we continue to work for the adoption of a Capital Homestead Act in 2012:

• CESJ had its December Executive Committee meeting on Wednesday. If you wish to be notified of future meetings, please send an e-mail to dbrohawn [at] cesj [dot] org. You can participate by telephone as well as attend in person.

• Guy S. out in Iowa has been sending information on Capital Homesteading to the Buddy Roemer campaign Facebook page. He asks that anyone who has names or contacts of politicians who should know about the Just Third Way to send him information via e-mail, or have it forwarded from CESJ.

• Russell Williams has obtained space for an Economic Justice Summit to take place in Waterbury, Connecticut, in January. Norman Kurland may attend as a speaker.

• Monica and Jackie in Cleveland, and now their brother Mark, have been moving things forward there. Great interest has been expressed by Empowering and Strengthening Ohio People ("ESOP") in the Citizens Land Bank and the Homeowners Equity Corporation.

• We received the footage of Norman Kurland that had not been included in the movie Thrive. Rowland B. is editing it as a series of short segments. Norm's interviews include many things that a number of reviewers have found lacking in the final version of the film, e.g., financially feasible options for monetary and tax reform that can advance rapid economic growth in a manner consistent with the four pillars of an economically just society and the three principles of economic justice that will enable people to thrive materially and spiritually.

• Bert Dodson, the award-winning cartoonist, is working on putting together 40 segments on the Just Third Way and Capital Homesteading, in which "Joe Lunchbucket" asks questions about Capital Homesteading and how it will benefit him, the environment, and the country (and the world).

• Norman Kurland has been interviewed on the Meshorn Daniels radio show out of Louisville, Kentucky, and on Tuesdays with Tormala out of Grand Rapids, Michigan. Both hosts have been very receptive and open to the Just Third Way message.

• Russell Williams reports that his radio show, The Challenge out of Hartford, Connecticut, has been getting a larger audience, and there has been a lot of "buzz" about the show.

• Dawn B. says that the CESJ website upgrade is proceeding apace. We have hit some important milestones in the process.

• The revision of Curing World Poverty is on track. We have made it nearly halfway through the first step, which is highlighting possible sections for rewrite, making minor editorial changes, and suggesting alternate text.

• Publicity for CESJ's latest publication, William Thornton's A Plea for Peasant Proprietors (1848, 1874, 2011) is starting to make some headway. Cover thumbnails have been posted on both Amazon U.S., Amazon U.K., and Barnes and Noble, where the book can be ordered retail. Information on bulk wholesale quantities (10 or more copies) at a 20% discount off the cover price is available on the book's website, where you can also download a review copy in .pdf. Send the website link around to your network, and post it on your LinkedIn and Facebook pages as well as tweeting it. People are also encouraged to post (positive) reviews on Amazon and Barnes and Noble, particularly if you purchase the book from one of those outlets (they give priority to actual customers).

• Dave Kelly testified before a House subcommittee regarding the return of the land in Harris Neck, Georgia, to its rightful owners. Dave reported that the hearing went very well.

• An article on the Just Third Way by Norman Kurland is appearing in The ABCs of Harmony put together by Dr. Leo Semashko and published by the Global Harmony Association.

• Larry Walker has been contributing some good comments to the blog postings on taxation and cross-posting them on his blog. You might want to make a visit to his blog, "Natural Born Conservative."

• If Leisa B. in Günzburg am Rhein is reading this — you're not getting e-mails because your allotted capacity has been filled and they're being returned to sender. Empty a few folders and compact them. Otherwise you will continue to miss our immortal writings.

• As of this morning, we have had visitors from 65 different countries and 53 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Bulgaria. People in Trinidad and Tobago, Russia, Australia, Germany, and Argentina spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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A Taxing Problem, III: Where Did We Go Wrong?

2011-12-22T14:41:00.002-05:00

Looking at what has happened to the Federal Reserve and the income tax, we have to wonder what is the root cause of the misuse of these institutions? Where, in other words, did we go wrong?

Trying to be objective, we think it is in how people understand private property and contract, and thus money, credit, banking, and finance. Of these, the (mis)understanding of money appears to be the most immediate problem. Not that they others are unimportant, but the vortex, as it were, seems to swirl around money and credit — according to Henry Dunning Macleod, two forms of the same thing.

Money is legally defined as anything that is accepted in settlement of a debt. It is a contract involving "offer" and "acceptance." It is not, as some theorists declare, a claim issued by the State on the general wealth of society. That is socialism, and is rooted in the understanding of taxation and private property found in Thomas Hobbes's virtual manual for totalitarian government, Leviathan, that denied (abolished) private property:

"A Fifth doctrine, that tendeth to the Dissolution of a Common-wealth, is, 'That every private man has an absolute Propriety in his Goods; such, as excludeth the Right of the Soveraign.' Every man has indeed a Propriety that excludes the Right of every other Subject: And he has it onely from the Soveraign Power; without the protection whereof, every other man should have equall Right to the same. But if the Right of the Soveraign also be excluded, he cannot performe the office they have put him into; which is, to defend them both from forraign enemies, and from the injuries of one another; and consequently there is no longer a Common-wealth." (Thomas Hobbes, Leviathan, Ch. XXIX.)

That is, the king — the State — is the ultimate owner of everything in the State. That being the case, taxes are not a grant from a free citizenry, but a "retaking" of what the State was pleased to allow the citizens in the first place: "[T]he Kings word, is sufficient to take any thing from any subject, when there is need; and . . . the King is Judge of that need." (Ibid., Ch. XX.)

It is interesting to note that Hobbes influenced Walter Bagehot (who, incidentally, had enormous contempt for the United States), while Keynes, the virtual demigod of today's monetary and fiscal policy, revered Bagehot.

The fact is, despite the fixed beliefs of modern academics, it is possible to create money to finance new capital formation without first having to cut consumption and accumulate money savings. Keynes did not understand basic bookkeeping or the accounting equation, assets = liabilities + owners equity. Keynes failed to realize that the "multipliers" developed from his theories, especially the "money multiplier," are complete fantasy.

The money multiplier relies on counting the same asset multiple times and shifting ownership around indiscriminately to meet political ends. The Keynesian money multiplier embodies a fatal error that is obvious to anyone who understands double entry bookkeeping or (better) money. That is, the money multiplier theory assumes that checks drawn on one account remain on deposit in another account without ever being presented for payment!

Anyone who has ever balanced a bank statement knows that this is not the case. Checks clear, decreasing the amount in the account and thus the amount of money available, or they remain outstanding, in which case you still can't spend the money because it has already been spent. Drawing checks against money in an account that has already had checks drawn against it is called "issuing bad checks." It is a civil or criminal offense, depending on the amount of the fraudulent check you issued and the jurisdiction in which you committed the offense. It is what Henry Thornton called a "fictitious bill," that is, money with nothing behind it.

The Keynesian money multiplier, however, assumes as a matter of course that banks are engaged in a vast criminal conspiracy by creating money backed by nothing more than checks drawn against money that doesn't exist. (We never claimed that the Keynesian theory made sense — but it's in all the textbooks.) Today's academic economists and politicians dismiss as ludicrous the actual case, that commercial banks create money by accepting bills of exchange and issuing promissory notes that back the demand deposits.

Thus, if we accept today's standard assumptions about money and credit, there is no way to create money for Capital Homesteading so that ordinary people can become owners of capital without first having to cut consumption and accumulate money savings. If we reject the standard assumption, however, and use a little common sense along with some basic bookkeeping, the way is clear for a more rational monetary system than the debt-backed Leviathan that has kept the world locked into the slavery of past savings.

CESJ's Pro-Life economic agenda, for which we make the case in Supporting Life (2010) takes all this into account, reorienting the economy to conform to the natural law-based three principles of economic justice, 1) Participation, 2) Distribution and 3) Harmony ("feedback" or "social justice"), and the four pillars of an economically just society:

1. A limited economic role for the State,

2. Free and open markets as the best means for determining just wages, just prices, and just profits,

3. Restoration of the rights of private property, especially in corporate and other business equity, and

4. Widespread direct ownership of capital, individually or in free association with others.

In short, to require everyone to pay some tax, regardless whether they have the means or ability to pay, is to force anyone without property — and thus power — into a condition of dependency on the State . . . and keep in mind that "condition of dependency" was, prior to the Civil War, a euphemism for chattel slavery.

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"Marriage Chances Rise With Your Salary"

2011-12-21T16:19:00.000-05:00

A "CBS Moneywatch" story that appeared today on Yahoo! news is yet another "dog bites man" revelation. According to the article, "Marriage Chances Rise With Your Salary," a recent study by the Pew Research Center found that the percentage of Americans who are married is at an all-time low, and shows signs of dropping even further.

This is because real incomes have been falling. People in general — even the relatively large percentage which claims they want to be married — are leery of committing themselves. Marriage is an expensive proposition in an economy in which most people are constrained to rely on wages for their sole or predominant form of income. Children especially are a serious drain on finances when both common sense and the legal system inhibit or prevent them from contributing to the family by selling their labor, and they don't own capital to make up for the lack of wage income.

Thus, the fact that marriage is in decline is hardly surprising. As William Thomas Thornton pointed out in Over-Population and Its Remedy (1846) and again in A Plea for Peasant Proprietors (1848, 1874, 2011), only the very poor, those with nothing to lose, marry at the drop of a hat — or handkerchief, as obsolete slang put it. The moment someone has something to lose, it becomes a matter of greatest importance whom you marry and whether it will either maintain your condition in life or improve it. In uncertain economic times, marriage is often delayed or simply avoided altogether in favor of euphemistic "less formal arrangements" or (for those worried about ethics and morality) a chaste single life.

The story only cited statistics back to 1960 (72 percent married) and noted that, today, it is down to 51 percent. We have a hunch, though, that the decline — at least the reasons for it — began not in the 1960s, but in the 1890s. Why?

It was then that the Panic of 1893 and the ensuing Great Depression of 1893-1898 revealed serious flaws in the American economy. The opportunity for the majority of Americans to acquire capital had effectively disappeared with the end of the "free" land under the Homestead Act.

It is not that a majority of Americans were able to take advantage of the Act. Relatively speaking, few did — or could. That is not the important point here. It was the mere fact that the wage system had competition in the form of the opportunity to acquire landed capital on easy terms that kept wages high. Someone who was truly dissatisfied with wage employment could always go west and take land. As the land was taken, however, competition diminished, and wages began falling. This is consistent with the observations of William Cobbett in The Emigrant's Guide (1829, 2010) and Alexis de Tocqueville in Democracy in America (1835, 1840):

"I shall take for example that branch of productive industry which is still at the present day the most generally followed in France, and in almost all the countries of the world — I mean the cultivation of the soil. In France most of those who labor for hire in agriculture, are themselves owners of certain plots of ground, which just enable them to subsist without working for anyone else. When these laborers come to offer their services to a neighboring landowner or farmer, if he refuses them a certain rate of wages, they retire to their own small property and await another opportunity." (Alexis de Tocqueville, "Influence of Democracy on Wages," Democracy in America, Volume II.)

Widespread capital ownership — or the threat of it that would reduce the number of available workers — is sufficient incentive for employers to keep wages high enough to ensure that they have enough workers.

With the end of the "free" land under the Homestead Act, however, the proletarization of the American people accelerated, and the financial basis of domestic society (marriage) began to degenerate as labor began to decline in value relative to capital in the production process. The government tried to reverse or ameliorate the effects of lack of capital ownership by expanding welfare, labor legislation, and so on, but did not address the underlying cause of the problem: lack of access to the means of acquiring and possessing private property in capital, whether agricultural, commercial, or industrial: capital credit.

The proletarization of the average person is a necessary corollary to the wage system imposed by the concentration of capital ownership in both capitalism and socialism. This, in turn, is a consequence of the methods of corporate finance — or, at least, what people believe about methods of corporate finance. The reality is something very different.

Current belief about how new capital formation is financed is that consumption must be reduced or restricted in order to accumulate money savings before investing. Obviously, this requires that whoever is reducing consumption in order to save be able to cut consumption and save. Since capital is responsible for the bulk of production of marketable goods and services, and since the income from capital goes by natural right to the owner of the capital, under this assumption, as a general rule only those who already own capital have the capacity to own capital.

People who own no capital receive no capital income. As the value of labor declines relative to capital, people who rely on labor alone for their income do not receive enough from selling their labor to meet their needs. Spouses have to find wage system jobs, then take additional jobs, go into debt, or take State assistance in order to make ends meet.

To make matters worse, as technology advances and becomes increasingly expensive, only those owners of capital whose consumption expenses are negligible in comparison to their capital income can afford the new capital. Capital owners who use their capital income for consumption instead of reinvestment become, in the Keynesian phrase, "functionless investors," and must be eliminated from the economy. Keynes called this "the euthanasia of the rentier."

To try and ensure that non-owners receive enough income, socialism changes the definition of property from a natural right, to prudential matter. That is, in order to correct the abuses of capitalism and make certain that everybody presumably gets what he or she needs to live on, the State takes effective or outright ownership of capital and decides who gets what.

A good analysis of this process is found in Dr. Goetz Briefs's study, The Proletariat: A Challenge to Western Civilization, 1937. Like other students of Father Heinrich Pesch, S.J., members of the Königwinterkreis discussion group, Dr. Briefs recognized the critical importance of widespread capital ownership for maintaining essential human dignity. Unfortunately, Dr. Briefs — like almost everyone else — was unable to come up with a solution.

The solution, however, has been staring people in the face ever since the reinvention of commercial banking in the 16th century, and the invention of central banking toward the end of the 17th. The fact is, as Dr. Harold Moulton demonstrated in The Formation of Capital (1935), his alternative to the monetary and fiscal policy of the Keynesian New Deal, capital in a technologically advanced economy is not typically financed by cutting consumption and accumulating money savings.

Instead, what happens is that somebody who wants to finance new capital comes up with a feasible plan, and draws up a contract. This contract is called a "bill of exchange." The drawer either offers the contract to people who have what the drawer needs to form the new capital, or offers the contract to a commercial bank. Assuming that whoever is offered the contract accepts it, it becomes money. (This is why a contract offered to and accepted by anyone or anything that is not a bank is called a "merchant's" or "trade" acceptance, and a contract that is offered to and accepted by a bank is called a "banker's" acceptance.)

Bills of exchange are drawn on the "general creditworthiness" of the drawer. That means the ability of the drawer to make good on the promise in the contract when it falls due and is presented for redemption by the holder in due course. If a drawer is expected to produce marketable goods and services with the capital he or she finances by drawing bills of exchange, his or her credit is good and people accept the bills as money. (And, of course, if the drawer is not expected to produce marketable goods and services, his or her credit is bad, and no one accepts the bills.)

It is thus possible — even most efficient — to finance new capital formation out of what you can produce in the future, rather than what you withheld from consumption in the past. Financing for new capital can be linked directly to the present value of the expected future production, not whatever you managed to refrain from consuming.

Not only does this break the virtual monopoly that present owners of capital have on ownership of future capital, it also shows how people without savings or capital can become owners of capital. Taking advantage of this breakthrough in understanding, Louis Kelso invented the Employee Stock Ownership Plan and the whole theory of expanded capital ownership. This provided the basis for CESJ's Capital Homesteading proposal — which gets us to the whole point of this posting.

People are not getting married in part because they don't make enough money from wage income. As technology continues to advance and labor continues to fall in value relative to technology in the production process, even in many cases replacing labor completely, only two solutions are possible . . . and, of those two, only one is feasible.

Socialism can continue to advance, and governments can continue trying to even things out by redistributing existing wealth through the tax system or monetary and fiscal policy by inflating the currency. As the current global debt crisis has proved beyond a reasonable doubt, this doesn't work.

The alternative is to adopt Capital Homesteading as a genuinely Pro-Life economic agenda, as proposed in the book Supporting Life. Only in this way can people gain sufficient income to be able to marry if they so choose, and the institution of marriage removed from the social endangered species list.

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"On Usury and Other Dishonest Profit"

2011-12-20T11:21:00.000-05:00

Last week or so (it might have been two weeks ago) we came across a posting in a LinkedIn group to the effect that Pope Benedict XIV's 1746 teaching, Vix Pervenit ("On Usury and Other Dishonest Profit") "proved" — consistent with the poster's interpretation of the vaguely cited work of the solidarist Father Heinrich Pesch, S.J. — that all interest is forbidden by Catholic social teaching. Since the posting verged at times on the incoherent, we ignored it, although we were briefly tempted to respond.

Yesterday, however, we got a request from the "owner" of the Catholic Financial Professionals LinkedIn group (not where the posting appeared) to give our opinion on this understanding of Vix Pervenit. He had evidently come across the same or a similar posting, and thought that some discussion on the subject in a group that at least knew the fundamentals of money, credit, banking and finance might be more useful than the broad condemnation issued by people unfamiliar with the subject.

The main problem with condemnation is that Father Pesch's economics — and the social teachings of the Catholic Church, as well as Judaism and Islam — is based on Aristotelian philosophy . . . and Aristotle did not condemn all interest as usury.

Here's the thing. Discussion on Vix Pervenit pops up every couple of years, especially when economic conditions take a downturn. The problem is that most people lack the framework to understand what the document says. This is due to the general decline in understanding of Aristotelian/Thomism, especially with respect to private property, contract, and thus money and credit.

We have the claim that Vix Pervenit "proved" that all interest is usury, and therefore dishonest. On the contrary, "interest" — which comes from "ownership interest" — is, in classical economics, the profit due to the owner of capital. Consistent with the classical division of the factors of production into land, labor, and capital, "rent" is the profit for the use of land, and "wages" are the profits accruing to labor.

Consequently, to claim that all interest is usury and therefore dishonest is the same as saying that all profit from capital is dishonest — which we know is not the case, or the natural right of private property would be completely meaningless. "Property" is not the thing owned, but the natural right to be an owner, absolute and inherent in each human person, and the bundle of socially determined and necessarily limited rights that define the exercise of property within a specific society.

An important right of property is the right to receive the fruits of ownership — the "use" or the "usufruct." This means that the owner of a thing has a right to control the use of the thing, and to receive the benefit of its use, whether directly in the form of whatever the thing is used to produce, or indirectly by receiving the income generated by what is produced. If an owner lends a thing to be used by another, the owner is entitled to a share of the profits that result from the use of the thing — though not all, just a market-determined rate representing the owner's pro rata contribution to production by allowing the use of his or her capital.

Thus (avoiding the long argument showing the linkage between money and property), if someone has accumulated savings in the form of money, and lends the money to another to purchase capital or otherwise engage in an activity designed to produce a marketable good or service, the owner of the savings is, in moral philosophy, a partner of the borrower, and is entitled to share in the profits — and suffer the losses — resulting from the investment. This share is called "interest," and is a legitimate right of property.

It happens all too frequently, however, that investments do not pay off. Also, before the reinvention of commercial banking in the 16th century and the ability to monetize the present value of future production, which financed the Industrial Revolution, borrowing for investment (i.e., capital formation) was relatively rare. Most borrowing was for consumption, not investment.

Neither failed investments nor borrowing for consumption generate a profit. In that case, no profit is due to the lender. More, for a failed investment, the lender may even lose the principal lent, while for a loan for consumption, the lender is due in justice only what was lent. If the lender still insists on taking a profit in that case, he or she commits an injustice. This taking of a profit when no profit has been justly earned is called "usury," for by means of it, a lender of money exacts what he or she has not earned — because nothing has been earned. The profit taken is dishonestly gained.

Vix Pervenit was issued in the mid-18th century soon after the invention of central banking made commercial banking more sound, and thus an important factor in the economic growth that characterized the period and stimulated invention and expansion of commerce and industry. Unfortunately, the human tendency to try and get something for nothing led many people to manipulate the new financial institutions and contracts to circumvent traditional teachings on usury and take a profit at every opportunity, whether or not a profit was made.

Vix Pervenit was issued to clarify Church teaching on the difference between honest interest (profit) and dishonest interest in light of the advances that had been made in finance. This accounts, in part, for the extreme complexity, even confusing nature of the document for the modern reader.

Adding to the difficulty of understanding it is the fact that the document assumed as a given that all investment and spending is financed out of existing accumulations of savings. That is not, in fact, the case. Commercial banking — the oldest type of banking, dating back to the dawn of civilization — has a special function. A commercial bank is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A promissory note is an obligation that the bank issues when accepting a "bill of exchange." A bill of exchange is an offer of the present value of future marketable goods and services. It becomes "money" — a contract — when accepted.

Because a bill of exchange is not based on past savings (that is, savings already accumulated by cutting consumption), but on future savings (increases in production in the future), a lender, be it a bank or another business or individual who accepts a bill of exchange, is not due interest. Instead, the lender is due a fee for accepting the bill, based on the present value of whatever is to be delivered in the future, and a risk premium based on the creditworthiness of the drawer of the bill. This "discount rate" — which usually includes the risk premium — is the difference between the face value of the bill and its present value — again, not an interest rate because it is not based on a share of profits.

Thus, Vix Pervenit tried to address a system based on both past and future savings, but from within a framework that assumed that all loans came out of past savings. Nevertheless, the principles hold true, even if understanding them and applying them properly calls for a deeper analysis and understanding than the teaching is usually accorded by the simplistic modern commentator.

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A Taxing Problem, II: What Happened to the Federal Reserve?

2011-12-19T15:38:00.000-05:00

Last week we had a few things to say about taxation. Today we have a few more. Mostly today's posting has to do with the way the tax system has been used for purposes other than revenue generation — and the Federal Reserve has been used to provide money for government instead of the private sector, effectively handing over the key to the "money machine" to the State, which is the last place it should be.

To take up the slack and permit unaccountable spending by the federal government, the Federal Reserve has been hijacked from its original and legitimate mission to provide liquidity for private sector investment by rediscounting eligible paper for qualified commercial, industrial, and agricultural capital projects (vide Alexander Hamilton's Opinion as to the Constitutionality of the Bank of the United States, 1791; and the previously-noted McCulloch v. Maryland, 1819), and diverted to funding government by accepting bills of credit that, given a strict interpretation of the Constitution, may be unconstitutional, as it exceeds the specific regulatory, not creative, power granted under the enumerated powers.

We see the tragic results of this "new philosophy" all around us. Government debt has virtually destroyed Europe and is endangering the United States and Japan, making serious inroads on our natural, inalienable rights to life, liberty (freedom of association/contract), and property. Forcing people into dependency on the State has made it much easier to coerce people into accepting programs that they would normally find morally repugnant, with "welfare blackmail" ensuring that the rest give in for the sake of the promised State benefits. Further, because the tax system has been manipulated to meet goals other than mere raising of revenue to defray legitimate expenditures, the IRC has grown so complicated that no single person, even group, can understand it. Even if CESJ's proposed Capital Homestead reforms were not manifestly in accordance with justice, the reforms could be justified on the grounds of expedience for the sake of increased efficiency and decreased cost of compliance and maintaining the system.

In our opinion, the underlying cause of the massive social and economic chaos we see around us is the absolute insistence by academics and policymakers that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings. This displays an egregious misunderstanding of money, credit, banking, finance, and private property. It also effectively abolishes private property by re-defining it and making serious and unjustifiable inroads on its exercise.

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News from the Network, Vol. 4, No. 50

2011-12-16T15:56:00.000-05:00

Yesterday the Associated Press released a story to the effect that, according to the U. S. Census Bureau, half of all Americans are either living in poverty, or on the verge. On reading the story there seemed to be a little creative manipulation of statistics (so what else is new?), but that's not the point. The fact that such a story would even be published in America about Americans says a great deal more than if every word in the report was absolutely, factually true. People are either already in despair, or getting very close to it.

So — what are we doing? How about doing everything we can to advance the Just Third Way:

• We have a new website up for William Thomas Thornton's A Plea for Peasant Proprietors. You can order individual copies of the book there from Amazon and Barnes and Noble, or bulk copies (10 or more) direct from the publisher (that's us). You can also download a free review copy in .pdf, for which we can, on request, provide a .jpg of the cover for reviews to be published. There are three typos in the .pdf that were corrected before going to the printer, and we're betting that you can only find one. Your prize, if you can identify all three, is a gold star.

• We have also established a website for the new novels by Robert Hugh Benson that were recently released by Universal Values Media. It's not quite finished yet, but you can still order the novels there from Amazon.

• We are negotiating co-authoring a book with an official at a prominent Catholic university on the significance of "the City Upon a Hill" as an exemplar symbol for the importance of the "new order" that America represented in the world, and the possibility of restoring it through the Just Third Way.

• Additional suggestions have come in regarding reviving the work of Orestes Brownson as one of the threads leading to the Just Third Way. We do not have sufficient resources at present for such a project, but any serious leads on grants or fellowships would be appreciated.

• Norman Kurland met with presidential hopeful Ross "Rocky" Anderson, who will be running for office as an independent. Anderson sounded very positive about much of what he heard, although he has reserved judgment on the Pro-Life economic agenda of the American Revolutionary Party.

• Norman Kurland also met with Charles Peters, head of the Global Program of Service for Peace. After talking with Norm, Peters expressed interest in investigating the application of Just Third Way in North Korea, Indonesia, Africa, and Mongolia, among other regions and countries.

• As of this morning, we have had visitors from 62 different countries and 52 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Bulgaria, and India. People in Trinidad and Tobago, Australia, Russia, Argentina and Venezuela spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Thomas Hobbes on Private Property," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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A Taxing Problem, I: What is Tax Justice?

2011-12-15T11:22:00.000-05:00

As they say, there are two things certain in life: death and taxes. At least the former only comes once. The latter is a perennial problem. It also manages to bring in discussions on politics and religion, two of the three subjects you are not supposed to discuss in polite company. (The third subject is, at least according to Linus Van Pelt, the Great Pumpkin.)

Anyway, as a follow-up to yesterday's posting (which was itself a follow-up to the posting of the day-before-yesterday) we thought we'd address some of the concerns expressed by our faithful readers in greater depth. As one of them commented, in words edited for publication,

"I see that Capital Homesteading has a floor that excludes some persons (lower income) from paying income taxes for the general support of the national government. I am curious, since everyone pays sales taxes or payroll taxes for unemployment, Social Security and Medicare, why would not the demands of equal justice require that all pay some support of the general government, say a straight tax on income?"

As we have seen, a basic principle of just taxation is that people are taxed according to their ability to pay, it being considered unjust to demand that people pay taxes when their resources are inadequate to cover their own subsistence or that of their dependents. This principle of civil society is also reflected in the teachings of the Catholic Church, which has as a precept that people are to contribute to the support of their pastors according to their means. It is considered unjust in civil, religious or domestic society to be forced to contribute, either as taxes or as a donation, anything in excess of one's ability to contribute; neither human positive law nor moral philosophy requires that we do that which is impossible.

The tax proposals under Capital Homesteading take this basic principle as fundamental to a just social order. The present system, that requires people to pay taxes in such amounts as to force them to accept government assistance to make up the difference is patently unjust, as well as obviously contrary to common sense. It is interesting to note that, before the current economic downturn, the employee portion of Social Security and Medicare taxes on the median income was approximately equal to the amount of per capita non-mortgage revolving consumer debt. In other words, the government takes away income from private consumption, which the consumer then makes up by borrowing to keep the economy limping along — wage earners were thus paying into Social Security from the first dollar of wage income, and making up the difference by using credit cards.

We propose the abolition of all taxes (especially the ad valorem ["value added"] sales taxes, tariffs, and payroll taxes that are strongly regressive) except for an income tax, and a single rate on all income from whatever source derived above a meaningful exemption sufficient to, as Pope Pius XI put it, meet common domestic needs adequately. Otherwise, all that is being done is that the State takes away in taxes what it then returns as welfare, making recipients into dependents on the State, or (as the Supreme Court put it in another context), turning nominally independent adults into mere creatures of the State (Pierce v. Society of Sisters, 1925). All sales taxes, payroll taxes, property taxes, and so on, would be merged into this single rate. If the exemption is adequate, this would result in a "typical" family of four paying no taxes on the first $100,000 of aggregate income, and an effective, if moderate progressive rate above that. There would be no special rates for property incomes, whether dividends or capital gains, with the exception that capital gains should be inflation-indexed.

The basic fact is that, until the New Deal, few Americans paid any taxes at all, except for property taxes and whatever resulted from the increase in the price of consumer goods due to the tariff. As Dr. Harold G. Moulton related in The New Philosophy of Public Debt (1943), the primacy of Keynesian economics convinced policy makers that taxation was unnecessary for raising revenue to defray government expenditures (it being believed that the public debt could safely rise to at least twice GNP (!), according to Alvin Hansen, "the American Keynes"), but that taxation was still useful as a means of "social engineering."

To be cynical, the income tax ceased to be used primarily for funding government, and was changed into 1) a means for controlling people (as Justice John Marshall noted in McCulloch v. Maryland, "the power to tax is the power to destroy"), 2) a means of encouraging saving by the rich for reinvestment in new capital, further concentrating property and power and widening the wealth gap, and, in last place, 3) revenue.

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Tax Heresy

2011-12-14T08:03:00.001-05:00

Heresy is an ugly word. It's usually used as a curse to describe someone who disagrees with you. However ugly it may be, however, it can be an accurate term. We're not philologists here, but we think we read somewhere some time ago that the word "heresy" comes from a Greek word meaning to pick out. Thus, what a heretic does is "pick out" a legitimate and true doctrine, and exaggerates it beyond all rational bounds, without reference to other, equally true doctrines.

We have no idea if that derivation of "heresy" is correct, but it certainly fits an increasingly popular interpretation of an otherwise valid principle of taxation, the "benefit principle." The reason for raising this is that yesterday's posting on the need to build solidarity in the workplace somehow excited the ire of an occasional reader.

What seemed to stick in this person's craw was not anything in the posting itself, but a new principle of taxation that has developed over the past couple of years. The new principle is that everyone, regardless of how much he or she receives in income, must pay something in taxes, for everyone is responsible for contributing to the common good of whatever society of which he or she is a member. The problem is that the benefit principle cannot be taken in isolation from the other three principles.

To explain, the four principles of just taxation (and you can find these just about anywhere; the Wikipedia is a good source) are:

1. Efficiency: A tax system should raise enough revenue so that government projects can be adequately funded, without burdening the taxpayer too much, becoming a disincentive for investment and work.

2. Understandability: The system should not be incomprehensible to ordinary citizens, nor should it appear unjust or unnecessarily complex.

3. Equitability: Taxation should be governed by people's ability to pay. Wealthier individuals or businesses with greater incomes should pay more. Those with lower incomes should pay comparatively less.

4. Benefit Principle: Those that use a publicly provided service should pay for it. (Conflicts in principle often arise between this and the equitability principle.)

We can leave for another day the discussion as to how well the U.S. tax system conforms to these principles (any bets on number 2?). We'll stick to pure theory today.

When conflicts arise, common sense should rule. Thus, if someone cannot pay a tax without diminishing what he or she requires to meet common domestic needs adequately for him- or herself and his or her dependents, then that person should not be required to pay ("It is grossly unjust for a State to exhaust private wealth through the weight of imposts and taxes." — Pius XI, Quadragesimo Anno, § 49). Otherwise, the State would be forcing that person into a condition of dependency: slavery. Principle 3 trumps principle 4.

Further, it is also unjust to require that someone do that which is impossible. If someone does not make enough income to meet the ordinary expenses of living, he or she certainly cannot pay taxes. This new insistence that everybody pay, regardless of his or her ability to pay, bears a chilling resemblance to the "Poor Laws" as they operated in England in the early 19th century, in which the rich were ostensibly being taxed for the support of the (deserving) poor . . . and to meet the tax demands, simply raised costs to their tenants and employees.

The poor were, in effect, taxed for the support of the poor, with (of course) a rake-off for administrative costs, such as the Parish Officer, the Beadle, the Roundsman, etc., etc. The system did have the somewhat dubious benefit of providing Charles Dickens with some of his more hellish descriptions of life as a permanent dependent of the State in a Workhouse, and of supplying Karl Marx with massive data for his analysis of the capitalist system, described in Das Kapital.

The Poor Laws didn't do the poor much good, though.

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"The Market Must Never Neglect Solidarity"

2011-12-13T12:18:00.000-05:00

Pope Benedict XVI recently (December 10, 2011) gave a talk to representatives of the Italian Federation of Cooperative Credit Banks, and the Confederation of Italian Cooperatives. Particularly in light of the fact that 2011 marks the 120th anniversary of Rerum Novarum, "On Labor and Capital," the pope's remarks focused on the need to build solidarity in cooperative economic endeavor.

As His Holiness commented in the talk reported by the Vatican Information Service (VIS), "[Rerum Novarum] favored the fruitful presence of Catholics in Italian society through the promotion of cooperative and mutual societies, the development of social enterprises and many other public works characterized by various forms of participation and self-management. The purpose of such activity has always been to provide material support for people and constant attention to families, drawing inspiration from the Magisterium of the Church."

As the pope explained, "The heart of cooperative efforts has always lain in the search for harmony between the individual and community dimensions. This is a concrete expression of the complementarity and subsidiarity which Church social doctrine has always sought to promote between citizens and the State, a balance between safeguarding the rights of the individual and promoting the common good, in order to develop a local economy capable of responding to community needs. Cooperative activities are likewise characterized by their great concern for solidarity, while still respecting the due autonomy of the individual."

Perhaps it is the fault of the writer of the article, but we find no mention in the report of how the great concern for solidarity is to be realized in concrete terms. This is puzzling when we consider the fact that Leo XIII was quite clear on the means to be used to achieve the desired goal: "We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (Rerum Novarum, § 46) As the pope went on to explain,

"Many excellent results will follow from this; and, first of all, property will certainly become more equitably divided. For, the result of civil change and revolution has been to divide cities into two classes separated by a wide chasm. On the one side there is the party which holds power because it holds wealth; which has in its grasp the whole of labor and trade; which manipulates for its own benefit and its own purposes all the sources of supply, and which is not without influence even in the administration of the commonwealth. On the other side there is the needy and powerless multitude, sick and sore in spirit and ever ready for disturbance. If working people can be encouraged to look forward to obtaining a share in the land, the consequence will be that the gulf between vast wealth and sheer poverty will be bridged over, and the respective classes will be brought nearer to one another. A further consequence will result in the great abundance of the fruits of the earth. Men always work harder and more readily when they work on that which belongs to them; nay, they learn to love the very soil that yields in response to the labor of their hands, not only food to eat, but an abundance of good things for themselves and those that are dear to them. That such a spirit of willing labor would add to the produce of the earth and to the wealth of the community is self evident. And a third advantage would spring from this: men would cling to the country in which they were born, for no one would exchange his country for a foreign land if his own afforded him the means of living a decent and happy life. These three important benefits, however, can be reckoned on only provided that a man's means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair." (Rerum Novarum, § 47.)

This is a critical issue, especially when addressing members of cooperative associations — cooperatives being vehicles for sharing ownership, based on defined and discrete ownership stakes. The question then becomes, "Why is private property, specifically ownership of capital, evidently being ignored?" This is truly baffling. Ownership — control — is essential to building solidarity, and the importance of private property in capital, whether landed, industrial, or commercial, is stressed almost to the point of redundancy in Rerum Novarum.

We can make a guess, however. It may be that the reason for this apparent sidelining of private property in capital is the belief (primarily inculcated by Keynesian economics, but present in Monetarist/Chicago and Austrian as well) that it is (allegedly) impossible to finance new capital formation without first cutting consumption and accumulating money savings.

Given that demonstrably false assumption (see The Formation of Capital, by Harold G. Moulton), the necessary (and equally false) conclusion is drawn that ownership must be concentrated in order to allow the rich or the State (i.e., the capitalists or the socialists) to control — own — with the end of saving to finance new capital. It follows that small ownership must be eliminated from the economy; as Keynes put it, there must be a "euthanasia of the rentier, of the functionless investor" who consumes income from capital instead of reinvesting it. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, 1936, VI,24.ii.)

In this understanding, property may be "permitted" nominally and private individuals still retain formal title, but control — actual title — vested in the State. (General Theory, VI.24.iii; also, Henry George, Progress and Poverty. New York: The Robert Schalkenbach Foundation, 1935, 406; Henry George, The Condition of Labor: An Open Letter to Pope Leo XIII, 1891; "Wunderlich, the National Socialist Conception of Landed Property," 12 Social Research 60 at 61, 66, 72 (1945).) There is no real understanding of the fact that "property" is not the thing owned, but 1) the natural — absolute and unlimited — right each person has to be an owner, and 2) the limited and socially determined exercise of what may be owned and how it may be used.

We have not confirmed this, but we were told that the pope's chief economic adviser is a Keynesian. The orientation is thus away from small ownership — from meaningful ownership at all, in fact — and toward the redefinition of private property to allow effective State ownership by substituting the wrong sort of emphasis on solidarity. The implication is that it is possible to build solidarity without the traditional understanding of private property, or of life and liberty.

On the contrary, property empowers people, "power" being strictly defined as the "ability for doing," vesting the owner with effective social identity. As Daniel Webster pointed out, "power naturally and necessarily follows property." Without property, then (as Aristotle explained, property is essential to leading a life of virtue, "the good life"), it becomes difficult-to-impossible to exercise other natural rights such as life and liberty (freedom of association/contract), and thus build solidarity, an essential component of social virtue and thus a just social order. As William Thomas Thornton (author of A Plea for Peasant Proprietors, 1848, 1874) observed in On Labor, Its Wrongful Claims and Rightful Dues (1869, 1870),

"For mistrust and dislike or indifference on the one side, and for envy and jealousy on the other, would be substituted something of that fellow-feeling which can scarcely help growing up between those who, in serving themselves, are helping each other. With those laborers who had taken shares, some sympathy with capital would tincture the old headlong passion in favor of labor. With those who had not yet become shareholders the possibility of their becoming so subsequently would have a like effect." (William Thomas Thornton, On Labour: Its Wrongful Claims and Rightful Dues, Its Actual Present and Possible Future, Second Edition. London: Macmillan and Company, 1870, 394.)

The pope has clearly been getting some bad advice, but fortunately — being protected, in Catholic belief, by the Holy Spirit from teaching error — has not acted on it. What these "evil counselors" seem to be feeding him (inadvertently, we hope) is, just as clearly, contrary to the natural law on which Catholic social teaching is based. The problem is that, unless he gets some good advice, especially regarding the financing of new capital formation without relying on cutting consumption, the pope can't give property its proper place — as Dorothy Day liked to quote Peter Maurin, "Property is proper to man."

We're getting excellent teachings from the Vatican, but they are incomplete. This gives the modernists and the socialists grounds for claiming that the definition of property has changed, and that it is no longer a natural right . . . if it ever was. It gives the capitalists grounds for maintaining their position as well, although with slightly — and that's a very slight "slightly" — more justification than the socialists.

It is, of course, impossible that the definition of private property can change, regardless of Keynes's theorizing that the absolutist State has the power to "re-edit the dictionary." (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

It is irrelevant whether Keynes said that the State can alter substantial nature — definition — at will, especially God's Nature, on which the natural law is based. It can't be done. As Benjamin Watkins Leigh explained, "Power and Property can be separated for a time by force or fraud — but divorced, never. For as soon as the pang of separation is felt . . . Property will purchase Power, or Power will take over Property." (Benjamin Watkins Leigh, in the Virginia Convention, quoted by Salvador Aranet in Bayanikasan: The Effective Democracy For All. Manila, Philippines: AIA Press, 1976, 57-58.)

In orthodox Christian, Jewish and Islamic thought, the natural law is based on God's Nature, self-realized in His Intellect, not the will of the State, however powerful. Nor is the natural law based on some atheist's or modernist's private interpretation of God's Will, whether found in the Bible, the encyclicals, the Communist Manifesto, Keynesian economics, or the back of a cereal box. The teachings of the Catholic Church on private property cannot change, or God is not God, and the Catholic Church, contrary to its own claims, is not the true church established by Christ.

It is consequently the duty, not only of faithful Catholics, but all people of good will, to request clarification on this point from the Holy See. It is also the responsibility of each person to provide the pope — or any other leader, whether political, religious, or social — with the information he needs to make an informed decision about these matters, unfiltered through current economic and financial fallacies, especially those of Lord Keynes.

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The Neverending Story

2011-12-12T15:53:00.000-05:00

In an all-too-common headline early this afternoon, CNBC proclaimed the dog-bites-man non-event of the year: "Why Europe Has Investors Running Scared — Again." As the article declared, "The search for a silver bullet to fix Europe's debt mess again has come up empty." Evidently the leaden projectile of trying to spend your way out of the money pit by piling on yet more unproductive government "sovereign debt" has missed the target just once too often. You'd think after shooting themselves in the foot so many times they'd start to catch on.

Maybe they should open their eyes or widen their search. For years CESJ has been giving them the "silver bullet" — actually an entire armory — that has the potential to turn the current disaster around in 18 to 24 months. And it's not as if Louis Kelso and Mortimer Adler weren't saying the same thing for decades before that. We think our proposal can solve the problem for Europe, the U.S., and Japan.

We could even go back to the Stone Age before Keynesian economics got its stranglehold on the global economy and give them the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952. To try and counter the debt-insanity of the New Deal (ably dissected in The New Philosophy of Public Debt, 1943), Moulton laid the groundwork for the "pure credit" financing proposal of Louis Kelso's "expanded ownership revolution." Moulton published his findings in The Formation of Capital (1935), and they can download the foreword to CESJ's edition of this economic classic right here from the CESJ website, absolutely free, no charge, gratis. They can even get a free copy of Capital Homesteading for Every Citizen. Reading free books doesn't cost a cent.

Want to go even earlier? We could (and will) mention our republication of William Thomas Thornton's 1848 classic proposal to end the Great Famine in Ireland (1846-1852), A Plea for Peasant Proprietors. The Great Famine was a disaster that, at the minimum, resulted in a million deaths. The global debt crisis has the potential to cause even more harm — and not just in one small country, either. Want to go back to Aristotle? We could, you know. These ideas go pretty far back.

And still the "experts" keep lamenting that they have no idea what to do. Perhaps it's time they shut their mouths and opened their eyes and ears.

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News from the Network, Vol. 4, No. 49

2011-12-09T14:54:00.000-05:00

This has been a very interesting week — in a good way. (We can't help but recall the Chinese curse, "May you live in interesting times.") On the one hand, more people are expressing dissatisfaction with the current state of affairs and most still fail to grasp that the Just Third Way is not based on redistribution of current wealth in one form or another.

On the other hand, they are asking. If enough people ask, some will have that "eureka!" breakthrough and truly understand that we are not talking about merely tweaking the current system. Nor are we saying that the current system must be destroyed before any good can be done. That would be contrary to both social and individual justice.

No, we are talking about restructuring the system (social justice) so that our institutions can make certain that each is rendered what each is due (individual justice). To achieve that goal, here's what we've been doing:

• Norman Kurland was again interviewed on Tuesday on "Tuesdays with Tormala," a radio show out of Grand Rapids, Michigan. A former City Commissioner, the host Rick Tormala cleaned up the Assessor's Office, saved the 911 system, prevented waste to the tune of a couple million dollars, and describes himself as not being on the usual "right" to "left" spectrum — like most Americans puzzled by the antics of politicians intent on "business as usual" when it is clearly not only inadequate, but on a runaway train in exactly the opposite direction from where we should be going.

• Norman Kurland was also interviewed on Wednesday on "The Focus Show" out of Louisville, Kentucky. Needless to say, both interviews covered aspects of the Just Third Way, something the country and the world need to hear before we get too diverted by politics as usual as the election draws near.

• Also on Wednesday the CESJ Core Group had a luncheon meeting with an official from a major U.S. university. The official was very interested in the correlation between the Just Third Way and the renewal of the vision of America held by the colonists and Founding Fathers. As readers of this blog are aware, the just-ended series on Orestes Brownson (The American Republic, 1865) and Theodore Roosevelt ("The New Nationalism," 1910) analyzed the thought of these two pivotal figures in American intellectual history from the perspective of the Just Third Way, and did not find them wanting.

• CESJ is pleased to announce that the Economic Justice Media edition of William Thomas Thornton's classic proposal for ending the Great Famine in Ireland (1846-1852), A Plea for Peasant Proprietors, first published in 1848, revised in 1874, is now available for bulk purchase, and will soon be available in individual copies. Our edition features a new foreword, annotation, and appendices explaining certain aspects of 19th century Irish politics that might be unfamiliar to some people, as well as elements of the Just Third Way. Ordering information for wholesale purchases can be found on the special website for the book.

• Norman Kurland had an article accepted for a new publication from the "Global Harmony Association" headed by Dr. Leo Semashko. We will follow up and keep you posted when the book becomes available.

• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Bulgaria, Canada and the Philippines. People in Trinidad and Tobago, Australia, Russia, Venezuela and Poland spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Thomas Hobbes on Private Property," "Orestes Brownson and Socialism, II: The Civil War," and "Orestes Brownson and Socialism, III: The Constitution."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Orestes Brownson and Socialism, VIII: "Fit as a Bull Moose"

2011-12-08T15:04:00.001-05:00

Today's image of the Progressive Party — the "Bull Moose Party" — is that it was a spoilsport effort on the part of Theodore Roosevelt, intended as revenge on the Republican Party that had betrayed him and progressivism. Roosevelt's lust for power was presumably so great that he sacrificed the good of the country and split the Republican Party, handing victory to the Democrats. The fact that a number of contemporary political cartoons and speeches depicted Roosevelt as a bullying, power-mad, big-stick-swinging, imperialist oppressor of less developed nations only confirms the myth. The depiction of a lunatic who thought he was Theodore Roosevelt in the film Arsenic and Old Lace (1944) did nothing to correct what has become a popular misconception.

Contrary to popular myth, however, Roosevelt thought long and hard before accepting the nomination of the Progressive Party. It is true that he was the only viable progressive presidential candidate, and to all intents and purposes was the Progressive Party. This does nothing to alter the fact that Roosevelt did not found the Progressive Party, nor was it as easy as some today might believe to persuade him to run for president.

The Progressive Party had its roots not in a fit of pique by Roosevelt, but in the formation in 1906 of the American Party in Utah by Senator Thomas Kearns. Kearns broke from the Republican Party when he and his followers felt that the Church of Jesus Christ of Latter Day Saints (the Mormons) had too much influence in Utah politics. Purged of its anti-LDS elements, the remnants of the American Party became the core around which progressives and moderate populists coalesced to form the Progressive Party in 1912, virtually forcing the nomination on Roosevelt. As Herbert Knox Smith related,

"Some time in 1911 I called upon Colonel Roosevelt at the Outlook office, on leave from Washington. I told him I was going home for a few days. He pounced down on me instantly: 'H.K., don't you dare go back to Connecticut and do anything for my nomination for the Presidency in 1912!' Then he said: 'I've had eight years of the Presidency. I know all the honor and pleasure of it and all of its sorrows and dangers. I have nothing more to gain by being President again and I have a great deal to lose. I am not going to do it!' — then he went to the window and looked out on Fourth Avenue for some moments, and turned and added with great emphasis — 'unless I get a mandate from the American people.' I know much better now than I did then what was before his far-seeing eyes as he stood there looking out over the housetops — the fierce strife ahead, the menacing issues lying within it, the far-reverberating results that would follow, the sacrifice that would be required of him.

"That mandate came. It became desperately clear to all Progressives early in 1912 that their accomplished advance was in imminent peril of recession. The pressure came down on Colonel Roosevelt, culminating in the appeal of the seven Governors on February 10, 1912. He accepted the call of his friends, the challenge of his familiar foes." (Herbert Knox Smith, "The Great Progressive," introduction to Social Justice and Popular Rule, by Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xiii-xiv)

The campaign of 1912 was hard and bitterly fought. This is not, however, the place to recap it. Suffice it to say that, with many Americans still in sympathy with progressivism — however much both Republicans and Democrats attempted to paint it as tantamount to socialism — Roosevelt came in second to Woodrow Wilson, the Democratic candidate. This was the best showing of any third party in American history.

For nearly a century, Republicans have blamed Roosevelt for splitting the Republican Party and handing the victory to the Democrats. This is as unjust as it is untrue. The fact is that relatively few Republicans who remained in the party after the initial split came over to the new Progressive Party. The diehards who remained in the Republican Party after the progressives walked out were not likely to desert the Old Guard, and voted the party line.

Despite that, Taft was never a viable candidate. Progressive Republicans and all Democrats, as well as populists and socialists viewed him as a tool of the reactionary elements of the Republican Party, firmly in the pocket of Nelson Aldrich and the financial interests that had caused the Panic of 1907. The Old Guard Republicans had worked without cessation during Taft's administration to reverse everything Roosevelt had accomplished. Taft had only managed to become president in the first place on the strength of Roosevelt's endorsement, and Taft had lost that as a result of his betrayal of the progressive cause.

The bulk of the voters "stolen" by the progressives came from Populist Party members and Democrats either disillusioned or fearful of the turn the parties seemed to have taken under William Jennings Bryan and others of a more radical, and certainly less ethical bent. If anything, Roosevelt split the Democratic Party, not the GOP, and gave the Democrats a salutary fright that kept the radicals at bay long enough to enact necessary financial and fiscal reforms without giving in to socialist pressure. Wilson, in fact, had to paint Roosevelt as a socialist in all but name, forcing himself into taking the progressive instead of populist position on many issues to maintain credibility, at the same time excoriating the progressives.

The Progressive Party lasted barely a year, and Roosevelt-style progressivism only a while longer, but it was a year that neither the Republicans nor the Democrats have ever truly forgotten. To maintain some standing in the eyes of the public, the Old Guard Republicans had to modify their hard-line stance — for a time. At the same time, the radical Democrats had to ameliorate their drive to what was socialism in all but name — again, for a time.

In a paradox with which conservative Republicans have yet, after a century, to come to terms, the progressive split saved the Republican Party from becoming a political nullity, a historical dead letter. By offsetting the Party's reactionary trend, Roosevelt forced the GOP in later elections to adopt a more progressive stance in order to offer a viable alternative to the resurgent Democrats. Simply to survive, the Party had to abandon the Old Guard in practice (however much lip service it might pay to them in public) and bring itself into the 20th century, all the while adhering in theory to an outmoded laissez faire capitalism along individualistic lines.

The fact that the Progressive Party had the only truly viable political platform in 1912 forced the two major parties to adopt elements of the platform, at the same time they denied they were doing any such thing. Each party depicted the progressives as virtual enemies of freedom and justice. Consequently, progressivism, like populism before it, became redefined in the years following the 1912 campaign as little better — if not worse — than outright socialism. Progressivism is defined as such today, with most people seeing no difference between progressivism and populism. Nevertheless, although the Progressive Party went down in defeat, it gained two major victories: the Federal Reserve System and the income tax.

This seems like an astonishing claim to make, especially in light of the egregious misuse of both institutions almost from the beginning. The fact of the matter is, however, that the fiscal and monetary system of the United States had not had even the pretense of being adequate since Andrew Jackson had "won" his war against the Second Bank of the United States in the 1830s. The reforms implemented by Salmon P. Chase during the Civil War had imposed an inelastic banknote currency on the country, and oriented the backing of the currency toward government debt instead of the present value of private sector hard assets, both existing and future.

The inelastic banknote currency and the deflation imposed after the Civil War to restore parity of the paper currency with gold smothered small investment and capital development, and thus the ability of many people to consume at an adequate level. At the same time, the already wealthy could create money virtually at will by having their privately issued bills of exchange accepted in trade and at the National Banks. The failure of consumer demand to keep up with the enormous increase in the production of marketable goods and services was the primary cause of the financial panics that periodically ravaged the country. As Roosevelt pointed out,

"The people of the United States suffer from periodical financial panics to a degree substantially unknown among the other nations which approach us in financial strength. There is no reason why we should suffer what they escape. It is of profound importance that our financial system should be promptly investigated, and so thoroughly and effectively revised as to make it certain that hereafter our currency will no longer fail at critical times to meet our needs." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner's Sons, 1926, 14)

The Federal Reserve System was designed specifically to address the twin evils of an inelastic banknote currency and the concentration of control over money and credit. In this it succeeded. The fact that the Federal Reserve was only permitted to operate as designed for a brief period of time is not the fault of the institution, but of the politicians who discovered a way to circumvent the intended prohibition against monetizing government debt through the misuse of open market operations in government securities.

Like the Federal Reserve, the income tax is a profoundly misunderstood institution. Many people believe that an income tax is unconstitutional in the United States. As we saw in Part V of this series, this belief is unfounded. Others maintain, with more credibility, that, if the federal government can simply create all the money it needs by emitting bills of credit that are purchased on the open market by the Federal Reserve, why do we need to have taxes at all? As Harold Moulton summarized this position, popularized through the general acceptance of Keynesian economics and the belief that the size of the public debt is of no concern,

"The implications of the new philosophy of public debt from the point of view of taxation are engaging. If the growth of the public debt is of no moment, one might at first thought be inclined to ask — Why go to all the trouble and expense of collecting taxes? Why burden the public with ever-increasing levies? Indeed, if the purpose of fiscal policy is not to balance the budget but to obtain the largest possible 'net income-creating' expenditures — as measured by the size of the cash deficit — why not promote the desired end by canceling all taxes?" (Harold G. Moulton, The New Philosophy of Public Debt. Washington, DC: The Brookings Institution, 1943, 71.)

The reason why we presumably must have taxes, whether or not they are deemed necessary for revenue, is obvious, once we understand money and credit, and the plain fact that the issuer of whatever becomes money when accepted in commerce must own or have an enforceable claim on that which stands behind the bill. That is, a private drawer of a bill of exchange must own the present value of existing or future marketable goods and services on which the bill is drawn, while a government must reasonably expect to collect the future taxes that stand behind its "anticipation notes," the bills of credit it emits.

Taxes are not only a means of raising revenue for a government to defray legitimate expenses, they are also, by the fact that they are backed up by the State's power to coerce, a means of controlling people. "The power to tax is the power to destroy" (Justice John Marshall, McCulloch v. Maryland, 17 U.S. 316 (1819)) is an accepted legal and political maxim that any government with pretensions to ruling with the consent of the governed must keep in mind at all time.

Forgetting or ignoring this maxim, even Keynesians who insist that a deficit as large as twice GDP is nothing to worry about (ibid., 68) continue to insist on taxation as an important policy tool. This is not for fiscal purposes, however, but to restructure society to conform to Keynesian principles of how the economy ought to work . . . at least in the Keynesian analysis. The real reason for taxation shifts from revenue raising, to controlling people through redistribution and rewarding or punishing desired behavior. As Moulton explained,

"That a reorientation of thought with respect to tax policy would be necessary [given meeting all expenditure needs through deficit spending] is suggested in a statement already quoted: 'Once freed from the obsolete concept of the balanced budget, the larger uses of federal taxes can be creatively explored.' ("The Domestic Economy," Fortune magazine, December 1942, 16.) The suggested creative purposes are: (1) To regulate the distribution of income; and (2) to prevent inflation in periods of full employment. (Alvin H. Hansen, Fiscal Policy and Business Cycles. New York: W. W. Norton and Co., 1941, 175.)" (Moulton, op. cit., 72.)

The primary goal of the government within the Keynesian paradigm is to ensure that the economy runs smoothly for the benefit of everyone. The role of the central bank (the Federal Reserve) is, in the Keynesian framework, to finance government and to regulate the economy through manipulation of the currency — what Keynes described as the realization of Georg Friedrich Knapp's "chartalism," chartalism being a form of socialism developed in Weimar Germany.

In Keynesian economics (as well as Monetarist/Chicago and Austrian), all financing for new capital formation comes from existing accumulations of savings, that is, as a result of cutting consumption. With the government monopolizing the currency-issuing power of the central bank to inflate or deflate the currency to conform to policy demands, the tax system must be structured so as to encourage the rich to save to reinvest what they cannot consume.

Thus we have the paradox that the Federal Reserve, instituted to provide the country with a stable and elastic currency sufficient to meet the needs of private sector production and consumption by accepting private sector bills of exchange, is being used today to create money for non-productive government expenditures and politically motivated bailouts of failed companies by accepting government bills of credit. At the same time, the tax system, which was instituted to provide the government with sufficient revenue to meet legitimate expenditures, is being used to encourage private sector businesses to save for reinvestment.

Cutting consumption to finance new capital investment, however, reduces the feasibility of the new capital. In response, the government attempts to correct the fall in demand by further manipulating the currency and encouraging consumer indebtedness and non-productive speculation on the secondary securities market. This destabilizes the currency and makes productive activity even less attractive than before, encouraging hoarding of cash and low or negative rates of investment.

The functions of the central bank and the tax system have been exchanged, and the result is the utter chaos we see in today's global economy.

Abuse, however, does not invalidate use. Without an income tax, the chief source of income for the federal government was the tariff. (Land sales had ceased being a significant source of revenue in the 1850s.) Like a sales tax, however, a tariff is an "ad valorem" tax. An ad valorem — value added — tax gets passed through to the consumer and is thus heavily regressive.

All taxes are a disincentive to production to some degree. Value added taxes, however, are far more damaging in their effect than income taxes. An income tax lowers the reward to the producer, thereby taking away some of the incentive to produce if the residual to the producer after costs and taxes is deemed insufficient to compensate him or her for the time and effort expended.

A value added tax, however, directly attacks the ability of people to consume by raising prices, thereby decreasing demand. Since the demand for new capital — even replacement capital — is derived from consumer demand, a decrease in consumption removes the reason to produce at all, rather than simply making production less attractive.

To oversimplify, income taxes reduce the incentive to produce, where ad valorem taxes remove the incentive the produce. All things considered, an income tax is the lesser of two evils if the goal is to sustain healthy economic growth.

The new Democratic administration of Woodrow Wilson made fiscal and monetary reform a top priority. Principally this meant instituting the income tax and the Federal Reserve System. The income tax, of course, had been a socialist and populist demand for decades. Consequently it was relatively easy to get through Congress. It needed a constitutional amendment to make it possible to levy a direct tax without apportionment, but it was clearly in the interest of simple justice that the Constitution be amended for that purpose. It was hardly controversial, especially since a progressive income tax had been part of the Progressive, Populist, and Democratic Party platforms. The only holdouts were the admittedly powerful Old Guard Republicans, but even they could see the writing on the wall.

The Federal Reserve was another matter. The Old Guard Republicans had no problem with a central bank. The National Bank system had, in effect, served as a quasi-central bank since 1863, and they were perfectly satisfied with it — up to a point. The problem for the Old Guard was that the National Bank currency, albeit supplemented with the Treasury Notes of 1890, gold and silver certificates and gold and silver coin, was "inelastic," that is, issued in a fixed amount.

Further, although parity with gold had been restored, the National Bank Notes were backed with government debt. If the government got into financial trouble or needed funds on an emergency basis, the temptation might be too great for politicians to resist, and the country would again experience inflation as the government cranked up the printing presses.

Aldrich and his group were fully aware that the country needed an elastic and asset-backed banknote currency to ensure adequate liquidity in the system. The proposal that came out of the Jekyll Island meeting in 1910 would have provided that. It would also have put total control over the central bank in their hands, and removed virtually all government oversight or regulation of the currency.

The Federal Reserve System greatly improved on the Aldrich Plan, in the process becoming substantially different. Rather than simply centralize control over the National Bank system in the hands of New York's financial elite, headed by J. P. Morgan, the Federal Reserve retained the decentralized character of the National Bank system by establishing twelve regional Federal Reserve banks.

This was, in effect, a decentralized central bank, intended to issue twelve discrete regional currencies, the Federal Reserve Notes, but which necessarily passed at par with each other. The rediscount power of each regional Federal Reserve thus backed up each member bank, with open market operations taking care of the needs of non-member banks and businesses.

This meant that commercial banks, even individual businesses, were no longer dependent on retaining the goodwill of the House of Morgan if they wished to obtain banking accommodation. Morgan's refusal to accommodate the Knickerbocker Bank and Trust during a liquidity crunch (brought about by the president of the Knickerbocker using the bank's assets to speculate in copper) had caused the Panic of 1907. Morgan had taken the opportunity to drive the Knickerbocker into bankruptcy. The Federal Reserve ensured that this would no longer be possible.

The Federal Reserve was established largely through the efforts of Representative Carter Glass of Virginia, and Secretary of State William Jennings Bryan. Both realized that the Federal Reserve did not conform to the specific populist demand for free silver or an inflated paper currency backed with an increase in government debt — but it got them what they wanted, which was an adequate money supply to meet the needs of commerce to prevent financial panics and economic downturns.

The establishment of an elastic and stable currency was even an improvement over an inflationary currency. It did not satisfy the more radical populists and socialists, of course. Disregarding or rejecting the importance of private property, the radicals saw great advantage in an inflationary currency. Nevertheless, the removal of the problem of deflation was a major victory.

Thus, despite his defeat, Roosevelt did manage to stop the reactionaries from regaining lost ground. For a brief period, populism was modified by progressivism, getting through necessary reforms, especially the income tax and the Federal Reserve. The vision of America's Founding Fathers as articulated by Orestes Brownson and restored by Theodore Roosevelt seemed secure.

The restoration of the American Republic was, however, incomplete. It did not solve the growing problem of concentration of capital ownership. Even in its incomplete form the restoration would, as was the case with many things, not outlast the First World War.

The conflict between capitalism and socialism resurfaced almost immediately. The Great Depression of the 1930s and the Second World War accelerated the rise of the Welfare State, that ultimately unworkable combination of capitalism and socialism that, to all intents and purposes, is the institution of Hilaire Belloc's "Servile State," depicted, ironically, in The Servile State, published in 1912, just as the foundation to avoid the twin evils of capitalism and socialism seemed to have been solidly established in the United States.

In the late 1950s and early 1960s, the work of Louis Kelso and Mortimer Adler detailed a paradigm to reestablish the three principles of economic justice and the four pillars of an economically just society, solving the problem of how to finance widespread ownership of capital. In the early 21st century, Capital Homesteading gave a specific program to implement the vision of America's Founding Fathers.

The upcoming presidential campaign may very well determine whether the United States and the global economy will continue to dissolve into economic and social chaos, or whether the ideas of the Just Third Way will receive serious consideration.

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Orestes Brownson and Socialism, VII: The New Nationalism

2011-12-07T10:30:00.003-05:00

On August 31, 1910, in Osawatomie, Kansas, Theodore Roosevelt gave a speech titled, "The New Nationalism." To a greater degree than most of Roosevelt's speeches, although all had the theme to some degree, "The New Nationalism" detailed what he meant by progressivism. It was not, as the conservative Republicans feared or the radical Democrats hoped, a version of socialism. It was, instead, a third way based on justice between, even above the two extremes of capitalism and socialism.

Perhaps it was because he spoke with a fire fueled by Taft's betrayal. Maybe it was the realization that the conflict he had fought so hard to avoid appeared to be ready to break out again. Whatever his motivation, Roosevelt had had forced on him the realization that the danger to the country was again imminent. As Herbert Knox Smith summarized the issue,

"The original question, 'Shall the Government control business?' gave place to the ultimate question: 'Shall the citizen control his Government?'" (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, by Theodore Roosevelt, New York: Charles Scribner's Sons, 1926, xiii.)

This summarizes the essential difference between progressivism as Roosevelt understood it, and populism, even the non-socialist remnants of populism. Roosevelt viewed the State as the last resort for a people with no other recourse. Regulation and control of industry and commerce by the government was necessary only when the institutions of the common good could not do the job adequately, and the exercise of liberty and property by a few infringed on the exercise of those same rights by the many.

Even then, Roosevelt made it abundantly clear that even State control or regulation must be imposed only without prejudice to the underlying natural rights held by every human being. There must be no "tit-for-tat," where those whose rights were previously infringed upon imposed disabilities or denied the rights of their presumed former oppressors:

"[I]n the interest of the working man himself we need to set our faces like flint against mob-violence just as against corporate greed; against violence and injustice and lawlessness by wage-workers just as much as against lawless cunning and greed and selfish arrogance of employers. If I could ask but one thing of my fellow countrymen, my request would be that, whenever they go in for reform, they remember the two sides, and that they always exact justice from one side as much as from the other. (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule, op. cit. 18.)

This appeared to be Roosevelt's chief quarrel with populism. Populism viewed the State as the only effective means for controlling big business, big finance — big anything . . . conveniently forgetting that the specialized tool of the State, when permitted to grow beyond its legitimate sphere, inevitably becomes bigger and more powerful — and less susceptible to control — than even the biggest corporation or trust.

Worse, populism tended to dismiss natural rights such as liberty and property if their exercise interfered with a desired goal. The tendency to see only one side of the issue, and to "throw the baby out with the bath" was anathema to a man who sought to return America to its true roots and ensure that the efforts of Abraham Lincoln were not in vain: "I have small use for the public servant who can always see and denounce the corruption of the capitalist, but who cannot persuade himself, especially before election, to say a word about lawless mob-violence." (Ibid.)

Not that Roosevelt ever forgot that concentrated wealth was itself a danger: "I have equally small use for the man, be he a judge on the bench, or editor of a great paper, or wealthy and influential private citizen, who can see clearly enough and denounce the lawlessness of mob-violence, but whose eyes are closed so that he is blind when the question is one of corruption in business on a gigantic scale." (Ibid.)

The populists tended to put the State before all individual rights in their quest for justice. Roosevelt knew that, unless the people somehow controlled the State, State control of anything was dangerous. The problem was that, without an effective means to control the State, there could be no real resolution of the conflict between capitalism and socialism.

As Roosevelt made clear, however (and which was confirmed in a series of articles by Judge Grosscup), the only effective check on State power is widespread direct ownership of capital. The abolition of private property in capital as the socialists and, increasingly, the populists advocated, would do nothing other than make everyone a permanent dependent on the State. The problem was that there was no effective means whereby ordinary people without sufficient existing savings to purchase capital could afford the increasingly expensive new capital instruments.

This left Roosevelt, in a sense, hanging out to dry. He had the right principles, but no effective way to implement them. In contrast, the individualist/capitalists and the collectivist/socialists had what they believed to be the answer, and the weight of experience and common sense behind them.

As far as the individualists and collectivists knew, it was impossible to finance new capital formation without first cutting consumption and accumulating money savings. For both camps, this meant that only a small elite (the wealthy for the former, the State for the latter) could control capital. This was believed to be essential, for only by concentrating ownership of capital would there be sufficient savings to finance new capital.

This premise would be proved completely false within a generation by Harold G. Moulton, president of the Brookings Institution, in his book, The Formation of Capital (1935). That did not help Roosevelt, however. The capitalists believed that only by maintaining absolute exercise of property could the world advance, or even maintain its position — a position with which the socialists, paradoxically, agreed . . . except that they wanted control in the hands of a State that had become their creature, not a management elite at the beck and call of the upper one percent.

The supreme irony in both the capitalist and the socialist position is that in both cases the instrument by means of which the capitalist or "the people" were to control capital — the management elite of capitalism, the State of socialism — has become itself the master. Property in everyday life, as Louis Kelso pointed out, is control.

Regardless who has legal title, whether capitalist or "the people," it's whoever controls the wealth who can truly be said to "own." Since "power naturally and necessarily follows property," as Daniel Webster reminded us, concentrated control is the same as concentrated ownership, "property" being not the thing owned, but the rights and powers over the thing, as well as the natural right to be an owner. As Roosevelt insisted,

"The true friend of property, the true conservative, is he who insists that property shall be the servant and not the master of the commonwealth; who insists that the creature of man's making shall be the servant and not the master of the man who made it. The citizens of the United States must effectively control the might commercial forces which they have themselves called into being." (Ibid., 11.)

A superficial understanding of this principle gave the socialists their greatest weapon and most persuasive argument. As the socialists argue, if the earth was made for everyone, what right do a few have to monopolize its goods? Yes, control of capital must be concentrated — or there wouldn't be any capital! — but it must be administered so as to benefit everyone. This means State control or outright ownership. This is because private owners, impelled by their own self-interest, cannot be trusted to administer their wealth for the benefit of all. Private property has to be abolished for the good of humanity.

Thus, by being partly right, both the capitalists and the socialists managed to be completely wrong. Roosevelt, at least, by his insistence on maintaining individual natural rights as far as possible as well as what would later be described as the universal destination of the world's goods, managed to be wholly, but (unfortunately) incompletely right. What Roosevelt lacked was some means whereby ordinary people without savings or the ability to cut consumption could become owners of capital.

That being said, however, Roosevelt's principles were sound, and appear to have been fully consistent with the Just Third Way. We see this in the correlation in his speech on the New Nationalism with the three principles of economic justice as well as the four pillars of an economically just society.

The three principles of economic justice are participation, distribution, and harmony. The four pillars of an economically just society are, 1) A limited economic role of the State. 2) Free and open markets as the best means of determining just wages, just prices, and just profits. 3) Restoration of the rights of private property, especially in corporate equity. 4) Widespread direct ownership of capital.

Participation

In a phrase that has become a virtual trademark of Roosevelt's program, he declared, "I stand for the square deal. But when I say that I am for the square deal, I mean not merely that I stand for fair play under the present rules of the game, but that I stand for having those rules changed so as to work for a more substantial equality of opportunity and of reward for equally good service." (Ibid., 10.)

Distribution

Roosevelt was fully aware that full participation in the economy requires ownership of both labor and capital. In a technologically advanced economy, widespread and direct ownership of capital is essential if each individual's economic welfare is to be adequately maintained. Admittedly, Roosevelt had no effective means to recommend whereby people could own capital as well as labor, but that did not stop him from stating the truth without equivocation:

"I believe in shaping the ends of government to protect property as well as human welfare. Normally, and in the long run, the ends are the same; but whenever the alternative must be faced, I am for men and not for property, as you were in the Civil War. [Roosevelt gave "The New Nationalism" speech before the "GAR," the "Grand Army of the Republic," an organization of Union war veterans.] I am far from underestimating the importance of dividends; but I rank dividends below human character. Again, I do not have any sympathy with the reformer who says he does not care for dividends. Of course, economic welfare is necessary, for a man must pull his own weight and be able to support his family." (Ibid., 20.)

Harmony

The principle of "harmony" is that, when flaws are found in our institutions, the proper response is not to destroy the institutions or, worse, people in or who use the institutions. Rather, we are to exercise "social charity," that is, to love our institutions as we love ourselves. This requires that we learn the true nature of our institutions, identify the flaws, and organize and work to correct the flaws.

Theodore Roosevelt appeared to be fully in agreement with this third principle of economic justice. Since the object of our concern is our institutional environment — the common good — we can also call the principle of harmony, "social justice." Institutions must be reformed so that they perform their functions adequately and serve the needs of everyone. As Roosevelt explained,

"National efficiency has many factors. It is a necessary result of the principle of conservation widely applied. In the end it will determine our failure or success as a nation. National efficiency has to do, not only with natural resources and with men, but it is equally concerned with institutions. The State must be made efficient for the work which concerns only the people of the State; and the nation for that which concerns all the people." (Ibid., 18-19.)

A Limited Economic Role for the State

Roosevelt walked a path, a third way, that outraged extremists at both ends of the political spectrum. Both the Old Guard Republicans and the populist Democrats sought to use the State to control others and secure their own positions. While Roosevelt, lacking a feasible program of empowering ordinary people with capital ownership, turned to the State to a degree that we believe to be unjustifiable, he stood firm on his principle that the State should be the servant, not the master. No where was this more true than in his struggle against those who, as is the case today, used the coercive power of the State to secure their own special privileges and wealth. As Roosevelt explained his position,

"One of the fundamental necessities in a representative government such as ours is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests. I believe that every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations; and a similar provision could not fail to be useful within the States." (Ibid., 21.)

Needless to say, Roosevelt was opposed to any and all campaign contributions from corporations: "It is necessary that laws should be passed to prohibit the use of corporate funds directly or indirectly for political purposes; it is still more necessary that such laws should be thoroughly enforced. Corporate expenditures for political purposes, and especially such expenditures by public-service corporations, have supplied one of the principal sources of corruption in our political affairs." (Ibid., 11.)

Free and Open Markets

The conservatives tried to paint Roosevelt as the enemy of property and free enterprise. Nothing could be further from the truth:

"The absence of effective State, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise. We grudge no man a fortune which represents his own power and sagacity, when exercised with entire regard to the welfare of his fellows." (Ibid., 13.)

Restoration of Private Property

Then as now, conservatives insist that the rights of property must be regarded as sacred. There is nothing new in that claim. It is a claim made in justice, as political commentators and religious leaders through the ages have insisted.

The problem is that, within the current flawed social order we inhabit, ownership of capital — the "property" in question — is extremely concentrated, even more so than in Roosevelt's day. It's not a question of maintaining the rights of private property for the few, but of ensuring equal access to the means of acquiring and possessing private property for the many:

"[O]ur government, National and State, must be freed from the sinister influence or control of special interests. Exactly as the special interests of cotton and slavery threatened our political integrity before the Civil War, so now the great special business interests too often control and corrupt the men and methods of government for their own profit. We must drive the special interests out of politics. That is one of our tasks to-day. Every special interest is entitled to justice — full, fair, and complete — and, now, mind you, if there were any attempt by mob-violence to plunder and work harm to the special interest, whatever it may be, that I most dislike, and the wealthy man, whomsoever he may be, for whom I have the greatest contempt, I would fight for him, and you would if you were worth your salt. He should have justice. For every special interest is entitled to justice, but not one is entitled to a vote in Congress, to a voice on the bench, or to representation in any public office. The Constitution guarantees protection to property, and we must make that promise good. But it does not give the right of suffrage to any corporation." (Ibid., 10-11.)

Widespread Capital Ownership

Roosevelt's stand on widespread ownership, while limited to landed capital (for he saw no feasible way to spread out ownership of commercial, industrial and financial capital without violating private property), nevertheless earned him accusations of being a socialist. This is difficult to understand, for socialism, properly defined, is the abolition of private property in capital, not its broad diffusion among the people. As Roosevelt related, in a clear reference to Abraham Lincoln's 1862 Homestead Act,

"I believe that the natural resources must be used for the benefit of all our people, and not monopolized for the benefit of the few, and here again is another case in which I am accused of taking a revolutionary attitude. People forget now that one hundred years ago there were public men of good character who advocated the nation selling its public lands in great quantities, so that the nation could get the most money out of it, and giving it to the men who could cultivate it for their own uses. We took the proper democratic ground that the land should be granted in small sections to the men who were actually to till it and live on it." (Ibid., 15-16.)

In light of his adherence to the three principles of economic justice and the four pillars of an economically just society, it should come as no surprise that, faced with a resurgence of the twin evils of capitalism and socialism, Roosevelt concluded that the country was once again in serious danger — and he was right. The American Republic was again threatened with a deep split along ideological lines, with the supreme irony being that neither camp, the capitalists nor the socialists, were in conformity with the founding principles of the United States. As Herbert Knox Smith related,

"The underlying motive of the man — so deep that it was rather an instinct than a formulated position — was this unity of America, the fabric of the commonwealth. He dealt with a unity, not superficial but profound — not merely between geographic sections, but a unity of spirit and the bases of life. Statesmanlike, he knew that there can be real unity in a democracy only if there is equality of opportunity, easy passage across all class boundaries, no accepted dividing line drawn on inequality of privilege, or any dividing line other than those self-contained in each man's own character and intellect.

"He saw that only such essential unity can be enduring. All the details of his action, the specific policies that he stated, arise from this underlying purpose for the Union. The supremacy of law and government; the destruction of unfair industrial advantage; the conservation of forest, mine, and water power for the common use, were all factors of equality of opportunity, and he established them." (Smith, op. cit., xvii-xviii).

The battle had been joined.

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Orestes Brownson and Socialism, VI: Betrayal

2011-12-06T12:06:00.001-05:00

In 1908, Theodore Roosevelt's last full year as president, Orestes Brownson's vision of the direction that America could take in conformity with the universal moral values and political principles embodied in the United States Constitution seemed well on its way to realization. There were, of course, still serious problems, notably the rapid decline in small ownership and the lack of an adequate currency for the day-to-day consumer and business transactions of the economy. Under Roosevelt's leadership, however, the country exhibited every sign that these problems would somehow soon be solved — the efforts of Judge Peter S. Grosscup being notable in this regard.

Consequently, Roosevelt felt it was safe to retire to private life and forgo a third term as president. Matters were well in hand, and a possible second Civil War had been averted. Such was his personal prestige and popularity that Roosevelt was able to hand pick his successor, someone able to carry through the progressive agenda for which he had labored for eight years laying the groundwork.

The choice was between the governor of New York, Charles Evans Hughes, and William Howard Taft. Roosevelt did not give serious consideration to Charles Warren Fairbanks, his vice president. Hughes was a strong reformer, brilliant, and without obligations to the "Old Guard" of the Republican Party that had stymied much of the legislation Roosevelt needed for his program. William Howard Taft was a close political ally whom Roosevelt had been grooming for the position. Roosevelt went with Taft, who seemed to have the right spirit, making possibly the worst political decision of his career.

Taft seemed ideal. Personally honest, of great integrity, progressive in spirit, he also appeared to have a large measure of the good humor that Roosevelt radiated in public. Taft, however, lacked the steel behind Roosevelt's seemingly effortless joviality and camaraderie. Roosevelt used his personality as a natural assist to bring people around to his point of view. This was an ability that later superficial commentators and historians have denigrated, implying that taking advantage of it was somehow sly or dishonest, or that it was a phony act that Roosevelt assumed when it suited him. It was not, nor was it an act Roosevelt put on to impress people. It just happened to be the way he was — however useful it proved to be for him politically.

Taft, on the other hand, was a man who liked to be liked. Where Roosevelt used his natural personality to get others to accept him, Taft used his personality to get himself accepted by others. Taft thus tended to sublimate his better self in an effort to placate the Old Guard Republicans who (as might have been expected after eight years of Roosevelt's soft speaking with a big stick behind it) were intent upon regaining lost ground and purging the Republican Party — and the American Republic — of progressive elements.

This is not to say that the members of the Old Guard were being dishonest, any more than Taft was. Many of them truly saw no difference between Republican progressivism and Democratic populism — and no difference between populism and socialism. Stuck in a paradigm in which they firmly believed that all new capital could only be financed out of existing accumulations of savings, they saw only two alternatives: capitalism or socialism, whatever label might be put on either system.

The conservative Republicans honestly believed that there was no rational alternative to their brand of mercantilist capitalism. If private property were to remain protected as a sacred and natural right, that necessarily included (in their limited understanding) absolute exercise of property as well, with adequate government protections installed to maintain the status quo. Any limits on the exercise of property were thus, in their eyes, limits on the natural right to be an owner itself, and was tantamount to socialism.

With this understanding of private property, the Old Guard could not distinguish between Roosevelt's progressivism which, in the ancient tradition of the west, demanded limitations on the exercise of property in order to secure the right to be an owner to all, and Bryan's populism which, with its undermining of private property through manipulation of the currency, truly was a form of socialism. Consequently, with Roosevelt seemingly safely out of the way, the conservatives moved in as fast as they dared to overturn what they regarded — or professed to regard — as Roosevelt's dangerous socialist innovations.

Taft was tested almost immediately upon taking office. The progressive Republicans made an effort to unseat Joseph G. Cannon, the conservative Speaker of the House of Representatives. Taft, possibly in an effort to secure the powerful backing of Senator Nelson Aldrich, sided with Cannon against the progressives. Aldrich was powerful financially, being linked with J. P. Morgan and the Rockefellers. Taft might have believed (erroneously) that Aldrich's support was essential to secure the necessary reforms of the credit system after the serious weaknesses were exposed by the Panics of 1893 and 1907.

Soon afterwards, progressives in the Senate attempted to nullify the Aldrich amendments to the Payne tariff bill. Taft initially sided with the progressives, and then threw his support to Aldrich. After that, the president went on a speaking tour during which he sent such equivocal messages that the progressives became convinced that he had completely abandoned their cause. A contemporary political cartoon shows Taft supplicating a frowning Aldrich with folded hands and a whining, "Please, Mr. Aldrich!", while Roosevelt's portrait glares down, and the past president's "big stick" gathers cobwebs.

The "Ballinger Affair" (the "Pinchot-Ballinger Controversy") appeared to signal a definite change of heart on the part of Taft. Conservation of the country's natural resources and the national park system had been a primary concern of Roosevelt. Within weeks of taking office, Richard A. Ballinger, Taft's Secretary of the Interior, alienated three million acres of land set aside for conservation, returning them to private use. Taft had appointed Ballinger to replace Roosevelt's appointment, James Rudolph Garfield, son of James Garfield, the murdered president, soon after his inauguration. Conservationists took Garfield's removal as a clear sign that Taft was abandoning Roosevelt's policies.

Convinced that Ballinger intended to bring a halt to the conservation effort, Gifford Pinchot, chief of the United States Forest Service (a McKinley appointee), and other conservationists began efforts to have Ballinger removed from office. Earlier, Louis Glavis, Chief of the Portland, Oregon Field Division of the General Land Office, had accused Ballinger of improper interest in coal claim purchases in Alaska while Ballinger was Commissioner of the General Land Office, and claimed that Ballinger had interfered with investigations of coal claim purchases in Idaho.

While still Commissioner, Ballinger rejected Glavis's claims and removed Glavis from the investigation of possible anti-trust violations that implicated Ballinger. Pinchot arranged for Glavis to meet with Taft. Glavis detailed his findings in a fifty-page report to the president. Taft issued a letter exonerating Ballinger and authorizing Glavis's termination on the grounds of insubordination. At the same time, Taft tried to reassure Pinchot that his administration was fully committed to the cause of conservation.

Glavis went public, publishing an article, "The Whitewashing of Ballinger: Are the Guggenheims in Charge of the Department of the Interior?" (Colliers Weekly, November 1909.) In January of the following year Pinchot sent an open letter to Senator Jonathan P. Dolliver of Iowa, which was read into the Congressional Record. Pinchot, a personal friend of Roosevelt, praised Glavis's patriotism, rebuked Taft, called for an investigation — and was promptly fired.

Taft's final break with the progressives came in the Spring of 1910. A large number of progressive Republicans were coming up for reelection in the Midwest. The conservatives, headed by Aldrich, Cannon and Taft, mounted a well-funded campaign to prevent their re-nomination. The effort failed, and talk began among the progressives of forming a third party to challenge the Old Guard permanently.

In November of 1910 a secret meeting to discuss financial reform took place on Jekyll Island, Georgia. The meeting has entered conspiracy lore as the source of the proposal that led to the Federal Reserve System. The fact that the meeting was secret has assumed an importance far beyond its actual import. The reason for secrecy was to hide deliberations from the progressive Republicans.

Aldrich was by this time persuaded that he had Taft right where he wanted him — but had to step carefully as Taft (and Aldrich) still needed the support of the progressives to maintain power. Due to Taft's fumbling of the Ballinger Affair and the subsequent speaking tour, however, the progressives were hardly likely to be taken in. They were already on the warpath and were seeking more evidence (as if they needed any) of Taft's and the conservative's betrayal of Roosevelt's legacy.

And a betrayal it was. Fortunately, the "Aldrich Plan" that came out of the Jekyll Island meeting was never adopted. It had certain superficial similarities to the Federal Reserve Act, but there were a number of critical differences. The Aldrich Plan would have kept the money power centralized in the hands of a tiny elite in New York City. As Harold Moulton explained the relationship between the Aldrich proposal that came out of the meeting and the Federal Reserve Act of 1913,

"The task of framing a currency law was conceived as one of modifying the Aldrich bill in such a way as to meet the fundamental objections that had been raised to that measure and to perfect a banking organization that would provide the necessary centralization of power without vesting too much control in the hands of the "financial interests"; it was felt that a democratic spirit should pervade the organization and that it should be developed in accordance with the "genius of our institutions." The Democratic party thus reaped the fruits of the investigations that had been conducted by the National Monetary Commission and by other students of banking reform, as well as the advantage of the criticisms that had been made of the Aldrich bill; and especially it profited by the nation-wide discussion of the fundamental principles involved in banking reform. Great credit must, however, be given to the Democratic leaders for the efficient way in which the problem was handled and for the speed with which the bill was enacted into law." (Moulton, The Financial Organization of Society. Washington, DC: The Brookings Institution, 1930, 530-531.)

True, the Federal Reserve System enacted three years later conformed to the broad outlines of the Aldrich Plan, and several of the participants in the meeting took credit for being the guiding spirits of the central bank of the United States, but that was clearly an example of wishful thinking and self-glorification. As Moulton stated, "The Federal Reserve Act is an outgrowth of the Aldrich plan, though modified in numerous details and in some very important respects." As Moulton explained the Aldrich plan as the precursor to the Federal Reserve Act,

"The Aldrich plan, which was presented to Congress early in 1911, was discussed the country over perhaps more thoroughly than any other measure ever before Congress. The bill is generally conceded to have had many excellent provisions; many of them, indeed, subsequently became embodied in the Federal Reserve Act. But the prevalent distrust of Mr. Aldrich in consequence of his unsavory reputation on tariff matters, together with the fact that his proposal was undoubtedly a very strongly centralizing measure, made its enactment into law a political impossibility, especially after the coming of the Democrats to power in 1912." (Moulton, Principles of Money and Banking. Chicago, Illinois: The University of Chicago Press, 1916, II.261.)

The plan of the Federal Reserve System was based on the Reichsbank and the banks of the constituent states of the German Empire. This came from information gathered during Senator Aldrich's investigative trip to Europe in 1908, not anything that was developed at Jekyll Island. At most, all that the Jekyll Island meeting participants could in honesty claim credit for was the decision to use the Imperial German system as the model for the new central bank of the United States. As Moulton noted,

"The Federal Reserve Act is a substantial improvement over the Aldrich plan. It should be chronicled here that the Federal Reserve Act is not a mere plagiarism of the Aldrich plan. In certain fundamental respects the new law is markedly different from and markedly superior to the Aldrich plan . . . . Subject to a great deal of hostile comment by the financial and business press during the period of its discussion before Congress, after passage the law very quickly became recognized at its true worth as the most constructive piece of legislation that had ever been placed upon the American statute-books. For once, at least, a vitally important, though technical, question had been resolved into its fundamental issues through public discussion, and in this instance a measure emerging into law did represent the best constructive thinking of the nation." (Moulton, The Financial Organization of Society, op. cit., 531-532.)

That was to come, however. In the meantime, Taft and his new guides and mentors in the conservative faction of the Republican Party had to face the ire of Theodore Roosevelt, newly returned from Africa and Europe.

#30#

Orestes Brownson and Socialism, V: Progressivism, Continued

2011-12-05T11:44:00.001-05:00

The Panic of 1893 and the ensuing Great Depression of 1893-1898 revealed serious flaws in the American financial system, flaws that caused the system to operate to the detriment of the non-rich. The National Bank system Salmon P. Chase established during the American Civil War had imposed an inelastic banknote currency on the country. This forced farmers and small businessmen into dependence on existing accumulations of savings to finance capital acquisition and development. This shut the great mass of people out of the phenomenal expansion of commercial, industrial and financial capital that characterized the latter half of the 19th century in the United States.

Only the Homestead Act of 1862 made capital available to the non-rich, and then only in the form of land. Further, developing the relatively small freeholds (a quarter section — 160 acres — in most cases) still relied almost exclusively on past savings for financing — and there was a serious problem. During this period accumulated savings were rapidly depleted. Cash money instead of credit instruments assumed an increasing role in the everyday consumer economy as production for market instead of subsistence farming became the norm. Cash was also required to repay loans taken out during the war when the currency was inflated and prices high. Prices were now falling in response to the elimination of war demand and the boom in production.

To make matters worse, the federal government pursued a policy of deflation of the paper currency. This was to reestablish parity with gold and restore the full faith and credit of the United States after the financial chaos of the Civil War. Chase was in large measure responsible for this, due to his decision to finance the Union war effort by emitting bills of credit (mortgaging future tax collections) instead of raising taxes immediately. Chase wanted to be president, and thus tried to avoid raising taxes until he could no longer avoid it. Money for the average consumer and small producer (usually the same people) was thus becoming increasingly scarce.

At the same time, the rich were able freely to finance the rapid growth of commercial, industrial and financial capital. The rich financed new capital principally by drawing bills of exchange, that is, creating money upon acceptance of their bills. These bills could either be used directly as money through acceptance in the channels of trade and commerce ("merchant's" or "trade" acceptances), or discounted and rediscounted at commercial banks ("banker's" acceptances).

The National Bank system made large scale discounting and rediscounting through the banking system a much safer alternative than in the "wildcat banking" days before the war. This is because the National Banks functioned as commercial banks for the rich as well as banks of deposit for the non-rich and banks of circulation for the federal government. By accepting bills of credit as backing for the National Bank Notes, the federal government circumvented its lack of a specific enumerated power under the Constitution to monetize its debt. (The provision allowing the federal government to emit bills of credit — the "constitutional" or government version of private sector bills of exchange — had been removed from the first draft of the Constitution over this very issue.) The federal and state governments also fostered rapid capital expansion by the rich with land grants, subsidies, and favorable tax treatment.

There was thus the supreme irony — due almost exclusively to the flawed financial system and reliance on existing accumulations to finance new capital formation for small owners — of there being a virtually unlimited supply of money and credit to finance immense production for a few. At the same time, the small producer — the consumer — was faced with a rapidly decreasing supply of money and credit. The result was an enormous increase in production just as the capacity to absorb that production was evaporating due to the decrease in capital ownership among the general population.

As the "free" land available under the Homestead Act ran out, increasing numbers of people were forced into wage system jobs. This was both for their subsistence and for the cash income required to keep the new economy running. Unlike today when consumers can delay the day of reckoning for consumer cash expenditures out of an inadequate wage income, sometimes for years at a time, by creating money by means of the expansion of consumer credit, and through access to State welfare, the propertyless worker of the 1890s had nothing other than wages to generate cash. When forced into unemployment, immediate homelessness and starvation were often only staved off by reliance on private charity, or by simply disappearing to escape debt — creating the popular image in American folklore of the "haunted house" from which the inhabitants had mysteriously vanished.

The response from the populist movement to the Panic of 1893 and the Great Depression was to demand that the government engage in a massive public works program to create jobs. "Coxey's Army" was the first popular demonstration on a national scale that demanded action by the federal government to create jobs and control commerce and industry. After a cross-country march, with some elements coming from as far away as California, remnants of the "army" camped out for months around Washington, DC, living off of charity until finally evicted by the police after accomplishing nothing.

Demands of Coxey's Army and others were similar to those of today, and would have been just as ineffective. Job creation would (allegedly) be financed either by inflating the National Bank Note currency (issuing more federal debt to back the new issues), or permitting "free coinage" of silver. This latter came to be called "silver socialism," as it would undermine private property by shifting purchasing power from creditors to debtors by basing the currency on cheap silver rather than expensive gold, lowering the value of the dollar and making it easier to settle debts.

A strong push was also made for an income tax to equalize the tax burden, the intent being to shift from the heavily regressive ad valorem ("value added") tariffs, sales and property taxes on producers passed through to consumers. An income tax was passed under the Wilson-Gorman Tariff Act of 1894 (ch. 349, §73, 28 Stat. 570) to make up for the anticipated fall in revenue from reducing the tariff, but was declared unconstitutional in 1895 (Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 158 U.S. 601).

Contrary to popular myth, the Supreme Court did not declare an income tax unconstitutional per se. The issue was whether an income tax is a "direct" or "indirect" tax. The Constitution did not allow any direct tax to be imposed unless apportioned among the states on the basis of population. This would be manifestly unjust, for a poor state with many inhabitants would pay more in taxes than a rich state with fewer inhabitants.

The 16th Amendment did not make the income tax constitutional. An income tax is, and always has been constitutional (Penn Mutual Indemnity Co. v. Commissioner, 32 T.C. 653 at 659 (1959)). What the 16th Amendment did was make it possible for Congress to impose a direct tax without apportionment among the states on the basis of population, thereby removing, not imposing, an injustice.

Largely through the efforts of William Jennings Bryan, the presidential campaign of 1896 was diverted from the need for a fundamental reform of the financial system to a focus on the currency. This was a fatal distraction at a critical time. Coin and banknotes (including the Treasury Notes of 1890 and gold and silver certificates) accounted for only 25% or less of the national money supply.

The bulk of the money supply in the 1890s was, as always, in the form of private sector bills of exchange. Acrimony over "the silver question" ensured that deeper problems were ignored. The problem seemed to have solved itself as the Great Depression ended with nothing other than superficial legislative action on the part of the federal government. This was only whitewashing the problem, however, for the acrimony remained, creating deep divisions in the country. As Dr. Harold G. Moulton related,

"With the return of great business prosperity the need of reforming the banking system appeared less pressing to our legislators, who at best perceived none too clearly the fundamental weaknesses inherent in the system. The return of the Republicans to power, coupled with the establishment of a gold standard, undoubtedly satisfied most congressmen that henceforth financial difficulties would be unknown." (Harold G. Moulton, Financial Organization and the Economic System. New York: McGraw-Hill Book Company, Inc., 1938, 343.)

Failure to reform the system led directly to the Panic of 1907. The Congressional committee formed in 1912-1913 under the leadership of Congressman Arsène Pujo of Louisiana to investigate the causes of the Panic determined that it had been caused by concentrated control over money and credit. Ironically, the Panic occurred at a time when Theodore Roosevelt, the acknowledged leader of the progressive movement who was in the middle of his second term, seemed unstoppable, and followed hard on the heels of legislation that, as noted, had been thought to make future panics and depressions impossible.

Appearances were deceiving. Roosevelt worked long and hard to lay the groundwork for sustainable reforms of the system that avoided the anti-property orientation of the now-decayed populist movement. The Old Guard Republicans who tended to view any limitation on their exercise of property as socialist were still extraordinarily powerful, however, and in control of Congress. At the same time, the remnants of the populist movement could still count on the hearts of many Americans, having been captured by the brilliant oratory and sterling personal character of William Jennings Bryan — at this time more powerful as a private citizen than many elected officials.

It is probably not an overstatement to say that only Theodore Roosevelt could have kept the vision of Orestes Brownson and America's Founding Fathers alive at this time. Bryan had the personal integrity and charisma to do the job, but his principles, while held with deep conviction, were not adequate. Bryan focused — apparently unconsciously — on undermining the natural rights of private property and freedom of association. This was through manipulation of the currency and a State-created money supply to guarantee results. This was, in effect, a sort of monetary Fabian socialism, justifying the label "silver socialist" applied to Bryan.

Roosevelt, just as charismatic and with fully as much integrity, managed to steer a middle course — a just third way — between the logical (if completely erroneous) insistence of the conservative Republicans that their exercise of property and liberty were absolute, and the emotional humanitarian insistence of the populist wing of the Democrats that liberty (freedom of association/contract) and private property must in all cases be subordinated to the demands of the majority.

Roosevelt's genius gave him an enormous power base among moderate Republicans and Democrats. Roosevelt's just third way, unfortunately, alienated him from the entrenched power centers. These were the radical Democrats who had a virtual monopoly on socialist rhetoric — the most vocal and emotional form of "people power" — and the conservative Republicans who monopolized the capitalist money power.

The conservative Republicans and the radical Democrats were both wrong, but in a way that made their errors particularly attractive to many people even today. Both camps lost sight of the fact that the right to be an owner is inherent — absolute — in each and every human being, but that the exercise of property is necessarily limited by the rights of other individuals and groups, and the common good as a whole. Similarly, the natural right of liberty is constrained by the requirement that no one can legitimately use his or her liberty to harm even him- or herself, other individuals or groups, or the common good as a whole. As Roosevelt would later summarize his position,

"Nothing is more true than that excess of every kind is followed by reaction; a fact which should be pondered by reformer and reactionary alike. We are face to face with new conceptions of the relations of property to human welfare, chiefly because certain advocates of the rights of property as against the rights of men have been pushing their claims too far. The man who wrongly holds that every human right is secondary to his profit must now give way to the advocate of human welfare, who rightly maintains that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner's Sons, 1926, 17.)

As Pius XI declared twenty years later,

"[T]win rocks of shipwreck must be carefully avoided. For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets. Unless this is kept in mind, one is swept from his course upon the shoals of that moral, juridical, and social modernism which We denounced in the Encyclical issued at the beginning of Our Pontificate." (Pius XI, Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, § 46.)

As Roosevelt's second term came to a close, it appeared that matters were well in hand. Thanks to prompt emergency measures, the country stabilized after the Panic of 1907, and there was increasing agitation for lasting financial reform. The groundwork had been laid for a restoration of the natural law as understood by the Founding Fathers and embodied in the Constitution. Roosevelt's intelligent assessment of the hardening of the conflict between individualism/capitalism and collectivism/socialism and his energetic action (combined with the inherent decency of Bryan who refused to countenance violence and who gave Roosevelt credit when he felt it was due) had, to all appearances, saved the country from a second Civil War, this time between capitalism and socialism instead of two forms of capitalism.

The battle, however, was just beginning.

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News from the Network, Vol. 4, No. 48

2011-12-02T16:10:00.000-05:00

There are a number of very exciting things going on. Unfortunately, from a typical "news orientation" it's a little like reporting the grass growing. Yes, it's very important that the grass grow, and the results should be phenomenal, but do you really want to read about it, or (worse) watch it?

In this case — yes! The Just Third Way turns economics from "the dismal science" into something not merely hopeful, but an actual life (and economy) saver:

• On Monday of this week, Dr. Shelton A. Gunarate, professor of Mass Communications (emeritus) Minnesota State University, Moorhead posted a very good "outsider's" view of the Just Third Way on "Lankaweb," a forum for the latest news from and discussion on Sri Lanka. There are one or two things that are not quite from our perspective or orientation, but that's small stuff. The article is a good summary.

• Norman Kurland spoke on Tuesday at American University in Washington, DC. The talk was on "Islam and Occupy Wall Street: From Problems to Solutions." The talk was oriented toward the Just Third Way reforms as a way of meeting the demands of the "Occupiers," and showing how the principles of the Just Third Way are consistent with the major (and minor) religions of the world.

• Amazon has put up the "thumbnail" illustrations for the novels of John Henry Newman recently published by Universal Values Media, Inc., a small for-profit publisher that works with CESJ's publishing program. If anyone who has an internet bookstore and is interested in using book sales to raise funds for, e.g., schools and churches, please make contact with CESJ at "publications [at] cesj [dot] org with your needs, and we'll see if there's a fit.

• The latest CESJ publication, an annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors, With the Outlines of a Plan for Their Establishment in Ireland (1848, 1874) went to the printers on Wednesday. Bulk orders (ten or more copies) should be available next week at $20 per copy plus shipping. To reserve copies in bulk, send an enquiry to "publications [at] cesj [dot] org." Be sure to say how many copies you want and a street address for shipping. We'll let you know how much the shipping will be by return e-mail, and you can place an order.

• Supporting Life: The Case for a Pro-Life Economic Agenda (2010) has been submitted as CESJ's entry into the Atlas Foundation's annual Sir Anthony Fisher International Memorial Award to honor outstanding publications produced by independent public policy research institutes that have made the greatest contributions to the public understanding of a free society.

• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia and Bulgaria. People in Australia, Venezuela, India, the United States and Slovenia spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Thomas Hobbes on Private Property," Orestes Brownson and Socialism, I: The Evil," "How Joe Lunchbucket Could Get Money for Capital Homesteading," and "The Political Animal, Part XIX."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Guest Blogitorial: Real Change for the Better

2011-12-02T12:40:00.000-05:00

By Dan Parker

With the dismantling of the original Occupy Wall Street encampment and others like it around the world, it is up in the air as to which way the movement will go. Hopefully, the protestors will work at creating viable alternatives to the present system, and move beyond media stunts that ignore property rights. Active 'occupy' participants are of course already doing this to some degree, but there needs to be much more work in this direction. As a starting point, the focus has to be more on the specifics of how our monetary and financial systems have led to today's problems. The first step in creating a viable solution is having detailed knowledge of the problem.

Although there will no doubt be some violence in the protests, including that sparked by agent provocateurs, it is likely the main thrust of the change movement will be peaceful. Given the increasing knowledge about how the money system really works among the protestors and general population alike, serious monetary reformers look to play an increasingly important role in the upcoming change. Many of these monetary reformers are not only accredited economists, they also have insider knowledge and experience working with the current system; sometimes at very high levels in both governmental institutions and private industry.

The experienced, accredited reformers have also thought long and hard about the problem, and offer many promising avenues for sustainable, peaceful change. The best way forward seems to be the solution offered by economists such as Norm Kurland. The concept is known as binary economics and has been under development for decades. Mr. Kurland also has a law degree, which is useful for incorporating the necessary legal framework around the new economic system.

Mr. Kurland was a close colleague for eleven years of Louis O. Kelso, author of binary economics and inventor of the Employee Stock Ownership Plan (ESOP). Collaborating with Kelso, he authored and lobbied the first and subsequent ESOP legislative initiatives in the U.S. Congress. Business Week magazine described Kurland as "the resident philosopher of ESOP in the capital." In 1985, President Reagan appointed Mr. Kurland as deputy chairman of the bipartisan Presidential Task Force on Project Economic Justice, to promote economic democratization through ESOP reforms in Central America and the Caribbean.

Robert Ashford is another champion of binary economics. He is a Professor of Law at the Syracuse University College of Law, in Syracuse, New York. He teaches subjects including Binary Economics, Business Associations, Corporations, Securities Regulation and Professional Responsibility. Ashford holds a J.D. with honors from Harvard Law School. He also holds a B.A. with majors in physics and English literature from the University of South Florida, where he graduated first in his class.

In Canada, Winnett Boyd unsuccessfully pushed to have binary economics adopted by the Progressive Conservative party in the 1970's. Boyd is perhaps best known for being the engineer in charge of the design of the Orenda jet engine, which powered the Avro Arrow among other jets. The Orenda was the most powerful jet engine in the world in the late forties and early fifties. In short, Boyd was a world beater when it came to solving complex problems. When Boyd was promoting binary economics in the early 1970's, it was presented as an improvement in an economy with little debt compared to today. In today's financial climate, binary economics could more be considered as a necessary development, rather than as just an improvement on the economy.

What is most promising about binary economics is that it proposes growing the economic pie to increase the productive wealth of the bottom 99%, without taking anything from the top 1%. In this way it is non-confrontational. The super-rich would remain free to do what they saw fit with their accumulated wealth. However, the trillions of dollars that are created from nothing each year by the private banks would be available for interest-free loans to each and every adult to acquire shares of productive property; instead of just the well connected. In essence, binary economics promotes a truly free-market type of capitalism; one with widespread ownership.

As Wikipedia relates "Binary economics is a theory of economics that endorses both private property and a free market but proposes significant reforms to the banking system. The aim of binary economics is to ensure that all individuals receive income from their own independent capital estate, using interest-free loans issued by a central bank to promote the spread of employee-owned firms. These loans are intended to: halve infrastructure improvement costs, reduce business startup costs, and widen stock ownership.

Binary economics is a minority discipline, hard to place on the left-right spectrum. It has variously been characterized as an extreme right-wing ideology and as extremely left-wing by its critics. The 'binary' (in 'binary economics') means 'composed of two' because it suffices to view the physical factors of production as being but two (labour and capital which includes land) and only two ways of genuinely earning a living _ by labour and by productive capital ownership. Humans are usually considered as owning their labour, but not necessarily the other productive factor — capital.

Binary economics is partly based on belief that society has an absolute duty to ensure that all humans have good health, housing, education and an independent income, as well as a responsibility to protect the environment for its own sake. The interest-free loans proposed by binary economics are compatible with the traditional opposition of the Abrahamic religions to usury. Binary Economics was proposed by American lawyer Louis Kelso in his book The Capitalist Manifesto (1958). The title of the book is best viewed as a thing of its time, being a Cold War reference in opposition to communism.

Employee Stock Ownership Plans (ESOPs) are compatible with some of the principles of binary economics and were sparked by some of the leading advocates. The idea stems originally from Louis Kelso & Patricia Hetter Kelso (1967) Two-Factor Theory: The Economics of Reality; and then from conversations in the early 1970s between Louis Kelso, Norman Kurland (Center for Economic and Social Justice), Senator Russell Long of Louisiana (Chairman, USA Senate Finance Committee, 1966 — 1981) and Senator Mike Gravel of Alaska. There are about 11,500 ESOPs in the USA today covering 11 million employees in closely held companies.

Binary economics also rejects conventional financial savings doctrine (that there must be financial savings prior to investment) — no financial saving is necessary if money is already being created out of nothing (Ed — only instead of being largely used for speculation by the 1%, it would go towards productive endeavours by the 99%). The theory asserts that what matters is whether the newly-created money is interest-free, whether it can be repaid, whether there is effective collateral and whether it goes towards the development and spreading of various forms of productive and the associated consuming capacity. Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a 'free market' which is free, fair and efficient.

The two economics also differ on the subject of democracy. Conventional economics upholds the periodic political vote. Binary economics does the same but deepens democracy by arguing that productive capital would be more widely distributed too. In binary economics, freedom is only truly achieved if all individuals are able to acquire an independent economic base."

How the current protest movement shakes out will be interesting. There is no doubt a faction that relishes confrontation, rather than thoughtfully created alternatives. However, it is difficult to see these people as being in the majority, particularly in Canada. One reason for the relatively low levels of violence is no doubt the high standard of living in North America and Europe. However, even here, Canada with its history of largely peaceful evolution would seem poised to be a world leader in enacting needed fundamental financial changes.

Those who think tinkering with the existing system is a sustainable solution do not understand the basic math behind compound interest, or that general populations can only be fooled for so long. In a short ten years or so, awareness of the massive injustice inherent in our current money system has grown dramatically (along with the inevitable indebtedness that is mathematically guaranteed by compound interest). What is more, it is the young, internet savvy future leaders who are most aware of the reality of our current money system and its defects.

Futurist Alvin Toffler is enough of an insider that he has dined at the U.S. White House. In one of his books, he gave an astute assessment about the need for fundamental change. He wrote: "We are left with only one option. We must be willing to shape ourselves and our institutions to deal with the new realities. Much depends on the flexibility and intelligence of today's elites, sub-elites and super-elites. If these groups prove to be as short-sighted, unimaginative and frightened as most ruling groups in the past, they will resist the [needed change] and thereby escalate the risks of violence and their own destruction."

Other insider involvement in the occupy movement will likely play a large part in supporting the peaceful part of the protest. As usual, most mainstream media have conveniently overlooked the critical concept of who is really behind the occupy movement. Patrick Henningsen provided some enlightenment when he wrote in The Guardian that: "Although the global Occupy movement has branched out in an open-source way, many of its participants and spectators might be completely unaware of who actually launched it. Upon investigation, what one finds is a daisy chain of non-profit foundations, all tied together by hundreds of millions per year in operational funding. The original call for Occupy Wall Street came from non-profit international media foundation Adbusters. Like many non-profits, Adbusters receives its funding and operating capital from other behind-the-scenes organizations. According to research conducted by watchdog Activistcash, Adbusters takes a significant portion of its money from the Tides Foundation, an organization partnered with one of Wall Street billionaire oligarch George Soros's foundations, the Open Society Institute."

When one traces change initiatives to establishment figures like Soros, it is tempting to see the entire initiative as irredeemably compromised. However, many change agents have the astounding view that all the super-elites think alike. Personal experience and common sense would dictate otherwise. There are of course super-elite figures who are in support of needed fundamental change today, as has been the case throughout history.

How to bring the various change agents at all levels together behind a viable alternative to the present system is a tall order. Still, binary economics could be prototyped in one area, and a truly free market would see that it would take over from the less efficient conventional economics, and become the new norm. As economically independent individuals obtain income from automated production and are increasingly freed from 'busy work' by binary economics, there would be more and more ability to engage in the creative work necessary deal with the challenges of the future.

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Orestes Brownson and Socialism, IV: Progressivism

2011-12-01T14:52:00.001-05:00

The great struggle that Orestes Brownson saw for possession of the soul of the United States had its origin before the American Civil War. His concern for individual and social rights — as opposed to individual or social rights — make Brownson, to a great extent, a "proto-progressive." The progressive movement in American politics, an effort to return to the original founding principles of the American Republic, "officially" began in the late 19th century and reached its zenith under Theodore Roosevelt early in the 20th. The movement, however (weak as it seemed at times), had never been silenced, even by the growing conflict between capitalism and socialism that characterized the latter half of the nineteenth century in America.

Briefly, if somewhat inaccurately, described as a political movement in opposition to conservatism, progressivism was actually an effort to return America to its constitutional and philosophical roots. Progressivism was in contrast to both individualism/capitalism ("conservatism") and collectivism/socialism ("liberalism").

The period following the Civil War saw the rapid passing of the way of life described in Alexis de Tocqueville's Democracy in America. This is best summarized as having embodied the three principles of economic justice — participation, distribution and harmony — in the "four pillars of an economically just society," covered in the previous posting.

Still, the period before the Civil War was anything but halcyon, due principally to the abomination of chattel slavery. William Crosskey posited that the "power grab" by the Supreme Court that resulted in the decision in Scott v. Sandford in 1857 (the Dred Scott case), was the culmination of a decades-long effort to defend slavery. To accomplish this, the theory of "states rights" had been invented, and judicial review expanded far beyond what the Founders had ever intended.

Economically, Scott v. Sandford was a triumph of southern agrarian capitalism over northern industrial, commercial and financial capitalism. This undermined the natural law basis of the Constitution, and fostered the belief that socialism was the only alternative — viable or otherwise — to capitalism. It can be said that the southern agrarian capitalists found their position justified by the economic arguments best presented in David Christy's Cotton is King (1855). At the same time, the emotional presentation in Harriet Beecher Stowe's Uncle Tom's Cabin (1852) inspired the northern "socialist" humanitarians in their abolitionist crusade.

As we have already noted, the war itself was — in economic terms — a struggle between two forms of capitalism, a system depending on a twisting of the natural law. In a supremely ironic circumstance, the northern capitalists took as their justification socialist abolitionist arguments, while the southern capitalists (somewhat more consistently) twisted the natural law right of private property to justify theirs. In more fundamental terms, the war raised the question whether the country would be locked into a seemingly permanent struggle between individualism and collectivism, or whether it would return to what the Founders originally intended, purified of the taint of slavery.

With the passage of the 13th and 14th Amendments, it appeared as though the Founders' natural law orientation had won. The Homestead Act seemed to put the seal on the triumph of "Catholic" political philosophy and respect for the dignity of the human person by opening up near-universal access to the means of acquiring and possessing capital, at least in land.

Brownson, however, foresaw problems. There was, of course, the usual anti-Catholicism. This, however (especially in light of the courage shown by Catholic soldiers on both sides during the war), seemed to be fading. A greater concern, at least according to Brownson, was the growing power of northern capitalism, and the incentive it gave to socialism to oppose the abuses.

From a constitutional perspective, the greatest danger to the United States appeared in 1873 after Brownson published The American Republic. This was a number of lawsuits grouped together as "the Slaughterhouse Cases."

The story is complex, and we need not get into the details here. We only want to note that, according to William Crosskey's analysis, in the ruling in the Slaughterhouse Cases, the United States Supreme Court took the opportunity to nullify the 14th Amendment, which had been passed largely to overturn Scott v. Sandford. Despite the fact that the majority opinion seemed to favor "states rights," Crosskey noted that the opinion was so vaguely worded as to be completely meaningless. It could be — and was — used to make the 14th Amendment mean anything the Court wished, depending on the specific political goal sought.

Up through the 1940s, the precedent set by the Slaughterhouse Cases was used to justify the erosion of private property, especially in corporate equity. It formed the basis of the New Deal, and laid the groundwork for the rapid acceptance and spread of Keynesian economics.

The effort to counter the movement away from the natural law and return to the original intent of the Founders came to be known as "progressivism." While usually characterized as a late 19th and early 20th century movement, we can hypothesize that Brownson was, in a sense, a founder of the movement, and his magnum opus, The American Republic, as its manifesto of a sort.

The latter half of the 19th century was characterized by the struggle that Brownson seems to have anticipated. The more powerful northern capitalism grew, the stronger the socialist resistance became in response. Populism, especially in the west and the south, initially offered an alternative to socialism. The east, with its growing population of propertyless workers, tended more toward socialism.

As the "free land" available under the Homestead Act ran out, however, and the opportunities for small ownership disappeared, populism became increasingly socialist in tone. Ultimately, there was little to distinguish populism from socialism. This left the great mass of people propertyless and thus helpless before the growing power of both the government, and the industrial, commercial and financial power centers of the private sector.

A true understanding of the constitutional basis of the United States was rapidly fading. This had proceeded so far that, when Pope Leo XIII issued the "encyclical" Rerum Novarum ("On Labor and Capital") in 1891, capitalists took it as a defense of their position, while socialists insisted it really supported theirs. The thought that the encyclical is neither individualist nor collectivist, but political in the Aristotelian sense, rarely intruded into discussions then or now.

As a result, by 1900 the country was in serious danger. As described by Herbert Knox Smith, Commissioner of Corporations under Theodore Roosevelt and William Howard Taft, and a key man in the "trust busting" effort,

"In 1900 the surface of American life was, as it were, hardening, was growing less plastic. Dangerous division lines were opening from the pressures beneath, splitting the unity of the nation. The great trust movement was in full force, sweeping into a few hands special industrial privileges, the control of natural resources, and decisive advantages in transportation. Individual opportunity and the open highways of commerce were narrowing. Great corporations were considering themselves above the law, with the cynical but increasing concurrence of the public. A sinister atmosphere was gathering, menacing to American initiative and American ideals.

"These recognized inequalities, with the twisted standards which they implied, were moving strongly toward national disunity — that profound disunity which in a democratic people must result from confessed differences in privilege and opportunity." (Herbert Knox Smith, "The Great Progressive," introduction to Social Justice and Popular Rule, by Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xi.)

The failure of populism as an effective counter to capitalism left what amounted to a power vacuum among reform-minded citizens. This set the stage for a potential convulsion that could tear apart the nation as surely as slavery had forty years before. By what could only be described as a series of unforeseen circumstances (again, much too lengthy to relate here), however, Theodore Roosevelt was picked as William McKinley's vice president. The idea was both to bring into the Republican fold the reforming, progressive elements of the Republican Party and the more conservative Democrats who rejected William Jennings Bryan's "silver socialism," and to get the reforming Roosevelt shunted aside into a dead end office where he could do little to annoy the reactionary elements in the party.

The tragedy of McKinley's assassination in 1901 catapulted Roosevelt into the presidency at exactly the right time for the reform movement to gain a champion untainted with populism, socialism, or (especially) capitalist greed and corruption. McKinley, while honest, had been expected to carry out business as usual, which was why the party bosses had tried to make certain of his election. The country had only recently pulled itself out of the Great Depression of 1893-1898, apparently validating the refusal of the federal government to inflate the currency or intervene in any other way. (It was actually the combination of bumper crops in the U.S. and crop failures in Europe that brought the country out of the first Great Depression, just as World War II, not FDR's "New Deal" that brought the country out of the second Great Depression.) Only five years before the Supreme Court had ruled that the new income tax, as a direct tax levied without apportionment among the states on the basis of population, was unconstitutional, a decision that outraged the populists and socialists. The Republican Party was seen as catering to the demands of the rich, leaving the poor and downtrodden out in the cold. The road seemed clear for the ever-increasing concentration of ownership and control of industry, commerce and finance in fewer and fewer hands. "Don't rock the boat" might well have been the national slogan to replace "In God we trust."

Roosevelt, however, was a man consumed with reforming zeal — and the intelligence, energy and even the sense of humor needed to carry it through. Today's historians like to point out that Roosevelt's actual legislative accomplishments to carry out reforms were relatively few compared with those of Taft. The authorities tend to forget, however, that without Roosevelt to lead the way, there would have been little or no reforming legislation at all. Pioneers build few cities, but few cities are built without the pioneers to pave the way. As Herbert Knox Smith related, "In 1901, Colonel Roosevelt, with his seer's insight into Americans and American conditions, became President. He saw the danger, and with increasing clearness he framed the issues, speaking directly to the people." (Ibid., xi-xii.)

Throughout his first administration Roosevelt moved the Republican Party toward progressivism, emphasizing "trust busting," increased government oversight to stem the abuses of laissez faire capitalism, and a "square deal" for the average man. In these and other areas Roosevelt, while not a Catholic, seemed more in tune with Pope Leo XIII's view of the American political system expressed in the 1899 "Apostolic Letter" to Cardinal Gibbons, head of the American Church, Testem Benevolentiæ Nostræ ("Concerning New Opinions, Virtue, Nature and Grace, with Regard to Americanism"), than many Catholics. The high regard that Leo XIII exhibited for American civilization and the pope's recognition of its weaknesses was a virtual restatement of Brownson's position set forth in The American Republic.

(The Apostolic Letter is frequently misunderstood, even today, as a condemnation of the American political system. On the contrary, the letter is a virtual endorsement of the American system as a model for civil society. The dangers against which Leo XIII warned Cardinal Gibbons were those associated with applying American civil democratic principles to religious society, particularly in the determination of theological doctrines.)

Of particular note are the efforts of Judge Peter S. Grosscup in advancing progressive ideas in the area of widespread capital ownership, an absolute necessity in a program to secure a "square deal" — respect and support for essential human dignity. One of Roosevelt's "trust busters," Grosscup authored a series of articles in the early 20th century on the necessity of countering the rapid decay of small ownership of farms and businesses with small ownership of the large corporations — something in which G. K. Chesterton and Hilaire Belloc later concurred.

The problem with the proposals of Grosscup as well as Chesterton and Belloc was that all of them assumed the necessity of access to existing accumulations of savings to finance acquisition of existing or new capital. This locked them into what Louis Kelso and Mortimer Adler would later call the slavery of past savings. The effect was to restrict capital ownership either to a private wealthy elite to maintain the natural right of private property, or to the State through the abolition of private property to try and guarantee results instead of opportunity, usually through re-defining what "property" means.

Abolishing private property through re-definition (what John Maynard Keynes called "re-editing the dictionary") was made substantially easier in the United States as a result of the decision in the Slaughterhouse Cases. The vague decision (deliberately so, according to William Crosskey) made the status of "person" dependent on whatever a court might decide. The decision was also used to change the meaning of "property," as well as life and liberty (all inalienable rights of "persons"), making them subject to judicial whim or political expedience.

Past savings as the only source of financing for new capital for the non-rich was the shoal on which populism had been wrecked, turning it into just another form of socialism. It would now sink progressivism.

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Orestes Brownson and Socialism, III: The Constitution

2011-11-30T07:34:00.002-05:00

What baffles many people who take the "capitalist/individualist" side today is the claim that the Just Third Way is not socialist, even though there is a strong objection to concentrated ownership of capital in private hands. The only people even more puzzled about the Just Third Way are the socialists/collectivists, who believe that any system that appears to subordinate their demand for a guarantee of an adequate material life for all to humanity's natural rights of life, liberty and property is necessarily capitalist.

Consciously or not, both sides take for granted that humanity is either socialist/collectivist, or capitalist/individualist. No other arrangement is possible. Thus, whatever is not socialism must be capitalism, and whatever is not capitalism, must be socialism.

This belief is conditioned primarily by two assumptions. One assumption is the conviction that humanity is either a social creature or an individual. There is no appreciation of what Aristotle meant by his statement in The Politics that "man is by nature a political animal" — a possibly unique combination of individual and social. The politikos bios — the life of the citizen in the State — is an arrangement of the common good by means of which individual rights are only truly realized within a social context. The art of politics involves arranging the institutions of society to optimize the exercise of individual rights within a framework that naturally and necessarily takes into account not only the rights of the individual, but of other individuals, groups, and the common good (that network of institutions within which we exercise rights and so acquire and develop virtue) as a whole.

The other assumption is the idea that the only way to finance new capital formation is to cut consumption, accumulate money savings, then invest. This necessarily restricts ownership of all new capital either to private individuals who have been fortunate enough already to have wealth and can afford to cut consumption, or to the State, that presumably has the power (as John Maynard Keynes put it) to re-edit the dictionary, that is, change what it means for something to be a right, thereby controlling who may "own" and how that "ownership" may be exercised.

In view of these two assumptions, society seems locked into an irreconcilable conflict between individualism/capitalism on one hand, and collectivism/socialism on the other. In the analysis of Orestes Brownson, the American Civil War brought this conflict to its highest pitch.

In Brownson's opinion, the conflict between individualism and collectivism had been present from the beginning of the United States. Both were in contrast to the system embodied in the Constitution. The individualist element had been strong from independence up to the Civil War. The most obvious representation of this was slavery, according to de Tocqueville the only serious problem with democracy in America. The collectivist element had, however, been gaining strength, largely through opposition to slavery. It was to gain ascendancy after the war in reaction against the growing power of the industrial and commercial sectors, the ownership of which was rapidly becoming concentrated at an accelerating rate. While Brownson died in 1876, he would not have been surprised — although possibly profoundly shocked — at the degree to which American society has managed to take on the worst aspects of both capitalism and socialism, the latter not unjustly termed "State capitalism."

Brownson was adamant that slavery was a profound evil, and that the abolitionists were right in opposing it. Where they were wrong, he believed, was in opposing slavery on "humanitarian" or "socialistic" grounds. Slavery was wrong not because it was cruel and inhuman. Life itself, in many respects, is cruel and inhuman. Slavery is wrong because it is contrary to human nature, constituting an unnecessary cruelty, "a barbaric element, . . . in direct antagonism to American civilization."

Even then, slavery was abolished not on humanitarian grounds, but because abolition was an effective weapon in the fight to save the Union. Thus, as far as Brownson was concerned, the right thing was done, but for the wrong reason. Political pragmatism had won out over both socialist humanitarianism and capitalist individualism, as well as the true American spirit and philosophy. Ironically, this led to the belief that capitalist expedience, rather than socialist humanitarianism was the ruling philosophy of America, a conclusion seemingly validated by the rapid commercial and industrial expansion after the war. Paradoxically, this led to the widespread belief that socialism, albeit under many names and in many forms, is the only possible remedy to the horrors of capitalism.

Not that Brownson, despite his condemnation of socialism, was "soft" on capitalism. He viewed them as two sides of a very bad coin. This non-Catholic and thus non-American philosophy imposed actual slavery in the south, and virtual slavery in the north through the wage system. With respect to the material condition of the non-owning worker he believed that chattel slavery was better for the worker than wage slavery — a conclusion with which you are free to disagree, but it illustrates what are, in Brownson's eyes, the chief evils of the wage system. An owner of men has, at least, to keep the people who are his property alive even when they are not working if he hopes to remain profitable. The propertyless free worker, however, is on his own, free to starve, if nothing else, and the employer of nominally free men makes more profit the worse he treats his workers — in the short run. In an analysis that Brownson could have lifted directly from Aristotle, he stated,

"In regard to labor two systems obtain; one that of slave labor, the other that of free labor. Of the two, the first is, in our judgment, except so far as the feelings are concerned, decidedly the least oppressive. If the slave has never been a free man, we think, as a general rule, his sufferings are less than those of the free laborer at wages. As to actual freedom one has just about as much as the other. The laborer at wages has all the disadvantages of freedom and none of its blessings, while the slave, if denied the blessings, is freed from the disadvantages. We are no advocates of slavery, we are as heartily opposed to it as any modern abolitionist can be; but we say frankly that, if there must always be a laboring population distinct from proprietors and employers, we regard the slave system as decidedly preferable to the system at wages." (Orestes Brownson, "The Laboring Classes," The Boston Quarterly Review, July 1840.)

Brownson might as well have added, "own or be owned." As it was, the Civil War created the illusion that the northern version of capitalism had won, but this — at least in Brownson's eyes — was no victory. All it did was give socialism its justification, and provide the basis for the gradual implementation, decades later, of social welfare programs that eventually bankrupt the State in an effort, as Goetz Briefs noted, to save capitalism by having the State guarantee each person's material welfare.

Nevertheless, in 1865 Brownson, while he could see the dangers of the spread of propertylessness among the great mass of people, saw great promise in the Homestead Act. He likened it to the spread of the benefits of the Roman Republic to every inhabitant in the empire — only on a more just and equitable basis. He continued to hold fast to what he believed to be the true American philosophy found in the Constitution, especially what in the framework of the Just Third Way is called the "Four Pillars of an Economically Just Society":

1. A limited economic role for the State,

2. Free and open markets as the best means of determining just wages, just prices, and just profits,

3. Restoration of the rights of private property, especially in corporate or other business equity, and

4. Widespread direct ownership of capital.

A Limited Economic Role for the State

As far as Brownson was concerned, the State's role is to protect individual rights, but within a strong juridical framework that respects human liberty and dignity. As he explained, "its mission is not so much the realization of liberty as the realization of the true idea of the State, which secures at once the authority of the public and the freedom of the individual — the sovereignty of the people without social despotism, and individual freedom without anarchy. In other words, its mission is to bring out in its life the dialectic union of authority and liberty, of the natural rights of man and those of society. . . . The American republic has been instituted by Providence to realize the freedom of each with advantage to the other."

Free and Open Markets

A free market is not one in which "anything goes," but one to which everyone has equal access and equal rights to participate. Brownson saw a free market — "commerce" — as essential to a government of sovereign people. "[I]t was necessary to place [commerce] under the General government, in order that laws on the subject might be uniform throughout the Union, and that the citizens of all the States, and foreigners trading with them, should be placed on an equal footing, and have the same remedies."

Restoration of Private Property

When Brownson wrote, in 1865, the serious inroads that would be made on private property even as soon as 1873 with the "Slaughterhouse Cases" were far from evident. The war had been fought — in part — to secure natural rights to people who had been deprived of their exercise. Still, Brownson appears to have had an inkling of what could come, for he stressed the importance of protecting natural rights many times, e.g., "Communion with God through Creation and Incarnation is religion, distinctively taken, which binds man to God as his first cause, and carries him onward to God as his final cause; communion through the material world is expressed by the word property; and communion with God through humanity is society. Religion, society, property, are the three terms that embrace the whole of man's life, and express the essential means and conditions of his existence, his development, and his perfection, or the fulfillment of his existence, the attainment of the end for which he is created." This is a concise description of the role and importance of religious society, civil society and domestic society in the politikos bios.

Widespread Capital Ownership

Private property in capital was for Brownson the underpinning of a free and democratic society, providing the foundation for the family, the basic unit of society. In America, the people govern — both implying and requiring widespread ownership of capital. As Brownson explained, "The right to govern rests on ownership or dominion. Where there is no proprietorship, there is no dominion; and where there is no dominion, there is no right to govern. Only he who is sovereign proprietor is sovereign lord."

Interestingly, Brownson's analysis of the U.S. Constitution, even flawed as it is in parts by an incomplete understanding of Catholic political philosophy (a weakness Brownson himself admitted) — except for his evident admiration of James Madison — bears a strong resemblance to that of William Winslow Crosskey (1894-1968) possibly the greatest Constitutional scholar of the 20th century. This is understandable. Both men seemed to have an almost inborn sense of the natural law that necessarily underpins any sound government or State. Applying Aristotelian and Thomist common sense in their respective analyses (even if unconscious of the provenance of the principles they employed), leads to similar, if not identical conclusions.

Crosskey used different words, but he expressed the same sentiments in his monumental Politics and the Constitution in the History of the United States (1953). As Brownson reflected,

"The United States, or the American Republic, has a mission, and is chosen of God for the realization of a great idea. It has been chosen not only to continue the work assigned to Greece and Rome, but to accomplish a greater work than was assigned to either. In art, it will prove false to its mission if it do not rival Greece; and in science and philosophy, if it do not surpass it. In the State, in law, in jurisprudence, it must continue and surpass Rome."

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Orestes Brownson and Socialism, II: The Civil War

2011-11-29T07:30:00.002-05:00

Following the American Civil War the danger represented by the twin evils of capitalism and socialism became increasingly evident. Abraham Lincoln's 1862 Homestead Act forestalled the spread of both for a while, but by 1893, as Frederick Jackson Turner pointed out, the "free land" available under the Act had to all intents and purposes run out. The effect on the American spirit was profound, even to the extent that, as far as Turner was concerned, it meant the end of democracy — and democracy in America, as Alexis de Tocqueville had pointed out in the 1830s, seemed custom-made to foster Catholic political and moral principles (if not the Catholic faith) in both public and private life.

After the war, the reaction against the obvious injustices of industrial, commercial and financial capitalism took two forms. In the west, with its tradition of widespread ownership of landed capital fostered by the Homestead Act, and the south, where the emphasis had always been on agriculture, the reaction took the form of populism. In the east, where economic growth was not generally land based, and there was no industrial or commercial Homestead Act to slow the trend, the rise of the proletariat caused the reaction to take the form of socialism. As the opportunity to own land disappeared, populism began to merge with socialism, obscuring differences, causing confusion, and giving capitalism in contrast a credibility it didn't deserve.

The affinity of the American system with Catholicism was only the case so long as ordinary people had access to the means of becoming owners of landed, commercial, or industrial capital. The Homestead Act had, for a while at least, made landed capital available on relatively easy terms. There was, however, no provision for making the rapidly expanding commercial and industrial frontier equally available. "Power," as Daniel Webster had observed in the Massachusetts Constitutional Convention of 1820, "naturally and necessarily follows property." As the land ran out and there was little or no access to the means of acquiring and possessing the new commercial and industrial capital, the American people became increasingly proletarian — and increasingly tempted by the glamour of socialism.

The financial system installed by Lincoln's Secretary of the Treasury Salmon P. Chase and his inflationary monetary and fiscal policies implemented to finance the Union war effort seemed designed to concentrate ownership of big business by providing it with adequate credit. At the same time, the system severely restricted the amount of capital credit available to farmers, ranchers and small businessmen. The British Bank Charter Act of 1844, on which the United States National Bank Act of 1863 was modeled, ensured that industrial and commercial interests could draw bills of exchange which, when accepted, created all the money necessary to finance economic development on a large scale. At the same time, the restriction of the banknote currency in the United Kingdom, and the policy of deflation followed in the United States after the Civil War to restore parity of the paper currency with gold ensured the disappearance of the existing accumulations of savings on which the farmers and small businessmen relied for financing new capital formation.

Consequently, Brownson saw the American Civil War as much larger than a fight to free the slaves or save the Union. It was that, of course, but even more in Brownson's eyes it was a titanic struggle for the soul of America, a nation that, inexplicably to many people today, the popes seem to have singled out for a special role in the destiny of humanity. In The American Republic (1865), his magnum opus, Brownson saw the war as being between individualism/capitalism and collectivism/socialism on the one hand, and the "catholic principles" embodied in a true understanding of the Constitution on the other. As he explained,

"I write throughout as a Christian, because I am a Christian; as a Catholic, because all Christian principles, nay, all real principles are catholic, and there is nothing sectarian either in nature or revelation. I am a Catholic by God's grace and great goodness, and must write as I am. I could not write otherwise if I would, and would not if I could. I have not obtruded my religion, and have referred to it only where my argument demanded it; but I have had neither the weakness nor the bad taste to seek to conceal or disguise it. I could never have written my book without the knowledge I have, as a Catholic, of Catholic theology, and my acquaintance, slight as it is, with the great fathers and doctors of the church, the great masters of all that is solid or permanent in modern thought, either with Catholics or non-Catholics." (Orestes A. Brownson, "Preface," The American Republic.)

The war marked a turning point in what it meant for this country to be the United States. Whether that change was for good or for ill, however, would be determined in Brownson's analysis by whether the country would begin the seemingly inevitable pendulum swing between capitalism and socialism as a result of basing financing for economic growth on past savings, or whether it would find its soul in the application of Catholic social principles of life, liberty (freedom of association/contract), property, and the pursuit of happiness — the acquisition and development of virtue.

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Orestes Brownson and Socialism, I: The Evil

2011-11-28T11:13:00.003-05:00

He is almost forgotten today, but at one time Orestes A. Brownson (1803-1876) was a force to be reckoned with. John A. Hardon described him as "one of the most admired — and most controversial — figures of the nineteenth century." A giant intellect, he was renowned as one of the "Big Three" American Transcendentalists, ranking with Thoreau and Emerson. In some ways he surpassed them. He, of course, lost his ranking when he converted to Catholicism, and almost immediately began to annoy both Catholics and Protestants by espousing unpopular ideas that, contrary to the spirit of those times and ours, happened to be true.

Chief among the unpopular ideas Brownson championed was that neither individualism (capitalism) nor collectivism (socialism) had the truth, but of the two, socialism was by far the worst. As far as Brownson was concerned, socialism is "as artful as it is bold," establishing and maintaining itself by lies and deceit. As he characterized this insidious evil,

"[Socialism] wears a pious aspect, it has divine words on its lips, and almost unction in its speech. It is not easy for the unlearned to detect its fallacy, and the great body of the people are prepared to receive it as Christian truth. We cannot deny it without seeming to them to be warring against the true interests of society, and also against the Gospel of our Lord. Never was heresy more subtle, more adroit, better fitted for success. How skillfully it flatters the people! It is said, the saints shall judge the world. By the change of a word, the people are transformed into saints, and invested with the saintly character and office. How adroitly, too, it appeals to the people's envy and hatred of their superiors, and to their love of the world, without shocking their orthodoxy or wounding their piety! Surely Satan has here, in Socialism, done his best, almost outdone himself, and would, if it were possible, deceive the very elect, so that no flesh should be saved." (Orestes Brownson, Essays and Reviews Chiefly on Theology, Politics, and Socialism, 1852.)

Reading this, we can understand why, unlike capitalism, the Catholic Church explicitly condemns socialism in all its forms. Capitalism may be bad, but socialism is deadly. Capitalism distorts nature, where socialism would destroy it. As Pius XI declared in words often cited and even more often ignored or misunderstood, "If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist." (Pius XI Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, § 120.)

Why, however, in a country that seemed to take inordinate pride in its individualism and adherence to capitalism, would Brownson be so concerned with the dangers of collectivism and socialism? It would make more sense (at least to the modern mind) if he had joined with Karl Marx and the other giants of 19th century socialism, and condemned the growing evils of industrial and commercial — to say nothing of financial — capitalism.

The problem was that, just as today, no one but a few misguided ideologues was under the illusion that capitalism was anything but bad. Even many of today's apologists for capitalism frequently agree that, with the past savings paradigm (paraphrasing Churchill on democracy), capitalism is the worst possible system . . . except for all the others.

Socialism, however, has always managed to hide its evil, usually disguising itself as "an angel of light," seeming — as Brownson put it — so fair as to "deceive the very elect." No, there was little danger that anyone would mistake capitalism for anything other than what it is. There was — and remains — every danger that multitudes will welcome socialism as the savior of the world. It feeds on pride, arrogance, and envy, a veritable cornucopia of deadly sins, custom-made to destroy the soul of an individual or a country.

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News from the Network, Vol. 4, No. 47

2011-11-25T15:48:00.000-05:00

There are some very interesting things happening in Ireland right now. The "Irish Executives Network" (below) just had a contest to solicit suggestions on how to "inspire Ireland" to get out of the current economic malaise. We, of course, got our entry in as "Equity Expansion International, Inc.," which (as you know) is the for-profit business that works to implement Just Third Way structural reforms in companies, states/provinces, countries and regions.

Ireland is, frankly (aside from the U.S.), almost the ideal place to implement Capital Homesteading. Ireland and the U.S. share a common language (although it does seem to sound better coming from them), have similar legal systems, culture, and so on. Ireland is part of the European Union, but is uniquely positioned to serve as a model for both Europe and the Americas, having ties pretty much around the globe.

Do we expect to win? Define "win." The contest was clearly directed toward individual business endeavors, while EEI's "product" is restructuring an entire economy. We're thus in a "win-win" situation. If we don't get a prize, that's okay — we'll settle for having been given the chance to present the Just Third Way as a possible solution to what troubles Ireland (and the rest of us) to some people who just might be in a position to do something constructive. We did get to a TD (a legislator) a while back, but a scandal broke and there was no follow-up. Fortunately, the caliber of people we've seen in the Irish Executives Network can't help but see the advantages of applying Just Third Way reforms to the Irish economy by adopting Capital Homesteading — thereby showing the U.S. how it's done.

We should, in fact, win by losing. The people running the contest are clearly going to feel so bad about giving the prizes to other people and organizations that they'll study the Just Third Way and Capital Homesteading far more intensely than they otherwise would have. Then they'll just have to pick up the phone and give Norman Kurland a call — contact information on the website. (If he can spend hours on the phone talking to Labour Party people in London and South Africa, and days tramping around Capitol Hill dropping in on various Congressmen and Senators, he can give the Irish equal time.)

Not that Ireland is our sole focus. Here's what else we've been doing this past week:

• As noted above, EEI entered the "Inspire Ireland" contest run by Irish Executives Network. This LinkedIn group — and a significant number of others — exhibit to a high degree the organizing for social justice for which Pope Pius XI called in Quadragesimo Anno (1931) and Divini Redemptoris (1937). A good "handbook" for this kind of thing is available for free from CESJ in .pdf: CESJ co-founder Father William Ferree's Introduction to Social Justice (1948). Get yours today.

• The Irish certainly seem to be waking up to the need for acts of social justice (which we hope they will be communicating to their "separated brethren" in the U.S.) We are preparing a piece for possible profiling (in a good way) in the "Irish Abroad" LinkedIn group. It should be ready for submission next week.

• CESJ had a meeting of the core group of the Coalition for Capital Homesteading. The focus was on the need to come up with some "emotional" points to sign the petition for the U.S. Congress (or any other legislature, city council, civic or religious group around the globe, for that matter) to adopt a (non-binding) resolution in support of the Declaration of Monetary Justice. There is also a need for each member of the Coalition to come up with three possible "action items" to further the cause of economic justice for all.

• To our great pleasure, we heard this past week from John Moorehouse, founder, publisher and editor of the Catholic Men's Quarterly that has been on hiatus for the past couple of years. He's back, and getting the magazine back on track. He also has some interesting ideas that groups can use for fundraising. His orientation is clearly Catholic, but other groups might find the old "Classic Comics" (remember them?) both interesting and useful for fundraising purposes. Here's the link to his organization.

• We're putting the revision of Capital Homesteading for Every Citizen aside for a couple of months. There are relatively few areas that need a little "tweaking," such as some of the language and explanation about money, credit, banking and finance, and some of the rough projections should be updated, but the principles are there, and can easily be adapted to any economy in the world. We'll be focusing on getting the English revision of Curing World Poverty up and running, from which the current Chinese translation will be corrected, and then published by an academic press in China.

• We have a meeting scheduled next week with an official from one of the local universities to discuss putting CESJ's core group in touch with academics, legislators and various good-people-to-be-in-touch-with. It should be a very productive meeting.

• Norman Kurland received Thanksgiving greetings from the Polish journalist with ties to Poland's central bank who interviewed him a while back for a feature article in a Warsaw newspaper, who reported a short time ago that the former head of the central bank had been investigating Capital Homesteading monetary and tax reforms and was impressed with them. This is particularly interesting in that last week the Wall Street Journal reported that Poland has avoided the "recession," has kept its public debt down to 55% of GDP, and is looking to reduce it further, at the same time focusing on providing liquidity to the private sector instead of government to finance growth.

• As of this morning, we have had visitors from 56 different countries and 51 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Bulgaria, and Australia. People in Australia, India, Germany, Singapore, and Austria spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "How Joe Lunchbucket Could Get Money for Capital Homesteading," "Aristotle on Private Property," and "The Keynesian Multiplier."

Those are the happenings for this week, at least 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." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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Deeply Superficial

2011-11-23T14:16:00.000-05:00

There's an old joke about advanced ("post graduate") degrees that is expressed in a number of ways. One way — the way we first heard it — is that the BS stands for just what you'd expect, the MS is more of the same, while the Ph.D. is "Piled Higher and Deeper." Another way of putting it is that goal of modern education is to know more and more about less and less until you reach the ultimate goal of knowing everything about nothing. Just as in politics.

Today's politicians and economists are, according to those criteria, the best-educated people in the world. Knowing everything about nothing, and having piled their nothingness as high and as deep as it is possible for people to take (and, in an increasing number of places throughout the world, so deep that people are swimming in it), the best that any of them can come up with is to engage in an endless back-and-forth (or, for variety, forth-and-back) within the extremely limited current paradigm.

"You must cut spending and increase taxes!" insist those on one side. "You must increase taxes and cut spending!" trumpet those on the other side. Without first having settled whether they need to cut spending and increase taxes, or increase taxes and cut spending, the discussion devolves into how much of either they aren't going to agree on. As the "supercommittee" demonstrated, this gets you nowhere at a very slow pace.

The answer is not to decrease State spending or increase taxes, although both may be necessary in the short run (although sometimes not quite as necessary as those who want to spend the money would have us believe), but to rebuild the tax base. Fiddling with government spending and taxes puts the cart before the horse. You can't reduce spending from what you don't have in the first place, and you can't tax what isn't there.

So much for the clichés. Not to sound too simplistic, but indications are that the situation could be reversed relatively quickly by focusing on three institutions that, in their current flawed state, inhibit and (in some cases) actually prevent economic growth. Stop me if you've heard this:

1. Methods of Corporate Finance. The economy must be freed from what Louis Kelso and Mortimer Adler called the slavery of past savings. New capital formation should be financed out of "future savings," meaning the profits realized from the increase in the production of marketable goods and services in the future, not reduction in consumption in the past. The present value of future savings can be monetized and used to finance new capital formation by drawing bills and discounting them with other merchants or businesses, or at commercial/mercantile banks, and rediscounting the bills at the central bank. This is a sounder basis for the money supply than the mortgage on future (possible) tax collections that are represented by backing the money with government debt.

2. Reform of the Tax System. All taxes are disincentives to production, but some are worse than others. The VAT is a strongly regressive tax, falling most heavily on those least able to pay. The progressive income tax is even more of a disincentive, as it encourages non-productive government spending, and discourages spending income on consumption. Worse, from a financial point of view, it encourages the rich to reinvest their income in order to gain whatever tax breaks are available for that, which reduces the consumption demand that, ultimately, drives the economy. Switching to future savings instead of past savings to finance growth removes the need for reinvestment, while a single tax rate on ALL income above a meaningful (i.e., enough to meet common domestic needs adequately) income level would walk the middle ground between regressive and progressive taxation.

3. Expanded Capital Ownership. Most important of all, people who currently own no means of production other than their own labor must become owners of a capital stake sufficient to generate enough income first to pay for the capital itself, then to provide consumption income to supplement and, in some cases, replace wage and welfare income.

Of course, all of this (and much more) is available in the book, Capital Homesteading for Every Citizen. You can get it for absolutely free, or (if you insist) it can be purchased on Amazon or Barnes and Noble. And it (and other CESJ publications) are available in the U.K. and Australia, so there's no excuse for not reading it.

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"Manie Men Feare"

2011-11-22T11:53:00.000-05:00

In the early 17th century, Thomas Wentworth, earl of Stafford (then Viscount Wentworth), was appointed Lord Deputy of Ireland to see how much money he could wring out of the native Irish, the Anglo-Irish, the new Scots and English settlers, and anybody else who came into view. Charles I, like all the Stuarts, was perennially short of cash. He felt he could rely on his favorite to bring home the bacon. That everybody knew pretty much what to expect is demonstrated by a diary entry by Sir Edward Denny, a Protestant "planter" in the southwest of Ireland, in which he wrote, "The Lord Viscount Wentworth came to Ireland to governe the kingdom. Manie men feare."

Regular readers of this blog may have shared similar sentiments if they read yesterday's Wall Street Journal, page A5, and saw the headline, "Economists Get an Online Platform for Policy Debates." As the article relates, "A new website is assembling what it calls 'the world's best economics department'." The idea is "to give prominent academic economists a louder and unfiltered voice in key public policy debates."

Haven't we suffered enough?

The idea that "prominent academic economists" should have a "voice" "unfiltered" through the tortured minds of politicians misled by their theories but trying to force them to work at all costs, or — di imortales! — the poor boobs in the street who have to live in the wreckage that politicians and "prominent academic economists" have made of the economy, boggles the imagination. It is a little like promoting Brian Horeck or Rosellen Price for the Nobel Prize in literature. Yet academic economists get the Nobel Prize in economics for work that, in comparison, makes Horeck and Price look like actual writers.

For those of you blessed enough never to have heard of either of these two literary miscreants, Brian Horeck is the "author" (and we use the term very loosely) of Minnow Trap and Frozen Beneath. One reviewer (after he finished throwing up) described Minnow Trap as not merely bad, but incompetent. He described Horeck as the Ed Wood of literature. Frozen Beneath is worse.

Rosellen Price, "author" of Blood and Wine and two horrifyingly bad sequels, was begged by one reviewer to stop, please just stop writing for the love of God, while another wanted to slap her face for pushing her [expletives deleted] on to an unsuspecting public.

Dorothy Parker would not merely have flung these execrable "novels" against the wall with great force, she would have invaded northern Ontario to do Mr. Horeck in personally (preferably by strangulation after chewing off the hands with which he wrote), and taken out a contract on Ms. Price, a privilege for which the Mob would have paid her.

Please do not read these books in a vain effort to prove us wrong. We'll take the late James Theis's sincere, if so bad it really is funny, The Eye of Argon (written when he was 16) any day of the week. Of course, Theis was so humiliated by the ridicule heaped upon his novel (actually a short story, written in honor of Robert E. Howard's "Conan the Barbarian"), some of it undeserved, but none of it actually cruel, that he never wrote another word of fiction as long as he lived. Despite — or because of — that, he became a legend among the fen. (Plural of "fan"; if the plural of "man" is "men," then the plural of "fan," at least in the fannish community, must be "fen." Look it up if you don't believe me.)

Would that Horeck and Price followed Theis's example . . . or (better yet), the "prominent academic economists" obsessed with inflicting their demonstrably false and unworkable ideas on the world time, and time, and time (and time) again. At least if you read a Horeck or Price production you can put it out of your mind after a few years of therapy and rubbing all the skin off your hands trying to get them clean again. (Whatever your impulse, however, we do not recommend gouging out your eyes.)

The plain fact is that these very models of modern major nuisances (i.e., the "prominent academic economists") promote ideas that are not merely bad. If that was all, we could deal with it by replacing the bad ideas with better ideas. No, the problem is that the economics is profoundly incompetent, not even making a pretense at describing reality. Anything that doesn't fit in with their theories is explained away or dismissed outright, not explained. This is coupled with the snow job that for generations academia has pulled off by convincing the public at large that "prominent academic economists," as well as other denizens of the Groves of Academe unable to find honest work in the shambles they've left of the economy, actually know what they're talking about.

We could go on for days (and we have) cataloging the crimes of modern economists, notably all of them that derive their fundamental principles from the disproved (but not yet discredited) British Currency School of finance. For the sake of comparison, we can call Keynesian economics the Horeck, Monetarist/Chicago the Price, and Austrian as the Theis. (Austrians get off easy, if only because, within their framework, they strive for consistency with principles. They don't succeed, but they're at least sincere in adherence to something they think is liberty.)

For today, however, we will content ourselves with the definition of money, the bad definition of which is the economic root of all evil. (More fundamentally, it's the bad definition(s) of private property that abound that cause most of the trouble, but "money" is, in part, an application of the rights of private property as well as liberty.)

A long time ago, in a galaxy far, far away (before the Great Depression of the 1930s), people had not yet bought completely into the erroneous idea that all money comes from the State. No — money comes from actual, flesh-and-blood people who produce a marketable good or service, not votes to keep some politician who (if he or she feels generous) will redistribute a tiny amount to you from somebody else's wealth (after a rake off, of course), or mortgage future taxes — to be collected (if the government hasn't spent its way into bankruptcy) in the future out of what you and others might produce if you have any initiative left after being a degraded wage and welfare serf for so long.

"Money" is not some mysterious, mystical thing. It is simply a contract to deliver the present value of some marketable good or service on demand or on the occurrence of some future event. Issuing some kind of order doesn't make something money. What makes something money is accepting it in settlement of a debt. You can do this with a handshake, or just your word.

You don't need government to tell you that you can enter into a bargain — a contract — with someone else, and keep that promise. You need government to enforce that contract if one of you tries to get out of it, and to set standards so that everybody agrees on what an inch, a pint, or a dollar is, but government can't create any of these things.

Well, if government doesn't create these things . . . who does?

We do. And, by our natural rights of private property and free association ("liberty" or "contract"), we can exchange what we produce amongst ourselves with no interference, as long as what we're exchanging isn't illegal, although it can be immoral or fattening. The mechanism — the "medium" — by means of which we carry out these exchanges, that is, make promises to deliver marketable goods and services now or in the future, is called "money."

Even today, when the government (for our own good, of course) has taken over so much of the economy (and doing such a great job of it!), more than 60% of the money supply is not "created" by government in the U.S., that is, is not backed by government debt, but by private sector assets: the present value of existing and future marketable goods and services. This type of money is called "bills of exchange." It is better money, because it's asset-backed, than that Federal Reserve Note we hope you have in your pocket. (Federal Reserve Notes were also supposed to be backed by private sector assets, but that's another story.)

What this country needs is not more money imposed by fiat by the government, but genuine money that people create and use themselves, out of their own productive potential as owners of labor and as owners of capital. What kept many people alive in the second Great Depression (that of the 1930s — the first was in the 1890s when the "free land" from the Homestead Act ran out) was ownership of some capital that produced enough to provide them with food, clothing and shelter — after a fashion. The New Deal destroyed all but a few remnants of small ownership in America, and forced many people into dependence on State welfare, including Social Security.

Despite all the gloom and doom you hear these days about the economy, however, there is a relatively simple solution, and one that can be implemented with the stroke of a pen, just as the original Homestead Act was in 1862 over Abraham Lincoln's signature. It's called "Capital Homesteading," and it would empower every child, woman and man in the United States with the ability to create money to purchase new capital, the income from which would first be used to pay for the capital, and after that as consumption income.

In other words, instead of cutting consumption and saving in order to produce, people could produce, and then save. This makes much more sense, if you think about it. How can you cut consumption in order to produce something out of which you can save, if you don't first produce something?

With Capital Homesteading, the consumer demand that drives the economy would not have to be "created" by government with "stimulus packages" that only stimulate the greed of bureaucrats and corporate drones in failed companies, but be sustained naturally. As an economist named Jean-Baptiste Say explained in a letter to the Reverend Thomas Malthus (whose theories of economics are responsible for turning economics into "the dismal science"), we don't really purchase what others produce with this thing called "money."

No, we purchase what others produce with what WE produce. "Money" is just the medium by means of which we carry out the exchange if we don't want to cart our bushels of wheat or flocks of chickens around with us in a wallet. Thus, if goods remain unsold — that is, there is productive capacity but nobody is buying — it's because the people who want to buy aren't producing. As Say concluded, if we want what others produce, we must offer them what we produce, or there can be no exchange. Capital Homesteading is designed to turn everyone into a producer by being an owner of capital as well as labor.

Join the Coalition for Capital Homesteading. Capital Homesteading in 2012!

Otherwise the experts — the “prominent academic economists” — are going to set the rules and dictate what can, and cannot be done.

Manie men feare.

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Mountain of Trash

2011-11-21T11:53:00.000-05:00

An article in today's Washington Post is "déjà vu all over again." Rama Lakshmi's report from New Delhi ("In India, a Mountain of Trash Means a Living," Washington Post, 11/21/11, A7) on the plight of the people at the bottom of the social and economic scale who make their livings mining recyclable material from the garbage heaps highlights the fact that, however beneficial non-polluting alternate energy systems may be for the environment and the economy, it doesn't do much for the people who stand to lose what little they have as they are displaced by advancing technology.

Technological displacement is one of the most serious problems associated with technological advancement and economic growth in which everyone does not have an equal opportunity to participate. While alternate sources of energy are clearly desirable on the "macro scale," these and similar changes can and frequently do have a devastating effect on those who rely on the old system to make a living.

The solution is not to stop progress, however, but to figure out a way in which those displaced by advances in technology can benefit from those advances. In the case of the people who mine the trash heaps for recyclable materials, the answer is obvious, and was given by the late Louis Kelso in an editorial in a 1964 issue of Life magazine: "If the Machine Wants Our Job, Let's Buy It." How this principle can be applied in the situation you described is relatively straightforward:

First, rather than have the new energy plant owned by the government or a few rich domestic or foreign investors, it should be owned — and owned directly — by everyone in the area served by the power plant. This can be done by setting up a "Citizens Land Bank," or CLB. The CLB is a proposed ownership and financing vehicle that consists of a private joint stock corporation that is owned by everyone in the area by granting each citizen and permanent resident a single, no-cost, non-transferable, voting and fully participating share in the CLB. A CLB would take immediate title to all land and infrastructure currently owned by government, and gradually acquire other land and infrastructure as it comes on the market.

Second, change the basic method of finance for such financially feasible new industries. Instead of relying on rich domestic or foreign investors, bond issues, or inflationary government spending, finance the operation by drawing bills of exchange and either discounting them with other businesses and individuals, or at commercial/mercantile banks, that can rediscount the bills at the central bank. Collateral can be in the form of commercial capital credit insurance and reinsurance instead of the usual existing accumulations of wealth.

Third, give the displaced trash miners priority in getting jobs at the new energy plant.

Fourth, for those miners that the new plant cannot absorb — and 300,000 workers is far too many for one plant to hire — make capital credit available to start new enterprises that can absorb the "excess" workers as worker-owners. This is similar to a proposal by William Thomas Thornton, a clerk in the East India Company, in 1848 in A Plea for Peasant Proprietors. Thornton proposed that the Irish affected by the Great Famine of 1846-1852 be given the opportunity to become owners of land and other capital as a permanent solution to the problems that caused the Famine.

This is a very broad and sketchy outline of a proposal that we call "Capital Homesteading for Every Citizen" (from the book with the same title), that we believe has the potential to turn the global economy around in 18-24 months, but can effectively end world poverty except on an individual basis.

It's at least better than mining trash for a living.

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