• On Monday, January 19, a group was formed to "market" the Just Third Way. Enthusiastic participation is already in evidence, with proposals and even draft marketing materials in preparation. The two coordinators are Brent Ritzel and Steve Neskis.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."
• Evidently due to the posting on President Obama's failure to mention justice in his inauguration speech, this blog received more hits on Tuesday than on any previous day since its inception, and "Inauguration Means Beginning" became firmly entrenched in first place as the most popular posting.
• On Wednesday, in response to an op-ed piece by Juan Williams in the Wall Street Journal ("Judge Obama on Performance Alone" 01/21/09, A17), Norman Kurland put in a telephone call to Mr. Williams, with whom he has interacted before, most notably with the receipt of a handwritten note from Mr. Williams when he was with the Washington Post on receipt of information about the Just Third Way. As Mr. Williams stated, "This material is critically important to broadening the nation's appeal to the non-rich, especially disadvantaged minorities. I'm not an economist but I think you are on to a powerful concept. All the best, Juan Williams."
• Thursday night Norman Kurland met with a group of students from the Ave Maria School of Law who were in town for the annual March for Life. While CESJ is not a Pro Life organization, it has a firm commitment to all principles of the natural law, especially our inalienable rights to life, liberty, and the means to acquire and possess private property in the means of production, as well as pursue happiness and safety (acquire and develop virtue). Norman Kurland reported that the students expressed a great deal of enthusiasm for the idea of an economic agenda that would support the Pro Life cause and which is based on these fundamental natural rights. In contrast to the failure to acknowledge justice during the president's inauguration speech, the Ave Maria law students gave evidence of a firm commitment to justice, both in principle and in practice.
• As of this morning, we have had visitors from 17 different countries and 37 states and provinces in the United States and Canada to this blog over the past two months. Over the same period we have had nearly a 30% increase in readership. Since our most popular postings have to do with the problems associated with Keynesian economics and the seriously flawed solutions that are being implemented to solve the world's economic and financial problems, we might reasonably take this as a sign that dissatisfaction with the Keynesian free lunch program is beginning to spread, and people are becoming suspicious of the number of policymakers and prime movers who are revealed as slaves to Keynesahol, a virtual flood of Keynesaholics, staggering from one Keynesian fix to another in a hopeless quest for just the right stimulus to carry them through to the next election.
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Friday, January 23, 2009
News from the Network, Vol. 2, No. 4
The Big News this week was, of course, the inauguration of Barack Obama as the 44th president of the United States. While many people seemed to think that the inauguration itself was the culmination of everything, the fact remains that Mr. Obama has some very big problems to deal with, not the least of which is overcoming the fixed belief in the Keynesian free lunch, which results in monetary and fiscal policy that has the goal of trying to get something for nothing. Consistent with our continuing efforts to bring the Just Third Way to the attention of the powers-that-be, here is a listing of what else happened during the week.
Thursday, January 22, 2009
Who Owns the Federal Reserve?
Aside from the fact few people seem to understand just what it's supposed to do, nobody seems to know exactly who "owns" the Federal Reserve System. As a central bank, it's supposed to be separate from the government to prevent the State from using the Federal Reserve's money creation powers to finance government deficits. In theory, the Federal Reserve is owned by its member banks . . . who have absolutely no control over the institution to which they presumably hold legal title. (Ownership is control in all codes of law, as Louis Kelso pointed out in his 1957 article in the American Bar Association Journal, "Karl Marx the Almost Capitalist.")
To make matters worse, the Federal Reserve was established in conformity with something called the "Real Bills doctrine," which (to oversimplify) means that money can be created as needed if all new money is used only to finance capital investment that pays for itself in a reasonable period of time, and that this will not cause inflation. Unfortunately, the Keynesian economists currently in charge of the Federal Reserve as well as those charged with setting monetary and fiscal policy for the United States and much of the rest of the world reject the Real Bills doctrine. (They don't really give reasons, they just say it has been "discredited.")
The bottom line is the Federal Reserve is a tool designed specifically to operate in accordance with the Real Bills doctrine . . . but is being used as if the Real Bills doctrine doesn't work. It's like using a saw to try and drive nails. Not only will the nail not go into the wood, you'll ruin the nail, the wood, the saw, and probably inflict serious bodily harm on yourself — just as we see the component parts of our economic system being ruined today through misuse of our financial tools.
Because of this lack of clarity as to the purpose of the Federal Reserve, who owns it, who controls it, what it's supposed to do, and so on, many concerned people believe that the Federal Reserve should either be abolished, or put under the direct control of the Treasury. This would probably be a mistake.
First, if we are ever to achieve a stable, non-inflationary currency that expands and contracts with the needs of the private sector (not government), we have to restore the Real Bills doctrine. (We won't go into why Keynes was wrong in rejecting it, but the proof of Keynes' fallacy can be found in Dr. Harold G. Moulton's 1935 classic monograph, The Formation of Capital.)
Second, we need to ensure that every American citizen and legal resident has an equal opportunity to gain access to the money creation powers of the Federal Reserve. We don't mean that the Federal Reserve should just print money or create demand deposits and hand out the cash. No, we mean that anyone who can come up with a financially sound, self-liquidating proposal to purchase capital should have the same right to borrow the same amount as everyone else in the country. Money should only be created in response to actual, feasible, financially sound capital projects, not just brought into being in the vague hope that "if you create it, the investments will come."
Finally, here's a truly radical idea. Since the Federal Reserve is, in a very real sense a natural resource, part of the common heritage of America, take the pseudo ownership of the Federal Reserve away from the commercial banks, and vest it in each and every citizen and legal resident of the United States by issuing every one who meets the minimum qualification of citizenship or legal residence and who is a living, natural person a single, fully voting, fully participating, non-transferable share of stock in the Federal Reserve System. Considering the fact that virtually everyone has a Social Security Account or is kept track of in one way or another, keeping the records for such an ownership structure shouldn't be too onerous, especially since everyone would be absolutely equal in that respect, with one share per person, and one dividend and one vote per share.
It's something to think about, at least.
To make matters worse, the Federal Reserve was established in conformity with something called the "Real Bills doctrine," which (to oversimplify) means that money can be created as needed if all new money is used only to finance capital investment that pays for itself in a reasonable period of time, and that this will not cause inflation. Unfortunately, the Keynesian economists currently in charge of the Federal Reserve as well as those charged with setting monetary and fiscal policy for the United States and much of the rest of the world reject the Real Bills doctrine. (They don't really give reasons, they just say it has been "discredited.")
The bottom line is the Federal Reserve is a tool designed specifically to operate in accordance with the Real Bills doctrine . . . but is being used as if the Real Bills doctrine doesn't work. It's like using a saw to try and drive nails. Not only will the nail not go into the wood, you'll ruin the nail, the wood, the saw, and probably inflict serious bodily harm on yourself — just as we see the component parts of our economic system being ruined today through misuse of our financial tools.
Because of this lack of clarity as to the purpose of the Federal Reserve, who owns it, who controls it, what it's supposed to do, and so on, many concerned people believe that the Federal Reserve should either be abolished, or put under the direct control of the Treasury. This would probably be a mistake.
First, if we are ever to achieve a stable, non-inflationary currency that expands and contracts with the needs of the private sector (not government), we have to restore the Real Bills doctrine. (We won't go into why Keynes was wrong in rejecting it, but the proof of Keynes' fallacy can be found in Dr. Harold G. Moulton's 1935 classic monograph, The Formation of Capital.)
Second, we need to ensure that every American citizen and legal resident has an equal opportunity to gain access to the money creation powers of the Federal Reserve. We don't mean that the Federal Reserve should just print money or create demand deposits and hand out the cash. No, we mean that anyone who can come up with a financially sound, self-liquidating proposal to purchase capital should have the same right to borrow the same amount as everyone else in the country. Money should only be created in response to actual, feasible, financially sound capital projects, not just brought into being in the vague hope that "if you create it, the investments will come."
Finally, here's a truly radical idea. Since the Federal Reserve is, in a very real sense a natural resource, part of the common heritage of America, take the pseudo ownership of the Federal Reserve away from the commercial banks, and vest it in each and every citizen and legal resident of the United States by issuing every one who meets the minimum qualification of citizenship or legal residence and who is a living, natural person a single, fully voting, fully participating, non-transferable share of stock in the Federal Reserve System. Considering the fact that virtually everyone has a Social Security Account or is kept track of in one way or another, keeping the records for such an ownership structure shouldn't be too onerous, especially since everyone would be absolutely equal in that respect, with one share per person, and one dividend and one vote per share.
It's something to think about, at least.
Wednesday, January 21, 2009
Paradigmatic Revolution: Is President Obama Ready to Talk the Walk?
by Dr. Robert D. Crane, Guest Blogger
We have now had two presidents in the past generation who had difficulty with what our 41st president called "this vision thing," which, in my opinion, was totally beyond his capacity to comprehend. We have had three presidents, Carter, Reagan, and Clinton, who had some holistic direction other than pragmatic compromise or might makes right.
What is No 44's vision? Is it the same as that of America's founders as envisioned in the Preamble to the American Constitution? Our founding document reads: "We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common Defense, promote the General Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
The founding men and woman of America conceived justice to be the source of order, prosperity, and freedom, and listed "freedom" last as the product of the first four of America's founding purposes.
President Obama did not use the term "justice" in his speech. His eloquent and determined speech was reminiscent of Churchill's speech promising "blood, sweat, and tears," but nowhere did it portray any paradigm of policy other than freedom. There was no mention of justice as the source of security, prosperity, and freedom, as enshrined in the Preamble to the American Constitution, which can serve as the American code of human responsibilities and rights, similar to the maqasid al shari'ah in classical Islamic thought and to similar scriptural interpretations in every world religion.
Even a self-serving concept of justice, however, is better than former President Bush's use of "justice" only as a synonym for retribution, as in "Saddam Hussein will experience American justice."
Does our new president's inaugural address mean only "more of the same" but with greater determination? Its real meaning will emerge in action. He does not talk the walk of justice, but perhaps he will walk without talking. This may be what Secretary Hillary Clinton in her initial confirmation hearings baptized as "smart power," because neither "soft power" nor "hard power" are politically correct action-words any more. As optimistic voters for Barack Obama, perhaps we need merely pray that the new Administration, now only a few hours old, needs to pioneer both good policy and more transparency.
Perhaps one-time presidential candidate Mike Gravel (accent on the second syllable), former U.S. Senator from Alaska before the Republicans took over the state, is right when he says we need a revolution from below, which is what those who voted for Barack Obama were trying to launch, not from above. Senator Gravel's "Philadelphia Two Initiative," also known as the "National Initiative for Democracy," called for Direct Democracy. He pursued this through his Democracy Foundation, which advocated direct action through a constitutional amendment providing for voter-initiated federal legislation similar to state ballot initiatives in order to facilitate political reform from the bottom up. He regarded this as key to a fundamental reform of the entire system of money and credit designed to expand access to universal individual ownership of capital or real, productive wealth, which, in turn, is the key to real political self-determination and freedom both at home and abroad.
This, of course, assumes what many might call a spiritual transformation along the lines of Rabbi Michael Lerner's call for a "new bottom line," which might take much longer than similar reform from the top down by lobbying within the existing system of concentrated economic and political power.
Senator Gravel and his economic mentor, Norman Kurland, president of the Center for Economic and Social Justice, have differed on whether political democracy or economic democracy comes first, a question some might regard as another form of the chicken-or-egg conundrum. Norman Kurland, co-founder of the American Revolutionary Party, believes that political democracy follows economic democracy, while Senator Gravel reverses the order. Perhaps they are "prophets without honor in their own country," and are both right.
The Obama Administration may offer the best and only chance to fulfill the American dream of peace, prosperity, and freedom through compassionate justice. If President Obama starts both talking and walking, America may indeed succeed, God willing, in renewing its global leadership as "the last, best hope for mankind."
We have now had two presidents in the past generation who had difficulty with what our 41st president called "this vision thing," which, in my opinion, was totally beyond his capacity to comprehend. We have had three presidents, Carter, Reagan, and Clinton, who had some holistic direction other than pragmatic compromise or might makes right.
What is No 44's vision? Is it the same as that of America's founders as envisioned in the Preamble to the American Constitution? Our founding document reads: "We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common Defense, promote the General Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
The founding men and woman of America conceived justice to be the source of order, prosperity, and freedom, and listed "freedom" last as the product of the first four of America's founding purposes.
President Obama did not use the term "justice" in his speech. His eloquent and determined speech was reminiscent of Churchill's speech promising "blood, sweat, and tears," but nowhere did it portray any paradigm of policy other than freedom. There was no mention of justice as the source of security, prosperity, and freedom, as enshrined in the Preamble to the American Constitution, which can serve as the American code of human responsibilities and rights, similar to the maqasid al shari'ah in classical Islamic thought and to similar scriptural interpretations in every world religion.
Even a self-serving concept of justice, however, is better than former President Bush's use of "justice" only as a synonym for retribution, as in "Saddam Hussein will experience American justice."
Does our new president's inaugural address mean only "more of the same" but with greater determination? Its real meaning will emerge in action. He does not talk the walk of justice, but perhaps he will walk without talking. This may be what Secretary Hillary Clinton in her initial confirmation hearings baptized as "smart power," because neither "soft power" nor "hard power" are politically correct action-words any more. As optimistic voters for Barack Obama, perhaps we need merely pray that the new Administration, now only a few hours old, needs to pioneer both good policy and more transparency.
Perhaps one-time presidential candidate Mike Gravel (accent on the second syllable), former U.S. Senator from Alaska before the Republicans took over the state, is right when he says we need a revolution from below, which is what those who voted for Barack Obama were trying to launch, not from above. Senator Gravel's "Philadelphia Two Initiative," also known as the "National Initiative for Democracy," called for Direct Democracy. He pursued this through his Democracy Foundation, which advocated direct action through a constitutional amendment providing for voter-initiated federal legislation similar to state ballot initiatives in order to facilitate political reform from the bottom up. He regarded this as key to a fundamental reform of the entire system of money and credit designed to expand access to universal individual ownership of capital or real, productive wealth, which, in turn, is the key to real political self-determination and freedom both at home and abroad.
This, of course, assumes what many might call a spiritual transformation along the lines of Rabbi Michael Lerner's call for a "new bottom line," which might take much longer than similar reform from the top down by lobbying within the existing system of concentrated economic and political power.
Senator Gravel and his economic mentor, Norman Kurland, president of the Center for Economic and Social Justice, have differed on whether political democracy or economic democracy comes first, a question some might regard as another form of the chicken-or-egg conundrum. Norman Kurland, co-founder of the American Revolutionary Party, believes that political democracy follows economic democracy, while Senator Gravel reverses the order. Perhaps they are "prophets without honor in their own country," and are both right.
The Obama Administration may offer the best and only chance to fulfill the American dream of peace, prosperity, and freedom through compassionate justice. If President Obama starts both talking and walking, America may indeed succeed, God willing, in renewing its global leadership as "the last, best hope for mankind."
Mea Culpa: Correction of Yesterday's Posting
I admit my hearing is sometimes not the best. To make matters worse, I listened to President Obama's speech yesterday while taking notes and not watching the television. Consequently, the word I heard as "justice" was actually, according to the official transcript of the speech, "justness."
This does not change the substance of yesterday's commentary and, in fact, strengthens it. Norman Kurland, president of CESJ, made an informal bet that Mr. Obama would not use the word "justice." That now shown to be the case, I would like to restate the first sentence of the second paragraph to read as follows:
This does not change the substance of yesterday's commentary and, in fact, strengthens it. Norman Kurland, president of CESJ, made an informal bet that Mr. Obama would not use the word "justice." That now shown to be the case, I would like to restate the first sentence of the second paragraph to read as follows:
Unfortunately, President Obama did not mention "justice" at all, only coming close when he made reference to "the justness of our cause" in making the United States a world leader once again through the use of alliances rather than force of arms.
Tuesday, January 20, 2009
"Inauguration" Means "Beginning"
You'd never know it from all the hype that has been flooding the media, characterizing the inauguration of Barack Obama as president of the United States as the virtual culmination of civilization, western and eastern, but an "inauguration" isn't the end of anything, much less the solution to some rather serious problems that Mr. Obama has given no sign of preparing to address effectively. The solution to the serious problems that beset us today is not found simply in a determined hope and a firm commitment to change, but through empowerment of people, not government, through the pursuit of justice, both individual and social.
Unfortunately, President Obama's only mention of "justice" was in a reference to "the justice of our cause" in making the United States a world leader once again through the use of alliances rather than force of arms. The main emphasis seemed to be on the "spirit of service," stressing the obligation that each of us has to work for the "common welfare." This is all very well, and a clear sign of Mr. Obama's goodwill and intentions, but it is not enough, and could even be misleading.
The implication is that duties, not rights, provide access to the common good; that we participate in the common welfare (not common good) by giving to others as generous benefactors. Not mentioned was the possibility of reforming our social structures — our institutions — so that we are empowered to meet others on equal ground as co-participants in just exchanges. Justice would mean that both sides exercise rights and imposing the correlative duties in balanced transactions to which all have the right of access, whether as producers through ownership of both labor and capital, or as consumers receiving an adequate and secure income from the sale of labor and profits from ownership.
The benediction by the Reverend James Lowery was the most positive statement during the entire ceremony, making strong comments in support of the pursuit of justice. Rev. Lowery seems to have made the only mention of the importance of ownership of the means of production with his Biblical reference to each man sitting under his own vine and fig tree.
Once the euphoria wears off, President Obama has the task of proving that he is no mere superficial agent of change for the sake of change, rejecting all that has gone before simply because it preceded his coming. He cannot fall into the trap of assuming (as so many of his supporters seemed to during the campaign) that it is the man, not the plan that is important, and his taking of office is itself the victory. No, a genuine, lasting, and (above all) improving change cannot be effected simply by sheer determination to do something, particularly increasingly intense application of Keynesian remedies to economic and financial problems caused by those same remedies in the first place.
The only thing that will make President Obama anything other than a hollow shell of meaningless rhetoric and the slave of a defunct economist is to empower people through the pursuit of justice. A good place to start would be the immediate formation of a committee to study the earliest possible implementation of a full-scale Capital Homesteading program, designed to open up full access to direct ownership of the means of production by each and every American.
Without true empowerment through democratic access to the means of acquiring and possessing an adequate stake of productive assets, all the talk of "change" will remain just that: talk.
Unfortunately, President Obama's only mention of "justice" was in a reference to "the justice of our cause" in making the United States a world leader once again through the use of alliances rather than force of arms. The main emphasis seemed to be on the "spirit of service," stressing the obligation that each of us has to work for the "common welfare." This is all very well, and a clear sign of Mr. Obama's goodwill and intentions, but it is not enough, and could even be misleading.
The implication is that duties, not rights, provide access to the common good; that we participate in the common welfare (not common good) by giving to others as generous benefactors. Not mentioned was the possibility of reforming our social structures — our institutions — so that we are empowered to meet others on equal ground as co-participants in just exchanges. Justice would mean that both sides exercise rights and imposing the correlative duties in balanced transactions to which all have the right of access, whether as producers through ownership of both labor and capital, or as consumers receiving an adequate and secure income from the sale of labor and profits from ownership.
The benediction by the Reverend James Lowery was the most positive statement during the entire ceremony, making strong comments in support of the pursuit of justice. Rev. Lowery seems to have made the only mention of the importance of ownership of the means of production with his Biblical reference to each man sitting under his own vine and fig tree.
Once the euphoria wears off, President Obama has the task of proving that he is no mere superficial agent of change for the sake of change, rejecting all that has gone before simply because it preceded his coming. He cannot fall into the trap of assuming (as so many of his supporters seemed to during the campaign) that it is the man, not the plan that is important, and his taking of office is itself the victory. No, a genuine, lasting, and (above all) improving change cannot be effected simply by sheer determination to do something, particularly increasingly intense application of Keynesian remedies to economic and financial problems caused by those same remedies in the first place.
The only thing that will make President Obama anything other than a hollow shell of meaningless rhetoric and the slave of a defunct economist is to empower people through the pursuit of justice. A good place to start would be the immediate formation of a committee to study the earliest possible implementation of a full-scale Capital Homesteading program, designed to open up full access to direct ownership of the means of production by each and every American.
Without true empowerment through democratic access to the means of acquiring and possessing an adequate stake of productive assets, all the talk of "change" will remain just that: talk.
Monday, January 19, 2009
Martin Luther King, Jr. and Economic Justice
This morning Mr. Chris O'Connor, Financial Secretary/Treasurer of the Colonel John Fitzgerald Division of the Ancient Order of Hibernians in Arlington, Virginia sent us a link to an article by Deepti Hajela, past president of the South Asian Journalists Association, which was published by the Associated Press. As there is a link included in this posting to the article, you can read it for yourself. You might also want to use the article as a template for similar letters to other journalists, or to use to create your own, more personalized e-mail to Ms. Hajela. Beware: I have not verified that the e-mail address is correct. As of a few moments ago, when I last checked, it had not been bounced back, but that's all I can say.
Deepti Hajela
Associated Press
sajadeepti@yahoo.com
Dear Ms. Hajela:
Your article issued by the Associated Press yesterday, "MLK's dream also included economic justice," raises justifiable hope that some critical issues will be addressed in a meaningful and effective manner in the new administration. You might find it useful and informative to make contact with Dr. Norman G. Kurland, president of the Center for Economic and Social Justice ("CESJ"), www.cesj.org in Arlington, Virginia, to gain some insights on the principles of economic justice and how the new administration could implement such innovative proposals as "Capital Homesteading," "Homeowners' Equity Corporation," and the "Community Investment Corporation."
Dr. Kurland was active in the civil rights movement in the early 1960s, working in Mississippi and interacting significantly with such figures as Stokely Carmichael and Medgar Evers. He later joined with Louis Kelso and was instrumental in persuading Senator Russell Long to champion the Employee Stock Ownership Plan, or ESOP, which has been responsible for delivering a measure of economic justice through ownership of the means of production to more than 10 million American workers. Dr. Kurland was later Deputy Chairman of the Presidential Task Force on Project Economic Justice under President Reagan. A short biography of Dr. Kurland can be found here.
You can reach Dr. Kurland via information that can be found on the CESJ web site. Dr. Kurland recently (January 6) had a telephone conference with Mr. David Walker, former Comptroller General of the United States who is now with the Peter G. Peterson Foundation, regarding the effect of the current financial and debt crisis on the prospects for economic justice. I am sending Dr. Kurland a cc. of this e-mail so that he will expect your call.
Deepti Hajela
Associated Press
sajadeepti@yahoo.com
Dear Ms. Hajela:
Your article issued by the Associated Press yesterday, "MLK's dream also included economic justice," raises justifiable hope that some critical issues will be addressed in a meaningful and effective manner in the new administration. You might find it useful and informative to make contact with Dr. Norman G. Kurland, president of the Center for Economic and Social Justice ("CESJ"), www.cesj.org in Arlington, Virginia, to gain some insights on the principles of economic justice and how the new administration could implement such innovative proposals as "Capital Homesteading," "Homeowners' Equity Corporation," and the "Community Investment Corporation."
Dr. Kurland was active in the civil rights movement in the early 1960s, working in Mississippi and interacting significantly with such figures as Stokely Carmichael and Medgar Evers. He later joined with Louis Kelso and was instrumental in persuading Senator Russell Long to champion the Employee Stock Ownership Plan, or ESOP, which has been responsible for delivering a measure of economic justice through ownership of the means of production to more than 10 million American workers. Dr. Kurland was later Deputy Chairman of the Presidential Task Force on Project Economic Justice under President Reagan. A short biography of Dr. Kurland can be found here.
You can reach Dr. Kurland via information that can be found on the CESJ web site. Dr. Kurland recently (January 6) had a telephone conference with Mr. David Walker, former Comptroller General of the United States who is now with the Peter G. Peterson Foundation, regarding the effect of the current financial and debt crisis on the prospects for economic justice. I am sending Dr. Kurland a cc. of this e-mail so that he will expect your call.
Friday, January 16, 2009
News from the Network, Vol. 2, No. 3
Just as the middle of the country (the United States) seems to be locked in a deep-freeze with respect to the temperature, things show signs of thawing in regards to political and economic mindsets. Inside the Washington, DC Beltway and along either coast people are caught up in the enthusiasm for "change" (which, when examined closely, bears a very close resemblance to what preceded it), but in the Midwest, largely forgotten and ignored now that its votes are cast, some signs of genuine change for the sake of improvement (as opposed to for the sake of change itself) are surfacing.
• Mayor Alvin Parks of East St. Louis, Illinois, has obtained a tentative opportunity to speak at a conference of mayors from across the country. His topic for the five-minute slot (assuming that he isn't "bumped" by HUD-Secretary-to be Shaun Donovan) will be Capital Homesteading. Mayor Parks plans on sending a copy of our book, Capital Homesteading for Every Citizen, to Obama, as an example of change for the better, instead of just change for the sake of change.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."
• Mayor Parks has arranged for Norman Kurland to meet with Senator Durbin of Illinois for half an hour. Norm will present the Capital Homesteading concept to the Senator, and present him with copies of Capital Homesteading for Every Citizen. There is a possibility that Senator Durbin, like the late Senator Russell Long, will recognize the opportunity to do what's right because it is right, not because of a vaguely perceived mandate for "change." Among the legislatives reforms Norm intends to discuss with Senator Durbin, who was born and raised in East St. Louis, is the immediate need to give citizen-owned Community Investment Corporations (CICs), also called Citizen Land Cooperatives (CLCs) the same tax treatment as leveraged Employee Stock Ownership Plans (ESOPs). Mayor Parks, and 10 mayors in neighboring communities have already formed a Metro East Citizens Land Cooperative to enable their 100,000 residents to share profits from an economic redevelopment plan being developed through the Wyvetter Younge Center for Economic and Social Justice and the Advanced Renewable Energy Systems, LLC (ARES), with our help.
• On Monday of this week we had a very productive meeting with Mr. James Rogers, Director of Communications for the Jesuit Conference and president of the Colonel John Fitzgerald Division, Ancient Order of Hibernians ("AOH"), Arlington, Virginia. Issues covered involved 1) the development of a uniform social justice curriculum for grade schools, high schools, colleges, and parishes, 2) the possibility of increasing the commitment of the Ancient Order of Hibernians to social justice by working to promote the Just Third Way as the solution to the situation in Ireland (both political and economic), and 3) specific actions in the immediate future to introduce the principles of the Just Third Way to the AOH in Virginia.
• James Rogers (see above) raised the possibility of Norman Kurland giving a brief presentation at the upcoming AOH State Board meeting to be held in Woodbridge, Virginia, on January 24, 2009. James is working on presenting the idea to Mr. Patrick Naughton, AOH State President, and expects to know in the near future.
• This past week Economic Justice Media sold its first book in the United Kingdom, a copy of In Defense of Human Dignity. It shouldn't be long now until they start realizing the possibilities of Capital Homesteading and reading a little William Cobbett as a treat.
• As of this morning, we have had visitors from 15 different countries and 27 states and provinces in the United States and Canada to this blog over the past two months. The spreading dissatisfaction with Keynesian economics and the multi-trillion dollar bailouts and stimulus packages based on Keynes' unsound ideas may be responsible for the fact that of our "top ten" postings, six relate to that defunct economist and his bankrupt (and bankrupting) ideas. Of the remaining "top ten," two are the weekly news postings, one is the posting regarding our new annotated edition of William Cobbett's The Emigrant's Guide, and the remaining one, now in the number three spot (having been bumped from number one by Keynes) is Steve Roy's open letter to Tom Friedman.
In Keynes We Trust
Over the past week, participants in the Kelso Binary Economics Discussion Forum (which you can join by going to the CESJ web site, www.cesj.org, and following instructions) have been having a little fun with the complaint circulating around the internet that the new dollar coin allegedly omitted the traditional motto, "In God We Trust." It's on the edge, where, since the advent of coin stamping machinery (as opposed to hand-hammering), it's been possible to put lettering if a coin is thick enough. Naturally, some people more concerned with form instead of substance declared that this was yet another move by the anti-American atheistic communist secular humanist et ceteras to destroy the country.
If only people got this worked up over the much more egregious matter of the misuse of the Federal Reserve System resulting from the worship of the false god Keynes. Thanks to St. Paul, it's easy to get religiously-motivated people worked up about love of money, worship of money, infatuation with money, etc., etc., etc., but not about misunderstanding of money, and its related institutions, credit and banking. Perhaps people are afraid to understand money, because (as the old saw goes) "to know me is to love me," and they want to avoid loving money at all cost . . . if you'll pardon the expression.
In any event, St. Paul didn't say anything (as far as I know) about blindly following people who screw up the financial and economic system to fit their pet theories, even when the facts prove them absolutely wrong. This is what Dr. Harold Moulton did with Keynes in 1935, in Moulton's brief monograph, The Formation of Capital, perhaps the best proof of the validity and soundness of the "Real Bills" doctrine.
Briefly, the "Real Bills" doctrine is that banks can create money as needed without inflation, if money creation is limited to financing self-liquidating capital projects. The doctrine is based on "Say's Law of Markets" (rejected by Keynes) which states that "production = income." That being the case, anything that is produced, or is reasonably expected to generate production, can be "monetized," and there will be no inflation because the supply of money and the supply of goods and services rises and falls in tandem. This is because supply (production) generates its own demand (income), and demand (income) generates its own supply (production).
Keynes' assumption that demand must be reduced in order to save is negated by the Real Bills doctrine. Under the Real Bills doctrine you don't need the rich (who produce far more than they can consume and are thus forced to save and reinvest their "demand" in forming additional new capital), because the banking system can create the necessary financing. By cutting demand to finance capital formation, you reduce consumption, and thus goods pile up unsold, companies cut production and lay off workers, and consumption falls even faster. To counter this, Keynes claimed that the State had to create money in order to increase demand. Thus you have the "traditional" Keynesian tradeoff between inflation and employment. If you want people to have jobs, you need to inflate the currency, but if you want low inflation, you have to put up with unemployment. None of this, of course, explains the centuries, millennia even, when you had full employment and low or no inflation.
Keynes' paradox results from Keynes disconnecting money (effective demand) from production (supply). When supply and demand is in equilibrium, there is no inflation because there is as much demand as there is supply, and as much supply as there is demand. By distorting one side of the equation by printing up money, however, Keynes locked the world's economies into a hopeless countercyclical spiral of inflation and unemployment.
The key to understanding this is that when the State creates money without backing (or, more accurately, backs it with a promise to pay out of future tax revenues, and thus creates a debt-backed currency), it doesn't really create demand. On the contrary, through the "hidden tax" of inflation, the State by printing money (or creating demand deposits) transfers or redistributes existing demand by making each unit of currency worth less in proportion to the amount of unbacked or debt-backed new money. That is, as any monetary economist will tell you, by doubling the number of units of currency in circulation without increasing the goods and services available for sale, you reduce the value of the existing units of currency by half, the value being transferred to recipients of the State's largess. The State produces nothing by its nature, not even demand. It simply shifts around what already exists by creating additional claims on existing wealth.
This is why Keynes rejected Say's Law and the Real Bills doctrine based on Say's Law. Say's Law makes Keynes look like an idiot, so he had to nip in there first and claim that Say's Law and the Real Bills doctrine were "discredited," as you will read, e.g., in the Wikipedia, but without explaining why.
The fact is, however, that Say's Law and the Real Bills doctrine don't work — at least not in a modern industrial economy in which human labor is being displaced as the predominant factor of production. Say assumed that there were no barriers to people acquiring capital when they could not produce by means of their labor. There are barriers, however, and those barriers are significant. Even in a Keynesian economy existing accumulations aren't used for investment directly, a fact Keynes appeared to be completely unaware of. Keynes himself maintained that "savings = investment," but failed to realize the implications of what he claimed was an iron law. If savings = investment, then where do the savings come from for new investment? Everything saved is already invested!
The fact is that existing savings are not used directly for investment. Existing savings are used for collateral for loans for new investment. As another old saw goes, you need money to make money. It's not that you need money to invest directly, you need money to ensure that whoever lends you money so that you can invest will be repaid.
This is the barrier that neither Jean-Baptiste Say nor Harold Moulton recognized. Say's Law and the Real Bills doctrine will not work if all (or nearly all) income generated by both labor and capital isn't spent on consumption. Both require that ordinary people own a share of the means of production in order to gain income when they can no longer sell their labor for enough to provide an adequate and secure labor income. The problem is that ordinary people don't have savings — collateral — to ensure that they will be able to repay someone who lends them money to purchase capital, should the capital by some chance not pay for itself.
Lack of collateral is the barrier that Louis Kelso and Mortimer Adler saw as preventing people from participating in the economy as sellers of labor, owners of capital, consumers, and producers. Without the ability to become a capital owner instead of being limited to an owner of labor, ordinary people are cut off from the immense stream of income (demand) generated by capital, and thus can't spend it.
Keynes thought you could make up this lack by "creating" new demand (actually redistributing existing demand) by printing money, thereby disconnecting demand from supply, and then trying to force them back together. In essence, Keynes took away the glues, screws, and nails that held the economic system together, and tried to fix it by pounding things back in place with a monetary and fiscal sledge hammer. It's no wonder that what we end up with is a mess of splintered wreckage.
To put things back together, we need a Capital Homesteading program that will remove the barriers to full participation in the economic common good, and replace the Keynesian sledge hammer with something a little more subtle . . . like the economics of reality and common sense.
If only people got this worked up over the much more egregious matter of the misuse of the Federal Reserve System resulting from the worship of the false god Keynes. Thanks to St. Paul, it's easy to get religiously-motivated people worked up about love of money, worship of money, infatuation with money, etc., etc., etc., but not about misunderstanding of money, and its related institutions, credit and banking. Perhaps people are afraid to understand money, because (as the old saw goes) "to know me is to love me," and they want to avoid loving money at all cost . . . if you'll pardon the expression.
In any event, St. Paul didn't say anything (as far as I know) about blindly following people who screw up the financial and economic system to fit their pet theories, even when the facts prove them absolutely wrong. This is what Dr. Harold Moulton did with Keynes in 1935, in Moulton's brief monograph, The Formation of Capital, perhaps the best proof of the validity and soundness of the "Real Bills" doctrine.
Briefly, the "Real Bills" doctrine is that banks can create money as needed without inflation, if money creation is limited to financing self-liquidating capital projects. The doctrine is based on "Say's Law of Markets" (rejected by Keynes) which states that "production = income." That being the case, anything that is produced, or is reasonably expected to generate production, can be "monetized," and there will be no inflation because the supply of money and the supply of goods and services rises and falls in tandem. This is because supply (production) generates its own demand (income), and demand (income) generates its own supply (production).
Keynes' assumption that demand must be reduced in order to save is negated by the Real Bills doctrine. Under the Real Bills doctrine you don't need the rich (who produce far more than they can consume and are thus forced to save and reinvest their "demand" in forming additional new capital), because the banking system can create the necessary financing. By cutting demand to finance capital formation, you reduce consumption, and thus goods pile up unsold, companies cut production and lay off workers, and consumption falls even faster. To counter this, Keynes claimed that the State had to create money in order to increase demand. Thus you have the "traditional" Keynesian tradeoff between inflation and employment. If you want people to have jobs, you need to inflate the currency, but if you want low inflation, you have to put up with unemployment. None of this, of course, explains the centuries, millennia even, when you had full employment and low or no inflation.
Keynes' paradox results from Keynes disconnecting money (effective demand) from production (supply). When supply and demand is in equilibrium, there is no inflation because there is as much demand as there is supply, and as much supply as there is demand. By distorting one side of the equation by printing up money, however, Keynes locked the world's economies into a hopeless countercyclical spiral of inflation and unemployment.
The key to understanding this is that when the State creates money without backing (or, more accurately, backs it with a promise to pay out of future tax revenues, and thus creates a debt-backed currency), it doesn't really create demand. On the contrary, through the "hidden tax" of inflation, the State by printing money (or creating demand deposits) transfers or redistributes existing demand by making each unit of currency worth less in proportion to the amount of unbacked or debt-backed new money. That is, as any monetary economist will tell you, by doubling the number of units of currency in circulation without increasing the goods and services available for sale, you reduce the value of the existing units of currency by half, the value being transferred to recipients of the State's largess. The State produces nothing by its nature, not even demand. It simply shifts around what already exists by creating additional claims on existing wealth.
This is why Keynes rejected Say's Law and the Real Bills doctrine based on Say's Law. Say's Law makes Keynes look like an idiot, so he had to nip in there first and claim that Say's Law and the Real Bills doctrine were "discredited," as you will read, e.g., in the Wikipedia, but without explaining why.
The fact is, however, that Say's Law and the Real Bills doctrine don't work — at least not in a modern industrial economy in which human labor is being displaced as the predominant factor of production. Say assumed that there were no barriers to people acquiring capital when they could not produce by means of their labor. There are barriers, however, and those barriers are significant. Even in a Keynesian economy existing accumulations aren't used for investment directly, a fact Keynes appeared to be completely unaware of. Keynes himself maintained that "savings = investment," but failed to realize the implications of what he claimed was an iron law. If savings = investment, then where do the savings come from for new investment? Everything saved is already invested!
The fact is that existing savings are not used directly for investment. Existing savings are used for collateral for loans for new investment. As another old saw goes, you need money to make money. It's not that you need money to invest directly, you need money to ensure that whoever lends you money so that you can invest will be repaid.
This is the barrier that neither Jean-Baptiste Say nor Harold Moulton recognized. Say's Law and the Real Bills doctrine will not work if all (or nearly all) income generated by both labor and capital isn't spent on consumption. Both require that ordinary people own a share of the means of production in order to gain income when they can no longer sell their labor for enough to provide an adequate and secure labor income. The problem is that ordinary people don't have savings — collateral — to ensure that they will be able to repay someone who lends them money to purchase capital, should the capital by some chance not pay for itself.
Lack of collateral is the barrier that Louis Kelso and Mortimer Adler saw as preventing people from participating in the economy as sellers of labor, owners of capital, consumers, and producers. Without the ability to become a capital owner instead of being limited to an owner of labor, ordinary people are cut off from the immense stream of income (demand) generated by capital, and thus can't spend it.
Keynes thought you could make up this lack by "creating" new demand (actually redistributing existing demand) by printing money, thereby disconnecting demand from supply, and then trying to force them back together. In essence, Keynes took away the glues, screws, and nails that held the economic system together, and tried to fix it by pounding things back in place with a monetary and fiscal sledge hammer. It's no wonder that what we end up with is a mess of splintered wreckage.
To put things back together, we need a Capital Homesteading program that will remove the barriers to full participation in the economic common good, and replace the Keynesian sledge hammer with something a little more subtle . . . like the economics of reality and common sense.
Thursday, January 15, 2009
Jobs, Jobs, Jobs
The problem with the idea of focusing on jobs, jobs, jobs, is that it's been done before, and has never worked. Unless a "job" results in the production of a good for service for which there exists actual demand, it is simply a convoluted way of redistributing existing wealth. If done through the tax system, "job creation" takes money from producers directly and bestows it on non-producers. If done by deficit spending, "job creation" transfers value from savers to non-savers via the "hidden tax" of inflation.
The latest "economic stimulus" bill, proposed by the Democrats, is reportedly a plan to spend nearly $1 trillion principally on "job creation." ("House Democrats propose $825 billion stimulus bill," Associated Press, 01/15/09) Assuming that the money doesn't get diverted into parties for executives of failed companies or used to purchase "toxic assets" resulting from decisions that would have gotten lesser mortals fired or jailed, the proposal would result in transferring $825 billion from the "haves" and giving it to the "have-nots," thereby reversing their roles, and justifying another program of redistribution to level things out yet again (with adequate compensation for the politicians and bureaucrats running the programs, as well as their friends, of course).
There is a much better way to turn "have-nots" into "haves," however — and without the necessity of wasting time, energy, and resources on massive redistribution programs or the injustice of stealing from some to give to others. It's called "Capital Homesteading for Every Citizen," from the book with the same title. Instead of trying to figure out ways to redistribute wealth, the legislature (both Democrats and Republicans) should be working to implement a sound program that opens up equal opportunity for everyone to participate in the economic process, as workers and owners, to say nothing of wage-earners and dividend recipients, and (most important of all), voters who elect public officials and members of the boards of directors for the companies in which they work and share ownership.
As we noted yesterday, a Capital Homestead Act has the best chance of achieving these goals that are completely unrealistic from within the current Keynesian economic paradigm. Still, even a Keynesian should be able to recognize the potential of a national economic program based on the binary growth model of Louis Kelso and Mortimer Adler, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. A Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.
The latest "economic stimulus" bill, proposed by the Democrats, is reportedly a plan to spend nearly $1 trillion principally on "job creation." ("House Democrats propose $825 billion stimulus bill," Associated Press, 01/15/09) Assuming that the money doesn't get diverted into parties for executives of failed companies or used to purchase "toxic assets" resulting from decisions that would have gotten lesser mortals fired or jailed, the proposal would result in transferring $825 billion from the "haves" and giving it to the "have-nots," thereby reversing their roles, and justifying another program of redistribution to level things out yet again (with adequate compensation for the politicians and bureaucrats running the programs, as well as their friends, of course).
There is a much better way to turn "have-nots" into "haves," however — and without the necessity of wasting time, energy, and resources on massive redistribution programs or the injustice of stealing from some to give to others. It's called "Capital Homesteading for Every Citizen," from the book with the same title. Instead of trying to figure out ways to redistribute wealth, the legislature (both Democrats and Republicans) should be working to implement a sound program that opens up equal opportunity for everyone to participate in the economic process, as workers and owners, to say nothing of wage-earners and dividend recipients, and (most important of all), voters who elect public officials and members of the boards of directors for the companies in which they work and share ownership.
As we noted yesterday, a Capital Homestead Act has the best chance of achieving these goals that are completely unrealistic from within the current Keynesian economic paradigm. Still, even a Keynesian should be able to recognize the potential of a national economic program based on the binary growth model of Louis Kelso and Mortimer Adler, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. A Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.
Wednesday, January 14, 2009
How to Satisfy Your Demand
While we expected the stock market to take a deep plunge as soon as the euphoria wore off from Obama's inauguration (being touted here within the Washington Beltway in terms that suggest it will be The Party Of The Millennium), conditions are bad enough that the price of shares (and that of oil) declined in a manner has come to be described as "plummeting." ("Wall Street slides on bank fears and bleak sales," Reuters, 01/14/09) All of this suggests that "the market" has (consistent with the demands of Keynesian economics) become completely disconnected from the real, productive economy.
What puzzles the economists and policymakers is that there is clearly idle productive capacity, unsold goods are piling up, and yet there exists enormous unsatisfied wants and needs in the United States, to say nothing of the world. Keynes believed that to bring the two together, all the State had to do was print money and somehow get it into the hands of people who would spend it ("realize effective demand" is how Keynes put it). This would get rid of excess stocks of goods, and as demand increased, put people back to work creating more goods and services for sale, putting the economy back into equilibrium.
Strangely enough, however, while the Keynesian "print and spend" prescription has been economic orthodoxy for most of the past century, it doesn't seem to be working. Following Bush's lead, Obama has asked for even more money for "bailouts" and "stimulus," evidently on the assumption that, if it hasn't worked for the past seventy-five years, it's bound to work now.
If the powers-that-be could be brought to question their basic assumptions, they'd realize that the problem of the discontinuity between supply (production) and demand (income) is, in a sense, deliberate. Keynes rejected a little known "law" of economics, "Say's Law of Markets," which declares that "production = income." That being the case, Jean-Baptiste Say reasoned, demand generates its own supply, and supply its own demand. If so, there should never be any problem with unsatisfied demand or unsold goods and services. Is that, however, possible? According to Say, yes. As he put it in a response to the Reverend Thomas Malthus in 1821,
What puzzles the economists and policymakers is that there is clearly idle productive capacity, unsold goods are piling up, and yet there exists enormous unsatisfied wants and needs in the United States, to say nothing of the world. Keynes believed that to bring the two together, all the State had to do was print money and somehow get it into the hands of people who would spend it ("realize effective demand" is how Keynes put it). This would get rid of excess stocks of goods, and as demand increased, put people back to work creating more goods and services for sale, putting the economy back into equilibrium.
Strangely enough, however, while the Keynesian "print and spend" prescription has been economic orthodoxy for most of the past century, it doesn't seem to be working. Following Bush's lead, Obama has asked for even more money for "bailouts" and "stimulus," evidently on the assumption that, if it hasn't worked for the past seventy-five years, it's bound to work now.
If the powers-that-be could be brought to question their basic assumptions, they'd realize that the problem of the discontinuity between supply (production) and demand (income) is, in a sense, deliberate. Keynes rejected a little known "law" of economics, "Say's Law of Markets," which declares that "production = income." That being the case, Jean-Baptiste Say reasoned, demand generates its own supply, and supply its own demand. If so, there should never be any problem with unsatisfied demand or unsold goods and services. Is that, however, possible? According to Say, yes. As he put it in a response to the Reverend Thomas Malthus in 1821,
To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.What if there is something (or a great many somethings) that prevent someone from engaging in production? Louis Kelso and Mortimer Adler answered that by proposing that barriers to full participation in the economy be eliminated by making capital credit — the chief means by which we acquire and possess private productive capital — democratically available. By this means, people who currently have no capital will become owners of capital, and (once they have paid for their new capital with the income generated by the capital itself) will use the income for consumption, thereby bringing supply (production) and demand (income) back into balance — and all without the State doing anything other than making it possible by passing a Capital Homestead Act.
From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce.
Tuesday, January 13, 2009
Obama Attempts to Squeeze Blood from a Turnip
The rather chilling headline reads, "Obama seeks Dem votes for $350 billion bailout" (Associated Press, 01/13/09). While the article, at less than 100 words is almost as short as the title, there is enough said to frighten anyone who believes in change for the better. The only change that is evident for the great mass of people is in the names of the individuals working as hard as possible to undermine what remains of the American economic system. As one ancient Roman put it, when changing rulers, the only thing that changes for the poor is a name.
They can blame Bush as much as they like (and they do), but Obama offers nothing in the way of genuine change. A week before his inauguration, Obama's administration has already shown signs that it means to continue implementing the bankrupt (and bankrupting) Keynesian "remedies," desperately trying to get something for nothing. The program is clearly "more of the same, only more so."
The tragedy is that Obama, like Bush before him, is presented with an opportunity as great (if not greater) than the problems he faces. By implementing a Capital Homesteading program at the earliest possible date, Obama would institute real, genuine change — for the better. As the postings on this blog have made clear for months, anything less is a recipe for disaster, as well as completely unnecessary.
They can blame Bush as much as they like (and they do), but Obama offers nothing in the way of genuine change. A week before his inauguration, Obama's administration has already shown signs that it means to continue implementing the bankrupt (and bankrupting) Keynesian "remedies," desperately trying to get something for nothing. The program is clearly "more of the same, only more so."
The tragedy is that Obama, like Bush before him, is presented with an opportunity as great (if not greater) than the problems he faces. By implementing a Capital Homesteading program at the earliest possible date, Obama would institute real, genuine change — for the better. As the postings on this blog have made clear for months, anything less is a recipe for disaster, as well as completely unnecessary.
Monday, January 12, 2009
How to Save America's Auto Industry
I really should have posted this some time ago (cf. the date of 11/08/08!), but things kept bumping it in the queue, and after a while it was forgotten — temporarily. Better late than never, however, so here it is.
TO: The Hon. Rev. Walter E. Fauntroy
FROM: Norm Kurland
DATE SENT: November 8, 2008
SUBJECT: How Walter Reuther would have saved today's Detroit auto industry
As you know, prior to my joining with Louis Kelso, I served as director of planning for the Citizens Crusade Against Poverty, a liberal establishment private sector counterpart of President Johnson's War on Poverty that was chaired by the late Walter Reuther, then visionary head of the United Auto Workers. I succeeded in bringing Louis Kelso together with Reuther. On February 20, 1967, shortly before his untimely death in an airplane crash, Reuther gave the following testimony to the Joint Economic Committee of Congress:
Today the Washington Post's lead editorial suggested that President Obama impose strict conditions before approving Detroit auto industry's request for $50 billion in Federal bailout money, including a pre-arranged top-to-bottom corporate reorganization for the companies applying for aid, including a wiping out of the equity shares of existing shareholders, buying out creditors at "pennies for the dollar," and firing current top management. I totally support such conditions, but would add others that would have to be adopted by the United Auto Workers to change the culture in each of the companies that undergo re-organization from the conflictive "wage system" culture to a more synergistic and efficient ownership culture in which all workers and management have a stake in maximizing the efficiencies and bottom-line profits of the companies in which they work. Among the additional conditions we would recommend are:
1. Require that the UAW agree to Reuther's call for ownership sharing and profit sharing for renegotiating future income and benefit for all workers, plus a restructuring of future labor-management relations on the basis of participative management and other refinements of "Justice-Based Management" as described in www.eei-consultants.com and http://www.cesj.org/jbm/articles-jbm/cwp-jbm.htm.
2. Arrange for each of the reorganized auto companies to restructure themselves as S-Corp companies with all new equity shares acquired on a 100% leveraged basis by a tax-sheltered ESOP covering all new management and rehired non-management workers. With all shares held by an ESOP trust, and future pre-tax profits flowing through the tax-exempt trust for the repayment of corporate debt and the payout of dividends to ESOP participants, there would be no taxation of corporate profits, all of which would accrue to the benefit of the worker-shareholders. Distributions from the trust to worker-shareholders would however be subject to Federal and State income taxation, unless below income levels exempted by such tax reforms recommended in the proposed Capital Homestead Act described in the book Capital Homesteading for Every Citizen. (As you know, I orchestrated the first successful 100% leveraged buyout in 1975 of a Steelworker-organized South Bend Lathe, a company months from liquidation, from its parent Amsted Industries of Chicago. http://www.cesj.org/jbm/casestudies-vbm/southbendlathe.html. I later designed the first 100 % bank-financed leveraged buyout of the highly successful Mid-South Building Supply. And UAW members would have acquired 72% of the ownership of Chrysler under the strategy I advocated when Chrysler sought a $1.2 billion Treasury loan guarantee in 1984, but for short-sighted thinking by the UAW Washington Counsel, who settled for the token ownership stake arranged for workers by Senator Long. Without conditioning ESOP benefits to a new ownership culture, union leaders who adopt ESOPs in failing companies often fear that workers will no longer be loyal to them.)
3. Instead of promoting the traditional "conflict model" of industrial relations, however, the UAW as a labor union would be encouraged to transform itself into an "ownership union" covering all non-management workers as well as future outside shareholders. Thus a new model of democratic unionism would become society's primary institutions for promoting a free market version of economic justice, while continuing to negotiate and advance the expanded economic interests, including ownership rights, of a broadened membership constituency resulting in a new check on management accountability and transparency. By broadening their services, negotiating concerns and membership base, unions would also be expanding their revenue base, as well as their contributions to a more just and democratic market economy.
4. The Federal Reserve would adopt a policy to support use of its discount powers to create new asset-backed interest-free money for facilitating member bank loans (subject to competitive transaction fees and risk premiums) for the acceleration of sustainable future growth and the commercialization of advanced energy technologies through new shares issued by Justice-Based Management companies that meet conditions 1-3 above. Such new shares would be offered through leveraged ESOPs to workers and through leveraged Capital Homestead Accounts or leveraged IRAs to other qualified citizens.
TO: The Hon. Rev. Walter E. Fauntroy
FROM: Norm Kurland
DATE SENT: November 8, 2008
SUBJECT: How Walter Reuther would have saved today's Detroit auto industry
As you know, prior to my joining with Louis Kelso, I served as director of planning for the Citizens Crusade Against Poverty, a liberal establishment private sector counterpart of President Johnson's War on Poverty that was chaired by the late Walter Reuther, then visionary head of the United Auto Workers. I succeeded in bringing Louis Kelso together with Reuther. On February 20, 1967, shortly before his untimely death in an airplane crash, Reuther gave the following testimony to the Joint Economic Committee of Congress:
"Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America's vast corporate wealth which is today appallingly undemocratic and unhealthy.Had Reuther lived and implemented his ownership policy and promoted the complete array of Kelso's "full production" ideas as national economic policy, I am convinced General Motors and the auto industry would not be coming hat-in-hand for a Federal bailout, nor would the US and global economy be in its current financial meltdown, threatening massive unemployment, protectionist trade policies, and rising levels of global poverty, and what David Walker (who remembers favorably the meeting Kelso and I had with him around 1975) calls an "unsustainable debt system."
"If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm's products, profit sharing [through wider share ownership] cannot be said to have any inflationary impact on costs and prices." (Extracted from Page 774 of Part 4, Hearings, The 1967 Economic Report of the President, Joint Economic Committee, Nineteenth Congress, First Session.)
Today the Washington Post's lead editorial suggested that President Obama impose strict conditions before approving Detroit auto industry's request for $50 billion in Federal bailout money, including a pre-arranged top-to-bottom corporate reorganization for the companies applying for aid, including a wiping out of the equity shares of existing shareholders, buying out creditors at "pennies for the dollar," and firing current top management. I totally support such conditions, but would add others that would have to be adopted by the United Auto Workers to change the culture in each of the companies that undergo re-organization from the conflictive "wage system" culture to a more synergistic and efficient ownership culture in which all workers and management have a stake in maximizing the efficiencies and bottom-line profits of the companies in which they work. Among the additional conditions we would recommend are:
1. Require that the UAW agree to Reuther's call for ownership sharing and profit sharing for renegotiating future income and benefit for all workers, plus a restructuring of future labor-management relations on the basis of participative management and other refinements of "Justice-Based Management" as described in www.eei-consultants.com and http://www.cesj.org/jbm/articles-jbm/cwp-jbm.htm.
2. Arrange for each of the reorganized auto companies to restructure themselves as S-Corp companies with all new equity shares acquired on a 100% leveraged basis by a tax-sheltered ESOP covering all new management and rehired non-management workers. With all shares held by an ESOP trust, and future pre-tax profits flowing through the tax-exempt trust for the repayment of corporate debt and the payout of dividends to ESOP participants, there would be no taxation of corporate profits, all of which would accrue to the benefit of the worker-shareholders. Distributions from the trust to worker-shareholders would however be subject to Federal and State income taxation, unless below income levels exempted by such tax reforms recommended in the proposed Capital Homestead Act described in the book Capital Homesteading for Every Citizen. (As you know, I orchestrated the first successful 100% leveraged buyout in 1975 of a Steelworker-organized South Bend Lathe, a company months from liquidation, from its parent Amsted Industries of Chicago. http://www.cesj.org/jbm/casestudies-vbm/southbendlathe.html. I later designed the first 100 % bank-financed leveraged buyout of the highly successful Mid-South Building Supply. And UAW members would have acquired 72% of the ownership of Chrysler under the strategy I advocated when Chrysler sought a $1.2 billion Treasury loan guarantee in 1984, but for short-sighted thinking by the UAW Washington Counsel, who settled for the token ownership stake arranged for workers by Senator Long. Without conditioning ESOP benefits to a new ownership culture, union leaders who adopt ESOPs in failing companies often fear that workers will no longer be loyal to them.)
3. Instead of promoting the traditional "conflict model" of industrial relations, however, the UAW as a labor union would be encouraged to transform itself into an "ownership union" covering all non-management workers as well as future outside shareholders. Thus a new model of democratic unionism would become society's primary institutions for promoting a free market version of economic justice, while continuing to negotiate and advance the expanded economic interests, including ownership rights, of a broadened membership constituency resulting in a new check on management accountability and transparency. By broadening their services, negotiating concerns and membership base, unions would also be expanding their revenue base, as well as their contributions to a more just and democratic market economy.
4. The Federal Reserve would adopt a policy to support use of its discount powers to create new asset-backed interest-free money for facilitating member bank loans (subject to competitive transaction fees and risk premiums) for the acceleration of sustainable future growth and the commercialization of advanced energy technologies through new shares issued by Justice-Based Management companies that meet conditions 1-3 above. Such new shares would be offered through leveraged ESOPs to workers and through leveraged Capital Homestead Accounts or leveraged IRAs to other qualified citizens.
Friday, January 9, 2009
News from the Network, Vol. 2, No. 2
Now that the holidays are more or less officially over, things have started moving again. Part of this activity is due, no doubt, to the growing panic about the economic situation. Some of it, however, is due to untiring efforts of people like Norman Kurland, who stand ready to seize every opportunity to bring the Just Third Way and Capital Homesteading to the attention of the powers-that-be. He cannot, however, do it alone. We need people like you to open doors and get Norm the opportunity to talk with "prime movers" and those who have the courage to spend their political chips on something that has the potential actually to accomplish something positive in the world. This week has had a number of events, indicating that the Just Third Way is moving forward.
• Norman Kurland, president of CESJ, one of the organizations involved in the Global Justice Movement, returned late Monday of this week from attending the funeral of Wyvetter Younge. While there, Norm carried on Wyvetter's legacy by taking the time to meet with a number of key people to ensure that Wyvetter's work doesn't die with her. Norm reported that the results of the meetings were very positive. A complete report on Wyvetter Younge's contributions to the Global Justice Movement will be forthcoming.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."
• On Tuesday of this week Norm had a telephone conversation with David M. Walker, former Comptroller General of the United States. The conversation was very positive, and Mr. Walker was sufficiently interested in what we were saying to give us more than twice the amount of time he had originally allotted. The results of the conversation are reported in the posting of our response letter earlier today. We urge everyone to follow up and demonstrate your approval of Mr. Walker's openness to Capital Homesteading by sending an e-mail or letter to the addresses given in the posting.
• Within a few hours of the close of the telephone conversation with Mr. Walker, we received a cc. of a letter from Brian Lenihan, TD, Minister for Finance of the Republic of Ireland, to Charlie O'Connor, TD, member of Dáil Éireann (the Irish house of representatives) for the Dublin South West constituency. The text of the brief but substantive letter runs, "Dear Charlie: I wish to acknowledge receipt of your recent letter on behalf of Mr. Norman G. Kurland, President, Centre for Economic and Social Justice. I will be in contact with you again about this matter as soon as possible." If you wish to express support for Minister Lenihan's openness and Deputy O'Connor's initiative, contact information can be found on their respective web sites, here and here, which also give postal addresses, if that is more your forte.
• On Wednesday morning, as we were preparing cover letters to accompany copies of Capital Homesteading for Every Citizen to be sent to selected party leaders and ministers in Ireland, we had just finished typing the letter to go to Mr. Eamon Gilmore, head of the Irish Labor Party, when we checked our e-mail, as we do periodically throughout the day. While preparing to send the draft letters to Norm and Dawn for review as an attached file, we received an e-mail from Mr. Gilmore, a nice bit of serendipity. The very positive e-mail read, "Thank you very much indeed for your email. I am very interested in the idea of 'capital homesteading' and I will log on to the website you suggest to get more information." Mr. Lenihan and Mr. O'Connor are members of the Fianna Fail party, traditionally regarded as "conservative," while Labor is usually considered "liberal." Capital Homesteading, however, has the potential to bring together people from all parts of the political spectrum, uniting them in a solidaristic effort for the common good. If you want to express support for Mr. Gilmore's receptiveness to Capital Homesteading, contact information can be found on his web site.
• As noted, we expect to send copies of Capital Homesteading for Every Citizen to selected party leaders and ministers in the Republic of Ireland. This is the result of a suggestion made by Mr. Chris O'Connor, Financial Secretary/Treasurer of the Ancient Order of Hibernians, Colonel John Fitzgerald Division. If you are a citizen of the Republic or of the United Kingdom and want to send a copy to your TD or MP, the book is available on Amazon UK for £14.00 plus shipping. If you purchase and send a copy, be sure to let us know, primarily so that we can acknowledge your generosity and initiative in working to advance the Just Third Way, but also so we aren't (too) surprised if the recipient follows up by making contact with CESJ. Amazon UK also has In Defense of Human Dignity, and our new annotated edition of The Emigrant's Guide available, for £16.00 and £14.00, respectively, both of which provide useful insights on the Just Third Way.
• Richard Aleman of The Distributist Review has not yet posted the promised notice of our publication of an annotated edition of William Cobbett's The Emigrant's Guide on the Review's web site. We can't verify if he forwarded the press release on to other members of his network. A number of other Chestertonians and distributists have, however, expressed a marked enthusiasm (or at least acquiescence) for the project, notably Dale Ahlquist, president of the American Chesterton Society and publisher of Gilbert! magazine, and Gloria Garafulich-Grabois, managing editor of The Chesterton Review, both of whom requested review copies (which we sent . . . via media mail, in keeping with our "small expenses are beautiful" orientation, so they may be a little slow in arriving). The "Chesterbelloc Mandate" blog also posted the press release, as did Tom Laney on his "Common Sense" blog, and Roy Moore on "The Distributist Voice." Mr. Laney has had a very productive exchange with Norman Kurland via e-mail, which we'll be posting as soon as we get a round tuit. In particular, they've been discussing a Just Third Way solution to the auto makers' dilemma, something for which CESJ feels a special affinity due to Norm's work with the late Walter Reuther in the latter's "Citizens' Crusade Against Poverty." If you've posted something about the Emigrant's Guide on your blog or web site, please send us a note so we can acknowledge it, and perhaps direct a few readers your way.
• As of this morning, we have had visitors from 15 different countries and 25 states and provinces in the United States and Canada to this blog over the past two months. On the average, people in the Republic of Ireland spend more time reading this blog than people in other countries, although Venezuela usually runs a very close second. Most of our readers, as might be expected, are in the United States, but Brazil and Venezuela also have a high number of visitors. In the United States, most of our readers seem to come from New York, with Virginia and Michigan in the place and show positions. Our posting on the "Keynesian Liquidity Trap Trap" has dropped from its "most popular posting" spot after a reign of several weeks, having been ousted by the open letter to Tom Friedman and "When Wall Street Abandoned Its Mission." Fully half of our "Top Ten" postings highlight serious problems with Keynesian economics, suggesting that people are beginning to wake up to the dangers associated with the Keynesian Free Lunch Program and the inherent illogic of trying to run an economy on the premise that you can get something for nothing or spend your way out of a deficit.
Letter to David M. Walker
Here is the (almost) full text of the follow-up letter we sent to David M. Walker, former Comptroller General of the United States, after our telephone conversation with him on Tuesday, January 6, 2009. You might want to send Mr. Walker a brief letter or e-mail to demonstrate support for Capital Homesteading, and to reassure him that we are, in fact, gaining a certain amount of "traction" in our efforts to present Capital Homesteading as a viable solution to the present financial and economic crisis. His mailing address is given below, while e-mails can be sent care of kbenanti [at] pgpf [dot] org.
January 7, 2009
The Hon. David M. Walker
Peter G. Peterson Foundation
712 Fifth Avenue, 48th Floor
New York, NY 10019
Dear David:
Thank you so much for taking time out of your busy schedule to discuss Capital Homesteading and the possibilities it might offer to help get the United States out from under its unsustainable debt burden.
To summarize our position: We think our proposed Capital Homestead Act offers unique systemic solutions to the catastrophic problems you so effectively have brought to the public's attention. Our solutions include tax changes that would automatically balance the budget, begin to pay down existing federal debt, and meet future entitlement promises, along with monetary reforms that would extend as a fundamental right of citizenship to every man, woman and child, ownership incomes from newly created growth capital. Capital Homesteading would also make our economy more competitive in global trade and would thus reduce our dependency on foreign lenders.
I hope your Ph.D. economist will read our book, Capital Homesteading for Every Citizen. I encourage him to contact me if he has any questions about how Capital Homesteading could expand national income maintenance policies to include capital ownership incomes for every citizen.
Your comments and suggestions were helpful, particularly those directing us to Paul Volcker. We gratefully accept the "challenge" you gave us to start gathering support from such major policy-makers as Mr. Volcker and Senator Durbin, both of whom we are now seeking meetings with through leaders in our network.
Along with my colleagues, Michael Greaney and Dawn Brohawn, I also wish to express our appreciation for the gracious assistance of your executive assistant in arranging our telephone meeting.
I look forward to the opportunity to present in more detail to you and your advisors our comprehensive economic revitalization package, when, as you said, we "get some traction."
Again, David, thank you for your time. It's the willingness of leaders like you to open up to the possibility of new ideas and new solutions, that gives this great country of ours hope for the future.
With highest regards,
Norman G. Kurland, President
January 7, 2009
The Hon. David M. Walker
Peter G. Peterson Foundation
712 Fifth Avenue, 48th Floor
New York, NY 10019
Dear David:
Thank you so much for taking time out of your busy schedule to discuss Capital Homesteading and the possibilities it might offer to help get the United States out from under its unsustainable debt burden.
To summarize our position: We think our proposed Capital Homestead Act offers unique systemic solutions to the catastrophic problems you so effectively have brought to the public's attention. Our solutions include tax changes that would automatically balance the budget, begin to pay down existing federal debt, and meet future entitlement promises, along with monetary reforms that would extend as a fundamental right of citizenship to every man, woman and child, ownership incomes from newly created growth capital. Capital Homesteading would also make our economy more competitive in global trade and would thus reduce our dependency on foreign lenders.
I hope your Ph.D. economist will read our book, Capital Homesteading for Every Citizen. I encourage him to contact me if he has any questions about how Capital Homesteading could expand national income maintenance policies to include capital ownership incomes for every citizen.
Your comments and suggestions were helpful, particularly those directing us to Paul Volcker. We gratefully accept the "challenge" you gave us to start gathering support from such major policy-makers as Mr. Volcker and Senator Durbin, both of whom we are now seeking meetings with through leaders in our network.
Along with my colleagues, Michael Greaney and Dawn Brohawn, I also wish to express our appreciation for the gracious assistance of your executive assistant in arranging our telephone meeting.
I look forward to the opportunity to present in more detail to you and your advisors our comprehensive economic revitalization package, when, as you said, we "get some traction."
Again, David, thank you for your time. It's the willingness of leaders like you to open up to the possibility of new ideas and new solutions, that gives this great country of ours hope for the future.
With highest regards,
Norman G. Kurland, President
Thursday, January 8, 2009
Are We Communists, Capitalists . . . or Something Else?
This is the sort of "omnibus" blog posting you put up when others have said what you wanted to say before you said it — or nearly. Yesterday we got the following unsolicited comment from a casual visitor to the CESJ web site, www.cesj.org. All spellings, spacing, and grammar have been retained exactly as in the original. The only thing deleted is the commentator's last name.
Will, before you label us as left or right, read our commitment to free market competition, the restoration of private property rights, limited economic power of government and equal opportunity of every person to acquire private property stakes in productive technology and other wealth-producing assets. See how we define terms in our Glossary, and see how we differ from socialism and capitalism.
Will, before you label people socialistic you should read what socialists and communists actually write. Their core principle, stated clearly by Karl Marx in The Communist Manifesto, is "the abolition of private property" in the means of production, and putting politicians and bureaucrats in control over capital and earnings. We advocate the opposite: allow every citizen to become a capital owner by removing legal and financial barriers to that everyone has an equal right to acquire a private property stake and earn profits produced by one's capital assets. Are you against our goals of turning "have-nots" into "haves" without taking any property away from today's haves? We're for a peaceful Second American Revolution. We're not funded by government, George Soros or any other fat-cat, or by any foundation (except for a tiny grant we received some years ago to prepare a paper, which led to our book Capital Homesteading for Every Citizen.) Instead of calling us names, what specifically that we propose don't you like?
Norm Kurland
To this we add the commentary by Mr. Steve Roy (below), a contribution I was going to put up yesterday, but didn't get around to doing. Many people in CESJ, myself included, do not agree with Steve's understanding of Ayn Rand, but that doesn't mean she didn't say anything useful or make valuable contributions to understanding the human condition, whether or not you agree with or accept everything she said. Steve's analysis, however, is clearly based on having actually read CESJ's materials, and finding a congruence between the Just Third Way and what many would consider Rand's "ultra-capitalism."
Many far from unintelligent people, including the science fiction writer Dr. Jerry Pournelle (who equates distributism with capitalism) and, I believe, Steve (and he will correct me — politely, I know — if I am wrong in stating his position) hold that anything based on a proper respect (or nearly so) for the natural right to private property is, ipso facto, "capitalism." Less thoughtful people, such as Will X, appear to assume that if you say anything against "capitalism," you must be a socialist, a communist, or an ant[i?]-[A]merican. Unfortunately, a superficial review of CESJ's materials or other organizations involved in the Just Third Way will see a rejection of something we call "capitalism" (and, for the record, socialism), but fail to take the "short version" of our definition of "capitalism" into account:
Anyway, Steve wrote:
I don't think Ayn Rand would approve of anything other than laissez faire capitalism as the proper economic structure of a nation, but I do think something else that could stop and reverse the relentless march to collectivism in her beloved adopted country would interest her. I believe that binary economics and the Just Third Way could be that "something else."
Rand knew well the horror of collectivism, or communism, or socialism (all the same principle) because she escaped from Russia and watched with the world as the Iron Curtain descended. A friend wrote to her, asking her to tell people that the USSR was a graveyard, and that they were all dying slowly. She fought as hard as one person could to tell that story, constructing an entire philosophy, Objectivism, that was reality-based, and exposing collectivism for the horror that it was and is.
Using that philosophy, she searched for the economic system that would best support freedom and dignity for Man. She proved that only capitalism could offer that freedom and prosperity, and held that only the purest form, laissez faire capitalism, would be acceptable, because anything else would be contaminated with collectivist structures. People would then blame capitalism, when the real culprit was collectivism. (see "Capitalism, The Unknown Ideal").
Funny — that's what some people are claiming now. That the current crisis proves that capitalism is a sham, that putting the financial system under government control is the only answer.
As if enough millions haven't died already proving that to be a bloody path to hell.
As if there wasn't any other alternative, when we know damn well there is, and has been for over fifty years.
Louis Kelso and Mortimer Adler worked it out in The Capitalist Manifesto (available for free at the www.cesj.org library). I read the book in the 70's and immediately got the message, though I was totally unschooled in economics. I was elated that there was a new way, a third way, that could usher in a new era for us all. Surely the powers that be would see it. Surely they would follow up with sophisticated econometric models that would prove the validity of the theory, and apply it for the good of all.
Never in my wildest dreams did I think that 30 years later, I would bring up the topic and be regarded with totally blank stares from people who should have at least heard about Kelso and Adler. But such is the bankruptcy of the field of economics. In it's current state it is not a science — it is a witch hunt in reverse, desperately trying to muddy the waters and obscure any clear view of the third alternative, Binary Economics, or the Just Third Way. As if ignoring it would make it go away. And they almost succeeded — The Capitalist Manifesto is out of print and ignored, and Keynes still rules from beyond the grave, still poisoning us all with his fatally flawed theories.
I'll leave alone for the moment the obvious conclusion — that the people with most of the real wealth, that monopolize the ownership of the most capital, are perfectly happy that up until now, the people don't know about any of this. Too bad for them that Norm, CESJ, The Kelso Institute and all the other hardworking people in this movement refused to let the dream die. Now there is a new kind of capitalism, that robs no one, that distributes capital throughout the citizenry, that could put real purchasing power, not more debt, into the hands of all Americans and world citizens alike.
Here's an open challenge to economists everywhere — put Binary Economics on the table from now on as a valid choice for the economic structure of a nation, put in as much work proving it true or false as you do making excuses for the failures of Keynes' theories — or stop thinking of yourselves as scientists, and start thinking of yourselves as witch doctors. Because true scientists examine ALL new ideas. They LIVE to be proved wrong so the truth can finally be known. Witch doctors continue shaking old bones over the dying man, hoping that he gets better — somehow.
In Atlas Shrugged, the "men of the mind" withdraw their intelligence and effort from the world when the witch doctors and government stooges make life impossible to live with dignity. They allow the old world to collapse under it's own dead weight, and go back to the world only after the way is clear.
Maybe it's time to take a second look at that strategy.
Big Banking, we have not heard a word of apology from any of you. With the help of the dirtiest, most inhuman administration in history, you have raided the treasury — our children's future — of billions that were supposed to be put back into the economy and sat on them as "padding," refusing to lend any of it. You can't even say where some of it ended up.
Let me guess.
In my opinion, all those who participated are traitors. You mismanaged trillions knowing the government would have to bail you out, surely stuffed piles of it into off-shore shelters, and mortgaged all our futures for decades to come.
If it was done to us by a foreign country, it would be an act of war. Economic terrorism. Because it was done by Americans, to Americans, I say it is treason, and should be treated accordingly.
Norm's additional comments were:
Thanks, Steve. I too found Ayn Rand's position against statism compelling, but I found her position in defense of selfishness as a virtue morally obnoxious. Self-interest is embedded in human nature, but selfishness and greed go beyond healthy self-interest to represent gain at someone else's expense. I wish she and today's libertarians were as open-minded as you to the Kelso-Adler books. Steve, would you consider trying to open up the minds of Lew Rockwell (Lew Rockwell, lewrockwell@mac.com ) and his Mises Foundation members to your thoughts? Rockwell and others in his libertarian network need to hear your views. Unfortunately, they seem to be blind to the systemic barriers to equal ownership opportunities and to the reason libertarians cannot connect up to most voters are wage slaves, welfare slaves and debt slaves whose lives are so desperate that they turn to the state for their economic salvation. That's why I no longer use the term "capitalism" to describe the just market system America and the world needs to avoid the totalitarian trap into which Keynesian, laissez faire and socialist economic high priests are leading us.
Will X wrote:Norm Kurland responded:
Another bogus ant-american, liberal left leaning, corrupt, socialistic web site espousing so - called economic justice.
I am sure you are being funded by corrupt Democrats(all of them, including O.B.) and the Gorge Soros types through illegal hedge funds, shadow groups from foreign counties with the intent of instilling socialistic and Muslim principles in the USA.
Will, before you label us as left or right, read our commitment to free market competition, the restoration of private property rights, limited economic power of government and equal opportunity of every person to acquire private property stakes in productive technology and other wealth-producing assets. See how we define terms in our Glossary, and see how we differ from socialism and capitalism.
Will, before you label people socialistic you should read what socialists and communists actually write. Their core principle, stated clearly by Karl Marx in The Communist Manifesto, is "the abolition of private property" in the means of production, and putting politicians and bureaucrats in control over capital and earnings. We advocate the opposite: allow every citizen to become a capital owner by removing legal and financial barriers to that everyone has an equal right to acquire a private property stake and earn profits produced by one's capital assets. Are you against our goals of turning "have-nots" into "haves" without taking any property away from today's haves? We're for a peaceful Second American Revolution. We're not funded by government, George Soros or any other fat-cat, or by any foundation (except for a tiny grant we received some years ago to prepare a paper, which led to our book Capital Homesteading for Every Citizen.) Instead of calling us names, what specifically that we propose don't you like?
Norm Kurland
To this we add the commentary by Mr. Steve Roy (below), a contribution I was going to put up yesterday, but didn't get around to doing. Many people in CESJ, myself included, do not agree with Steve's understanding of Ayn Rand, but that doesn't mean she didn't say anything useful or make valuable contributions to understanding the human condition, whether or not you agree with or accept everything she said. Steve's analysis, however, is clearly based on having actually read CESJ's materials, and finding a congruence between the Just Third Way and what many would consider Rand's "ultra-capitalism."
Many far from unintelligent people, including the science fiction writer Dr. Jerry Pournelle (who equates distributism with capitalism) and, I believe, Steve (and he will correct me — politely, I know — if I am wrong in stating his position) hold that anything based on a proper respect (or nearly so) for the natural right to private property is, ipso facto, "capitalism." Less thoughtful people, such as Will X, appear to assume that if you say anything against "capitalism," you must be a socialist, a communist, or an ant[i?]-[A]merican. Unfortunately, a superficial review of CESJ's materials or other organizations involved in the Just Third Way will see a rejection of something we call "capitalism" (and, for the record, socialism), but fail to take the "short version" of our definition of "capitalism" into account:
An economic/financial system where a relatively small number of individuals own the vast bulk of capital assets, and where the majority of the population is employed at a wage and owns little or no capital.This is the way that the socialists, who invented the term "capitalism," defined it. Inasmuch as Chesterton stated somewhere-or-other that, "if 'capitalism' means 'use of capital,' then everything is capitalism" (or words to that effect), we find it more useful to be perhaps too narrow and strict, particularly in view of the equation of "capitalism" with anything that respects private property in any degree, and employ "the Just Third Way" as possibly more descriptive.
Anyway, Steve wrote:
I don't think Ayn Rand would approve of anything other than laissez faire capitalism as the proper economic structure of a nation, but I do think something else that could stop and reverse the relentless march to collectivism in her beloved adopted country would interest her. I believe that binary economics and the Just Third Way could be that "something else."
Rand knew well the horror of collectivism, or communism, or socialism (all the same principle) because she escaped from Russia and watched with the world as the Iron Curtain descended. A friend wrote to her, asking her to tell people that the USSR was a graveyard, and that they were all dying slowly. She fought as hard as one person could to tell that story, constructing an entire philosophy, Objectivism, that was reality-based, and exposing collectivism for the horror that it was and is.
Using that philosophy, she searched for the economic system that would best support freedom and dignity for Man. She proved that only capitalism could offer that freedom and prosperity, and held that only the purest form, laissez faire capitalism, would be acceptable, because anything else would be contaminated with collectivist structures. People would then blame capitalism, when the real culprit was collectivism. (see "Capitalism, The Unknown Ideal").
Funny — that's what some people are claiming now. That the current crisis proves that capitalism is a sham, that putting the financial system under government control is the only answer.
As if enough millions haven't died already proving that to be a bloody path to hell.
As if there wasn't any other alternative, when we know damn well there is, and has been for over fifty years.
Louis Kelso and Mortimer Adler worked it out in The Capitalist Manifesto (available for free at the www.cesj.org library). I read the book in the 70's and immediately got the message, though I was totally unschooled in economics. I was elated that there was a new way, a third way, that could usher in a new era for us all. Surely the powers that be would see it. Surely they would follow up with sophisticated econometric models that would prove the validity of the theory, and apply it for the good of all.
Never in my wildest dreams did I think that 30 years later, I would bring up the topic and be regarded with totally blank stares from people who should have at least heard about Kelso and Adler. But such is the bankruptcy of the field of economics. In it's current state it is not a science — it is a witch hunt in reverse, desperately trying to muddy the waters and obscure any clear view of the third alternative, Binary Economics, or the Just Third Way. As if ignoring it would make it go away. And they almost succeeded — The Capitalist Manifesto is out of print and ignored, and Keynes still rules from beyond the grave, still poisoning us all with his fatally flawed theories.
I'll leave alone for the moment the obvious conclusion — that the people with most of the real wealth, that monopolize the ownership of the most capital, are perfectly happy that up until now, the people don't know about any of this. Too bad for them that Norm, CESJ, The Kelso Institute and all the other hardworking people in this movement refused to let the dream die. Now there is a new kind of capitalism, that robs no one, that distributes capital throughout the citizenry, that could put real purchasing power, not more debt, into the hands of all Americans and world citizens alike.
Here's an open challenge to economists everywhere — put Binary Economics on the table from now on as a valid choice for the economic structure of a nation, put in as much work proving it true or false as you do making excuses for the failures of Keynes' theories — or stop thinking of yourselves as scientists, and start thinking of yourselves as witch doctors. Because true scientists examine ALL new ideas. They LIVE to be proved wrong so the truth can finally be known. Witch doctors continue shaking old bones over the dying man, hoping that he gets better — somehow.
In Atlas Shrugged, the "men of the mind" withdraw their intelligence and effort from the world when the witch doctors and government stooges make life impossible to live with dignity. They allow the old world to collapse under it's own dead weight, and go back to the world only after the way is clear.
Maybe it's time to take a second look at that strategy.
Big Banking, we have not heard a word of apology from any of you. With the help of the dirtiest, most inhuman administration in history, you have raided the treasury — our children's future — of billions that were supposed to be put back into the economy and sat on them as "padding," refusing to lend any of it. You can't even say where some of it ended up.
Let me guess.
In my opinion, all those who participated are traitors. You mismanaged trillions knowing the government would have to bail you out, surely stuffed piles of it into off-shore shelters, and mortgaged all our futures for decades to come.
If it was done to us by a foreign country, it would be an act of war. Economic terrorism. Because it was done by Americans, to Americans, I say it is treason, and should be treated accordingly.
Norm's additional comments were:
Thanks, Steve. I too found Ayn Rand's position against statism compelling, but I found her position in defense of selfishness as a virtue morally obnoxious. Self-interest is embedded in human nature, but selfishness and greed go beyond healthy self-interest to represent gain at someone else's expense. I wish she and today's libertarians were as open-minded as you to the Kelso-Adler books. Steve, would you consider trying to open up the minds of Lew Rockwell (Lew Rockwell, lewrockwell@mac.com ) and his Mises Foundation members to your thoughts? Rockwell and others in his libertarian network need to hear your views. Unfortunately, they seem to be blind to the systemic barriers to equal ownership opportunities and to the reason libertarians cannot connect up to most voters are wage slaves, welfare slaves and debt slaves whose lives are so desperate that they turn to the state for their economic salvation. That's why I no longer use the term "capitalism" to describe the just market system America and the world needs to avoid the totalitarian trap into which Keynesian, laissez faire and socialist economic high priests are leading us.
Wednesday, January 7, 2009
Keynes on "The Future"
Earlier today we received the following comment from a reader in Canada in response to yesterday's posting of the letter to the Wall Street Journal on the "Paradox of Thrift":
It's worse than the commentator believes. In his General Theory (1936), VI.24.ii, Keynes states briefly (for him) that it is necessary for the advancement of society that the "rentier" (a small investor who lives off the income generated from the investments and does not reinvest) must be eliminated from the economy. Rather callously (and inaccurately) Keynes speaks of the "euthanasia of the rentier." He doesn't mean actual "mercy killing," but gradually forcing people to divest themselves of assets so that they rely completely on wages and welfare.
Nor are the rich safe from Keynes. In the section following, VI.24.iii, he makes his case for total State control of the economy. He declares, "It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary."
In English, that translates as, "It is not necessary for the State to take legal title to anything to effectively 'own' it. If the State is able to determine how much someone may 'own,' what they may 'own,' and how much the 'owner' is permitted to derive as the fruits of his or her 'ownership,' it will have accomplished all that is necessary." Control of the fruits of ownership is the determinant in the question as to who really owns something. How much of what someone may possess is a prudential decision society makes that, as long as it doesn't undermine or abrogate the underlying natural right to be an owner, is a necessary and healthy thing for the social order. Mandating how much someone can derive from his or her assets in the form of income or other control, however, is the essence of private property, and interference with that is effectively socialism. Of course Keynes said that the State "will have accomplished all that is necessary" if it controlled capital without taking actual title. It wouldn't need to take nominal title, for it would already own in fact.
Keynes also made the same mistake that many people do as a result of rejecting the "Real Bills" doctrine. That is, Keynes assumed that only currency and demand deposits constitute "money." On the contrary! One of the problems that the Federal Reserve has in trying to keep track of the monetary system is defining what, exactly, money is. "M1" is easy: currency and demand deposits. If that were all money was, however, we wouldn't need all the other Ms.
The fact is that the bulk of the money supply is made up of transfers between private individuals, companies, and countries that may or may not bring a bank or the State into it. These entities actually create money when they engage in transactions among themselves by exchanging IOUs, promissory notes, bills of lading, commercial paper, and so on. If the parties trust each other, they don't need a bank or a State to regulate the transaction or ensure that each party keeps its word. This is so common that finance experts even have a special term for it: "disintermediation," a ten dollar word for a multi-trillion dollar process. The transactions are denominated in the local currency, of course, but an actual check drawn on a bank, or a unit of currency may never change hands. This was how many stores in rural areas operated in the U.S. up through the mid-20th century. The storekeeper would keep a ledger recording all purchases by a customer, and when the customer brought in goods, the storekeeper would credit his or her account. Before the coinage reform of 1873 and the National Bank Act of 1864, in fact, stores couldn't have operated in any other way, for there wasn't enough currency in circulation to provide for the transactions demand outside large cities, and often enough not even there, accounting for the large number of merchant's tokens and company scrip that circulated to the delight of modern collectors and frustration of contemporary merchants and customers.
I think this might answer a concern you raised in an earlier posting [in the Kelso Binary Economics Discussion Group]. I think you said something to the effect that if all new money were issued by a bank to finance a capital project, and the bank received back more than it created, the local economy would be drained of money (or words to that effect, it's early in the morning, and my memory is going). This makes sense — if "money" includes only currency and bank demand deposits, the economy is "static" (i.e., the process of new money creation is not ongoing, so that new money isn't always coming in to the economy as old money is retired as loans are repaid), and the money does not circulate beyond the original borrower.
This last is the most counter-intuitive. Back in the 17th century a man named Sir William Petty asked if a country had (in his example) £8 million in transactions in a year (what we would call GDP, I think), did the country need to mint £8 million in gold and silver coin, or emit treasury bills of £8 million? He answered his own question by reasoning that, if each coin were spent an average of 4 times in a year, the country would only need £2 million worth of currency, for each coin would do the work of four. This was an early, perhaps the first formulation of something that we call "the velocity of money." A bank or State doesn't need to create £8 million in currency or demand deposits to carry out £8 million in transactions. It only needs to create as much as will be used at any one time, for each unit of currency can be reused, effectively multiplying the money supply. Fortunately, the only way this is inflationary is if people lose confidence in the currency and increase the velocity of money by spending it as fast as they get it. Keynesians believe that the velocity of money is fixed at five, or so I was told in college, meaning that, on the average, each unit of currency is spent five times in a year.
That's one part of the answer as to why a region wouldn't be drained of money if a bank takes back more than it created. Money is only a marker for a promise, a convenient vehicle that passes from hand to hand as promises are made and kept. When money takes the form of currency, it can be reused over and over again, each time in the making and keeping of a new promise, until it finds its way back to the issuer in payment of the original debt, and is canceled.
For example, suppose a bank prints $100 in exchange for a lien on a productive asset. The borrower repays $110, the $10 being the service fee the bank charges for generalizing the borrower's purchasing power and changing it into a form that everyone in the community will accept. The bank cancels $100, and pays out $10 as wages, other operating expenses, or dividends. The $10 reenters circulation, being used by the recipients for their expenses, and so on in turn, until it finds its way back to its original issuer, and is canceled. In the meantime, of course, new money has been created to form new capital, so that as the old money leaves, new money enters the economy.
Again, however, that's only part of the answer. The other part is that, per Say's Law of Markets, production = income, and Say's realization (along with Adam Smith) that we don't really make purchases with "money," but with what we produce; that we cannot purchase anything unless we have produced something. I'm going to quote it wrong, but Say said it something like this: "For it is in reality with our own productions that we purchase the productions of others, and it is impossible to purchase anything unless we have first produced, whether by means of our labor, capitals, or lands."
Thus, whenever we produce, we generate income ("money") that we can use to purchase what others produce. We may be making widgets, and want to purchase gadgets, so we trade some of our widgets for the gadgets of someone else. We may or may not use currency or demand deposits to facilitate the transaction (international trade, for example, while measured in terms of currency, rarely involves exchange of currency or demand deposits, but commodities and goods valued in terms of an agreed-upon unit of value), but "money" is created whenever we produce something, for we have created something that has value to others that can be traded for what others produce that has value to us.
The bottom line is that capital continues to produce long after it is paid for, thereby generating income ("creating money") for its owner. A bank is very useful in changing production into a form that is generally accepted in the community, but is not absolutely necessary ... if you don't mind the incredible circumlocutions and techniques involved in running a barter economy. The ancient Egyptians ran an extremely sophisticated economy on barter, but it required an incredible number of scribes to record virtually every transaction — there was no easily transferable means of conveying value between two individuals (i.e., currency). They always had to bring in a third party, who may or may not be honest, and keep a huge number of records. (One of the reasons why scribes were usually attached to a temple, so that the gods would keep them honest, and why the first actual banks were located in temples as well; some authorities believe that Jesus didn't drive the moneychangers from the Temple because they were moneychangers, providing a necessary service, but because they were doing it dishonestly by overcharging for the service they provided.)
Merchants and manufacturers can, of course, exchange bills of lading, commercial paper, and so on, among themselves without ever bringing a bank into the transaction, but it is much more convenient in many cases to "factor" inventory (sell or loan it to a financial institution) so that you get cash or a demand deposit right away instead of waiting for a customer to show up. The "cheese banks" of Parma have operated in this way for centuries. Bringing a bank into the picture makes things easier, and "transforms" the various financial instruments into "bankers' acceptances" with the bank's word guaranteeing the value instead of the original issuer. For this the banks legitimately charge a fee and, if necessary, a "risk premium."
Thus, the money supply is always far greater than what is created by banks or the State in the form of currency or demand deposits. As long as the State or banks don't start issuing debt backed money (i.e., money backed only by someone's promise to pay, and not a lien on an actual hard asset), there is no problem, and the only danger of inflation comes when there are actual shortages or increases in actual demand for something of which there's not enough of to satisfy the increased demand (whereupon a new producer is lured into the market to bid down the price). The only danger of deflation is if people are somehow restricted from changing their productions into a generally-accepted form that they can spend anywhere, e.g., the dairy farmer who can't raise a loan on his cheese or manufacturer who can't find someone to buy or give a loan secured by his or her inventory. We're seeing this now, where manufacturers' stocks are piling up because financial institutions won't loan money on inventories when consumers aren't buying. This is why the recent spate of bailouts are ultimately self-defeating: they don't change the system so that people can gain an adequate and secure income, they give money to people who can't loan it if they're ethical, and shouldn't loan it if they have half a brain in their heads.
Under the "Real Bills" doctrine, the idea that there cannot be enough money in circulation (the backbone of Keynesian "demand driven" economics and justification for the State running the printing presses) is utter nonsense, which may explain why Keynes rather pompously declared that the Real Bills doctrine was "discredited" — his system made no sense if he admitted its validity, and might even come across as somewhat insane.
Well put Michael. However, I think Keynes' work was not really about economics, as is generally believed, but was instead about helping form a world power structure. Keynes did come clean on this in his last essay, "The Future," with his infamous, easily verified, statement.This, of course, inspired additional commentary on Keynesian economics.
"We must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still."
The obsolete over-centralization favoured by Keynes and crowd would grow from encouraging saving by the public, even though Keynes was well aware this would harm the economy. The more money is removed from the economy by the people, the more it is necessary for government to step in and to take over more of the economy. This was the goal. In saying "we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not", Keynes is admitting the effectiveness, and his use of, the big lie technique. The Achilles heel of this MO is free communication amongst the public in general.
It's worse than the commentator believes. In his General Theory (1936), VI.24.ii, Keynes states briefly (for him) that it is necessary for the advancement of society that the "rentier" (a small investor who lives off the income generated from the investments and does not reinvest) must be eliminated from the economy. Rather callously (and inaccurately) Keynes speaks of the "euthanasia of the rentier." He doesn't mean actual "mercy killing," but gradually forcing people to divest themselves of assets so that they rely completely on wages and welfare.
Nor are the rich safe from Keynes. In the section following, VI.24.iii, he makes his case for total State control of the economy. He declares, "It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary."
In English, that translates as, "It is not necessary for the State to take legal title to anything to effectively 'own' it. If the State is able to determine how much someone may 'own,' what they may 'own,' and how much the 'owner' is permitted to derive as the fruits of his or her 'ownership,' it will have accomplished all that is necessary." Control of the fruits of ownership is the determinant in the question as to who really owns something. How much of what someone may possess is a prudential decision society makes that, as long as it doesn't undermine or abrogate the underlying natural right to be an owner, is a necessary and healthy thing for the social order. Mandating how much someone can derive from his or her assets in the form of income or other control, however, is the essence of private property, and interference with that is effectively socialism. Of course Keynes said that the State "will have accomplished all that is necessary" if it controlled capital without taking actual title. It wouldn't need to take nominal title, for it would already own in fact.
Keynes also made the same mistake that many people do as a result of rejecting the "Real Bills" doctrine. That is, Keynes assumed that only currency and demand deposits constitute "money." On the contrary! One of the problems that the Federal Reserve has in trying to keep track of the monetary system is defining what, exactly, money is. "M1" is easy: currency and demand deposits. If that were all money was, however, we wouldn't need all the other Ms.
The fact is that the bulk of the money supply is made up of transfers between private individuals, companies, and countries that may or may not bring a bank or the State into it. These entities actually create money when they engage in transactions among themselves by exchanging IOUs, promissory notes, bills of lading, commercial paper, and so on. If the parties trust each other, they don't need a bank or a State to regulate the transaction or ensure that each party keeps its word. This is so common that finance experts even have a special term for it: "disintermediation," a ten dollar word for a multi-trillion dollar process. The transactions are denominated in the local currency, of course, but an actual check drawn on a bank, or a unit of currency may never change hands. This was how many stores in rural areas operated in the U.S. up through the mid-20th century. The storekeeper would keep a ledger recording all purchases by a customer, and when the customer brought in goods, the storekeeper would credit his or her account. Before the coinage reform of 1873 and the National Bank Act of 1864, in fact, stores couldn't have operated in any other way, for there wasn't enough currency in circulation to provide for the transactions demand outside large cities, and often enough not even there, accounting for the large number of merchant's tokens and company scrip that circulated to the delight of modern collectors and frustration of contemporary merchants and customers.
I think this might answer a concern you raised in an earlier posting [in the Kelso Binary Economics Discussion Group]. I think you said something to the effect that if all new money were issued by a bank to finance a capital project, and the bank received back more than it created, the local economy would be drained of money (or words to that effect, it's early in the morning, and my memory is going). This makes sense — if "money" includes only currency and bank demand deposits, the economy is "static" (i.e., the process of new money creation is not ongoing, so that new money isn't always coming in to the economy as old money is retired as loans are repaid), and the money does not circulate beyond the original borrower.
This last is the most counter-intuitive. Back in the 17th century a man named Sir William Petty asked if a country had (in his example) £8 million in transactions in a year (what we would call GDP, I think), did the country need to mint £8 million in gold and silver coin, or emit treasury bills of £8 million? He answered his own question by reasoning that, if each coin were spent an average of 4 times in a year, the country would only need £2 million worth of currency, for each coin would do the work of four. This was an early, perhaps the first formulation of something that we call "the velocity of money." A bank or State doesn't need to create £8 million in currency or demand deposits to carry out £8 million in transactions. It only needs to create as much as will be used at any one time, for each unit of currency can be reused, effectively multiplying the money supply. Fortunately, the only way this is inflationary is if people lose confidence in the currency and increase the velocity of money by spending it as fast as they get it. Keynesians believe that the velocity of money is fixed at five, or so I was told in college, meaning that, on the average, each unit of currency is spent five times in a year.
That's one part of the answer as to why a region wouldn't be drained of money if a bank takes back more than it created. Money is only a marker for a promise, a convenient vehicle that passes from hand to hand as promises are made and kept. When money takes the form of currency, it can be reused over and over again, each time in the making and keeping of a new promise, until it finds its way back to the issuer in payment of the original debt, and is canceled.
For example, suppose a bank prints $100 in exchange for a lien on a productive asset. The borrower repays $110, the $10 being the service fee the bank charges for generalizing the borrower's purchasing power and changing it into a form that everyone in the community will accept. The bank cancels $100, and pays out $10 as wages, other operating expenses, or dividends. The $10 reenters circulation, being used by the recipients for their expenses, and so on in turn, until it finds its way back to its original issuer, and is canceled. In the meantime, of course, new money has been created to form new capital, so that as the old money leaves, new money enters the economy.
Again, however, that's only part of the answer. The other part is that, per Say's Law of Markets, production = income, and Say's realization (along with Adam Smith) that we don't really make purchases with "money," but with what we produce; that we cannot purchase anything unless we have produced something. I'm going to quote it wrong, but Say said it something like this: "For it is in reality with our own productions that we purchase the productions of others, and it is impossible to purchase anything unless we have first produced, whether by means of our labor, capitals, or lands."
Thus, whenever we produce, we generate income ("money") that we can use to purchase what others produce. We may be making widgets, and want to purchase gadgets, so we trade some of our widgets for the gadgets of someone else. We may or may not use currency or demand deposits to facilitate the transaction (international trade, for example, while measured in terms of currency, rarely involves exchange of currency or demand deposits, but commodities and goods valued in terms of an agreed-upon unit of value), but "money" is created whenever we produce something, for we have created something that has value to others that can be traded for what others produce that has value to us.
The bottom line is that capital continues to produce long after it is paid for, thereby generating income ("creating money") for its owner. A bank is very useful in changing production into a form that is generally accepted in the community, but is not absolutely necessary ... if you don't mind the incredible circumlocutions and techniques involved in running a barter economy. The ancient Egyptians ran an extremely sophisticated economy on barter, but it required an incredible number of scribes to record virtually every transaction — there was no easily transferable means of conveying value between two individuals (i.e., currency). They always had to bring in a third party, who may or may not be honest, and keep a huge number of records. (One of the reasons why scribes were usually attached to a temple, so that the gods would keep them honest, and why the first actual banks were located in temples as well; some authorities believe that Jesus didn't drive the moneychangers from the Temple because they were moneychangers, providing a necessary service, but because they were doing it dishonestly by overcharging for the service they provided.)
Merchants and manufacturers can, of course, exchange bills of lading, commercial paper, and so on, among themselves without ever bringing a bank into the transaction, but it is much more convenient in many cases to "factor" inventory (sell or loan it to a financial institution) so that you get cash or a demand deposit right away instead of waiting for a customer to show up. The "cheese banks" of Parma have operated in this way for centuries. Bringing a bank into the picture makes things easier, and "transforms" the various financial instruments into "bankers' acceptances" with the bank's word guaranteeing the value instead of the original issuer. For this the banks legitimately charge a fee and, if necessary, a "risk premium."
Thus, the money supply is always far greater than what is created by banks or the State in the form of currency or demand deposits. As long as the State or banks don't start issuing debt backed money (i.e., money backed only by someone's promise to pay, and not a lien on an actual hard asset), there is no problem, and the only danger of inflation comes when there are actual shortages or increases in actual demand for something of which there's not enough of to satisfy the increased demand (whereupon a new producer is lured into the market to bid down the price). The only danger of deflation is if people are somehow restricted from changing their productions into a generally-accepted form that they can spend anywhere, e.g., the dairy farmer who can't raise a loan on his cheese or manufacturer who can't find someone to buy or give a loan secured by his or her inventory. We're seeing this now, where manufacturers' stocks are piling up because financial institutions won't loan money on inventories when consumers aren't buying. This is why the recent spate of bailouts are ultimately self-defeating: they don't change the system so that people can gain an adequate and secure income, they give money to people who can't loan it if they're ethical, and shouldn't loan it if they have half a brain in their heads.
Under the "Real Bills" doctrine, the idea that there cannot be enough money in circulation (the backbone of Keynesian "demand driven" economics and justification for the State running the printing presses) is utter nonsense, which may explain why Keynes rather pompously declared that the Real Bills doctrine was "discredited" — his system made no sense if he admitted its validity, and might even come across as somewhat insane.
Tuesday, January 6, 2009
"The Paradox of Thrift": Keynes' Greatest Fallacy?
Today's rather eye-catching article title in the Wall Street Journal said it all: "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes." In the Keynesian world of Looking Glass Economics, where everything is backwards and nothing makes sense, you can't invest unless you cut consumption and save ... and you can't invest if you cut consumption and decrease consumer demand which means no resulting investment. Logically, then, you can either save or invest. This is pretty scary when you realize that savings always equals investment, so (logically) Keynes' "paradox of thrift" means that both savings and investment necessarily equal zero if the economy is ever to be in equilibrium, which Keynes touted as the goal of his economic system. Maybe that's what Keynes meant when he declared that, in the long run, everybody is dead. Dead people neither invest nor save. They just exist in the perfect Keynesian equilibrium.
What follows is the text of today's letter to the Wall Street Journal, which you are free to copy and present to any Keynesian economist or government policymaker, along with the question as to how Keynesian economics is supposed to make sense.
Today's article by Kelly Evans, "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes" (Wall Street Journal, 01/06/09, A1, A12) accurately reflects the inherently contradictory and unsound nature of Keynesian economics and the "paradox of thrift." That is, saving provides financing for capital formation, which raises living standards. In the Keynesian universe, however, saving is only possible by cutting consumption, and requires a class of people who cannot consume all they produce and are thereby forced to invest the excess. The catch is that cutting consumption means that the financial feasibility of newly-formed capital, as well as the viability of existing capital, is reduced, sometimes to the point where the economy implodes.
According to Lord Keynes, financing capital formation is impossible unless consumption is reduced to provide savings for investment. This is Keynes' iron law, and the basis of virtually all his economic theories, as well as his rejection of Say's Law of Markets and the "Real Bills" doctrine, the centuries-old foundation of commercial and central banking theory.
Contradicting Keynes' assumption, however, Dr. Harold G. Moulton, then-president of the Brookings Institution, in 1935 published a short monograph, The Formation of Capital. Dr. Moulton studied the rates of consumption, saving, and investment in the United States from 1830 to 1930. Contrary to popular myth, Dr. Moulton discovered that periods of intense capital formation were preceded not by decreases in consumption, as Keynes presumed, but by substantial increases, and a consequent reduction in savings. Saving was subsequent to investment, not prior, as Keynes assumed as an unalterable dogma.
Exploding another popular myth, Dr. Moulton discovered that the financing for capital formation during periods of greatly increased investment did not, as commonly believed, come from England and other industrialized nations, but by the extension of credit through the commercial banking system. The "new money" was backed by loans made for capital formation, and repaid out of profits once the capital became productive. This is a process known as "future" or "forced" savings, and is the essence of the "Real Bills" doctrine. Dr. Moulton further observed that cutting consumption in order to provide financing for capital formation instead of financing capital formation through the commercial banking system would ultimately reduce consumer demand to the point where both newly-formed and existing capital would become non-viable.
Dr. Moulton published his findings in 1935. Keynes was quick to respond in 1936 with his General Theory of Employment, Interest, and Money, in which he rejected Dr. Moulton's findings by the simple expedient of ignoring them. Keynes declared without offering any proof that "future" or "forced" savings are impossible, and that any evidence or argument supporting the concept is necessarily an illusion. (General Theory, II.7.iv.)
The dilemma facing economists and policymakers today is thus based on an unquestioned acceptance of a disproved theory. A reexamination of Dr. Moulton's work is clearly in order, and the powers-that-be in academia and government should cease being "the slaves of some defunct economist." (General Theory, VI.24.v)
What follows is the text of today's letter to the Wall Street Journal, which you are free to copy and present to any Keynesian economist or government policymaker, along with the question as to how Keynesian economics is supposed to make sense.
Today's article by Kelly Evans, "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes" (Wall Street Journal, 01/06/09, A1, A12) accurately reflects the inherently contradictory and unsound nature of Keynesian economics and the "paradox of thrift." That is, saving provides financing for capital formation, which raises living standards. In the Keynesian universe, however, saving is only possible by cutting consumption, and requires a class of people who cannot consume all they produce and are thereby forced to invest the excess. The catch is that cutting consumption means that the financial feasibility of newly-formed capital, as well as the viability of existing capital, is reduced, sometimes to the point where the economy implodes.
According to Lord Keynes, financing capital formation is impossible unless consumption is reduced to provide savings for investment. This is Keynes' iron law, and the basis of virtually all his economic theories, as well as his rejection of Say's Law of Markets and the "Real Bills" doctrine, the centuries-old foundation of commercial and central banking theory.
Contradicting Keynes' assumption, however, Dr. Harold G. Moulton, then-president of the Brookings Institution, in 1935 published a short monograph, The Formation of Capital. Dr. Moulton studied the rates of consumption, saving, and investment in the United States from 1830 to 1930. Contrary to popular myth, Dr. Moulton discovered that periods of intense capital formation were preceded not by decreases in consumption, as Keynes presumed, but by substantial increases, and a consequent reduction in savings. Saving was subsequent to investment, not prior, as Keynes assumed as an unalterable dogma.
Exploding another popular myth, Dr. Moulton discovered that the financing for capital formation during periods of greatly increased investment did not, as commonly believed, come from England and other industrialized nations, but by the extension of credit through the commercial banking system. The "new money" was backed by loans made for capital formation, and repaid out of profits once the capital became productive. This is a process known as "future" or "forced" savings, and is the essence of the "Real Bills" doctrine. Dr. Moulton further observed that cutting consumption in order to provide financing for capital formation instead of financing capital formation through the commercial banking system would ultimately reduce consumer demand to the point where both newly-formed and existing capital would become non-viable.
Dr. Moulton published his findings in 1935. Keynes was quick to respond in 1936 with his General Theory of Employment, Interest, and Money, in which he rejected Dr. Moulton's findings by the simple expedient of ignoring them. Keynes declared without offering any proof that "future" or "forced" savings are impossible, and that any evidence or argument supporting the concept is necessarily an illusion. (General Theory, II.7.iv.)
The dilemma facing economists and policymakers today is thus based on an unquestioned acceptance of a disproved theory. A reexamination of Dr. Moulton's work is clearly in order, and the powers-that-be in academia and government should cease being "the slaves of some defunct economist." (General Theory, VI.24.v)
Monday, January 5, 2009
Does the Wall Street Journal Understand Private Property?
A short time ago the Wall Street Journal ran an editorial by Mr. Ronald J. Pestritto declaring that Roosevelt was not a conservative, and seemed to be an enemy of private property. The only problem with the editorial was that the Roosevelt in question was not FDR, but Teddy. Unfortunately for Mr. Pestritto's thesis, he based his assertion on the text of a speech given by Teddy in 1910, which text was published in Volume 17 of the Rough Rider's collected works, and was thus easily checked. Mr. Pestritto, by dint of a little creative editing, took Teddy's explication of the traditionally limited exercise of private property, and turned it into an attack. Naturally, we couldn't let that go by, so we sent the following letter to the Wall Street Journal. For some reason they didn't reply.
In his article on Theodore Roosevelt ("Theodore Roosevelt Was No Conservative," WSJ 12/30/08, A11), Mr. Ronald J. Pestritto misstates Roosevelt's position. The speech he cites, "The New Nationalism," was published in a collection titled, Social Justice and Popular Rule, Vol. 17 of "The Works of Theodore Roosevelt," New York: Charles Scribner's Sons, 1926, pp. 5-22. The speech was given on August 31, 1910 before members of the "Grand Army of the Republic," an organization of Union veterans of the Civil War. Mr. Pestritto writes, "It was the Republican TR, who insisted in his 1910 speech on the 'New Nationalism,' that there was a 'general right of the community to regulate' the earning of income and use of private property 'to whatever degree the public welfare may require it.'"
The passage Mr. Pestritto cites comes on page 17. The full, correct text is, "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."
On his own initiative Mr. Pestritto inserts "the earning of income" in the middle of the quote, implying that Roosevelt was in favor of redistribution to equalize income. Yes, Roosevelt was in favor of a graduated income tax, but, as he makes clear on p. 14, because he believed — wrongly in my opinion — this was the only way to prevent the harm caused to individuals and groups by economic power concentrated in the hands of a small elite.
Mr. Pestritto's chief error, however, lies in his misunderstanding of private property, and his indifference to the inevitable abuses associated with economic monopolies — public or private. Roosevelt's position is simply a restatement of the common law rights of private property, not to be confused with the natural right to private property. The right to be an owner is absolute and inalienable in every human person. That is, every human being has the right to own, and not be subject to monopolizing barriers to equal ownership opportunities.
What an owner may do with what he owns, however (the rights of private property) is necessarily limited by the wants and needs of the owner, other individuals and groups, and the whole of society. That is, no one may legitimately use his possessions to harm others. As Roosevelt stated on page 11, reinforcing his position that private property should serve private individuals and not the State or an economic elite, "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."
By attempting to attack Roosevelt on this point, Mr. Pestritto implies that the right to own is limited to an ownership elite, while the exercise of property is unlimited, even to the extent of monopolizing access to ownership in a manner that prevents others from participating as owners in the economic process. Mr. Pestritto's position suggests that an owner may do as he wishes, without regard to any harm that may be done to other persons and their property and other rights. Mr. Pestritto might want to heed the warning Roosevelt gave to those who oppose any sort of limit on their self-will while restricting the proper exercise of rights by others: "Those who oppose all reform will do well to remember that ruin in its worst form is inevitable if our national life brings us nothing better than swollen fortunes for the few and the triumph in both politics and business of a sordid and selfish materialism." (p. 20.)
In his article on Theodore Roosevelt ("Theodore Roosevelt Was No Conservative," WSJ 12/30/08, A11), Mr. Ronald J. Pestritto misstates Roosevelt's position. The speech he cites, "The New Nationalism," was published in a collection titled, Social Justice and Popular Rule, Vol. 17 of "The Works of Theodore Roosevelt," New York: Charles Scribner's Sons, 1926, pp. 5-22. The speech was given on August 31, 1910 before members of the "Grand Army of the Republic," an organization of Union veterans of the Civil War. Mr. Pestritto writes, "It was the Republican TR, who insisted in his 1910 speech on the 'New Nationalism,' that there was a 'general right of the community to regulate' the earning of income and use of private property 'to whatever degree the public welfare may require it.'"
The passage Mr. Pestritto cites comes on page 17. The full, correct text is, "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."
On his own initiative Mr. Pestritto inserts "the earning of income" in the middle of the quote, implying that Roosevelt was in favor of redistribution to equalize income. Yes, Roosevelt was in favor of a graduated income tax, but, as he makes clear on p. 14, because he believed — wrongly in my opinion — this was the only way to prevent the harm caused to individuals and groups by economic power concentrated in the hands of a small elite.
Mr. Pestritto's chief error, however, lies in his misunderstanding of private property, and his indifference to the inevitable abuses associated with economic monopolies — public or private. Roosevelt's position is simply a restatement of the common law rights of private property, not to be confused with the natural right to private property. The right to be an owner is absolute and inalienable in every human person. That is, every human being has the right to own, and not be subject to monopolizing barriers to equal ownership opportunities.
What an owner may do with what he owns, however (the rights of private property) is necessarily limited by the wants and needs of the owner, other individuals and groups, and the whole of society. That is, no one may legitimately use his possessions to harm others. As Roosevelt stated on page 11, reinforcing his position that private property should serve private individuals and not the State or an economic elite, "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."
By attempting to attack Roosevelt on this point, Mr. Pestritto implies that the right to own is limited to an ownership elite, while the exercise of property is unlimited, even to the extent of monopolizing access to ownership in a manner that prevents others from participating as owners in the economic process. Mr. Pestritto's position suggests that an owner may do as he wishes, without regard to any harm that may be done to other persons and their property and other rights. Mr. Pestritto might want to heed the warning Roosevelt gave to those who oppose any sort of limit on their self-will while restricting the proper exercise of rights by others: "Those who oppose all reform will do well to remember that ruin in its worst form is inevitable if our national life brings us nothing better than swollen fortunes for the few and the triumph in both politics and business of a sordid and selfish materialism." (p. 20.)
Friday, January 2, 2009
News from the Network, Vol. 2, No. 1
Due to the holidays, things have slowed down and news items are few. We expect things to begin moving more swiftly once the new administration takes office. There are, nevertheless, some items of importance.
• CESJ's Just Third Way champion in Illinois, Wyvetter Younge, died on December 26, 2008, at Barnes-Jewish Hospital in St. Louis, Missouri. Wyvetter, the leading Democrat in the Illinois House, was the representative for East St. Louis. She was for many years an advocate of R. Buckminster Fuller's vision to revive the community embodied in the "Old Man River City" concept, which also includes the economic empowerment concepts of Louis Kelso. Major advances have been made in East St. Louis, Illinois, to implement a major redevelopment project, including a citizens land cooperative to be owned by all citizens, a CESJ chapter, a Fuller-Kelso World Design Science Center, a $65 million prototype renewable energy power plant and manufacturing complex and a "Homeowners' Equity Corporation."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."
• Richard Aleman of The Distributist Review, will be posting a notice of our publication of an annotated edition of William Cobbett's The Emigrant's Guide on the Review's web site, and forwarding the press release to members of his organization.
• As of this morning, we have had visitors from 15 different countries and 27 states and provinces in the United States and Canada to this blog over the past two months. While the number of countries and states represented has declined slightly, the amount of time spent on the blog has increased.
Subscribe to:
Posts (Atom)