Despite the wild fluctuations in the stock market (and everything else — shall we have another discourse on "The Great Hotdog Hoodwink" now that a 69¢ one-pound package of hotdogs is a $1.79 12-ounce package?) there are definite signs of hope. People seem to be waking up to the need for some serious reform, although they remain unsure what to do about it. To let them know that there are things that can be done, we've been continuing our efforts:
• The Rally at the Federal Reserve Board of Governors building today in Washington, DC went very well. There was only a moderate number of hitches (meaning the things that went wrong were either someone else's fault, or happened to someone else). The event opened with remarks by Rev. Robert Brantley, leading into a rousing rendition of "16 Bills" sung by Dr. Scott Holmes, which (if you haven't heard it), can be found here. (If you don't care for protest songs, tune in to this, which is pretty cool, too.) Scott followed with "People and Things," a piece, like "16 Bills," by Dawn Brohawn.
• Scott's songs were followed by a dramatic reading of a skit by Barbara Olson of Las Vegas, Nevada, "Abraham Lincoln and Miss Liberty." Michael D. Greaney read the part of Abraham Lincoln, while Jackie Woodman of Cleveland read Miss Liberty, appropriately garbed as the Statue of Liberty.
• Bob Brantley then introduced the keynote speaker, Norman G. Kurland, president of CESJ. Norm gave a brief statement as to why we need a Capital Homestead Act and read a statement of support from Pollant Mpofu, an advisor to the Labour Party in the United Kingdom.
• Dave Hamill of the Coalition for Capital Homesteading gave a talk on how Capital Homesteading would help the "small" businesses that provide the bulk of production of marketable goods and services throughout the world, and how it would stimulate effective and lasting — unsubsidized — job creation.
• Monica Woodman gave a presentation of what adoption of a Capital Homestead Act would mean for solving the home mortgage crisis. While some things could be done in the current legal and economic environment, a permanent and just solution to the problem will be found only in Capital Homesteading.
• Joseph Recinos, back in town briefly from traveling in Central America, gave his reflections on why Capital Homesteading is needed globally as a way of establishing and maintaining economic justice for all on a basis of liberty and private property.
• CESJ's "Poet Laureate" Dawn Brohawn then gave a talk on how just "one simple act" — specifically, signing and introducing the Declaration of Monetary Justice to legislators and politicians at all levels of government for adoption as a non-binding resolution — would greatly advance the Just Third Way.
• Jerry Peloquin then gave a brief reflection on the need to revive Washington, DC economically, especially Ward 8 and other distressed areas.
• Scott Holmes finished off with a rendition of "The Just Third Way," accompanied by Jerry on drums.
• According to the Krause Publications e-newsletter, the economy is so bad that coin collectors are divesting themselves of relatively scarce items to make ends meet. Not the great rarities, of course — few ordinary collectors have those — but the "key" items around which someone typically builds a collection. While there's always the hope that it can be replaced when things get better, you have to realize the significance of people selling their "trophies of the hunt" — half the fun of collecting anything is the search for a scarce item and the pride of having a complete set of something. This is a better economic indicator than anything coming from the economists or government, and argues that the so-called "recovery" is an illusion.
• The American Catholic bishops have castigated Representative Paul Ryan's budget proposal for not having a provision that provides adequately for the poor. (The Washington Post, 04/18/12, A2.) While we agree that Mr. Ryan's proposal doesn't address either the needs of the poor or the nation as a whole, it's at least better than the current system — with or without any mandates that violate individual consciences. Not being raised is the possibility that there might be a proposal — such as Capital Homesteading — by means of which the poor can take care of themselves, capital ownership for all can be financed without government subsidy or redistribution, the tax base rebuilt, government spending brought within reasonable limits and the debt paid down.
• ACS Books ("American Chesterton Society Books"?) has published The Hound of Distributism, edited by Richard Aleman, president of the Society for Distributism. Hound appears to be available only in Amazon's "Kindle" at the notorious $9.99 price. According to the one posted review (as of 04/18/12), the book is a collection of essays that rehash old material to the point of redundancy, or (as the reviewer put it), "I was left with the feeling this is a book by Distributists, published by Distributists, sometimes focused on Distributists and, I suspect, for Distributists." If you have $10 you want to invest in reading something you can get for free from other sources by doing a little searching on the internet, you might want to buy The Hound of Distributism, but be warned. Judging from our past experience with a number of the authors whose approach to the natural law is somewhat flexible, their thought is not completely consistent with the Just Third Way. We're just letting you know, however. You can form your own opinion.
• As of this morning, we have had visitors from 63 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Pakistan. People in the Netherlands Antilles, France, the United States, the United Kingdom, and Indonesia spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Guide to Capital Homesteading," "Aristotle on Private Property," "Why Did Nixon Take the Dollar Off the Gold Standard?" and "The Situation in Greece."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Friday, April 20, 2012
Thursday, April 19, 2012
A Better Way to Save, III: Keynesian Forced Savings
Well, tomorrow is the Big Day. Not for taxes . . . that was Tuesday. If you've been following this blog, you will have seen one or two postings urging you to come and support the push for a Capital Homestead Act at a rally in front of the Federal Reserve Board of Governors building on Constitution Avenue from 11:30 am to 1:30 pm. We'll be demonstrating in favor of monetary and tax reforms to correct the problems caused by adherence to the principles of Keynesian economics and, to a lesser degree, all the schools of economics that accept the "currency principle" as a given.
We have graphic evidence in the form of the condition of the global economy that manipulating the money supply in accordance with the principles of chartalism or Modern Monetary Theory does not work. It is a variety of socialism based on redistributing existing wealth through inflation, leading inevitably to the Servile State.
We define inflation as a rise in the price level resulting from more units of currency "chasing" the same or a declining amount of production relative to the increase in the money supply. Yes — we are fully aware that Keynes defined "true" inflation as a rise in the price level only after full employment had been reached. That's nice. Ordinary people end up paying more for less whether the inflation is "true" or not.
Inflation by any name, however, is a key element in Keynesian economic policy. Taking as a given (as Keynes did) that new capital formation cannot be financed except by cutting consumption, the problem becomes how to both increase consumption to justify the new capital, and reduce consumption to pay for it? This is the past savings paradox that Harold Moulton termed "the economic dilemma" in The Formation of Capital (1935).
Keynes believed he had solved the problem with inflation, even if he refused to call it that — an example of his creative "re-editing of the dictionary." It (allegedly) works like this. A rise in the price level forces consumers to pay more for less. Since Keynes defined "saving" solely as reductions in consumption, this qualifies as "saving." Keynes called it "forced savings."
The consumers, however, do not realize the benefit of this type of "saving." Instead, the "savings" accrue to producers in the form of increased profits. (If producers realize too much profit, however, the government taxes it away to redistribute back to consumers in the form of entitlements, job subsidies, legally mandated wage and benefits packages, and welfare.) Producers then (allegedly) use the savings to finance new capital formation. This (allegedly) creates new jobs that (presumably) generate enough effective demand to keep the economy running at full employment.
The problem that even Keynes saw with this was that you cannot continue on a course of producing more and consuming less forever. It doesn't make sense, as even he acknowledged. Whether or not Keynes wanted to admit it, however, Moulton knew what he was talking about. You can't cut consumption and increase consumption at the same time. The numbers just don't add up.
Never fear. Keynes had an answer. We'll conclude this series next week — after the rally tomorrow at the Federal Reserve.
#30#
We have graphic evidence in the form of the condition of the global economy that manipulating the money supply in accordance with the principles of chartalism or Modern Monetary Theory does not work. It is a variety of socialism based on redistributing existing wealth through inflation, leading inevitably to the Servile State.
We define inflation as a rise in the price level resulting from more units of currency "chasing" the same or a declining amount of production relative to the increase in the money supply. Yes — we are fully aware that Keynes defined "true" inflation as a rise in the price level only after full employment had been reached. That's nice. Ordinary people end up paying more for less whether the inflation is "true" or not.
Inflation by any name, however, is a key element in Keynesian economic policy. Taking as a given (as Keynes did) that new capital formation cannot be financed except by cutting consumption, the problem becomes how to both increase consumption to justify the new capital, and reduce consumption to pay for it? This is the past savings paradox that Harold Moulton termed "the economic dilemma" in The Formation of Capital (1935).
Keynes believed he had solved the problem with inflation, even if he refused to call it that — an example of his creative "re-editing of the dictionary." It (allegedly) works like this. A rise in the price level forces consumers to pay more for less. Since Keynes defined "saving" solely as reductions in consumption, this qualifies as "saving." Keynes called it "forced savings."
The consumers, however, do not realize the benefit of this type of "saving." Instead, the "savings" accrue to producers in the form of increased profits. (If producers realize too much profit, however, the government taxes it away to redistribute back to consumers in the form of entitlements, job subsidies, legally mandated wage and benefits packages, and welfare.) Producers then (allegedly) use the savings to finance new capital formation. This (allegedly) creates new jobs that (presumably) generate enough effective demand to keep the economy running at full employment.
The problem that even Keynes saw with this was that you cannot continue on a course of producing more and consuming less forever. It doesn't make sense, as even he acknowledged. Whether or not Keynes wanted to admit it, however, Moulton knew what he was talking about. You can't cut consumption and increase consumption at the same time. The numbers just don't add up.
Never fear. Keynes had an answer. We'll conclude this series next week — after the rally tomorrow at the Federal Reserve.
#30#
Wednesday, April 18, 2012
A Better Way to Save, II: Keynesian Looking Glass Land
Yesterday being "Tax Day," the vast bulk of "Human Interest Stories" centered on the personal income tax. Typically these stories have focused on how much of each year an average person has to work before he or she stops working for the government and starts working for him- or herself — "Tax Freedom Day."
This year something new has been added: How people are being stupid to use the tax system to "force savings" by overpaying to get a big refund. According to a flurry of articles that appeared in newspapers and on the internet, there is a big push on to nip this sort of thing in the bud. Without even bothering to google the subject, we've seen "IRS Uses Tax Day to Push Consumers to Save" which despite the title argues against using the tax system to accomplish the desired end. Then there was the condescending "Admit It — It Feels Good."
The bottom line here is that we have to overcome a national savings dearth . . . but ordinary people shouldn't use the tax system to save. As one of the articles concluded,
"None of this is going to solve the national savings dearth. Most personal saving in the U.S. will continue to be done by people with lots of money to spare. These experiments, instead, are aimed at making individuals a bit more financially secure, a creative attempt to promote a culture of saving in a country with too little of it."
Why? This doesn't make sense. If the tax system has been distorted to encourage saving, why is the IRS upset when people use the tax system to save?
Actually, it makes perfect sense. Under the currency principle illusion that the only way to finance new capital formation is to cut consumption and save, the more or less logical conclusion is that only the rich have the capacity to save in the amounts required by increasingly expensive advanced technology. If the poor or non-owning classes save, this reduces consumption, and makes the new capital financed by the rich less feasible.
In the Looking Glass Land of Keynesian economics, the tax system and the monetary system are combined in the joint endeavor to reach full employment — of labor, not of all resources. The primary task of private industry (under government control, if necessary) is not to produce marketable goods and services that, in accordance with Say's Law of Markets as applied in the real bills doctrine, can be exchanged through the medium of money for what others produce. Rather, private industry's job is to create jobs in order to sustain effective demand to absorb what technology produces.
This requires a little sleight-of-hand in a number of areas. Okay, a lot of sleight-of-hand. This is relatively easy to do when you base science on faith, or vice versa. Contradictions can be explained away by accusing anyone who raises a question of being either a knave or a fool, probably (and illogically) both at the same time.
For starters, because no normal person wants to admit that what he or she does is useless, "productivity" is always measured in terms of labor hours. Always. It doesn't matter that technology (capital) is responsible for the bulk of production. The belief that "productivity" can be measured by dividing output by labor hours leads to the ludicrous conclusion that human labor is infinitely productive when it isn't even there. This would be the case in a fully automated factory: (Total Output)/0 = Infinity . . . an irrational number (except in Keynesian Looking Glass Land).
Then there's the assumption that the job of the non-owning masses is . . . to have a job. If "the masses" own, they'll just do something stupid with their capital incomes, like spend the money on food, clothing and shelter. This is why Keynes called for the "euthanasia" of the small "functionless" (his words) investor who doesn't reinvest his or her capital income. If they spend, there won't be enough savings to finance new capital formation to provide jobs for everybody.
Given the assumption that the only way to finance new capital formation is to cut consumption and accumulate money savings (and we're not taking the time right now to prove just how false and damaging this assumption is), economic growth relies on having a small class of rich people, the smaller, the better, who cannot possibly consume all the income their capital produces. Being logical, such people reinvest their excess consumption income in new capital, thereby creating jobs.
Alas — the effect of technology is to replace human labor in the production process. The government is forced to step in and either mandate or subsidize job creation somehow, or there won't be enough effective demand to allow the new capital to pay for itself out of future profits, and then provide more savings to finance new capital formation and create jobs. Thus, in the Keynesian Looking Glass universe, useless jobs are created so that there will be more useless jobs created. The goal of job creation is the redistribution of income/effective demand from the technology that produces marketable goods and services away from the human beings who own the capital and who have a right to the "fruits of ownership," to the human beings who don't own capital, but who consume the marketable goods and services produced by capital.
This creates another problem. If income is redistributed through job creation, then the rich don't have enough savings to finance new capital formation and create jobs. Adding to this Catch-22 is the fact that if non-owners consume the income from their "jobs," then they, ipso facto, aren't saving either. If owners aren't saving, and non-owners aren't saving, then there aren't any savings to finance new capital formation and create the jobs that inhibit or prevent saving.
Houston, we have a problem.
This seems an insoluble paradox, but Keynesian economics is equal to the task . . . if we don't look too closely at the system or ask too many questions. Tune in tomorrow for the next exciting episode in our examination of the magic of Keynesian economics.
In the meantime, consider joining CESJ and the Coalition for Capital Homesteading this Friday, April 20, 2012, for a rally in front of the Federal Reserve Board of Governors building on Constitution Avenue from 11:30 am to 1:30 pm to demand a little tax sanity and monetary justice.
#30#
This year something new has been added: How people are being stupid to use the tax system to "force savings" by overpaying to get a big refund. According to a flurry of articles that appeared in newspapers and on the internet, there is a big push on to nip this sort of thing in the bud. Without even bothering to google the subject, we've seen "IRS Uses Tax Day to Push Consumers to Save" which despite the title argues against using the tax system to accomplish the desired end. Then there was the condescending "Admit It — It Feels Good."
The bottom line here is that we have to overcome a national savings dearth . . . but ordinary people shouldn't use the tax system to save. As one of the articles concluded,
"None of this is going to solve the national savings dearth. Most personal saving in the U.S. will continue to be done by people with lots of money to spare. These experiments, instead, are aimed at making individuals a bit more financially secure, a creative attempt to promote a culture of saving in a country with too little of it."
Why? This doesn't make sense. If the tax system has been distorted to encourage saving, why is the IRS upset when people use the tax system to save?
Actually, it makes perfect sense. Under the currency principle illusion that the only way to finance new capital formation is to cut consumption and save, the more or less logical conclusion is that only the rich have the capacity to save in the amounts required by increasingly expensive advanced technology. If the poor or non-owning classes save, this reduces consumption, and makes the new capital financed by the rich less feasible.
In the Looking Glass Land of Keynesian economics, the tax system and the monetary system are combined in the joint endeavor to reach full employment — of labor, not of all resources. The primary task of private industry (under government control, if necessary) is not to produce marketable goods and services that, in accordance with Say's Law of Markets as applied in the real bills doctrine, can be exchanged through the medium of money for what others produce. Rather, private industry's job is to create jobs in order to sustain effective demand to absorb what technology produces.
This requires a little sleight-of-hand in a number of areas. Okay, a lot of sleight-of-hand. This is relatively easy to do when you base science on faith, or vice versa. Contradictions can be explained away by accusing anyone who raises a question of being either a knave or a fool, probably (and illogically) both at the same time.
For starters, because no normal person wants to admit that what he or she does is useless, "productivity" is always measured in terms of labor hours. Always. It doesn't matter that technology (capital) is responsible for the bulk of production. The belief that "productivity" can be measured by dividing output by labor hours leads to the ludicrous conclusion that human labor is infinitely productive when it isn't even there. This would be the case in a fully automated factory: (Total Output)/0 = Infinity . . . an irrational number (except in Keynesian Looking Glass Land).
Then there's the assumption that the job of the non-owning masses is . . . to have a job. If "the masses" own, they'll just do something stupid with their capital incomes, like spend the money on food, clothing and shelter. This is why Keynes called for the "euthanasia" of the small "functionless" (his words) investor who doesn't reinvest his or her capital income. If they spend, there won't be enough savings to finance new capital formation to provide jobs for everybody.
Given the assumption that the only way to finance new capital formation is to cut consumption and accumulate money savings (and we're not taking the time right now to prove just how false and damaging this assumption is), economic growth relies on having a small class of rich people, the smaller, the better, who cannot possibly consume all the income their capital produces. Being logical, such people reinvest their excess consumption income in new capital, thereby creating jobs.
Alas — the effect of technology is to replace human labor in the production process. The government is forced to step in and either mandate or subsidize job creation somehow, or there won't be enough effective demand to allow the new capital to pay for itself out of future profits, and then provide more savings to finance new capital formation and create jobs. Thus, in the Keynesian Looking Glass universe, useless jobs are created so that there will be more useless jobs created. The goal of job creation is the redistribution of income/effective demand from the technology that produces marketable goods and services away from the human beings who own the capital and who have a right to the "fruits of ownership," to the human beings who don't own capital, but who consume the marketable goods and services produced by capital.
This creates another problem. If income is redistributed through job creation, then the rich don't have enough savings to finance new capital formation and create jobs. Adding to this Catch-22 is the fact that if non-owners consume the income from their "jobs," then they, ipso facto, aren't saving either. If owners aren't saving, and non-owners aren't saving, then there aren't any savings to finance new capital formation and create the jobs that inhibit or prevent saving.
Houston, we have a problem.
This seems an insoluble paradox, but Keynesian economics is equal to the task . . . if we don't look too closely at the system or ask too many questions. Tune in tomorrow for the next exciting episode in our examination of the magic of Keynesian economics.
In the meantime, consider joining CESJ and the Coalition for Capital Homesteading this Friday, April 20, 2012, for a rally in front of the Federal Reserve Board of Governors building on Constitution Avenue from 11:30 am to 1:30 pm to demand a little tax sanity and monetary justice.
#30#
Tuesday, April 17, 2012
A Better Way to Save, I: Why Things are Complicated
Regular readers of this blog know that our position on the Internal Revenue Code is that it is unnecessarily complex. Including all the regulations 'n stuff, the whole thing totaled more than 72,000 pages — more than 5.5 million words — in 2011. The reason (at least in our opinion) is that the tax code has been "hijacked" to conform to the demands of Keynesian economics. People must be forced to save so that there will be sufficient financing for new capital formation that will create jobs.
What makes tax paying and tax collection so taxing (sorry) is that Congress has to balance several contradictory demands. Contrary to the principles of chartalism ("Modern Monetary Theory") embodied in Keynesian economics, the tax system has to raise some of the money to run government. It cannot discourage productive activity too much. It has to encourage people to cut consumption and save. It can be (and is) used to distribute pork and encourage politically desirable behavior.
All of this makes for a pretty shaky tightrope to walk. It should come as no surprise that the rope is close to breaking and will (in all likelihood) soon drop the country into bankruptcy — and the safety net has rotted away.
As readers of this blog are aware, things would be much simpler if the tax system were used exclusively to raise money for government to meet legitimate expenses, leaving it to people to meet their own needs through their own efforts. The only exception is in emergency situations when it is expedient (politically prudent) to make a redistribution of existing wealth to keep people alive and in reasonably good health.
To allow people to meet their own needs through their own efforts, the Federal Reserve was established. The original mission of the central bank of the United States was to provide the private sector — "the people" — with an asset-backed elastic currency by rediscounting qualified bills of exchange accepted by member banks representing the present value of future industrial, commercial and agricultural capital. This was to be supplemented with limited "open market operations" in bills accepted by non-member banks or drawn by businesses or individuals.
To prevent the government from being able to use the Federal Reserve to finance operations, the bank was not empowered to accept or purchase government securities, except to retire the National Bank Notes of 1863 to 1913, which were backed by government debt. Within two years, however, the government had figured out a way to monetize its deficits by getting the Federal Reserve to purchase secondary government securities ("bills of credit") on the open market, and by the 1930s had effectively stopped all financing of private sector projects, except for politically motivated bailouts.
The bottom line here is that the income tax that was intended to finance government operations is now being misused to generate savings for private sector investment, while the Federal Reserve that was intended to provide financing for private sector investment is being used exclusively to finance government and politically motivated investment. Consequently, the private sector is starved for financing, and the government has (arguably unconstitutionally) been creating money at a furious rate backed only by its power to collect taxes from a rapidly decaying private sector economy. The question becomes what to do about it.
In the short term, you can join CESJ and the Coalition for Capital Homesteading at the Federal Reserve Board of Governors building on Constitution Avenue in Washington, DC this Friday, April 20, 2012, at 11:30 am to 1:30 pm to rally in support of reforming the monetary and tax systems and the passage of a Capital Homestead Act. In the longer term, you can learn more about the Just Third Way by tuning in to this blog tomorrow.
#30#
What makes tax paying and tax collection so taxing (sorry) is that Congress has to balance several contradictory demands. Contrary to the principles of chartalism ("Modern Monetary Theory") embodied in Keynesian economics, the tax system has to raise some of the money to run government. It cannot discourage productive activity too much. It has to encourage people to cut consumption and save. It can be (and is) used to distribute pork and encourage politically desirable behavior.
All of this makes for a pretty shaky tightrope to walk. It should come as no surprise that the rope is close to breaking and will (in all likelihood) soon drop the country into bankruptcy — and the safety net has rotted away.
As readers of this blog are aware, things would be much simpler if the tax system were used exclusively to raise money for government to meet legitimate expenses, leaving it to people to meet their own needs through their own efforts. The only exception is in emergency situations when it is expedient (politically prudent) to make a redistribution of existing wealth to keep people alive and in reasonably good health.
To allow people to meet their own needs through their own efforts, the Federal Reserve was established. The original mission of the central bank of the United States was to provide the private sector — "the people" — with an asset-backed elastic currency by rediscounting qualified bills of exchange accepted by member banks representing the present value of future industrial, commercial and agricultural capital. This was to be supplemented with limited "open market operations" in bills accepted by non-member banks or drawn by businesses or individuals.
To prevent the government from being able to use the Federal Reserve to finance operations, the bank was not empowered to accept or purchase government securities, except to retire the National Bank Notes of 1863 to 1913, which were backed by government debt. Within two years, however, the government had figured out a way to monetize its deficits by getting the Federal Reserve to purchase secondary government securities ("bills of credit") on the open market, and by the 1930s had effectively stopped all financing of private sector projects, except for politically motivated bailouts.
The bottom line here is that the income tax that was intended to finance government operations is now being misused to generate savings for private sector investment, while the Federal Reserve that was intended to provide financing for private sector investment is being used exclusively to finance government and politically motivated investment. Consequently, the private sector is starved for financing, and the government has (arguably unconstitutionally) been creating money at a furious rate backed only by its power to collect taxes from a rapidly decaying private sector economy. The question becomes what to do about it.
In the short term, you can join CESJ and the Coalition for Capital Homesteading at the Federal Reserve Board of Governors building on Constitution Avenue in Washington, DC this Friday, April 20, 2012, at 11:30 am to 1:30 pm to rally in support of reforming the monetary and tax systems and the passage of a Capital Homestead Act. In the longer term, you can learn more about the Just Third Way by tuning in to this blog tomorrow.
#30#
Monday, April 16, 2012
"Changes in Income Inequality and Economic Growth"
The last couple of days seems to have generated quite a bit of discussion in the media about how to (re)establish income equality and achieve sustainable economic growth. The focus seems to be on showing how the proposals currently out of the table really don't do anything other than perpetuate the unjust system that caused the problem in the first place. The obvious thing to do, then, is to start looking at solutions that are not out on the table (crazy thought) . . . and to join us this Friday outside the Federal Reserve Board of Governors building in Washington, DC (on the Constitution Avenue side) from 11:30 am to 1:30 pm . . . and bring some Spam, Coke, and Hershey Bars to share.
Or you could write letters to the Wall Street Journal and other periodicals to alert them to the fact that there is an alternative to the present system (and send CESJ some donations for Spam, Coke and Hershey Bars):
Dear Sir(s):
Kamran Dadkhah has the right of it in his letter in today's Wall Street Journal addressing "Changes in Income Inequality and Economic Growth." Increasing tax rates to try and equalize income and stimulate economic growth puts the cart before the horse by implying that the economic growth has already taken place so that it can be redistributed — an illogical assumption at best.
I disagree, however, that education works toward equalizing income. On the contrary, education results from having a surplus to spend on education. It does not itself cause the surplus. We would otherwise not have the spectacle of students burdened for decades with unrepayable loans taken out to finance education.
The real key to unleashing people's entrepreneurial potential is to open up equality of access to the means of acquiring and possessing private property in capital: capital (not consumer) credit. The venture capitalist is essential for financing startups and speculative ventures. The way to sustainable economic growth, however, is to finance expansion by discounting and rediscounting bills of exchange drawn on the present value of future marketable goods and services. To generate the mass purchasing power necessary to keep the economy going, it is also essential that ownership of the capital that will produce this wealth is broadly and directly owned by people who will use the income first to pay for the capital, and then for consumption, not reinvestment.
Yours,
Blah, Blah
#30#
Or you could write letters to the Wall Street Journal and other periodicals to alert them to the fact that there is an alternative to the present system (and send CESJ some donations for Spam, Coke and Hershey Bars):
Dear Sir(s):
Kamran Dadkhah has the right of it in his letter in today's Wall Street Journal addressing "Changes in Income Inequality and Economic Growth." Increasing tax rates to try and equalize income and stimulate economic growth puts the cart before the horse by implying that the economic growth has already taken place so that it can be redistributed — an illogical assumption at best.
I disagree, however, that education works toward equalizing income. On the contrary, education results from having a surplus to spend on education. It does not itself cause the surplus. We would otherwise not have the spectacle of students burdened for decades with unrepayable loans taken out to finance education.
The real key to unleashing people's entrepreneurial potential is to open up equality of access to the means of acquiring and possessing private property in capital: capital (not consumer) credit. The venture capitalist is essential for financing startups and speculative ventures. The way to sustainable economic growth, however, is to finance expansion by discounting and rediscounting bills of exchange drawn on the present value of future marketable goods and services. To generate the mass purchasing power necessary to keep the economy going, it is also essential that ownership of the capital that will produce this wealth is broadly and directly owned by people who will use the income first to pay for the capital, and then for consumption, not reinvestment.
Yours,
Blah, Blah
#30#
Friday, April 13, 2012
News from the Network, Vol. 5, No. 15
The big news this week is next week: the annual "Rally at the Fed," co-sponsored by the Coalition for Capital Homesteading and the Center for Economic and Social Justice. The event will be on Friday, April 20, 2012 in front of the Federal Reserve Board of Governors building on Constitution Avenue from 11:30 am to 1:30 pm. If you are in the area, be sure to drop in. If you'd like to carry a sign or hand out literature, you're more than welcome. If you happen to look like Abraham Lincoln . . . have we got a job for you in this year that marks the 150th anniversary of the original 1862 Homestead Act. By next week all the brouhaha over the centennial of the Titanic going down will be old news, and we can concentrate on keeping this country and the rest of the global economy from hitting the skids. In other news this week:
• CNBC analyst Rick Santelli, evidently the inspiration for the Tea Party movement, seems to have an inkling of what's going on, but evidently has never heard of Capital Homesteading. As reported in The Blaze ("CNBC Analyst Loses It Over Obama's Buffett Rule: 'Absolutely Not!'" Jonathan M. Seidl, 04/12/12), Santelli went on what came across as a rant: "People don't really want to hear solutions. They want to change the dialogue, bait and switch, so we get more worried about what people pay, what's fair! You know what, how are my kid's opportunities affected by how many millionaires there are? I don't see that their opportunities are affected! You know what I see that's going to affect their opportunities? 15.6 Trillion!" As readers of this blog are aware, we're run the numbers, and nothing that anyone is proposing does anything to address the real problem which from a tax point of view can be stated as "erosion of the tax base." In English, people aren't making enough from labor to pay taxes, and the government is creating money to cover deficits. Capital Homesteading would solve the problems and more — but only if it's implemented.
• In the Washington Post today, Charles Krauthammer once again sounded as if he's been reading this blog. We always figured Dr. Krauthammer had something on the ball, and that would tend to prove it. If your paper carries his column, you can read what he says (ignoring the Titanic reference; on principle we're disregarding all of them until after April 15th) about "Free-Lunch Egalitarianism." If you get the Post, it's in the 04/13/12 issue, page A17.
• In today's Wall Street Journal, Anne Hendershott and Christopher White (co-authors of the upcoming Beyond the Catholic Culture Wars from Encounter Books — it's not out, we already looked) had an article, "Traditional Catholicism is Winning." (04/13/12, A11.) What is it "they" are "winning"? As the authors explained, after talking about the Young Turks who have turned into the Old Guard, "[I]t [the "aging generation"] is being replaced by younger men and women who are attracted to the church [we figure the editors changed it from "Church"] because of the very timelessness of its teachings. They are attracted to the philosophy, the art, the literature and the theology that make Catholicism countercultural." This is good news for the Just Third Way and its foundation built on the natural law. Frankly, all religions have been afflicted with a tsunami of relativism from both "left" and "right," all based on redefining natural rights and even the natural law itself, all in a fruitless effort to try and force the teachings of the Catholic Church and other faiths and philosophies to conform to the principles of Keynesian economics or some other currency principle school of economics.
• If you haven't read this month's issue of Inside the Vatican, do so. The article "Catholic Teaching and the Elections" is getting some attention in a few quarters, and it looks to get more.
• If you’re upset by the price manipulation of e-books, give yourself a break and download one of the new titles from Universal Values Media available for 99¢, or splurge and get Don’t You Wish! for $2.99.
• Don't forget the Rally at the Federal Reserve Board of Governors building in Washington, DC on Friday, April 20, 2012, from 11:30 am to 1:30 pm. If you can't attend in person, consider sending a sentence or two of support for Capital Homesteading to thirdway [at] cesj [dot] org that (if we have time) could be read at the Rally.
• As of this morning, we have had visitors from 56 different countries and 48 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Pakistan. People in the Netherlands Antilles, the United Kingdom, the United States, Indonesia and Pakistan spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Guide to Capital Homesteading," "Aristotle on Private Property," "Why Did Nixon Take the Dollar Off the Gold Standard?" and "The Situation in Greece."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
• CNBC analyst Rick Santelli, evidently the inspiration for the Tea Party movement, seems to have an inkling of what's going on, but evidently has never heard of Capital Homesteading. As reported in The Blaze ("CNBC Analyst Loses It Over Obama's Buffett Rule: 'Absolutely Not!'" Jonathan M. Seidl, 04/12/12), Santelli went on what came across as a rant: "People don't really want to hear solutions. They want to change the dialogue, bait and switch, so we get more worried about what people pay, what's fair! You know what, how are my kid's opportunities affected by how many millionaires there are? I don't see that their opportunities are affected! You know what I see that's going to affect their opportunities? 15.6 Trillion!" As readers of this blog are aware, we're run the numbers, and nothing that anyone is proposing does anything to address the real problem which from a tax point of view can be stated as "erosion of the tax base." In English, people aren't making enough from labor to pay taxes, and the government is creating money to cover deficits. Capital Homesteading would solve the problems and more — but only if it's implemented.
• In the Washington Post today, Charles Krauthammer once again sounded as if he's been reading this blog. We always figured Dr. Krauthammer had something on the ball, and that would tend to prove it. If your paper carries his column, you can read what he says (ignoring the Titanic reference; on principle we're disregarding all of them until after April 15th) about "Free-Lunch Egalitarianism." If you get the Post, it's in the 04/13/12 issue, page A17.
• In today's Wall Street Journal, Anne Hendershott and Christopher White (co-authors of the upcoming Beyond the Catholic Culture Wars from Encounter Books — it's not out, we already looked) had an article, "Traditional Catholicism is Winning." (04/13/12, A11.) What is it "they" are "winning"? As the authors explained, after talking about the Young Turks who have turned into the Old Guard, "[I]t [the "aging generation"] is being replaced by younger men and women who are attracted to the church [we figure the editors changed it from "Church"] because of the very timelessness of its teachings. They are attracted to the philosophy, the art, the literature and the theology that make Catholicism countercultural." This is good news for the Just Third Way and its foundation built on the natural law. Frankly, all religions have been afflicted with a tsunami of relativism from both "left" and "right," all based on redefining natural rights and even the natural law itself, all in a fruitless effort to try and force the teachings of the Catholic Church and other faiths and philosophies to conform to the principles of Keynesian economics or some other currency principle school of economics.
• If you haven't read this month's issue of Inside the Vatican, do so. The article "Catholic Teaching and the Elections" is getting some attention in a few quarters, and it looks to get more.
• If you’re upset by the price manipulation of e-books, give yourself a break and download one of the new titles from Universal Values Media available for 99¢, or splurge and get Don’t You Wish! for $2.99.
• Don't forget the Rally at the Federal Reserve Board of Governors building in Washington, DC on Friday, April 20, 2012, from 11:30 am to 1:30 pm. If you can't attend in person, consider sending a sentence or two of support for Capital Homesteading to thirdway [at] cesj [dot] org that (if we have time) could be read at the Rally.
• As of this morning, we have had visitors from 56 different countries and 48 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Pakistan. People in the Netherlands Antilles, the United Kingdom, the United States, Indonesia and Pakistan spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Guide to Capital Homesteading," "Aristotle on Private Property," "Why Did Nixon Take the Dollar Off the Gold Standard?" and "The Situation in Greece."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, April 12, 2012
The Keynesian Cargo Cult, IV: The Remedy
Cargo Cultists expend enormous energy building fake airplanes without engines in the hope of obtaining Spam, Coke and Hershey Bars. Keynesians use up vast resources printing money with nothing behind it that undermines economic growth and redistributes existing wealth in the hope of bringing full employment. While both groups are obviously sincere and convinced of the truth of the systems they espouse, the fact is that nothing they are doing is guaranteed to or even reasonably certain of bringing about the desired results. It is as dangerous to apply faith to matters of reason, as it is to try to force reason into a framework determined by faith alone. In desperate situations, it changes the basic orientation from hoping for miracles, to relying on them.
This sounds pretty grim, but there is a way out — the Just Third Way. A proposal like Capital Homesteading, while it relies on people being inspired by their faith to work for justice, does not try to force economics or any other science into a predetermined box — any more than science (even Keynesian economics) can be used to dictate purely religious beliefs or doctrines, or "re-edit the dictionary" to change the precepts of the natural law, despite Keynes's declaration.
Through restructuring our institutions, especially our money and tax systems, Capital Homesteading has the potential to make it possible for every child, woman and man to acquire a capital stake sufficient to generate income to meet normal living expenditures. This becomes critical as advancing technology eliminates increasing numbers of wage system jobs, and those with wealth become increasingly resistant to redistribution. Further, current methods of financing new capital formation not only maintain the current position of the wealthy and shut out virtually everyone else from the chance of acquiring and possessing private property in capital, they operate to concentrate ownership of almost all new capital in fewer and fewer hands.
The solution is to establish a national economic policy based on the binary growth model, 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." The Capital Homestead Act would allow every child, woman and man to accumulate a target level of capital assets. Using a tax-deferred "accumulation vehicle" similar to an IRA, the amount would be 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.
Each capital homesteader's account would be able to receive annual allocations of interest-free (but not cost-free), productive credit. This would begin the process of creating new asset-backed money through the central bank, administered by local commercial banks by investing in feasible private sector capital formation and expansion projects of businesses that would issue new shares to be purchased and sheltered in the citizen's Capital Homestead Account. After the "future savings" (future profits) generated by the productive assets paid off each year's Capital Homestead investment (loan) and canceled the money, the citizen would continue to receive in the form of dividends the incomes generated by those capital assets.
There is, of course, much more to it than that. An overview can be found on the website of the Center for Economic and Social Justice under "Capital Homesteading." Take a look at the proposal, and if you like it, join us Friday of next week at the Federal Reserve Board of Governors Building in Washington, DC, at a rally to be held starting at 11:30 am and going until 1:30 pm.
#30#
This sounds pretty grim, but there is a way out — the Just Third Way. A proposal like Capital Homesteading, while it relies on people being inspired by their faith to work for justice, does not try to force economics or any other science into a predetermined box — any more than science (even Keynesian economics) can be used to dictate purely religious beliefs or doctrines, or "re-edit the dictionary" to change the precepts of the natural law, despite Keynes's declaration.
Through restructuring our institutions, especially our money and tax systems, Capital Homesteading has the potential to make it possible for every child, woman and man to acquire a capital stake sufficient to generate income to meet normal living expenditures. This becomes critical as advancing technology eliminates increasing numbers of wage system jobs, and those with wealth become increasingly resistant to redistribution. Further, current methods of financing new capital formation not only maintain the current position of the wealthy and shut out virtually everyone else from the chance of acquiring and possessing private property in capital, they operate to concentrate ownership of almost all new capital in fewer and fewer hands.
The solution is to establish a national economic policy based on the binary growth model, 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." The Capital Homestead Act would allow every child, woman and man to accumulate a target level of capital assets. Using a tax-deferred "accumulation vehicle" similar to an IRA, the amount would be 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.
Each capital homesteader's account would be able to receive annual allocations of interest-free (but not cost-free), productive credit. This would begin the process of creating new asset-backed money through the central bank, administered by local commercial banks by investing in feasible private sector capital formation and expansion projects of businesses that would issue new shares to be purchased and sheltered in the citizen's Capital Homestead Account. After the "future savings" (future profits) generated by the productive assets paid off each year's Capital Homestead investment (loan) and canceled the money, the citizen would continue to receive in the form of dividends the incomes generated by those capital assets.
There is, of course, much more to it than that. An overview can be found on the website of the Center for Economic and Social Justice under "Capital Homesteading." Take a look at the proposal, and if you like it, join us Friday of next week at the Federal Reserve Board of Governors Building in Washington, DC, at a rally to be held starting at 11:30 am and going until 1:30 pm.
#30#
Wednesday, April 11, 2012
The Keynesian Cargo Cult, III: Rot Bilong Keynes
Reading yesterday's posting, someone unfamiliar with the intricacies of Keynesian economics might have felt his lip curl a bit with contempt or have experienced a surge of condescension for such benighted beings as Cargo Cultists. After all, it seems the height of naiveté, if not absurdity to believe that prosperity can be restored by means of unthinking adherence to a set of incomprehensible ritual acts and chanting meaningless words. On reflection, however, we might suddenly realize just how closely Cargo Cultism — Rot Bilong Kako (the Way of Cargo) — and its arguments resemble the Keynesian economic analysis, the Way of Keynes.
Every Cargo Cultist can point to a specific time — the Second World War — when cargo flowed into their land in endless streams, and everyone enjoyed a virtual golden age. Even Europeans and Americans admit that cargo was shipped in massive quantities. Cultists conclude that it is only the selfishness of the whites that prevents them from learning the secret rituals of Cargo to be able to summon the unlimited wealth that flows from God's Cargo Workshops.
Cargo Cultists reject the arguments of non-believers because clearly those who profess to debunk the Way of Cargo have an interested motive and want to keep all the riches for themselves. If the Cultist is steadfast and his faith is unwavering, however, he will one day discover just the right formula to recite and the right structures to build to lure the ships and planes to land again and disgorge their wealth.
Similarly, adherents of Keynesian economics can point to a specific time — coincidentally that same Second World War — during which the economy was restored and universal prosperity was established through full employment. Earlier efforts to achieve full employment during the (second) Great Depression had been balked by the refusal of FDR and other leaders to perform the proper rituals and establish the necessary institutions, as Keynes complained in his famous open letter published in the New York Times on December 31, 1933.
Once the war was over, the Keynesian rituals to maintain full employment were continued, and seemed to work for a while. Cracks soon appeared, however, necessitating the development of new rituals. The strain of paying for both the Vietnam War and the Great Society increased the national debt enormously. Given the right formula, however, economists and politicians were confident that full employment (the developed nations' version of cargo), could be permanently restored.
Since the 1970s (when even Milton Friedman declared, "We are all Keynesians now"), much effort and tremendous resources have been expended to duplicate the outward forms of a prosperous society. Just as the Cargo Cultists build bamboo airplanes and warehouses, Keynesians create the usual accompaniments to full employment, e.g., plenty of money, high paying wage system jobs, the creation of gigantic corporations, welfare, entitlements, a well-educated citizenry, and so on.
Like adherents of the Way of Cargo, however, Keynesians fail to realize (for example) that education doesn't generate wealth. Wealth pays for education. The myth that has burdened millions of students with unrepayable debt is that education brings prosperity, rather than that prosperity allows people to become educated.
The problem is, the Cargo Cultists' airplanes, conning towers and docks only copy the outward form of the American military presence in World War II. They assume that these simulations will magically bring the cargo back. Similarly, Keynesians fail to focus on producing the marketable goods and services that bring about full employment naturally. Further, Cargo Cultists limit "cargo" to finished consumer products. Not only do they ignore the necessity of having engines in their bamboo airplanes, Cultists fail to realize that importing technology would enable them to fulfill their material wants and needs through their own efforts.
For their part, Keynesians limit "full employment" to full employment of labor, ignoring the capital ownership that would enable people to meet their own wants and needs without direct government assistance. Increasing government control of the economy presumably takes up the slack for the failure of the system. Keynesians attempt to impose desired results by performing new (and increasingly expensive) rituals that divert efforts and resources away from truly productive activity.
Clearly, what happened in America (and the rest of the developed world) is that, just as John From Jesus Christ became John From America, John From America became John From the Government. John From the Government now decrees what things will be. Mandating the trappings of prosperity and passing many laws will create full employment.
Like the Cargo Cultist who builds an airstrip or a dock, today's economist and politician is confident that if he or she gets a law passed mandating a desired end, or enough "money" (always understood as a State-issued or authorized general claim on the total wealth of society, not as a promise/contract that must be honored) is spent, the desired end will necessarily come to pass. If it doesn't, it's because the proper rituals have not been followed — excuse me! Enough laws have not been passed — there has been insufficient effort (money) put into the program, or a hidden conspiracy (the rich, the capitalists, the socialists, the neo-cons, the Jews, the Muslims, the Catholics, etc., etc., etc.) is preventing the program from working in order to keep all the wealth for themselves.
Pointing out that things like full employment, adequate wages, benefits, education and social welfare are not the causes of prosperity but the results earns the pointer-outer the pity and condescension of the economic and political establishment at best, its contempt and anger at worst. It is useless to explain that paying people for nothing, or increasing the amount of money before increasing the present value of existing and future marketable goods and services (current and future production) only debauches the currency and redistributes existing wealth without creating any new wealth. Noting that neglecting to establish widespread ownership of capital to replace disappearing wage system jobs as technology takes over the burden of production incites rage at such heresy.
All good Keynesians know that all production comes from human labor. Consistent with Holy Writ (Keynes's Old Testament or Treatise on Money (1930), and New Testament, The General Theory (1936)), it is only necessary to create jobs for production to appear. Chapter and verse can be cited to prove that government creates money that causes effective demand, and inflation transfers the savings that result from reduced consumption to producers so they can create more jobs. Anyone pointing out that, per Say's Law of Markets, you cannot purchase what others produce unless you produce something yourself to offer in exchange is considered insane. Keynesians know that government creates all money, or "the banks" do so illegally by usurping John From the Government's power. Consequently, viewing money as a mere symbol of existing or future wealth in which the issuer has a private property stake, as is the case in binary economics, is heresy. Rising prices on the stock market are not an indication of speculative fear or fever, but — again — the cause of prosperity and full employment.
As for the real bills doctrine (an application of Say's Law of Markets and the understanding of money as anything that can be accepted in payment of a debt), any Cargo Cultist could have developed the Keynesian money multiplier that allegedly refutes the doctrine. Instead of realizing that the money supply is increased by commercial banks accepting bills of exchange representing the present value of existing and future marketable goods and services, the government creates some money. The money is deposited, creating "excess reserves." The excess is loaned out, redeposited, loaned out again (less the required reserves), and so on, multiplying the amount of money in the system.
Keynesians ignore the obvious fact that, as explained, there is no actual increase in the money supply through the alleged operation of the money multiplier. There is only a transfer of existing money as checks are deposited, are presented for payment, and clear. The Keynesian money multiplier explains nothing. It is only useful in explaining away the operation of the ridiculed real bills doctrine. Reversing cause and effect and ignoring all evidence to the contrary, the unquestioned dogma is that increasing the money supply brings full employment. Keynesians and others deride the possibility that money is a result of creating a means to convey a claim on the present value of existing and future production — the real bills doctrine, a result of wealth creation, not its cause.
No, Keynesians remain firmly convinced that prosperity can only result if John From the Government establishes full employment (cargo) and the outward signs of prosperity by law, that is, by force. Then wealth production will presumably follow automatically, creating abundance for all. They fail to realize that if the tremendous effort and vast resources that have already been used to try and make Keynesianism work and get something for nothing had been put to productive use, the world economy would not be in the mess it is in today.
#30#
Every Cargo Cultist can point to a specific time — the Second World War — when cargo flowed into their land in endless streams, and everyone enjoyed a virtual golden age. Even Europeans and Americans admit that cargo was shipped in massive quantities. Cultists conclude that it is only the selfishness of the whites that prevents them from learning the secret rituals of Cargo to be able to summon the unlimited wealth that flows from God's Cargo Workshops.
Cargo Cultists reject the arguments of non-believers because clearly those who profess to debunk the Way of Cargo have an interested motive and want to keep all the riches for themselves. If the Cultist is steadfast and his faith is unwavering, however, he will one day discover just the right formula to recite and the right structures to build to lure the ships and planes to land again and disgorge their wealth.
Similarly, adherents of Keynesian economics can point to a specific time — coincidentally that same Second World War — during which the economy was restored and universal prosperity was established through full employment. Earlier efforts to achieve full employment during the (second) Great Depression had been balked by the refusal of FDR and other leaders to perform the proper rituals and establish the necessary institutions, as Keynes complained in his famous open letter published in the New York Times on December 31, 1933.
Once the war was over, the Keynesian rituals to maintain full employment were continued, and seemed to work for a while. Cracks soon appeared, however, necessitating the development of new rituals. The strain of paying for both the Vietnam War and the Great Society increased the national debt enormously. Given the right formula, however, economists and politicians were confident that full employment (the developed nations' version of cargo), could be permanently restored.
Since the 1970s (when even Milton Friedman declared, "We are all Keynesians now"), much effort and tremendous resources have been expended to duplicate the outward forms of a prosperous society. Just as the Cargo Cultists build bamboo airplanes and warehouses, Keynesians create the usual accompaniments to full employment, e.g., plenty of money, high paying wage system jobs, the creation of gigantic corporations, welfare, entitlements, a well-educated citizenry, and so on.
Like adherents of the Way of Cargo, however, Keynesians fail to realize (for example) that education doesn't generate wealth. Wealth pays for education. The myth that has burdened millions of students with unrepayable debt is that education brings prosperity, rather than that prosperity allows people to become educated.
The problem is, the Cargo Cultists' airplanes, conning towers and docks only copy the outward form of the American military presence in World War II. They assume that these simulations will magically bring the cargo back. Similarly, Keynesians fail to focus on producing the marketable goods and services that bring about full employment naturally. Further, Cargo Cultists limit "cargo" to finished consumer products. Not only do they ignore the necessity of having engines in their bamboo airplanes, Cultists fail to realize that importing technology would enable them to fulfill their material wants and needs through their own efforts.
For their part, Keynesians limit "full employment" to full employment of labor, ignoring the capital ownership that would enable people to meet their own wants and needs without direct government assistance. Increasing government control of the economy presumably takes up the slack for the failure of the system. Keynesians attempt to impose desired results by performing new (and increasingly expensive) rituals that divert efforts and resources away from truly productive activity.
Clearly, what happened in America (and the rest of the developed world) is that, just as John From Jesus Christ became John From America, John From America became John From the Government. John From the Government now decrees what things will be. Mandating the trappings of prosperity and passing many laws will create full employment.
Like the Cargo Cultist who builds an airstrip or a dock, today's economist and politician is confident that if he or she gets a law passed mandating a desired end, or enough "money" (always understood as a State-issued or authorized general claim on the total wealth of society, not as a promise/contract that must be honored) is spent, the desired end will necessarily come to pass. If it doesn't, it's because the proper rituals have not been followed — excuse me! Enough laws have not been passed — there has been insufficient effort (money) put into the program, or a hidden conspiracy (the rich, the capitalists, the socialists, the neo-cons, the Jews, the Muslims, the Catholics, etc., etc., etc.) is preventing the program from working in order to keep all the wealth for themselves.
Pointing out that things like full employment, adequate wages, benefits, education and social welfare are not the causes of prosperity but the results earns the pointer-outer the pity and condescension of the economic and political establishment at best, its contempt and anger at worst. It is useless to explain that paying people for nothing, or increasing the amount of money before increasing the present value of existing and future marketable goods and services (current and future production) only debauches the currency and redistributes existing wealth without creating any new wealth. Noting that neglecting to establish widespread ownership of capital to replace disappearing wage system jobs as technology takes over the burden of production incites rage at such heresy.
All good Keynesians know that all production comes from human labor. Consistent with Holy Writ (Keynes's Old Testament or Treatise on Money (1930), and New Testament, The General Theory (1936)), it is only necessary to create jobs for production to appear. Chapter and verse can be cited to prove that government creates money that causes effective demand, and inflation transfers the savings that result from reduced consumption to producers so they can create more jobs. Anyone pointing out that, per Say's Law of Markets, you cannot purchase what others produce unless you produce something yourself to offer in exchange is considered insane. Keynesians know that government creates all money, or "the banks" do so illegally by usurping John From the Government's power. Consequently, viewing money as a mere symbol of existing or future wealth in which the issuer has a private property stake, as is the case in binary economics, is heresy. Rising prices on the stock market are not an indication of speculative fear or fever, but — again — the cause of prosperity and full employment.
As for the real bills doctrine (an application of Say's Law of Markets and the understanding of money as anything that can be accepted in payment of a debt), any Cargo Cultist could have developed the Keynesian money multiplier that allegedly refutes the doctrine. Instead of realizing that the money supply is increased by commercial banks accepting bills of exchange representing the present value of existing and future marketable goods and services, the government creates some money. The money is deposited, creating "excess reserves." The excess is loaned out, redeposited, loaned out again (less the required reserves), and so on, multiplying the amount of money in the system.
Keynesians ignore the obvious fact that, as explained, there is no actual increase in the money supply through the alleged operation of the money multiplier. There is only a transfer of existing money as checks are deposited, are presented for payment, and clear. The Keynesian money multiplier explains nothing. It is only useful in explaining away the operation of the ridiculed real bills doctrine. Reversing cause and effect and ignoring all evidence to the contrary, the unquestioned dogma is that increasing the money supply brings full employment. Keynesians and others deride the possibility that money is a result of creating a means to convey a claim on the present value of existing and future production — the real bills doctrine, a result of wealth creation, not its cause.
No, Keynesians remain firmly convinced that prosperity can only result if John From the Government establishes full employment (cargo) and the outward signs of prosperity by law, that is, by force. Then wealth production will presumably follow automatically, creating abundance for all. They fail to realize that if the tremendous effort and vast resources that have already been used to try and make Keynesianism work and get something for nothing had been put to productive use, the world economy would not be in the mess it is in today.
#30#
Tuesday, April 10, 2012
The Keynesian Cargo Cult, II: An Overview of Cargo Cultism
Yesterday I drew an analogy between Keynesian economics and the Cargo Cults of the South Pacific. Naturally, that raises the question of what, exactly, a "Cargo Cult" is, and why I think that Keynesian economics may be a form of it.
According to the Wikipedia and what I remember about Dream Park (1981) a science fiction novel about a futuristic amusement park by Larry Niven and Steven Barnes, the Cargo Cult phenomenon beats any fictional religion hands down for surreal weirdness. The earliest form of it seems to have surfaced in Papua New Guinea in 1871 to explain the trade goods brought by some Russians to the island and distributed by missionaries, creating an entitlement mentality. Cargo Cultism reached its highest development following World War II in the New Hebrides, the Vanuatu Island group, having started there in the early 20th century in response to the French and British colonization and the efforts of missionaries to uplift the natives.
Viewing this as oppression, a leader who called himself "John From" (also "Frum" and "Fram") arose. His full title was "John From Jesus Christ," i.e., a reincarnation of John the Baptist. He is still worshipped as a deity on Tanna Island, where February 15th is celebrated as "John Frum Day." A large number of natives joined "John Frum" and moved inland to escape the missionaries and restore the old way of life, their kastam (customs).
For the first thirty years or so of its history, the movement on Tanna Island resembled the "Ghost Dance" of the American Indians. Before World War II it was called "Vailala Madness," from an anthropological study done in the 1920s of the village of Vailala in Papua New Guinea. It acquired the name "Cargo Cult" when the Americans arrived at the formerly isolated islands in World War II. Natives were recruited to help build airstrips and bases, as well as act as guides, and were paid in kind, with strangely packaged and wonderful new foods such as Hershey Bars, Spam and Coca Cola.
The movement immediately transformed from a millennielist religion that promised a future golden age by restoring a past that never existed if the white man would just go away, to one that promised the good life here and now if the white man would only return — as long as the airplanes and vessels carrying the cargo that the American soldiers were so willing to share kept on coming.
Being intelligent as well as observant, adherents noticed the presence of black soldiers along with white soldiers. Obviously these had to be descendants of natives that island lore insisted had been kidnapped earlier by Europeans to eat or breed as slaves. "John Frum" (the original of which seems to have died or disappeared by this time) shifted from being portrayed as a Caucasian European, to a Black American soldier. John From Jesus Christ became John From America.
When the war ended, the Americans abandoned their facilities and left the islands. This dried up the flow of cargo, and the inhabitants of Tanna Island no longer had the canned (and bottled) goods, or the medicines and other consumer items they had enjoyed during the war.
All was not lost, however. The people of Tanna had put their intelligence and powers of observation to good use, and had carefully noted the arcane rituals the Americans employed to summon cargo from God's Cargo Workshops. They built their own airstrips and warehouses, duplicating in wood, straw and bamboo the control towers and radio shacks and the equipment they contained — sometimes even the personnel — so that they could receive the messages John Frum would send to his faithful followers to signal the day and hour when he would climb out of the volcano known as Yasur (God) and restart the flood of cargo.
These facilities duplicated (at least in outward form without the substance) the technology the natives had seen the Americans use. The simulacra were staffed, and natives went through the proper rituals of signaling so that cargo-carrying planes would land. They built docks to attract cargo vessels and adopted the red cross seen on ambulances and hospitals as their chief religious symbol. Small red crosses surrounded by picket fences dot the island to this day.
The idea is that by duplicating outward forms and anticipated results you can bring about the desired ends. This confusion of cause and effect is a type of "magical" thinking, the "law of similarity" whereby if a thing looks the same, it is the same. Cargo Cultists confused all the things that accompanied the shipments of goods — landing strips, docks, control towers, radio shacks, and so on — and assumed that instead of being effects of the shipments, they were the cause of them.
The rationale is that if the outward forms are duplicated with sufficient accuracy, the cargo will reappear. Americans and Europeans who try to explain the fallacies in the paradigm are treated with pity and condescension at best, with suspicion and hatred at worst. It is useless to point out that the same effort put into productive activities would have made the islanders wealthier than their ephemeral dreams of cargo.
The holy men of the John Frum sect of the Cargo Cults — "messengers" — announced that, if the rituals were followed accurately, John Frum would return from the dead out of the island's volcano, accompanied by ships and airplanes carrying cargo. At that time money would be abolished, livestock slaughtered, and the land left uncultivated because John Frum would provide for all material wants and needs.
Nor is Vanuatu the only location of Cargo Cults. Missionaries in Papua New Guinea made few converts to Christianity until one day they suddenly came in droves — having decided that the best way to learn the secret rituals for summoning cargo was to pretend to join the fake religion the Europeans had set up to hoodwink them.
In 1968 a new cult arose on the island of New Hanover in the belief that the true secret of cargo was held by only one man: President Lyndon Baines Johnson of the United States, word of whose "Great Society" that promised prosperity for all without work must have reached the inhabitants. They rejected the governance of Australia, collected $75,000, and sent a letter to President Johnson offering to buy him if he would move to New Hanover and be their king.
One group restated the story of Adam and Eve to tell of a god named Anus who delivered a cargo of Spam, metal tools, rice and matches to the earthly paradise. When Adam and Eve discovered sex, Anus threw the couple out of the Garden and sent a flood to destroy our first parents.
As Anna Russell would say, I'm not making this up, you know.
In 1974, Prince Phillip, consort of Queen Elizabeth II, paid a visit to a village on Tanna Island. This was the inspiration of another new cult that claimed the prince had originally come from Tanna in another form, and that he will eventually return to rule over them . . . bringing cargo, of course.
In 2006 the Prophet Fred arose, having resurrected his dead wife earlier in the year. Fred's version of the Cargo Cult moves closer to traditional Christianity. This has resulted in violent exchanges with the orthodox followers of John Frum. To this day on Tanna Island, every February 15th natives paint their bodies to resemble World War II USMC uniforms, shoulder wooden sticks as rifles, raise the flag, and perform close order drill in the hope of bringing back unending cargos of Spam and Coke.
#30#
According to the Wikipedia and what I remember about Dream Park (1981) a science fiction novel about a futuristic amusement park by Larry Niven and Steven Barnes, the Cargo Cult phenomenon beats any fictional religion hands down for surreal weirdness. The earliest form of it seems to have surfaced in Papua New Guinea in 1871 to explain the trade goods brought by some Russians to the island and distributed by missionaries, creating an entitlement mentality. Cargo Cultism reached its highest development following World War II in the New Hebrides, the Vanuatu Island group, having started there in the early 20th century in response to the French and British colonization and the efforts of missionaries to uplift the natives.
Viewing this as oppression, a leader who called himself "John From" (also "Frum" and "Fram") arose. His full title was "John From Jesus Christ," i.e., a reincarnation of John the Baptist. He is still worshipped as a deity on Tanna Island, where February 15th is celebrated as "John Frum Day." A large number of natives joined "John Frum" and moved inland to escape the missionaries and restore the old way of life, their kastam (customs).
For the first thirty years or so of its history, the movement on Tanna Island resembled the "Ghost Dance" of the American Indians. Before World War II it was called "Vailala Madness," from an anthropological study done in the 1920s of the village of Vailala in Papua New Guinea. It acquired the name "Cargo Cult" when the Americans arrived at the formerly isolated islands in World War II. Natives were recruited to help build airstrips and bases, as well as act as guides, and were paid in kind, with strangely packaged and wonderful new foods such as Hershey Bars, Spam and Coca Cola.
The movement immediately transformed from a millennielist religion that promised a future golden age by restoring a past that never existed if the white man would just go away, to one that promised the good life here and now if the white man would only return — as long as the airplanes and vessels carrying the cargo that the American soldiers were so willing to share kept on coming.
Being intelligent as well as observant, adherents noticed the presence of black soldiers along with white soldiers. Obviously these had to be descendants of natives that island lore insisted had been kidnapped earlier by Europeans to eat or breed as slaves. "John Frum" (the original of which seems to have died or disappeared by this time) shifted from being portrayed as a Caucasian European, to a Black American soldier. John From Jesus Christ became John From America.
When the war ended, the Americans abandoned their facilities and left the islands. This dried up the flow of cargo, and the inhabitants of Tanna Island no longer had the canned (and bottled) goods, or the medicines and other consumer items they had enjoyed during the war.
All was not lost, however. The people of Tanna had put their intelligence and powers of observation to good use, and had carefully noted the arcane rituals the Americans employed to summon cargo from God's Cargo Workshops. They built their own airstrips and warehouses, duplicating in wood, straw and bamboo the control towers and radio shacks and the equipment they contained — sometimes even the personnel — so that they could receive the messages John Frum would send to his faithful followers to signal the day and hour when he would climb out of the volcano known as Yasur (God) and restart the flood of cargo.
These facilities duplicated (at least in outward form without the substance) the technology the natives had seen the Americans use. The simulacra were staffed, and natives went through the proper rituals of signaling so that cargo-carrying planes would land. They built docks to attract cargo vessels and adopted the red cross seen on ambulances and hospitals as their chief religious symbol. Small red crosses surrounded by picket fences dot the island to this day.
The idea is that by duplicating outward forms and anticipated results you can bring about the desired ends. This confusion of cause and effect is a type of "magical" thinking, the "law of similarity" whereby if a thing looks the same, it is the same. Cargo Cultists confused all the things that accompanied the shipments of goods — landing strips, docks, control towers, radio shacks, and so on — and assumed that instead of being effects of the shipments, they were the cause of them.
The rationale is that if the outward forms are duplicated with sufficient accuracy, the cargo will reappear. Americans and Europeans who try to explain the fallacies in the paradigm are treated with pity and condescension at best, with suspicion and hatred at worst. It is useless to point out that the same effort put into productive activities would have made the islanders wealthier than their ephemeral dreams of cargo.
The holy men of the John Frum sect of the Cargo Cults — "messengers" — announced that, if the rituals were followed accurately, John Frum would return from the dead out of the island's volcano, accompanied by ships and airplanes carrying cargo. At that time money would be abolished, livestock slaughtered, and the land left uncultivated because John Frum would provide for all material wants and needs.
Nor is Vanuatu the only location of Cargo Cults. Missionaries in Papua New Guinea made few converts to Christianity until one day they suddenly came in droves — having decided that the best way to learn the secret rituals for summoning cargo was to pretend to join the fake religion the Europeans had set up to hoodwink them.
In 1968 a new cult arose on the island of New Hanover in the belief that the true secret of cargo was held by only one man: President Lyndon Baines Johnson of the United States, word of whose "Great Society" that promised prosperity for all without work must have reached the inhabitants. They rejected the governance of Australia, collected $75,000, and sent a letter to President Johnson offering to buy him if he would move to New Hanover and be their king.
One group restated the story of Adam and Eve to tell of a god named Anus who delivered a cargo of Spam, metal tools, rice and matches to the earthly paradise. When Adam and Eve discovered sex, Anus threw the couple out of the Garden and sent a flood to destroy our first parents.
As Anna Russell would say, I'm not making this up, you know.
In 1974, Prince Phillip, consort of Queen Elizabeth II, paid a visit to a village on Tanna Island. This was the inspiration of another new cult that claimed the prince had originally come from Tanna in another form, and that he will eventually return to rule over them . . . bringing cargo, of course.
In 2006 the Prophet Fred arose, having resurrected his dead wife earlier in the year. Fred's version of the Cargo Cult moves closer to traditional Christianity. This has resulted in violent exchanges with the orthodox followers of John Frum. To this day on Tanna Island, every February 15th natives paint their bodies to resemble World War II USMC uniforms, shoulder wooden sticks as rifles, raise the flag, and perform close order drill in the hope of bringing back unending cargos of Spam and Coke.
#30#
Monday, April 9, 2012
The Keynesian Cargo Cult, I: Reflections on Easter
You think of the strangest things in church when you should be paying attention to the sermon. Yesterday being Easter, the train of thought started from the station when a number of people in the congregation (obviously there for the first time since Christmas) messed up the new responses. Instead of saying, "And with your spirit" in response to "The Lord be with you," they started to say, "And also with you." This turned the response into, "And all-ow-so-ith your spirit."
This led to remembering what some people (not this writer, who clearly has better things to do) call attendees who show up only at Christmas and Easter: "Christmas Angels" and "Easter Bunnies." From there I slipped into a brief meditation wondering how the Easter Bunny (and, by extension, Santa Claus) evolved from a celebration based on Passover and involving death by torture.
I decided it didn't really matter — which hardly justified not paying attention in church. Belief in a mystical or mythical being who brings you goodies or presents and who expects nothing in return except your childlike faith and belief seems to be a stage of individual development in many cultures. It sets an example of selfless generosity, requiring only a vague "goodness" to qualify as a recipient, and it's not clear that the Easter Bunny even makes that relatively minor stipulation.
Some people have said that it's harmful to a child's development and integration into the real world to believe in Santa Claus and the Easter Bunny. They cite such presumably traumatic events as discovering that "Santa" is Dad in an undershirt and drinking a beer, or that the Easter Bunny got those chocolate eggs on sale at a dollar store.
Somehow I don't recall being devastated by finding out there's no Santa Claus or Easter Bunny. Some things you just accept without attaching any real importance. It's when a childlike belief in a being that distributes wealth is carried over into adult life that the damage is done — such as the bizarre antics associated with the "Cargo Cults" of the South Pacific . . . or Keynesian economics.
Actually, I thought I'd made a brilliant connection when I made the link between belief in Santa or the Easter Bunny, and the "Cargo Cults" and their resemblance to Keynesianism. Then I looked it up on Wikipedia and found out (as with many of my breakthroughs) that somebody had already thought of it. For example, the economist Bryan Caplan called communism the greatest cargo cult the world has ever seen (Commie Cargo Cult, Bryan Caplan, Library of Economics and Liberty EconLog blog February 24, 2011).
The physicist Richard Feynman coined the term "cargo cult science" in his 1974 Caltech commencement speech, and later included it in a chapter in his book Surely You're Joking, Mr. Feynman!, which was on my parents' bookshelf but that I never read. Feynman said that cargo cult science mimics real science (especially by publishing in scientific journals) but lacks genuine experimentation — in other words, a way to get or maintain a Ph.D. without actually having to come up with something that is verifiably true. (I have a whole other posting on how the desire of universities that once focused on education have succumbed to the lure of becoming "research universities," where tuition subsidizes work by overpaid tenured professors who don't profess, writing papers and books for each other, and running up the costs of education to astronomical heights.)
More to the point, in his novel The Trouble with Nigeria (1984), Chinua Achebe criticized the "cargo cult mentality" of the governments of many developing countries. They issue proclamations about how great things are going to be if they're elected, but don't do anything to try and establish the desired state of affairs, evidently thinking that the mere proclamation or the passage of a law or two will, in and of itself, do the job.
#30#
This led to remembering what some people (not this writer, who clearly has better things to do) call attendees who show up only at Christmas and Easter: "Christmas Angels" and "Easter Bunnies." From there I slipped into a brief meditation wondering how the Easter Bunny (and, by extension, Santa Claus) evolved from a celebration based on Passover and involving death by torture.
I decided it didn't really matter — which hardly justified not paying attention in church. Belief in a mystical or mythical being who brings you goodies or presents and who expects nothing in return except your childlike faith and belief seems to be a stage of individual development in many cultures. It sets an example of selfless generosity, requiring only a vague "goodness" to qualify as a recipient, and it's not clear that the Easter Bunny even makes that relatively minor stipulation.
Some people have said that it's harmful to a child's development and integration into the real world to believe in Santa Claus and the Easter Bunny. They cite such presumably traumatic events as discovering that "Santa" is Dad in an undershirt and drinking a beer, or that the Easter Bunny got those chocolate eggs on sale at a dollar store.
Somehow I don't recall being devastated by finding out there's no Santa Claus or Easter Bunny. Some things you just accept without attaching any real importance. It's when a childlike belief in a being that distributes wealth is carried over into adult life that the damage is done — such as the bizarre antics associated with the "Cargo Cults" of the South Pacific . . . or Keynesian economics.
Actually, I thought I'd made a brilliant connection when I made the link between belief in Santa or the Easter Bunny, and the "Cargo Cults" and their resemblance to Keynesianism. Then I looked it up on Wikipedia and found out (as with many of my breakthroughs) that somebody had already thought of it. For example, the economist Bryan Caplan called communism the greatest cargo cult the world has ever seen (Commie Cargo Cult, Bryan Caplan, Library of Economics and Liberty EconLog blog February 24, 2011).
The physicist Richard Feynman coined the term "cargo cult science" in his 1974 Caltech commencement speech, and later included it in a chapter in his book Surely You're Joking, Mr. Feynman!, which was on my parents' bookshelf but that I never read. Feynman said that cargo cult science mimics real science (especially by publishing in scientific journals) but lacks genuine experimentation — in other words, a way to get or maintain a Ph.D. without actually having to come up with something that is verifiably true. (I have a whole other posting on how the desire of universities that once focused on education have succumbed to the lure of becoming "research universities," where tuition subsidizes work by overpaid tenured professors who don't profess, writing papers and books for each other, and running up the costs of education to astronomical heights.)
More to the point, in his novel The Trouble with Nigeria (1984), Chinua Achebe criticized the "cargo cult mentality" of the governments of many developing countries. They issue proclamations about how great things are going to be if they're elected, but don't do anything to try and establish the desired state of affairs, evidently thinking that the mere proclamation or the passage of a law or two will, in and of itself, do the job.
#30#
Friday, April 6, 2012
News from the Network, Vol. 5, No. 14
This goes into the "Not-So-Brilliant-Brilliant-Idea" Department. As the news story puts it, "Two former Wall Streeters with sympathies for the Occupy Movement have launched a website to help people dodge taxes. They describe their mission to 'Occupy The IRS' in patriotic terms, using a picture of Thomas Jefferson as their Twitter avatar." ("The Occupy Protestors Have Launched a Website to Help You Dodge Taxes," Business Insider.) As the article explains, "The site, called taxKilla, walks users through the simplest way to dodge taxes: filing Schedule C deductions for a business entity."
Uh, thanks . . . but no thanks. This is an almost sure-fire way to destroy what little is left of entrepreneurial spirit in America. One of the few — the very few — benefits left to being your own boss and starting a business on your kitchen table is the ease of the "Schedule C." The form allows any boob or boobette to try out an idea for a business without first having to set up a separate entity, file with the state, local, or county government (within certain limits for some professions for which you need a license), and a host of other impedimenta. E.g., lots of woodworkers or other artists often make a little extra money and even go into business for themselves using nothing more than a Schedule C, without having to do anything else.
Using the Schedule C to carry out a scam endangers this, and for what? Destroy small enterprise and the last shreds of capital ownership among the 99% to punish the government and the 1%? News flash — they aren't the ones who will go to prison or face loss of tax deductions for small business. Their corporations file taxes for the businesses they own. They won't be hurt one bit. Only the poor schmoe who needed the Schedule C to operate his or her business without going broke hiring lawyers and accountants. Thanks, Occupy. What's next? Abolishing capital credit for people with less than a fortune so we can all be wage and welfare slaves?
Oh, right. Well, to get things back on track, we need a Capital Homestead Act, not an attack on one of the few things in the tax code that's any real use to the little guy. And to get that, here's what we've been doing:
• Charles Krauthammer a plagiarist? It might seem so to a casual reader. Or maybe it's a case of great minds running in the same channel (or fools thinking alike?). Or maybe it's just that President Obama's actions seem so unconnected with reality these days that it's hard not to say something — "deficile est saturam non scribere, nam quis iniquae iam patiens urbis, tam ferreus, ut teneat se." (Juvenal, 1:30-32.) Dr. Krauthammer's column in today's Washington Post (04/06/12) raises some issues covered this past Tuesday on this blog in "Obama's Lack of Vision," even using some of the same language (e.g., "bully" — and we're not talking Theodore Roosevelt here). We're warning you, Doctor. If you don't take the unprecedented and extraordinary step of having a talk with Norman Kurland soon, we'll shake our finger at you — and this time we'll mean it.
• Norm appeared on the Meshorn Daniels show out of Louisville, Kentucky, again this past week, along with Guy S. from Iowa, who has been collecting video and audio clips pertaining to the Just Third Way at a tremendous rate. As we get closer to the web upgrade of the CESJ site, Guy's work will provide an immensely valuable resource as the Just Third Way movement gets into high gear.
• Ordinary we don't put up more than one blog posting in a day (and even that sometimes strains our resources — see below), but this is important. The new article just published in Inside the Vatican, "Catholic Teaching and the Elections," can be an important "door opening" resource as we seek to expand our network and reach prime movers. Use the link to the posting to maximum advantage by "sharing" it on Facebook and tweeting it to your network, using the new gadgets on the blog (to your right). You might even send the link to the various political campaigns to see if you can wake or shake them up.
• A number of people in the Just Third Way network are putting in a great deal of effort surfacing opportunities to get the word out. Norm's interview on the Meshorn Daniels show this week is a case in point. Unfortunately, the "core group" on the ground here at CESJ international headquarters doesn't have the resources — especially time — to follow up on most of these opportunities. Nor is it effective for people outside the core group to try and "sell" the Just Third Way themselves. Even the core group does not act individually, but as a team — no single individual has the whole picture. The best strategy is for people "in the field" to open the door for Norm, and Norm can function as the coordinator to bring different areas of expertise together, depending on what's needed in a specific set of circumstances.
• We also have need of volunteer help in a number of areas. People who propose initiatives and carry them through, like Guy S. and Russell Williams with his radio show, are absolutely critical to the success of the movement — but so are people who put themselves and their resources at the disposal of the movement, and are ready, willing, and able to accept assignments and even possibly "boring" tasks and see them through to completion.
• Currently we are working with an official at a local university to develop a relationship that could get CESJ a number of interns. To make the program more effective, it would be good to be able to offer a small stipend to interns, especially in light of the rapidly rising cost of education and the state of the economy. Keep your eyes open for people or institutions that might be open to funding or endowing an internship or two at CESJ.
• Don't forget the Rally at the Federal Reserve Board of Governors building in Washington, DC on Friday, April 20, 2012, from 11:30 am to 1:30 pm. If you can't attend in person, consider sending a sentence or two of support for Capital Homesteading to thirdway [at] cesj [dot] org that (if we have time) could be read at the Rally, e.g., "Barb S. from Indiana says she just loves Capital Homesteading to pieces and can't wait to get an Act passed so she can start accumulating capital assets."
• As of this morning, we have had visitors from 53 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Australia. People in the Netherlands Antilles, the United Kingdom, the United States, Indonesia and Pakistan spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Mitt Romney," "Why Did Nixon Take the Dollar Off the Gold Standard?" and "The Situation in Greece."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Uh, thanks . . . but no thanks. This is an almost sure-fire way to destroy what little is left of entrepreneurial spirit in America. One of the few — the very few — benefits left to being your own boss and starting a business on your kitchen table is the ease of the "Schedule C." The form allows any boob or boobette to try out an idea for a business without first having to set up a separate entity, file with the state, local, or county government (within certain limits for some professions for which you need a license), and a host of other impedimenta. E.g., lots of woodworkers or other artists often make a little extra money and even go into business for themselves using nothing more than a Schedule C, without having to do anything else.
Using the Schedule C to carry out a scam endangers this, and for what? Destroy small enterprise and the last shreds of capital ownership among the 99% to punish the government and the 1%? News flash — they aren't the ones who will go to prison or face loss of tax deductions for small business. Their corporations file taxes for the businesses they own. They won't be hurt one bit. Only the poor schmoe who needed the Schedule C to operate his or her business without going broke hiring lawyers and accountants. Thanks, Occupy. What's next? Abolishing capital credit for people with less than a fortune so we can all be wage and welfare slaves?
Oh, right. Well, to get things back on track, we need a Capital Homestead Act, not an attack on one of the few things in the tax code that's any real use to the little guy. And to get that, here's what we've been doing:
• Charles Krauthammer a plagiarist? It might seem so to a casual reader. Or maybe it's a case of great minds running in the same channel (or fools thinking alike?). Or maybe it's just that President Obama's actions seem so unconnected with reality these days that it's hard not to say something — "deficile est saturam non scribere, nam quis iniquae iam patiens urbis, tam ferreus, ut teneat se." (Juvenal, 1:30-32.) Dr. Krauthammer's column in today's Washington Post (04/06/12) raises some issues covered this past Tuesday on this blog in "Obama's Lack of Vision," even using some of the same language (e.g., "bully" — and we're not talking Theodore Roosevelt here). We're warning you, Doctor. If you don't take the unprecedented and extraordinary step of having a talk with Norman Kurland soon, we'll shake our finger at you — and this time we'll mean it.
• Norm appeared on the Meshorn Daniels show out of Louisville, Kentucky, again this past week, along with Guy S. from Iowa, who has been collecting video and audio clips pertaining to the Just Third Way at a tremendous rate. As we get closer to the web upgrade of the CESJ site, Guy's work will provide an immensely valuable resource as the Just Third Way movement gets into high gear.
• Ordinary we don't put up more than one blog posting in a day (and even that sometimes strains our resources — see below), but this is important. The new article just published in Inside the Vatican, "Catholic Teaching and the Elections," can be an important "door opening" resource as we seek to expand our network and reach prime movers. Use the link to the posting to maximum advantage by "sharing" it on Facebook and tweeting it to your network, using the new gadgets on the blog (to your right). You might even send the link to the various political campaigns to see if you can wake or shake them up.
• A number of people in the Just Third Way network are putting in a great deal of effort surfacing opportunities to get the word out. Norm's interview on the Meshorn Daniels show this week is a case in point. Unfortunately, the "core group" on the ground here at CESJ international headquarters doesn't have the resources — especially time — to follow up on most of these opportunities. Nor is it effective for people outside the core group to try and "sell" the Just Third Way themselves. Even the core group does not act individually, but as a team — no single individual has the whole picture. The best strategy is for people "in the field" to open the door for Norm, and Norm can function as the coordinator to bring different areas of expertise together, depending on what's needed in a specific set of circumstances.
• We also have need of volunteer help in a number of areas. People who propose initiatives and carry them through, like Guy S. and Russell Williams with his radio show, are absolutely critical to the success of the movement — but so are people who put themselves and their resources at the disposal of the movement, and are ready, willing, and able to accept assignments and even possibly "boring" tasks and see them through to completion.
• Currently we are working with an official at a local university to develop a relationship that could get CESJ a number of interns. To make the program more effective, it would be good to be able to offer a small stipend to interns, especially in light of the rapidly rising cost of education and the state of the economy. Keep your eyes open for people or institutions that might be open to funding or endowing an internship or two at CESJ.
• Don't forget the Rally at the Federal Reserve Board of Governors building in Washington, DC on Friday, April 20, 2012, from 11:30 am to 1:30 pm. If you can't attend in person, consider sending a sentence or two of support for Capital Homesteading to thirdway [at] cesj [dot] org that (if we have time) could be read at the Rally, e.g., "Barb S. from Indiana says she just loves Capital Homesteading to pieces and can't wait to get an Act passed so she can start accumulating capital assets."
• As of this morning, we have had visitors from 53 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, India, and Australia. People in the Netherlands Antilles, the United Kingdom, the United States, Indonesia and Pakistan spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Mitt Romney," "Why Did Nixon Take the Dollar Off the Gold Standard?" and "The Situation in Greece."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Inside the Vatican: "Catholic Teaching and the Elections"
"The 2012 presidential election has brought America's economic crisis into sharp focus. Despite ephemeral gains in the stock market and manipulation of unemployment statistics, the economy continues to stagnate. Growth is limited, by and large, to the financial services industry that shifts around existing wealth, and government, which produces nothing. Ordinary people, unable to gain an adequate and secure income by their own efforts, are increasingly dependent on the State for meeting their daily needs."
This month's issue of Inside the Vatican, the world's most well-informed, comprehensive Catholic news magazine on events and developments within the governing body of the Catholic Church, has published "Catholic Teaching and the Elections" by contributing editor Michael D. Greaney, CPA, MBA, Director of Research for the Center for Economic and Social Justice in Arlington, Virginia, U.S.A. The article takes a hard-hitting look at what the major candidates in the upcoming American election fail to offer the citizens of the U.S. and all the people of the world to restore a sound and sustainable economy.
What all the candidates are missing is a program of economic recovery in which all citizens, not just the upper 1%, can participate and benefit. The author outlines a proposal consistent with principles of justice that underpin the social teaching of the Catholic Church and all major religions and philosophies. As Pope Leo XIII pointed out more than a century ago, true economic justice can only be achieved through an aggressive program of expanded capital ownership that does not rely on redistributing existing wealth:
"This great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners."
The April 2012 issue of Inside the Vatican may be ordered by phoning 1-800-789-9494 (toll free for USA & Canada); 1-270-325-5499 (for all other countries), or by sending an e-mail to: service@insidethevatican.com. Individual copies are $5.00 to U.S. addresses, and $8.00 to other countries.
Subscriptions to Inside the Vatican are $49.95 in the U.S., and $74.95 in other countries.
Permission to reprint or post "Catholic Teaching and the Elections" on your blog or website should be obtained in writing from Inside the Vatican, which holds the copyright: service@insidethevatican.com.
More information on economic recovery through expanded capital ownership can be found on the website of the Center for Economic and Social Justice under the heading "Capital Homesteading," and in the "CESJ Bookstore."
#30#
— "Catholic Teaching and the Elections," Inside the Vatican, April 2012
This month's issue of Inside the Vatican, the world's most well-informed, comprehensive Catholic news magazine on events and developments within the governing body of the Catholic Church, has published "Catholic Teaching and the Elections" by contributing editor Michael D. Greaney, CPA, MBA, Director of Research for the Center for Economic and Social Justice in Arlington, Virginia, U.S.A. The article takes a hard-hitting look at what the major candidates in the upcoming American election fail to offer the citizens of the U.S. and all the people of the world to restore a sound and sustainable economy.
What all the candidates are missing is a program of economic recovery in which all citizens, not just the upper 1%, can participate and benefit. The author outlines a proposal consistent with principles of justice that underpin the social teaching of the Catholic Church and all major religions and philosophies. As Pope Leo XIII pointed out more than a century ago, true economic justice can only be achieved through an aggressive program of expanded capital ownership that does not rely on redistributing existing wealth:
"This great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners."
— Rerum Novarum, § 46
The April 2012 issue of Inside the Vatican may be ordered by phoning 1-800-789-9494 (toll free for USA & Canada); 1-270-325-5499 (for all other countries), or by sending an e-mail to: service@insidethevatican.com. Individual copies are $5.00 to U.S. addresses, and $8.00 to other countries.
Subscriptions to Inside the Vatican are $49.95 in the U.S., and $74.95 in other countries.
Permission to reprint or post "Catholic Teaching and the Elections" on your blog or website should be obtained in writing from Inside the Vatican, which holds the copyright: service@insidethevatican.com.
More information on economic recovery through expanded capital ownership can be found on the website of the Center for Economic and Social Justice under the heading "Capital Homesteading," and in the "CESJ Bookstore."
Please forward a link to this posting to your network.
#30#
Thursday, April 5, 2012
Guide to a Capital Homestead Act
By Norman G. Kurland
Recently we were asked whether there was a specific "Capital Homestead Act" drafted. This is a very good question. The answer, however, is no — we don't have a draft of the legislative language.
We are an all-volunteer operation and do not have access to the Congressional expertise in drafting something that will be more comprehensive than Roosevelt's New Deal. The overall package for experts is in the free download of our 1994 book Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security (which is in the process of updating and revision of the estimated annual allotment of capital credit per citizen from $3,000 to $7,000.) (A free .pdf is available in the "CESJ Bookstore.") A more complete summary of the Capital Homestead Act is on the website, as well as one for public education.
These ideas were first conceived and published by Louis O. Kelso in his two books co-authored by the noted American philosopher Mortimer J. Adler, The Capitalist Manifesto (1958) and The New Capitalists (1961) — the latter with the significant and provocative subtitle, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." These are also available for free downloading from the "bookstore." Kelso conceived the binary theory of economics as well as the "Industrial Homestead Act. He was also the inventor of the Employee Stock Ownership Plan or "ESOP" which has turned over 11 million workers into capital owners of their companies without reducing their take-home pay.
I worked with Kelso for 11 years, first as executive director of his Institute for the Study of Economic System and later as Washington Counsel of Kelso and Co., when he moved from the law into investment banking. My theoretical presentation of Kelso's binary growth model was published by the Journal of Socio-Economics.
What Kelso and I tried to offer were the CHA's specs for a radical overhaul all the tax laws, the monetary laws, corporate laws of the rights of shareholders, the inheritance laws, etc. that systemically control how $2-3 trillion of new job-destroying technologies, new energy systems, new plant and equipment, new rentable space, development of land and natural resources, new physical infrastructure will be financed, even at current conditions, both in the private sector and public sectors.
All laws perpetuating monopoly capitalism and encouraging mercantilist access to the ownership, control and profits from new capital formation would be abolished and all laws favoring speculation over investment by the poor, the middle-class and others in the 99% would be amended to discourage speculation. The Wall Street gambling casino could continue speculating for the top 1% and finding way for them to invest in the most high-risk ventures.
Some specific guidelines for a Capital Homestead Act are:
1. Simplify the tax code to a fraction of its current size so that:
(a) Every citizen could fill out a postcard-sized return to pay taxes at a single rate on income from all sources, which would also serve to justify government vouchers for health, education, housing and other well-being needs of the poor until they begin receiving adequate labor and property incomes from their equity ownership shares.
(b) All "tax expenditures," tax credits, tax exemptions and deductions (except for costs of producing marketable goods and services) would be eliminated on business and personal income-producing work, but each citizen and dependent would automatically be granted a "basic well-being" exemption of $30,000 for non-dependents and $20,000 for dependents for incomes from work, welfare, gifts, dividends, inflation-indexed capital gains, rents, gambling and all other income sources. Hence, a family of four would not pay a single cent of Federal income, payroll or other taxes until their incomes exceeded $100,000. They would pay the same percentage of a dollar of income above $100,000 that Warren Buffett, Bill Gates, and George Soros would pay on their billions earned over their exemption levels.
(c) In addition to exemptions from further payroll taxes (the entitlements to which would be paid out of general revenues), businesses would be eligible to escape from paying corporate income taxes by paying out fully-tax deductible dividends to all their shareholders, adding enormously to the personal federal revenue base at a rate calculated to address the continuing federal deficit problem.
(d) Free from federal corporate tax rates and with the drying up of existing pools of savings, businesses would be encouraged to issue new full-dividend, full-voting shares for financing their growth. This would put millions of shares on the new national market for citizens to purchase with their annual allotment of CHA credit available through tax-sheltered CHAs offered by local banks. The shares would be repayable with the future dividends with backed by private sector capital credit insurance. Bill Gates would be offered the same capital credit allotment as the poorest of the poor.
(e) Local banks would issue promissory notes to purchase ("accept" or "discount") bills of exchange (share purchase contracts) offered by each borrower. Acceptance would be based on the soundness of the business plans of the companies whose shares are purchased with the CHA credit allotment. The discount rate would be set at the present value of the future redemption of the bill at face value, plus a risk premium to cover the cost of capital credit insurance and reinsurance. The bills would then be offered immediately for rediscount at one of the 12 regional Federal Reserve Banks under Section 13, paragraph 2 of the Federal Reserve Act. (This could be done individually, but would be more feasible to "bundle" bills of the same quality in lots as a single instrument.) This is "the real bills doctrine," an application of "Say's Law of Markets" (below).
By this means the Fed would monetize real productive growth in the private sector with an asset-backed currency, instead of government spending with a debt-backed currency. The promissory notes would be repaid (i.e., the borrower's bills of exchange redeemed at full face value) with "future savings." In contrast to past savings that represent accumulated reductions in consumption, future savings represent future increases in production.
Using future savings instead of past savings to finance growth increases the wealth of society by forming new capital (productive assets) and adding the present value of the future marketable goods and services to be produced by the businesses issuing the new CHA shares. The new shares are available for purchase by every man, woman and child citizen in America.
Widespread capital ownership would stimulate private sector growth, create jobs naturally, and generate ownership incomes to provide the mass purchasing power ("effective demand") to keep the system in balance. The increase in effective demand would match the new productive capacity (effective supply) in a way not possible under the current system of monopoly capitalism. This would validate Say's Law of Markets, a common-sense theory that can be summarized as "production equals income, therefore supply creates its own demand, and demand its own supply." (I can only give the conclusion of Say's Law here; the explanation is somewhat complex, but has been covered a number of times on this blog.) Due to their assumption that only past savings can be used to finance new capital formation, both Karl Marx and Lord Keynes rejected Say's Law at the expanse of freedom, justice and shared prosperity.
Instead of "full employment" being an exclusive national economic goal, full production through equal opportunity to share the power and profits of capital ownership as a fundamental right of citizenship would enable America and any other nation that adopts a CHA to demonstrate how economic democracy can help save political democracy to be sacrificed to those who worship the expansion of the power of the State, humanity's only legitimate monopoly. Capitalism and Socialism will wither away to the Just Third Way.
(f) The single tax rate under a CHA would void any future budget deficits, even permit government to begin repaying the existing unsustainable reported debt of nearly $16 trillion from the past as well as meet the more than $60 trillion in projections for Social Security, Medicare, and government retirement incomes kept off the reported debt. A CHA would over time reduce and the eliminate this hidden debt by enabling every citizen to accumulate equity accumulation in excess of these "entitlements." If a CHA were operating, the average child born today would have received $1.6 million in after tax revenues up to age 65, close to $50,000 in after-tax dividend at age 65, backed by an accumulated capital estate of close to $500,000. These are on very conservative growth rates under the CHA compared to the current wage slave, welfare slave, debt slave, charity slave monopoly capitalist system.
(g) The rich and super-rich under a CHA would not lose any property rights on their existing ownership accumulations during their lifetimes. (After all, they have never figured out how to continue to control their assets when they die.) Hence, a CHA would reform the inheritance and gift tax laws to tax the recipients if their combined accumulations after receiving the inheritance or gift exceeded $1 million. This would encourage today's super-rich to spread out their monopolistic accumulations to all members of their families, the workers who helped create their fortunes, teachers, the military, firefighters and police, all public employees, the disabled, artists, inventors, and others they deem worthy directly, instead of funneling their wealth into foundations to keep it concentrated and under the control of an elite.
(h) The only thing the rich and super-rich would lose is their artificial (aided by politicians) monopolistic and mercantilist protections against truly free and open competition in the economy. Gone would be their violation of one of the most fundamental property rights, the right of an owner to receive the full fruits or profits from his shared ownership of a business; under current law a shareholder has no right to a dividend, his shares of profits. Only if those who control the company decide to pay a dividend does a minority shareholder ever receive a dividend, which in moral terms is the equivalent of theft. Gone also would be financing corporate growth out of accumulated cash or outside loans repayable with future government "tax expenditures" or future undistributed profits. This explains largely why the rich continue to get richer, and the 99% are forced into a modern version of slavery. The "deck is stacked" to perpetuate monopoly control and in turn the corruption of political leaders who turn to the top 1% to finance their political careers.
#30#
Recently we were asked whether there was a specific "Capital Homestead Act" drafted. This is a very good question. The answer, however, is no — we don't have a draft of the legislative language.
We are an all-volunteer operation and do not have access to the Congressional expertise in drafting something that will be more comprehensive than Roosevelt's New Deal. The overall package for experts is in the free download of our 1994 book Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security (which is in the process of updating and revision of the estimated annual allotment of capital credit per citizen from $3,000 to $7,000.) (A free .pdf is available in the "CESJ Bookstore.") A more complete summary of the Capital Homestead Act is on the website, as well as one for public education.
These ideas were first conceived and published by Louis O. Kelso in his two books co-authored by the noted American philosopher Mortimer J. Adler, The Capitalist Manifesto (1958) and The New Capitalists (1961) — the latter with the significant and provocative subtitle, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." These are also available for free downloading from the "bookstore." Kelso conceived the binary theory of economics as well as the "Industrial Homestead Act. He was also the inventor of the Employee Stock Ownership Plan or "ESOP" which has turned over 11 million workers into capital owners of their companies without reducing their take-home pay.
I worked with Kelso for 11 years, first as executive director of his Institute for the Study of Economic System and later as Washington Counsel of Kelso and Co., when he moved from the law into investment banking. My theoretical presentation of Kelso's binary growth model was published by the Journal of Socio-Economics.
What Kelso and I tried to offer were the CHA's specs for a radical overhaul all the tax laws, the monetary laws, corporate laws of the rights of shareholders, the inheritance laws, etc. that systemically control how $2-3 trillion of new job-destroying technologies, new energy systems, new plant and equipment, new rentable space, development of land and natural resources, new physical infrastructure will be financed, even at current conditions, both in the private sector and public sectors.
All laws perpetuating monopoly capitalism and encouraging mercantilist access to the ownership, control and profits from new capital formation would be abolished and all laws favoring speculation over investment by the poor, the middle-class and others in the 99% would be amended to discourage speculation. The Wall Street gambling casino could continue speculating for the top 1% and finding way for them to invest in the most high-risk ventures.
Some specific guidelines for a Capital Homestead Act are:
1. Simplify the tax code to a fraction of its current size so that:
(a) Every citizen could fill out a postcard-sized return to pay taxes at a single rate on income from all sources, which would also serve to justify government vouchers for health, education, housing and other well-being needs of the poor until they begin receiving adequate labor and property incomes from their equity ownership shares.
(b) All "tax expenditures," tax credits, tax exemptions and deductions (except for costs of producing marketable goods and services) would be eliminated on business and personal income-producing work, but each citizen and dependent would automatically be granted a "basic well-being" exemption of $30,000 for non-dependents and $20,000 for dependents for incomes from work, welfare, gifts, dividends, inflation-indexed capital gains, rents, gambling and all other income sources. Hence, a family of four would not pay a single cent of Federal income, payroll or other taxes until their incomes exceeded $100,000. They would pay the same percentage of a dollar of income above $100,000 that Warren Buffett, Bill Gates, and George Soros would pay on their billions earned over their exemption levels.
(c) In addition to exemptions from further payroll taxes (the entitlements to which would be paid out of general revenues), businesses would be eligible to escape from paying corporate income taxes by paying out fully-tax deductible dividends to all their shareholders, adding enormously to the personal federal revenue base at a rate calculated to address the continuing federal deficit problem.
(d) Free from federal corporate tax rates and with the drying up of existing pools of savings, businesses would be encouraged to issue new full-dividend, full-voting shares for financing their growth. This would put millions of shares on the new national market for citizens to purchase with their annual allotment of CHA credit available through tax-sheltered CHAs offered by local banks. The shares would be repayable with the future dividends with backed by private sector capital credit insurance. Bill Gates would be offered the same capital credit allotment as the poorest of the poor.
(e) Local banks would issue promissory notes to purchase ("accept" or "discount") bills of exchange (share purchase contracts) offered by each borrower. Acceptance would be based on the soundness of the business plans of the companies whose shares are purchased with the CHA credit allotment. The discount rate would be set at the present value of the future redemption of the bill at face value, plus a risk premium to cover the cost of capital credit insurance and reinsurance. The bills would then be offered immediately for rediscount at one of the 12 regional Federal Reserve Banks under Section 13, paragraph 2 of the Federal Reserve Act. (This could be done individually, but would be more feasible to "bundle" bills of the same quality in lots as a single instrument.) This is "the real bills doctrine," an application of "Say's Law of Markets" (below).
By this means the Fed would monetize real productive growth in the private sector with an asset-backed currency, instead of government spending with a debt-backed currency. The promissory notes would be repaid (i.e., the borrower's bills of exchange redeemed at full face value) with "future savings." In contrast to past savings that represent accumulated reductions in consumption, future savings represent future increases in production.
Using future savings instead of past savings to finance growth increases the wealth of society by forming new capital (productive assets) and adding the present value of the future marketable goods and services to be produced by the businesses issuing the new CHA shares. The new shares are available for purchase by every man, woman and child citizen in America.
Widespread capital ownership would stimulate private sector growth, create jobs naturally, and generate ownership incomes to provide the mass purchasing power ("effective demand") to keep the system in balance. The increase in effective demand would match the new productive capacity (effective supply) in a way not possible under the current system of monopoly capitalism. This would validate Say's Law of Markets, a common-sense theory that can be summarized as "production equals income, therefore supply creates its own demand, and demand its own supply." (I can only give the conclusion of Say's Law here; the explanation is somewhat complex, but has been covered a number of times on this blog.) Due to their assumption that only past savings can be used to finance new capital formation, both Karl Marx and Lord Keynes rejected Say's Law at the expanse of freedom, justice and shared prosperity.
Instead of "full employment" being an exclusive national economic goal, full production through equal opportunity to share the power and profits of capital ownership as a fundamental right of citizenship would enable America and any other nation that adopts a CHA to demonstrate how economic democracy can help save political democracy to be sacrificed to those who worship the expansion of the power of the State, humanity's only legitimate monopoly. Capitalism and Socialism will wither away to the Just Third Way.
(f) The single tax rate under a CHA would void any future budget deficits, even permit government to begin repaying the existing unsustainable reported debt of nearly $16 trillion from the past as well as meet the more than $60 trillion in projections for Social Security, Medicare, and government retirement incomes kept off the reported debt. A CHA would over time reduce and the eliminate this hidden debt by enabling every citizen to accumulate equity accumulation in excess of these "entitlements." If a CHA were operating, the average child born today would have received $1.6 million in after tax revenues up to age 65, close to $50,000 in after-tax dividend at age 65, backed by an accumulated capital estate of close to $500,000. These are on very conservative growth rates under the CHA compared to the current wage slave, welfare slave, debt slave, charity slave monopoly capitalist system.
(g) The rich and super-rich under a CHA would not lose any property rights on their existing ownership accumulations during their lifetimes. (After all, they have never figured out how to continue to control their assets when they die.) Hence, a CHA would reform the inheritance and gift tax laws to tax the recipients if their combined accumulations after receiving the inheritance or gift exceeded $1 million. This would encourage today's super-rich to spread out their monopolistic accumulations to all members of their families, the workers who helped create their fortunes, teachers, the military, firefighters and police, all public employees, the disabled, artists, inventors, and others they deem worthy directly, instead of funneling their wealth into foundations to keep it concentrated and under the control of an elite.
(h) The only thing the rich and super-rich would lose is their artificial (aided by politicians) monopolistic and mercantilist protections against truly free and open competition in the economy. Gone would be their violation of one of the most fundamental property rights, the right of an owner to receive the full fruits or profits from his shared ownership of a business; under current law a shareholder has no right to a dividend, his shares of profits. Only if those who control the company decide to pay a dividend does a minority shareholder ever receive a dividend, which in moral terms is the equivalent of theft. Gone also would be financing corporate growth out of accumulated cash or outside loans repayable with future government "tax expenditures" or future undistributed profits. This explains largely why the rich continue to get richer, and the 99% are forced into a modern version of slavery. The "deck is stacked" to perpetuate monopoly control and in turn the corruption of political leaders who turn to the top 1% to finance their political careers.
#30#
Wednesday, April 4, 2012
How Governments Play the Market
We recently came across someone who was looking at the prospects for growth in "the water market." Why, the enquirer asked, has water been overlooked as an investment instead of being traded as a commodity like energy and metals? What are the prospects for growth in the market? At the end of a list of series of questions was, "What is the best way for an investor to play the water market right now?" "Play the market" is "Wall Street Speak" for speculation and manipulation.
Back in 1907, the president of the Knickerbocker Bank and Trust got the third largest bank in New York City into very big trouble by speculating in copper. He and a small consortium used the resources of the bank to try and "corner" copper. A "corner" is a market manipulation, a speculative monopoly of a stock or commodity created by purchasing or having an option to purchase all or most of the available supply.
If successful, a corner allows speculators to set the price of the commodity and make enormous profits. If unsuccessful, the speculators stand to lose everything and more. The president of the Knickerbocker and his friends were unsuccessful, went bankrupt, and the "Panic of 1907" resulted.
Lacking enough cash (accumulated savings) to make a purchase outright, speculators usually take out options or futures contracts. An option — a form of contract — is the right to buy something on certain terms. If the option is not exercised, the holder loses the "consideration," the thing of value that he put up to induce the other party to offer the option. A futures contract is a commitment to purchase a commodity at a specific price on a certain date. Options and futures are often negotiable instruments, and serve as part of the money supply.
Both options and futures were "invented" as an aid to commerce. In the ordinary course of events, there isn't any more opportunity for the speculators to make money off of them than there would be if they dealt in the actual commodities instead of contracts involving the commodities. Commodities brokers serve a useful purpose by intermediating between producers and their customers, buying contracts at "wholesale" and selling them at "retail," making life easier for parties on both sides of the transaction.
Farmers often need futures contracts — "pre-sales" — to get financing for the year's crop. They protect themselves against crop failure or wide swings in prices by taking out insurance that allows them to meet the terms of the contract if something happens. Processors and manufacturers use options and futures to lock in future resources at a current fixed price.
By offering and accepting options or futures contracts, parties to the agreements create money without the necessity of first having to come up with the marketable good or service they are buying or selling, that is, without first having to "save" — defining "save" as Keynes does: past reductions of consumption. It is thus possible for both producers and their customers to create money based on the present value of a future transaction by offering and accepting contracts, sell, discount, or use the contracts directly as money, and use the proceeds to form capital, e.g., buy land and equipment or build a factory.
Parties to the contracts can then start producing the goods and services needed to redeem the contracts when they fall due — all without first having to come up with the cash to start the process. This defines "save" more correctly as either "past reductions in consumption" or "future increases in production" (the latter being something Keynes claimed is impossible, yet which happens every day in commerce).
The proper use of options and futures contracts (like all forms of money) is thus to facilitate transactions and store value using a common and stable standard of value. Used as intended, such instruments allow the economy to grow at a rate determined by the current and future productive capacity of the economy, not what has been withheld from consumption in the past. This shifts the orientation of the economy from insufficiency to abundance.
The goal of the speculator is different. He tries to move the market for a commodity from abundance to scarcity. In a market economy, the price of anything tends to fluctuate naturally, based on the "laws" of supply and demand. Broadly speaking, if something is in short supply but nobody wants it, the price will be low. If something is so abundant that everyone can have what he or she wants without effort, the price will be extremely low, sometimes non-existent: an "economically free" good. On the other hand, if something is in short supply and everyone wants it, the price will be high, especially if the thing is essential to survival. The goal of a producer in a market economy is to move from an insufficiency of a marketable good or service, to an abundance of that marketable good or service, and to make a profit by supplying that abundance.
Shortages tend to occur more or less naturally. Crops fail, veins of ore run out, production costs rise, and so on. These things happen, and are the reason farmers take out crop insurance and processors and manufacturers buy options and futures contracts. An honest speculator, like any other good gambler, makes a more or less educated guess as to whether a shortage will occur, and buys accordingly, hoping for a change in the price favorable to him, depending on whether he bought long or short.
A dishonest speculator, like a crooked gambler, tries to stack the deck by creating an artificial shortage in order to take advantage of it. He is not, in fact, a true gambler, but a cheat, a card shark, nicking aces, marking cards, slipping holdouts up his sleeve, dealing from the bottom of the deck, and so on. He commits himself to purchase massive quantities of something at or above market in order to lure owners to sell to him at an inflated price . . . so that the speculator can sell it back at an even more inflated price.
The president of the Knickerbocker tried to do this, buying up options and contracts on shares in copper companies at a furious rate. He used depositors' money, the bank's capitalization and, worst of all, issued promissory notes drawn on the bank's creditworthiness — created money — in the hope that he would be able to buy enough future copper production at a high price to be able to set an even higher price and make a few hundred million dollars in speculative profit. The promissory notes of the Knickerbocker, like the bulk of today's "M2" money supply, were backed by the present value of a bet, that is, the hope that a gamble would pay off, not by the properly vetted present value of existing and future marketable goods and services.
The president of the Knickerbocker bet that he would be able to contract to purchase enough copper to control the market and set the price. He accepted "fictitious bills" drawn on the speculative future increase in the price of copper, and issued promissory notes based on the assumption of an even greater speculative rise in price to pay for the bills. He was, in effect, promising to make good on a possible loss out of resources he would have only if the bet paid off. He broke the first rule of gambling: don't play if you can't pay.
Similarly, the vast amount of government debt on the books (the national debt) as well as off (projected "off budget" future Social Security and Medicare benefits) is not backed by the present value of existing or future marketable goods and services. Government does not produce marketable goods and services. The government cannot, therefore, back its promises with what it does not own or to which it does not have an identifiable and enforceable claim.
What backs M2 and stands behind the trillions of dollars of government debt and off-budget Social Security and Medicare projections is not the present value of existing marketable goods and services that the government owns, or the present value of future marketable goods and services that the government reasonably expects to produce. Again, the government does not own or produce these things, and so cannot promise to redeem its promises with wealth it does not have and will not produce.
Ultimately what stands behind today's M2 is the government's ability to collect taxes in the future, thereby covering yesterday's spending with tomorrow's revenues. That is, the government is betting that citizens will be sufficiently productive to:
• Provide for current needs of themselves and their dependents,
• Make voluntary (charitable) contributions to cover others' needs,
• Set aside a reserve for emergencies,
• Save for anticipated future needs (e.g., education, retirement), and
• Have a surplus out of which to pay the cost of government,
to name a few of the more important. At the same time, the government — the servant of the people, not its master — is betting that citizens will:
• Be willing to grant taxes at a level sufficient to pay for government,
• Actually grant the taxes necessary to pay for government,
• Have a surplus large enough to be able to pay taxes at a level sufficient to pay for government, and
• Actually pay the taxes.
This last is simply an aspect of human nature. It is far easier to get people to agree to a tax if they believe that they won't be taxed. Thus, "the rich" are a favorite target, because few people really believe themselves to be "rich." The ideal people to tax, of course, are future generations. They don't yet exist, so they can't vote or complain.
There are thus at least nine things that have to happen before a government can win its bet — and the very fact that the government is gambling to try and cover its costs means that, in effect, it is betting on itself, which is much more risky than betting on something else that you can be more objective about. This becomes evident when we realize that the huge increase in national debts and ballooning budgets are the result of governments attempting to provide for the needs of citizens, supply what private charities formerly covered, meet emergencies, and guarantee education and retirement.
In consequence, governments throughout the world are, at one and the same time,
• Spending to make up for what the citizens aren't producing, and
• Hoping that the citizens produce enough to
- Meet their own needs,
- Pay current costs of government, and
- Pay past costs of government.
No matter which way you add up the numbers, or even what numbers you plug in, you cannot make such a system work. It is impossible to spend more than you produce and at the same time generate a surplus to cover the deficit. That is why moral philosophers condemn things like speculation (gambling on price changes of something instead of investing in the present value of the stream of income it produces) and usury (taking a profit when no profit has been produced).
Some forms of speculation and usury are tolerable, even morally indifferent, e.g., a broker or dealer who inadvertently realizes a profit from an increase in the value of his inventory held for resale in the ordinary course of events, or a government that must pay interest in order to induce people to lend their existing savings so that can continue operating. This does not, however, include a dealer who deliberately holds goods off the market to drive up the price, or a government that emits bills of credit — pledges future tax collections — to meet current expenditures.
Is there a way out of this mess? As regular readers of this blog are aware — yes. It's called "Capital Homesteading." If you want to support the push for a Capital Homestead Act, you might want to attend the annual Rally at the Federal Reserve in Washington, DC on Friday, April 20, 2012 from 11:30 am to 1:30 pm.
#30#
Back in 1907, the president of the Knickerbocker Bank and Trust got the third largest bank in New York City into very big trouble by speculating in copper. He and a small consortium used the resources of the bank to try and "corner" copper. A "corner" is a market manipulation, a speculative monopoly of a stock or commodity created by purchasing or having an option to purchase all or most of the available supply.
If successful, a corner allows speculators to set the price of the commodity and make enormous profits. If unsuccessful, the speculators stand to lose everything and more. The president of the Knickerbocker and his friends were unsuccessful, went bankrupt, and the "Panic of 1907" resulted.
Lacking enough cash (accumulated savings) to make a purchase outright, speculators usually take out options or futures contracts. An option — a form of contract — is the right to buy something on certain terms. If the option is not exercised, the holder loses the "consideration," the thing of value that he put up to induce the other party to offer the option. A futures contract is a commitment to purchase a commodity at a specific price on a certain date. Options and futures are often negotiable instruments, and serve as part of the money supply.
Both options and futures were "invented" as an aid to commerce. In the ordinary course of events, there isn't any more opportunity for the speculators to make money off of them than there would be if they dealt in the actual commodities instead of contracts involving the commodities. Commodities brokers serve a useful purpose by intermediating between producers and their customers, buying contracts at "wholesale" and selling them at "retail," making life easier for parties on both sides of the transaction.
Farmers often need futures contracts — "pre-sales" — to get financing for the year's crop. They protect themselves against crop failure or wide swings in prices by taking out insurance that allows them to meet the terms of the contract if something happens. Processors and manufacturers use options and futures to lock in future resources at a current fixed price.
By offering and accepting options or futures contracts, parties to the agreements create money without the necessity of first having to come up with the marketable good or service they are buying or selling, that is, without first having to "save" — defining "save" as Keynes does: past reductions of consumption. It is thus possible for both producers and their customers to create money based on the present value of a future transaction by offering and accepting contracts, sell, discount, or use the contracts directly as money, and use the proceeds to form capital, e.g., buy land and equipment or build a factory.
Parties to the contracts can then start producing the goods and services needed to redeem the contracts when they fall due — all without first having to come up with the cash to start the process. This defines "save" more correctly as either "past reductions in consumption" or "future increases in production" (the latter being something Keynes claimed is impossible, yet which happens every day in commerce).
The proper use of options and futures contracts (like all forms of money) is thus to facilitate transactions and store value using a common and stable standard of value. Used as intended, such instruments allow the economy to grow at a rate determined by the current and future productive capacity of the economy, not what has been withheld from consumption in the past. This shifts the orientation of the economy from insufficiency to abundance.
The goal of the speculator is different. He tries to move the market for a commodity from abundance to scarcity. In a market economy, the price of anything tends to fluctuate naturally, based on the "laws" of supply and demand. Broadly speaking, if something is in short supply but nobody wants it, the price will be low. If something is so abundant that everyone can have what he or she wants without effort, the price will be extremely low, sometimes non-existent: an "economically free" good. On the other hand, if something is in short supply and everyone wants it, the price will be high, especially if the thing is essential to survival. The goal of a producer in a market economy is to move from an insufficiency of a marketable good or service, to an abundance of that marketable good or service, and to make a profit by supplying that abundance.
Shortages tend to occur more or less naturally. Crops fail, veins of ore run out, production costs rise, and so on. These things happen, and are the reason farmers take out crop insurance and processors and manufacturers buy options and futures contracts. An honest speculator, like any other good gambler, makes a more or less educated guess as to whether a shortage will occur, and buys accordingly, hoping for a change in the price favorable to him, depending on whether he bought long or short.
A dishonest speculator, like a crooked gambler, tries to stack the deck by creating an artificial shortage in order to take advantage of it. He is not, in fact, a true gambler, but a cheat, a card shark, nicking aces, marking cards, slipping holdouts up his sleeve, dealing from the bottom of the deck, and so on. He commits himself to purchase massive quantities of something at or above market in order to lure owners to sell to him at an inflated price . . . so that the speculator can sell it back at an even more inflated price.
The president of the Knickerbocker tried to do this, buying up options and contracts on shares in copper companies at a furious rate. He used depositors' money, the bank's capitalization and, worst of all, issued promissory notes drawn on the bank's creditworthiness — created money — in the hope that he would be able to buy enough future copper production at a high price to be able to set an even higher price and make a few hundred million dollars in speculative profit. The promissory notes of the Knickerbocker, like the bulk of today's "M2" money supply, were backed by the present value of a bet, that is, the hope that a gamble would pay off, not by the properly vetted present value of existing and future marketable goods and services.
The president of the Knickerbocker bet that he would be able to contract to purchase enough copper to control the market and set the price. He accepted "fictitious bills" drawn on the speculative future increase in the price of copper, and issued promissory notes based on the assumption of an even greater speculative rise in price to pay for the bills. He was, in effect, promising to make good on a possible loss out of resources he would have only if the bet paid off. He broke the first rule of gambling: don't play if you can't pay.
Similarly, the vast amount of government debt on the books (the national debt) as well as off (projected "off budget" future Social Security and Medicare benefits) is not backed by the present value of existing or future marketable goods and services. Government does not produce marketable goods and services. The government cannot, therefore, back its promises with what it does not own or to which it does not have an identifiable and enforceable claim.
What backs M2 and stands behind the trillions of dollars of government debt and off-budget Social Security and Medicare projections is not the present value of existing marketable goods and services that the government owns, or the present value of future marketable goods and services that the government reasonably expects to produce. Again, the government does not own or produce these things, and so cannot promise to redeem its promises with wealth it does not have and will not produce.
Ultimately what stands behind today's M2 is the government's ability to collect taxes in the future, thereby covering yesterday's spending with tomorrow's revenues. That is, the government is betting that citizens will be sufficiently productive to:
• Provide for current needs of themselves and their dependents,
• Make voluntary (charitable) contributions to cover others' needs,
• Set aside a reserve for emergencies,
• Save for anticipated future needs (e.g., education, retirement), and
• Have a surplus out of which to pay the cost of government,
to name a few of the more important. At the same time, the government — the servant of the people, not its master — is betting that citizens will:
• Be willing to grant taxes at a level sufficient to pay for government,
• Actually grant the taxes necessary to pay for government,
• Have a surplus large enough to be able to pay taxes at a level sufficient to pay for government, and
• Actually pay the taxes.
This last is simply an aspect of human nature. It is far easier to get people to agree to a tax if they believe that they won't be taxed. Thus, "the rich" are a favorite target, because few people really believe themselves to be "rich." The ideal people to tax, of course, are future generations. They don't yet exist, so they can't vote or complain.
There are thus at least nine things that have to happen before a government can win its bet — and the very fact that the government is gambling to try and cover its costs means that, in effect, it is betting on itself, which is much more risky than betting on something else that you can be more objective about. This becomes evident when we realize that the huge increase in national debts and ballooning budgets are the result of governments attempting to provide for the needs of citizens, supply what private charities formerly covered, meet emergencies, and guarantee education and retirement.
In consequence, governments throughout the world are, at one and the same time,
• Spending to make up for what the citizens aren't producing, and
• Hoping that the citizens produce enough to
- Meet their own needs,
- Pay current costs of government, and
- Pay past costs of government.
No matter which way you add up the numbers, or even what numbers you plug in, you cannot make such a system work. It is impossible to spend more than you produce and at the same time generate a surplus to cover the deficit. That is why moral philosophers condemn things like speculation (gambling on price changes of something instead of investing in the present value of the stream of income it produces) and usury (taking a profit when no profit has been produced).
Some forms of speculation and usury are tolerable, even morally indifferent, e.g., a broker or dealer who inadvertently realizes a profit from an increase in the value of his inventory held for resale in the ordinary course of events, or a government that must pay interest in order to induce people to lend their existing savings so that can continue operating. This does not, however, include a dealer who deliberately holds goods off the market to drive up the price, or a government that emits bills of credit — pledges future tax collections — to meet current expenditures.
Is there a way out of this mess? As regular readers of this blog are aware — yes. It's called "Capital Homesteading." If you want to support the push for a Capital Homestead Act, you might want to attend the annual Rally at the Federal Reserve in Washington, DC on Friday, April 20, 2012 from 11:30 am to 1:30 pm.
#30#
Tuesday, April 3, 2012
Obama's Lack of Vision
It is possible (although hardly likely) that President Obama just blew his bid for reelection. By "warning" — threatening, actually — the "unelected" United States Supreme Court that it should not take the "extraordinary and unprecedented" act of overturning a law passed by overwhelming majorities in the House and Senate by an "elected" Congress, he seems to think he has the power of Henry VIII Tudor or the Queen of Hearts. He thinks he can bully anyone he likes and get away with it. His reelection may very well depend on how many voters he can get to agree with him that bullying of any kind is now acceptable.
Bullying is not, however, the real issue. True, Americans traditionally detest bullies. It remains to be seen, however, how much calcium remains in the national spinal column, and how willing the country is to oppose someone who, however good or bad his intentions and proposals, has so spectacularly failed the character test.
Aside from that we need to look at the substance of what the president said. Frankly, there are so many things wrong, even contrary to established fact in Obama's statements that it's difficult to know where to begin. "Elected," for example, implies a free choice by the voters. Do Americans (or anyone else, for that matter) truly have a free choice when they lack the economic power to support and sustain their (alleged) political power? Neither Daniel Webster nor Benjamin Watkins Leigh thought so.
The indifference of many of today's voters — in contrast to the sometimes violent elections up through the 1890s when a determinant number of Americans still owned capital — simply reflects the reality expressed by Webster that "power naturally and necessarily follows property." People who own meaningful capital stakes don't vote for politicians who try to guarantee every want and need of their supporters — and who raise taxes to pay for it. As William Cobbett pointed out,
"You may twist the word freedom as long as you please, but at last it comes to quiet enjoyment of your own property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of parliament? Oh! because they shall then have an influence over the conduct of those members. And of what use is that? Oh! then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have." (A History of the Protestant Reformation in England and Ireland, 1827, §456.)
The Tammany Hall machine stayed in power and controlled New York City for the benefit of a Democratic Party elite until the 1930s because it monopolized "patronage" — city jobs and benefits to the propertyless masses that elected their candidates. In the 1890s, however, and up until the 1930s Congress (although probably just as corrupt) ignored the demands of Coxey's Army and others to increase government spending and debauch the currency to finance public works and create meaningless jobs because their constituents — the trusts and the financial services industry — demanded sound money to support the industry and commerce on which they had a virtual monopoly.
What brought down Tammany Hall was not the reforming Fiorello LaGuardia, but the shift in the political power base — and thus patronage — from local and state governments, to the federal government with the New Deal. Keynesian economics and its emphasis on debt financing allowed FDR to manipulate the currency and fund government programs without having to cater quite as much to the rich or the rapidly shrinking capital-owning middle class voters who (then as now) paid the bulk of taxes. Along with the wage system, patronage in the form of job creation, corporate and individual welfare, Social Security, and the tax code was legitimized and entrenched as a matter of national policy. A non-owning majority now not only acquiesced to increasing government power, but began demanding it, often voting only when their share of patronage was threatened.
What about that "extraordinary and unprecedented" step of overturning a law passed by a duly elected legislature? We'll ignore for the sake of argument the president's puffery that the health care bill was passed by overwhelming majorities. "Puffing" is a legal term meaning "[a]n expression of opinion by [a] seller not made as a representation of fact." In other words, something that no reasonable person is expected to take seriously.
"Extraordinary and unprecedented"? Hardly. As William Crosskey pointed out in his monumental study, Politics and the Constitution in the History of the United States (1953) the expansion of judicial review into judicial activism has been going full throttle since Marbury v. Madison in 1803. Although a correct decision, Marbury was used to justify later action by the Court, primarily intended prior to the Civil War to preserve slavery. Judicial review was used afterwards to extend the Court's power as an end in itself. It was pivotal in the development of the theory of the "Living Constitution," a triumph of the Harvard school's legal positivism that can make the Constitution mean whatever the justices want it to mean.
Obama lauded such "raw judicial power" recently when he celebrated the decision in Roe v. Wade. His whole training as a lawyer is based on its validity. It's what he taught as a professor of Constitutional Law at the University of Chicago. Now that it is getting in the way of what he wants, however, judicial review suddenly becomes "extraordinary and unprecedented."
Even that, however, is not the real issue. The fact is that President Obama's vision of the role of government as government is seriously flawed. The State is not the guarantor of every individual want and need, but the guardian of the general welfare, the "level playing field" within which opportunity, not results, is optimized. In the real world, the government cannot mandate or guarantee results, any more than the market — free or unfree — can. Contrary to popular belief, government does not have the power of a god to create something out of nothing and provide it to its faithful worshippers, be it manna, quail, or a welfare check. Government creates nothing — creation and control are not functions of government.
Instead, government is supposed to protect the environment within which people can provide for themselves through their own efforts — preferably through their exercise of private property in capital. As Pope Leo XIII explained,
"This becomes still more clearly evident if man's nature be considered a little more deeply. For man, fathoming by his faculty of reason matters without number, linking the future with the present, and being master of his own acts, guides his ways under the eternal law and the power of God, whose providence governs all things. Wherefore, it is in his power to exercise his choice not only as to matters that regard his present welfare, but also about those which he deems may be for his advantage in time yet to come. Hence, man not only should possess the fruits of the earth, but also the very soil, inasmuch as from the produce of the earth he has to lay by provision for the future. Man's needs do not die out, but forever recur; although satisfied today, they demand fresh supplies for tomorrow. Nature accordingly must have given to man a source that is stable and remaining always with him, from which he might look to draw continual supplies. And this stable condition of things he finds solely in the earth and its fruits. There is no need to bring in the State. Man precedes the State, and possesses, prior to the formation of any State, the right of providing for the substance of his body." (Rerum Novarum, § 7.)
Yes, we need health care that is universally available, not universally mandated. We also need a way for people to be able to pay for what they get, backed up by private charity when they cannot, with government welfare the final recourse when all else fails. A State guarantee of every want and need only guarantees State bankruptcy.
A growth economy built on an aggressive program of expanded capital ownership, e.g., "Capital Homesteading for every citizen," financed by monetizing the present value of future marketable goods and services instead of government deficits, could lay the foundation for sustainable economic growth in which everyone can participate as an owner of both labor and capital, and provide sufficient income to meet ordinary needs — including health care — adequately.
#30#
Bullying is not, however, the real issue. True, Americans traditionally detest bullies. It remains to be seen, however, how much calcium remains in the national spinal column, and how willing the country is to oppose someone who, however good or bad his intentions and proposals, has so spectacularly failed the character test.
Aside from that we need to look at the substance of what the president said. Frankly, there are so many things wrong, even contrary to established fact in Obama's statements that it's difficult to know where to begin. "Elected," for example, implies a free choice by the voters. Do Americans (or anyone else, for that matter) truly have a free choice when they lack the economic power to support and sustain their (alleged) political power? Neither Daniel Webster nor Benjamin Watkins Leigh thought so.
The indifference of many of today's voters — in contrast to the sometimes violent elections up through the 1890s when a determinant number of Americans still owned capital — simply reflects the reality expressed by Webster that "power naturally and necessarily follows property." People who own meaningful capital stakes don't vote for politicians who try to guarantee every want and need of their supporters — and who raise taxes to pay for it. As William Cobbett pointed out,
"You may twist the word freedom as long as you please, but at last it comes to quiet enjoyment of your own property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of parliament? Oh! because they shall then have an influence over the conduct of those members. And of what use is that? Oh! then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have." (A History of the Protestant Reformation in England and Ireland, 1827, §456.)
The Tammany Hall machine stayed in power and controlled New York City for the benefit of a Democratic Party elite until the 1930s because it monopolized "patronage" — city jobs and benefits to the propertyless masses that elected their candidates. In the 1890s, however, and up until the 1930s Congress (although probably just as corrupt) ignored the demands of Coxey's Army and others to increase government spending and debauch the currency to finance public works and create meaningless jobs because their constituents — the trusts and the financial services industry — demanded sound money to support the industry and commerce on which they had a virtual monopoly.
What brought down Tammany Hall was not the reforming Fiorello LaGuardia, but the shift in the political power base — and thus patronage — from local and state governments, to the federal government with the New Deal. Keynesian economics and its emphasis on debt financing allowed FDR to manipulate the currency and fund government programs without having to cater quite as much to the rich or the rapidly shrinking capital-owning middle class voters who (then as now) paid the bulk of taxes. Along with the wage system, patronage in the form of job creation, corporate and individual welfare, Social Security, and the tax code was legitimized and entrenched as a matter of national policy. A non-owning majority now not only acquiesced to increasing government power, but began demanding it, often voting only when their share of patronage was threatened.
What about that "extraordinary and unprecedented" step of overturning a law passed by a duly elected legislature? We'll ignore for the sake of argument the president's puffery that the health care bill was passed by overwhelming majorities. "Puffing" is a legal term meaning "[a]n expression of opinion by [a] seller not made as a representation of fact." In other words, something that no reasonable person is expected to take seriously.
"Extraordinary and unprecedented"? Hardly. As William Crosskey pointed out in his monumental study, Politics and the Constitution in the History of the United States (1953) the expansion of judicial review into judicial activism has been going full throttle since Marbury v. Madison in 1803. Although a correct decision, Marbury was used to justify later action by the Court, primarily intended prior to the Civil War to preserve slavery. Judicial review was used afterwards to extend the Court's power as an end in itself. It was pivotal in the development of the theory of the "Living Constitution," a triumph of the Harvard school's legal positivism that can make the Constitution mean whatever the justices want it to mean.
Obama lauded such "raw judicial power" recently when he celebrated the decision in Roe v. Wade. His whole training as a lawyer is based on its validity. It's what he taught as a professor of Constitutional Law at the University of Chicago. Now that it is getting in the way of what he wants, however, judicial review suddenly becomes "extraordinary and unprecedented."
Even that, however, is not the real issue. The fact is that President Obama's vision of the role of government as government is seriously flawed. The State is not the guarantor of every individual want and need, but the guardian of the general welfare, the "level playing field" within which opportunity, not results, is optimized. In the real world, the government cannot mandate or guarantee results, any more than the market — free or unfree — can. Contrary to popular belief, government does not have the power of a god to create something out of nothing and provide it to its faithful worshippers, be it manna, quail, or a welfare check. Government creates nothing — creation and control are not functions of government.
Instead, government is supposed to protect the environment within which people can provide for themselves through their own efforts — preferably through their exercise of private property in capital. As Pope Leo XIII explained,
"This becomes still more clearly evident if man's nature be considered a little more deeply. For man, fathoming by his faculty of reason matters without number, linking the future with the present, and being master of his own acts, guides his ways under the eternal law and the power of God, whose providence governs all things. Wherefore, it is in his power to exercise his choice not only as to matters that regard his present welfare, but also about those which he deems may be for his advantage in time yet to come. Hence, man not only should possess the fruits of the earth, but also the very soil, inasmuch as from the produce of the earth he has to lay by provision for the future. Man's needs do not die out, but forever recur; although satisfied today, they demand fresh supplies for tomorrow. Nature accordingly must have given to man a source that is stable and remaining always with him, from which he might look to draw continual supplies. And this stable condition of things he finds solely in the earth and its fruits. There is no need to bring in the State. Man precedes the State, and possesses, prior to the formation of any State, the right of providing for the substance of his body." (Rerum Novarum, § 7.)
Yes, we need health care that is universally available, not universally mandated. We also need a way for people to be able to pay for what they get, backed up by private charity when they cannot, with government welfare the final recourse when all else fails. A State guarantee of every want and need only guarantees State bankruptcy.
A growth economy built on an aggressive program of expanded capital ownership, e.g., "Capital Homesteading for every citizen," financed by monetizing the present value of future marketable goods and services instead of government deficits, could lay the foundation for sustainable economic growth in which everyone can participate as an owner of both labor and capital, and provide sufficient income to meet ordinary needs — including health care — adequately.
#30#
Monday, April 2, 2012
Show Me the Money!
The other day we were asked a "complex question." We don't mean that the question was difficult to answer, however. A "complex question" in logic is one that assumes the answer. The most (in)famous complex question is, "Are you still beating your wife?" Try answering that "yes" or "no" and see what happens.
Anyway, the question was, "The House [of Representatives] has rejected the budget for not including enough cuts in spending. Is this the start of sane reductions and a return to much smaller budgets?"
The "complex" part of the question is the assumption that current levels of spending are insane. We happen to agree, but the question could have been phrased better.
Anyway, the problem is that no one in power is proposing a viable alternative to government spending. As long as people assume as a given that either the government provides basic needs or we do without, there is no way out of the situation. One side is chastised for being heartless fiends who want everyone to die for want of a crust of bread or a bandage, while the other side is lambasted as brainless spendthrifts who want to take care of everyone without it costing anyone.
The fact is that government was never intended to try and take care of people's individual wants and needs, but to provide and protect the environment within which people can take care of themselves. In an emergency, of course, it's perfectly legitimate for the government to step in and redistribute enough wealth to keep people going until they can get back on their feet, but we seem now to live in a permanent state of emergency.
At the heart of the problem is the belief that only the rich or the State can own capital, and everybody else must work only for wages or receive welfare. This is because most people think that the only way to finance new capital formation is to cut consumption and save, not monetize the present value of future marketable goods and services and let the new capital finance itself. This means that only the rich who can afford to cut consumption, or the State that can simply confiscate wealth, have the ability to finance new capital.
Once we realize, however, that we can turn the present value of future marketable goods and services into money — which is what commercial and central banks were invented to do, not finance non-productive government spending — we see the way out. People who currently own no capital can become owners of the capital that is displacing them from their jobs by buying capital on credit, and paying for it with the profits received from the capital in the future.
Most new capital is financed this way, anyway, but only by people who have collateral. Replacing traditional collateral with capital credit insurance and reinsurance solves that problem. Corporations don't need to finance growth by accumulating cash. They can pay out all earnings as tax-deductible dividends (fully taxable as ordinary income to the recipient), and issue new equity to finance growth.
Once most people become capital owners by purchasing the new equity (paid for using the full stream of dividends they receive, then when the shares are paid for, using the dividends for consumption), the government need no longer provide for individual needs, including Social Security and other entitlements — that make up two-thirds of the federal budget. As more people become capital owners, entitlements can be phased out, and the savings applied to paying down the national debt.
Without a replacement for entitlements, however, all the cost-cutting and tax increases (imposed on a deteriorating tax base as jobs disappear) in the world will not help. Leaving the present system intact and fiddling with the numbers can't work. Run the numbers — without a way to finance new capital without using cuts in consumption, the economy will continue to spiral downwards, ironically just as the inflationary policies result in "gains" in the stock market.
CESJ's proposal to replace entitlements, "Capital Homesteading," has the potential to turn this situation around, but none of the candidates or incumbents is considering it.
#30#
Anyway, the question was, "The House [of Representatives] has rejected the budget for not including enough cuts in spending. Is this the start of sane reductions and a return to much smaller budgets?"
The "complex" part of the question is the assumption that current levels of spending are insane. We happen to agree, but the question could have been phrased better.
Anyway, the problem is that no one in power is proposing a viable alternative to government spending. As long as people assume as a given that either the government provides basic needs or we do without, there is no way out of the situation. One side is chastised for being heartless fiends who want everyone to die for want of a crust of bread or a bandage, while the other side is lambasted as brainless spendthrifts who want to take care of everyone without it costing anyone.
The fact is that government was never intended to try and take care of people's individual wants and needs, but to provide and protect the environment within which people can take care of themselves. In an emergency, of course, it's perfectly legitimate for the government to step in and redistribute enough wealth to keep people going until they can get back on their feet, but we seem now to live in a permanent state of emergency.
At the heart of the problem is the belief that only the rich or the State can own capital, and everybody else must work only for wages or receive welfare. This is because most people think that the only way to finance new capital formation is to cut consumption and save, not monetize the present value of future marketable goods and services and let the new capital finance itself. This means that only the rich who can afford to cut consumption, or the State that can simply confiscate wealth, have the ability to finance new capital.
Once we realize, however, that we can turn the present value of future marketable goods and services into money — which is what commercial and central banks were invented to do, not finance non-productive government spending — we see the way out. People who currently own no capital can become owners of the capital that is displacing them from their jobs by buying capital on credit, and paying for it with the profits received from the capital in the future.
Most new capital is financed this way, anyway, but only by people who have collateral. Replacing traditional collateral with capital credit insurance and reinsurance solves that problem. Corporations don't need to finance growth by accumulating cash. They can pay out all earnings as tax-deductible dividends (fully taxable as ordinary income to the recipient), and issue new equity to finance growth.
Once most people become capital owners by purchasing the new equity (paid for using the full stream of dividends they receive, then when the shares are paid for, using the dividends for consumption), the government need no longer provide for individual needs, including Social Security and other entitlements — that make up two-thirds of the federal budget. As more people become capital owners, entitlements can be phased out, and the savings applied to paying down the national debt.
Without a replacement for entitlements, however, all the cost-cutting and tax increases (imposed on a deteriorating tax base as jobs disappear) in the world will not help. Leaving the present system intact and fiddling with the numbers can't work. Run the numbers — without a way to finance new capital without using cuts in consumption, the economy will continue to spiral downwards, ironically just as the inflationary policies result in "gains" in the stock market.
CESJ's proposal to replace entitlements, "Capital Homesteading," has the potential to turn this situation around, but none of the candidates or incumbents is considering it.
#30#
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