The day before yesterday, Archbishop Charles A. Chaput published a post on "Public Discourse," the blog of the Witherspoon Institute, on "Life in the Kingdom of Whatever." The point of the posting (if you don't have time to read it here) is that the spread of moral relativism, seen most graphically in the presumed split between faith and reason, has had a disastrous effect not just on individual lives, but on the whole of civilization.
Perhaps not surprisingly, Archbishop Chaput's analysis is similar to that of CESJ — and (as you might expect) to ours, as detailed in In Defense of Human Dignity (2008), Supporting Life: The Case for a Pro-Life Economic Agenda (2010) and The Restoration of Property: A Reexamination of a Natural Right (2012).
The restoration of virtue — justice in particular — was, broadly speaking, the topic on which we wanted to meet with the Archbishop a few years ago. The presentation our gatekeeper/door-opener made, however, may have lost a little in the translation. She apparently was not up to explaining how CESJ's "Just Third Way" differs from the usual redistribution schemes that either confiscate wealth outright, or redefine the natural rights of life, liberty and property — or even human nature itself — in a way that allows people to fool themselves that they are still being consistent with universal moral values and the natural law. The shift in the basis of the natural law from what can be observed about human nature and empirical evidence, to one's personal opinion has been disastrous in too many ways to list.
To take one example, in the world of finance and economics, many people hold as a virtual religious doctrine the opinion that the only way to finance new capital formation is to restrict consumption and accumulate money savings. This opinion is the basis for the mainstream Keynesian, Monetarist/Chicago, and Austrian schools of economics, as well as minor schools such as distributism, georgism, and social credit. This is related to the opinion that only labor is truly productive, that capital only enhances labor.
Now, as Mortimer Adler pointed out in Ten Philosophical Mistakes, an opinion can be true or false — but knowledge is always true. In his 1935 book, The Formation of Capital, Dr. Harold G. Moulton of the Brookings Institution proved beyond the shadow of a doubt — proved; he did not simply assert as opinion — that the present value of future increases in production could be turned into money by the expansion of commercial bank credit and used to finance new capital formation without first having to cut consumption and accumulate money savings. This is, in fact, what commercial and mercantile banks (known generically as "banks of issue" or "banks of circulation") were invented to do, thousands of years before the invention of banks of deposit, such as credit unions and savings and loans, ironically the only type of bank with which most people are familiar.
Further, as Moulton pointed out (consistent with Adam Smith's dictum that the purpose of production is consumption, a lead-in to Say's Law of Markets), to require that consumption be reduced before new capital formation can be financed is, everything else being equal, the worst way to finance new capital and stimulate economic growth. No sane person produces goods or services for market unless there is some demand for what will be produced. Decreasing consumption necessarily implies reduced demand, thereby reducing the incentive to produce. Therefore, it is far more efficient and logical to finance new capital with the present value of future increases in production, than accumulated savings representing what has been withheld from consumption in the past.
To Moulton's findings Louis Kelso added that all new capital financed with such "future savings" should be broadly owned . . . and thereby solved a problem that has plagued social reformers for millennia: how can people without capital and who consume all of their labor income supposed to become owners of capital? They aren't paid enough to be able to save more than a pittance for retirement (if that), and the rich aren't going to lend them money or give it to them outright, except in exceptional cases. What can be done?
Typically, the response has increasingly been that, since the rich must have stolen what they have, it's only just that we should steal from them and redistribute their presumably ill-gotten gains; two wrongs make a right. This, of course, requires that the ones judging the rich have the true knowledge that God has. Unfortunately, all they really have is the false opinion that, since the only way new capital formation can be financed is by cutting consumption and saving, and since labor is the only real input to production, and since nobody's labor is worth that much, the rich must have stolen what they have! That's logic, as Tweedledee and Tweedledum would say. Wealth must be redistributed if we want justice. They used to call this "theft."
This requires that such things as life, liberty and property be redefined so that redistribution is no longer theft, but justice. This, as we might expect, makes the natural law conditional, that is, no longer the natural law. No one's rights to life, liberty and property are truly inalienable, for redefinition inevitably establishes criteria to justify being alive, being free, or owning something.
Thus, you must prove that your life is worth living or isn't inconvenient or endangering someone else's life, liberty or property. Paradoxically, you also have to prove that you are worthy of being free and not a slave, i.e., a full member of society . . . which involves proving that you haven't committed a crime — such as attempting to be born inconveniently or under circumstances that make you an embarrassment or financial or social burden. As for ownership, that must be justified on some grounds other than being merely human. If you didn't work for it, you don't really own it. It must also be convenient for the State or other people that you own, or you can be divested of your property until you can justify possession.
In other words, pure moral relativism. Redefining fundamental rights in this fashion, as both Mortimer Adler and Heinrich Rommen pointed out, leads straight to totalitarian government. Sadly, the rot has spread so far that the moral relativism Archbishop Chaput targets is now not only respectable, it's considered essential, as Keynes asserted on the second page of Volume I of his magnum opus, A Treatise on Money (1930). The absolutist State has (according to Keynes) the power to "re-edit the dictionary," thereby abolishing the natural law.
As Kelso pointed out, however, empirical evidence has shown that 1) past savings is not the only source of financing for new capital, and 2) labor is not the only producer of wealth.
Suddenly we see that it is completely unnecessary to re-define the natural law in order to take what others have. Nor do we need to help God out by enforcing His law when we think other people are breaking it, however much we may think He is sleeping on the job.
The problem, of course, is that (being wedded to their opinions) people reject the potential of Kelso's advances in economics and finance, especially as embodied in, say, Capital Homesteading. We have actually seen people shake with rage when it was suggested that we don't have to take revenge on the rich in order to establish justice, and proclaim that CESJ is opposing God's Will — when, frankly, all that's really being opposed is their own false opinions.
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THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Thursday, November 8, 2012
Wednesday, November 7, 2012
Let's Make a Deal, IV: Society Becomes Non-Social
If the financial and economic problems facing the United States in 1910 we've been looking at in the last few postings weren't enough, there was also the degeneration of society itself. Society had, in fact, become less "social." Part of the problem was that the economic problems were obvious: concentrated ownership of capital, lack of access to capital credit, an inadequate money and credit system, an inelastic currency, and a shift from land to industrial and commercial capital as the predominant source of economic growth — a source to which most people lacked access.
The full effect of some of the problems with the social order had been staved off for a while by the relative success of the Homestead Act, but that was limited to land, not the rapidly expanding commercial and industrial capital. The increased production due to the Act and the consequent increase in demand, especially for rail service, brought the country out of the depression that followed the Panic of 1873. Similarly, the combination of crop failures in Europe and bumper crops in the U.S. brought the country out of the depression that followed the Panic of 1893.
There are two significant differences between the recovery from the depressions of the 19th century, however, and that of the 1930s and today. In the latter half of the 19th century, capital ownership was still relatively widespread in the United States. Increases in production had the double benefit of providing increased goods and services to purchase, as well as an increase in income with which to purchase.
In the 1930s and today, however, the remedy to an economic downturn is not to increase production and the capital ownership by means of which ordinary people can benefit from the increase, but to stimulate demand alone by artificially creating jobs. Ironically, it was the increased real demand for war material in the Second World War that brought the United States out of the depression of the 1930s, not the artificial demand created by increased government spending and debt.
Within the ruling Keynesian economic framework that became embedded as public policy with the New Deal, production is not a problem, while widespread capital ownership is characterized as irrelevant, a diversion, or even a positive evil. The rationale is that if ordinary people own capital, they will use the income for consumption, thereby drying up the supply of savings presumably essential to finance new capital that will provide the wage system jobs that provide people with income.
Both the increasingly individualistic (capitalism) and collectivistic (socialism) attitudes that had begun to characterize American society in the latter half of the 19th century can be traced to the concentration of capital ownership. Despite that (or because of that), the solution to this particular problem (as Pope Pius XI was to point out a generation later) is to become more social . . . not more social-ist.
The fact is that the United States, as described by Alexis de Tocqueville in Democracy in America (1835, 1840) had once been a fundamentally different type of society. As de Tocqueville compared social action in France, Great Britain and America, he claimed that in France, people expected the State to solve problems, in Great Britain they expected a "great man" to solve problems, but in America people tended to take matters into their own hands — the people were in charge. As he observed,
"In some countries a power exists which, though it is in a degree foreign to the social body, directs it, and forces it to pursue a certain track. In others the ruling force is divided, being partly within and partly without the ranks of the people. But nothing of the kind is to be seen in the United States; there society governs itself for itself. All power centers in its bosom; and scarcely an individual is to be meet with who would venture to conceive, or, still less, to express, the idea of seeking it elsewhere. The nation participates in the making of its laws by the choice of its legislators, and in the execution of them by the choice of the agents of the executive government; it may almost be said to govern itself, so feeble and so restricted is the share left to the administration, so little do the authorities forget their popular origin and the power from which they emanate." (Alexis de Tocqueville, "The Principle of Sovereignty of the People in America," Democracy in America, I.iv.)
This different orientation had its effect on every day life:
"The citizen of the United States is taught from his earliest infancy to rely upon his own exertions in order to resist the evils and the difficulties of life; he looks upon social authority with an eye of mistrust and anxiety, and he only claims its assistance when he is quite unable to shift without it. This habit may even be traced in the schools of the rising generation, where the children in their games are wont to submit to rules which they have themselves established, and to punish misdemeanors which they have themselves defined. The same spirit pervades every act of social life. If a stoppage occurs in a thoroughfare, and the circulation of the public is hindered, the neighbors immediately constitute a deliberative body; and this extemporaneous assembly gives rise to an executive power which remedies the inconvenience before anybody has thought of recurring to an authority superior to that of the persons immediately concerned. If the public pleasures are concerned, an association is formed to provide for the splendor and the regularity of the entertainment. Societies are formed to resist enemies which are exclusively of a moral nature, and to diminish the vice of intemperance: in the United States associations are established to promote public order, commerce, industry, morality, and religion; for there is no end which the human will, seconded by the collective exertions of individuals, despairs of attaining." ("Political Associations in the United States," ibid., I.xii)
In light of this, it is revealing that during the Great Depression of 1893-1898 there were, for the first time in American history, widespread calls for the government to take direct action. People felt that they had lost control over their own lives, and were looking to the most stable and most powerful entity around — the State — to make things right. The State had changed from being the people's servant, to being its master.
#30#
The full effect of some of the problems with the social order had been staved off for a while by the relative success of the Homestead Act, but that was limited to land, not the rapidly expanding commercial and industrial capital. The increased production due to the Act and the consequent increase in demand, especially for rail service, brought the country out of the depression that followed the Panic of 1873. Similarly, the combination of crop failures in Europe and bumper crops in the U.S. brought the country out of the depression that followed the Panic of 1893.
There are two significant differences between the recovery from the depressions of the 19th century, however, and that of the 1930s and today. In the latter half of the 19th century, capital ownership was still relatively widespread in the United States. Increases in production had the double benefit of providing increased goods and services to purchase, as well as an increase in income with which to purchase.
In the 1930s and today, however, the remedy to an economic downturn is not to increase production and the capital ownership by means of which ordinary people can benefit from the increase, but to stimulate demand alone by artificially creating jobs. Ironically, it was the increased real demand for war material in the Second World War that brought the United States out of the depression of the 1930s, not the artificial demand created by increased government spending and debt.
Within the ruling Keynesian economic framework that became embedded as public policy with the New Deal, production is not a problem, while widespread capital ownership is characterized as irrelevant, a diversion, or even a positive evil. The rationale is that if ordinary people own capital, they will use the income for consumption, thereby drying up the supply of savings presumably essential to finance new capital that will provide the wage system jobs that provide people with income.
Both the increasingly individualistic (capitalism) and collectivistic (socialism) attitudes that had begun to characterize American society in the latter half of the 19th century can be traced to the concentration of capital ownership. Despite that (or because of that), the solution to this particular problem (as Pope Pius XI was to point out a generation later) is to become more social . . . not more social-ist.
The fact is that the United States, as described by Alexis de Tocqueville in Democracy in America (1835, 1840) had once been a fundamentally different type of society. As de Tocqueville compared social action in France, Great Britain and America, he claimed that in France, people expected the State to solve problems, in Great Britain they expected a "great man" to solve problems, but in America people tended to take matters into their own hands — the people were in charge. As he observed,
"In some countries a power exists which, though it is in a degree foreign to the social body, directs it, and forces it to pursue a certain track. In others the ruling force is divided, being partly within and partly without the ranks of the people. But nothing of the kind is to be seen in the United States; there society governs itself for itself. All power centers in its bosom; and scarcely an individual is to be meet with who would venture to conceive, or, still less, to express, the idea of seeking it elsewhere. The nation participates in the making of its laws by the choice of its legislators, and in the execution of them by the choice of the agents of the executive government; it may almost be said to govern itself, so feeble and so restricted is the share left to the administration, so little do the authorities forget their popular origin and the power from which they emanate." (Alexis de Tocqueville, "The Principle of Sovereignty of the People in America," Democracy in America, I.iv.)
This different orientation had its effect on every day life:
"The citizen of the United States is taught from his earliest infancy to rely upon his own exertions in order to resist the evils and the difficulties of life; he looks upon social authority with an eye of mistrust and anxiety, and he only claims its assistance when he is quite unable to shift without it. This habit may even be traced in the schools of the rising generation, where the children in their games are wont to submit to rules which they have themselves established, and to punish misdemeanors which they have themselves defined. The same spirit pervades every act of social life. If a stoppage occurs in a thoroughfare, and the circulation of the public is hindered, the neighbors immediately constitute a deliberative body; and this extemporaneous assembly gives rise to an executive power which remedies the inconvenience before anybody has thought of recurring to an authority superior to that of the persons immediately concerned. If the public pleasures are concerned, an association is formed to provide for the splendor and the regularity of the entertainment. Societies are formed to resist enemies which are exclusively of a moral nature, and to diminish the vice of intemperance: in the United States associations are established to promote public order, commerce, industry, morality, and religion; for there is no end which the human will, seconded by the collective exertions of individuals, despairs of attaining." ("Political Associations in the United States," ibid., I.xii)
In light of this, it is revealing that during the Great Depression of 1893-1898 there were, for the first time in American history, widespread calls for the government to take direct action. People felt that they had lost control over their own lives, and were looking to the most stable and most powerful entity around — the State — to make things right. The State had changed from being the people's servant, to being its master.
#30#
Tuesday, November 6, 2012
Let's Make a Deal, III: The Trap of Non-Capital Credit
As we saw yesterday, a system in which most people do not have access to capital credit to finance new capital formation or enhance the productivity of existing capital is a system designed to fail. It increases variable costs of production, raises prices, and puts producers unable to obtain adequate credit for new or improved capital instruments in a perpetual "catch-up" situation, like the Red Queen in Lewis Carroll's Through the Looking-Glass.
An economy in which wage workers own little or no capital is thus analogous to a farmer who routinely sells his seed corn to meet debts incurred previously. The farmer then has to borrow again for more seed for the next crop, and hope that prices are high enough to generate the additional revenue needed to cover the cost of past seed, future seed, other operations, and provide sufficient income for consumption.
The farmers and the small businessmen of the latter half of the 19th century were in a bind caused by the design of the financial institutions of society and the manipulation of the currency under the principles of the British Currency School. Many of them had taken out loans during and immediately following the Civil War when, as a result of the inflationary policies followed by Salmon P. Chase, Lincoln's Secretary of the Treasury, money was "cheap." After the war there was a need to reestablish the faith and credit of the government and restore parity of the paper currency with gold — that is, make money "dear" again.
Consequently there was at first an official and then an unofficial policy of deflation to offset the 600% inflation during the war and bring gold and silver back into circulation. Prices fell. Thus, where farmers previously had to grow, for instance, a thousand bushels of wheat to repay a debt, they might have to grow two thousand to repay the same debt.
For another, the accumulated savings on which farmers and small businessmen relied for credit disappeared to repay debts or was used for consumption. There was little left over for investment. Farmers and small businessmen had to rely on mortgages based on the present value of existing assets to finance new capital formation, not the bills of exchange based on the present value of future assets available to the wealthy.
To explain, a bill of exchange is based on the creditworthiness of the borrower. It represents the present value of a future project — "future savings." The amount that can be borrowed is limited only by the financial feasibility of the project: the ability of the capital to pay for itself.
In contrast, a mortgage is based on something the borrower already owns, not on what he or she proposes to own. Mortgage financing thereby limits the amount that can be borrowed to what has been withheld from consumption in the past — "past savings." When operations are financed with a mortgage (as was usually the case with farmers and small businessmen), there is generally no increase in productive capacity that enables the borrower to repay the loan and continue to meet current consumption needs — nor, except in extraordinary circumstances (such as free or self-liquidating capital made available under a Homestead Act) can there be any expansion of productive capacity.
Instead, in such a situation, mortgage financing of operations (as opposed to new capital formation) creates a vicious circle. Existing capital is doubly burdened, having to produce at least at the prior level, plus enough to make the debt service payments. It comes as no surprise that, even in the best of times, few farmers and small businessmen were able to repay the principal, but were only able to make interest payments.
When the balloon payment came due, the loan was refinanced. If refinancing was unavailable due to scarcity of savings or decreased production (both of which occurred in the 1930s), the bank was forced to foreclose. Farmers lost their land, and small businesses went under.
#30#
An economy in which wage workers own little or no capital is thus analogous to a farmer who routinely sells his seed corn to meet debts incurred previously. The farmer then has to borrow again for more seed for the next crop, and hope that prices are high enough to generate the additional revenue needed to cover the cost of past seed, future seed, other operations, and provide sufficient income for consumption.
The farmers and the small businessmen of the latter half of the 19th century were in a bind caused by the design of the financial institutions of society and the manipulation of the currency under the principles of the British Currency School. Many of them had taken out loans during and immediately following the Civil War when, as a result of the inflationary policies followed by Salmon P. Chase, Lincoln's Secretary of the Treasury, money was "cheap." After the war there was a need to reestablish the faith and credit of the government and restore parity of the paper currency with gold — that is, make money "dear" again.
Consequently there was at first an official and then an unofficial policy of deflation to offset the 600% inflation during the war and bring gold and silver back into circulation. Prices fell. Thus, where farmers previously had to grow, for instance, a thousand bushels of wheat to repay a debt, they might have to grow two thousand to repay the same debt.
For another, the accumulated savings on which farmers and small businessmen relied for credit disappeared to repay debts or was used for consumption. There was little left over for investment. Farmers and small businessmen had to rely on mortgages based on the present value of existing assets to finance new capital formation, not the bills of exchange based on the present value of future assets available to the wealthy.
To explain, a bill of exchange is based on the creditworthiness of the borrower. It represents the present value of a future project — "future savings." The amount that can be borrowed is limited only by the financial feasibility of the project: the ability of the capital to pay for itself.
In contrast, a mortgage is based on something the borrower already owns, not on what he or she proposes to own. Mortgage financing thereby limits the amount that can be borrowed to what has been withheld from consumption in the past — "past savings." When operations are financed with a mortgage (as was usually the case with farmers and small businessmen), there is generally no increase in productive capacity that enables the borrower to repay the loan and continue to meet current consumption needs — nor, except in extraordinary circumstances (such as free or self-liquidating capital made available under a Homestead Act) can there be any expansion of productive capacity.
Instead, in such a situation, mortgage financing of operations (as opposed to new capital formation) creates a vicious circle. Existing capital is doubly burdened, having to produce at least at the prior level, plus enough to make the debt service payments. It comes as no surprise that, even in the best of times, few farmers and small businessmen were able to repay the principal, but were only able to make interest payments.
When the balloon payment came due, the loan was refinanced. If refinancing was unavailable due to scarcity of savings or decreased production (both of which occurred in the 1930s), the bank was forced to foreclose. Farmers lost their land, and small businesses went under.
#30#
Monday, November 5, 2012
Let's Make a Deal, II: Bad Systems Design Principles
As we saw last week, a central bank is an economic and financial necessity if society is to advance economically. Consequently, prior to the Civil War the United States made three attempts to establish a central bank, all of which were terminated as a result of political pressure and a misunderstanding of what banks do.
Finally, in 1863, in response to an increasingly desperate need for a central bank, the National Bank system was established. Unfortunately, the architects of the system chose the wrong model: the British Bank Charter Act of 1844 that undermined the money and credit system of Great Britain, and accelerated the concentration of capital ownership in that country in fewer and fewer hands.
The fundamental problem with the National Bank system was that it was virtually custom-made to favor the already wealthy and concentrate ownership of the new industrial and commercial capital that began to be formed after the war at a tremendous rate. This capital was financed in large measure by the expansion of bank credit — by the currently wealthy issuing bills of exchange that were discounted and rediscounted by other capitalists and commercial banks. This left income from operations available for working capital and distribution in the form of dividends for consumption income — and reinvestment in additional new capital.
In other words, the already wealthy were able to create money at will for new capital investment and use current income to finance operations, consumption, and accelerated capital formation simply because they were wealthy. They had a lock on the formation of new capital because they had a virtual monopoly on the means of financing new capital: access to capital credit, limited only by the present value of the capital being financed, and possession of collateral to back up their creditworthiness. At the same time, farmers and small businessmen were limited to existing accumulations of savings for credit to finance operations and in many cases consumption as well — and there were some serious problems with that.
It is a basic fact of business life that if you can generate enough revenue to cover costs you will make a profit; "profit" is what is left after meeting capital depreciation (fixed) and operating (variable) costs. Capital, whether land or technology, is usually the single largest cost in an economy in which capital ownership is widespread and owners work for profits instead of being wage slaves driving up the cost of production. This is because owners take their consumption income out of profits; consumption income is not a cost of production.
In a wage system, of course, labor is usually the single highest cost in a business. This is because consumption income has been shifted to a cost of production, not a residual after production costs have been met.
Shifting from an ownership economy to a wage economy is a "double whammy." This is because a business (including a farm) can survive for a time if it meets all its variable costs (especially if the capital is fully paid for and the cost is the non-cash item of depreciation), but goes bankrupt when it cannot meet its variable costs.
Capital in the form of depreciation or immediate expensing of equipment is generally a fixed cost, i.e., it doesn't change in the short run. Labor is generally a variable cost, e.g., if you don't produce anything you generally don't have to pay workers who aren't there. A wage system economy thereby has a tendency to insolvency built-in by being oriented toward increasing costs, where an ownership system economy is oriented toward growth by being oriented toward increasing production.
#30#
Finally, in 1863, in response to an increasingly desperate need for a central bank, the National Bank system was established. Unfortunately, the architects of the system chose the wrong model: the British Bank Charter Act of 1844 that undermined the money and credit system of Great Britain, and accelerated the concentration of capital ownership in that country in fewer and fewer hands.
The fundamental problem with the National Bank system was that it was virtually custom-made to favor the already wealthy and concentrate ownership of the new industrial and commercial capital that began to be formed after the war at a tremendous rate. This capital was financed in large measure by the expansion of bank credit — by the currently wealthy issuing bills of exchange that were discounted and rediscounted by other capitalists and commercial banks. This left income from operations available for working capital and distribution in the form of dividends for consumption income — and reinvestment in additional new capital.
In other words, the already wealthy were able to create money at will for new capital investment and use current income to finance operations, consumption, and accelerated capital formation simply because they were wealthy. They had a lock on the formation of new capital because they had a virtual monopoly on the means of financing new capital: access to capital credit, limited only by the present value of the capital being financed, and possession of collateral to back up their creditworthiness. At the same time, farmers and small businessmen were limited to existing accumulations of savings for credit to finance operations and in many cases consumption as well — and there were some serious problems with that.
It is a basic fact of business life that if you can generate enough revenue to cover costs you will make a profit; "profit" is what is left after meeting capital depreciation (fixed) and operating (variable) costs. Capital, whether land or technology, is usually the single largest cost in an economy in which capital ownership is widespread and owners work for profits instead of being wage slaves driving up the cost of production. This is because owners take their consumption income out of profits; consumption income is not a cost of production.
In a wage system, of course, labor is usually the single highest cost in a business. This is because consumption income has been shifted to a cost of production, not a residual after production costs have been met.
Shifting from an ownership economy to a wage economy is a "double whammy." This is because a business (including a farm) can survive for a time if it meets all its variable costs (especially if the capital is fully paid for and the cost is the non-cash item of depreciation), but goes bankrupt when it cannot meet its variable costs.
Capital in the form of depreciation or immediate expensing of equipment is generally a fixed cost, i.e., it doesn't change in the short run. Labor is generally a variable cost, e.g., if you don't produce anything you generally don't have to pay workers who aren't there. A wage system economy thereby has a tendency to insolvency built-in by being oriented toward increasing costs, where an ownership system economy is oriented toward growth by being oriented toward increasing production.
#30#
Friday, November 2, 2012
News from the Network, Vol. 5, No. 44
The "Jobs Report" is out, and (depending on what side you're taking in the current political contest, i.e., "wrong" or "wronger") it goes both ways. Yes, "lots" of jobs have been "created." (The image of a bearded deity wearing a bed sheet waving a magic wand and booming, "Let there be JOBS" keeps popping into the brainpan for some reason.) The question is whether they are "good jobs" or "bad jobs." (Another image: Glinda the Good Witch of the North, with another magic wand, asking Dorothy if going after the ruby slippers is a "good job" or a "bad job.")
The assumption is that "jobs" are "good." How else is someone supposed to make a living? Well, there's welfare. That's where the government takes money from people with "jobs" and gives it to people without "jobs."
Then there's gambling. That's where people with "jobs" take some of their money and play games in a casino or stock market to see who ends up with it . . . usually people without "jobs" who have figured out a way to move money from the pockets of people with "jobs" to their pockets.
That's about it.
Oh, sorry. There's also "ownership" of "capital." The problem with "owning capital," however, especially capital with which you produce a marketable good or service, is that it disrupts the whole economic equation. As every good Keynesian knows, the purpose of production is not consumption (feh), but reinvestment in new capital to create jobs. If ordinary people owned capital, most of them wouldn't do the sensible thing with their profits (i.e., give it to the government to spend creating jobs or invest in new capital to create jobs), but waste the money on food, clothing and shelter, and maybe a steak dinner, a vacation, or a college education.
Small investors are such a pain. As Keynes said, he looked forward to the "euthanasia" of everybody who spends capital income on consumption rather than reinvestment or taxes.
Perhaps that explains why there's been so little going on this week in the Just Third Way — nobody is anxious to become a small capital owner and have the Keynesians liquidate them. Or it could be the Wonder Storm Sandy and the Biggest Election in the History of the World.
Nah. It's the Keynesians.
• Speaking of Keynesians, this news report makes perfect sense . . . once we realize that (as Harold Moulton pointed out more than three-quarters of a century ago in The Formation of Capital) economic growth is best financed not out of existing accumulations of savings, but by monetizing the present value of future increases in production. The incredible complexities of the tax system are (if you read the report properly) utterly useless. Unfortunately, none of this occurs to anyone on either side of the debate.
• Outreach efforts continue in an effort to connect with potential door openers and gatekeepers who might get us to prime movers. "Buzz words" and key concepts to look for: private property, liberty, natural law, ownership, justice, and so on.
• This past week we obtained two more rare books for the CESJ research library, both by "Banking Principle" writer James Wilson Gilbart: An Inquiry into the Causes of the Pressure On the Money Market During the Year 1839, and The Logic of Banking. We hope soon to be surfacing (good) copies of the works of Thomas Tooke and Henry Dunning Macleod. Note: these books are much better than their titles make out, although still not exactly "lite" reading.
• As of this morning, we have had visitors from 61 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 United Kingdom, Australia, and the Philippines. People in Slovenia, France, Estonia, the United States and the United Kingdom 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "The Strange Case of the Ignored Encyclical."
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 assumption is that "jobs" are "good." How else is someone supposed to make a living? Well, there's welfare. That's where the government takes money from people with "jobs" and gives it to people without "jobs."
Then there's gambling. That's where people with "jobs" take some of their money and play games in a casino or stock market to see who ends up with it . . . usually people without "jobs" who have figured out a way to move money from the pockets of people with "jobs" to their pockets.
That's about it.
Oh, sorry. There's also "ownership" of "capital." The problem with "owning capital," however, especially capital with which you produce a marketable good or service, is that it disrupts the whole economic equation. As every good Keynesian knows, the purpose of production is not consumption (feh), but reinvestment in new capital to create jobs. If ordinary people owned capital, most of them wouldn't do the sensible thing with their profits (i.e., give it to the government to spend creating jobs or invest in new capital to create jobs), but waste the money on food, clothing and shelter, and maybe a steak dinner, a vacation, or a college education.
Small investors are such a pain. As Keynes said, he looked forward to the "euthanasia" of everybody who spends capital income on consumption rather than reinvestment or taxes.
Perhaps that explains why there's been so little going on this week in the Just Third Way — nobody is anxious to become a small capital owner and have the Keynesians liquidate them. Or it could be the Wonder Storm Sandy and the Biggest Election in the History of the World.
Nah. It's the Keynesians.
• Speaking of Keynesians, this news report makes perfect sense . . . once we realize that (as Harold Moulton pointed out more than three-quarters of a century ago in The Formation of Capital) economic growth is best financed not out of existing accumulations of savings, but by monetizing the present value of future increases in production. The incredible complexities of the tax system are (if you read the report properly) utterly useless. Unfortunately, none of this occurs to anyone on either side of the debate.
• Outreach efforts continue in an effort to connect with potential door openers and gatekeepers who might get us to prime movers. "Buzz words" and key concepts to look for: private property, liberty, natural law, ownership, justice, and so on.
• This past week we obtained two more rare books for the CESJ research library, both by "Banking Principle" writer James Wilson Gilbart: An Inquiry into the Causes of the Pressure On the Money Market During the Year 1839, and The Logic of Banking. We hope soon to be surfacing (good) copies of the works of Thomas Tooke and Henry Dunning Macleod. Note: these books are much better than their titles make out, although still not exactly "lite" reading.
• As of this morning, we have had visitors from 61 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 United Kingdom, Australia, and the Philippines. People in Slovenia, France, Estonia, the United States and the United Kingdom 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "The Strange Case of the Ignored Encyclical."
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, November 1, 2012
Let's Make a Deal, I: A Recipe for Disaster
In 1910, the United States was in serious trouble. The financial system was in a shambles following the Panic of 1907 that occurred relatively soon after the Panic of 1893 and the Great Depression of 1893-1898. The growing power of the Trusts and giant corporations, the accelerating loss of property by farmers and small owners, and the concentration of financial and economic power was countered by increasing demands for State control of the economy.
From 1901 to 1908 Theodore Roosevelt had made great advances in reining in the power of the great corporations, but without succumbing to the temptation to replace the unbridled power of the vested interests of the private sector with the iron fist of the State. From the Just Third Way perspective, however, there were two problems Roosevelt faced that he failed to solve.
Roosevelt's failure was not due to any lack of initiative or vision on his part. It was simply that the necessary institutions were not in place. The first of these was an adequate financial system. The second of these was the act of social justice.
Both an adequate financial system and the act of social justice had, to some extent, existed at one time in the United States. Prior to the Civil War there had been three attempts to establish a central banking system to provide a uniform and stable currency and adequate liquidity for private sector economic development. These were the Bank of North America from 1782-1787, the Bank of the United States from 1792-1811, and the Second Bank of the United States from 1817-1836.
All three of these institutions had been shut down out of fear of concentrated control over money and credit. Few people understood that a properly run commercial or central bank cannot simply create money by fiat, the way a government can by forcing people to accept its debt paper — "bills of credit."
A "bank of issue" (and commercial and central banks are banks of issue) can only create money by issuing promissory notes when accepting ("discounts" or "rediscounts") bills of exchange offered by a maker or holder of the bill. A "sound" banker will always carefully examine the creditworthiness of the maker of the bill.
This is because the bank is liable to any holder or holder in due course on a promissory note it issues who presents the note for payment. A bank that issues promissory notes in excess of the present value of the bills it discounts or rediscounts (a practice called "overbanking" or "overtrading") is making promises that it is not reasonably certain can or will be kept — and for which the bank is responsible.
Assuming that commercial banks properly examine all bills brought to it for discounting, and assuming there is a central bank to ensure that rediscounting is available to make certain that the currency is uniform and in adequate supply, there will always be sufficient money in circulation to provide for the needs of commerce without inflation or deflation.
Without a central bank, the State tends to take over control over money and credit instead of being confined to a regulatory and enforcement role. This effectively puts the economy under direct government control, whether the economy calls itself capitalist or socialist. Only a central bank that is not under political control and that does not accept government bills of credit can carry out its proper function of ensuring a uniform and stable asset-backed currency and providing the private sector with sufficient liquidity to meet the demands of trade and commerce.
A central bank is therefore a vital necessity for any economy that advances beyond the agrarian stage and subsistence agriculture. During the Civil War, then, there was a fourth attempt to establish and maintain a central banking function, the National Bank system. Although it was seriously flawed, it lasted from 1863 to 1913 until replaced by the Federal Reserve system.
#30#
From 1901 to 1908 Theodore Roosevelt had made great advances in reining in the power of the great corporations, but without succumbing to the temptation to replace the unbridled power of the vested interests of the private sector with the iron fist of the State. From the Just Third Way perspective, however, there were two problems Roosevelt faced that he failed to solve.
Roosevelt's failure was not due to any lack of initiative or vision on his part. It was simply that the necessary institutions were not in place. The first of these was an adequate financial system. The second of these was the act of social justice.
Both an adequate financial system and the act of social justice had, to some extent, existed at one time in the United States. Prior to the Civil War there had been three attempts to establish a central banking system to provide a uniform and stable currency and adequate liquidity for private sector economic development. These were the Bank of North America from 1782-1787, the Bank of the United States from 1792-1811, and the Second Bank of the United States from 1817-1836.
All three of these institutions had been shut down out of fear of concentrated control over money and credit. Few people understood that a properly run commercial or central bank cannot simply create money by fiat, the way a government can by forcing people to accept its debt paper — "bills of credit."
A "bank of issue" (and commercial and central banks are banks of issue) can only create money by issuing promissory notes when accepting ("discounts" or "rediscounts") bills of exchange offered by a maker or holder of the bill. A "sound" banker will always carefully examine the creditworthiness of the maker of the bill.
This is because the bank is liable to any holder or holder in due course on a promissory note it issues who presents the note for payment. A bank that issues promissory notes in excess of the present value of the bills it discounts or rediscounts (a practice called "overbanking" or "overtrading") is making promises that it is not reasonably certain can or will be kept — and for which the bank is responsible.
Assuming that commercial banks properly examine all bills brought to it for discounting, and assuming there is a central bank to ensure that rediscounting is available to make certain that the currency is uniform and in adequate supply, there will always be sufficient money in circulation to provide for the needs of commerce without inflation or deflation.
Without a central bank, the State tends to take over control over money and credit instead of being confined to a regulatory and enforcement role. This effectively puts the economy under direct government control, whether the economy calls itself capitalist or socialist. Only a central bank that is not under political control and that does not accept government bills of credit can carry out its proper function of ensuring a uniform and stable asset-backed currency and providing the private sector with sufficient liquidity to meet the demands of trade and commerce.
A central bank is therefore a vital necessity for any economy that advances beyond the agrarian stage and subsistence agriculture. During the Civil War, then, there was a fourth attempt to establish and maintain a central banking function, the National Bank system. Although it was seriously flawed, it lasted from 1863 to 1913 until replaced by the Federal Reserve system.
#30#
Wednesday, October 31, 2012
Romney's Speech
It might be a little late in the day to bring this up, but the morning after Mitt Romney's talk at the Al Smith Dinner on October 18, someone sent us a link to a video of the speech. Unlike most political speeches or humorous monologues, we watched it through to the end. We're not sure the Romney campaign would be pleased to hear this, but it may have been the most carefully written and highly nuanced speech of the entire campaign.
The only thing lacking was a recognition that neither of the candidates has a viable program either of economic recovery or (not to sound too melodramatic) of restoring the Republic. It took an Octavius Caesar to halt the decline of Rome, and neither candidate is of the caliber of the "Divine Augustus."
Even Caesar Augustus, however, only halted the deterioration and delayed the inevitable end of a system that embodied grave flaws. The founders of the United States and the framers of the Constitution intended the American Republic to correct the errors of the past and create a "more perfect" union, establish justice, and so on, but insisted on leaving in place the "original sin" of slavery.
This, according to constitutional scholar William Crosskey of the University of Chicago, was fatal. Almost from the beginning the ideals on which the United States was founded were corrupted to preserve an inherently unjust institution: people innocent of any crime held in servitude for the economic benefit of others. This was justified by what became known as the "living Constitution" theory that euthanized the document.
The violation of the natural right of liberty (freedom of association/contract) involved in chattel slavery undermined understanding of the natural law itself. It led, inevitably, to distortions and violations of the natural rights of life and property. Ironically, this has largely been accomplished by effectively nullifying the 14th Amendment to the Constitution, an amendment adopted in part to establish for all time the inalienable personhood of every human being.
Not surprisingly, the only real hope we have of sustainable economic recovery and of restoring the Republic lies in emancipating people from the wage slavery of capitalism and the welfare slavery of socialism, and in reversing the growth of the Servile State that combines the evils of both systems. Only a program of expanded capital ownership that does not violate either political expediency or the precepts of the natural law can accomplish these goals.
As I argue in my latest book, The Restoration of Property: A Reexamination of a Natural Right (as well as in my previous book, Supporting Life: The Case for a Pro-Life Economic Agenda, 2010), simply redistributing existing wealth through the State or redefining the natural right of private property — and, inevitably, life and liberty as well — causes more problems than it solves. It can, in fact, be shown that the Keynesian emphasis on using the State to redistribute existing wealth through taxation and inflation and (as Keynes put it) "re-editing the dictionary" for political ends is, in large measure, responsible for the current economic and even moral decay of our society.
That being the case, and in light of Romney's speech, I can think of no greater service any American can perform for his or her country than to set aside egos and opinions, and introduce the candidates and our fellow citizens to the potential of Capital Homesteading to reestablish the United States as "the last, best hope of earth."
#30#
The only thing lacking was a recognition that neither of the candidates has a viable program either of economic recovery or (not to sound too melodramatic) of restoring the Republic. It took an Octavius Caesar to halt the decline of Rome, and neither candidate is of the caliber of the "Divine Augustus."
Even Caesar Augustus, however, only halted the deterioration and delayed the inevitable end of a system that embodied grave flaws. The founders of the United States and the framers of the Constitution intended the American Republic to correct the errors of the past and create a "more perfect" union, establish justice, and so on, but insisted on leaving in place the "original sin" of slavery.
This, according to constitutional scholar William Crosskey of the University of Chicago, was fatal. Almost from the beginning the ideals on which the United States was founded were corrupted to preserve an inherently unjust institution: people innocent of any crime held in servitude for the economic benefit of others. This was justified by what became known as the "living Constitution" theory that euthanized the document.
The violation of the natural right of liberty (freedom of association/contract) involved in chattel slavery undermined understanding of the natural law itself. It led, inevitably, to distortions and violations of the natural rights of life and property. Ironically, this has largely been accomplished by effectively nullifying the 14th Amendment to the Constitution, an amendment adopted in part to establish for all time the inalienable personhood of every human being.
Not surprisingly, the only real hope we have of sustainable economic recovery and of restoring the Republic lies in emancipating people from the wage slavery of capitalism and the welfare slavery of socialism, and in reversing the growth of the Servile State that combines the evils of both systems. Only a program of expanded capital ownership that does not violate either political expediency or the precepts of the natural law can accomplish these goals.
As I argue in my latest book, The Restoration of Property: A Reexamination of a Natural Right (as well as in my previous book, Supporting Life: The Case for a Pro-Life Economic Agenda, 2010), simply redistributing existing wealth through the State or redefining the natural right of private property — and, inevitably, life and liberty as well — causes more problems than it solves. It can, in fact, be shown that the Keynesian emphasis on using the State to redistribute existing wealth through taxation and inflation and (as Keynes put it) "re-editing the dictionary" for political ends is, in large measure, responsible for the current economic and even moral decay of our society.
That being the case, and in light of Romney's speech, I can think of no greater service any American can perform for his or her country than to set aside egos and opinions, and introduce the candidates and our fellow citizens to the potential of Capital Homesteading to reestablish the United States as "the last, best hope of earth."
#30#
Tuesday, October 30, 2012
The Old Shell Game
Recently we responded to a reporter who clearly didn't know the difference in U.S. retirement law between a defined contribution plan and a defined benefit plan — and who assumed that a defined contribution plan could somehow be unfunded. This makes defined contribution plans like ESOPs and 401(k)s come across as another ploy to cheat workers out of guaranteed benefits. It helps convince people that everything should be guaranteed so that everyone can be a dependent in some degree on the State or on a private employer.
The reporter had no comeback, but a defined contribution plan cannot be unfunded for the simple reason that a participant in such a plan is due 100% of the vested balance in his or her accounts. There is no question of being unfunded: the money is either there, or it isn't. If it's not there, you don't get it. If it is there, you do.
In a defined benefit plan, a participant is due whatever the sponsoring company promised. Whether the plan actually has the ability to make good on that promise is another matter altogether. A defined benefit plan — like the U.S. government plan and Social Security, has made promises, but may not have any assets behind those promises.
A defined contribution plan cannot go bust by definition, but defined benefit plans go bust all the time because they don't have the assets to pay the promised benefits. Social Security, for instance, has no assets (and you don't own what's in your account, either — Flemming v. Nestor, 1960).
All those "assets" are government bonds that represent the money you paid in that the government lent to itself. In other words, you gave the government money, and the government gave itself an IOU and spent the money. Now the government has to collect more money to pay you out, or issue more bonds to go deeper into debt.
This used to be called "thimblerig" or "the old shell game." Today it's called "Modern Monetary Theory." It's an application of Keynesian economics derived from Georg Friedrich Knapp's "chartalism." Chartalism is a socialist theory developed in the 1880s (hence the need to convince people that it's "modern") that assumes the State owns everything, and can issue money at will against the wealth of society . . . none of which it owns.
#30#
The reporter had no comeback, but a defined contribution plan cannot be unfunded for the simple reason that a participant in such a plan is due 100% of the vested balance in his or her accounts. There is no question of being unfunded: the money is either there, or it isn't. If it's not there, you don't get it. If it is there, you do.
In a defined benefit plan, a participant is due whatever the sponsoring company promised. Whether the plan actually has the ability to make good on that promise is another matter altogether. A defined benefit plan — like the U.S. government plan and Social Security, has made promises, but may not have any assets behind those promises.
A defined contribution plan cannot go bust by definition, but defined benefit plans go bust all the time because they don't have the assets to pay the promised benefits. Social Security, for instance, has no assets (and you don't own what's in your account, either — Flemming v. Nestor, 1960).
All those "assets" are government bonds that represent the money you paid in that the government lent to itself. In other words, you gave the government money, and the government gave itself an IOU and spent the money. Now the government has to collect more money to pay you out, or issue more bonds to go deeper into debt.
This used to be called "thimblerig" or "the old shell game." Today it's called "Modern Monetary Theory." It's an application of Keynesian economics derived from Georg Friedrich Knapp's "chartalism." Chartalism is a socialist theory developed in the 1880s (hence the need to convince people that it's "modern") that assumes the State owns everything, and can issue money at will against the wealth of society . . . none of which it owns.
#30#
Monday, October 29, 2012
Why NOT Capitalism?
By Norman Kurland
Picking up where we left off last week, what was and still remains missing in the Kelso movement?
In my mind, what's missing is a deeper understanding of and commitment of all those subscribing to the Kelso-Adler principles of economic justice to the "laws of Social Justice." These were best articulated in a 1948 pamphlet Introduction to Social Justice by the late Rev. William J. Ferree, a superb scholar and leader in the Marianist Catholic Order. Ferree explained that the principles that must be followed to change any institution which has become unjust or flawed, including the social order from the lowest to the highest levels of any society.
I first learned of Kelso's ideas in 1965 while on the frontlines of President Johnson's "War on Poverty." I left the War on Poverty to serve as Director of Planning to introduce Kelso's ideas to the leaders and projects of the Citizens Crusade Against Poverty. The Citizens Crusade was a coalition of so-called "progressive" labor, civil rights, religious, business, academic, and grassroots leaders headed by the legendary United Auto Workers president Walter Reuther.
I left the CCAP in 1968 to join with Kelso to help form and serve as the first executive director of Kelso's Institute for the Study of Economic Systems from 1968 to 1976 and to serve as Kelso's "one-man lobbying campaign" as Washington Counsel for his ESOP investment bank. I did not learn of Father Ferree's ideas on how to organize for peaceful change until 1984. This was in the last years of his life when he served as chairman of Dayton University and made what he called his 500-mile "monthly pilgrimage" to Washington to form and participate in CESJ.
I highly recommend that you read and comment on our 1997 republication of Father Ferree's pamphlet on how to organize for revolutionary social change. I knew and debated Saul Alinsky and read his Rules for Radicals. Alinsky and Obama should have read Ferree's rules for true revolutionaries. So should every supporter of the Just Third Way. Supporters of Kelso's ideas should study this pamphlet, including our Foreword, and begin to take initiatives consistent with Ferree's wisdom. We will hasten the day of victory for the Just Third Way and the passage of the Capital Homestead Act.
The sooner we win the war of words and the sooner we will win the war of ideas.
"Own or Be Owned."
#30#
Picking up where we left off last week, what was and still remains missing in the Kelso movement?
In my mind, what's missing is a deeper understanding of and commitment of all those subscribing to the Kelso-Adler principles of economic justice to the "laws of Social Justice." These were best articulated in a 1948 pamphlet Introduction to Social Justice by the late Rev. William J. Ferree, a superb scholar and leader in the Marianist Catholic Order. Ferree explained that the principles that must be followed to change any institution which has become unjust or flawed, including the social order from the lowest to the highest levels of any society.
I first learned of Kelso's ideas in 1965 while on the frontlines of President Johnson's "War on Poverty." I left the War on Poverty to serve as Director of Planning to introduce Kelso's ideas to the leaders and projects of the Citizens Crusade Against Poverty. The Citizens Crusade was a coalition of so-called "progressive" labor, civil rights, religious, business, academic, and grassroots leaders headed by the legendary United Auto Workers president Walter Reuther.
I left the CCAP in 1968 to join with Kelso to help form and serve as the first executive director of Kelso's Institute for the Study of Economic Systems from 1968 to 1976 and to serve as Kelso's "one-man lobbying campaign" as Washington Counsel for his ESOP investment bank. I did not learn of Father Ferree's ideas on how to organize for peaceful change until 1984. This was in the last years of his life when he served as chairman of Dayton University and made what he called his 500-mile "monthly pilgrimage" to Washington to form and participate in CESJ.
I highly recommend that you read and comment on our 1997 republication of Father Ferree's pamphlet on how to organize for revolutionary social change. I knew and debated Saul Alinsky and read his Rules for Radicals. Alinsky and Obama should have read Ferree's rules for true revolutionaries. So should every supporter of the Just Third Way. Supporters of Kelso's ideas should study this pamphlet, including our Foreword, and begin to take initiatives consistent with Ferree's wisdom. We will hasten the day of victory for the Just Third Way and the passage of the Capital Homestead Act.
The sooner we win the war of words and the sooner we will win the war of ideas.
"Own or Be Owned."
#30#
Friday, October 26, 2012
News from the Network, Vol. 5, No. 43
As the election in the United States gets closer, it becomes increasingly evident that neither candidate for president has a vision that will establish and maintain a just and humane future for all. Special interest groups continue to be targeted as if the fate of the world depended on them having their personal and individual concerns addressed to the exclusion of all else, while the need for real and substantive economic reform that would secure genuine choice to people instead of ineffectual rhetoric is ignored.
Nevertheless, there are some very good signs that real people, that is, people living outside the Washington, DC beltway, are starting to wake up to the need for something substantially different from what has been peddled in the past:
• Thanks in large measure to the efforts of Father Cassian J. Yuhaus, C.P., of St. Ann's Monastery and Shrine Basilica and CESJ Counselor, who sent a copy of CESJ's paper, Affording Universal Healthcare: A Private Sector Alternative to Mandates, His Eminence, Timothy Michael Cardinal Dolan, Archbishop of New York, sent CESJ a note with the following comment: "In a special way, I found the paper imbued with many elements of the Church's social teachings, particularly the principle and application of subsidiarity." This is a gratifying recognition of CESJ's efforts to conform to the precepts of the natural law discernible by reason and thus universally applicable, whatever your faith or philosophy. It also echoes the personal encouragement given to the work of CESJ by His Holiness, Blessed John Paul II in a private audience with representatives of CESJ and members of Polish Solidarity in 1987.
• This week the CESJ research library obtained a copy of James William Gilbart's 1851 book on banking theory, The Logic of Banking.
• Dave Hamill of the Coalition for Capital Homesteading has contributed an article on his journey to Capital Homesteading to the Huffington Post.
• As of this morning, we have had visitors from 60 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, Canada, and India. People in Slovenia, France, Taiwan, Estonia, and Australia 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "The Strange Case of the Ignored Encyclical."
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#
Nevertheless, there are some very good signs that real people, that is, people living outside the Washington, DC beltway, are starting to wake up to the need for something substantially different from what has been peddled in the past:
• Thanks in large measure to the efforts of Father Cassian J. Yuhaus, C.P., of St. Ann's Monastery and Shrine Basilica and CESJ Counselor, who sent a copy of CESJ's paper, Affording Universal Healthcare: A Private Sector Alternative to Mandates, His Eminence, Timothy Michael Cardinal Dolan, Archbishop of New York, sent CESJ a note with the following comment: "In a special way, I found the paper imbued with many elements of the Church's social teachings, particularly the principle and application of subsidiarity." This is a gratifying recognition of CESJ's efforts to conform to the precepts of the natural law discernible by reason and thus universally applicable, whatever your faith or philosophy. It also echoes the personal encouragement given to the work of CESJ by His Holiness, Blessed John Paul II in a private audience with representatives of CESJ and members of Polish Solidarity in 1987.
• This week the CESJ research library obtained a copy of James William Gilbart's 1851 book on banking theory, The Logic of Banking.
• Dave Hamill of the Coalition for Capital Homesteading has contributed an article on his journey to Capital Homesteading to the Huffington Post.
• As of this morning, we have had visitors from 60 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, Canada, and India. People in Slovenia, France, Taiwan, Estonia, and Australia 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "The Strange Case of the Ignored Encyclical."
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, October 25, 2012
Why "Own or Be Owned"?
By Norman Kurland
Our evolving "movement" is made up of individuals. Some are more individualistic than others in their attitudes toward working in solidarity with others. Yet each of these individuals share in common an ability to understand and use in their communication with others such terms as "binary economics", "the Just Third Way", "Capital Homesteading", and, for some, even "capitalism" as that word was used by Kelso and Adler and in our "Glossary" of Just Third Way terms.
Kelso and Adler, as scholars are increasingly coming to understand, distinguished their property and free market-based and limited government system of economic democracy from what Marx and his inventors of the term "capitalism" meant. To socialists, "capitalism" describes a social order based on greed, exploitation and power over the most of humanity by a tiny elite. This is maintained through highly concentrated ownership of the means of production.
The global justice movement is united behind the essential triad of principles of economic justice (participation, distribution and harmony) and so-called "theory of capitalism" as articulated by Kelso and Adler. This distinguishes supporters of Kelso's vision of a property-based and just free market, limited government system from the system of political economy advocated by Marx and others on the left.
It also distinguishes the Kelso-Adler semantic use of the word "capitalism" from that of Ayn Rand and Milton Friedman on the intellectual right. They take the word to mean "greed is good" and that systemic barriers to creating national and global of individually independent capital owners can be ignored. This is because (in their opinion) free markets alone without lifting unjust institutional barriers to widespread capital ownership will create a moral society.
Some of the Just Third Way supporters of the Kelso-Adler vision, including myself, reject the word "capitalism" as a morally confusing use of semantics. We would argue that if "capital" is defined in Kelsonian binary economic theory as non-human "things," and these "things" are integrated with all human contributions to the production of marketable goods and services, then "capitalism" is "thing-ism" and a "capitalist" can also be called a "thing-ist."
Differences in semantics exposes our movement to diversionary criticism from others that we glorify "things" rather than "human beings." But semantic arguments need not weaken the need for greater solidarity among all supporters of the principles, logic and vision of the Kelso-Adler vision of a new system of economic democracy based on equality of opportunity for every person to become an owner of capital.
Without economic democracy — articulated by a common mantra like "Own or Be Owned" — political democracy will never work. Being a capital owner is better than being a slave, including a wage slave, a welfare slave, a credit slave and even a charity slave. To strengthen our movement we need to tolerate differences, including semantic differences, as long as we agree on basic principles. If all of us reflect on and begin communicating the common sense reality of these four words to reflect the essential unity of our new movement, every "elevator speech" by each of us could begin with this term to open up the minds of others to "the new big picture."
We should invite everyone we meet to learn more by visiting the website of the Coalition for Capital Homesteading, and the growing "virtual libraries" of the Kelso Institute and the Center for Economic and Social Justice.
Words are important for uniting highly diverse people to gain a passionate commitment to a new and revolutionary set of morally compelling ideas, including our blueprint for changing the "social disorder" of today's world to a new "social order." "Own or Be Owned" can easily be explained to offer new and realistic hope that Peace, Prosperity and Freedom for all in America and throughout a more participatory global community.
#30#
Our evolving "movement" is made up of individuals. Some are more individualistic than others in their attitudes toward working in solidarity with others. Yet each of these individuals share in common an ability to understand and use in their communication with others such terms as "binary economics", "the Just Third Way", "Capital Homesteading", and, for some, even "capitalism" as that word was used by Kelso and Adler and in our "Glossary" of Just Third Way terms.
Kelso and Adler, as scholars are increasingly coming to understand, distinguished their property and free market-based and limited government system of economic democracy from what Marx and his inventors of the term "capitalism" meant. To socialists, "capitalism" describes a social order based on greed, exploitation and power over the most of humanity by a tiny elite. This is maintained through highly concentrated ownership of the means of production.
The global justice movement is united behind the essential triad of principles of economic justice (participation, distribution and harmony) and so-called "theory of capitalism" as articulated by Kelso and Adler. This distinguishes supporters of Kelso's vision of a property-based and just free market, limited government system from the system of political economy advocated by Marx and others on the left.
It also distinguishes the Kelso-Adler semantic use of the word "capitalism" from that of Ayn Rand and Milton Friedman on the intellectual right. They take the word to mean "greed is good" and that systemic barriers to creating national and global of individually independent capital owners can be ignored. This is because (in their opinion) free markets alone without lifting unjust institutional barriers to widespread capital ownership will create a moral society.
Some of the Just Third Way supporters of the Kelso-Adler vision, including myself, reject the word "capitalism" as a morally confusing use of semantics. We would argue that if "capital" is defined in Kelsonian binary economic theory as non-human "things," and these "things" are integrated with all human contributions to the production of marketable goods and services, then "capitalism" is "thing-ism" and a "capitalist" can also be called a "thing-ist."
Differences in semantics exposes our movement to diversionary criticism from others that we glorify "things" rather than "human beings." But semantic arguments need not weaken the need for greater solidarity among all supporters of the principles, logic and vision of the Kelso-Adler vision of a new system of economic democracy based on equality of opportunity for every person to become an owner of capital.
Without economic democracy — articulated by a common mantra like "Own or Be Owned" — political democracy will never work. Being a capital owner is better than being a slave, including a wage slave, a welfare slave, a credit slave and even a charity slave. To strengthen our movement we need to tolerate differences, including semantic differences, as long as we agree on basic principles. If all of us reflect on and begin communicating the common sense reality of these four words to reflect the essential unity of our new movement, every "elevator speech" by each of us could begin with this term to open up the minds of others to "the new big picture."
We should invite everyone we meet to learn more by visiting the website of the Coalition for Capital Homesteading, and the growing "virtual libraries" of the Kelso Institute and the Center for Economic and Social Justice.
Words are important for uniting highly diverse people to gain a passionate commitment to a new and revolutionary set of morally compelling ideas, including our blueprint for changing the "social disorder" of today's world to a new "social order." "Own or Be Owned" can easily be explained to offer new and realistic hope that Peace, Prosperity and Freedom for all in America and throughout a more participatory global community.
#30#
Wednesday, October 24, 2012
If Binary Economics is So Great, How Come Governments Don't Adopt It?
Given the obvious advantages of restructuring an economy to conform to the principles of binary economics, why aren't governments — many of which are increasingly panic-stricken about the declining world economic situation — adopting it?
Frankly, governments have become so used to thinking of Keynesian economics as something that cannot be questioned that they don't question it. Many people in power simply haven't considered the possibility that things could be fundamentally different if we changed a few basic assumptions about labor and capital, money and credit, private property, the role of the State, and the market.
These people aren't bad, but they refuse to think about something new unless someone in authority tells them it's okay. That's why we think if we could talk to, for instance, President Obama or Romney, even now something could be done in a very short time. One person who should be very interested in what we're saying is Pope Benedict XVI — and he has the prestige to get other world leaders to listen.
There is, of course, always the possibility that another country will see the benefits of adopting reforms consistent with the principles of binary economics and enact a Capital Homestead Act before the United States. Japan, for instance, has demonstrated that once it gets hold of a good idea, it can take it to heights undreamed of in other countries. Poland is another possibility, especially in light of the fiscal restraint that the National Bank of Poland has previously shown (although there are signs of weakening on this).
Any country that adopts the basic principles of binary economics as embodied in Capital Homesteading can expect to rebuild a sound economy within a very short time — and not at the expense of other countries, but to their benefit as other countries begin to realize the benefits associated with restructuring their institutions to conform to common sense instead of political expedience.
#30#
Frankly, governments have become so used to thinking of Keynesian economics as something that cannot be questioned that they don't question it. Many people in power simply haven't considered the possibility that things could be fundamentally different if we changed a few basic assumptions about labor and capital, money and credit, private property, the role of the State, and the market.
These people aren't bad, but they refuse to think about something new unless someone in authority tells them it's okay. That's why we think if we could talk to, for instance, President Obama or Romney, even now something could be done in a very short time. One person who should be very interested in what we're saying is Pope Benedict XVI — and he has the prestige to get other world leaders to listen.
There is, of course, always the possibility that another country will see the benefits of adopting reforms consistent with the principles of binary economics and enact a Capital Homestead Act before the United States. Japan, for instance, has demonstrated that once it gets hold of a good idea, it can take it to heights undreamed of in other countries. Poland is another possibility, especially in light of the fiscal restraint that the National Bank of Poland has previously shown (although there are signs of weakening on this).
Any country that adopts the basic principles of binary economics as embodied in Capital Homesteading can expect to rebuild a sound economy within a very short time — and not at the expense of other countries, but to their benefit as other countries begin to realize the benefits associated with restructuring their institutions to conform to common sense instead of political expedience.
#30#
Tuesday, October 23, 2012
Is Binary Economics "Practical"?
Many people think that the principles and overall theory of binary economics sound good, and it would be nice if everyone could own enough capital to provide him or her with an adequate and secure income, but it can't happen. The system just doesn't work that way, and you can't change the system.
That's not entirely correct. True, the economy is in such bad shape that a quick fix is no longer possible. There are, however, some things that could be done immediately. First, the Federal Reserve should stop monetizing all discretionary government spending. Ideally, there would be no monetization of government debt, but it can't be eliminated overnight.
Second, the Federal Reserve has the power right now to provide all the liquidity necessary to supply the private sector directly, not through increases in government spending, with all the financing the private sector needs for new and replacement capital. It can do this by rediscounting bills from commercial banks for financially feasible new and replacement capital, not speculation in the stock market, bailouts of failed companies, or purchase of toxic assets.
Frankly, the stimulus packages are like a gunshot wound to the economy. Returning the Federal Reserve to its original mission of providing liquidity to the private sector would apply a bandage and stop much of the bleeding.
We stress, however, that even returning the Federal Reserve to its original purpose is only a temporary, short-term measure. Unless a Capital Homestead Act or something very similar is passed at the earliest possible date, the economy will not be able to sustain itself. There must be widespread capital ownership if the economy is to survive.
That's what can be done at the "macro level," that is, at the level of the overall economy. At the "micro level," that is, at the level of a single company, a little more can be done. Under current law in the U.S., it is possible to reorganize a company as a Subchapter S corporation so that, if it is 100% owned by the workers through an ESOP trust, it pays no corporate income tax. In and of itself, this makes the company better able to survive during an economic downturn.
If the profits are paid out to the workers instead of being retained in the company, the local economy — and thus the company — benefits by the increase in consumption power. If the company implements what we call "Justice-Based Management" or other participatory management system, and combines it with profit sharing and worker ownership, studies by the National Center for Employee Ownership in Oakland, California, have shown that a company measurably increases its profitability, sometimes by as much as 150%.
As we said, though, this is all short-term. Without a Capital Homestead Act very soon, and the monetary, tax, and financial reforms that the global economy desperately needs, we don't see any hope for any lasting improvement.
#30#
That's not entirely correct. True, the economy is in such bad shape that a quick fix is no longer possible. There are, however, some things that could be done immediately. First, the Federal Reserve should stop monetizing all discretionary government spending. Ideally, there would be no monetization of government debt, but it can't be eliminated overnight.
Second, the Federal Reserve has the power right now to provide all the liquidity necessary to supply the private sector directly, not through increases in government spending, with all the financing the private sector needs for new and replacement capital. It can do this by rediscounting bills from commercial banks for financially feasible new and replacement capital, not speculation in the stock market, bailouts of failed companies, or purchase of toxic assets.
Frankly, the stimulus packages are like a gunshot wound to the economy. Returning the Federal Reserve to its original mission of providing liquidity to the private sector would apply a bandage and stop much of the bleeding.
We stress, however, that even returning the Federal Reserve to its original purpose is only a temporary, short-term measure. Unless a Capital Homestead Act or something very similar is passed at the earliest possible date, the economy will not be able to sustain itself. There must be widespread capital ownership if the economy is to survive.
That's what can be done at the "macro level," that is, at the level of the overall economy. At the "micro level," that is, at the level of a single company, a little more can be done. Under current law in the U.S., it is possible to reorganize a company as a Subchapter S corporation so that, if it is 100% owned by the workers through an ESOP trust, it pays no corporate income tax. In and of itself, this makes the company better able to survive during an economic downturn.
If the profits are paid out to the workers instead of being retained in the company, the local economy — and thus the company — benefits by the increase in consumption power. If the company implements what we call "Justice-Based Management" or other participatory management system, and combines it with profit sharing and worker ownership, studies by the National Center for Employee Ownership in Oakland, California, have shown that a company measurably increases its profitability, sometimes by as much as 150%.
As we said, though, this is all short-term. Without a Capital Homestead Act very soon, and the monetary, tax, and financial reforms that the global economy desperately needs, we don't see any hope for any lasting improvement.
#30#
Monday, October 22, 2012
Is Binary Economics Inflationary?
One thing about the monetary reforms proposed under binary economics that troubles thoughtful people is the danger of inflation. Once we know that under binary economics there is a direct link between the money supply and the present value of existing and future marketable goods and services in the economy, however, we realize that the danger of either inflation or deflation is minimized to the point of insignificance.
Inflation is most simply defined as more money chasing fewer goods and services. As long as the government continues to create money in response to political or social needs, there is no way to control inflation except restraining government — and as government gains more power by controlling money, it becomes increasingly difficult to restrain.
Under binary economics the creation of new money would be tied directly to the increase in the present value of existing and future marketable goods and services in the economy by only creating money by discounting and rediscounting bills of exchange that represent the present value of specific marketable goods and services that have already been produced, or that are reasonably expected to be produced in the near future.
The money supply under binary economics would thus increase and decrease directly with the present value of marketable goods and services in the economy. There would thus be neither inflation nor deflation, but just the right amount of money that the economy needs, and it would be stable in value.
In fact, prices would tend to go down, and people would have more money that would be worth more. This is because when financing new capital with discounted and rediscounted bills of exchange, people are very conservative about how much they expect to be able to produce. When they actually start producing marketable goods and services, owners work much harder than other people, and produce much more than is necessary to pay for the capital. This increases supply, and lowers prices without harming profits.
#30#
Inflation is most simply defined as more money chasing fewer goods and services. As long as the government continues to create money in response to political or social needs, there is no way to control inflation except restraining government — and as government gains more power by controlling money, it becomes increasingly difficult to restrain.
Under binary economics the creation of new money would be tied directly to the increase in the present value of existing and future marketable goods and services in the economy by only creating money by discounting and rediscounting bills of exchange that represent the present value of specific marketable goods and services that have already been produced, or that are reasonably expected to be produced in the near future.
The money supply under binary economics would thus increase and decrease directly with the present value of marketable goods and services in the economy. There would thus be neither inflation nor deflation, but just the right amount of money that the economy needs, and it would be stable in value.
In fact, prices would tend to go down, and people would have more money that would be worth more. This is because when financing new capital with discounted and rediscounted bills of exchange, people are very conservative about how much they expect to be able to produce. When they actually start producing marketable goods and services, owners work much harder than other people, and produce much more than is necessary to pay for the capital. This increases supply, and lowers prices without harming profits.
#30#
Friday, October 19, 2012
News from the Network, Vol. 5, No. 42
Evidently, the powers-that-be in the world of economics and finance haven't quite figured it out yet. Today (at least as of 1:00 pm EDST) the Dow is crashing and burning. Cue meaningless announcement from some politician, business human, or central bank talking head that will instantly reverse the downward trend due to irrational optimism.
The ostensible cause is a disappointing earnings report for the last quarter. What no one seems to be suggesting is that (just maybe) the earnings aren't quite as disappointing as the hopes of speculators were overblown. The so-called growth that the rise in the stock market has been signaling is the result not of sustainable increases in actual, non-inflationary growth, but of pouring money into the stock market instead of either paying it out to shareholders or (much less desirable, but at least semi-rational) using it to finance new capital formation.
Added to that is the so-called "stimulus" money that appears only to be stimulating stock market speculation. At least during the New Deal of the 1930s the money was actually paid to people who used it for consumption, thereby stimulating consumer demand directly, albeit in an unsustainable fashion. These days, the only increase in demand we see is for some place for the recipient corporations to park the cash in the most profitable way — the speculative stock market.
Of course, the best use for any of the cash received by a business is to pay it out to its owners. The purpose of production is, as Adam Smith may have mentioned, is consumption. It's not reinvestment. If corporations paid out all their earnings in the form of tax deductible dividends and financed expansion and growth by issuing new equity shares purchased on credit by people who currently own no capital, we would see a rather steep increase in both sustainable demand and the production to meet that demand. Stock market speculation? Let the rich lose their money that way. (Know how to make a small fortune on Wall Street? Start with a large fortune.)
To help establish that happy state of affairs (the poor getting rich, not the rich getting poor), here's what we've been doing over the past week:
• We have increased outreach to "midlevel" media figures and venues. This week a concerted effort is being made to connect with one such individual, the founder of a religiously oriented e-zine that has been successful since its founding two years ago. Our goal is to get the editor to interview Norman Kurland, publicize our ideas and books, and anything else that might come to mind. Do not overlook the mid-level bloggers who tend to be more open to the ideas of others than the "name" bloggers who tend to be more concerned with promoting themselves.
• Mitt Romney's talk at the annual Al Smith Dinner in New York might just have been the most carefully crafted and highly nuanced speech of the entire campaign. Mr. Romney seems to have been studying Ronald Reagan's delivery, not to mention doing a lot of rehearsing. The only thing missing was a realization that what this country needs is (as Reagan pointed out) is a [Capital] Homestead Act. (Reagan called it an "Industrial Homestead Act," but we think that "Capital Homestead Act" is a better term.)
• Despite a number of unexpected factors that interfered with sales, there was a respectable number of book sales at a church choir bake sale this past Sunday. The choir earned 20% of gross sales, which may suggest to schools and churches a fundraiser that might do more good and be more beneficial than wrapping paper or cookie dough: CESJ publications.
• As of this morning, we have had visitors from 57 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, Canada, and South Africa. People in Slovenia, Taiwan, Estonia, Portugal, and Australia 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "Own the Fed, Part I: Introduction."
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 ostensible cause is a disappointing earnings report for the last quarter. What no one seems to be suggesting is that (just maybe) the earnings aren't quite as disappointing as the hopes of speculators were overblown. The so-called growth that the rise in the stock market has been signaling is the result not of sustainable increases in actual, non-inflationary growth, but of pouring money into the stock market instead of either paying it out to shareholders or (much less desirable, but at least semi-rational) using it to finance new capital formation.
Added to that is the so-called "stimulus" money that appears only to be stimulating stock market speculation. At least during the New Deal of the 1930s the money was actually paid to people who used it for consumption, thereby stimulating consumer demand directly, albeit in an unsustainable fashion. These days, the only increase in demand we see is for some place for the recipient corporations to park the cash in the most profitable way — the speculative stock market.
Of course, the best use for any of the cash received by a business is to pay it out to its owners. The purpose of production is, as Adam Smith may have mentioned, is consumption. It's not reinvestment. If corporations paid out all their earnings in the form of tax deductible dividends and financed expansion and growth by issuing new equity shares purchased on credit by people who currently own no capital, we would see a rather steep increase in both sustainable demand and the production to meet that demand. Stock market speculation? Let the rich lose their money that way. (Know how to make a small fortune on Wall Street? Start with a large fortune.)
To help establish that happy state of affairs (the poor getting rich, not the rich getting poor), here's what we've been doing over the past week:
• We have increased outreach to "midlevel" media figures and venues. This week a concerted effort is being made to connect with one such individual, the founder of a religiously oriented e-zine that has been successful since its founding two years ago. Our goal is to get the editor to interview Norman Kurland, publicize our ideas and books, and anything else that might come to mind. Do not overlook the mid-level bloggers who tend to be more open to the ideas of others than the "name" bloggers who tend to be more concerned with promoting themselves.
• Mitt Romney's talk at the annual Al Smith Dinner in New York might just have been the most carefully crafted and highly nuanced speech of the entire campaign. Mr. Romney seems to have been studying Ronald Reagan's delivery, not to mention doing a lot of rehearsing. The only thing missing was a realization that what this country needs is (as Reagan pointed out) is a [Capital] Homestead Act. (Reagan called it an "Industrial Homestead Act," but we think that "Capital Homestead Act" is a better term.)
• Despite a number of unexpected factors that interfered with sales, there was a respectable number of book sales at a church choir bake sale this past Sunday. The choir earned 20% of gross sales, which may suggest to schools and churches a fundraiser that might do more good and be more beneficial than wrapping paper or cookie dough: CESJ publications.
• As of this morning, we have had visitors from 57 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, Canada, and South Africa. People in Slovenia, Taiwan, Estonia, Portugal, and Australia 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 Theory of Quantitative Easing," "What Really Happens in Quantitative Easing," and "Own the Fed, Part I: Introduction."
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, October 18, 2012
Who SHOULD "Own"?
We recently had someone ask us how the concept of ownership in binary economics differs from that in other schools of economics. For once, that is an easy question to answer, or at least relatively so.
Mainstream economics and virtually all of the minor schools of economics assume as a matter of course that only the State or a private sector elite can or should own capital. The fundamental principle of socialism, as both Karl Marx and Leo XIII agreed, is that only the State should own capital.
Capitalism does not say that only a private sector elite should own capital. The problem is that capitalists assume that only a private sector elite can own capital. Supporters of capitalism generally do not recognize barriers that prevent most people from owning capital.
Foremost among these barriers is the belief that the only way to finance new capital is to cut consumption and accumulate savings. Since most people cannot afford to cut consumption to the degree needed to finance capital that can cost millions of dollars, supporters of capitalism assume that most people should not own, or there would not be enough financing for new capital. They do not believe that widespread ownership of capital is necessarily bad, they just don't think it's practical.
Minor schools of economics, such as distributism, social credit, and georgism, often advocate widespread ownership of capital, but they tend to change the definition of ownership so that ownership no longer means anything.
Binary economics is built on the assumption that capital ownership not only should be widespread, it must be widespread. At the lowest but most immediate level of human needs, only by owning the capital that is replacing human labor can ordinary people hope to gain enough income to meet their wants and needs.
At the systemic level, that is, the whole economy, only widespread capital ownership can generate the mass purchasing power essential to keep the economy running. Government stimulus packages try to generate mass purchasing power artificially by printing money, but the only way to generate sustainable mass purchasing power is by as many people as possible owning capital, and spending the income from capital not on more capital, but on consumption.
At the highest level of human needs, only capital ownership gives real political power. As the American statesman Daniel Webster pointed out in 1820, "Power naturally and necessarily follows property." Without capital ownership, even adults are soon treated as children to be taken care of by their employers or, increasingly, the State.
Thus, binary economics recognizes that widespread capital ownership is absolutely essential in both economic and social terms.
#30#
Mainstream economics and virtually all of the minor schools of economics assume as a matter of course that only the State or a private sector elite can or should own capital. The fundamental principle of socialism, as both Karl Marx and Leo XIII agreed, is that only the State should own capital.
Capitalism does not say that only a private sector elite should own capital. The problem is that capitalists assume that only a private sector elite can own capital. Supporters of capitalism generally do not recognize barriers that prevent most people from owning capital.
Foremost among these barriers is the belief that the only way to finance new capital is to cut consumption and accumulate savings. Since most people cannot afford to cut consumption to the degree needed to finance capital that can cost millions of dollars, supporters of capitalism assume that most people should not own, or there would not be enough financing for new capital. They do not believe that widespread ownership of capital is necessarily bad, they just don't think it's practical.
Minor schools of economics, such as distributism, social credit, and georgism, often advocate widespread ownership of capital, but they tend to change the definition of ownership so that ownership no longer means anything.
Binary economics is built on the assumption that capital ownership not only should be widespread, it must be widespread. At the lowest but most immediate level of human needs, only by owning the capital that is replacing human labor can ordinary people hope to gain enough income to meet their wants and needs.
At the systemic level, that is, the whole economy, only widespread capital ownership can generate the mass purchasing power essential to keep the economy running. Government stimulus packages try to generate mass purchasing power artificially by printing money, but the only way to generate sustainable mass purchasing power is by as many people as possible owning capital, and spending the income from capital not on more capital, but on consumption.
At the highest level of human needs, only capital ownership gives real political power. As the American statesman Daniel Webster pointed out in 1820, "Power naturally and necessarily follows property." Without capital ownership, even adults are soon treated as children to be taken care of by their employers or, increasingly, the State.
Thus, binary economics recognizes that widespread capital ownership is absolutely essential in both economic and social terms.
#30#
Wednesday, October 17, 2012
When the State Issues Money
As we saw yesterday, "money" is simply a contract to deliver marketable goods and services on demand or at some specified date in the future. Since money is a contract, it necessarily implies that the parties to the contract have the ability to "perform" according to the terms of the contract.
That is, if I make a promise in May to you to deliver a hundred bushels of wheat on October 31, I either have to have 100 bushels of wheat in my possession now and hold them for you until you present my promise for redemption on October 31, or — what is more likely to be the case — I have to have the capacity to obtain or produce 100 bushels of wheat by October 31 so I can comply with the terms of my promise to you.
In other words, I have to own or obtain either the means of purchasing or producing the wheat. I can't just take it from someone who has produced it without compensation, nor can I produce it myself unless I possess the means of producing it.
For some reason these very sensible rules manage to get suspended when we talk about government making promises. When governments issue money, they break the connection between money and production because (except under socialism), governments do not own the present value of the existing and future marketable goods and services that people exchange with one another.
When the government issues money, the money is backed not by the present value of existing and future marketable goods and services that the government owns. The government doesn't own them. Rather, the money is backed by the present value of the power of the government to tax existing and future marketable goods and services that somebody else owns. Taxes are not an exercise of a government's ultimate property right in everything, but a grant from the citizens, and unjust without their consent.
Ultimately, government-issued money is making a promise for someone else to keep. It is a complicated form of redistribution through the hidden tax of inflation, because governments by their nature produce nothing in the way of marketable goods and services.
When the government issues money backed by what private individuals or groups produce, it takes away any incentive for people to produce. People begin to think that the government, not God, is the source of all good. The more money government issues, the worse the situation becomes, and the more power government gains over everyone's lives.
A program based on binary economics, such as Capital Homesteading, would reform the monetary and tax systems. New money would only be created by the private sector in response to increases in the present value of existing and future marketable goods and services. Instead of printing money to meet its expenses or for social purposes, governments would have to live on what could be raised in taxes granted by free citizens.
#30#
That is, if I make a promise in May to you to deliver a hundred bushels of wheat on October 31, I either have to have 100 bushels of wheat in my possession now and hold them for you until you present my promise for redemption on October 31, or — what is more likely to be the case — I have to have the capacity to obtain or produce 100 bushels of wheat by October 31 so I can comply with the terms of my promise to you.
In other words, I have to own or obtain either the means of purchasing or producing the wheat. I can't just take it from someone who has produced it without compensation, nor can I produce it myself unless I possess the means of producing it.
For some reason these very sensible rules manage to get suspended when we talk about government making promises. When governments issue money, they break the connection between money and production because (except under socialism), governments do not own the present value of the existing and future marketable goods and services that people exchange with one another.
When the government issues money, the money is backed not by the present value of existing and future marketable goods and services that the government owns. The government doesn't own them. Rather, the money is backed by the present value of the power of the government to tax existing and future marketable goods and services that somebody else owns. Taxes are not an exercise of a government's ultimate property right in everything, but a grant from the citizens, and unjust without their consent.
Ultimately, government-issued money is making a promise for someone else to keep. It is a complicated form of redistribution through the hidden tax of inflation, because governments by their nature produce nothing in the way of marketable goods and services.
When the government issues money backed by what private individuals or groups produce, it takes away any incentive for people to produce. People begin to think that the government, not God, is the source of all good. The more money government issues, the worse the situation becomes, and the more power government gains over everyone's lives.
A program based on binary economics, such as Capital Homesteading, would reform the monetary and tax systems. New money would only be created by the private sector in response to increases in the present value of existing and future marketable goods and services. Instead of printing money to meet its expenses or for social purposes, governments would have to live on what could be raised in taxes granted by free citizens.
#30#
Tuesday, October 16, 2012
The Concept of Money in Binary Economics
To understand how Kelso claimed that binary economics has the potential (as he put it in the subtitle of The New Capitalists), to "free economic growth from the slavery of savings," we first have to realize that by "savings" Kelso meant "past savings." New capital cannot be financed without savings of some kind. Kelso just said we need to shift from saving by cutting consumption in the past, to saving by increasing production in the future. To understand how we can save in the future as well as in the past, we need to get a better understanding of money.
Money is defined very simply in binary economics: anything that can be accepted in settlement of a debt.
Kelso perhaps said it best when he pointed out that "money" is only a symbol. Jean-Baptiste Say, of "Say's Law of Markets" said the same thing when he noted in a debate with Thomas Malthus that we don't really purchase what others produce with "money," but with what we produce by means of our labor and our capital.
That is, we can only purchase what others produce with what we produce. If we can't produce, we can't purchase. "Money," as Say and Kelso said, is only the symbol of what we are really exchanging. Money is the medium through which or by which we exchange marketable goods and services, it is not what we exchange.
Further, we do not have to have the marketable good or service on hand when we make a promise to deliver it. If the delivery date is in the future, we only need to have the marketable good or service on hand when the money we issued is presented for payment. Money therefore represents the present value of both existing and future marketable goods and services.
In binary economics, we can take the present value of marketable goods and services that do not yet exist, and turn that present value into money. We do this by offering ("offer") to deliver marketable goods and services ("consideration") in the future. If someone accepts our offer ("acceptance"), money has been created.
We can take this money and use it to finance the formation of the capital with which we expect to produce the marketable goods and services we promised to deliver at some future date. Assuming everything goes as planned (and in the vast majority of cases it does) when someone presents our promise on the due date, we will be able to deliver the promised goods and services, or the value thereof, redeeming the promise.
In this way (and trade and commerce has been carried out in exactly this way for thousands of years) there can always be just the right amount of "money" around. There need be no deflation, and inflation would be limited to "cost push inflation," i.e., a rise in prices that results from a decrease in supply for some reason, not an increase in the money supply unlinked to increases in the present value of existing and future marketable goods and services.
The understanding of money in binary economics, however, assumes as a given that only people who produce marketable goods and services should enter into contracts (i.e., "offer," "acceptance," and "consideration") for the delivery of marketable goods and services or the value thereof in the future or on demand. What happens when non-producers enter into contracts for the delivery of marketable goods and services or the value thereof that they don't own is something we will look at next week.
#30#
Money is defined very simply in binary economics: anything that can be accepted in settlement of a debt.
Kelso perhaps said it best when he pointed out that "money" is only a symbol. Jean-Baptiste Say, of "Say's Law of Markets" said the same thing when he noted in a debate with Thomas Malthus that we don't really purchase what others produce with "money," but with what we produce by means of our labor and our capital.
That is, we can only purchase what others produce with what we produce. If we can't produce, we can't purchase. "Money," as Say and Kelso said, is only the symbol of what we are really exchanging. Money is the medium through which or by which we exchange marketable goods and services, it is not what we exchange.
Further, we do not have to have the marketable good or service on hand when we make a promise to deliver it. If the delivery date is in the future, we only need to have the marketable good or service on hand when the money we issued is presented for payment. Money therefore represents the present value of both existing and future marketable goods and services.
In binary economics, we can take the present value of marketable goods and services that do not yet exist, and turn that present value into money. We do this by offering ("offer") to deliver marketable goods and services ("consideration") in the future. If someone accepts our offer ("acceptance"), money has been created.
We can take this money and use it to finance the formation of the capital with which we expect to produce the marketable goods and services we promised to deliver at some future date. Assuming everything goes as planned (and in the vast majority of cases it does) when someone presents our promise on the due date, we will be able to deliver the promised goods and services, or the value thereof, redeeming the promise.
In this way (and trade and commerce has been carried out in exactly this way for thousands of years) there can always be just the right amount of "money" around. There need be no deflation, and inflation would be limited to "cost push inflation," i.e., a rise in prices that results from a decrease in supply for some reason, not an increase in the money supply unlinked to increases in the present value of existing and future marketable goods and services.
The understanding of money in binary economics, however, assumes as a given that only people who produce marketable goods and services should enter into contracts (i.e., "offer," "acceptance," and "consideration") for the delivery of marketable goods and services or the value thereof in the future or on demand. What happens when non-producers enter into contracts for the delivery of marketable goods and services or the value thereof that they don't own is something we will look at next week.
#30#
Monday, October 15, 2012
"The Social Question"
Do we redistribute wealth now to take care of people, or do we invest in new capital formation to create more wealth in the future to take care of them tomorrow? It seems that there is a necessary tradeoff between consuming what we want today, or using to produce something to consume tomorrow — and there doesn't seem to be an answer.
The issue can be resolved, however, once we realize that social teaching of most religions addresses two distinct, if related issues: 1) How do we keep people alive in the current unjust arrangement of society? 2) How do we reform the system — and to what "end" — in order to remove the injustices?
The first is something of a no-brainer. If people are in need, you are morally obligated to give them alms. In extreme cases, this becomes an obligation under justice, and can enforced by the State through redistribution of existing wealth (Rerum Novarum, § 22) . . . although most of the means by which this is done today and the scale on which it is done suggests that what is permitted in extremis has itself been carried to extremes.
There's a big problem, however. You can't redistribute forever, as many governments today are discovering. Eventually 1) the bill for yesterday comes due, and 2) people have to produce something.
As Lous Kelso and Mortimer Adler (and somebody named Leo XIII) pointed out, private property in capital is a natural right, i.e., a matter of justice, not charity. The ordinary means by which we are to make a living is ownership of capital, not mere human labor. That is why Leo XIII summed up the whole program in Rerum Novarum as "The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (§ 46.)
The question is, how?
Kelso and Adler, building on the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1928 to 1952, gave the answer. Moulton proved that, contrary to the assertions of the Keynesians, Monetarists and Austrians, that it is not only possible to finance new capital formation without cutting consumption and accumulating money savings, it is better if you don't.
In fact, Moulton proved that, in periods of rapid capital formation (e.g., the U.S. between 1865 and 1893), financing did not come from past savings, but future savings. These were realized by discounting and rediscounting bills of exchange based on the present value of the future marketable goods and services to be produced by the capital being financed — that is, the expansion of commercial bank credit for capital financing, not consumption or government debt.
Kelso and Adler pointed out that, if the rich could do this, so could the poor, and replace declining labor income with increasing capital income, financed on credit, and repaid with the future earnings of the capital itself. You could also replace traditional collateral with capital credit insurance and reinsurance.
You don't have to redistribute existing wealth except as a temporary expedient. Once people have the opportunity to own capital on favorable terms, you will see the end of the current phase of the Great Depression and an elimination of the business cycle.
#30#
The issue can be resolved, however, once we realize that social teaching of most religions addresses two distinct, if related issues: 1) How do we keep people alive in the current unjust arrangement of society? 2) How do we reform the system — and to what "end" — in order to remove the injustices?
The first is something of a no-brainer. If people are in need, you are morally obligated to give them alms. In extreme cases, this becomes an obligation under justice, and can enforced by the State through redistribution of existing wealth (Rerum Novarum, § 22) . . . although most of the means by which this is done today and the scale on which it is done suggests that what is permitted in extremis has itself been carried to extremes.
There's a big problem, however. You can't redistribute forever, as many governments today are discovering. Eventually 1) the bill for yesterday comes due, and 2) people have to produce something.
As Lous Kelso and Mortimer Adler (and somebody named Leo XIII) pointed out, private property in capital is a natural right, i.e., a matter of justice, not charity. The ordinary means by which we are to make a living is ownership of capital, not mere human labor. That is why Leo XIII summed up the whole program in Rerum Novarum as "The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (§ 46.)
The question is, how?
Kelso and Adler, building on the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1928 to 1952, gave the answer. Moulton proved that, contrary to the assertions of the Keynesians, Monetarists and Austrians, that it is not only possible to finance new capital formation without cutting consumption and accumulating money savings, it is better if you don't.
In fact, Moulton proved that, in periods of rapid capital formation (e.g., the U.S. between 1865 and 1893), financing did not come from past savings, but future savings. These were realized by discounting and rediscounting bills of exchange based on the present value of the future marketable goods and services to be produced by the capital being financed — that is, the expansion of commercial bank credit for capital financing, not consumption or government debt.
Kelso and Adler pointed out that, if the rich could do this, so could the poor, and replace declining labor income with increasing capital income, financed on credit, and repaid with the future earnings of the capital itself. You could also replace traditional collateral with capital credit insurance and reinsurance.
You don't have to redistribute existing wealth except as a temporary expedient. Once people have the opportunity to own capital on favorable terms, you will see the end of the current phase of the Great Depression and an elimination of the business cycle.
#30#
Friday, October 12, 2012
News from the Network, Vol. 5, No. 41
It has become almost physically painful this week to see how adroitly some people can twist what you say and change the meaning 180 degrees. No, not the Vice Presidential "debate," but the meaning of property, money, credit, even insurance, particularly capital credit insurance. The basic problem is that people remain stuck in the "past savings paradigm" on which the mainstream schools of economics are based, and which leads inevitably to either capitalism or socialism, which morph in turn into the "Servile State." Here's what we've been doing to try and turn the tide:
• We have prepared a two-page summary of the Justice University concept that we hope to take to various educational institutions to develop a pilot program to initiative the teaching of justice in schools.
• On Sunday, we have received permission to sell selected CESJ publications at a local church. The church will receive 20% of gross sales. This is also a pilot program to test and see if churches, civic groups, schools and other organizations can use CESJ publications as fundraisers.
• A letter was sent to The Washington Post today, commenting on Harold Meyerson's column about the presumed necessity of redistribution of existing wealth in order to keep the economy running at a "zero-growth" level. We suggested that he consider the possibility of financing growth with "pure credit" and eliminate the need for widespread redistribution by establishing and maintaining a program of widespread capital ownership.
• As of this morning, we have had visitors from 51 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, South Africa, and Canada. People in Taiwan, Estonia, Australia, Portugal, and Zambia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "The Theory of Quantitative Easing," "Own the Fed, Part I: Introduction," and "The Strange Case of the Ignored Encyclical."
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#
• We have prepared a two-page summary of the Justice University concept that we hope to take to various educational institutions to develop a pilot program to initiative the teaching of justice in schools.
• On Sunday, we have received permission to sell selected CESJ publications at a local church. The church will receive 20% of gross sales. This is also a pilot program to test and see if churches, civic groups, schools and other organizations can use CESJ publications as fundraisers.
• A letter was sent to The Washington Post today, commenting on Harold Meyerson's column about the presumed necessity of redistribution of existing wealth in order to keep the economy running at a "zero-growth" level. We suggested that he consider the possibility of financing growth with "pure credit" and eliminate the need for widespread redistribution by establishing and maintaining a program of widespread capital ownership.
• As of this morning, we have had visitors from 51 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, Australia, South Africa, and Canada. People in Taiwan, Estonia, Australia, Portugal, and Zambia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "The Theory of Quantitative Easing," "Own the Fed, Part I: Introduction," and "The Strange Case of the Ignored Encyclical."
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, October 11, 2012
"Choose Your Spiral"
In an article on "The Sales Whisperer" blog, "Catholic Networker" Wes Schaeffer tells us to "Spiral Upward" to reach our goals. That's not bad advice — and it's free, just for clicking on the link. You don't have to be Catholic, Protestant, Jewish, Muslim, or anything other than someone with common sense to take advantage of it, either.
As an additional bonus, you can pretty much stretch this metaphor to cover everything in business — or in life. Your business tends to go in the direction you head it. This is why I keep trying to tell people that a business plan is not an eternal word written in stone like the Ten Commandments, but an eternal work in process. Paradoxically, you not only have to know where you're going, but you have to be able to shift gears and change course when you realize you're headed opposite to where you want to go.
In another paradox, don't be disconcerted or discouraged just because you're not heading straight for your goal — you can, as Wes says, "spiral up" to it. In fact, social justice (the real thing, not "Beck's Bogie Man") is a little like that. Social justice does not involve giving everybody what they need when they need it. That is, and has always been, individual charity — almsgiving.
What social justice does is target the institutional environment. The idea is to reform it so that people can "do" for themselves instead of being dependent on private charity or (more and more often) the State that then dictates how you must live and what you must believe. ("State save us!" as the characters in Evelyn Waugh's novella Love Among the Ruins exclaimed.)
I would quibble only with Wes's recommendation to invest in people, and this is mostly semantic, anyway. You don't invest in people, you invest in things, in capital. "Human capital" is what is out there in the cotton fields and up on the slave block. Don't just train people, make them your partners. There are ways to do this today that are very advantageous with respect to taxation and overall profitability — and consistent with Catholic social teaching . . . or any other social teaching, for that matter, as well as just plain common sense.
Why? According to the National Center for Employee Ownership in Oakland, CA, worker-owned companies that have profit sharing and participatory management typically outperform otherwise comparable firms by a factor of 1.5 — and that doesn't include the fact that a company organized as an S-Corp that is 100% owned by the workers through an ESOP trust pays no state or federal corporate income taxes.
Another thing, what with the banks not lending these days, but pouring all their stimulus money into the stock market (shades of 1929 — déjà vu all over again!), you can finance a worker buyout by acting as your own bank. With the right kind of company (meaning the culture and the leader, not the industry) you can structure the transaction in a way that benefits everybody, realize a better price, and grow.
I didn't mean to turn this into an ad, but you can get an idea of what I'm talking about by visiting the CESJ website and the EEI website. Particularly these days when so many people are worried about the economy and what "the government" is doing to "create jobs," it's good to know that there are still ways left that leave us a little power over the situation. We don't need to sit back and wait for "the government" to do something.
Chances are you wouldn't like what they'd do, anyway.
#30#
As an additional bonus, you can pretty much stretch this metaphor to cover everything in business — or in life. Your business tends to go in the direction you head it. This is why I keep trying to tell people that a business plan is not an eternal word written in stone like the Ten Commandments, but an eternal work in process. Paradoxically, you not only have to know where you're going, but you have to be able to shift gears and change course when you realize you're headed opposite to where you want to go.
In another paradox, don't be disconcerted or discouraged just because you're not heading straight for your goal — you can, as Wes says, "spiral up" to it. In fact, social justice (the real thing, not "Beck's Bogie Man") is a little like that. Social justice does not involve giving everybody what they need when they need it. That is, and has always been, individual charity — almsgiving.
What social justice does is target the institutional environment. The idea is to reform it so that people can "do" for themselves instead of being dependent on private charity or (more and more often) the State that then dictates how you must live and what you must believe. ("State save us!" as the characters in Evelyn Waugh's novella Love Among the Ruins exclaimed.)
I would quibble only with Wes's recommendation to invest in people, and this is mostly semantic, anyway. You don't invest in people, you invest in things, in capital. "Human capital" is what is out there in the cotton fields and up on the slave block. Don't just train people, make them your partners. There are ways to do this today that are very advantageous with respect to taxation and overall profitability — and consistent with Catholic social teaching . . . or any other social teaching, for that matter, as well as just plain common sense.
Why? According to the National Center for Employee Ownership in Oakland, CA, worker-owned companies that have profit sharing and participatory management typically outperform otherwise comparable firms by a factor of 1.5 — and that doesn't include the fact that a company organized as an S-Corp that is 100% owned by the workers through an ESOP trust pays no state or federal corporate income taxes.
Another thing, what with the banks not lending these days, but pouring all their stimulus money into the stock market (shades of 1929 — déjà vu all over again!), you can finance a worker buyout by acting as your own bank. With the right kind of company (meaning the culture and the leader, not the industry) you can structure the transaction in a way that benefits everybody, realize a better price, and grow.
I didn't mean to turn this into an ad, but you can get an idea of what I'm talking about by visiting the CESJ website and the EEI website. Particularly these days when so many people are worried about the economy and what "the government" is doing to "create jobs," it's good to know that there are still ways left that leave us a little power over the situation. We don't need to sit back and wait for "the government" to do something.
Chances are you wouldn't like what they'd do, anyway.
#30#
Wednesday, October 10, 2012
What is "Binary Economics"?
Yesterday we posted a thumbnail sketch of Louis O. Kelso, who developed the theory of binary economics. This, of course, raises the question, "What is binary economics?" To start off with the obvious — and non — answer, binary economics is the "post-scarcity" theory developed by Kelso.
Since that doesn't really tell us anything, we need to understand that "binary" means "consisting of two parts." Kelso divided the factors of production into two all-inclusive categories — the human ("labor"), and the non-human ("capital").
The central idea of binary economics is that there are two components to productive output and to income: (1) that generated by human labor, and (2) that generated by capital.
Mainstream economic theory, as we see with Keynes (but all the economic schools of which we are aware say the same thing), regards all output and income to be derived from labor whose productivity is only enhanced by capital.
Thus, as technology continues to advance, labor is displaced from the production process, almost inevitably to the point where a worker who has only labor to sell cannot make enough money to support him- or herself or a family.
That being the case, Kelso saw the obvious solution. As he summarized it in an interview in Life magazine, "If the machine wants our job, let's buy it."
The question is, if the only source for financing new capital is existing savings, that is, if the only way to be an owner of new capital is to cut consumption and accumulate money savings, then only the people who can afford to cut consumption can own new capital. That means, to all intents and purposes, the rich.
Kelso's response was to point out that, contrary to popular belief, cutting consumption in the past is not the only way to save. You can also save by increasing production in the future.
#30#
Since that doesn't really tell us anything, we need to understand that "binary" means "consisting of two parts." Kelso divided the factors of production into two all-inclusive categories — the human ("labor"), and the non-human ("capital").
The central idea of binary economics is that there are two components to productive output and to income: (1) that generated by human labor, and (2) that generated by capital.
Mainstream economic theory, as we see with Keynes (but all the economic schools of which we are aware say the same thing), regards all output and income to be derived from labor whose productivity is only enhanced by capital.
Thus, as technology continues to advance, labor is displaced from the production process, almost inevitably to the point where a worker who has only labor to sell cannot make enough money to support him- or herself or a family.
That being the case, Kelso saw the obvious solution. As he summarized it in an interview in Life magazine, "If the machine wants our job, let's buy it."
The question is, if the only source for financing new capital is existing savings, that is, if the only way to be an owner of new capital is to cut consumption and accumulate money savings, then only the people who can afford to cut consumption can own new capital. That means, to all intents and purposes, the rich.
Kelso's response was to point out that, contrary to popular belief, cutting consumption in the past is not the only way to save. You can also save by increasing production in the future.
#30#
Tuesday, October 9, 2012
Who was Louis Kelso?
Proponents of binary economics cite Louis Kelso and Mortimer Adler as important names in the development of the theory of binary economics. Many people know of Adler. He was a bestselling author, editor of the Encyclopedia Britannica, and so many other things that it would be difficult to do him justice in a brief blog posting — especially when the blog posting is supposed to be about someone else.
Kelso was a lawyer-economist. He was also an author, lecturer and investment banker who is best known today as the inventor of the Employee Stock Ownership Plan (ESOP), a vehicle for corporate finance designed to enable working people without savings to buy shares in their employer company on credit and pay for the shares out of future profits of the company.
He was born in Denver, Colorado, in 1913 and died in 1991 in San Francisco, California. Although he was a Presbyterian, he attended the Christian Brothers school, and got his undergraduate degree at the University of Colorado at Boulder where he also attended law school. He was in the Navy as an intelligence officer.
He implemented the first ESOP in 1956, using theories he had been working on for a number of years. This was to enable the workers at Peninsula Newspapers in Monterey, California, to buy the company.
With Norman Kurland, Kelso was able to persuade the late Senator Russell Long of Louisiana, the son of Huey Long, to champion the initial enabling legislation for the ESOP in the early 1970s. Today in the U.S. there are more than 10 thousand companies employing over 11 million workers that have ESOPs, and in most cases, the workers purchased the shares without risking any of their savings or taking any reductions in pay or benefits.
Now you know.
#30#
Kelso was a lawyer-economist. He was also an author, lecturer and investment banker who is best known today as the inventor of the Employee Stock Ownership Plan (ESOP), a vehicle for corporate finance designed to enable working people without savings to buy shares in their employer company on credit and pay for the shares out of future profits of the company.
He was born in Denver, Colorado, in 1913 and died in 1991 in San Francisco, California. Although he was a Presbyterian, he attended the Christian Brothers school, and got his undergraduate degree at the University of Colorado at Boulder where he also attended law school. He was in the Navy as an intelligence officer.
He implemented the first ESOP in 1956, using theories he had been working on for a number of years. This was to enable the workers at Peninsula Newspapers in Monterey, California, to buy the company.
With Norman Kurland, Kelso was able to persuade the late Senator Russell Long of Louisiana, the son of Huey Long, to champion the initial enabling legislation for the ESOP in the early 1970s. Today in the U.S. there are more than 10 thousand companies employing over 11 million workers that have ESOPs, and in most cases, the workers purchased the shares without risking any of their savings or taking any reductions in pay or benefits.
Now you know.
#30#
Monday, October 8, 2012
The True Theory of Quantitative Easing
Last week we looked at what Keynesian theory says is supposed to happen in "quantitative easing," and then — assuming that the theory holds true — what is really happening, given Keynesian assumptions. The problem is that Keynesian assumptions are not true, nor are people the automata that Keynes evidently believed them to be.
What really happens is that capital without labor or with much reduced labor produces so much that even multiple stimulus packages cannot provide the purchasing power necessary to sell existing inventories and current production. Keynesian theory assumes that labor is the sole factor of production, that capital only assists or enhances labor — capital is not, in and of itself, productive.
Since capital really does produce at a much greater rate than labor, a prudent owner of capital is not going to create jobs that aren't needed to produce marketable goods and services. Further, since labor is expensive, when more productive input is needed, an owner of capital will think twice about hiring more human workers. The capitalist will first get more work out of existing workers, and then search for or invent some technology that is cheaper than hiring more workers. Since technology advances at a tremendous rate today, it is much easier for capitalists to find or invent new technology than to hire expensive labor.
Then there's the fact that, without jobs, there won't be the consumer demand needed to sustain the stimulus. No one produces a marketable good or service unless there is a demand for it. Thus, instead of using their stimulus money and the higher profits realized from inflationary forced savings to create jobs, companies are pouring money into the stock market, inflating the prices of stocks, and giving the illusion of economic growth as unemployment rises and real economic growth continues to slow down.
We can thus look forward to more and greater stimulus packages as the government frantically tries to make a system that can't work, work. Unless, of course, they realize that labor isn't the only thing that produces marketable goods and services, and that people can own the technology that is replacing them.
#30#
What really happens is that capital without labor or with much reduced labor produces so much that even multiple stimulus packages cannot provide the purchasing power necessary to sell existing inventories and current production. Keynesian theory assumes that labor is the sole factor of production, that capital only assists or enhances labor — capital is not, in and of itself, productive.
Since capital really does produce at a much greater rate than labor, a prudent owner of capital is not going to create jobs that aren't needed to produce marketable goods and services. Further, since labor is expensive, when more productive input is needed, an owner of capital will think twice about hiring more human workers. The capitalist will first get more work out of existing workers, and then search for or invent some technology that is cheaper than hiring more workers. Since technology advances at a tremendous rate today, it is much easier for capitalists to find or invent new technology than to hire expensive labor.
Then there's the fact that, without jobs, there won't be the consumer demand needed to sustain the stimulus. No one produces a marketable good or service unless there is a demand for it. Thus, instead of using their stimulus money and the higher profits realized from inflationary forced savings to create jobs, companies are pouring money into the stock market, inflating the prices of stocks, and giving the illusion of economic growth as unemployment rises and real economic growth continues to slow down.
We can thus look forward to more and greater stimulus packages as the government frantically tries to make a system that can't work, work. Unless, of course, they realize that labor isn't the only thing that produces marketable goods and services, and that people can own the technology that is replacing them.
#30#
Friday, October 5, 2012
News from the Network, Vol. 5, No. 40
Shades of (Snopes verified) "Evil Bert," who appeared on a poster collage among (other) supporters of Osama Bin Laden at a protest rally in Pakistan. Romney has demonstrated his terrorist leanings by picking on Big Bird. Will the horror never end?
Actually . . . yes. All we need do is enact Capital Homesteading, and the candidates can trash any fictional character they like — and maybe some people might even find them important enough to listen to. What can you do to help bring about this happy state of affairs? Here's what we're doing:
• Somewhat to our surprise, since we started posting on such "boring" subjects as "Quantitative Easing" and "Quas Primas" the number of "page views" on this blog has quadrupled. Either there's something special about the letter Q, or the issues addressed by the Just Third Way and our particular approach take on more relevance as the election draws closer. Perhaps there's something to be said about Capital Homesteading.
• We are making a more intensive effort to reach out to prime movers and the gatekeepers to prime movers. This is becoming increasingly critical as the election draws nearer, and in light of the somewhat lackluster showing by both candidates in Wednesday night's debate — in which there doesn't seem to have been much debated, other than whose platitudes sound better.
• We mentioned a short time ago that we had acquired two books originally published in the mid-1840s relating to the Banking School and the British Bank Charter Act of 1844. What was brought forcibly to mind when reading the books is the fact that, despite the incoherent theories advanced by the champions of the Currency School, notably Sir Robert Peel and Lord Overstone, the Currency School had the political power to force through an Act that embodied an understanding of money and credit that has been an absolute disaster, financially, politically, and economically for over a century and a half. The Banking School people were generally consistent in their basic theory, but tended to quibble over details until it was too late, i.e., after the Act was law, and did not have a political strategy, evidently believing the rightness of their ideas and the obvious flaws in the Currency School system were enough. They weren't.
• As of this morning, we have had visitors from 55 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, South Africa, Canada, and Australia. People in Taiwan, Estonia, Portugal, Hungary, and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "Distributist Classics — and More!," "Raw Judicial Power: Dodge v. Ford Motor Company," and "Own the Fed, Part I."
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#
Actually . . . yes. All we need do is enact Capital Homesteading, and the candidates can trash any fictional character they like — and maybe some people might even find them important enough to listen to. What can you do to help bring about this happy state of affairs? Here's what we're doing:
• Somewhat to our surprise, since we started posting on such "boring" subjects as "Quantitative Easing" and "Quas Primas" the number of "page views" on this blog has quadrupled. Either there's something special about the letter Q, or the issues addressed by the Just Third Way and our particular approach take on more relevance as the election draws closer. Perhaps there's something to be said about Capital Homesteading.
• We are making a more intensive effort to reach out to prime movers and the gatekeepers to prime movers. This is becoming increasingly critical as the election draws nearer, and in light of the somewhat lackluster showing by both candidates in Wednesday night's debate — in which there doesn't seem to have been much debated, other than whose platitudes sound better.
• We mentioned a short time ago that we had acquired two books originally published in the mid-1840s relating to the Banking School and the British Bank Charter Act of 1844. What was brought forcibly to mind when reading the books is the fact that, despite the incoherent theories advanced by the champions of the Currency School, notably Sir Robert Peel and Lord Overstone, the Currency School had the political power to force through an Act that embodied an understanding of money and credit that has been an absolute disaster, financially, politically, and economically for over a century and a half. The Banking School people were generally consistent in their basic theory, but tended to quibble over details until it was too late, i.e., after the Act was law, and did not have a political strategy, evidently believing the rightness of their ideas and the obvious flaws in the Currency School system were enough. They weren't.
• As of this morning, we have had visitors from 55 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the United Kingdom, South Africa, Canada, and Australia. People in Taiwan, Estonia, Portugal, Hungary, and Australia spent the most average time on the blog. The most popular postings this past week were "Aristotle on Private Property," "Thomas Hobbes on Private Property," "Distributist Classics — and More!," "Raw Judicial Power: Dodge v. Ford Motor Company," and "Own the Fed, Part I."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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Thursday, October 4, 2012
What Really Happens in Quantitative Easing
As we saw in yesterday's posting, the Keynesian theory of "quantitative easing" assumes that once "the pump is primed," there is no further need to inflate the currency. Unfortunately, since Keynesian theory doesn't seem to work as advertised (or at all, for that matter), what we get is one round of quantitative easing hard on the heels of another. The idea that the money supply should be linked directly to the present value of existing and future production of marketable goods and services doesn't seem to occur to the people obsessed with the belief in a divine State that can accomplish anything by fiat.
Looking objectively at what happens in "quantitative easing," we realize that something is wrong. The demand for new capital — and thus new jobs — derives from increases in demand, i.e., consumption. Quantitative easing forces consumers to reduce consumption. Assuming that all goes according to plan (which, obviously, it isn't), the "effective demand" — savings — taken from one set of consumers is taken by producers, and redistributed through job creation to another set of consumers . . . with a rake-off for the producers to finance new capital and allow for profits that are withheld from consumption by being retained in the corporation.
We are forced to an astounding conclusion. Assuming that capital is "congealed labor" (which it isn't) and thus all the money producers pay for new capital goes to labor (which it doesn't), and producers take no profit whatsoever (which they most certainly do, or there is no incentive to produce), then there has been absolutely no increase whatsoever in effective demand! In fact, in the real world outside the fantasy framework of Keynesian economics, there is a net decrease in effective demand as producers retain earnings instead of paying them out to shareholders.
What happens is obvious. Given the Keynesian assumptions, purchasing power — effective demand — is confiscated through inflation from one set of consumers and redistributed through artificial job creation to another set of consumers. The only ones who benefit are the government, which has control over new money by increasing its debt, and producers, who realize larger profits from less production. Consequently the wealth gap continues to grow at an accelerating rate, employment continues to decline, and the economy goes from mere stagnation to decay.
Of course, this is only the case if we accept Keynesian theory as sound and its assertions and definitions (always in a fluid state, due to Keynes's idea that the government can "re-edit the dictionary"). What really happens is something we'll look at next week.
#30#
Looking objectively at what happens in "quantitative easing," we realize that something is wrong. The demand for new capital — and thus new jobs — derives from increases in demand, i.e., consumption. Quantitative easing forces consumers to reduce consumption. Assuming that all goes according to plan (which, obviously, it isn't), the "effective demand" — savings — taken from one set of consumers is taken by producers, and redistributed through job creation to another set of consumers . . . with a rake-off for the producers to finance new capital and allow for profits that are withheld from consumption by being retained in the corporation.
We are forced to an astounding conclusion. Assuming that capital is "congealed labor" (which it isn't) and thus all the money producers pay for new capital goes to labor (which it doesn't), and producers take no profit whatsoever (which they most certainly do, or there is no incentive to produce), then there has been absolutely no increase whatsoever in effective demand! In fact, in the real world outside the fantasy framework of Keynesian economics, there is a net decrease in effective demand as producers retain earnings instead of paying them out to shareholders.
What happens is obvious. Given the Keynesian assumptions, purchasing power — effective demand — is confiscated through inflation from one set of consumers and redistributed through artificial job creation to another set of consumers. The only ones who benefit are the government, which has control over new money by increasing its debt, and producers, who realize larger profits from less production. Consequently the wealth gap continues to grow at an accelerating rate, employment continues to decline, and the economy goes from mere stagnation to decay.
Of course, this is only the case if we accept Keynesian theory as sound and its assertions and definitions (always in a fluid state, due to Keynes's idea that the government can "re-edit the dictionary"). What really happens is something we'll look at next week.
#30#
Wednesday, October 3, 2012
The Theory of Quantitative Easing
Recently we received a series of questions about binary economics, i.e., what it is, what makes it different, what could be done from a binary perspective to turn the economy around, and so on. The first question concerned the recent decision by the Federal Reserve to engage in more "quantitative easing" and what we could expect as a result.
"Quantitative easing" is just a fancy way of saying "induced inflation." This is pure Keynesian theory. The idea is that printing money inflates the currency and redistributes wealth. This creates purchasing power, which in turn stimulates demand for marketable goods and services. Increased demand gives companies the incentive to create jobs to supply the goods and services. At the same time (so the theory goes), rising prices will cause consumers to reduce consumption, that is, effective demand. "Reduced consumption" is the Keynesian definition of saving.
The theory is, therefore, that inflating the currency both increases demand and decreases demand at one and the same time! This sounds like nonsense, but it is the stuff on which Keynesian economics is built. Cf. the Keynesian "money multiplier," that claims new money magically appears by drawing checks on one bank, and depositing them in another . . . all the while ignoring the simple fact that no bank will accept a check unless it can be presented to the bank on which it is drawn for payment! (In other words, as Harold Moulton pointed out, there is no net increase in money, just a change in who has it.)
To return to the Keynesian concept of "forced savings," however, rising prices force consumers to consume less because they cannot purchase the same amount of goods and services as before. Keynes called this "forced savings" because consumers have no choice. They either have to pay the higher prices, or starve. Either way they reduce consumption — "save" in the Keynesian dictionary.
Ordinarily, saving benefits the one who reduces consumption. That is not the case with Keynesian forced savings, however. The benefit of forced saving does not go to the consumers who were forced to reduce consumption in response to higher prices, but to producers. The idea is that producers will presumably use the higher profits they realize to invest in new capital and create new jobs.
Thus, in theory, stimulus or "quantitative easing" only needs to be done once to "prime the pump," as they called it in the New Deal in the 1930s. The theory is that stimulus will be self-sustaining after a single large infusion of cash.
#30#
"Quantitative easing" is just a fancy way of saying "induced inflation." This is pure Keynesian theory. The idea is that printing money inflates the currency and redistributes wealth. This creates purchasing power, which in turn stimulates demand for marketable goods and services. Increased demand gives companies the incentive to create jobs to supply the goods and services. At the same time (so the theory goes), rising prices will cause consumers to reduce consumption, that is, effective demand. "Reduced consumption" is the Keynesian definition of saving.
The theory is, therefore, that inflating the currency both increases demand and decreases demand at one and the same time! This sounds like nonsense, but it is the stuff on which Keynesian economics is built. Cf. the Keynesian "money multiplier," that claims new money magically appears by drawing checks on one bank, and depositing them in another . . . all the while ignoring the simple fact that no bank will accept a check unless it can be presented to the bank on which it is drawn for payment! (In other words, as Harold Moulton pointed out, there is no net increase in money, just a change in who has it.)
To return to the Keynesian concept of "forced savings," however, rising prices force consumers to consume less because they cannot purchase the same amount of goods and services as before. Keynes called this "forced savings" because consumers have no choice. They either have to pay the higher prices, or starve. Either way they reduce consumption — "save" in the Keynesian dictionary.
Ordinarily, saving benefits the one who reduces consumption. That is not the case with Keynesian forced savings, however. The benefit of forced saving does not go to the consumers who were forced to reduce consumption in response to higher prices, but to producers. The idea is that producers will presumably use the higher profits they realize to invest in new capital and create new jobs.
Thus, in theory, stimulus or "quantitative easing" only needs to be done once to "prime the pump," as they called it in the New Deal in the 1930s. The theory is that stimulus will be self-sustaining after a single large infusion of cash.
#30#
Tuesday, October 2, 2012
The Strange Case of the Ignored Encyclical
On December 23, 1922 Pope Pius XI issued his first encyclical, Ubi Arcano Dei Consilio, "On the Peace of Christ in the Kingdom of Christ." Given the number of people who haven't read his landmark Quadragesimo Anno ("On the Restructuring of the Social Order") from 1931, it should come as no surprise that virtually no one seems to have read (or even heard of) Ubi Arcano.
In any event, we can sum up our interest very quickly. As far as we are concerned, the heart of Ubi Arcano is found in § 61: "There is a species of moral, legal, and social modernism which We condemn, no less decidedly than We condemn theological modernism."
This is a theme that runs through the encyclicals of Pius XI, is found in virtually all those of Leo XIII, and has been continually reiterated in those of succeeding pontiffs. This is the spread of moral relativism, due (according to the popes) entirely to the abandonment of the natural law based on God's Nature, self-realized in His Intellect — or you can use just plain old human nature and your brain without worrying about where it all comes from.
Yes, believe it or not, the pope says you don't have to believe in God or even a god to be able to know the natural law, i.e., right from wrong. He just thinks it will help you understand things better if you do . . . what, the high priest of a religion should tell you not to believe in his god? (Pius XII, Humani Generis, §§ 1-2.)
Anyway, as a result of people not using their brains to figure out the difference between right and wrong, they've ended up shifting to someone's (usually their own) private interpretation of something they believe to be God's Will, or whatever they've substituted for God, like the State or the newspaper, but which usually turns out to be (surprise!) their own opinions based on what they want. Or maybe the Devil made em do it. ("Em" is the new pronoun replacing the patently offensive "he" or "she" and the ungrammatical "they" for singular references.)
The result has been disastrous for the world. As Heinrich Rommen explained in his book, "The Natural Law,"
"For Duns Scotus morality depends on the will of God. A thing is good not because it corresponds to the nature of God or, analogically, to the nature of man, but because God so wills. Hence the lex naturalis could be other than it is even materially or as to content, because it has no intrinsic connection with God's essence, which is self-conscious in His intellect. For Scotus, therefore, the laws of the second table of the Decalogue were no longer unalterable. . . . an evolution set in which, in the doctrine of William of Occam (d. cir. 1349) [excommunicated in 1326] on the natural moral law, would lead to pure moral positivism, indeed to nihilism. (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 51.)
Perhaps the most obvious manifestation of the effect Rommen and the popes have noted is the near-total global adherence to the principles of Keynesian economics, the chief tenet of which is that it is impossible to finance new capital formation without first cutting consumption — thereby restricting capital ownership and its benefits to a private elite or a State bureaucracy. Ownership of capital is only for an elite. Control of capital is only for the State. As for the rest of us . . . be happy with your wages from the jobs that are no longer there, and the welfare from the government that can no longer pay.
That is, if you insist on maintaining the traditional understanding of the natural law. Keynes was, however, equal to the challenge. The natural law is getting in the way? Abolish it! Do away with those troublesome inalienable rights like life, liberty and, especially, property. All you have to do is make the State all-powerful, even greater than God, the newspaper or even the internet (but not television), by asserting that the State has the right to "re-edit the dictionary"! Problem solved!
Or not. Some people might have problems with an all-powerful State. Of course, you could always re-examine Keynes's assumption that the only way to finance new capital formation and thus widespread capital ownership is by cutting consumption. That is, in fact, what Louis Kelso and Mortimer Adler did, building on the work of Dr. Harold Moulton of the Brookings Institution, presented in The Formation of Capital (1935).
Moulton discovered (or rediscovered, actually) that during periods of rapid economic growth and capital formation the financing did not come from past reductions in consumption, but from future increases in production. It is possible (as people have done for millennia) to draw a contract and use it for money to finance new capital, then redeem the contract out of the profits generated by the very new capital financed with the contract. The vast majority of documents from the ancient world show that this was how financial transactions were carried out for thousands of years before the invention of coinage, or even currency.
#30#
In any event, we can sum up our interest very quickly. As far as we are concerned, the heart of Ubi Arcano is found in § 61: "There is a species of moral, legal, and social modernism which We condemn, no less decidedly than We condemn theological modernism."
This is a theme that runs through the encyclicals of Pius XI, is found in virtually all those of Leo XIII, and has been continually reiterated in those of succeeding pontiffs. This is the spread of moral relativism, due (according to the popes) entirely to the abandonment of the natural law based on God's Nature, self-realized in His Intellect — or you can use just plain old human nature and your brain without worrying about where it all comes from.
Yes, believe it or not, the pope says you don't have to believe in God or even a god to be able to know the natural law, i.e., right from wrong. He just thinks it will help you understand things better if you do . . . what, the high priest of a religion should tell you not to believe in his god? (Pius XII, Humani Generis, §§ 1-2.)
Anyway, as a result of people not using their brains to figure out the difference between right and wrong, they've ended up shifting to someone's (usually their own) private interpretation of something they believe to be God's Will, or whatever they've substituted for God, like the State or the newspaper, but which usually turns out to be (surprise!) their own opinions based on what they want. Or maybe the Devil made em do it. ("Em" is the new pronoun replacing the patently offensive "he" or "she" and the ungrammatical "they" for singular references.)
The result has been disastrous for the world. As Heinrich Rommen explained in his book, "The Natural Law,"
"For Duns Scotus morality depends on the will of God. A thing is good not because it corresponds to the nature of God or, analogically, to the nature of man, but because God so wills. Hence the lex naturalis could be other than it is even materially or as to content, because it has no intrinsic connection with God's essence, which is self-conscious in His intellect. For Scotus, therefore, the laws of the second table of the Decalogue were no longer unalterable. . . . an evolution set in which, in the doctrine of William of Occam (d. cir. 1349) [excommunicated in 1326] on the natural moral law, would lead to pure moral positivism, indeed to nihilism. (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 51.)
Perhaps the most obvious manifestation of the effect Rommen and the popes have noted is the near-total global adherence to the principles of Keynesian economics, the chief tenet of which is that it is impossible to finance new capital formation without first cutting consumption — thereby restricting capital ownership and its benefits to a private elite or a State bureaucracy. Ownership of capital is only for an elite. Control of capital is only for the State. As for the rest of us . . . be happy with your wages from the jobs that are no longer there, and the welfare from the government that can no longer pay.
That is, if you insist on maintaining the traditional understanding of the natural law. Keynes was, however, equal to the challenge. The natural law is getting in the way? Abolish it! Do away with those troublesome inalienable rights like life, liberty and, especially, property. All you have to do is make the State all-powerful, even greater than God, the newspaper or even the internet (but not television), by asserting that the State has the right to "re-edit the dictionary"! Problem solved!
Or not. Some people might have problems with an all-powerful State. Of course, you could always re-examine Keynes's assumption that the only way to finance new capital formation and thus widespread capital ownership is by cutting consumption. That is, in fact, what Louis Kelso and Mortimer Adler did, building on the work of Dr. Harold Moulton of the Brookings Institution, presented in The Formation of Capital (1935).
Moulton discovered (or rediscovered, actually) that during periods of rapid economic growth and capital formation the financing did not come from past reductions in consumption, but from future increases in production. It is possible (as people have done for millennia) to draw a contract and use it for money to finance new capital, then redeem the contract out of the profits generated by the very new capital financed with the contract. The vast majority of documents from the ancient world show that this was how financial transactions were carried out for thousands of years before the invention of coinage, or even currency.
#30#
Monday, October 1, 2012
A New Look at "Quas Primas," IV: "The Beginning of the Quarrel"
Theodore Roosevelt promoted the idea of a "square deal" for every American, a concept his nephew Franklin corrupted into the "New Deal." Theodore Roosevelt's concepts were very close to the Just Third Way, except that he was still oriented toward past savings as the source of financing for new capital.
The problem is that by relying on cutting consumption to accumulate sufficient savings to finance new capital, ownership of new capital is in most cases restricted to the already wealthy. They are the only ones who can afford to save in the required amounts.
Since the rich are unlikely to be generous in any way that takes away their property (and thus power), Chesterton and Belloc, respecting the natural law and the fact that it could not be changed, believed we could only sit around and wait for the crash and rebuild civilization to establish the Distributist State.
Keynes, however, had a "better" idea: "re-edit the dictionary"! That is, give the State the power to abolish the natural law and re-define money, credit, property, life and liberty to get everything you want. Yes, this effectively declares the State (in agreement with Thomas Hobbes in Leviathan) to be a "Mortall God" (dig that 17th century spelling), able to do what God cannot — contradict His own Being — but it gets you what you want: absolute power . . . if you can keep it. Hobbes also claimed that the State is the ultimate owner of everything, thereby abolishing private property.
Hobbes, of course, followed Filmer as the chief proponent of divine right theory, and was esteemed as a great political scientist by Walter Bagehot. Bagehot's The English Constitution (1867) appears to have been intended as a response to Orestes Brownson's The American Republic (1866), and is a model for rule of an empire by a small financial elite (a "chosen people" — Bagehot's phrase and emphasis), the way the Great East India Company ruled India as a private business enterprise prior to the Great Mutiny.
Bagehot's Lombard Street (1873) is a virtual manual for the mismanagement of the financial markets . . . and is considered a "bible" for today's Wall Street types. Keynes believed Bagehot to be the greatest economist of the 19th century, as he, Keynes, was the greatest of the 20th century.
It is thus probably no coincidence that as Keynesian economics gained a firmer hold on the global economy, Pius XI became increasingly insistent that ordinary people become owners of capital. Quas Primas was merely the first salvo in the "war" between the Church and the moral and legal positivists who have been in power through much of the 20th century, and have so far maintained their hegemony in the 21st, chiefly by preventing ordinary people from becoming capital owners.
#30#
The problem is that by relying on cutting consumption to accumulate sufficient savings to finance new capital, ownership of new capital is in most cases restricted to the already wealthy. They are the only ones who can afford to save in the required amounts.
Since the rich are unlikely to be generous in any way that takes away their property (and thus power), Chesterton and Belloc, respecting the natural law and the fact that it could not be changed, believed we could only sit around and wait for the crash and rebuild civilization to establish the Distributist State.
Keynes, however, had a "better" idea: "re-edit the dictionary"! That is, give the State the power to abolish the natural law and re-define money, credit, property, life and liberty to get everything you want. Yes, this effectively declares the State (in agreement with Thomas Hobbes in Leviathan) to be a "Mortall God" (dig that 17th century spelling), able to do what God cannot — contradict His own Being — but it gets you what you want: absolute power . . . if you can keep it. Hobbes also claimed that the State is the ultimate owner of everything, thereby abolishing private property.
Hobbes, of course, followed Filmer as the chief proponent of divine right theory, and was esteemed as a great political scientist by Walter Bagehot. Bagehot's The English Constitution (1867) appears to have been intended as a response to Orestes Brownson's The American Republic (1866), and is a model for rule of an empire by a small financial elite (a "chosen people" — Bagehot's phrase and emphasis), the way the Great East India Company ruled India as a private business enterprise prior to the Great Mutiny.
Bagehot's Lombard Street (1873) is a virtual manual for the mismanagement of the financial markets . . . and is considered a "bible" for today's Wall Street types. Keynes believed Bagehot to be the greatest economist of the 19th century, as he, Keynes, was the greatest of the 20th century.
It is thus probably no coincidence that as Keynesian economics gained a firmer hold on the global economy, Pius XI became increasingly insistent that ordinary people become owners of capital. Quas Primas was merely the first salvo in the "war" between the Church and the moral and legal positivists who have been in power through much of the 20th century, and have so far maintained their hegemony in the 21st, chiefly by preventing ordinary people from becoming capital owners.
#30#
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