News from the Network, Vol. 1, No. 15

(Technical difficulties prevented this posting from going up on Friday.) This week started off on a sad note when we received word on Monday of the death of Rich Biernacki, long-time CESJ member and Counselor. Rich's life, however, was well-spent, and serves as a continuing inspiration in our efforts to implement and maintain the Just Third Way. Thus, even though things tend to slow down at this time of year as people focus on other matters (especially the coming transition to a new president in the United States), there have been a few indications of progress, within the movement, if not without.

• We are still receiving positive feedback from Norman Kurland's brief talk on Saturday, November 22, 2008 at the Washington, DC, "End the Fed" rally. A video clip of the event can be seen here.

• On Tuesday, December 2, 2008, we sent out a CESJ tribute on Rich Biernacki. This, too, has generated some very positive comments as people begin to realize the true significance of Rich's career, and the loss to the movement.

• Sales of our latest book, In Defense of Human Dignity, remain steady. While the book is written from a Catholic perspective, it seems to be resonating with people from other faith traditions, reinforcing the fact that the natural law is the common denominator and provides the universal principles on which society must be restructured. The book can be ordered from Amazon.

• In response to the posting on the crisis in the Irish pension system, CESJ friend Chris O'Connor, Financial Secretary of the Colonel John Fitzgerald Division, Ancient Order of Hibernians, suggested that we send copies of Capital Homesteading for Every Citizen (Amazon and Barnes & Noble) to members of Dáil Éireann (House of Representatives) and Seanad Éireann (Senate). This is the sort of creative suggestion we need and, although we cannot at this time afford to send hardcopies of the book, we are preparing an e-mailing to go out with links to the e-text. We will send bound copies of the book to half-a-dozen party heads, along with a small package of materials demonstrating that Capital Homesteading is not only based on sound principles, but that the principles have time-tested "real world" applications. Adoption of Capital Homesteading in Ireland would be an ideal way for the people of Ireland to "pay back" the United States for the traditional friendship, unity, and charity between the two republics, lighting the way to a more just social and economic order for America's more timid politicians and policymakers, and providing a rational (i.e., non-Keynesian) plan to end the current financial crisis.

• As of this morning, we have had visitors from 31 different countries and 42 states and provinces in the United States and Canada to this blog over the past two months.

As usual, there are a great many other news items that we haven't heard about because you haven't submitted them. If you're tired of reading about what we're doing, let's hear from you. If you have a SHORT item about how you are advancing the Just Third Way, send us a note about it at mgreaney [at] cesj [dot] org.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

Keynes' Flawed Principles

Yes, as the title of this posting demonstrates, we're still picking on defunct economists and those who give them slavish obedience. For those of you not familiar with Keynes' General Theory — and your state is more blessed — that is a reference to Keynes' snide comment at the close of his turgid tome that, "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slave of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back." (General Theory, Bk. VI, Ch. 24, § v.) Today's most serious problem is that the defunct economist in question, and the source of the voice to which "madmen in authority" defer, is Keynes himself. Anyway, here's today's letter to the Wall Street Journal.

Congratulations on Oliver Hart's and Luigi Zingales' editorial, "Economists Have Abandoned Principle" (WSJ, 12/03/08, A17). I would, however, quibble a little with Messrs. Hart and Zingales on one thing. The problem is not that economists have abandoned principle. Trapped in a Keynesian paradigm, and consistent with Keynes' principles, they keep trying to force the financial system to do the impossible: create something out of nothing. Keynes believed that it is impossible to create money through the banking system for financially sound, self-liquidating capital investment, but perfectly feasible for the State to print money without an asset backing to stimulate demand and redistribute wealth through inflation.

To anyone with even a modicum of common sense or basic knowledge of property, money, credit, and banking, Keynesian dogma comes across as financial insanity — or abandonment of principle. It is not, however, abandonment of principle (except essential principles of ethics and morality that should support and justify all human behavior), but slavish obedience to the wrong principles. To create money backed only by the State's promise to pay, for bailouts and other extremely speculative goals, is to debauch the currency and achieve Lenin's goal of the destruction of the capitalist system without a shot being fired.

A more realistic solution to the current financial panic can be found in a program called Capital Homesteading, detailed in the book, Capital Homesteading for Every Citizen. Capital Homesteading involves granting democratic access to capital credit to every citizen. Money is not created until and unless a financially sound investment has been identified and properly vetted. Capital Homesteading would result in an asset-backed currency, and a final release from false Keynesian principles that run counter to common sense.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

Richard Gilbert Biernacki, 1934-2008

Our friend and counselor Rich Biernacki, retired CEO of the world-renowned, 100% worker-owned Fastener Industries of Berea, Ohio, died Friday, November 28, 2008. We'll leave it to the major media to give Rich his just due with respect to his multi-faceted career. This being a blog of the Just Third Way, we'd like to expand on the significance of what his obituary briefly described as "his dedication to employee ownership."

As others have noted, Rich Biernacki served as president of the ESOP Association and on the board of the National Cooperative Bank of Washington, DC. Under his leadership, Fastener Industries became the focus of much attention and the recipient of many awards, including CESJ's "Global Award for Value-Based Management" (renamed "Justice-Based Management"). In 1991 Rich received this award on behalf of Fastener Industries during a series of seminars at the Vatican. Along with the CEOs of two other ESOP companies receiving the award, he met His Holiness John Paul II during the weekly public audience. To the credit of Rich Biernacki's persistent vision, Fastener is the only company in that original group of awardees that still embodies essential principles of Justice-Based Management.

To describe Rich's accomplishment simply as being the former head of an employee-owned company says nothing about what made Rich Biernacki unique as a leader. When the family that owned Fastener Industries decided to sell, they offered Rich, the Chief Financial Officer, the opportunity to become sole owner of the company. The family probably had not even considered selling the company to the workers that had helped make the company a success.

Rich declined the original offer, insisting on giving every Fastener employee an opportunity to become an owner in the company. As a Certified Public Accountant, Rich was aware of a relatively new financial technology, the Employee Stock Ownership Plan (ESOP) invented by Louis O. Kelso. By setting up an ESOP trust, Rich and Fastener's management- and non-management workers were able to borrow enough money (capital credit repayable with the earnings of the company) to purchase Fastener Industries at the fair market value.

Rich then did something that runs counter to the top-down management philosophy practiced today in most companies, including ESOP companies. He made sure that the worker-shareholders were permitted under the ESOP to vote their shares. Rich believed "it's not ownership if you can't vote your shares." The worker-shareholders (management and non-management) nominated and elected the board of directors and Rich Biernacki was appointed CEO. Every year Rich put his job up to a vote; he won approval every year until he chose to retire. After he retired, Rich kept his shares in the company, rather than "cashing out" as is typical, demonstrating his continuing confidence in the company, its worker-owners and its Justice-Based Management culture.

The ESOP, as it now exists in the law, allows upper management to keep their fellow workers powerless. Ownership through an ESOP is considered "beneficial ownership," meaning that the legal ownership resides in the ESOP trust, and the trustees (who are usually upper management or a bank selected by management) pass through only as many of the rights of ownership as they see fit. The trustees of an ESOP often hold back many of the rights of ownership from other workers paternalistically "for their own good." It takes a rare leader, confident in his ability to educate, empower and enrich others to work for their common interest as owners, to use the ESOP as it was intended — to get the full rights, powers and responsibilities of ownership to working people.

Before Rich instituted a participatory ESOP, Fastener was probably like many family-owned companies that make every effort to treat their employees "like family." They set up programs and incentives to make their people "feel like owners." The problem with such an arrangement, however, is that it relies far too much on the goodwill of the small number of people in power. Non-family employees, well aware that ownership usually remains exclusively with family members, can become alienated when they see promotions and good assignments go to owning relatives with fewer qualifications than non-owning employees.

Such companies frequently hold back the final — and strongest — link in the chain that turns employees who merely "feel like owners" into genuine co-worker-owners with the property rights of ownership. Rich Biernacki did not simply create the appearance of participation at Fastener Industries. He did something far more meaningful. He instituted democratic governance and ownership participation by workers within a corporation.

In Fastener Industries, Rich Biernacki offered an example that other ESOP companies would do well to emulate — a successful and profitable approach to sharing power. Trustees can make certain that worker-owners have as many of the rights of real ownership as the law allows. They can reject the semi-honest "escape routes" the law offers trustees and upper management. These are ostensibly to protect workers from making "bad" decisions in their own interest as owners, but actually keep real control concentrated at the top. Like Rich, corporate executives can follow a justice-based leadership philosophy and start instituting justice-based management.

Rich Biernacki's life accomplishment was thus not to become a great man himself, but to assist his fellow workers in becoming great by working effectively with others. He was not the more-or-less wise and benevolent father figure, carefully shepherding his children through the vicissitudes of fortune and building a great company "single-handedly." No, Rich Biernacki was the quiet servant-leader, who gave working people the opportunity and the means to own, develop and succeed together. In the process, Rich Biernacki became great, not because he sought greatness for himself, but because he helped others to seek it in themselves.

Ireland: Pension Plans "Close to Collapse"

According to the Irish Independent of December 1, 2008, there is mounting fear that many defined benefit pension plans are "close to collapse," and that, with the pension deficit approaching €30 billion as financial chaos spreads, as many as half the plans could fail within a year's time. There are approximately 67,000 defined benefit pension plans in Ireland, of which 90%, or more than 60,000, are expected to report funding deficits to the Pensions Board in the current period.

Nor can pensioners expect the government, already in serious financial trouble, to bail out the plans. There is thus a high likelihood that benefits will be severely curtailed, despite whatever was promised. There are approximately 340,000 people covered by private defined benefit pension plans in Ireland, or around 250,000 active workers and 90,000 retirees.

We have made a number of approaches to the Irish government over the past couple of years, but only received a single, rather mild e-mail reply that someone's assistant would "look into it," "it" being the Just Third Way as detailed in Capital Homesteading for Every Citizen (2004). A Capital Homesteading program for Ireland would be relatively easy to implement, and both swift and effective in its beneficial effects. The only problem we face is getting someone to listen to us — ironically, the same problem that has virtually halted visible progress in the United States. Slavish adherence to Keynesian economics and assumptions virtually ensures that nothing can — or will — be done.

If they wish to regain effectiveness and stabilize the economy, the government of Ireland should immediately appoint a commission to study the implementation of Capital Homesteading at the earliest possible date. The alternative is to make Ireland as bankrupt as the Keynesian system into which the country seems locked.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

The Keynesian Monopoly Over Life and Income

The financial industry is becoming extremely worried that consumers will not be able to borrow enough money to keep what's left of the economy running. According to a Reuters news report released this morning, Monday, December 1, 2008, "Credit card industry may cut $2 trillion of lines: analyst," "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending."

According to banking analyst Meredith Whitney, the consolidation of banking institutions leaves consumers little choice for sources from which to obtain consumer credit: "A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity. . . . Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable. . . . Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view."

This is the sort of backwards Keynesian thinking that got us into the current mess in the first place. If people are losing jobs and are forced to use credit to meet consumption needs, how are they supposed to pay back the credit? Consumer credit was growing at an unprecedented rate when people had jobs, so how is increasing consumer credit when jobs are decreasing supposed to make things better?

The basic problem is that the financial experts are taking Keynes' basic assumption for granted: the demonstrably false claim that the only way to finance new capital formation is by cutting consumption, saving, then investing. This disregards centuries, if not millennia* of time-tested central banking theory that explains how to create sound money for investment in self-liquidating capital projects — not consumption.

Given Keynes' rejection of central banking theory and sound practice, investment in new capital can only be financed by a class of extremely rich people who cannot consume all their income and are forced to reinvest it. This restricts the great mass of people solely to wage income, establishing and maintaining an effective monopoly over the most critical feature of life: how people are permitted to live.

To try and level out the inevitable swings in the business cycle as consumption income is diverted to investment, Keynes advocated the State print money to meet consumer needs. This would redistribute wealth through inflation and clear the unconsumed goods and services, resulting in "full employment" . . . at wage system jobs. Small ownership of the means of production must be discouraged because small owners tend to use their ownership income for consumption instead of investment. If more economic stimulus is needed, the State needs to print more money, creating inflation, and (hopefully) resulting in "full employment" that (again, hopefully) will offset the effects of inflation. This also increases the burden of debt left as a legacy to future generations.

Of course, Keynes never could explain why money could be created for non-productive government debt, but not for investment in new capital. Once we realize that new capital can be (and has been) financed by the banking system instead of out of past savings, then, Keynes' entire system falls apart — just as our economy is collapsing under the weight of Keynesian illogic. People do not need to cut consumption, which reduces the number of jobs . . . which must then be made up by artificially stimulating the economy and adding to the burden of debt by means of which we rob future generations of their hope and their livelihood.

Instead, through a program like Capital Homesteading, new capital can be financed by the extension of bank credit to people who currently own little or nothing in the way of productive assets (capital). This would end the diversion of income from consumption to investment, level out the fluctuations in the business cycle naturally instead of artificially, increase aggregate wealth instead of government debt, and break the monopoly of control over people's incomes now held in an iron grip by the wage system and the consumer credit industry. As Pope Pius XI explained in Quadragesimo Anno, a document that speaks to everyone trapped in unjust economic structures, not just Catholics,

105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.

106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.

With such control established by these "dictators of money," shouldn't we be asking why they are so anxious for ordinary people to remain propertyless and dependent on wages, welfare, and consumer credit . . . so anxious that they willingly extend more and more consumer credit, knowing full well that there is little if any chance it can be paid back? For a way out of the wage, debt, and welfare slavery that far too many politicians and financiers work to convince us are "freedom," read Capital Homesteading for Every Citizen, available on Amazon and Barnes and Noble, as well as for free as an e-text.

*Some historians trace the beginnings of classic central banking theory back to the financial markets of Alexandria in Ptolemaic Egypt.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

News from the Network, Vol. 1, No. 14

There have been some very positive happenings this week within the Global Justice Movement. This is a much-needed counter to the increasingly gloomy economic and political news that seems to flood in continuously.

• On Saturday, November 22, 2008 Norman Kurland gave a short speech at the Washington, DC, "End the Fed" rally. While the Washington event seems to have had the worst weather of any of the 39 rallies, it was also reportedly the best attended, with approximately 200-300 people showing up in bitterly cold temperatures. Norm's speech, unfortunately, had to be somewhat shortened due to rapidly falling temperatures as the sun went down, but he was still able to deliver a message that addressed many of the important points of the Just Third Way. The focus of the Just Third Way is not the destruction of institutions, but their reform to make them more consistent with the principles of the natural law. Thus, by "End the Fed," we mean bringing an end to the Federal Reserve as it now operates, and restoring it to its original purpose of providing liquidity to the private sector, not financing government deficits. A video clip can be seen here.

• On Monday, we got a telephone call from a writer for The Wanderer, a national Catholic newspaper. The October 23, 2008 issue of the paper carried some remarks about CESJ, the Central Bureau of the Catholic Central Union of America, distributism, and georgism, as well as the interfaith composition of CESJ and the First Social Justice Collaborative in August that could have been interpreted negatively. It took us time to prepare a response, but apparently within hours of receiving CESJ's letter and package of materials, the Wanderer started to take steps to correct the information once they had our side of the story. The Wanderer's quick and decisive action in this matter should transform a potentially embarrassing incident into an opportunity to help spread the effort to restore the natural law as the basis for a sound economy and a just social order.

• The writer from the Wanderer also requested a review copy of our latest book, In Defense of Human Dignity. The writer expects to get it reviewed fairly quickly. If anyone who has access into an established newspaper or journal would like a review copy, please let us know. We can provide a "two volume" e-text, or (if you don't mind waiting for regular mail, especially at this time of year), we can send a regular bound copy. If you want to get a copy even faster, it can be ordered from Amazon and Barnes and Noble. In Defense of Human Dignity is currently ranked 58 on Amazon's list of 100 most popular books on the natural law. Since Heinrich Rommen's The Natural Law and Dr. Charles Rice's 50 Questions on the Natural Law are 9 and 8, respectively, it's in good company.

• Walter Fauntroy is continuing to make great efforts to get Norm to the powers-that-be. It's difficult to tell sometimes in Washington just how successful this seed planting will be, but we hope to find out soon. Walter's efforts can be used as a model for others who want to see real changes introduced into the system, and illustrate the importance of Number 17 on the CESJ Code of Ethics: "There are three keys to gaining acceptance of revolutionary ideas: persistence, persistence, and persistence."

• As of this morning, we have had visitors from 31 different countries and 40 states and provinces in the United States and Canada to this blog over the past two months.

As usual, there are a great many other news items that we haven't heard about because you haven't submitted them. If you're tired of reading about what we're doing, let's hear from you. If you have a SHORT item about how you are advancing the Just Third Way, send us a note about it at mgreaney [at] cesj [dot] org.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

Keynes Reigns, or, A Meltdowner's Nightmare

We won't be posting tomorrow — another reason to give thanks, no doubt — so here is another "twofer" that went to both the Washington Post and the Wall Street Journal in response to their lead articles in this morning's editions. Due to the dreary sameness of the Keynesian approach — there are only so many ways to try and make it not sound like a disaster — very few changes in wording were necessary to adapt the letter to both newspapers.

Mindless adherence to discredited Keynesian economics is beginning to give off a definite stench of decay — to say nothing of highlighting the incredible absurdity of the belief that we can get out of the hole we're in by digging it deeper. ("U.S. Moves to Revive Consumer Lending," Washington Post, 11/26/08, A1, A10) True, if the promised portion of the $800 billion for the "credit markets" is lent for hard consumer assets such as land and housing, the new money will at least be asset backed.

As we've seen with the original $700 billion allocated to salvage the sub-prime mortgage crisis, however, there doesn't appear to be any solid reassurance that the hundreds of billions intended for home mortgages will actually find its way there — or will do so by bailing out Fannie Mae and Freddie Mac, reinforcing and rewarding their substandard lending practices. If the recent past is any guide, the purely inflationary $200 billion for student loans, car loans, and credit card debt will also expand, leaving people about to lose their homes holding the bag. The little add-on for "small business" loans — a good use of credit — seems likely to be ignored.

There is a way out of this mess, and it won't cost the taxpayer anything or increase the federal debt. Based on the good use of credit, that is, extending credit for the purchase of things that generate their own repayment, a program called "Capital Homesteading for Every Citizen" (from the book of the same title) has the potential to turn the economy around dramatically within a very short time. Capital Homesteading demonstrates that credit can be used for good, increasing the aggregate wealth of the economy, instead of passing on our debts to future generations.

Keynesian economics is as bankrupt as the system it is allegedly intended to save. It's about time we (and our leaders) started looking at something realistic instead of exempting ourselves from intellectual influences and slavishly following the ideas of a defunct economist.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

Bailout or Buyout?

A short time ago we got an e-mail from one of our loyal readers. He asked, "Why cannot shares of the companies be issued to all citizens for the government bailouts? Banks can do all administrative matters as part of the bailout."

This is an excellent idea — which is why we've been pushing that idea all along, from the Conrail situation that helped bring the ESOP into existence in the early 1970s down to the current situation with the automakers.

The mechanisms are already in place, legally, to link the bailouts of individual companies to something like an ESOP (or an ESOP). We think priority in ownership ought to go to the workers, then suppliers and customers, and then the general public. This is what Capital Homesteading is designed to do. Banks and other financial institutions could handle the administration of each individual's Capital Homestead Account, but before the enactment of a Capital Homestead Act, it might be feasible with what we have in law already to set up S-Corp ESOPs that pass through full voting and dividend rights to the beneficial shareholders, and combine it with a supplier and consumer co-op. It might still require some additional enabling legislation for members of the general public to get shares on credit, tax deferred, but the bones of the proposal already exist.

All it takes is for the powers-that-be to listen to us and take us seriously, instead of trying to bloat up the amount and number of bailouts so that corporate executives can continue to fly to hearings in their private jets.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

Problama for Obama

We've been a little busy, so the Washington Post and the Wall Street Journal have been getting off easy. The gloves are off, now — allowing for slight changes, we just sent the following letter to both of them:

President-elect Barack Obama is, in a sense, correct in that the United States — and the rest of the world — needs "economic stimulus." ("Obama Eyes $500 Billion in Stimulus; Paulson Weighs Ramping Up Aid Again," WSJ, 11/24/08, A1, A15; "Democrats' Stimulus Plan May Reach $700 Billion," Washington Post, 11/24/08, A1, A14.). Unfortunately, the Keynesian tactic of creating money to spend on non-productive consumption and government spending is exactly the wrong thing to do. It tries to solve the underlying problems by making them worse. If he is genuinely seeking a viable solution, Mr. Obama is thinking much too small.

Mr. Obama should not be asking for a mere $500 or $700 billion, but for $2 to $3 trillion. Instead of creating money to spend on consumption, rescuing gamblers, and increasing State ownership of private industry and infrastructure, however, as much money as is necessary can be created in a non-inflationary manner if it 1) results in investment in new equipment, technology, rentable space, or anything else that is "self-liquidating," that is, pays for itself out of future income, and 2) ownership of the investments is put in the hands of people who will use the income a) to repay the original acquisition loan, and b) afterwards spend the income on consumption.

Each year the U.S. economy adds between $2 to $3 trillion in new plant and equipment, rentable space, and infrastructure. Currently it does so in ways that concentrate ownership. If money for new investment were to be created by the commercial banking system and the central bank instead of relying on past savings, all new investment could be financed out of "future" or "forced" savings. Spending for investment that is broadly owned by people who will use the income first to repay their acquisition debt and thereafter for consumption instead of reinvestment would provide a lasting stimulus instead of a one-time infusion of questionable benefit. Investment that creates new owners increases ongoing demand for capital goods as well as consumer goods, and adds to aggregate savings (savings = investment) instead of increasing an already gargantuan public debt.

A program called "Capital Homesteading for Every Citizen," from the book of the same title, details how Mr. Obama can turn this country and the rest of the world around. The "Full Ownership and Employment Act of 2009" would be a good place to start. If Mr. Obama wants to spend money, he should do it wisely, not in ways that make the situation worse.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

News from the Network, Vol. 1, No. 13

Most of this week has been spent in meetings preparing for various events, and in responding to questions from various commentators. Unfortunately, some of the commentators become increasingly vague when asked for specifics of their critiques, and when pressed for details, unfortunately take refuge in ad hominem attack without presenting an argument based on reason. Not unnaturally, responding to this sort of thing takes a great deal of time that could be more productively spent doing something else . . . like writing blog entries. Nor can we leave the comments unanswered, for that would give the impression either that we did not have an answer, or that the critics were correct in their statements, some of which truly approach the surreal. Given that, then, here is this week's "hard" news.

• Norman Kurland will be speaking at the Washington, DC, "End the Fed" rally tomorrow (Saturday, November 22, 2008) outside the Federal Reserve Board of Governors building in downtown DC at 1 p.m. Norm will make the case that neither CESJ nor the Just Third Way advocate abolishing the Federal Reserve System, but rather reforming it to conform to its original purpose, with the addition of Kelsonian binary economics. Recommended reforms would terminate the State's power to monetize deficits and restrict all new money creation to productive projects, with self-liquidating zero-interest credit extended in ways that makes new owners out of people who currently own little or nothing in the way of capital. More information about the "End the Fed" rally can be found on their web site, http://endthefed.us/. Similar events will be held throughout the country on the same day. Reverend Walter Fauntroy is making space available at the New Bethel Baptist Church in Washington, DC for the organizing and planning group of the DC "End the Fed" event tonight (Friday, November 21, 2008) after 6 p.m. Everyone is invited to both events.

• CESJ met with Mr. Chris O'Connor of the Colonel John Fitzgerald Division, Ancient Order of Hibernians (AOH) of Arlington, Virginia, on Thursday, November 20, 2008, to present CESJ's Just Third Way as something that might assist the AOH in carrying out part of its social service mission. Mr. O'Connor is currently reading Michael D. Greaney's book, In Defense of Human Dignity (available from Amazon and Barnes and Noble), and was provided with copies of Curing World Poverty (1994), Capital Homesteading for Every Citizen (2004) and Father William Ferree's Introduction to Social Justice (1997).

• CESJ held its monthly Executive Committee meeting on Wednesday, November 19, 2008. Norman G. Kurland, Dawn K. Brohawn, Steve Neskis (via telephone), Robert Crane (via telephone), Rowland Brohawn, Michael D. Greaney, and Harriet Epstein attended. Lunch was served after the meeting. Harriet distributed small gifts obtained during her recent trip to Israel, which were greatly appreciated.

• Progress is being made on editing and formatting Harold G. Moulton's 1935 classic, The Formation of Capital. This is an important book, especially in light of the recent spate of bailouts and gross misuse of the commercial and central banking system that led to the present financial crisis. Dr. Moulton may have been the only economist of note in the 20th century who had a deep understanding of money, credit, and banking. Unfortunately, the prescription of Lord Keynes, not Dr. Moulton, was the blueprint for the New Deal and virtually all subsequent fiscal and monetary policy.

• William Cobbett's "long lost" book, The Emigrant's Guide (1829) is almost ready to go to the printer. The book consists of a series of letters written by people classed as "paupers" in England, but who, on reaching America, became owners of productive assets and contributing members of society. As one emigrant enthusiastically wrote to his parents, "America forever for me!" The Just Third Way seeks to make access to the means of acquiring and possessing productive capital as democratic as it was in early 19th century America by promoting Capital Homesteading and reform of the central and commercial banking system. This edition is particularly noteworthy for the addition of an in-depth foreword, extensive notes, an index, and a bibliography.

• Another "long lost" work, Father William Ferree's "Discourse on Social Charity" has been added to the current edition of Introduction to Social Justice (1948) for publication in a combined format. "Social Charity" was taken from what may be the only existing record of a talk Father Ferree gave in 1966 at a Marianist high school in New Jersey. The book is currently in editing and should be ready to go to the printer sometime in the current fiscal year.

• A package has been sent to Mr. A. J. Matt, Jr., editor and publisher of The Wanderer, a national weekly Catholic newspaper, in response to comments by one Dr. Rupert J. Ederer, former professor of economics at Buffalo State University, New York, that were published in the Wanderer's "From the Mail" column on October 23, 2008. Dr. Ederer's comments, while denigrating CESJ's Just Third Way, Chesterton's distributism, and the proposals of Henry George, were vague. Fortunately, CESJ is in possession of some of Dr. Ederer's writings in which he declares that he believes that private property, contrary to natural law theory and explicit teachings of Aristotle, Aquinas, Maimonides, Ibn Khaldûn, and many popes, is "prudential matter," meaning that it is not a natural right. Dr. Ederer hinted that CESJ was somehow subverting Catholic social teaching, which is based on the natural law, as is the social teaching of all religions and philosophies in one form or another. Assuming that Dr. Ederer's innovative views on private property are at the heart of his one-sided dispute with CESJ, a careful explanation of CESJ's position on private property was prepared and sent to Mr. Matt, along with copies of CESJ publications, as well as letters from Vatican officials attesting to CESJ's interfaith efforts to advance Catholic social teaching. Selections from the letter to Mr. Matt will be published on this blog over the coming weeks.

• Mr. Rodney Shakespeare, co-author with Robert H. A. Ashford of Binary Economics: The New Paradigm (1999) has been engaging in an e-mail exchange with various members of CESJ over the issue of whether allowing a government to create money for public works is a basic principle of binary economics, or a barely-tolerable expedient that can only be justified in an emergency. Mr. Shakespeare takes the former position, and, although he is a barrister, has failed to make a case.

• As of this morning, we have had visitors from 33 different countries and 43 states and provinces in the United States and Canada to this blog over the past two months.

As usual, there are a great many other news items that we haven't heard about because you haven't submitted them. If you're tired of reading about what we're doing, let's hear from you. If you have a SHORT item about how you are advancing the Just Third Way, send us a note about it at mgreaney [at] cesj [dot] org.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

"Now What?": Capital Credit Insurance

Last week Slate magazine published a review of a new book by Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can Save the World.

"The Rise and (Potential) Fall of Philanthrocapitalism: Billionaires brought their business sense and ambition to charitable giving. Now what?" as the review by Georgia Levenson Keohane was somewhat cumbersomely titled, focused on how current economic conditions may effect "philanthrocapitalism," and analyzing the effectiveness of a "'movement' of philanthropists has 'set out to change the world.'"

From the point of the Just Third Way, however, the only thing that "philanthrocapitalism" has done is perpetuate an unjust system. "Philanthrocapitalists" probably have their hearts in the right place, and they have admittedly done a great deal of good in the realm of individual charity. What they have left out of their programs, however, is "social charity," the virtue that adjures us to love our institutions as we love ourselves, just as individual charity has us love our neighbor as ourselves.

Philanthropic programs that keep the current system running are not the answer, regardless how much wealth is applied to the task. What is needed is a fundamental restructuring of the social order, as Pope Pius XI, the head of the Catholic Church at the time, explained in 1931 in his "encyclical," Quadragesimo Anno, "On the Restructuring of the Social Order." The program, reiterating what Pope Leo XIII had said forty years previously in Rerum Novarum ("On the Relations Between Labor and Capital"), 1891: "The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners."

The popes did not mean consumer goods, even such "durables" as houses, cars, and access to consumer credit, although these (within reason) are usually good things. What the popes, in common with most political philosophers throughout history, were talking about is ownership of the means of production. In the modern age in most cases that translates into corporate equity with full rights of ownership vested in the shareholder . . . and that will require a massive and fundamental overhaul of the financial system as well as a return to some basic legal and philosophical principles on which the United States was founded.

One of the greatest barriers to full participation in the economic common good is lack of access to the means of acquiring and possessing private property in the means of production. This is so basic a right that George Mason, the "Father of the Bill of Rights," put it in the first paragraph of his draft of the Virginia Declaration of Rights, a document that served as a model for Jefferson's Declaration of Independence a month later:

That all men are by nature equally free and independent, and have certain inherent rights, of which they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.

As Louis Kelso pointed out, the "universal collateralization requirement" keeps more people from becoming owners than anything else. That is, you need money to make money, so that membership in the "club" of capital owners is closed to anyone without sufficient existing wealth to put up as collateral for a loan to purchase income-generating assets.

Rather than simply giving away money to support the current system, then, the "philanthrocapitalists" should fund a capital credit reinsurance pool to take the place of the collateral that the poor don't have. In this way they not only retain title to their wealth, they benefit society and individuals far more than simply funding programs that, despite the great amount of goodwill and effort involved, never seem to make any headway against the seemingly overwhelming problems that afflict the world.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

A Short Course on Banking Theory

A "bank" is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. There are two basic types of banks, the "Bank of Deposit" (deposit bank), and the "Bank of Issue" (issue bank, or circulation bank).

A deposit bank aggregates the savings of depositors and loans them out. The amount of loans that can be made is strictly limited by the amounts that have been deposited. The most common forms of deposit bank are credit unions, savings and loans, and investment banks. A deposit bank is what most people think of when they hear the word "bank." This results in a serious misunderstanding of the greater part of banking theory, which is what underpins the bank of issue, more archaically referred to as a "bank of circulation" due to its function in providing a community with circulating media (i.e., currency).

An issue bank makes loans on financially feasible projects, taking in return a lien on the assets being created and creating demand deposits or currency out of the lien, which backs the deposit or currency ("promissory notes"). As the projects financed by the loans become profitable, the loans are repaid, and the currency or demand deposits are canceled. Thus, assuming that all projects are feasible, the money supply exactly matches the production of goods and services being financed in this manner. (Since we know that all projects are not equally feasible, and some actually fail, capital credit insurance can operate as collateral to replace the money spent without being productive, and the insurance proceeds are canceled in place of the loan that wasn't repaid — thus, the existing pool of savings (the insurance pool) is reduced by the same (or nearly the same) amount that the money supply was increased by the bad loan, countering the inflationary effect of a bad loan with the deflationary effect of canceling money out of existing savings.) The most common form of issue bank today is the commercial bank.

"Fractional reserve banking" is an attempt to combine the existing liquidity (money) that a bank of deposit has with the ability of a bank of issue to create liquidity. A bank using fractional reserve banking can, in theory, loan out 100% of the cash on deposit. Practically speaking, however, if a bank did that, there would be nothing on hand to cover the daily demand for cash payouts. If a bank discovers that, for example, only 20% of its total deposits are likely to be demanded in the form of cash at any time, it can loan out 80%, retaining a "fraction" of its assets in the form of cash reserves (hence "fractional reserve banking"). If the bank has the power to create money, it can (again in theory, practice is somewhat different due to banking laws), it can use its existing cash reserves, and create money in the form of demand deposits by making loans, preferably for assets that will generate cash in the future to repay the loans and allow the bank to cancel the money it previously created. As long as the amount of new money does not cause the percentage of cash reserves to fall below the level required to satisfy the daily demand for cash, everything (in theory) should be fine.

A central bank is a hybrid creature. It is intended to be a bank of issue for commercial banks, but a bank of deposit for a government. Under the distortions that galloped into our financial system as a result of the hegemony of Lord Keynes, however, this has been reversed. The Federal Reserve functions largely as a bank of deposit for commercial banks, but a bank of issue for the State — a recipe for disaster. What we propose is to reform this and return the Federal Reserve to its original purpose by restoring its original character. By instituting a 100% reserve requirement for commercial banks to be solely in the form of cash (demand deposits) or qualified government securities, the Federal Reserve will no longer have any reason to deal in "secondary" government securities to affect reserve requirements — that only applies in fractional reserve banking, not 100% reserve banking. By adding the expanded ownership features of Capital Homesteading, a major (and relatively "painless") reform of the financial system can be carried out, a reform that does not rely on taxing the poor to support the rich, or vice versa.

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

For Your Viewing Pleasure: "The Last Laugh"

Here is a link to a video that, in addition to being very entertaining, also manages to summarize in a very pithy and humorous fashion how the sub-prime mortgage crisis kick-started the financial meltdown. Just as we've been trying to say (in less humorous and much more lengthy fashion), the underlying problem was the misuse of credit, coupled with economic power concentrated in the hands of a relatively few people.

When a single individual uses credit unwisely for consumption or speculation, only that individual and those from whom he or she borrowed suffer when he or she cannot pay back the money. When the misuse of credit for consumption, speculation, and government expenditures becomes systemic, however, the entire financial arrangement of society is endangered and private property is undermined. Further, political structures are weakened or destroyed, along with individual and personal sovereignty, social stability, and a country's international position, as Henry C. Adams warned in his 1898 monograph Public Debt: An Essay in the Science of Finance.

By the way, we did not add the Spanish subtitles, although they should be very useful.

Our Feature Presentation

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

The Path Not Taken

By Jether Giacomini, Guest Blogger, Saõ Paulo, Brazil

After the Industrial Revolution, production of goods and services became capital intensive. That is, apparently many people became unable to earn a living solely through their labor power.

At this point, humanity had two paths to follow. One was to devise a way to make everyone an owner of capital instruments, making them able to earn a living in a post-industrial world. Another was not to devise a way to make everyone an owner of capital instruments, letting many of them unable to earn a living in a post-industrial world.

Humanity chose the latter. What happened? Well, what happens if you can't earn a living? You die, you are dependent, you rob (that is, you are dependent, but you coerce somebody to sustain you). Can you believe that humanity chose to die, to be dependent upon people who can earn a living or people who cannot, but steal who can, and rob (another thief or somebody productive through his labor and/or capital)?

Sad, but true. We live in a Culture of Death, our institutions are still very barbaric, they were not perfected, brought up to the design of the U.S. Constitution when advanced industrial economies came into existence. There will be no true capitalist democracy until every household participates in the production primarily through capital instruments. U.S. or U.S.S.R., does not matter in this respect, both chose to not make everyone capable of earning a living in this new society, they chose the other three "alternatives."

Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).

News from the Network, Vol. 1, No. 12

Most of the events of the week have been in preparation for what we hope will happen, rather than what has happened, making for another “thin” news week. Despite that, there have been a number of significant occurrences . . . we just don’t have enough information, or events haven’t proceeded far enough to have anything to say about them. Here, however, is this week’s roundup.

• Through a connection made by CESJ friend Daniel Moore of Ohio, Norman Kurland has been invited to be a speaker at the Washington, DC, "End the Fed" rally to be held outside the Federal Reserve Board of Governors building in downtown DC at 1 p.m. on Saturday, November 22, 2008. Neither CESJ nor the Just Third Way advocate abolishing the Federal Reserve System, but rather reforming it to conform to its original purpose, with the addition of Kelsonian binary economics. Recommended reforms would terminate the State's power to monetize deficits and restrict all new money creation to productive projects, with self-liquidating zero-interest credit extended in ways that makes new owners out of people who currently own little or nothing in the way of capital. More information about the "End the Fed" rally can be found on their web site. The music can be turned off by clicking on the left button right under the $2 bill halfway down the page. See also the video link to the speech by Adam Kokesh. Similar events will be held throughout the country on the 22nd. Reverend Walter Fauntroy is making space available at the New Bethel Baptist Church in Washington, DC for the organizing and planning group of the DC "End the Fed" event to meet on Friday, November 21, 2008 after 6 p.m. Everyone is invited to both events. To see the effect that Capital Homesteading will have on a typical individual, see the projections developed by CESJ.

• Mr. Timothy A. Dickel, principal of Mater Dei High School in Evansville, Indiana, sent a letter thanking CESJ for its contribution of a copy of In Defense of Human Dignity by alumnus Michael D. Greaney (available from both Amazon and Barnes and Noble), and indicating that a number of teachers have expressed interest in the book as a resource in the school's social justice program. We hope that others will introduce the book (and the ideas) to local schools and libraries.

• On Wednesday of this week, Norman Kurland attended a presentation by the United States Institute of Peace on Abrahamic Alternatives to War: Jewish, Christian, and Muslim Perspectives on Just Peacemaking. Norm reported that their principles appear to be consistent with the Just Third Way, while the techniques of what they call "just peace making" seemed to be similar, up to a point, with those of social justice. The materials available through their web site appear to offer practical strategies for peaceful resolution of religious, economic, political and diplomatic conflicts from the community level on up to the global level.

• As of this morning, we have had visitors from 34 different countries and 44 states and provinces in the United States and Canada to this blog over the past two months.

As usual, there are a great many other news items that we haven't heard about because you haven't submitted them. If you're tired of reading about what we're doing, let's hear from you. If you have a SHORT item about how you are advancing the Just Third Way, send us a note about it at mgreaney [at] cesj [dot] org.