Why Government Debt is REALLY "Bad"

Yesterday's posting on why government debt is a bad idea was supposed to be a "one-shot" deal. We had intended today to post something on how wages tend toward subsistence in a system in which most people are denied access to the means of acquiring and possessing private property. Among other things, there's no "competition" among sources of income, so the wage payer has a virtual monopoly and thus control over wage earners' income.

We'll get to that — eventually — but we received a comment on yesterday's posting that demands a response. Why? Because the comment revealed that people can be reading the postings on this blog, especially on the nature of money and credit, and still remain trapped within the existing paradigm. (We're not talking about Dr. Norman Kurland's posted comment.  We liked that one.  This is one that was sent to us rather than submitted as a posted comment.)

This is a serious problem. The whole point of the Just Third Way is that it takes as a given that the existing paradigm is based on seriously flawed principles. When applied to the design and maintenance of a political or economic system, these flawed principles can have only one result: disaster. This is because the Just Third Way derives from application of the essential precepts of the natural moral law, that is, from human nature itself, reflected from the Creator and discernible by the use of reason. The refusal or inability to base the institutions of society on these precepts within acceptable parameters virtually guarantees failure.

What are the essential precepts of the natural moral law? We find them listed in, e.g., the Universal Declaration of Human Rights and the Declaration of Independence, but perhaps most succinctly in George Mason's draft of the Virginia Declaration of Rights of June 12, 1776: life, liberty (freedom of association/contract), access to the means of acquiring and possessing private property, and the acquisition and development of virtue ("pursuit of happiness and safety"). The last of these, best understood as "becoming more fully human," while most important, is supported by the essential triad of life, liberty, and property.

This is the basic framework of the Just Third Way, a fundamental respect for the dignity of each person. That being the case (and recalling the number of times we've covered this topic in postings on this blog), the comment we received was, well, discouraging:

Since the treasuries of sovereign governments that issue their own currencies are not depository institutions, to speak of such sovereign governments as being in debt is largely meaningless. If government debt is bad, you ought to see just how bad budget surpluses are.

The only way to respond to this dogmatic assertion is to explain again, as briefly as possible, the nature of money — not its function. Because we've explained this so many times before and gone into a great deal of depth on the subject, this is going to come across as a string of dogmatic assertions. If a new reader wants more explanation, there is much more information over to your right under "money and credit," in which there are more than eighty individual postings.

"Money" IS anything that can be used in settlement of a debt. What "money" DOES is serve as the medium of exchange, a standard of value, a unit of measure, and a store of value.

By definition, all money constitutes a contract, and all contracts are money.

"Currency" is a specific form of money, "current money," that may or may not have legal tender status, and may or may not be sanctioned or regulated by the State.

The State's proper role with respect to money is to set the standard of value and enforce contracts when necessary. Anything else interferes with freedom of association (liberty/contract) and undermines the institution of private property where it does not abolish it outright.

A treasury of a sovereign government that issues its own currency is not a "depository institution," but is functioning as a "bank of issue."

A bank of issue only properly emits banknotes and creates demand deposits when the banknotes and demand deposits are backed by the present value of existing and future marketable goods and services or the capital instruments used to produce the future marketable goods and services, in which the issuer (emitter of the banknotes or creator of the demand deposits) has a private property right secured by a bill of exchange or a derivative of a bill of exchange in the form of a draft, a promissory note, or other financial instrument — a "real bill."

An emitter of banknotes or a creator of demand deposits that does not have such a private property right is engaged in theft, that is, is drawing "fictitious (fraudulent) bills." When the emitter/creator is the State, the issuance of banknotes or creation of demand deposits that are not construed as debts secured by future tax collections ("anticipation notes") constitutes effective socialism.

The form of socialism in which the State issues all money backed solely by its "faith and credit" and is not required to make good on the promise(s) conveyed by the currency to holders in due course of the currency is called "chartalism." Lauded by John Maynard Keynes in his Treatise on Money (1930) as the perfect monetary system within and for an absolutist State, chartalism was pioneered by Georg Friedrich Knapp in The State Theory of Money (1924).

Like all socialism, chartalism is based on the belief that private property is illegitimate, and that the State, whether or not it holds actual title, is the real and ultimate owner of everything in the economy. This belief was posited in modern political theory as the "divine right of kings," and articulated in Thomas Hobbes's manual for totalitarian government, Leviathan (1651).

Hobbes was a primary source for Walter Bagehot, whose The English Constitution (1867) and Lombard Street (1873), the latter based on the British Bank Charter Act of 1844, are virtual "bibles" for the structuring of the modern financial system and government monetary and fiscal policy. Bagehot, contradicting A. V. Dicey's emphasis on the "rule of law," presumed rule of the State by a financial elite, a "despotic economic dictatorship" 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." (Quadragesimo Anno, § 105)

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. (Ibid., § 106.)

The bottom line is that basing the financial system on the tenets of the British Currency School of finance (that money is arbitrarily defined and re-defined by the State at will, and that freedom of contract is abolished along with private property), is directly contrary to the natural law foundation of the British Banking School of finance, expressed in Say's Law of Markets and applied in the real bills doctrine. The Just Third Way uses the Banking School definition of money, while the commentator is evidently using the Currency School definition. This makes it difficult-to-impossible to respond to such comments without lengthy posts such as this one, for we are clearly not speaking the same language, or analyzing the situation using the same principles.

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Why Government Debt is "Bad"

From the perspective of the Just Third Way, the good thing about accumulating massive amounts of material from the past ("Long past?" "No, your past.") is that it becomes glaringly obvious that the local, national, and global economies are sliding swiftly down the skids — and why. This contradicts the modern delusion that the sum total of human knowledge became self-evident only this morning, and anything antedating your 6:30 am wake-up call is either completely wrong, totally outdated, or, like, so totally yesterday, Dude, that it isn't worth considering.

So . . . like, how is this relevant to the title of this posting? Well, Dude, like a lot of policymakers and academics are ridiculing the "Tea Party Types" for being concerned about too much taxation and the huge deficits that result from the misuse of the Federal Reserve by monetizing government debt. After all, His Defunct Majesty Lord Keynes proved beyond the shadow of a doubt that we don't need to worry about deficit financing of government. Debt is good. This is because, in Keynesian theory, you're not actually creating money when you monetize government deficits. Rather, you're just chopping up existing wealth into smaller and smaller bits for easy (re)distribution.

Unfortunately for today's monetary and fiscal policy, Keynes was wrong. Monetizing government deficits isn't simply a case of chopping existing wealth into smaller and smaller pieces until the guppies eat the treasury. It's pledging future taxes collected out of wealth that hasn't yet been produced. The present value of what exists in the economy is not based on what currently exists. That would limit the value of the "general wealth of the economy" to the book value of existing inventories of marketable goods, and the salvage or disposal value of capital goods.

Every accountant knows, however, that the real value of productive capital is not its salvage value, but the present value of what that capital will produce in the future — but that does not yet exist in the form of inventory. This means that the "general wealth of the economy" — what the policymakers and academics appear to believe backs the money supply — consists not only of the present value of existing inventories of marketable goods and services and capital, but of the present value of existing and future marketable goods and services.

Thus, when the government monetizes its deficits, it's not simply cutting up claims on existing wealth into smaller and smaller pieces the better and easier to undermine private property and redistribute wealth. Rather, by issuing currency and creating demand deposits backed by future tax collections, the government is promising to redeem the claims it is issuing in increasing numbers out of wealth that hasn't yet been produced — and becomes less likely to be produced the more the government erodes private property by manipulating money and credit. Hence we have the analysis of Henry C. Adams in the late 19th century, in which he concluded that government deficit spending was a fast track to loss of personal sovereignty on the part of the citizens:

As self-government was secured through a struggle for mastery over the public purse, so must it be maintained through the exercise by the people of complete control over public expenditure. Money is the vital principle of the body politic; the public treasury is the heart of the state; control over public supplies means control over public affairs. Any method of procedure, therefore, by which a public servant can veil the true meaning of his acts, or which allows the government to enter upon any great enterprise without bringing the fact fairly to the knowledge of the public, must work against the realization of the constitutional idea. This is exactly the state of affairs introduced by a free use of public credit. Under ordinary circumstances, popular attention can not be drawn to public acts, except they touch the pocket of the voters through an increase in taxes; and it follows that a government whose expenditures are met by resort to loans may, for a time, administer affairs independently of those who must finally settle the account. (Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 22-23.)

But, you say, so what? We don't have any real sovereignty left, anyway. With the growing concentration of ownership of the means of production, and the growing State control of what remains, that isn't far from the whole truth. Still, loss of personal sovereignty is only half the problem. Deficit financing leads directly into loss of national sovereignty as well:

The facts disclosed permit one to understand how deficit financiering, carried so far as to result in an interchange of capital and credit between peoples of varying grades of political advancement, must endanger the autonomy of weaker states unable to meet their debt-payments. Provided only that the interests involved are of sufficient importance to make diplomatic interference worth the while, the claims allowed by international law will certainly be urged against the delinquent states, and the citizens of such states may regard themselves fortunate if they succeed in maintaining their political integrity. (Ibid., 28-29.)

As the American economy becomes increasingly weaker, and as that of China, the single largest holder of American debt paper, continues to experience explosive growth, we are seeing the beginning of the end — unless steps are taken immediately, such as enacting the Capital Homestead Act by 2012. And it can be done. In the early 1870s, France managed to repay an indemnity deliberately designed to destroy its economy forever in less than three years by producing massive amounts of quality goods, facilitated by sound money and extension of credit to business — not government.

It can be done. The time to do it is now.  The alternative is to sit idly by while China increasingly throws its weight around, and North Korea and Russia take advantage of the situation.

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News from the Network, Vol. 3, No. 49

As we get closer to year-end, it seems that "action" slows down, while meetings and regulatory requirements speed up . . . just as you need the time to prepare for the holidays (or, depending on your preference, hide from them). Consequently, this has been a week of meetings (boring to read about, but critically important), and report preparation (boring to read about and important only in the eyes of the bureaucrats who impose the requirements).

That being the case, we might as well jump right in and list what we've been able to accomplish this week to advance the Just Third Way:

• On Tuesday of this week we had a very good meeting with Mr. Dave Kelly (and it's "Kelly," not "King" as this writer for some reason insisted on calling him in a couple of e-mails). Mr. King is involved in the effort to restore the land around Harris Neck, Georgia, to its original owners or their heirs. The land was originally taken during the Second World War for an airstrip, found to be unsuitable, and eventually turned over to the Fish and Wildlife Commission. The F&WC is now asserting that to return the land to the people who owned it before it was taken away — most descended from former slaves — would irreparably harm a critically needed feature in the local ecology. It is unclear how a proposed airstrip would not have done so, or how returning the land to its original owners and use would.

• On Wednesday, Norman Kurland and Michael Greaney attended an Atlas/FreedomWorks function on Capitol Hill on "Sound Money and America's Global Economic Leadership." We were able to speak to a few people afterwards and distribute some copies of Dr. Harold Moulton's book, The Formation of Capital (1935), but it is not certain if or to what extent, if any, the message got through.

• The president of the Catholic Radio Association has invited a CESJ "delegation" to a reception on January 21, 2011 at the Catholic University of America, at which producers and radio station owners will be present, so that CESJ can help introduce its principles of economic and social justice to a broader audience.

• The president of the Catholic Radio Association also gave us the name of a possible contact in the media in Georgia who might be interested in the Harris Neck project.

• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Brazil, and Ireland. People in Japan, the United States, Pakistan, Finland and Venezuela spent the most average time on the blog. The most popular posting remains Norman Kurland's tribute to Robert P. Woodman, followed by Aristotle on private property, "Thomas Hobbes on Private Property," "Preventable Disasters" about the Irish crisis, and News from the Network.

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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Do Absolutes Exist? Absolutely!

A few days ago we posted our response to a reader who wondered whether he was right in thinking that it is possible to know the nature of things such as truth, love, justice, and the existence of God — in other words, whether such things as absolutes exist and if they can be known through the use of reason. In response we gave (as you might expect) the standard Aristotelian/Thomist/Maimonidean/Ibn Khaldûnian (I'm not sure some of those are real words, but you know what I mean) response that, yes, absolutes exist and they are discernible by the use of human reason, that is, they are "knowable." To get as much mileage as possible out of the response, we posted it in a number of LinkedIn groups that indicated an interest in the subject of absolute moral values, whether it is possible to know right from wrong, and so on.

Not surprisingly, the relativists were not slow in responding. One individual posted the presumably crushing comment that, "there may very well be 'absolutes', but due to our human condition, it is likely impossible for any of us to truly know them."

There are some interesting issues raised here. The comment, "there may very well be 'absolutes', but due to our human condition, it is likely impossible for any of us to truly know them" brings in the question as to whether it is truly possible to know anything — even whether it is possible to know that you don't know, which is also knowledge and thus truth. Taking as a starting point the assumption that we can know something, even if the extent of our knowledge is that we know nothing other than that we know nothing, we can resolve the question by applying a little common sense.

When we examine this statement, we realize that it is precisely because of our "human condition" that we are able through the use of reason to discern absolutes and apply them in various ways to meet human wants and needs — especially the human need to develop more fully as persons by acquiring and developing virtue, that is, by conforming ourselves ever more closely to our own nature. Humanity is made in the image and likeness of God; our human nature is a "reflection" of Divine Nature. Human nature thus incorporates an "analogously complete" capacity to acquire and develop that virtue of which God is the fullness, that is, absolute good, truth, love, beauty, justice, and so on by definition, that is, by our substantial nature or essence; our capacity to acquire and develop virtue is what defines us as human. To deny that is to deny our humanity.

The argument is fairly straightforward. First, we must understand that the first principle of reason — of existence itself — is that nothing can both "be" and "not be" at the same time. Whatever is, is, while whatever is not, is not. Whatever is in the category of "A" is by that fact excluded from the category of "Not-A." This is the "law (or principle) of contradiction," or (less frequently, but perhaps more accurately) the "law (or principle) of non-contradiction."

Second, we have to understand that the claim that there are no absolutes, or that there may be absolutes, but that it is not possible to know what they are, is the same as saying that it is not possible to know whether a thing is true or untrue, good or evil, right or wrong — or (more concisely) that it is impossible to know right from wrong. Lacking an absolute standard, however dimly perceived by the use of human reason, against which to measure something, it becomes impossible to measure that thing.

(We can reject as meaningless the statement that there may be absolutes, but that it may or probably not be possible to know them. "May not be" implies "may be" as an equally valid conclusion. It is thus simply a way of avoiding committing yourself one way or another; a way of asserting the unknowability of absolutes without actually saying so.)

Third, given that it is possible to perceive or discern absolutes, whether or not "through a glass darkly," we necessarily conclude that it is possible to "know" — that is, to distinguish right from wrong, or truth from untruth. Every injustice implies a standard of justice against which the injustice is measured and found wanting. Every wrong implies a right, every untruth implies a truth.

For example, the prohibition in the Decalogue, "Thou shalt not steal" necessarily implies private property as an absolute, that is, as pertaining to the natural moral law. If private property were not based on an absolute right of every human being to be an owner, then theft could not possibly be wrong — yet every society that has ever existed has proclaimed theft to be wrong. Different societies may define theft differently, even incorrectly, and thus apply the natural right of property differently or erroneously, but the basic principle, that private property is part of the natural moral law, remains unchanged and unchangeable.

Thus, "knowing" (participating in some measure in God's Intellect by acquiring and developing virtue) — distinguishing right from wrong, truth from untruth — necessarily implies absolutes, such as truth, love, justice, and so on. The concepts of good and evil, right and wrong, necessarily imply the existence of absolutes from which we derive our idea of right and wrong. As Mortimer Adler explained,

The reason why I say that everyone, as a matter of common sense, understands truth and falsity is that everyone knows how to tell a lie. Every one of us has told lies on one occasion or another, and everyone understands the difference between telling a lie and telling the truth. (Mortimer J. Adler, "Man the Knower," Aristotle for Everybody. New York: Macmillan Publishing Company, Inc., 1978, 151-152.)

Fourth and finally, the declaration that it is impossible to discern the existence of absolutes and come to know them is contradictory. That is, you cannot claim that it is impossible to know absolutes . . . and state it absolutely. It defies reason; it implies that something can both "be" and "not be" at the same time; you cannot state absolutely that there are no absolutes or that knowing them is impossible. Nor can you claim that someone is wrong for maintaining that it is possible to know right from wrong . . . for, if you cannot tell the difference between right and wrong, how do you know that someone else is wrong on anything — and how do you know that you are right?

"This way lies madness." Asserting that there are no absolutes or that it is impossible to know them are statements in the same category as, "Everything I say is a lie," or, "If God can do anything, then He can make a weight so heavy He cannot lift it." These are word games and simplistic logic puzzles for children, not reasoning adults. The only rational course of action is to realize that there is a contradiction somewhere in the statement, identify it, and reject the entire statement as inconsistent with reality, that is, with nature. We otherwise run the risk, as Rommen pointed out, of descending into pure moral relativism, positivism, even, ultimately, nihilism. Insanity becomes the only escape.

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Sound Money and America's Global Economic Leadership

Yesterday (Tuesday, December 7, 2010), Dr. Norman G. Kurland and Michael D. Greaney, President and Director of Research for CESJ, respectively, attended the launching of Dr. Judy Shelton's pamphlet, A Guide to Sound Money, sponsored by the Atlas Economic Research Foundation and FreedomWorks. The midday event, "Sound Money and America's Global Economic Leadership," featured brief presentations by Matt Kibbe, President and CEO of FreedomWorks Foundation, Alejandro Chafuen, President of the Atlas Economic Research Foundation, Representative Mike Pence of Indiana, Dr. Judy Shelton, Co-Director of the Atlas Foundation's Sound Money Project, Representative Paul Ryan of Wisconsin, Dr. Lawrence White of the Economics Department of George Mason University, an unscheduled presentation by Jimmy Kemp, son of the late Jack Kemp, and closing remarks by Brad Lips, CEO of Atlas.

Dr. Shelton's pamphlet is being widely distributed in an effort to educate as many people as possible about the dangers of deficit spending in general, and current monetary policy in particular. The orientation is that of the "Austrian school" of economics, which — of the three "mainstream" schools of economics — is the closest to the natural law principles of the Just Third Way, the "four pillars of an economically just society":

1. A limited economic role for the State,

2. Free and open markets within a strict juridical order as the best way of determining just wages, just prices, and just profits,

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

4. Widespread direct ownership of the means of production, especially through democratic access to money and credit creation for productive purposes.

This last — widespread direct ownership of capital — is the "fatal omission" from all mainstream economics and finance, including the Austrian school. Sadly, the few schools of economics that do recognize the importance of widespread ownership (with the notable exception of Binary Economics), tend to undermine one or more of the other natural law pillars. Usually this is by redefining the natural right to be an owner ("private property"), but freedom of association (liberty/contract) comes in for its share of redefinition, as does individual sovereignty through the tendency to give the State far too great a role. Primarily the State gains increasing power these days by exercising its alleged "right" (in the words of John Maynard Keynes) to "re-edit the dictionary" (A Treatise on Money, Volume I: The Pure Theory of Money, 1930). This "right" allows the State to abolish presumably inalienable rights to life, liberty, property and the pursuit of happiness on anything other than the State's own terms by redefinition of these basics of human existence.

This highlights the one problem we found in Dr. Shelton's pamphlet. There was practically nothing said with which we could disagree — except for the claim on page 7 that, "Free market capitalism depends on people's willingness to forego consumption today to provide the resources that will enable a greater standard of living in future years."

Regular readers of this blog will instantly recognize the problem here. It is, after all, the main "selling point" for Binary Economics, and the underpinning of the monetary and fiscal reforms found in "Capital Homesteading" and highlighted in the subtitle of Louis Kelso and Mortimer Adler's second collaboration, The New Capitalists: "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."

Dr. Shelton's statement strikes at the heart of Say's Law of Markets implicit in Adam Smith's "invisible hand" concept, and that finds its application in the real bills doctrine. Not surprisingly, it is based on the partial understanding of money and credit found in the tenets of the British Currency School of finance, that "money" consists of coin, banknotes, and demand deposits . . . although some Currency School purists reject as "money" anything that is not coin or banknotes backed by specie (gold or silver).

The Currency School understanding of money fits into the standard economic definition of money (very briefly, the medium of exchange and a store of value). It does not, however, fit into the legal or accounting definition of money: anything that can be used in settlement of a debt. Precisely stated, the economic definition of money describes money by its function, while the legal and accounting definition of money (the Banking School of finance) defines money by its nature.

This distinction is critical. For thousands of years before the invention of coined money, trade was carried out by means of bills of exchange and derivatives of bills of exchange, such as promissory notes and drafts. These were contracts into which parties to the transaction entered freely. The State could enforce or arbitrate contracts and to a certain extent dictate what constituted legal or allowable matter of a contract, but it could not in general dictate the terms of a contract or unilaterally change the terms of a contract to which it was not a party. The idea of "contract" is important in this discussion, because all money constitutes a contract, and all valid contracts in a sense constitute money.

"Money" properly defined, then, is anything — repeat, anything — that is used in settlement of a debt. Even today, when the State has extended its power to virtually the whole of economic and political life, the bulk of the money supply consists of private sector bills of exchange in various forms, not State-issued coin, currency, or demand deposits. Dr. Shelton hints at this on page 5 ("Transactions take place only if that piece of paper means something to both parties. The individual who receives it must be just as aware of the paper's value as the one who gives it; when the paper has been exchanged, both parties know that a deal has been struck at a specific price."), but the point gets buried under the functional definition of money.

The fact is that the State discovered very soon after the invention of coined money and the State's assumption of the regulatory and certification authority over money that it could alter the terms of any contract simply by manipulating the "underlying," or asset behind the derivative. That is, all money is a derivative of the issuer's (or contract maker's) private property right in something of value that is being conveyed by means of the money. Broadly, "money" thus represents a private property stake in the present value of an existing or future marketable (exchangeable) good or service — a "derivative" or (in older parlance) a "real bill." "Currency" is a specific form of money, a derivative of a real bill, or a derivative of a derivative. This is legitimate and sound as long as the underlying at each stage is not itself used as money . . . and it actually exists at or greater than the value conveyed in the derivative.

Unfortunately, the State quickly found that it could make a "profit" (actually, incur a liability — the confusion results from people who don't understand the balance sheet or the income statement) by saying that there was "X" amount of gold or silver in a coin, but put "X - Y" worth of gold or silver in the coin. Today, matters have reached such a pitch that the State issues countless certificates announcing how many "dollars" each certificate represents, but without having a private property stake in the present value of existing and future marketable goods and services that the certificates represent. This robs possessors of wealth denominated in units of currency by decreasing the value of the currency through inflation, and transfers that value to the issuer of the currency — the State.

The effect of recognizing only State-issued certificates backed by nothing other than future tax revenues ("anticipation notes") as money has a number of very bad effects. One, it limits the "supply of loanable funds" to existing accumulations of monetary savings. These being a monopoly of the rich by definition, the State feels compelled either to redistribute wealth directly, or through inflation, by both means undermining private property.

Two, money and credit become viewed as a commodity in and of itself, in limited supply, while "interest" changes from an owner's enjoyment of the natural right to enjoy the fruits of ownership by participating in profits, to a charge for the use of money. The State is rarely able to keep itself from manipulating the interest rate, either by taxing away "unjust" or "excess" gains for redistribution, or by imposing a desired rate of return directly.

Three, the amount of new investment is limited not by available resources, effective demand, or financially feasible projects, but by the amount of existing savings in the system. This infringes on freedom of association (liberty), for (money being a contract) to require that investment in new capital only be financed out of the present value of existing marketable goods and services saved out of consumption means that people are prevented from making contracts involving the present value of future deliverables.

Four (and most critically), since (as we noted) existing savings are a virtual monopoly of the wealthy, and all financing for new capital presumably comes out of existing savings (it actually doesn't, but that's a story for another day), those who are most in need of capital ownership to supplement or replace the declining value of their labor as technology advances are shut out of ownership.

There are many other problems associated with reliance on existing accumulations of savings to finance new capital formation, but that's enough for now. The question we need to address is how best to supply money to the economy so as to ensure an adequate amount that at the same time retains its value and fills all the other necessary functions of the medium of exchange, so well covered in Dr. Shelton's pamphlet. (Yes, it may appear as if we're picking on her, but we're just pointing out a serious flaw that we feel undermines the value of her important work.)

As described in The Formation of Capital (1935) by Dr. Harold G. Moulton, the best way to finance new capital formation that respects the free market as well as individual rights of private property and free association (liberty) is by expansion of commercial bank credit backed by financially feasible capital projects on which private sector enterprises and entrepreneurs have drawn bills of exchange. Backed up by a central bank to ensure uniformity and stability, as well as spread risk, currency and demand deposits backed by discounted and rediscounted bills of exchange results in an asset-backed, private sector issued (if State regulated), stable money supply that expands and contracts directly with the needs of the economy.

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Does Education Exist?

Not having internet access on the weekend does have its downside. Of course, we have to measure this against the obvious benefits that it does leave you a little time for yourself in which you can accomplish such frivolous things as cooking, cleaning, going to church, sleeping, eating, and so on. (We won't mention that many of these take a backseat when a "concert hell weekend" comes along, as it did this past weekend, and you get stuck singing four concerts in 24 hours.)

Anyway, we wrote yesterday's response to RW before we saw a comment on the Just Third Way blog on this past Friday's post and followed the URL (it's not a link, unfortunately — but THIS is) to its source. The poster is an educator in Fairfax County, Virginia (USA) who is in the process of completing a temporary teaching assignment at a grade school.

As we mentioned yesterday, we like responding to questions, because it lets us off the hook for writing a separate blog posting. For today, then, we're just cutting and pasting yesterday's response to the teacher:

Dear Teach:

As they say, evidently great minds do run in the same channel. (Of course, they also say, "Fools think alike.) Your efforts to inculcate basic principles of existence into your students, however temporary your position, are one of the few bright lights in an otherwise dim prospect for public schooling, and (increasingly) even in private schooling. This is in accordance with your career decision not to continue working for a company that violated the most basic precepts of justice — thereby giving the lie to the claim that we cannot know the nature of justice. Within the framework dictated by moral relativism, your act and your subsequent career choice were those of a fool. Within the framework of the Just Third Way based on the absolutes of the natural moral law, they were those of a hero - that is, a normal human being. This you communicate to your students, both by precept and by example.

As you engage in a search for another, possibly more permanent position, now that the temporary assignment is completed, remain confident in your principles, and do not be discouraged by the antics of the educational establishment. Keep in mind that, especially in these harsh economic times, many people in presumably secure positions feel extremely insecure in their jobs. To the scarcity/Malthusian mentality, any and every newcomer is a threat to job security. Add to this the fear and mistrust of "new" ideas such as truth, love, and justice, and what may come across as hostility or indifference is simply evidence of people who are baffled by modern life, and who have yet to come to terms with what Pope Leo XIII called "new things," much less Pope Pius XI's breakthrough in moral philosophy and the act of social justice.

Whether they realize it or not, most people remain trapped in an idealized and extremely artificial 18th century attitude similar to that which paralyzed Henry Adams as related in his navel-gazing autobiography, The Education of Henry Adams. There is no more perfect recipe for individual and social disaster. Can you truly blame them for not grasping the significance of Louis Kelso and Mortimer Adler's principles of economic justice? Their educational and social thinking is centuries out of date. How can their political, economic or even financial thought be any different?

You therefore face a most difficult task. You have to present the truth about life to people who are badly frightened by it before you can even begin to convince them to allow you to teach children. They will resist. Always, however, keep in mind number 17 of the CESJ Code of Ethics: "There are three keys to gaining acceptance of revolutionary ideas: Persistence, Persistence, and Persistence."

#30#

Do Absolutes Exist?

Over the weekend we received a question from a reader of this blog. We like questions even more than comments, because 1) it shows that people are reading and thinking about what we write instead of merely reacting, and 2) by responding to a substantive question we have our next blog posting already written. You have no idea how much time and effort this saves. (We're not lazy, though, just "thrifty" and "efficient.") Anyway, "RW" asked,

In "Nation" of November 29, 2010, author Benjamin R. Barber, in his article "America's Knowledge Deficit" states:

"There are, of course, many issues that cannot be judged by empirical evidence or objective truth. The existence of God is one of them; the nature of justice is another. These are normative rather than empirical claims."

I have been reading Mortimer Adler's autobiographies; this assertion, with respect to "Justice", seems somehow incorrectly stated. Barber later references Aristotle in the paragraph, which concerns the political sphere.

Am I misunderstanding something?

You aren't misunderstanding anything, RW. It appears, however, that Barber is. He is clearly approaching absolutes from a different direction than Adler, Aquinas, or Aristotle, and is twisting (probably without even realizing he is doing so) things to fit within his assumptions, the "small error" from which larger errors grow.

Over the past several years, I have come to the conclusion that the most basic problem in our society is the tendency to base the natural moral law — the absolutes the capacity for which defines us as human — on the will of something we believe to be God. Ultimately, as Dr. Heinrich Rommen pointed out in his book on the natural law, this leads to positivism, moral relativism, and, finally, to nihilism. In effect, by basing our personal interpretation of something on what we have decided is God's Will, we are making ourselves God. The only absolute turns out to be that there are no absolutes. There is a "knowledge deficit" because you cannot know anything for certain. Even the rank materialist cannot be sure that what he is seeing, touching, or even thinking is "real" in the sense of being absolutely real. Something might, after all, be fooling his senses; all truth becomes "normative," i.e., subjective.

A will-based orientation necessarily confuses applications of an absolute principle with the principle itself. Since applications even of an absolute principle cannot be absolute (society, as Pope Pius XI explained, being in a state of radical instability, and is always in a state of flux), will-based thinkers necessarily conclude that there can be no such thing as an absolute, such as God or justice.

In contrast, Adler, Aquinas, and Aristotle, as well as Maimonides and Ibn Khaldûn base the natural moral law on God's Essential Nature (Substance) which is self evident in His Intellect. In the belief of the three main monotheistic faiths, Judaism, Christianity, and Islam, humanity is created in God's image and likeness, i.e., we share somehow in God's Nature, which is based on absolutes, God Himself being the ultimate Absolute. This is manifested in our "analogously complete" ("equal" — although that's not a good way of putting it) capacity to acquire and develop virtue. Man, while not perfect, is perfectible, becoming more fully human as he acquires and develops virtue, the "habit of doing good." Man being a "political animal," we acquire and develop virtues ("pursue happiness"), among which the chief "temporal" virtue is justice, by exercising our natural rights to life, liberty (freedom of association/contract) and property within a just social order. Of these, property is not the most important, but it is the most basic, as it gives us the power to exercise our rights to life and liberty without being dependent on others.

Within the framework of the natural moral law based on the Will, Barber is absolutely (if you'll excuse the expression) correct: because each individual necessarily has a different opinion of what constitutes God's (or whatever we've substituted for God) Will in a particular situation, and this Will always appears to be changing, we cannot know for certain the nature of absolutes such as justice. The existence of God or justice becomes a matter of opinion, not a reasoned conclusion; it is based "on documents of faith" (usually faith in one's own godhood), not "on the reasons and statements of the philosophers themselves."

Barber's basic assumption, however, is in error. The merest child can tell you the nature of justice: it's rendering to each what each is due. If, for example, you proclaim to your ten children that you are going to "treat them all equally" (we'll ignore for the sake of the argument that 1) it's impossible to treat all your children equally and be just, since each has different needs at different times in his life and 2) treating everybody exactly the same is rarely just — do you punish or reward everyone for what one has done?), and you give ten dollars to nine of them and one dollar to the youngest, the youngest will immediately inform you that you've been unfair, that is, unjust. Why? Because you announced what each was due, and then didn't deliver. The nature of justice is clear: render to each what each is due.

The existence of God is a little more complicated — although the virtue by which we render to God what God is due also comes under "justice." It's called the virtue of "religion." By the process of inductive (not deductive) reasoning, we can prove God's existence. All around us we see effects, e.g., creation itself, humanity's concepts of good and evil, etc. Since there can be no effect without a cause, we necessarily conclude that every effect we see must have had a cause. Each cause must, in turn, itself have a cause, and so on, back to the beginning, to an "uncaused cause." We call this absolute — that is, un-dependent on anything else — source of all subsequent effects "God."

Stephen Hawking recently tried to assert that gravity is the "uncaused cause," but gravity is defined as the attraction between bodies (the natural force of attraction between any two massive bodies, which is directly proportional to the product of their masses and inversely proportional to the square of the distance between them.) . . . and gravity did not cause the bodies from which it derives its existence. Gravity does not, therefore, meet the definition of an uncaused cause. Hawking begged the question, failing to realize that you cannot prove — or, more especially, disprove — the existence of an immaterial Being by material means, or by deductive reasoning. It is not that God and justice are "normative rather than empirical claims." It is a question as to which method of reasoning applies, inductive or deductive, and whether or not you can reason logically.

Recently the Catholic Church celebrated its annual "Feast of Christ the King." Pope Pius XI instituted this feast in 1925 and put it at the start of the Church's liturgical year to emphasize the importance of the restructuring of the social order in conformity with the precepts of the natural moral law based on God's Essence, achieved by organizing and carrying out "acts of social justice," as Father William Ferree, S.M., Ph.D., "America's greatest social philosopher" and CESJ co-founder described in his 1941 doctoral thesis, The Act of Social Justice (1943), and summarized in Introduction to Social Justice (1948), a short pamphlet written for high school students to orient them for participation in "Catholic Action."

CESJ works to carry out the program of Catholic Action from an interfaith orientation. In the long run, we seek to effect reforms in education to bring it back into conformity with what Adler and others have called "the philosophy of common sense," i.e., Aristotelian/Thomist philosophy (or Maimonides or Ibn Khaldûn if you're Jewish or Muslim, respectively). Most immediately, we work to reform the tax and monetary systems as detailed in "Capital Homesteading," thereby addressing humanity's material needs in a more just manner so that each individual can then be free to develop more fully as a person, that is, to acquire and develop virtue and so fit him- or herself for his or her final end.

#30#

News from the Network, Vol. 3, No. 48

Action that most people would regard as obvious has been a little thin this week, but we've been making great strides in developing our outreach. A number of outreach and door-opening initiatives have begun, while we're following through on others. Bottom line: given the current world situation, this may be the "Just Third Way 'Moment'" by means of which we finally get our message out to where it will do the most good: the people forgotten or discarded by the system, and the frenzy to promote "economic recovery" in which the only thing recovered is the mountain of paper profits by the rich. Ordinary people are still left holding the bag.

Be that as it may, and although we're tempted to start a lengthy discourse on how is it possible to have "economic recovery" when jobs are disappearing left and right, and even the phony "official" unemployment rate is rising, here's the "short list" of what we've been doing to try and wake up the powers-that-be to some sense of reality and responsibility:

• We sent out letters to Reinhard Cardinal Marx of Munich and Freising and Archbishop Diarmuid Martin of Dublin drawing their attention to the potential of Capital Homesteading as a possible solution to the latest European debt crisis.

• Mr. Pollant Mpofu of London has sent letters and e-mails to key political figures in Éire and the U.K. in an effort to present them with the possibilities inherent in Capital Homesteading.

• Mr. Mpofu is currently working to meet with a number of ambassadors of African countries to communicate the potential of Capital Homesteading to their respective heads of state.

• Mr. Guy Stevenson of Iowa has been sending links to postings from this blog around to his network, stirring up a great deal of discussion and interest in the Just Third Way.

• This morning we sent, via Mr. Mpofu, a letter to Mr. Jimmy Kelly, Irish Regional Secretary of Unite, a trade union in Éire and the U.K., suggesting an initiative to push for Capital Homesteading as an alternative to the union's call for a national strike.

• As of this morning, we have had visitors from 59 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Brazil, Canada, and India. People in Japan, the United States, Pakistan, Argentina and Venezuela spent the most average time on the blog. The most popular posting remains Norman Kurland's tribute to Robert P. Woodman, followed by "Keynesian Economics is Socialism Lite," "Thomas Hobbes on Private Property," "Preventable Disasters" about the Irish crisis, and Aristotle on private property.

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

#30#

How to Save the Global Economy, Part IV

Probably no newspaper in the world has a greater degree of prestige than The London Times (the actual name of the journal is The Times of London). If not precisely at the cutting edge of exciting (i.e., "yellow") journalism, the "Letters" column in particular is noteworthy for printing missives that range from the sublime to the ridiculous — but that always receive some degree of consideration.

That being the case, it seems obvious that our final posting in this series of door opening initiatives that you can take at home to introduce the Just Third Way to prime movers and the world at large without quitting your day job should focus on following up on yesterday's urging to send a brief note to Mr. Grant Shapps, State Minister of Housing and Planning, with a suggestion that you might want to consider writing to The Times. (And — just think — if it gets published, you will be able to strut for the rest of your life and have bragging rights at every cocktail party you attend — e.g., "Did I tell you about my letter to The Times? Well, as I said to The Times — and which was printed in The Times . . . no, Jeeves, 'shaken, not stirred' . . . The Times published my letter, y'know, and, as I said to The Times . . .", etc.) So, here goes:

Heading:

DATE

Letters
The Times of London
1 Virginia Street
London E98 1XY
letters@thetimes.co.uk

Suggested Text:

(1)

Dear Sir(s):

Mr. Pollant Mpofu, a local official with the Labour Party in London, recently sent a letter to Mr. Grant Shapps suggesting that Mr. Shapps give serious consideration to "Capital Homesteading," a proposal developed by the Center for Economic and Social Justice ("CESJ"), as a possible means to implement Mr. David Cameron's "Big Society."

Capital Homesteading is a free market, private property-based approach to economic and social development that respects the dignity of each human person. Embodying the precepts of the natural moral law that underpin the social teachings of the world's great religions, and integrating sound economic, financial, and political principles, Capital Homesteading has the potential not only to reestablish the British economy, but that of the European Union and the world on a firm and sustainable foundation.

Sincerely,

YOUR NAME AND TITLE

(2)

Dear Sir(s):

While he and other world leaders are at their wits' end about a solution to the economic crisis, Mr. David Cameron has presented his initiative to create the "Big Society." One possible means of implementing the Big Society, "Capital Homesteading," in my opinion, should be given serious consideration. I believe that Capital Homesteading has the potential to restore the British economy in a manner that not only allows full participation in benefits of growth by every man, woman, and child in the United Kingdom, but shows the way for the rest of the world.

Mr. Pollant Mpofu of London recently sent Mr. Grant Shapps a letter outlining the potential of Capital Homesteading for Great Britain. Mr. Shapps may want to study the concept and forward it to Mr. Cameron for application.

Yours,

YOUR NAME AND TITLE

#30#

How to Save the Global Economy, Part III

While the two previous postings in this brief series have focused on Ireland — necessarily so, as that is where disaster seems imminent — Mr. Pollant Mpofu has also been working to present Capital Homesteading to leaders in the United Kingdom, notably Mr. David Cameron, the Prime Minister, and Mr. Grant Shapps, Minister of State for Housing and Planning. Both of these individuals have indicated a high degree of concern for those affected by the current economic crisis. Mr. Cameron in particular has made efforts to develop a program, "the Big Society," that has room for everyone, not just those fortunate enough to choose the right parents or latch on to a more or less stable wage system job.

Mr. Mpofu recently sent a letter to Mr. Shapps (and is currently working on a petition), recommending that he give serious consideration to Capital Homesteading as a means of laying the foundation of the Big Society and building a sustainable and participative economy for all. There is no particular reason why Mr. Shapps should pay attention to Mr. Mpofu's suggestions — Mr. Mpofu has neither the money nor votes that constitute the usual political currency, and he's in a different party. All he has is the idea . . . but as the late Senator Russell Long of Louisiana put it during his dinner with Louis Kelso and Norm Kurland, "I don't care who's right, I care what's right — and this is right."

All that may be necessary for Mr. Shapps — and thus Mr. Cameron — to give serious consideration to Capital Homesteading is for a few (hundred. . . thousand) people to sent brief e-mails to Mr. Shapp in support of Mr. Mpofu's initiative (and no one says you can't still send something to Mr. Cowen or the Irish media). Politicians usually multiply each e-mail by some factor, since most people, even those who feel deeply about a subject, don't write letters or send e-mails. Even if the e-mails do not come from constituents, evidence of support for Capital Homesteading from members of the global community should have a positive effect.

Mr. Shapps's e-mail is grant@shapps.com. He also has a forum, http://www.shapps.com/forum/, on which you can register to post items, but we suggest waiting to see if he does anything for Capital Homesteading before committing yourself as a supporter.

Suggested Subject Lines:

Capital Homesteading

Adopt Capital Homesteading

Capital Homesteading Now

Capital Homesteading for the Big Society

Capital Homesteading = Big Society

Restore the UK as a World Leader through Capital Homesteading

Suggested Heading:

DATE (may be omitted)

Mr. Grant Shapps
Minister of State for Housing and Planning

Dear Mr. Shapps:

Suggested Texts:

(1)

I support Mr. Pollant Mpofu's recommendation that you give serious consideration to Capital Homesteading as a potential means to implement the Big Society and as a foundation for growing a sound economy in the future.

Sincerely,

YOUR NAME AND TITLE

(2)

Mr. Pollant Mpofu recently sent you a letter regarding adoption of Capital Homesteading as a way of implementing the Big Society. I support this initiative and believe that it merits serious consideration, both for the United Kingdom and as a model for the rest of the world.

Yours,

YOUR NAME AND TITLE

(3)

Kindly add my voice to those suggesting that you give serious consideration to Capital Homesteading as a possible means to implement the Big Society.

Sincerely yours,

YOUR NAME AND TITLE

[N.B.: The Irish and the English use "kindly" where Americans tend to use "please," and vice versa.]

(4)

The United Kingdom has the opportunity to lead the world in showing the way to a sound solution for the current economic crisis by giving serious consideration to the adoption of Capital Homesteading to implement the Big Society. I support this initiative by Mr. Pollant Mpofu.

Respectfully,

YOUR NAME AND TITLE


If you want to compose your own note, keep a couple of things in mind:

Keep it short.

Be respectful.

Mention the "Big Society." This is Mr. Cameron's initiative to reduce the size of government and giving people more power over their own lives.

You're not recommending or endorsing Capital Homesteading, only suggesting that Mr. Shapps take a look at the concept and judge it on its own merits. Thus, even if you don't fully support or agree with Capital Homesteading, you can state in all honesty that it is a proposal that should be given serious consideration.

Avoid any phrases such as, "While I disagree completely with Capital Homesteading, the Just Third Way, truth, love, and justice, . . ." We need to get Mr. Shapps to look at Capital Homesteading and get the idea to the Prime Minister, Mr. David Cameron.

#30#

How to Save the Global Economy, Part II

Yesterday we gave suggested texts for a brief e-mail that you could send to Mr. Brian Cowen, Taoiseach (Prime Minister) of Ireland, suggesting that he give serious consideration to Capital Homesteading as a possible solution to the present economic crisis that afflicts not only Ireland, but the world. Today we're taking matters a step further, and giving you some suggested texts for e-mails you can send to the Irish media. We'll give some e-mail addresses at the end of this posting, but you should feel free to google for your preferred recipient(s).

Nor is this an exercise in futility. The reports coming out of Ireland and the European Union "suggest" that, while the Irish banks are certainly relieved of their immediate worries . . . sort of . . . the taxpayers are up in arms. ("Irish Bailout Boosts Banks, Inflames Taxpayers," Associated Press, 11/29/10). Mr. Cowen may have been making one or two noises about the worst being over — but, as the narrator put it in the immortal 1960s Batman, "The worst is yet to come!"

(1)

DATE

MEDIA OUTLET
ADDRESS

Dear Sir(s):

Mr. Pollant Mpofu, a local official with the Labour Party in London, recently sent a letter to Mr. Brian Cowen suggesting that Mr. Cowen give serious consideration to "Capital Homesteading," a proposal developed by the Center for Economic and Social Justice ("CESJ"), as a possible solution to the economic crisis facing Ireland.

Capital Homesteading is a free market, private property-based approach to economic and social development that respects the dignity of each human person. Embodying the precepts of the natural moral law that underpin the social teachings of the world's great religions, and integrating sound economic, financial, and political principles, Capital Homesteading has the potential not only to reestablish the Irish economy, but that of the European Union and the world on a firm and sustainable foundation.

Sincerely,

YOUR NAME AND TITLE

(2)

DATE

MEDIA OUTLET
ADDRESS

Dear Sir(s):

While he and other world leaders are at their wits' end about a solution to the economic crisis, Mr. Brian Cowen has been presented with a possible remedy, "Capital Homesteading," that, in my opinion, should be given serious consideration. I believe that Capital Homesteading has the potential to restore the Irish economy in a manner that not only allows full participation in benefits of growth by every man, woman, and child in Ireland, but shows the way for the rest of the world.

Mr. Pollant Mpofu of London recently sent Mr. Cowen a letter outlining the potential of Capital Homesteading for Ireland. Mr. Cowen may want to study the concept for application in Ireland.

Yours,

YOUR NAME AND TITLE


Irish Independent: independent.letters@independent.ie
RTÉ (Radio/Television Ireland): Studio e-mails at this link.
A number of other Irish media outlets are listed here.

#30#

How to Save the Global Economy, Part I

A journey of a thousand miles, as the saying goes, begins with a single step. Nowhere is this more evident than in the ongoing efforts to present an alternative to the disastrous monetary and fiscal policies dictated by a reliance on Keynesian economics to those who control the world's economies. Last week Mr. Pollant Mpofu decided that sitting around doing nothing was not a good way of dealing with the situation. He sent letters to Mr. Brian Cowen, the Taoiseach (Prime Minister) of Ireland, and Mr. Grant Shapps, British Minister of State for Housing and Planning. The point of the letters was that those who control the world's economies should be looking at Capital Homesteading as a viable alternative to the current mess.

And control they do, whether they admit it or not. As we point out in our foreword to Dr. Harold Moulton's, The Formation of Capital, the unquestioned assumption of the necessity of existing accumulations of savings at the heart of Keynesian economics pervades not only virtually the whole of government monetary and fiscal policy everywhere in the world, but the thinking of ordinary people.

A "free market" tied to existing accumulations of savings is an oxymoron, as Louis Kelso and Mortimer Adler put it in the subtitle to their second book, The New Capitalists: "A Proposal to Free Economic Growth from the Slavery of [Past] Savings." Past savings limits ownership of the means of production either to an already-wealthy private elite (capitalism/Austrian economics), to the State that redefines essential/inalienable rights ("re-edits the dictionary," as Keynes put it in Volume I of A Treatise on Money, 1930) in order to impose socialism without calling it socialism and control the economy for "the people" (socialism/Keynesian economics), or tries to walk a middle ground that ends up satisfying nobody (the "Welfare State"/Chicago/Monetarist economics). The basic flaw in all three arrangements is the common assumption that new capital formation cannot be financed without first saving — "saving" ALWAYS being defined as cutting consumption.

The only question within the past savings paradigm in all three mainstream economic schools is to what degree, if any, the State should intervene to ensure equality of results or keep the lid on to prevent total collapse. The Austrians maintain that no State intervention is acceptable, especially in money and credit. The Monetarists/Chicago schoolers admit some State intervention as an expedient in the short run. The Keynesians advocate total State control through control of money and credit. The Austrians are therefore perceived as heartless fiends, the Monetarists as capitalist dupes, and the Keynesians as saviors of humanity. A "quasi-divine" (un)free market is replaced with a divine, all-powerful State. As one enthusiast put it, "The State is the sole intercessor available to the poor" — neglecting to take into account that the induced inflation and forced savings that are the chief monetary tools of Keynesian economics rob the poor far more effectively than the most heartless capitalist or robber band.

The problem is that none of the three schools take "future savings" into account. Consequently they define money and credit in ways that restrict control of money and credit, and thus ownership of capital to an elite, whether private (capitalism) or public (socialism). All three, therefore, are driving the economy over a cliff, although admittedly the Austrians don't have the pedal to the metal quite as hard as the other two. The only solution is to reorient the economy in accordance with the four pillars of an economically just society:

1. A limited economic role for the State,

2. Free and open markets within a strict juridical order as the best means of determining just wages, just prices, and just profits,

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

4. Widespread direct ownership of the means of production, particularly through opening up democratic access to money and credit by breaking the slavery of past savings (the "fatal omission" from all three mainstream economic schools, and is the primary factor that renders today's markets unfree).

What You Can Do

A single voice, crying in the wilderness or not, has little effect. With your help, however, matters might move forward. All you have to do is, 1) Send a brief note to Mr. Cowen suggesting that he look seriously at Capital Homesteading, and 2) Send a link to this posting to your network (and they to theirs) so that others can send brief notes. Mr. Cowen's official e-mail address is taoiseach@taoiseach.ie. Either cut and paste the address from here, or be very careful in transcribing it — Irish follows different spelling rules than English, and you can easily misspell "taoiseach." Here are some samples of the text you might send. We suggest that you modify the text, but it isn't, strictly speaking, necessary. Politicians often simply count the number of letters and e-mails they receive on a certain subject, pro and con, without reading through them.

Subject Line:

Capital Homesteading

Adopt Capital Homesteading

Capital Homesteading Now

Capital Homesteading for Ireland

Crisis Solution: Capital Homesteading

Capital Homesteading for the People of Ireland and the World

Make Ireland a World Leader through Capital Homesteading

Heading:

DATE (may be omitted)

Mr. Brian Cowen
taoiseach@taoiseach.ie

Dear Mr. Cowen:

Text:

(1)

I support Mr. Pollant Mpofu's recommendation that you give serious consideration to Capital Homesteading as a possible solution to the present economic crisis and as a foundation for growing a sound economy in the future.

Sincerely,

YOUR NAME AND TITLE

(2)

Mr. Pollant Mpofu recently sent you a letter regarding adoption of Capital Homesteading in Ireland as a possible solution for the current economic crisis. I support this initiative and believe that it merits serious consideration, both for Ireland and as a model for the rest of the world.

Yours,

YOUR NAME AND TITLE

(3)

Kindly add my voice to those suggesting that you give serious consideration to Capital Homesteading as a possible solution to Ireland's present economic crisis.

Sincerely yours,

YOUR NAME AND TITLE

[N.B.: The Irish and the English use "kindly" where Americans tend to use "please," and vice versa.]

(4)

Ireland has the opportunity to lead the world in showing the way to a sound solution for the current economic crisis by giving serious consideration to the adoption of Capital Homesteading. I support this initiative by Mr. Pollant Mpofu.

Respectfully,

YOUR NAME AND TITLE


If you want to compose your own note, keep a couple of things in mind:

Keep it short.

Be respectful.

You're not recommending or endorsing Capital Homesteading, only suggesting that Mr. Cowen take a look at the concept and judge it on its own merits. Thus, even if you don't fully support or agree with Capital Homesteading, you can state in all honesty that it is a proposal that should be given serious consideration.

Avoid any phrases such as, "While I disagree completely with Capital Homesteading, the Just Third Way, truth, love, and justice, . . ." We need to get Mr. Cowen to look at Capital Homesteading, not remain firmly ensconced in the Keynesian camp.

#30#

News from the Network, Vol. 3, No. 47

This one is too good to pass up — or too bad (the idiom is "too good," but the news is "all bad"). According to the New York Times of November 23, 2010, (unspecified) American companies posted their highest profits in history in the third quarter of 2010. At the same time, unemployment remains high, new capital investment remains low, and the article was extremely vague about who made all the profits and where they came from. (Catherine Rampell, "Corporate Profits Were the Highest on Record Last Quarter," New York Times, 11/23/10.)

Rather than specify the sources of these profits and who made them, the article immediately began raving at some length about the moderate increases in output, leading the reader to conclude that the profits came from this source . . . although "output" and "sales" are two different things, and there is no necessary correlation between how much you produce, and how much you sell. (We had an "almost-client" once who kept bragging that production in his company was at an all-time high . . . the bulk of which was piling up in over-valued and low-quality inventory, tying up working capital and wasting resources. The company went bankrupt. Twice.)

It doesn't take a great brain to realize that if output increases are moderate and productivity (output per labor hour) is up slightly, then production — and sale — of marketable goods is probably not the source of record profits. Quickly reviewing the financial news stories over the past several months (a number of which we have collected for our research files), we see that, although production and sales of marketable goods and services outside the financial services industry are floundering, exhibiting less-than-anticipated gains and often losses — a bad sign going into the Christmas shopping frenzy (and we anticipate that "Black Friday" may very well acquire a more traditional meaning when today's results are tabulated) — financial service companies have posted gargantuan profits. Similarly, during the hyperinflation in Germany in the 1920s, some individuals and companies made colossal fortunes at a time when production was at a virtual stand-still and the economy was in ruins.

Common Sense Interpretation: the "record profits" are all on paper. The profits appear to result from financial service companies joining in the feeding frenzy on Wall Street. This tends to prove the validity of the "greater fool" theory of investment as the bubble in the secondary stock market continues to divert attention and resources away from the primary productive market and the need to invest in new, broadly owned capital geared to the production of marketable goods and services that real people and productive companies can actually use.

The situation is halfway analogous to that which obtained immediately prior to the Crash of 1929. In the 1920s, there was massive money creation for speculation on Wall Street, yet, at the same time, there was sufficient liquidity for new capital formation. This baffled the experts who assumed then and continue to believe that the "supply of loanable funds" is a fixed quantity, a commodity, and that neither new capital investment nor speculation can be financed except out of existing pools of savings, that there is necessarily a trade-off between the two. Dr. Harold Moulton explained that both past savings and "pure credit" (new money created by the expansion of commercial bank credit) were being used for productive investment and speculation in the 1920s, but that the main problem was the incredible amount of pure credit going into stock market gambling.

The problem today is that, while there is massive money creation for stock market speculation, and existing accumulations of savings are also pouring into the stock market and the commodities market, nothing significant is being done to finance new capital formation. Further, ownership of existing capital is becoming increasingly concentrated at an accelerating rate as companies buy back their own shares instead of distributing dividends or investing in new capital.

All of this activity on Wall Street has generated gigantic profits in the financial sector, while the productive sector that the financial sector presumably serves is going begging. It's as if the physicians in a town judged the general level of health in the area to be excellent by the fact that they managed to keep sick people out of the hospital, generating terrific statistics on hospital mortality and recovery rates, while people were suffering and dying at home or in the street after being turned away from the emergency room.

This manipulation of statistics and definitions — a cornerstone of Keynesian monetary and fiscal policy (vide the comments about "re-editing the dictionary" in Volume I of A Treatise on Money) — should be raising more questions and concern than it does. Why, for instance, does the "Consumer Price Index" leave out most of the things on which consumers spend the bulk of their income? Why is there such a huge discrepancy between the "official" and the "unofficial" unemployment rates reported by the Bureau of Labor Statistics? Why did the Federal Reserve drop "M3" from its definition of money . . . after earlier getting rid of the various "Ms" that tried to account for non-currency and non-demand deposit forms of money, such as bills of exchange?

Why . . . well, you get the idea. It calls to mind an article we read once trying to explain away the estimated 2-4 million people who died during An Gorta Mór, "The Great Hunger" in Ireland in the 1840s, in which it was asserted that few people died of starvation . . . directly. No, weakened by hunger and malnutrition, they fell easy prey to disease, while hundreds of thousands died of exposure by the side of the road after being evicted or trying desperately to reach a port to take ship for America — while those not fortunate enough to book passage on an American or Canadian vessel ended up in the British "coffin ships." But they didn't die of starvation, ergo, the famine was a myth created out of anti-English sentiment.

How are we supposed to counter such antics? Education is the only answer — and to do that we need to be able to educate people . . . and to do that, we need YOU to open doors to prime movers, academics, people in the media, and so on, to get the message across. A part of your "social justice tithing" should be directed to working to open doors so that spokesmen for the Just Third Way can present the case to a broader audience than is currently the case.

And it is successful:

• Norman Kurland's interview on WAIC's "Money America" radio show is now available. This initiative by Mr. Thom Fox of Cambridge Credit Counseling Service, a non-profit consumer credit assistance organization, is not only a valuable educational piece, but shows what can be done by adhering to "Number 17" on the CESJ Code of Ethics: "There are three keys to gaining acceptance of revolutionary ideas: persistence, persistence, and persistence."

• Learning some lessons from our own educational efforts, you should target radio stations in your area, especially those that address consumer, economic, and financial matters. Believe it or not, most of these shows have a slightly harder time than Leno or Letterman rounding up guests who are both interesting and articulate. Presenting, say, Norman Kurland as a potential guest, giving them the link to the "Money America" show, and having them agree to give it a go would be a major contribution to the Just Third Way. Nor is a "travel budget" or set honorarium involved. You'll notice that Norm was interviewed over the phone for the "Money America" show, just as he previously was on Michigan Catholic Radio, Williamsburg Revolutionary Radio, "Blacktalk" Radio, and a number of others, including a show hosted by a biker dude concerned with the direction America has been taking.

• Not that we turn down opportunities to appear on television. Norm has appeared as a guest on the Harold Channer Show, Molly Cheshire's show, and an Islamic television show out of Fairfax, Virginia. (Should we also mention this writer's very brief appearance on Jordanian television some years ago when asked what the UN was missing in all the endless debates about economic and social development?)

• As for newspapers — we've copied our series on the latest Irish financial crisis to the Irish Independent, a newspaper out of Dublin. They haven't responded (yet), but even Ireland might soon be desperate enough to start listening to common sense instead of to Lord Keynes.

• Mr. Pollant Mpofu's letter to the Taoiseach (Prime Minister) of Ireland on which we reported on Wednesday went forward as scheduled. He got a polite reply saying that "they" would be reviewing his letter — which is more than we get by sending e-mails to the White House. Sending your own brief note to Mr. Cowen — taoiseach@taoiseach.ie — might increase the chance of the response being more than a polite brush-off, and inspire "them" actually to look at the Just Third Way as a possible solution to the crisis. As pointed out near the end of Arlo Guthrie's iconic Thanksgiving monologue "Alice's Restaurant Massacree" (the full title), if people stick their heads in the door of the military psychiatrist's office when undergoing medical evaluation when conscripted and tell him that, "You can get anything you want at Alice's Restaurant," it will soon be a movement that will sweep the country . . . and get them out of military service.  What, then, would be the effect if people making fools of themselves in this fashion actually said something worthwhile?

• As of this morning, we have had visitors from 57 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Brazil, Canada, and India. People in Japan, the United States, Argentina, Pakistan and Venezuela spent the most average time on the blog. (Some people in Tokyo really like us — now, if the Japanese government would take note of the Just Third Way to get them back on track economically . . .) The most popular posting is Norman Kurlands tribute to Robert P. Woodman, followed by "Keynesian Economics is Socialism Lite," "Thomas Hobbes on Private Property," the "Halloween Horror Special on "Mean Green Mother from Outer Space," and "Preventable Disasters" about the Irish crisis.

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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"The Right of the People of Ireland," Part III

It does little good to state a problem, or even to give the basic theoretical framework of a solution, regardless how well thought out, if the matter rests there. We can continue to blame others (usually "they" or "them"), or we can do something constructive and effective. A Mr. Pollant Mpofu, a local official with the Labour Party in London, has decided that "constructive action" is more effective than hand-wringing and whining. Early this morning (very early, as he is on Greenwich Mean Time, and we are on Eastern Standard Time), Mr. Mpofu sent a letter to Mr. Brian Cowen, Taoiseach (Prime Minister) of Ireland (taoiseach@taoiseach.ie), urging Mr. Cowen to take a look at Capital Homesteading as a possible remedy for Ireland's financial and economic woes.

As readers of this blog should be aware, not only Mr. Cowen, but every member of Oireachtas Éireann (the Irish legislature), the Seanad (Upper House) and the Dáil (Lower House), was sent material two years ago — December of 2008 — just as this ongoing crisis was gathering momentum. One member, Charlie O'Connor of Dublin South West, (charlie.oconnor@oireachtas.ie) acknowledged receipt, evidently did his homework and put forth an effort, but was unable to accomplish much working alone and without a show of public support. If he managed actually to get the material to the desk of Mr. Brian Lenihan, Finance Minister (minister@finance.gov.ie), it was ignored. True, Mr. Lenihan was having one or two problems of his own at the time, but he really should not have missed the potential that Capital Homesteading has to solve those of his country.

Be that as it may, we present it here again for consideration as an alternative to the usual Keynesian "solution." We don't even mind if Mr. Cowen uses it to save his career and keep himself in office in the early election for which he is calling. As the late Senator Russell Long of Louisiana told Dr. Norman Kurland back in 1973 during a dinner at the Madison when presented with these ideas, "I don't care who's right. I care what's right — and this is right."

Capital Homesteading for Ireland

The key to implementing the Just Third Way as applied in Capital Homesteading to Ireland is found in the subtitle of the "Illustrated Guide for Statesmen": "A Two-Pronged Strategy for Implementing ESOP Privatizations in a Developing or Transforming Economy." Ireland is not really a "developing" or "transforming" economy, but it might as well be. The situation is similar enough that the same techniques can be applied, even if the ESOP per se is not used.

A developing or transforming economy typically has an economy that relies heavily on centralized State ownership and control over productive capital assets. Just as typically, these so-called "assets" are, as a result of putting political interests ahead of economic interests, in the loss-leader or non-performing category. Ireland recently nationalized its three largest banks, and these banks have in their portfolios a huge amount of "toxic" mortgages, "non-performing assets" any way you look at it. Under the principle that the State should not own anything that can be owned by private citizens, the immediate task of the government is to write-down the value or divest itself of these assets, then privatize the banks.

Problem: acting counter to the common sense embodied in the laws of supply and demand as well as financial responsibility, when the housing market in Ireland went belly-up, the government bailed out the banks that were trying to keep prices up to maintain their balance sheet ratios. Consequently, the inventories of houses for foreclosure sales started to rise. Rather than let prices drop to meet demand (which ran the risk of forcing the banks into the Irish equivalent of Chapter 11 reorganization), the government imposed a moratorium on new home construction until current inventories dropped to an acceptable level. At the same time, willing buyers became impossible to find at the inflated prices. Consequently, the banks were forced into the Irish equivalent of Chapter 11 reorganization anyway, with the new owner being the government instead of private individuals.

Solution: use the Homeowners Equity Corporation ("HEC") or something similar to turn excess inventories of overpriced homes into usable living space at market prices, and generate some cash that can be used to pay down debt. Yes, the banks (and thus the government) would take a hit, but it's all on paper — and it's sound financial and accounting practice as well as good politics to divest a company or a State of non-performing or toxic assets. Non-sales at artificially high prices benefit no one, and cause more problems than they solve. Sales at real market prices recognize reality, and reduce outstanding obligations by the amounts realized.

That, of course, is only the first step. Divestiture of toxic assets and transforming them into productive assets through HECs should kick-start the Irish economy, particularly in that the building trades are seen as a core industry in Ireland. To maintain the momentum, however, it is essential to follow the "Two-Prong Strategy" as closely as possible. One adaptation that would need to be made in the strategy, however, is to apply the techniques to rebuilding the private sector's productive capacity, rather than to privatize the State's uneconomical capital holdings and making non-competitive State-owned enterprises productive; the goal remains the same, and the techniques are virtually identical.

The key is to ensure that all new private sector investment is financed in ways that creates new owners, rather than continues to concentrate ownership of the means of production in a shrinking wealthy elite. The only justification for keeping ownership of capital concentrated is the belief that existing accumulations of savings are essential to finance new capital formation. Under the monetary and tax reforms of the Just Third Way, this is not the case, and concentrated ownership of capital actually works against the maintenance of a stable economy, as Dr. Moulton demonstrated in The Formation of Capital.

In this way, the possibility of establishing and maintaining a Just Third Way economy in Ireland is optimized, and the "four pillars" of an economically just society implemented as a solid foundation for future economic and social development:

• A limited economic role for the State,

• Free and open markets within a strict juridical order as the best means of determining just wages, just prices, and just profits,

• Restoration of the rights of private property in access to money and credit and in corporate equity, and

• Widespread direct ownership of the means of production. (The "fatal omission" from the mainstream schools of economics and finance.)

The right asserted in the Easter Proclamation of 1916 to the ownership of Ireland by the people of Ireland can today be realized in an efficient and just manner, without harming the rights of anyone, whether through redefinition, outright abolition, or any other unjust measures that Keynesian economics deems "necessary":

We declare the right of the people of Ireland to the ownership of Ireland, and to the unfettered control of Irish destinies, to be sovereign and indefeasible. The long usurpation of that right by a foreign people and government has not extinguished the right, nor can it ever be extinguished except by the destruction of the Irish people.

We would have no objection if anyone would send a brief note of encouragement to Mr. Cowen (and be sure to spell "Taoiseach" correctly . . .), urging him to give serious consideration to Mr. Mpofu's letter and to Capital Homesteading as a politically and financially viable solution to the ongoing economic crisis. Nor would it hurt to show support from the international community for Capital Homesteading in Ireland. E-mails from, say, Japan or Brazil, Russia or Zambia (where a candidate for president has declared he is running on the Just Third Way ticket) might pique the Prime Minister's curiosity to the point where he will take a look at the concept.

Well, Mr. Cowen?

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