THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Friday, July 31, 2009

News from the Network, Vol. 2, No. 31

Once again, the stock market is up, and the economists and politicians are (once again) announcing the end of the recession . . . and (once again) unemployment figures are on the increase and a number of companies have announced further losses. The "key indicators" at which the experts seem to be looking are housing (which is a large part of the reason the recession started) and the stock market (ditto, ditto, ditto, ditto). It is unclear how or why speculation that is not backed up by any productive activity is supposed to signal the end of the recession.

On closer examination, the economic news released today does not really indicate that the recession is over, nearly over, or even that there is light at the end of the tunnel. The only thing that has caused the pundits to start punding is that the economy shrank less than expected. Given the sort of economic and political doublespeak to which we've become accustomed since the hegemony of Lord Keynes, this is interpreted (once again) as "Happy Days Are Here Again."

• On Wednesday, Norman Kurland flew to the city of East St. Louis, Illinois. While there, he had top-level meetings with various figures in industry, finance, and state and local officials. The purpose was to discuss the MECLC initiative for an "E-Macro System" for eleven communities in Southwestern Illinois. The "E" in "E-Macro System" signifies not only "energy," but the extremely innovative citizen ownership proposal: "Equity."

• On Thursday, after returning to Virginia, Norman Kurland and a number of participants from the previous day had a follow-up telephone conference to discuss some of the specifics about the MECLC project that had been raised in the previous day's meeting. The meeting was very fruitful, and a number of specific actions were agreed upon.

• On Thursday and Friday the CESJ e-mail system went down. Consequently, if any news items were submitted to the address below, they have not yet been received. The system is expected to be back up Monday, August 3, 2009.

• On Friday, Norman Kurland had an interesting conversation with a businessman from Provo, Utah, who came across the CESJ and EEI websites and was intrigued by what he saw. Norman Kurland had an extended conversation with him, and expects to hear back from him once he has reviewed the additional information he received during the phone call.

• As of this morning, we have had visitors from 27 different countries and 42 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, Brazil, the Philippines, and the UK. People in Venezuela, Argentina, the United States, Canada, and Brazil spent the most average time on the blog. The most popular postings continue to be those in the series on usury, the letter to the Wall Street Journal on Caritas in Veritate, and the news reports.
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.

Thursday, July 30, 2009

Who is Responsible for Our Health Care?

Earlier this week we received an e-mail containing negative comments about CESJ's proposed "Doctors' Plan for Universal Health Care" and suggesting not only that profit is unjust, but that CESJ had no business getting involved in the discussion on how to finance universal health care. There was also a hint that allowing the State to take over direct administration of providing an individual good such as health care is somehow automatically better than anything the private sector could come up with. You can judge the comments for yourself, by reading the edited version of the e-mail. The text was edited to correct spelling and grammar, and to remove anything that might allow identification of the writer.
Sometimes I wonder if you actually understand how health care financing works. Every dollar that goes out of the system for non-medical purposes means one less dollar there is for medical services, that is Health Economics 101. So if the health insurers and in particular United Healthcare takes out a $859 Million Quarterly (Record) Profit that means that $859 Million dollars does not go for health care services. Therefore, sick people who would be receiving the necessary medical services aren't getting the care because the excess profit is going to shareholders.

So I repeat my question and I would appreciate an answer: How much is a life worth to you? I know that you cannot or won't be able to answer the question? Why? Because there is no good or safe answer to the question. The fact of the matter is that the health insurers/HMOs know that what they are doing is morally unacceptable but they just do not care because they are making billions over the dead bodies of the poor, sick and the uninformed. This profiteering in health care financing and delivery has to stop, its not good for our country, its not good for our citizens and its not good for souls.

This morning when I was reading your email I was interrupted by an email from a young relative. Here's my relative's take on the health care reform debate: "Bill Maher says 'If conservatives get to call universal healthcare "socialized medicine," I get to call private, for-profit healthcare "soulless, vampire bastards making money off human pain".' "

Now, I do not go to that extreme, but the point that I am making is that if a young person with a Master's Degree in Library Science sees the inequity in our present health care financing system, significant change is in the future.

Good luck with the Third Way Concept but I would suggest that you stay far away from the Health Care Reform debate because it is not your fight. If you make it your fight I guarantee you that you will rue the day that you ever heard of health care financing reform.
Our response is as follows:

Contrary to your assertion, we understand how health care financing works. The presumed abuses you point out on the part of private insurers can be taken care of through our recommendation to make all insurance companies "mutual" insurance companies, with the full rights of private property passed through to the owners: the share/policyholders. Under our proposal, every citizen would be covered under an insurance plan of his or her choice, and would be a share/policyholder in that same company. Any profits would then go to the share/policyholders in the form of dividends or rebates on premiums, thereby directly reducing aggregate health care costs by the amount of the distributed profits.

Assuming that we agree that the present increasingly oligopolistic health care and insurance system is not optimal, the likely alternative to the simple and more democratic reform proposed under the "Doctors' Plan" for universal health care is to put matters in the hands of the State. Any profits realized from health care delivery would not be distributed to the citizens, but (as is usual with such profit centers as the Federal Reserve and the Export-Import Bank of the United States) be turned over to the U. S. Treasury as revenue. This would, if the past is any guide, encourage overcharging on premiums to support a bloated State bureaucracy, automatic denial of claims, and anything else to enhance revenue for a government that is becoming increasingly desperate for additional sources of income and new ways to tax.

The State's proper role, however, is not to take care of all our individual goods such as food, clothing, shelter, or health care. As defined in the U.S. Constitution and in traditional philosophy of government, the State's role is to care for the common good — the "general welfare," not each person's "individual welfare." The common good, of course, is that network of institutions within which the human person, as an aspect of his or her personal sovereignty and individual human dignity, acquires and develops virtue — "pursues happiness" — as a "political animal." Our natural rights to life, liberty, and access to the means of acquiring and possessing private property in the means of production support our acquisition and development of virtue.

Putting power over individual welfare in the hands of the State leads directly to a totalitarian order. This is either through the establishment of socialism outright, or through its bastard cousin, fascism. Totalitarian States do not, as a rule, respect life in any form, to say nothing of liberty, property, or pursuit of happiness. They were, in the twentieth century, responsible for an estimated 90 million deaths:
Stalin: 1.5 to 2 million (purges), plus 5 to 10 million (famine)
Hitler: 13 to 14 million (death camps, execution of POWs, ethnic cleansing)
Pol Pot: 7.1 million
China: 58 million (ROC, Nationalist, Japanese, and Communist, cf. R. J. Rummel, China's Bloody Century. New Brunswick, New Jersey: Transaction Publishers, 1991).
Perhaps you could be more specific in addressing which of the principles or applications of principles embodied in the "Doctors' Plan" with which you disagree, either from a moral or an economic standpoint. We did not see anything in your remarks offering a way to keep the choice over health care in the hands of citizens, preserve the doctor-patient relationship, or grow the economy — including the health care delivery system — in an ethical and sustainable way that would allow people to afford the means to sustain their lives in a manner befitting the demands of human dignity and respect for personal sovereignty.

Your suggestion that we, or anyone else concerned with basic human dignity and personal sovereignty "stay far away from the Health Care Reform debate because it is not your fight," displays a certain lack of political acumen. On the contrary, it is everyone's fight. As Edmund Burke has been paraphrased as saying, "All that is necessary for the triumph of evil is for good men to do nothing."

Ultimately, there is only one thing that you can "guarantee" if we or anyone else let you persuade him or her that he or she "will rue the day that you ever heard of health care financing reform." That is that the State will step in unopposed while people stand idly by, hoping vainly that the bureaucrats in charge of determining who qualifies to receive State-controlled health care will not deem them, in the words of Karl Binding and Alfred Hoche, Lebensunwertes Leben — "Life unworthy of life." You will then have an answer to your demand regarding the value of human life. As far as the totalitarian State is concerned, the answer is, "nothing."

You might find the analysis of Dr. Leo Alexander, Chief Medical Examiner at the Nuremberg War Crimes Trials of interest in this context. His article, "Medical Science Under Dictatorship," from the July 14, 1949 New England Journal of Medicine, examines the politicization of the practice of medicine in the Third Reich.

Wednesday, July 29, 2009

The Poor Man's Friend

Nearly two centuries ago William Cobbett ran for parliament. He failed to get elected, but the series of pamphlets he wrote was collected and published as The Poor Man's Friend. In the pamphlets he carefully explained why he was running for office:
How there came to be so much poverty and misery in England? This is a very interesting question; for, though it is the doom of man, that he shall never be certain of any thing, and that he shall never be beyond the reach of calamity; though there always has been, and always will be, poor people in every nation; though this circumstance of poverty is inseparable from the means which uphold communities of men; though, without poverty, there could be no charity, and none of those feelings, those offices, those acts, and those relationships, which are connected with charity, and which form a considerable portion of the cement of civil society: yet, notwithstanding these things, there are bounds, beyond which, the poverty of a people cannot go, without becoming a thing to complain of, and to trace to the Government as a fault. Those bounds have been passed, in England, long and long ago. (The Poor Man's Friend, 1829, § 90)
His answer? Lack of widespread direct ownership of the means of production. As he made clear in another book he published the next year in a tome purporting to give advice to young people starting out in life,
What is a slave? For, let us not be amused by a name; but look well into the matter. A slave is, in the first place, a man who has no property; and property means something that he has, and that nobody can take from him without his leave, or consent. (Advice to Young Men, and (Incidentally) to Young Women, 1830, § 344)
This is not empty rhetoric, but a simple statement of fact:
Freedom is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, — and it means nothing else, — the full and quiet enjoyment of your own property. If you have not this, if this be not well secured to you, you may call yourself what you will, but you are a slave. (A History of the Protestant Reformation in England and Ireland, 1829, §456)
It might be something to think about.

Tuesday, July 28, 2009

Worker Ownership Model in Argentina

From a law professor at the Catholic University of Buenos Aires we recently received an inspiring story about workers who, without expropriation or otherwise harming the property rights of others, took over a bankrupt company and turned it into a success. As she reports,
You will like the story of the Zanello Pauny company. This is one of the factories known here in Argentina as fábricas recuperadas ("recovered factories") as the result of a group of workers continuing to work at the factory even though it was shut down after a bankruptcy — an instance of a business tragedy that has a happy ending.

Don Pedro Zanello founded this metal fabrication plant in 1950. It was located in a small town called "Las Varillas" in the Province of Córdoba. The factory was virtually the only source of employment for the people of the town.

As you know, during Menem´s administration a drastic change in economic policies took place. Markets were opened to importations. As a result, previously subsidized national industries collapsed. One of the victims of this sudden change from a controlled economy to free market principles was Zanello, S.A. In 2001, after more than 50 years of development in the national industry, the company went bankrupt, and the factory shut down after the equivalent of what is known in the United States as a "Chapter 7" bankruptcy. That is, instead of reorganizing the company to keep it alive (as under a U.S. "Chapter 11"), the company was closed and its assets put up for sale to satisfy the creditors.

Argentine law, however, allows workers at a bankrupt company to continue operations provisionally. This benefits the workers through continued employment, and also provides a small chance that the company can be brought back to life. As a result, workers organized and came together in free association as a "Work Cooperative." This gave them legal standing to rent the plant and equipment of the Zanello factory and continue operations.

The key to the success of this endeavor was gaining access to capital credit — the principal means in a modern economy to acquire and possess capital. The workers were able to obtain credit from the Provincial Bank of Córdoba that gave them the cash to purchase the factory. In an unusual move, the workers had no money or other wealth of their own to use as collateral for the loan. Instead of collateral, the Bank of Córdoba became the "principal and privileged creditor," using the factory itself to secure the loan to the Work Cooperative. This was a result of all the company workers, both members of the cooperative and administrative personnel, coming together to present their case to the loan officers at the bank.

In consequence, a new corporation, "Pauny S.A.," was created. The new company bought the Zanello assets thanks to the credit supplied by the Provincial Bank of Córdoba, which was able to transfer its privileged credit position in Zanello to the new Pauny S.A. As a result, Pauny S.A. secured a long term line of credit from the Córdoba Bank, and became the new owner of the factory.

The shares of the company were divided equitably among all the stakeholders. Workers owned a 33 % share through the cooperative, the administrative personnel had another 33 %, the dealers (retailers) had 33%, and the balance (1 %) was held by the City of Las Varillas as a fiscal creditor.

The operation grew, and it soon increased the number of workers from 20 to 400 people. In order to add more capital, the dealers sold 31% of their shares to private investors, while the workers took a cut in pay to contribute to the increase in capital.

Today, the sales are very high, and the corporate expansion has allowed the company to add cartage and road building machinery to its line of agricultural products. The latest news showed that the factory released a special line of tractors called "Rino 3000." This is only one model of a complete line of tractors that have been put into production since the year 2002. The tractor is equipped with a 180 horsepower engine and, according to the manufacturers, "its price is very competitive."

Today, the town of Las Varillas is surviving the economic crisis. The rate of unemployment has fallen from 25 % in 2002, to 4% today. This example shows that it is possible to have a successful enterprise thanks to the effort and the willpower of the people involved on the development of a community project — as long as they can secure capitalization on good terms, and the business is otherwise viable.

Monday, July 27, 2009

Individual Charity and Social Justice in Action

A few weeks ago, CESJ's president, Dr. Norman G. Kurland responded to a comment by a reader of one of his many e-mails (which we are lamentably far behind in getting posted on this blog). The issue dealt with the impression that the reader seemed to have gotten that individual, one-on-one action to bring people around is somehow in conflict with the act of social justice, or that one necessarily cancels out the other or renders it ineffectual. That is not the case at all. As Norm explained,

There are many roads to a just social order. You described one to rehabilitate the "the wandering blank-stared wage slaves and enroll them in the collective rehabilitation of the BINARY approach." While the individual approach can be useful and appropriate at times, within the current state of society it's a good bet that most of these people may have already responded to you with a blank stare. If, however, that is the way that you believe you can be most effective, please continue to go down that path.

Yes, we may face a catastrophe before the blind and the deaf are open to the Just Third Way. We in CESJ, however, are committed to try our best to avoid that situation and the bloodshed and tragedy associated with a total collapse of the system.

Our efforts are directed to gathering a critical mass of social architects, Just Third Way revolutionaries, and authentic servant leaders who get immediately fired up, just as you did, and get them to organize to do whatever it takes to rehabilitate the system. (That's how we have proceeded in the East St. Louis project.) I see the current system as producing those who respond to new ideas in fear or with a blank stare. We seek authentic servant leaders who, like us, focus on correcting the flaws in a system that has created a nation of wage, welfare, and charity debt slaves who no longer trust their own minds.

Not everyone is deaf or blind, as you seem to suggest. There are a growing number of people who see the big picture and who are working together to change the system in ways consistent with the Just Third Way and binary economics, that is, in accordance with the demands of personal sovereignty and individual human dignity.

I have been in a successful revolution (the civil rights movement), so when I later discovered the ideas and principles of the virtue of social justice as articulated by one of CESJ's co-founders, the late Father William Ferree, S.M., Ph.D., I knew he was right. These principles, although never articulated by civil rights leaders in as scholarly a fashion as Father Ferree) were the key to changing the political system in the Deep South for millions who were excluded previously from the political process.

Before you write off this approach you should take the time to read Father Ferree's pamphlet, Introduction to Social Justice. Your approach to building a grassroots movement is different, with its own merits, as well as strengths and weaknesses. Until, however, you can make a good case that Father Ferree's principles are unrealistic, impracticable or are in some manner inconsistent with the demands of human dignity, we will continue down our present path. We wish you well in continuing down your path focused on rehabilitating wage slaves at the grassroots level, rather than on rehabilitating the system that produces wage slaves. Yes, our approach takes time and committed allies, but we don't have the time and resources to split our efforts and proceed down two paths at once. If, however, you can mobilize funding and people skilled at community organizing who can communicate the Just Third Way message at the grassroots level, you will always have CESJ materials and people available for those initiatives.

Friday, July 24, 2009

News from the Network, Vol. 2, No. 30

In a manner similar to what happened in the months prior to the Crash of 1929, swings in the stock market are becoming greater and greater. Even as the various news media are loudly trumpeting that "Happy days are here again" (the Wall Street Journal), and that the recession is over, the market has already started falling on "disappointing" news about Microsoft's earnings.

A little common sense would have told people that when you have more than half a million more people added to the unemployment rolls, with the prospect of their being joined by many more when the hike in the minimum wage begins to take effect, there is something fundamentally wrong with they way the economy is structured — and no amount of temporary (or even permanent) speculative gains on Wall Street in which most people have no stake is going to do a bit of good.

Be that as it may, we continue to advance the Just Third Way, as can be seen from the news items of this past week:
• The CESJ quarterly board meeting was held this past Saturday. The main topics of discussion were the restructuring of the website and the project in East St. Louis.

• We continue to receive favorable comments on the letter we posted on the new encyclical, Caritas in Veritate. Evidently, for all the positive reception of the document, people seem to feel that something more is needed, and that "something more" is a clearer presentation of the three principles of economic justice and the overall framework of the Just Third Way.

• The restructuring of the CESJ website continues. The latest addition is a small collection of selected articles by Judge Peter Stenger Grosscup, one of Teddy Roosevelt's "Trust Busters," who wrote an insightful series of articles on the dangers associated with the growing concentration of ownership of capital in the United States, and the benefits that individuals and society as a whole receive from widespread ownership of the means of production.

• On Tuesday, Norman Kurland had a conversation with a businessman in Canada who is representing some "social entrepreneurs" who have expressed interest in the East St. Louis project. The discussion focused on various creative ways in which financing for the project might be obtained in ways that would retain and strengthen the citizen ownership and participation features.

• On receiving the news that Father Joseph Fessio, S.J., has once again been terminated by Ave Maria University, we sent out e-mails to selected friends and members of CESJ to see if there was anyone who could put Norman Kurland and Father Fessio together for a discussion on how best to approach the Vatican for a meeting on the new encyclical and a discussion on the principles of economic justice and their application to the present economic crisis.

• Norman Kurland has arranged to fly out to East St. Louis next week to discuss strategy for implementing the "E-Macrosystem" project in East St. Louis and ten other communities in the area. The project as planned will not only provide non-polluting electrical power for an industrial and commercial rebirth of the area, but empower every resident economically (and thus politically) by vesting each person with a direct private property stake in the enterprise, making the "E" in "E-Macrosystem" stand for "Empowerment," "Energy," and, especially, "Equity."

• As of this morning, we have had visitors from 25 different countries and 41 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, Brazil, the UK, and the Philippines. People in Chile, the United States, Venezuela, Brazil, and Canada spent the most average time on the blog. The most popular postings continue to be those in the series on usury, or which only a few remain to go up, and the news reports.
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.

Thursday, July 23, 2009

On Usury and Other Dishonest Profit, Part XXXV

From the common list of "reasons" we hear why widespread direct ownership of the means of production "can't work" is because workers and other ordinary citizens can't handle the responsibility, can't handle the risk, can't handle the handle, and so on. The one thing that all of these objections have in common is that they typically come from people who are not workers or other real people, but are usually capitalists, academics, and politicians (or their hangers-on).

The answer to these and other objections can be found in an approach to corporate governance CESJ developed called "Justice-Based Management," or "JBM." This was previously called "Value-Based Management," but that term became associated with programs intended to maximize share values, a distantly-related but not entirely congruent approach that ignores the necessity of worker and citizen ownership. What follows is taken in large measure from "What is Justice-Based Management?" on the CESJ website.

Justice-Based Management (JBM) is a leadership philosophy and management system that applies universal principles of economic and social justice within business organizations. The ultimate purpose of JBM is to create and sustain ownership cultures that enhance the dignity and development of every member of the company, and to economically empower each person as an owner and worker.

JBM promotes a company's long-term profitability within the global marketplace by enabling all worker-owners to serve and provide higher value to the customer. JBM connects every worker's self-interest to the bottom-line and long-term success of the company.

The JBM process builds upon a written articulation of the philosophy and principles of the company's leader (typically the CEO or chairman of the board) and leadership core group, in terms of universal principles and core values of the company. JBM proceeds in stages to build a consensus upon these fundamental shared values and vision of the company within each work area of the company.

These articulated values provide the foundation for enhancing the productiveness of workers and company profitability, and include such structures as employee-monitored economic incentive programs, participation and governance structures, two-way communications and accountability systems, conflict management systems and future planning and renewal programs.

One of the main components of JBM is the "empowerment ESOP." While the Employee Stock Ownership Plan (ESOP) was originally invented as a means for providing working people with access to capital credit to become owners of corporate equity, most ESOPs are set up as just another employee benefit plan or tax gimmick, or as an employee share accumulation plan ("ESAP"). Most ESOPs today are not designed to treat worker-owners as first-class shareholders. The "empowerment ESOP," on the other hand, is designed to encourage workers to assume the responsibilities and risks, as well as the full rights, rewards and powers, of co-ownership.

Furthermore, all academic and government studies to date have concluded that ESOPs alone are not enough to affect individual and corporate performance. Within a JBM system, in combination with a regular gain-sharing program tied to bottom-line profits, and structured systems of participatory management, the empowerment ESOP stimulates everyone in the company to think and act like entrepreneurs and owners.

Justice-Based Management offers an ethical framework for succeeding in business. JBM balances moral values (treating people with fairness and dignity) with material value (increasing a company's productiveness and profits while enriching all members of a productive enterprise). JBM's three basic operating principles are:
1. Build the organization on shared ethical values — starting with respect for the dignity and worth of each person (employee, customer and supplier) — that promote the development and empowerment of every member of the group.

2. Succeed in the marketplace by delivering maximum value (higher quality at lower prices) to the customer.

3. Reward people commensurate with the value they contribute to the company — as individuals and as a team.
Justice-Based Management is guided by the concept of social justice, as articulated by the late social philosopher William Ferree, S.M., Ph.D., and summarized in Introduction to Social Justice. Social justice involves the structuring of social organizations or institutions (including business corporations) to promote and develop the full potential of every member.

JBM also embeds within an ownership culture the three principles of economic justice defined by the late lawyer-economist Louis Kelso and philosopher Mortimer Adler:
1) "participative justice," or the right to the means and opportunity to participate in the economic process as an owner as well as a worker;

2) "distributive justice," or the right to the full, market-determined stream of income from one's labor and capital contributions; and

3) "harmony" (or social justice), or the right and responsibility of each person to work in an organized way with others to correct the "social order" or institution when the principles of participative or distributive justice are being violated or blocked.
Within JBM the principles of social and economic justice provide a logical framework for defining "fairness" and structuring the diffusion of power within the corporation.
Structuring Ownership Participation

JBM is designed to systematize and institutionalize shared rights, responsibilities, risks and rewards within all company operational and governance structures involving:
• Corporate values and vision

• Leadership development and succession

• Corporate governance and future planning

• Operations (policies and procedures) and hardship sharing policies

• Communications and information sharing

• Training and education

• Pay and rewards

• Grievances and adjudication
A well-designed Justice-Based Management system sharpens and crystallizes the leader's philosophy around "universal" principles, providing a solid foundation for a corporate culture that enables people to internalize these guiding principles. JBM generates organizational synergy by connecting each worker-owner to the financial tools of ownership (i.e., ESOP and profit sharing), participative management systems, and a defined share of power in the governance of the organization. This in turn enables people to make better decisions, discipline their own behavior, and work together more effectively and cooperatively — because it is truly in their self-interest to do so.

Ultimately, no matter what your reasons (or lack thereof) for wanting a just economy, the only way to remove usury as a dominant force in a modern economy — or any economy, for that matter — is 1) to base economic activity solidly on the application of sound principles of the natural law, and 2) eliminate the myth that the only way to finance capital formation is through existing accumulations of savings from your thinking.

Wednesday, July 22, 2009

On Usury and Other Dishonest Profit, Part XXXIV

As we noted in the previous posting in this series, Capital Homesteading is a dead letter until and unless it can be implemented. That is what we will address in this posting.

The political feasibility of capital homesteading is already soundly established by reassuring the rich that their accumulations will not be taxed to achieve the goal of widespread capital ownership. The tax burden imposed to meet legitimate government expenditures, pay down the deficit, and fund welfare programs during the transition, is another issue. This, however, should decrease over time as more and more people become better able to meet their own needs through widespread capital ownership without redistribution, and the increasing tax base helps pay down the deficit and, ultimately, reduces the tax rate to what is required to pay current government expenditures for a much-reduced bureaucracy.

Pro forma calculations prepared in conjunction with CESJ's universal health care proposal suggest that the deficit — at least as it existed before the current bailout and stimulus spending spree — could be paid off in 20 to 30 years, assuming all new capital formation is financed through the use of pure credit and all new capital is broadly owned. The bottom line is that, not only would the wealth of the rich be safe from redistribution, it would be worth more in real terms as the currency in which the wealth is denominated appreciates, and more people become empowered with effective demand in the form of profits that can be spent on consumption instead of reinvested to finance capital formation.

The specific process of implementing a Capital Homesteading program is given by Father William Ferree, S.M., Ph.D., "America's greatest social philosopher," in Introduction to Social Justice. Asserting that the rich — and the politicians presumably dependent on the rich ("they") — "won't allow" Capital Homesteading is to misunderstand or fail to appreciate the act of social justice — or politics itself.

First, of course, the only reason politicians are dependent on the rich is because they think they need their wealth to purchase votes. They have yet to discover the obvious fact that you don't really "buy" votes with anything other than good government, and by delivering the best government at the lowest possible cost to the taxpayer. The non-rich outnumber the rich by millions, so that (logically) if you want to "buy" votes, you give the non-rich a more direct and more valuable benefit than you give the rich — and do it in a way that does not harm the rich.

To bring this to the attention of the politicians takes, in the beginning, a single individual. He or she reaches out to one other, and so on, until a critical mass is reached. This is brought to the attention of the politicians who want to get elected, and they are presented with capital homesteading. If we assume there are a million millionaires (including the "pluses" with billions) in the United States, there are approximately 299,000,000 votes of people who are not millionaires.

This makes a program such as capital homesteading not only economically feasible, but politically viable. The "carrot" for the rich is the future security of their wealth, otherwise viewed as a treasure house for the politicians to pillage as soon as they can get enough popular support. The "stick" is, frankly, the threat of redistribution that is going to take place, one way or another, if "they" (hardly a monolithic group, anyway) don't go along with Capital Homesteading.

The choice is both obvious and logical: either be left with your current accumulation intact by sharing future ownership opportunities, laying the foundation of a sound economy and currency, a peaceful and prosperous social order . . . or watch taxes and civil disorder increase, the economy continue to collapse, and the social order implode. We just have to remember that the rich didn't get to be rich by being stupid. Making a good case that benefits them as much as everybody else will (except for anyone driven insane by the possession of or desire for wealth and power) be a "slam dunk" both economically and politically.

That takes care of the "rich and powerful." The only question that remains is how to handle the non-rich and non-powerful, that is, most of the people in the world, who through Capital Homesteading would in most cases have the realistic opportunity to become owners of a significant stake of capital for the first time in their lives. In the next (and final) posting in this series, we will look at how to handle the "problem" of how to train non-owners in their new responsibilities and duties as owners.

Tuesday, July 21, 2009

On Usury and Other Dishonest Profit, Part XXXIII

Obviously, simply saying that something must be done about the economy doesn't do anything. The world is filled with people who are busy instructing everyone else what they should be doing — usually what the others would prefer to be doing, if only they could, and if they had some specific blueprint to follow. One possible blueprint is the Capital Homesteading proposal of the Center for Economic and Social Justice. This posting is adapted from "The Case for a Capital Homestead Act for America" on the CESJ website.

In the US economy, productive capital grows annually in both the public and private sectors at a rate exceeding $7,000 for every man, woman and child. As that capital is currently financed using traditional methods, few, if any, new owners will be created. Over the years this has led to an enormous and growing wealth gap, illustrated by the fact that the two wealthiest Americans had greater accumulations than half the American people combined, while the top 10% own 90% of all directly-held corporate stock. Most citizens have not accumulated enough assets to meet their household needs for more than a month or so. They are wholly dependent on jobs, welfare, and charity to meet their needs. The non-rich have no independent source of an adequate and secure income.

CESJ's Capital Homesteading proposal is designed to close this growing wealth gap. It has the potential to do this in a manner consistent with free enterprise values of private property, free market competition and minimal government intervention with voluntary choices among producers and consumers. In other words, Capital Homesteading aims to lower barriers to full participation in the economic common good so that the poor and non-rich people can lift themselves up into capital ownership.

Unlike other proposals to make the distribution of wealth throughout the economy more equitable, Capital Homesteading would have the power to vest non-owners with property in the means of production without taking anything away from the rich except their unjust monopoly over ownership of as-yet uncreated capital. Like the homesteading of land under Lincoln's Homestead Act of 1862, the "Capital Homestead Act" is oriented to an open frontier — the technology frontier — that can and should be made equally accessible to everyone (but especially those who currently have no significant ownership of the means of production) as a fundamental right of citizenship.

The Capital Homestead Act is a proposal to provide a package of integrated income, gift, retirement and inheritance tax reforms, combined with monetary policy changes and other structural improvements to national economic policy. These are designed to provide every citizen an equal opportunity to own, control and share profits from productive capital.

The political rationale behind the Capital Homestead Act is that there is no reason that those who already have capital (and collateral to qualify for capital loans) should have a monopoly or be the exclusive beneficiaries of the government's control over "social goods" like money and credit that largely determine who will own future capital. A political democracy cannot rest comfortably and sustain itself on a foundation of government-supported economic plutocracy. Decentralized wealth would counter the corrupting influences of concentrated wealth in campaign financing.

An essential premise of Capital Homesteading is that those who have no capital should have equal access to credit to acquire capital, and that that credit should be made available by the government's central bank and allocated through local lenders for financing the capital needs of the productive economy. To address the growing wealth gap in market economies, Capital Homesteading would end the monopoly those who already have capital (and thus collateral to qualify for capital loans) gain when the government fosters the creation of more wealth through extension of capital credit and tax incentives for investment.

Facilitated by the monetization of capital credit under Federal Reserve policy and reinforced by capital credit insurance as a substitute for traditional collateral as described in the previous posting, Capital Homesteading reforms would enable every citizen to establish a tax-sheltered Capital Homestead Account (CHA) at a qualified local lending institution. This would allow every citizen to purchase and accumulate dividend-yielding, full-voting shares to supplement retirement income, relieving the burden on Social Security as the aged population expands. As with most ESOPs and in contrast to IRAs, the citizen would put up none of his or her own money. Through the CHA, he would gain access to self-liquidating capital loans at low service charges to buy equity shares. These shares would be expected to recover their purchase price out of future pretax dividends. The loan insurance, with premiums paid out of dividends, would cover the risk that the loan failed to be self-liquidating.

It is important to realize that, in accordance with sound money, credit, and banking theory, no money would be created and no credit actually extended through loans of this type until and unless the Capital Homesteader — the prospective borrower — located a sound and financially feasible investment and had the proposed investment properly vetted by the loan officer of a commercial bank, backed up by a second examination by the company that would insure the loan. If a proposed investment did not pass both reviews, no loan would be made, and no money created; all new money creation would be directly linked to the present value of a sound and financially feasible investment. Consistent with the "Real Bills" doctrine, this would avoid the twin evils of inflation (too much money chasing too few goods and services) and deflation (an insufficient supply of money to purchase available goods and services).

CHA loans could be invested in shares of: 1) the company where the citizen or a family member works, directly or through an Employee Stock Ownership Plan ("ESOP"), 2) companies in which the citizen is a regular customer or supplier, directly or through a vehicle that operates in accordance with the same principles that guide the ESOP, 3) a Community Investment Corporation (CIC) to link the citizen-owner to profits from and control over local land planning and development, and 4) a variety of blue-chip growth companies with a track record of profits once capital self-sufficiency has been reached and diversification of the ownership portfolio can be justified under the "poor man's prudent man rule," attributed variously to Andrew Carnegie and Mark Twain: "Put all your eggs in one basket — and watch that basket very carefully."

To encourage the issuance of new shares for meeting the financing needs of an enterprise, the double tax on corporate profits would be eliminated for companies that sell full dividend payout, voting shares to CHAs by making dividends tax deductible at the corporate level, although fully taxable as regular income to the recipient, unless used to make debt service payments on his or her accumulation in his or her CHA. To secure economic independence, each citizen would be able to defer taxes on his or her CHA accumulations below $1,000,000 until the assets were taken out or distributed to heirs, and to deduct as legitimate investment expenses the service fees and risk premiums, as well as the administrative cost of the CHA, if it were not self-directed.

To further promote CHAs, a "National Capital Credit Association" (NCCA) would be set up, to do what Fannie Mae and Freddie Mac do in facilitating and securitizing home mortgages. The NCCA, which could be owned and controlled by CHA lenders and citizens, would package insured CHA loans, create software for helping lenders to scrutinize the feasibility of CHA loans, and set uniform standards for CHA insurers, reinsurers, and lenders.

The NCCA and competitors qualified by the Federal Reserve would then bundle and take these securitized CHA loans to the Discount Window of the regional Federal Reserve Bank. The Federal Reserve would treat these insured dividend-backed securities (DBSs) as it currently treats government debt paper, using them as substitute backing for the currency. Then, as the Federal Government pays down the national debt, the productive assets of the economy — the real economy — would stand behind the nation's currency.

Currency linked to productive capital owned and controlled broadly among the people would replace vague government promises as a measure of value and as a safeguard against inflation and irresponsible or non-democratic policies by the nation's central bankers. Under Capital Homesteading, money would again be a servant of people, not their master, and would become an instrument to promote humanity's creative potential and quest for a just market economy.

Naturally, a program such as Capital Homesteading will have no effect at all if it cannot be implemented. Possible ways to achieve implementation will be the subject of the next posting in this series.

Monday, July 20, 2009

Ireland and the Micawber Principle

In Charles Dickens' 1850 novel, David Copperfield, the popular character Wilkins Micawber (irrevocably linked in the minds of many people today with the characterization by W. C. Fields in the 1935 film adaptation) instructs "Young Copperfield" in the basic principle to ensure success and happiness:
"My other piece of advice, Copperfield," said Mr. Micawber, "you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and — and in short you are for ever floored. As I am!"
Obviously what we might call the "Micawber Effect" — the misery that results from overrunning your annual income — is multiplied as the amount increases by which outgoes exceed incomes. This is the situation in which the Republic of Ireland (in common with virtually every other economy in the world) finds itself today.

According to an article in the Irish Independent on Friday, July 17, 2009 ("The €5bn Snip: Decision Time for Cabinet as Borrowing Hits €400m a Week"), "Bord Snip" has presented a report recommending massive across-the-board ("savage") cuts in such previously untouchable programs as government employment, the child benefit, medical cards and free prescriptions, rural schools, Garda (police) stations, social welfare payments, special needs teachers, and agricultural subsidies. It might not be too much of a coincidence that the name in Irish of the agency charged with trying to find items to cut out of the budget suggests in rather sinister fashion the horrifying red-trousered tailor in Der Struwwelpeter who cuts off the thumbs of bad little children who, just as the government can't seem to stop spending money, can't stop sucking their opposed digits.

Not surprisingly, the unions for public sector workers raised the specter of a national strike even before the report was published. Blaming the colossal budget shortfall on "massive waste" instead of the Keynesian myth that you can spend today and produce tomorrow, the situation is expected to grow worse due to rising unemployment and consequent increased demands for support payments. Using the figures provided by the Central Statistics Office of Ireland, the population in 2006 was 4,239,848. Borrowing of €400 million each week works out to just short of €95 each week per man, woman, and child in the Republic, or about €13.50 every day.

Remember: this is borrowing in excess of tax revenues collected, estimated in 2006 as €166 billion, or approximately €39,150 per capita, or nearly €110 per day for every man, woman, and child. (Not all of this is personal income tax, obviously, but, given that such things as corporate taxes and import duties are hidden taxes ultimately paid by the consumer, it is fair to include all tax revenues in the calculation.) Including government borrowing as an additional tax burden (which it is — on future generations) means that the total per capita tax burden is nearly €125 per day for each person, or €45,625 per annum . . . using figures generated at a time when Ireland was still being lauded as the "Celtic Tiger."

€45,625 per capita is a fairly stiff tax burden, but a great many people (relatively speaking) pay much more than that in taxes. What does it mean? On investigation we find that per capita personal income for Ireland during the period was US $63,178. Converting that to Euros at the current exchange rate (July 20, 2009), we get €44,838.80 . . . and the unpleasant realization that the per capita effective tax burden in Ireland exceeds per capita income by €786.20 each year.

True, these figures are only rough approximations, but, in accordance with the Micawber Principle, it doesn't matter whether the amount by which annual expenditures exceed annual income is sixpence or €1,000, the fact remains that "you are for ever floored." Does that mean Ireland is finished? Not necessarily.

Ireland can always take the advice that Mr. Micawber gave to David Copperfield immediately prior to stating the "Micawber Principle" of never spending more than you take in: "Never do tomorrow what you can do today. Procrastination is the thief of time."

If anything is to be done, it must be done quickly, or the opportunity will pass. If the Irish government is waiting for "something to turn up" (of which they are, no doubt, in hourly expectation), it has already turned up, in the form of the Just Third Way and the Capital Homesteading proposal of the Center for Economic and Social Justice. It would be greatly to the advantage of the Irish government (to say nothing of the ordinary people of Ireland who might expect to have some claim to consideration) to study the Capital Homesteading proposal. At this point, they really don't have anything to lose, and everything to gain.

Friday, July 17, 2009

News from the Network, Vol. 2, No. 29

A few weeks ago we posted comments on this blog to the effect that Keynesian economics labors under the delusion that you can get out of a hole by digging it deeper. Some people expressed doubts that the Great Defunct Economist ever said or implied any such thing. Whether or not TGDE said it or meant it, it's painfully evident that Keynesians believe it as unquestioned dogma. Yesterday (Thursday, July 16, 2009) the CNS news service reported that Mr. Joseph Biden, Vice President of the United States, stated unequivocally, "Now, people when I say that look at me and say, 'What are you talking about, Joe? You're telling me we have to go spend money to keep from going bankrupt?'" Biden said. "The answer is yes, that's what I'm telling you." [Emphasis added.]

Paradoxically, we can agree with Mr. Biden — if by "spend money" he means implementing Capital Homesteading and opening up democratic access to the means of acquiring and possessing private property in the means of production. Proper use of the commercial banking system and the Federal Reserve to create new money for financially feasible productive projects in ways that create new owners would, in and of itself, go a long way toward restoring not only faith in the government, but lay the foundation of a financially and politically sound economy.

If you know how to get information about Capital Homesteading to Mr. Biden, or if you know somebody who knows how (or know somebody who knows somebody who knows how . . . ad infinitum, or at least to Kevin Bacon's six degrees of separation), give it a shot. Clearly at this point we have nothing to lose and everything to gain, as can be seen from this week's News from the Network:
• The letter on the pope's new encyclical, Caritas in Veritate, we sent to the Wall Street Journal on Wednesday and posted as an entry on this blog yesterday has received some very favorable comment. Guy Stevenson posted the letter and a link to this blog on the website of "America's Independent Party," in which Alan Keyes is involved. Antonio Betancourt, of the Summit Council for World Peace commented, "The content of this letter as a response to the Wall Street Journal's article on the Pope's latest encyclical on the global economy is what makes me so proud to be a member of and be part of the Center for Economic and Social Justice ("CESJ"). What a clarity and depth in just a few paragraphs."

• Dawn K. Brohawn has been developing and refining an overall plan to restructure the CESJ website. While the task can seem monumental, the end result should be a website that is both more "user friendly" and conveys the message of the Just Third Way more effectively and efficiently.

• The CESJ Quarterly Board Meeting will take place tomorrow, Saturday, July 18, 2009 at 10:00 am. Please advise CESJ via the contact information on the website if you want to be notified of future Board Meetings.

• One of the topics discussed at the Board Meeting will be the possibility of turning the current blog series on usury into a book. If the project proves to be feasible, the emphasis will be shifted to the Just Third Way as a whole from the relatively narrow subject of usury and its effect on concentrating ownership of the means of production.

• The June-July issue of The Catholic Worker contains an interesting article, "False Gods, Real Dilemma," by Ted Walker, on the problem of advancing technology and human alienation. One possibility not explored in the article is restructuring the social order along the lines suggested by the Just Third Way to ensure that humanity controls technology through private property, rather than allowing technology to be used to control humanity by continuing the present concentrated distribution of ownership. Technology can play an important role in securing freedom and respect for personal sovereignty and human dignity — but only if actual, flesh-and-blood human beings own (and thus control) the technology, instead of the other way around, as is effectively the case when ownership of the means of production is concentrated. As Dorothy Day liked to quote, "Proper-ty is proper to man." We would only insert the word "every" between "to" and "man," and make certain that "man" is understood in its generic sense.

• As of this morning, we have had visitors from 28 different countries and 42 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, Brazil, the UK, and the Philippines. People in Chile, the United States, Brazil, the United Kingdom, and Canada spent the most average time on the blog. The most popular postings continue to be those in the series on usury, or which only a few remain to go up, and the news reports.
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.

Thursday, July 16, 2009

Wall Street Journal on Caritas in Veritate

In order not to lose the timeliness of this posting, we're once again delaying the completion of the series, "On Usury and Other Dishonest Profit" in order to post a letter we wrote yesterday to the Wall Street Journal. While one individual who reviewed the letter stated that the Wall Street Journal probably would have to put too much thought into understanding it, and thus would not publish it, you never know. Besides, publishing it on this blog gets it out to a somewhat more insightful, if somewhat smaller public.

July 15, 2009

Dear Sir(s):

Pope Benedict XVI's new encyclical, Caritas in Veritate makes a good start on giving principles for straightening out the economy — but only a start. Its effectiveness depends on what "just and moral people" do with it. As both Father Robert Sirico ("The Pope on 'Love in Truth'," WSJ, 07/10/09, A17) and Ms. Julie Davis ("Economics Isn't Jesus's Main Focus," WSJ, 07/15/09, A14) understand, "there is no just or moral system without just and moral people."

Unfortunately, many people will be tempted to take this to mean that the system itself cannot be corrected, or will not function properly until and unless a determinate number of people in the system are just and moral. If we wait to act until most people are perfect, however, we are going to be waiting a very long time, as well as obviating the very reason we have a system in the first place: to assist individuals in the task of developing more fully as human beings through recognition of and respect for personal sovereignty and human dignity.

As even Adam Smith understood, as long as our economic institutions are properly designed and maintained in a manner consistent with essential principles of justice, it is not necessary for everyone to be just and moral before they work to become just and moral. Initially, a small cadre in positions of power can organize and act justly and morally to correct the system, thereby opening up equal opportunity for everyone else. After that, as Smith pointed out in The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776), even a "selfish and rapacious" individual can develop habits of doing good.

Applied consistently, as in the design of the United States by the Founding Fathers, principles of justice would result in a system in which 1) the role of the State is limited to what is necessary to protect life, liberty, and property, and provide a "level playing field," 2) the market is free and open and recognized as the best means for determining just wages, just prices, and just profits, 3) the rights of private property are restored, especially in corporate equity, and 4) all artificial barriers are lifted that inhibit or prevent universal or equal access to the means of acquiring direct ownership of the means of production, whether by individuals alone or in free association with others.

Although this last was a central point in the teachings by Pope Leo XIII in Rerum Novarum (1891) and Pope Pius XI in Quadragesimo Anno (1931), the necessity of widespread ownership of the means of production was not mentioned in Caritas in Veritate. This suggests to many people, unfamiliar with previous encyclicals and the Catholic belief in their permanent validity, that private property is no longer important, and the State must now assume responsibility for and control over everyone's life.

That is why in the near future we should probably expect to see a clarification of the principles of justice as they apply to economics, at least as soon as the Vatican sees the variety of contradictory interpretations people will force on Caritas in Veritate in spite of explicit warnings in the encyclical itself. The alternative is to leave unchallenged the wrong idea of the proper role of the State, and neglect the importance of private property.

Wednesday, July 15, 2009

On Usury and Other Dishonest Profit, Part XXXII

Louis Kelso and Mortimer Adler called it "the universal collateralization requirement." It is the single largest barrier that prevents or inhibits the acquisition of a significant capital stake by the great mass of people who lack existing accumulations of savings, and thus interferes with the realization of personal sovereignty and respect for human dignity. Nowhere is this more evident than in the current economic crisis.

The powers-that-be keep complaining that "the banks" aren't lending. Usually they mean that banks aren't allowing consumers to spend increasing amounts of money that consumers don't have, putting them deeper and deeper into debt in order to stimulate the economy by "creating" effective demand. Being oriented toward Keynesian solutions, the powers-that-be don't realize that, in accordance with Say's Law of Markets (which Keynes rejected), the only real way to create effective demand is to produce something, either by means of your labor or your capital, that you can exchange for the productions of others. Anything else is a way of hiding the fact that you are redistributing what belongs to someone else.

That being the case, the only lending that banks should carry out is for investment in new or replacement capital. Replacement capital can come out of existing accumulations of wealth. This is simple justice, for an owner should be permitted free access to the means to maintain and protect his or her current accumulation. Having existing wealth, there is no problem with collateral.

All new capital, however, should be financed out of "pure credit," and in ways that open up access to ownership for those who currently have no capital ownership, or whose ownership is insufficient to generate an adequate and secure income. This does not mean preventing those who are currently wealthy from obtaining more wealth. It does mean putting them on the same basis as everyone else, as Hilaire Belloc recommended in his 1936 essay, The Restoration of Property. This kind of financing is embodied in CESJ's Capital Homesteading proposal.

Unlike Belloc, however, the principles of the Just Third Way as applied in a Capital Homesteading program do not lay heavy burdens on the rich with the intent of bringing them down to the level of everyone else. Capital Homesteading concentrates instead on lifting barriers to full participation in the common good that prevent or inhibit those who currently lack a sufficient accumulation of wealth from using the same mechanisms and receiving the same treatment as the currently wealthy. Instead of bringing down the rich, Capital Homesteading would lift up the poor.

As Kelso and Adler point out in their second book, The New Capitalists (1961), the chief problem in opening up democratic access to the means of acquiring and possessing private property in the means of production is the "universal collateralization requirement." This highlights the significance of the book's subtitle: "A Proposal to Free Economic Growth from the Slavery of Savings." By "savings," Kelso and Adler mean existing accumulations of wealth, not the "future" or "forced" savings that are used to repay a "pure credit" loan. "Pure credit" refers to the process of creating money through the banking system for investment in productive capital without first requiring that savings be accumulated.

Instead (as we've described previously in this series), in the "pure credit" process, 1) a capital project is identified or developed, 2) the prospective investor/entrepreneur presents a proposal to the loan officer(s) of a financial institution that has the power to create money, 3) the proposal is carefully examined ("vetted"), and — assuming that the proposal appears to be sound — money is created by extending credit and printing currency or balancing the loan with a demand deposit on the books of the financial institution. When the capital project begins to generate revenue, the borrower repays the loan, plus remits to the financial institution whatever service charges, risk premium, and interest rate has been added.

The financial institution cancels the amount of the principal (it can't, after all, logically cancel more than that, for that was all the institution created), and books the service charges, risk premium, and interest rate as revenue. When the financial institution's expenses are greater than the amount of revenue generated by operations, the financial institution has a loss or negative net income for the period. When the financial institution's expenses are less than the amount of revenue generated by operations, the financial institution has a profit or positive net income for the period. Unlike a government that has hijacked a central bank, a private financial institution, even though it has the power to create money, cannot create money to cover its own deficits or in response to anything other than a financially sound loan.

In this system, the use of existing accumulations of savings is for collateral. "Collateral" is simply an accumulation of wealth that a borrower pledges to turn over to a lender in the event the borrower fails to repay a loan. Collateral is thus a form of insurance, and almost always consists of accumulated savings of the borrower, or a guarantee by someone with accumulated savings or secure earning power (a presumed ability to save).

The key, then, to obtaining capital credit (or any credit) within the current system is ownership of or access to existing accumulations of savings or the ability to save. That being the case, any mechanism that would eliminate the need to use accumulated savings would open up access to the means of acquiring and possessing the means of production to everyone who currently lacks savings. This, as anyone who reads the daily paper or watches television knows, is virtually the whole of the human race, struggling under a colossal burden of debt incurred for consumption, the interest on which is pure usury.

Essentially, the "proposal" is to replace the "universal collateralization requirement," a form of insurance, with an actual capital credit insurance policy issued by a commercial insurer. In order to spread the risk even further, one or more commercial capital credit reinsurance companies would be established. The premiums for the policies would come out of the usual "risk premium" now included as part of the interest rate charged on all commercial loans.

Initially, all capital credit insurers would, out of common prudence, reinsure all policies until they had built up a sufficient liquidity pool to pay out in the event of loan default. There would be at least two sources of liquidity for the insurance pools of the reinsurance companies. One would be private investors, who, unable to use their accumulations for anything other than speculative investments, gambling, or consumption, would (assuming they are rational) invest whatever they don't use in speculation or consumption either in government securities, or in capital credit reinsurance.

The reinsurance companies would invest their liquidity pools in government securities, treating the insurance pool the same as bank reserves (i.e., either in cash or government securities). Capital credit insurance companies would also be prohibited from investing their insurance pools in anything other than cash or government securities. This is necessary, for the insurance companies would otherwise, like an athlete who bets on him- or herself, be investing in the same thing that they were insuring. This is a type of financial irresponsibility that led to the bankruptcy of AIG and other insurance companies.

We now appear to have all the pieces in place to establish and maintain an economy that does not rely on usury and other dishonest profit to function. What we need now is a feasible program to implement these ideas. We will begin to look at one possible program in the next posting in this series: Capital Homesteading for Every Citizen.

Tuesday, July 14, 2009

On Usury and Other Dishonest Profit, Part XXXI

One of the basic problems with Keynesian economics is that it takes concentrated ownership not only as a given, but as a necessity if society is to grow and advance economically: "The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably." (The Economic Consequences of the Peace, 1919, 2.III)

What does this mean, given Keynes' distorted and insufficient understanding of employment, interest, and money? Keynes assumed that most people could only gain income from wages, thus demonstrating that he did not understand that, in a well-structured economy based on basic natural law, wages are an anomaly. Keynes' reliance on wages as the primary, if not sole source of income for most people was in turn based on his belief that financing for capital formation could only come out of existing accumulations of savings. That meant that, because savings equals investment, income from capital must be used to finance more capital, and not used for consumption. Finally, Keynes believed that money was only a means of transferring effective demand, and had no necessary connection with production.

Unfortunately, Keynes' paradigm meant that marketable goods and services would pile up unsold. This is because income from capital was not used to clear inventories of marketable goods and services that were produced by capital, but diverted to invest in yet more capital. This in turn meant that, because production equals income, the production representing the income diverted to reinvestment remained unsold. In a vicious circle, increasing amounts of goods would pile up unsold, and ownership would become more and more concentrated. This would mean that capital would become increasingly financially unfeasible at the same time that more and more capital was required in order to provide jobs and effective demand so that people who lived by wages alone could afford to purchase the increasing mountain of unsold goods and services.

Keynes' solution to market gluts (which is what he termed the piles of unsold marketable goods and services) was threefold. First, if projects could be found that produced unmarketable or useless goods and services, or goods and services marked for destruction (as in a war), jobs would be created and effective demand generated that could be diverted away from the useless or unmarketable goods and services that would not be purchased, and used to clear the unsold accumulations of marketable goods and services.

Second, the government would tax the rich to redistribute some of their purchasing power, being careful not to tax too much so as not to discourage the rich from investing in yet more capital and concentrating ownership of the means of production even further.

Third, the government could print money and, through the magic of inflation, transfer wealth from the holders of wealth to the recipients of State largesse via the hidden tax that inflation necessarily embodies.

Thus, the Keynesian paradigm is necessarily based on theft and waste, fostering greed and envy, and catering to the worst in human nature. Keynes managed to combine the worst in both capitalism and socialism, instead of taking whatever good there is in either system, and using it within an ethical framework — a stopgap, but at least an acceptable one that can operate in the short term.

In contrast, binary economics relies on using our institutions, especially private property, money and credit, in a manner consistent both with the wants and needs of individual people and society, and with reality. Binary economics thus respects human dignity instead of setting itself in opposition to it.

Binary economics regards private property as important for several reasons, but for the purposes of this discussion, its importance relates to the fact that it gives the owner the right to receive the income generated from capital, and to spend it in any way he or she wishes, taking into consideration his or her wants and needs and the demands of the common good. "Spending" does not include reinvestment, because using capital income for reinvestment instead of consumption distorts the economic equation expressed in Say's Law of Markets, the observation that production equals income, and therefore supply generates its own demand, and demand its own supply.

If income generated by capital is spent on consumption instead of reinvested to form more capital, however, where does the money come from to finance capital formation? From the commercial banking system in accordance with the "Real Bills" doctrine. By creating money out of the inherent financial feasibility of the economy, that is, out of specific projects that have a reasonable expectation of paying for themselves out of future earnings of the capital formed, as much money as is needed for financing is created at will, without decreasing effective demand, or requiring that the wealthy sacrifice their own wants and needs or have their wealth taxed or inflated away in order to finance capital formation so that others can have jobs.

The only remaining question is how are people who currently own little or nothing in the way of capital supposed to come up with collateral in order to reassure the commercial banks that the proposed investments are as sound as possible? That is the question we will examine in the next posting in this series.

Monday, July 13, 2009

On Usury and Other Dishonest Profit, Part XXX

Especially in light of the economic upheavals over the past year and a half as of this writing, no one can deny that there are serious problems with our financial and economic institutions. It is clear that we live in an out-of-control global marketplace. Mainstream economists cannot agree on how to address such problems as the increasing income insecurity of most workers in globalized markets due to "wage arbitrage" (i.e., outsourcing and shifting of jobs to cheaper labor markets) and how to overcome the widening gap in capital ownership and economic power between a small elite of capital owners and financiers and virtually 99% of the rest of humanity.

Binary economists contend that the real problem is not, as cynics suggest, an evil conspiracy of a governing elite or those who work on their behalf. Rather, the real problem is the system controlling access to money, credit, and capital ownership. Once the flaws in any system created by humans are discovered, binary economists argue, that system can be corrected as citizens become more enlightened and demand new solutions.

Kelso's binary economic system combines the elegance of classical market theory with classical moral philosophy and the highest spiritual values. He points out precisely where Adam Smith, Karl Marx, and John Maynard Keynes fell short theoretically by not recognizing the increasing productiveness of capital as the main source of economic growth and the most logical source of widespread income distribution. This conceptual omission by Smith, Marx, and Keynes is embedded in all conventional schools of economic thought, from left to right. Consequently, economic theorists have been led down the path where few of them can ever make accurate predictions about the future or offer sound, long-range solutions to meet the dangers of economic globalization.

Binary economics states that in a genuinely free market economy, people should be able to contribute to and gain their incomes from the economic process, based on both their labor and their capital inputs. Most neo-classical and Keynesian economists would dismiss this postulate as absurd, asserting that this condition exists already under capitalism.

Because of artificial institutional barriers to broad-based ownership under current economic policies, however, most people can only expect to legitimate their incomes through their labor alone. Consequently the market system breaks down, as government is forced to interfere with the market mechanism and redistribute incomes to non-owning working people and the unemployed.

As pointed out by Robert Ashford and Rodney Shakespeare in their book Binary Economics: The New Paradigm, Kelso's theory offers,

• A new understanding of the relationship between humans and things as they work together to produce goods and services;

• A new explanation for industrial growth, poverty and affluence; and

• A new strategy for achieving general affluence for all people on free market principles.
Ashford and Shakespeare offer clear definitions and examples of the Kelsonian concepts of "productiveness," "binary growth," and "binary property rights." They also address the fundamental flaw in today's dominant economic paradigms: an unrealistic, inefficient and blind reliance on "labor productivity" to justify mass redistributions of purchasing power.

Because of these blind spots in traditional economic theories, all existing systems are structured to concentrate economic power, spawning corruption, crime, exploitation and dehumanization of workers, and endemic poverty and powerlessness in our "global village." If we believe in democracy and empowering every person with rights and responsibilities to contribute to peace through justice in the world, then clearly something new is needed.

In its practical applications, the operation of binary economics can possibly best be illustrated by how the ESOP, the "Employee Stock Ownership Plan" — definitely not to be confused with stock option plans which require participants to put up their own money — works. The ESOP is not perfect by any means (no human creation can claim that), but it is at present the only means available that transcends the problem of how workers without savings and who are unable to cut consumption in order to save can acquire ownership of a significant stake of capital. Thus, we should look at the ESOP in this discussion not as an ideal solution, but as a way of understanding how the principles of binary economics can be applied in the "real world" of what Reverend Heinrich Pesch, S.J., Ph.D., called Volkswirtschaft, that is, how ordinary people carry out the business of daily life (not, as one translator mistakenly put it, the national economy, tacitly rejecting the whole idea of free will and personal sovereignty).

Unfortunately, Father Pesch's work has been obscured by those whom Joseph Schumpeter described in his History of Economic Analysis (1954) as Marxists and liberals. Schumpeter then made his own mistake by claiming that Father Pesch's "solidarism" is consistent with the fascist "corporate state" model presumably outlined in Pope Pius XI's encyclical, Quadragesimo Anno (1931). (On the contrary — Pius XI used "corporation" in the sense used by Thomas Hobbes in Leviathan, 1651, not in fascist Italy in the 1920s and 1930s.)

In current law, an ESOP is a qualified "defined contribution plan." This means that, whatever a participant's "vested balance" (percentage of ownership) happens to be when he or she qualifies for a distribution, that amount is paid out to him or her. This is in contrast to a "defined benefit plan," by means of which a company can make promises that it might not be able to make good on. A defined contribution plan can only pay out what is actually in the plan, and thus is inherently much less risky than a defined benefit plan that may or may not be fully funded.

As the ESOP was designed to operate, workers purchase shares in the company that employs them by borrowing money through the ESOP trust. Typically, the company itself guarantees the loan, for it is ultimately responsible for making the debt service payments. The ESOP purchases company shares with the proceeds of the loan, and places the shares in a suspense account. Each year the company makes a tax deductible "contribution" (actually a share of profits) in cash to the ESOP. This cash is used to make payments of principal and interest on the loan.

As the loan payments are made each year, a pro rata number of shares are released from suspense and allocated to the accounts of active participants. When the acquisition loan has been paid in full, the company continues to make cash contributions to the ESOP. This cash is invested in a diversified portfolio of assets and allows the ESOP to build up a liquidity pool to repurchase shares from participants who terminate employment with the company and incur any required break in service, that is, a period of time that must elapse between when a participant terminates employment and when he or she can receive a distribution of the value of the cash and company shares in his or her account.

ESOPs can also repay the acquisition loan or pass through profits to participants by means of dividends that are tax deductible at the corporate level. This is, at present, the only way within a C-corporation to eliminate the "double taxation" on corporate dividends. Note, however, that (as with an S-Corp), dividends are fully taxable at the individual level, that is, to the recipient.

Mentioning the S-Corp brings in another possible way of benefiting workers. An S-Corp, if it is 100% owned by the workers through an ESOP, pays no corporate taxes at the federal level, as well as in most states. This is because an S-Corp is, essentially, a partnership with limited liability, and is taxed once, as if it were an extension of its owner(s). An ESOP, because it is a "qualified retirement trust," does not pay taxes. Corporate income from an S-Corp ESOP is only taxable as income to the recipients when those recipients receive dividends or a distribution of benefits from the ESOP. This makes a company with a 100% S-Corp ESOP much more profitable, and thus more financially viable — which directly benefits the workers.

These principles and the way an ESOP operates can be applied to other vehicles as well, such as a number of pioneering strategies that the Center for Economic and Social Justice has worked out, beginning with Capital Homesteading, but including such innovative proposals as the "Doctors' Plan for Universal Health Care," The "Homeowners' Equity Corporation," the Community Investment Corporation, the Abraham Federation, and so on.

We will start to examine the financing aspect of expanded ownership in a well-structured economy in the next posting in this series — that is, where the money comes from to finance capital formation.

Friday, July 10, 2009

News from the Network, Vol. 2, No. 28

One of the more difficult things about the current administration is trying to figure out the rationale of their monetary and fiscal policy, to say nothing of how they think what they're doing is going to affect the economy. It's very difficult to get anything other than vague promises that never seem to come to fruition, or contradictory demands. Within the last few days, for example, following months of demands that financial institutions make more consumer credit available to "stimulate" the economy, Mr. Obama declared that he was in favor of forcing people to save more. Thus, at one and the same time, people are supposed to save and dis-save, or consume and cut consumption.

Of course, this conundrum could easily be solved by the adoption of a Capital Homestead Act, but the administration and its advisors are firmly committed to the disproved Keynesian dogma that only existing accumulations of savings can be used to finance capital formation; new money creation is restricted to monetizing government debt and bailing out failed companies. This used to be called, "throwing good money after bad." (Now, of course, it's throwing bad money after worse, but that's a different issue.) By adopting a Capital Homestead Act along the lines recommended by the Center for Economic and Social Justice, people would be empowered to both spend and save — spend out of existing accumulations, and save (invest) out of real "forced" or "future" savings instead of coerced savings mandated by a desperate government seemingly intent upon undermining what little effectiveness it has left.

That being the case, what has the Global Justice Movement been doing to reconcile all the contradictory demands being forced on the State and the economy?
• On Monday, Norman Kurland had a good meeting via telephone with Mayor Alvin Parks of East St. Louis. The East St. Louis project, the "Metro East Citizens' Land Cooperative," or MECLC, will be a Community Investment Corporation, "CIC," as outlined in Illinois House Bill 4922. It will be dedicated to operating a professional land leasing and development company to serve its shareholders, the resident owners, and to link them to land and technology through ownership.

• On Tuesday, the CESJ team downloaded the new encyclical, Caritas in Veritate, and began work on an analysis. A preliminary reading reveals that the main emphasis of the encyclical appears to be on emergency measures intended to ameliorate the worst effects of the current global financial crisis in the short term, what Pope Leo XIII referred to in the first social encyclical as, "a duty, not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law," (Rerum Novarum, § 22), a judgment in which Pope Benedict XVI clearly concurs. While the encyclical recommends that business leaders and politicians begin looking to the long term instead of focusing always on the short term, essential principles of economic justice based on the natural law that can be used to develop long term solutions are not explicitly evident. This suggests that Caritas in Veritate may be the "first part" of a holistic program to address both the short and the long term issues in the economic crisis. In particular (since Catholics believe that all infallible teachings of their Church remain permanently valid and cannot be changed), we would look to a second encyclical especially on the subject of economic justice to address the critical importance of private property, for (as Leo XIII reminded us over a century ago) "That right to property, therefore, which has been proved to belong naturally to individual persons, must in like wise belong to a man in his capacity of head of a family; nay, that right is all the stronger in proportion as the human person receives a wider extension in the family group. It is a most sacred law of nature that a father should provide food and all necessaries for those whom he has begotten; and, similarly, it is natural that he should wish that his children, who carry on, so to speak, and continue his personality, should be by him provided with all that is needful to enable them to keep themselves decently from want and misery amid the uncertainties of this mortal life. Now, in no other way can a father effect this except by the ownership of productive property, which he can transmit to his children by inheritance." (Rerum Novarum, § 13)

• On Tuesday evening, David Jon Sponheim of America's Third Party interviewed Norman Kurland for the party's "Blog TV Channel." Mr. Sponheim seemed to very interested in the possibilities offered by the Just Third Way.

• On Wednesday, thanks to the efforts of Daniel Moore (who has been making great efforts to present the Just Third Way to unions as an alternative to the conflict-ridden model of industrial relations), Charles Showalter interviewed Norman Kurland for an hour on Mr. Showalter's radio talk show, "The Union Edge." While touching briefly on such topics as universal health care and how capital is financed, Norm focused on the benefits of worker ownership, but most of all changing the role of the unions from the conflict-ridden model of industrial relations, to solidaristic, justice-based "ownership unions" that secure and protect the ownership as well as labor rights of their members.

• On Wednesday evening, Norman Kurland had extended telephone conversations with Oklahoma State Representative Anastasia Pittman, and George State Representative Calvin Smyre. Representative Smyre is president of the National Black Caucus of State Legislators. As a result of the conversation, Norman Kurland is sending a package of materials to Ms. Pittman and Mr. Smyre. The idea is that this will help kick start the development of an agenda to get started on raising the funding for the Metro East Citizens' Land Cooperative in East St. Louis (see above) out of the economic stimulus money. The project will provide an exemplar to demonstrate the financial feasibility of green, renewable and sustainable energy, as well as the benefits of widespread, direct citizen ownership of community infrastructure and other resources ordinarily owned by government. This will build an example of how private sector initiatives can achieve sustainable development in which everyone shares equitably. Once developed, the model can be replicated throughout all fifty states, then the world.

• As of this morning, we have had visitors from 26 different countries and 39 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Brazil, Canada, the UK, and the Philippines. People in Venezuela, Chile, the United States, Canada and the United Kingdom spent the most average time on the blog. Not surprisingly, the most popular postings are the series on usury (which may actually finish soon), and the news reports.
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.

Thursday, July 9, 2009

On Usury and Other Dishonest Profit, Part XXIX

Despite the obvious benefits that accrue to the whole of society from widespread direct ownership of the means of production with the full rights of private property, the question remains, 1) how can a state of society characterized by widespread direct ownership of the means of production be instituted and maintained? Even more crucial in our day and age, how can the economic, financial, and political establishments be convinced 2) of the desirability of widespread ownership, and 3) of its feasibility? This issue has confronted and, to some extent, baffled people such as Henry George, G. K. Chesterton and Hilaire Belloc, and Major C. H. Douglas for the better part of the twentieth century. While each of these developed specific proposals, there are weaknesses in them that affect their political feasibility and, sometimes, financial viability.

Addressing these three questions, Louis O. Kelso and Mortimer J. Adler developed and systematized what became known as "binary economics." The following explanation of binary economics is taken largely from Dr. Norman G. Kurland's short paper, "Binary Economics in a Nutshell."

A careful examination of the principles of binary economics reveals a system of interconnected principles that bridge classical, Keynesian and other schools of economics. Further, Kelso and Adler offer a new "post-scarcity" paradigm for analyzing and correcting structural economic defects that foster such seemingly intractable problems as global poverty, environmental destruction and the widening gap between the haves and have-nots.

In Kelso's system "binary" means "consisting of two parts." Kelso divides the factors of production into two all-inclusive, physically interdependent and market-quantifiable categories — the human ("labor") and the non-human ("capital"). The central tenet of binary economics is that, through the property (or ownership) principle, these two "independent variables" can link marketable outputs from the labor-capital mix directly to incomes distributed according to market-quantified values of all "labor" and all "capital" inputs. There are thus only two modes by which a person can legitimately contribute to production and thereby be entitled to a commensurate distribution: 1) through his own human inputs ("labor" of whatever form), or 2) through his own non-human inputs ("capital" of whatever form).

Binary economics attributes most of the increases in the labor-capital mix of the modern world to capital assets in the form of ever-improving technologies, structures and system designs, and far less to any increased productiveness of human labor. Classical economic theory, on the other hand, regards all output and earnings derived from capital enhancements as if they were produced by "increased labor productivity," thus rationalizing higher and higher pay for less and less human effort.

Binary economics holds that broad-based affluence and economic freedom, as opposed to financial insecurity and economic dependency for the many, would be made possible through the widespread ownership of constantly improved capital assets, including system changes, that are added to produce more and more consumable goods with less and less human input and resources.

In contrast to traditional schools of economics which assume that scarcity — almost always understood as insufficiency (economic scarcity is something else) — is inevitable, binary economics views shared abundance — sustainable economic growth and the equitable distribution of future wealth and income throughout society — as achievable by connecting every person through private ownership of property in ever-advancing technologies, institutional systems and structures.

Professor Robert Ashford was the first to identify three concepts within binary economics that set it apart fundamentally from all preceding economic approaches: "binary productiveness," "the binary property right," and "binary growth." In their book Binary Economics: The New Paradigm, Robert Ashford and Rodney Shakespeare describe these three distinguishing concepts as follows:

1. Binary productiveness. While human beings contribute to economic growth through all forms of labor, capital assets such as machines and technological processes are making an even bigger, ever-increasing contribution to overall output, in relation to that contributed by human labor.

2. Binary property right. The natural right of every person to acquire, on market principles, private (individual and joint) ownership of wealth-creating capital assets.

3. Binary growth. Economies grow steadily larger as private capital acquisition is distributed more broadly among the population on market principles. This highlights the importance of unleashing the unutilized or underutilized capacity of all economic systems to produce in greater abundance.
These components interact and reinforce one another, allowing for maximum rates of sustainable growth within a modern, globalized economy.

Binary economics recognizes a natural synergy, as opposed to an unavoidable trade-off, between economic justice and efficiency within a global free marketplace. Rejecting pure laissez-faire assumptions, binary economics is (as we have been examining in these postings) based on four pillars of a truly free and just global marketplace. To restate them in slightly different ways than we have previously listed them, these four pillars are,
1) limited economic power of the State (whose main role should be to promote justice by eliminating special privileges, monopolies and other barriers to equal participation),

2) free and open markets for determining just wages, just prices, and just profits.

3) the restoration of and universalized access to the full rights of private property, and

4) effective means for democratizing ownership of capital, including universal access to money and capital credit for financing growth and transfers of productive assets.
The theory of binary economics is underpinned by three interrelated principles of economic justice:
1. Participative justice, the input principle which demands as a fundamental human right, equal opportunity for every person to contribute to the production of society's marketable wealth both as a worker and as a fully empowered owner of productive assets.

2. Distributive justice, the outtake principle which holds that the contribution of labor to the economic process should be compensated at the market-determined rate (or "just wage") for each particular type of human contribution to the production of marketable wealth, with capital contributions compensated by the residuals (in the form of "profits" and "rentals") from the sales of marketable goods and services.

3. Harmony, the feedback principle that balances and restores participation and distribution within a market-based economic system to counter monopoly tendencies. This principle was referred to by Louis Kelso and Mortimer Adler as the "principle of limitation" and by others as "social justice" or "restorative justice."
In the next posting in this series we will look at some of the problems that binary economics addresses.