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.

Monday, February 1, 2010

Waiting for the Penny to Drop

The headline in today's Washington Post is hardly startling, although it is definitely a way to intensify the mid-winter blues: "Deficit to Hit All-Time High." Demonstrating the deftness with which journalists and policymakers continue to delude themselves, the rest of the headline reassures us that, "Obama's $3.8 Trillion Budget Forecasts a $1.6 Trillion Shortfall for 2010 Before It Drops."

The obvious question, of course, is, "Before what drops?" The penny? The other shoe? No. According to the article (and Congressional aides, who of course are economic geniuses), "the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013."

In other words, you can get out of a hole by digging yourself in deeper. No doubt you can also eliminate crime by making everything legal, and stop war by denying that there's a war on.

"They" (the generalized other, in this case policymakers, academia, and journalists) are clearly locked into a "lose-lose" paradigm, one in which you believe that the State can solve all problems by fiat. If there is a recession, announce that it is over. (With respect to that, while channel surfing on television on Saturday, a pundit announced that, due to the president's proposed jobs bill — which has yet to pass, much less take effect — the recession is over. On Sunday, a commentator on NPR explained that, statistically speaking, the recession is over, but in human terms it is not. As the economy exists only by, for, and of actual human beings, we haven't yet figured out what this is supposed to mean.)

Oddly enough, these bizarre paradoxes can be resolved with the application of a little common sense. We have to realize that, by and large, those who claim to be in charge of the economy (and even speaking of being "in charge of the economy" is revealing) have no idea what they are doing. They insist on implementing programs that do not work, have not worked, and cannot work, based on a profound misunderstanding of the institutions of money, credit, and private property.

They insist that money is not a symbol for the present value of wealth produced by actual, breathing, living human beings as a means of facilitating the conveyance of private property rights among individuals and groups. Instead, they believe that money is a special creation of the State by means of which the wealthy elite and the government manipulate economic indicators. The current understanding of money, as false as it is damaging, is that money can only be created by the State, and consists of a purchase order, an exercise of property on the part of the State in what belongs nominally to private individuals.

No, money is anything that can be used in settlement of a debt. It must come out of the present value of a person's stock of assets, assets that are produced by that person and owned by him or her. As Jean-Baptiste Say pointed out to the Reverend Mr. Malthus, "money" is merely a symbol of what we produce by means of our labor and our capital. Unless the "money" stands for actual marketable goods and services produced by private individuals, and not the State's vague promise to pay out of the general wealth of the economy that the government hopes to collect in taxes from future generations, it is a lie. Money may and should be regulated by the State, but it can never truly be created by the State, for government by its nature creates nothing, especially the wealth that must back money.

If the policymakers want a way out of the hole into which they are busily digging us deeper, they need to consider very seriously implementing Capital Homesteading at the earliest possible date. Instead of continually figuring out ways to divide a shrinking pie into smaller and smaller pieces (with a rakeoff for them and their buddies), the policymakers have to wake up and realize that you cannot redistribute what doesn't exist, whether you misuse direct taxation, or misuse money and credit to hide what you are doing through the indirect, "hidden" tax of inflation.

No, you need to produce before you can consume. Further, you need to have as many people as possible producing, and that means by employing their labor and their capital in a program not of full employment, but of full production. If labor is creating most of the production, people need jobs so they get wages. If capital is creating most of the production, they need ownership so they get profits.

Ownership of the means of production, whether labor or capital, needs to be in the hands of people who will spend their income on consumption, not pile it up for hoarding or reinvestment. Just as every human being has the natural right to the profits in the form of a market-determined just wage that results from employing his or her labor, every human being has the natural right to the profits in the form of a market-determined return on investment that results from employing his or her capital.

"But . . . but . . . but . . ." the capitalists and socialists protest in their usual cogent and incisive manner of critiquing binary economics, "where is the money to come from to finance all this capital formation?"

The answer is right before their eyes, and has been for centuries. Money, despite constant propaganda, is not a special creation of the State. "Money" is a derivative of the present value of existing or future marketable goods and services currently in inventory, or anything that is reasonably expected to be produced in the future. If a thing has a present value, anybody can create the symbol we call "money," back the "money" with the present value of the thing, use the "money" to exchange a promise to deliver the present value for whatever marketable good or service someone else has produced that you want, and make good on the promise to deliver the present value of the marketable good or service you have produced when the promise you made is presented for redemption by the holder in due course. The State has the job of regulating this "money" so that people keep their promises in full and abuses are policed and, if necessary, corrected or punished, but otherwise the State has no justifiable role to play in the financial system.

Once we understand the real nature of money, we realize that we don't need to rely on existing accumulations belonging to the currently wealthy, or on confiscation and redistribution of existing wealth by the State in order to finance new capital formation in which everyone can participate democratically. Instead, through the commercial banking system backed up by the central bank and collateralized with capital credit insurance, every financially feasible project can be financed without the use of existing accumulations of savings or redistribution of existing wealth in a way that opens up democratic access to the opportunity to become an owner of the means of production.

We don't need to get out of the hole we're in by digging it deeper. We can get out of the hole by using the right ladder, and then filling in the hole so we don't fall in again.