Say's What?

Over the weekend a faithful reader made the comment that the current series on Say's Law of Markets contradicts monetary reform researchers on such concepts as the Bank of England being government controlled in its early days. The reader thought the evidence points to the idea that the monetary reform researchers are correct, presumably in that the Bank of England was allegedly not controlled by the government, but by a small group of people intent upon controlling money and credit to their advantage. Well . . . it’s something of a diversion from pushing our new books, e.g., Supporting Life, but we’ll give answering a shot.

First, we would want to see specific names of the monetary reform researchers, especially since all the evidence we have surfaced from our sources — referenced in the blog postings (e.g., Adam Smith, Henry Thornton, Jean-Baptiste Say, Richard Hildreth, George Tucker, John Fullarton, Charles Conant, Harold Moulton, and Kelso and Adler) — are quite explicit. We have a hunch that the monetary reform researchers may be confusing nominal title and actual control.

Also, the reform researchers with whom we are familiar, from Fahey, Coogan, Coughlin, et al., mis-define money and credit. They take the disproved Currency School of finance as normative, dismissing or rejecting Say's Law and the real bills doctrine — the heart of Binary Economics and the Banking School — as a fraud or theft on the basis of that mis-definition. They are, in essence, speaking a different language than is used in Binary Economics, and their observations do not fit within the new paradigm.

The fact is that anyone may hold nominal legal title, e.g., the member banks of the Federal Reserve System who own non-voting, non-participating, non-transferable "shares" in the Federal Reserve. The issue is who really controls. As Moulton made clear in his work on the Federal Reserve in particular and central banking in general, it is who controls and sets the banks' policies who really "owns" in the sense of control. As Moulton pointed out, the federal government appoints the head of the Federal Reserve and can remove him or her at will. The federal government is thus the real owner of the Federal Reserve. From 1694 on, the English government set the rules and dictated in what way the Bank of England could exercise its discounting and note-issuing powers, and in what amount. The English government was thus the real owner of the Bank of England, whatever the shares of stock said.

All of that, however, sidesteps the real issue, which is what are we going to do about it? Whether or not private interests own the world's central banks, or private interests have nominal title while the State holds real title, or the State simply takes over everything and issues the money it needs as in Georg Knapp's "chartalism," which destroys private property through manipulation of the currency as Keynes advocated in the opening pages of his 1930 Treatise on Money — all of this is irrelevant when looking at the main issue, which is how to we correct the flaws in the present system, regardless how they got that way? We could spend all of our time persecuting those whom we believe guilty of structuring the system the way it is, but that would divert attention away from promoting the specific reforms we believe are necessary to correct the system.

The purpose of the present blog series on Say's Law of Markets and the real bills doctrine is not to expose the guilty, punish the evildoers, or proclaim the virtue of glorious failure in the cause of justice. Rather, it is, 1) explain Say's Law and the real bills doctrine not as today's economists have distorted them, but as they really are, 2) in the interests of developing arguments to promote the Just Third Way describe how, given the way the financial system currently operates, it departed from reliance on Say's Law and the real bills doctrine, and 3) (where we're going with this thing) explain the operation of the reformed financial and banking system of the Just Third Way.

To do this requires that we use standard recognized sources and authorities, and the correct definitions of terms and concepts. Exposing the guilty, inventing new definitions, or asserting historical theories that academic economists and policymakers will reject out of hand, true or not, is not our method. As Chesterton pointed out in The Dumb Ox, you can always prove somebody wrong on your principles. The only real way to convince anybody, however, is to prove him wrong on his principles.

Referencing the work of monetary reform researchers whose efforts and conclusions, true or not (and some of us believe they are not true, but that, as we keep saying, is irrelevant), are rejected by the very people we are trying to persuade is a pointless and useless waste of effort. We would spend all of our time — what little we can get with these people — trying to prove something that makes no difference whatsoever, and lose whatever opportunity we have to persuade them to support the Just Third Way. We have to focus on correcting the system, not in identifying and punishing the presumably guilty.

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