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.

Wednesday, November 17, 2010

England's Difficulty

It's a well-worn aphorism in Ireland that "England's difficulty is Ireland's opportunity." That was never more true than now. Ireland's present economic crisis has the potential to leave a rather significant number of creditors holding the bag in the event of a Grecian meltdown. ("Irish Crisis, Contagion Fears Loom Over EU Meeting," Associated Press, 11/16/10) In view of the fact that most Irish debt is held by English banks, this has the English understandably worried. ("Stocks Retreat on Asian Inflation, Euro Debt Fears," Associated Press, 11/16/10) As an Associated Press report explained,
Ireland is more troublesome for Europe than Greece because more of Ireland's debt is held by major banks, especially in England. A default by Ireland could be another blow to banks that have only recently recovered from the global credit crisis. Shares of British banks HSBC and Barclays PLC both fell more than 3 percent. (Ibid.)
Consequently, Ireland's financial fall is seen as the precursor to Spain and Portugal going under. Another factor causing anxiety is that nervousness over the ability of the Emerald Isle to meet its debt service payments and keep the government solvent is seen as endangering the ability of other Euro Zone nations to be able to float enough debt to keep their heads above water. In response, Taoiseach (Prime Minister) Brian Cowen has taken swift and decisive action. He is denying that Ireland is seeking a bailout, or that there are any negotiations for an €80 billion bailout going on. ("Irish Leader Slams EU Aid Rumors as 'Ill-Informed'," Associated Press, 11/16/10.) As the brief news story reports,
Cowen emphasized Tuesday that Ireland's government is fully funded through mid-2011 and has no need of a bailout now. But he says Irish officials have been talking "with our European counterparts to see in what way market risks can be taken out of the equation." (Ibid.)
Now, if by some chance you're wondering how Ireland can be denying that there are any negotiations going on, but that talks are proceeding without once mentioning the possibility of a bailout, we can't say. Maybe we can chalk it up to the ability many people have of ignoring the 800-lb gorilla in the room . . . one that hasn't bathed in a year or two. Or maybe Mr. Cowen uses a different definition of "negotiate" than "to confer, bargain, or discuss," all of which can be included under "talking." We may never know (at least until the non-bailout occurs when Ireland slips back into the non-recession), for Mr. Cowen "declined to elaborate." (Ibid.) In other words, deny, deny, deny . . . and then don't admit anything.

That, in fact, appears to be the case once we look at this morning's Wall Street Journal. According to the page one article, "Sweeping Irish Aid Package In Works," Ireland is resisting a bailout, while the rest of the European Community is insisting on it. None of this is going to solve the underlying problem, however.

So . . . how is England's difficulty in getting roped into buying Irish debt supposed to work to Ireland's advantage? It sounds bad for everybody, no exceptions.

That's only if you assume as a given that there is no way out of the current lose-lose economic paradigm. This is made more problematical due to the fact that all three of the major schools of economics today buy in to today's flawed framework to one degree or another, although Keynesian economics is the worst.

The fact is that England's difficulty is, in this instance, not only Ireland's opportunity, but that of England as well. Both are trapped in erroneous assumptions that make the situation seem very hopeless indeed. Nevertheless, implementing the same solution would benefit both countries — and the rest of the European Union — out the wazoo (technical term). All it takes is a simple (yet not necessarily easy) shift in some basic definitions that far too many people take for granted.

First, "money" is not limited to State-printed or authorized currency or currency substitutes. It's anything (and by "anything" we mean anything) that can be used in settlement of a debt. We won't get disgusting (here, at least), but at various times in history almost everything imaginable has been used as money, even currency ("current money"). There're the obvious things like gold and silver, but also "base" metals such as bronze (considered "sacred money" in ancient Rome), not to mention cattle (many monetary words come from Latin words for cattle, e.g., "capital" — caput — "head" — of cattle, "pecuniary" — pecus — archaic Latin for "cattle"), elephants, tobacco, human skulls . . . okay, maybe a little disgusting . . . cocoa beans, knives, shirts, playing cards, big giant rocks with holes drilled in the middles, chewing gum, cotton, . . . as we might have mentioned at the beginning of this paragraph, the list is, effectively, endless.

What does this mean for Ireland? Other than that they are probably wondering why they ever went off the cattle standard a thousand years ago . . . for which we can blame "the Danes," not the English. It means that anything with value can be turned into money. For a modern economy, the best money is certificates or the equivalent representing a private property stake in the present value of existing and future marketable goods and services.

It follows, then, that the worst money is certificates representing nothing other than the government's promise to pay out of whatever it can wrest from its citizens every April 15, or whenever the English and Irish tax filing deadlines are — you know, the $, £, & € we're using now. All the panic-stricken solutions tossed about yesterday and today are, frankly, simply variations on the same, discredited theme: that "money" is whatever the State says it is, with no direct link to what people produce by means of their labor, capital, or land.

Georg Knapp's "chartalism" (The State Theory of Money, 1924) has triumphed. This is just as Keynes predicted in 1930 in his Treatise on Money (Volume I, if it's important). Private property is effectively abolished. This has been done through State control over the creation of money and credit. The fact that State-created money backed solely by "anticipation notes" in advance of taxes that will probably never be collected because nothing is being produced is considered irrelevant.

The opportunity now exists to reverse this trend. First, of course, not only the Irish and the English governments must realize they've been using the wrong definition of money and credit, but the entire financial system is being forced to do things it was never designed to do (i.e., finance government deficits instead of private sector growth and development), but undermine the currency and the economy for political ends. This seems like a small thing, but, as both Aristotle and Aquinas pointed out, it's small errors in the beginning that lead to big errors in the end — and the present economic crisis that is threatening to spread throughout Europe and then the globe certainly qualifies as a "big error."

Second, consistent with the new, "Just Third Way" understanding of money and credit, immediately implement a "Capital Homesteading"-style economic growth and recovery program. This would provide the foundation to rebuild the economy consistent with the "four pillars of a just market economy":

1. A limited economic role for the State,

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

3. Restoration of the rights of private property, especially in money and credit and corporate equity, and (the "fatal omission" from virtually all schools of economics and finance)

4. Widespread direct ownership of the means of production.
Is Capital Homesteading a silver bullet or Instant Utopia ("Just Add Credit")? Hardly. What it would do is reconnect money and credit with production of marketable goods and services (where it started out), cut the State off from the money machine and inhibit irresponsible spending, restore private property by tying all new money creation to the present value of existing and future marketable goods and services, render the tax system more equitable, restore freedom of association (liberty) through contract, provide the means to meet common domestic needs adequately, and, in general, secure as far as humanly possible equality of opportunity to replace the current emphasis on equality of results.