The most important news item is one we'd rather not have occurred, the earthquake that hit Japan. "Fortunately" — if that is even a word you want to use in this context — the epicenter was hundreds of miles north of Tokyo, and the region hardest hit is not as heavily populated as the southern islands. Coming on top of the economic downturn and increasing pressure from other countries making claims on Japanese territory, however, the country is in a very bad position.
It has, however, been in much worse shape. Japan is the only country in the world to be the target of nuclear weapons, to say nothing of the devastation wrought by conventional weapons after a decade of war that spanned the world. Japan's industrial base and, more important, the financial system is still largely intact.
Why is the state of the financial system so important? To be blunt, you can very quickly rebuild an industrial base if you have financing, but you can do nothing, even with a fully intact and operational industrial capacity, if you can't finance it. Without financing, labor and capital remain idle and useless, just as Charles Morrison explained:
"Confidence and credit are only moral elements in society; they may be said to be, to a great extent, mere matters of opinion; yet their importance in the production and distribution of wealth is so great, that the whole machinery of material production is kept at work, disordered, or paralysed, according as these principles act in a healthy manner, irregularly, or not at all. They are to our industrial community what the nervous system is to the body, a slight and sensitive substance in itself, but the indispensable cause of all the life and motion of the system. A great nation may possess in abundance all the means of producing wealth, — population, intelligence, capital, natural and artificial instruments of production; and yet, if credit and confidence should be from any cause destroyed, all these resources seem to have lost their virtue, and general distress prevails. Let confidence and credit be restored, and the whole system is immediately set in motion again, and in a very short time general prosperity returns." (Charles Morrison, An Essay on the Relations Between Labour and Capital. London: Longman, Brown, Green, and Longmans, 1854, 200.)
The reason for bringing this up is that if Japan attempts to finance the reconstruction effort in the conventional Keynesian manner and relies on existing accumulations of savings at home and abroad, the country will soon find itself in a very, very bad position economically. First, of course, the vast amount of savings already accumulated in Japan are not truly available to finance a rebuilding effort. "Savings," as even Keynes admitted, "equals investment." The savings are already invested in Japan's industry, agriculture, and commerce. Using domestic savings to finance investment or reinvestment in one area means liquidating other investments.
That leaves infusions of foreign financial capital. That, in turn, means making Japan dependent on other countries . . . countries that, in some cases, are already trying to make inroads on Japan's territorial integrity. This would only increase if Japan's economy weakens further. As Henry C. Adams explained more than a century ago,
"The facts disclosed permit one to understand how deficit financiering, carried so far as to result in an interchange of capital and credit between peoples of varying grades of political advancement, must endanger the autonomy of weaker states unable to meet their debt-payments. Provided only that the interests involved are of sufficient importance to make diplomatic interference worth the while, the claims allowed by international law will certainly be urged against the delinquent states, and the citizens of such states may regard themselves fortunate if they succeed in maintaining their political integrity." (Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 28-29.)
It is not improbable to speculate that any country lending financial capital to Japan will face the tremendous temptation to sell that debt to countries seeking financial leverage to use against Japan. Countries purchasing the debt might have no hesitation in using that leverage to gain political advantage to press their territorial claims.
This sounds hopeless — and, given the standard Keynesian approach to financing economic growth, it is exactly that. In The Formation of Capital, however, Dr. Harold G. Moulton explained how reliance on existing accumulations of savings to finance new capital formation (and thus economic growth) is not only unnecessary, it actually works to the detriment of the economy.
Especially as refined by Louis Kelso and Mortimer Adler in their second collaboration, The New Capitalists (1961), the "pure credit" financing method described by Dr. Moulton shows how, by discounting and rediscounting bills of exchange, the present value of all un- or under-utilized productive capacity in a country can be used, in a very real sense, to finance itself, without relying on domestic existing accumulations of savings or infusions of foreign financial capital. Japan's existing pool of savings that is in the form of corporate retained earnings can be put to its proper use of financing consumption and sustaining demand by paying the earnings out as dividends that are tax deductible at the corporate level. Consumer demand is going to take a tremendous hit in the weeks and months to come, and is going to need a lot of non-government stimulus. Financing for economic growth can come not from retained earnings, but from the country's commercial banks, which can rediscount no-interest development loans at the Bank of Japan. Capital credit insurance and reinsurance can satisfy the demand for collateral.
Most important, the ordinary people of Japan can participate in the recovery and growth through the implementation of a Capital Homesteading program — which will not only improve the lot of ordinary citizens, but strengthen the economic wellbeing of the entire country immensely, and put a few strong cards in its hand for dealing with foreign economic and political intrusion.
As for the rest of the world:
• Michiel Bijkerk reports from the Netherlands Antilles that, "There is a Just Third Way voice in Bonairean politics now." As he continues, "The elections have in the meantime passed. With an extremely limited budget and without buying any votes, we managed to pass the threshold. Only just, but we passed it. We have one seat in the Island Council of 9. Depending on coalition agreements we can do two things: 1) Voice the Just Third Way (which we call 'Solidarismo'); 2) Set up a Pilot project along 'CIC-lines'. Hopefully more opportunities will arise."
• Norman Kurland will be the featured guest tomorrow on Russell Williams's The Challenge on WKND Gospel Radio, Hartford, Connecticut. To repeat the contact information from the station's press release, "Tune in every Saturday morning at 9 AM Eastern on WKND 1480 AM Windsor-Hartford, CT and online at www.goisradio.com/wknd. Call in and let your voice be heard at 860-218-2173 or 860-218-2174." By the way, Norm is scheduled for 9:30, so if you call in before then, remember two things: 1) make your comments brief to give others a chance to call in, and 2) don't use up more than a minute (or less) — Russell's show is proving to be popular, and the guest slot is 9:30, not 9:31 or 10:48, and people are tuning in to hear the conversation between Russell and his scheduled guest at that time.
• Thanks to Pollant Mpofu, Norman Kurland had a very interesting telephone conversation with an official in the British government early this week (and we mean early — due to the time difference, Norm was up at 4 am). The meeting was quite productive in gauging interest in the Just Third Way in some quarters. In the meantime, Pollant continues his efforts to arrange meetings with high government officials, religious authorities, and labor leaders.
• We have responded to a number of enquiries this week concerning the monetary and fiscal reforms embodied in Capital Homesteading, especially the basic theory. Whatever the starting point, the discussion always seems to revolve around the question of the necessity of existing accumulations of savings in the financing of new capital formation. According to the thinking embodied in the three mainstream schools of economics as well as virtually all monetary and fiscal policy in place throughout the world, existing accumulations of savings are essential. Say's Law of Markets is either rejected or redefined, and the real bills doctrine is dismissed. As is clear in The Formation of Capital, this is the wrong approach, and so we try to make clear that the past savings dogma is tantamount to economic and financial slavery.
• CESJ has made contact with a lawyers association that has a commitment to the restoration of the natural law as the basis of a just social order. Currently we are investigating possible areas in which collaboration might be mutually beneficial.
• Work is progressing on the planned revision of Capital Homesteading for Every Citizen. While the principles presented in the current edition remain permanently valid, we have refined their application. Also, due to the current economic downturn, many of the benefits of Capital Homesteading have become increasingly obvious, and would benefit from a slightly different presentation.
• As of this morning, we have had visitors from 48 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the Philippines, the UK, Canada, and India. People in Venezuela, Germany, Hong Kong, Australia, and the Philippines spent the most average time on the blog. The most popular posting this past week was once again "Thomas Hobbes on Private Property," followed by "Aristotle on Private Property," "Seeing the Nose on Your Face," "The New Manifest Destiny," and "The Right to Choose."
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.