As we have seen in this series, the abandonment of the natural law as the basis for the social order and the framework for understanding the Constitution of the United States is, in part, due to a misunderstanding of money, credit, banking and finance. A moment's reflection will demonstrate the truth of this proposition.
As long as new capital formation was financed by cutting consumption and accumulating money savings (i.e., savings not — yet — in the form of investment in capital), the rate of economic growth remained slow. Bound by the supply of existing savings in the system, the development curve was almost flat until the middle of the 17th century.
It was then that the reinvention of commercial banking and, toward the end of the century, the invention of central banking began to affect the rate of capital formation, as did the concept of insurance. As a result of shifting from the present value of existing savings (reductions in consumption) as the source for capital investment, to the present value of the profits from future marketable goods and services (increases in production) the development curve went from nearly horizontal to almost vertical. Freeing economic development from the limits imposed by what had been accumulated in the past, to what could be produced in the future meant that a reasonable standard of living became possible for everyone.
The problem was that government monetary and tax policy has tended to adhere to the idea that existing savings generated by reducing consumption are the only source of financing for new capital. Added to this was the idea that only government, which produces nothing, has the power to create money. That is, only a non-productive entity, the State, could supply the means whereby people could engage in industry, commerce and agriculture and produce marketable goods and services. This led not only to socialism as the remedy for the evils of capitalism, but to the mistaken ideas about scarcity popularized by the Reverend Thomas Malthus and embodied in the "currency principle" that rejected or redefined Say's Law of Markets and its application in the real bills doctrine.
Say's Law, as we have seen, is best summarized by realizing that we do not purchase what others produce with "money." Money is only the medium through which we exchange what we produce with our labor and capital, for what others produce with their labor and capital. The real bills doctrine can be summarized as, if the amount of money created by offering and accepting all forms of "bills of exchange" (negotiable contracts) equals the present value of existing and future marketable goods and services in an economy, there will, ceteris paribus, be neither inflation or deflation, but a stable, uniform and "elastic" asset-backed money supply.
Rejecting or redefining Say's Law of Markets and rejecting the real bills doctrine locks an economy into acting as if existing accumulations of savings are the only possible source of financing for new capital formation. This in turn leads to what Harold Moulton called "the economic dilemma": if you cannot finance new capital except by cutting consumption, then the increase in consumer demand that justifies investment in new capital will not exist. Consequently, no new capital will be financed because it cannot be justified, i.e., shown to be "financially feasible" — able to pay for itself out of its own future profits.
An even more damaging result of the belief that only existing accumulations of savings can be used to finance new capital formation is that it requires that ownership or control (the same thing in law) of capital be concentrated, and the more concentrated, the better in order to generate sufficient savings to finance the increasingly expensive new capital. Since an owner of immense wealth cannot possibly consume all the income generated by the capital owned, the excess is reinvested in more capital. This presumably results in hiring more wage workers and keeps the economy in balance. As noted, it also leads to either capitalism (concentrated private ownership of capital) or socialism (concentrated State ownership of capital) as the only perceived alternatives.
One problem is that, since the vast bulk of new capital formation is not actually financed out of existing accumulations of savings, the "past savings assumption" leads to serious distortions in the economy. Among the more serious distortions are the "business cycle" and the belief that an outstanding government debt is necessary if the economy is to have an adequate money supply. An even more serious problem is that, since the past savings assumption is, considered as the sole source of capital finance, false, both the private sector and the government are forced to change definitions of natural rights to life, liberty and property — "re-edit the dictionary," as Keynes put it — in order to try and make the system work in both capitalist and socialist economies.
The first target in the redefinition process in an economy in bondage to the currency principle is almost always private property, then liberty (freedom of association/contract), and, ultimately, life itself. The situation in the United States is somewhat anomalous, due to the relative ease of acquiring and possessing landed capital before the Civil War, the generally low level of industrial and commercial development at that time, and the institution of chattel slavery.
That being the case, liberty, not property, was the first casualty in the United States in Scott v. Sandford, the Dred Scott case. Admittedly, the issue was related to private property, and maintaining illegitimate exercise of the legitimate, even essential right to be an owner was inextricably linked with the issue of humanity's natural right to liberty. The fact remains, however, that in America, because it was possible to become an owner of capital, the ground and the "terms of engagement" shifted in the culture war. This was the case until the "free" land available under the Homestead Act of 1862 ran out.
The result, however, was the same as in societies in which all access to the means of acquiring and possessing capital was cut off for most people. In what could only be described as a desperate attempt to maintain chattel slavery in the face of changing social, economic and political conditions, as well as world opinion, the Supreme Court of the United States changed the whole basis for understanding the Constitution from the natural law, to political and, especially, economic expedience. The "living constitution" was "born."
It is thus no coincidence that Scott v. Sandford in 1857 followed hard on the heels of the publication of David Christy's Cotton is King in 1855. Christy's book, with its claim that the economic survival of the United States and the British Empire depended absolutely on slave cultivation of agricultural commodities, chiefly "King Cotton," was the most persuasive economic argument for the continuance and expansion of slavery published in the 19th century. It was rendered all the more powerful because Christy, a former abolitionist, professed to abhor slavery personally, but clearly believed that economic expedience and the needs of the State came before humanity's natural right to liberty.
As a result of Scott v. Sandford and Cotton is King, natural rights — personality — were no longer understood as inalienable, that is, inhering absolutely in each human being by nature itself. Instead, rights were viewed as coming from the State. The exercise of formerly inalienable rights could therefore be limited, abridged, redefined, or even abolished entirely without reference to the underlying natural right (and thus the dignity of the human person) if, in the considered judgment or even whim of those in power, it would achieve some desired end.
Consequently, in such cases as Dodge v. Ford Motor Company (1919) and Citizens United v. Federal Election Commission (2010), the natural right to private property, and the significance of what it means to be a natural person, respectively, were ignored in furtherance of economic or political goals. Roe v. Wade, far from being an anomaly, was simply another application of an approach to law established by precedent for more than a century, and which had provided the guiding philosophy of the Supreme Court almost from the beginning in an effort to preserve slavery.
The American Civil War could thus be viewed, as Orestes Brownson pointed out, as a struggle between two forms of capitalism. These were the well-entrenched yet economically decaying agrarian capitalism of the South, and the new and increasingly powerful industrial and commercial capitalism of the North. With the Northern victory, the struggle shifted from between two forms of capitalism, to between capitalism and socialism.
Following the Civil War, two factors stood in the way of the triumph of either capitalism or socialism. The first was the natural right to private property, already secured in the Constitution with its basis in the natural law. The second was the opportunity to exercise private property, open to everyone who would take advantage of it through the Homestead Act of 1862.
As we have seen, however, the exercise of private property was limited by being confined to land. Land is a form of capital in fixed supply, and cannot expand to meet the needs of a growing economy. The natural limitation on land was exacerbated by the artificial limitation on money and credit, resulting in a lack of access to capital credit by small owners to develop the land properly. This left the right to be an owner, presumed absolute in each human being by nature itself, as the target. The Fourteenth Amendment that secured the full spectrum of natural rights to each human being stood in the way of the redefinition of personality, and thus the concentrated control — ownership — of capital that both capitalism and socialism require.
Consequently, in the Slaughterhouse Cases the United States Supreme Court effectively nullified the Fourteenth Amendment. As William Crosskey pointed out, the opinion in Slaughterhouse was so vaguely worded as to allow the Court to do whatever it wanted in the future, regardless of anything the Constitution might actually say, or the intent of the framers.
Thus, depending on whether states' rights or those of the central government favored the Court's agenda, the Court could go either way, and still claim to be acting constitutionally. Similarly, the Court could force a capitalist or socialist interpretation on the Constitution by re-editing private property, life and liberty, whatever suited the current needs or desires of the Court.
The underlying issue was, as always, the natural law, and the restrictions that the natural law, centered on humanity, necessarily puts on the growth of State power. While the "slavery of past savings" and the perceived need to support capitalism or socialism was the underlying cause of the Court's actions, it could not justify them.
The problem then becomes what to do about this situation.