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.

Friday, December 28, 2012

News from the Network, Vol. 5, No. 52

Given the fact that many people suspend activities between Christmas and New Year's, and the added circumstance of a three-day work week, we have very little to report. It's easy to see why most news media resort to "year end roundups" and human interest stories at this time.

Be that as it may, there has been some activity:

• Discussions continue with the Global Harmony Association, headquartered in St. Petersburg, Russia. There appears to be a certain compatibility between what the GBA means by "harmony," and what CESJ means by "social justice." Future dialoging will explore the degree of compatibility and, of course, come to an understanding of semantics.

• Although no sales have resulted, the "twitter tests" we've been running the past week to determine the effectiveness of the social media in getting such esoteric and "out of the box" concepts across to the general public have been encouraging. We found that changing the time of day when we tweet had a significant impact on the number of visitors to the sites. We've been using the fiction published by Universal Values Media, Inc. (UVM), in the tests. This should not be taken as an endorsement by CESJ of the novels, or even agreement with the orientation of the authors.

• There have been some technical difficulties associated with getting a dedicated website up for some of CESJ's publications. Had everything gone according to plan, the new site would have been up on January 1, 2013. Unfortunately, the automatic "spam filters" of the free service we've been using kicked in, possibly as a result of the number of links to Amazon and Barnes and Noble, combined with our special "Just Third Way" language, to make it appear to a robot not programmed with Just Third Way concepts that the text is random. A review by an actual human being, which has been requested, should correct the problem, and has been promised within two business days. This is not as "neat" as a January 1st launch, but it should get the job done.

• There will be a planning meeting for the Coalition for Capital Homesteading tomorrow, Saturday, December 29, 2012.

• Rudy W. found an article that claims the major social media service providers are censoring criticism of the government. If true, this could irreparably harm the efforts of the Global Justice Movement to publicize the need for necessary reform. The Just Third Way is, by its very nature, harshly critical of virtually every government on earth for the general failure to structure tax, monetary and other institutions in just and fair ways. If we are silenced, the only voices heard will be those praising injustice and supporting bad ideas.

• As of this morning, we have had visitors from 57 different countries and 53 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the United Kingdom, the Philippines and Ireland. People in Mexico, the United States, Portugal, Brazil, and Poland spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Turning Point: The Circular Keynes," "Is Choice Unconstitutional?," and "The Turning Point, II: The Trigger."

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.


Thursday, December 27, 2012

Get Smart(er)!

We've noticed something "odd" about Twitter followers and Facebook friends of the Just Third Way. When we say something vaguely "nice" or attack a bad idea (e.g., capitalism, socialism, watching reality TV), we gain a follower or two. Not rocking the boat and pasting a vacuous grin on your face makes you acceptable, while hating the right things makes you popular, even revered.

When we point out flaws in something and suggest a corrective or solution, however, our faithful followers seem to suffer a crisis of faith. They get nervous or outraged, and unfriend or de-follow us. Paradoxically, our friends and followers decline in number just as readership goes up — dramatically. The average readership of the Just Third Way blog has increased more than 500% over the past year.

Naturally, we have a theory. We think far more people support the Just Third Way than want to admit it. We think they're afraid of what someone else will say. Consequently, they stay hidden, or even try to say the "right" things to get in good with the people they're afraid will attack them if they say the "wrong" things.

It's like the Get Smart episode (that we couldn't locate for a clip to post) in which Agent 86 infiltrated a cell of bad guys, only to find out at the end of the show that the only real bad guy had died years before. All the other members of the cell were secret agents from the FBI, CIA, Interpol, and other organizations. Each of them was going along with acts of espionage, sabotage, etc., in the belief that the others would start thinking he wasn't one of "the guys," or kill him if he didn't go along to get along.

In other words, under the false belief that somebody else would do or say something to harm them, they went along with evil, even instigated it, all the while believing they were really doing good — ultimately.

Of course, such a thing could never happen in real life — at least, not in the dark underworld of secret agency, because that's controlled by government, and governments never make mistakes. Just in economics, where countless academic economists and politicians mindlessly follow the contradictory dictates of the Great Defunct Economist, John Maynard Keynes. If Keynes said it, it must be so . . . especially when it isn't.

One part of the problem with Keynes is that, despite his turgid two-volume Treatise on Money (1930), he did not understand money. Another part of the problem is that he did not understand logic. As we have seen in previous postings, Keynesian economics contains more than enough contradictions to keep the theoconomists (those who base their economics on faith instead of reason) busy for several lifetimes.

Another part of the problem with Keynes is that Keynes did not understand private property, what it is, or what it does.

The bottom line here is that it's probably better to base things like economics on reason instead of faith — whatever other people might say. It just seems to be the Smart(er) thing to do. Otherwise, you might miss the boat. Would you believe the train? How about a bus? A tricycle?

Sorry about that, Chief.


Wednesday, December 26, 2012

The Dowry of the Personality

Last week a member of our network sent us a number of quotes from Bishop Fulton Sheen. He's been doing this for a while, but the quotes are usually too long to include in a blog, but not long enough to post as stand-alone pieces. This time, however, he sent a selection that led a member of the CESJ "core group" to comment, "Beautiful quotations from Fulton Sheen. I particularly like his statement below. Capital Homesteading Now!"

"Our Western concept of liberty has its roots in two master ideas: one, the fact that man has a soul; and the other, that man has the right to own private property. Both these ideas are related one to the other. Man is free on the inside because he can call his soul his own; he is free on the outside because he can call property his own. Property is the economic guarantee of human freedom as the soul is its spiritual guarantee." (Fulton J. Sheen, "Communal Instinct," 1949."

This is a more profound quote than we might otherwise think. It goes directly contrary to the pervasive notion that only the State or a private sector elite can own capital. When the State owns or controls capital, we call it "socialism." When a private sector elite owns or controls capital, we call it "capitalism." When a private sector elite controls the State that controls capital, we call it "the Welfare State" or "the Servile State."

Why is private property in capital so important? As Heinrich Rommen, a German jurist who fled from Hitler and ended up teaching at Georgetown University, said in one of his books, "The institution of private property is like a dowry of the personality." (Heinrich Rommen, The State in Catholic Thought. St. Louis, Missouri: B. Herder Book Company, 1947, 188.)

As a lawyer, of course, Rommen fully realized that "personality" means that you have rights, that you are a person. In the case of human beings, this is by nature itself; human beings at any stage of development or condition of life are "natural persons." Foremost among these "natural rights" are life, liberty (freedom of association/contract) and property.

Life is clearly the most important natural right. Liberty is what makes life meaningful, at least in the sense that someone should be free to enter into social relationships — contracts — as a "political animal," as Aristotle put it. Private property in capital is the means by which persons exercise liberty and sustain life while living in society.

Being a "political animal" means that human beings have individual rights within the social environment of the pólis, the political unit. By exercising their natural rights, human beings carry out acts of virtue. This allows them to develop more fully as human beings.

Property is thus not only the economic guarantee of human freedom and the ability to sustain life, but the guarantee of political freedom as well.


Friday, December 21, 2012

News from the Network, Vol. 5, No. 51

The amiable G. K. Chesterton once related (in The Outline of Sanity, if you're interested), that twice in his life an editor told him that what he, Chesterton, had written could not be published. Chesterton said, however, that the editor was honest in his dishonesty. The editor said straight out that he couldn't afford to offend the big advertisers that generated the bulk of revenue for the newspaper — that printing the truth about big stores and big business was not his way, so to speak.

A lot of people today are a trifle less than honest in the reasons they refuse even to discuss the Just Third Way. Paradoxically, in a perversion of G.K.'s fascination with such seeming contradictions, some of the most fanatical resistance even to discussing the Just Third Way comes from neo-distributists and their allies . . . who turn tail and run away on the grounds that what we're talking about isn't their way.

Sadly, the real reason appears to be that it's one of the most dangerous things you can do today to suggest — even as a possibility — that many (if not all) academics, politicians, and even real people might not understand money, credit, banking and finance.  This leads to the inevitable conclusion that the programs and solutions they espouse à la milord Keynes, for example, might not be what the doctor ordered.

Consequently, many of the proposals that rely on widespread capital ownership — such as Capital Homesteading — are labeled as romantic, insane, "twaddle," or any other handy pejorative that comes to mind. Others, such as distributism, are redefined into neo-distributism by changing basic assumptions and principles. Fundamental terms are redefined in a way that effectively removes any meaning from ownership (private property) and, increasingly, life and liberty as well.

Not surprisingly, as Chesterton observed in The Dumb Ox, this sort of thing always starts out so reasonably. It's the adherents or proponents of the Just Third Way who are spoiling things by being so stubborn and unreasonable for insisting on absolute principles. If we would just give in on this one little thing, they promise that all will be well. Just agree to one thing that we know isn't true, and everything will be all right.  They promise.

. . . until they discover whatever else we're doing, thinking, or believing that is interfering with the perfect system they just know is going to work perfectly . . . if they can just finally succeed in changing substantial human nature.

Alas, we're not going to do that. Instead, here's what we've been doing this past week to bring about real, effective, and sustainable change:

• Plans are being firmed up for the April 2013 annual rally at the Federal Reserve. Members of the Coalition for Capital Homesteading met this past Saturday via telephone to discuss the logistical details. One of the topics under consideration was a change in how the group presents the Declaration of Monetary Justice to Federal Reserve officials in order to optimize the chance of getting a meeting.

• A special outreach effort is being initiated to groups that can bring in numbers of people, rather than individuals alone. This should strengthen the grassroots appeal of the effort to reform the monetary and fiscal systems of the United States and the world.

• The United States Conference of Catholic Bishops has called for improving services to the mentally ill, their families, and caregivers. Not addressed is how to finance improved services and all the other recommendations made. One suggestion is to implement Capital Homesteading, particularly the program of universal healthcare without mandates.

• Bill McGurn of the Wall Street Journal's "Mainstreet" column noted that the title of CESJ's publication Supporting Life: The Case for a Pro-Life Economic Agenda (2010) is "catchy."

• Michael D. Greaney, CESJ's Director of Research, has been named Co-Director of the Embassy of Human Rights of the Global Harmony Association, headquartered in St. Petersburg, Russia. CESJ and the GHA are exploring the possibility of a joint publication project, The ABC of Economic Justice.

• The Wikipedia entry on CESJ has been submitted. It has not yet appeared on any search engine.

• As of this morning, we have had visitors from 64 different countries and 53 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the United Kingdom, the Philippines and India. People in Mexico, Portugal, the United States, Germany, and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Turning Point: The Circular Keynes," "Is Choice Unconstitutional?," and "The Turning Point, II: The Trigger,"

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.


Thursday, December 20, 2012

The Right TO v. the Rights OF Property

Yesterday's posting about the natural right of private property caused one of those minor tempests in a thimble with which we're constantly dealing. To be blunt, a lot of people read our stuff and miss some very important qualifiers . . . such as definitions of terms and concepts we've repeated endlessly over the years. Still, the kvetch springs eternal. Here's the question that was asked, evidently in an effort to trip us up:

"Did Adam have a right to eat from the tree of the knowledge of good and evil? I suspect not, in that doing so and going against his natural condition (cooperation with Creator) he became an unnatural entity — a fallen soul. How do you balance the seeming contradiction of inalienable rights according to nature, and how the exercise of that right caused the entire human race to enter into an unnatural state of death and sin?"

While the question is posed as a seemingly insoluble paradox, the response is something of a "no brainer," especially since the answer is given in the question itself.

First and foremost, it is absolutely critical to differentiate between the natural right to be an owner — the natural right to property — and the socially determined rights of property, that is, the exercise of the right. Having a right is not the same as exercising that same right.

Far too many people fail to make this distinction. God vested Adam and the whole human race with the natural right to be an owner, without qualification. He then gave Adam (and Eve) dominion over everything except the fruit of the tree of the knowledge of good and evil.

This in no way infringed upon Adam's right to be an owner. The right to be an owner, the "generic right of dominion," does not give you the right to use (enjoy the fruits of — literally in this case) what belongs to someone else. It gives you the right to claim, use, and be secure in the possession of what is unclaimed, or to work and own the fruits of your labor, or to receive, retain and use something as a gift, inheritance, or alms.

God reserved ownership of the tree of the knowledge of good and evil to Himself. Adam had no right to exercise property in it without God's permission — which was explicitly denied.

There is no more contradiction between having a natural right to be an owner and not being able to use what belongs to someone else, than there is in having the natural right to liberty (freedom of association/contract) and not being allowed to exercise it in a way that harms others. I am not free to do anything I want; I am only free to do that which is lawful. A right does not confer the power to do wrong; all rights are exercised within limits or they cease to have meaning.

A limit on the exercise of a right, however, does not and cannot imply that the right itself can be taken away or alienated, only that it must be exercised in lawful ways, not abused. The sloppy and vague claim that some neo-distributists make, that "property is a right, but not an absolute right," if taken in the sense that the exercise of property cannot be absolute, is correct.

If, however, it is taken to mean that not every human being has by nature an inalienable right to be an owner, and to be secure in the reasonable use of whatever is owned, it effectively abolishes private property. This is what turns neo-distributism into one more version of socialism — a bit more hypocritical than other forms of socialism, but still socialism. As Karl Marx stated in The Communist Manifesto and Leo XIII reiterated in Rerum Novarum (§ 15), "The theory of the Communists may be summed up in the single sentence: Abolition of private property."

From a Just Third Way or classic distributist perspective, it is significant that Adam's "fall" is expressed in terms that clearly identify what he did as theft — a violation of private property. Yes, the sin was disobedience, but the specific disobedience was to steal what God had reserved to Himself as His private property and had explicitly exempted from the gift of everything else in Eden.

Interestingly, one of the most vicious attacks ever launched on the papacy was by Michael of Cesena and William of Occam, both renegade Franciscans, over this very issue. The two friars insisted that private property is prudential matter, only allowed as an expedient due to man's fallen condition, and that in Eden there was no such thing as private property; that it is not a natural right, inherent in humanity's very being.

After some less than diplomatic back-and-forth on this and some other matters and an excommunication or two, the pope, John XXII, issued a bull, Quia Vir Reprobus ("That Evil Man"), setting the record straight. Evangelical poverty is a counsel of perfection, not a mandate.

Ownership of temporal goods is not just something "allowed" due to man's fallen nature. Ownership is, instead, an integral part of what it means to be a human person. It is also the chief means by which we secure our other natural rights, such as life and liberty, the exercise of which makes us more fully human. This draws us closer to God, in Whose image we are created, and fits us to enter into heaven, our true home.


Wednesday, December 19, 2012

"It's All About the Human Person"

In An Essay on the Restoration of Property (1936) — on which CESJ expands in its recent publication, The Restoration of Property: A Reexamination of a Natural Right,  Hilaire Belloc highlighted the fact that many programs of social reform miss the boat. Belloc pointed out Major Douglas's social credit "scheme" (as Belloc labeled it) in particular as falling prey to the idea that income and benefits, not our natural rights to life, liberty and property, are paramount in civil society. The same, however, applies to Keynesian economics, as well as to socialism in all its forms.

Tuesday, December 18, 2012

Is Choice Unconstitutional?

According to Fox News (no irony intended) U.S. District Court Judge James C. Fox recently (Friday, December 7, 2012) ruled that the Great State of North Carolina cannot issue "Pro-Life" license plates unless the legislature agrees to "similar" license plates supporting abortion rights. (Judge Finds NC "Choose Life" Plates Unconstitutional)

This is a delicate question, with something of a "My Way Or The Highway" attitude on the part of the ACLU, which brought the suit. The ACLU alleged that "offering . . . a Choose Life license plate in the absence of a pro-choice plate constitutes viewpoint discrimination in violation of the First Amendment."

Chris Brook, legal director of the ACLU-NCLF, declared that the government cannot create an avenue to express one side of a political issue while denying an equal opportunity to citizens with an opposing view.

We agree. For years we have argued that government at any level should not give financial support to Pro-Choice groups while denying both financial support and free speech to Pro-Life groups. As we explain in Supporting Life, there is something profoundly wrong in denying citizens free choice in how their tax money is spent.

Take, for example, government money provided to Planned Parenthood. This is justified by claiming that the money is not used for abortion.

This is untrue. Government funds provided for any Planned Parenthood operation or program of any kind frees money for abortion that would otherwise have been spent on, say, prenatal healthcare for those women who go to a Planned Parenthood clinic for something other than an abortion. The specific funds provided by the government may not be used directly for abortion — but money is "fungible." It allows other money to be used for abortion. Taxpayers are forced into the Hobson's choice of paying for abortion due to unfamiliarity with basic accounting and legal principles and legislative sleight-of-hand.

Here's a short-term solution for the people of North Carolina — and one that could be quite lucrative for the crisis pregnancy centers that were intended as the beneficiaries of the program. The plates would have cost each motorist an extra $25, of which $15 would have gone to the pregnancy centers. All the pregnancy centers have to do is get organized, produce a bumper sticker similar to the proposed license plate, and give a bumper sticker to anyone making a donation of $20 or more.

The benefits are obvious. For one thing, instead of $15, the donation would be $20 — the centers get more, and the donor would pay less than for a license plate. The donor wouldn't have to be a motorist to make a donation and get the sticker, either. Nor would he or she have to put it on an automobile. It could as easily be put on a bicycle, little red wagon, stroller, or human rear end. Nor would anyone be restricted to a single bumper sticker. Just make any number of donations of $20 or more.

Freedom of speech? Why not? The organized centers can print up a batch of "Respect Choice" bumper stickers. If a donor specifies that he or she prefers that instead of "Choose Life," fine. The pregnancy centers still get the money, and the donor demonstrates that he or she truly respects genuine choice by providing hard, cold cash to an alternative instead of empty rhetoric.

That, or residents of the Tar Heel state can move their businesses to the somewhat more hospitable clime of Indiana, where judges evidently don't have a problem with license plates such as this:

How do you spell "relief"? H*O*O*S*I*E*R.


Monday, December 17, 2012

Spot That Fallacy!

It's time for Spot That Fallacy, the game show in which you, the voter, decide which Keynesian program promises the most, and delivers the least. This week, it's the fixed belief that human labor alone, even without doing anything, is somehow the sole effective factor of production! According to Rick Newman of U.S. News and World Report, a George Mason University economist has explained that,

"Even now, with the U.S. economy in a rut and too many people out of work, productivity is rising, which means a larger population would generate more wealth per person than a smaller one." (Rick Newman, "Why a Falling Birth Rate is a Big Problem," U.S. News and World Report, 12/04/12.)

The concern in the article is that a significant drop in the U.S. birthrate will have disastrous consequences for the economy. We agree. We also agree that, despite all that's going on, the U.S. economy is still the largest in the world, although possibly not the strongest, relative to its size.

Before we address the problem with the professor's logic, however, we'd just like to point out that the article confirms what we've been saying since the "downturn" began in 2008: we are in a depression, not a recession. A decline in the birth rate always happens during bad economic times. People tend not to have children when they can't afford them, and they see no hope of things getting better.

Adolph Berle used the declining birthrate during the 1930s to justify the claim that the U.S. had reached the stage of "economic maturity." Berle claimed that the U.S. therefore needed more direct State control of the economy, possibly even outright ownership of critical industries and companies. The "economic maturity" thesis was one of the arguments advanced to justify the New Deal.

The problem is that if "the population" (a.k.a., "people") don't produce by means of their labor ("jobs") or their capital ("ownership"), exactly how are they producing? The professor seems to accept as a proven fact that, in a developed and growing economy, more people automatically means more wealth is generated per person.

We don't follow his argument. If productivity — typically measured as output per labor hour — is rising, it's because either the numerator is increasing, or the denominator is decreasing in the equation. Since the professor makes the claim that there are "too many people out of work," it is logical to conclude that the denominator, "labor hours," is decreasing.

This gives a "false reading" for the equation.  It creates the illusion of economic growth occasioned by a decrease in the number of people who are employed. Even if the numerator is increasing, however, it is because capital, not labor, is becoming more productive. This results in more wealth around . . . but not more wealth to go around.

Put it this way. Suppose there are ten people in a room. One of them has $1 million. The other nine have nothing. What is the per capita wealth in the room? $100,000. That sounds pretty good . . . until they go out for lunch. The other nine can't spend the first one's money — any more than more people automatically create more wealth just by being born.

Yes, the amount of wealth produced per person may be increasing, but the wealth is going to fewer and fewer people. The fact is, most people don't own a meaningful capital stake. They rely for their income on artificially high wages and benefits, or welfare — both, ultimately, backed up by an increasingly powerful State . . . in a world in which governments are finding it harder and harder to keep the promises they've made so lavishly.

Capital in the U.S. is astonishingly productive, but the productivity of labor is declining rapidly. If something isn't done — and done soon — owners of capital are going to have a very hard time selling the goods and services their capital produces at such an incredible rate to people with no money — and who have no money because (consistent with Say's Law of Markets) they aren't producing anything.

If a Capital Homestead Act were enacted tomorrow, we estimate that within three to five years we would see a complete economic turn-around — and the birthrate would increase . . . if anyone stopped to care about it. As R. Buckminster Fuller claimed in Utopia or Oblivion, poor people have too many children, the middle class has the right amount, and the rich have too few — nor is he the only one to make this assertion. When the economy is justly structured and everyone has the opportunity to be productive, whether through ownership of labor, or of capital, or both, the rate of population growth seems to be matched naturally to the number of people we "need" to keep things running — as if people were made for the economy, and not the other way around.


Friday, December 14, 2012

News from the Network, Vol. 5, No. 50

The news this week is singularly appropriate for the end of a year when we should all be looking to the future. A number of what could turn out to be very important meetings took place, as well as suggestions about possible collaborations with other organizations.

That being said, the ups and downs of the stock market, the angst over the "fiscal cliff," the rise in food prices, and all the "and so ons" you could care to mention, all give evidence of a local, national and global economy badly in need of Capital Homesteading and other Just Third Way reforms:

• On Monday members of the CESJ core group had a meeting with Steve Young, Global Executive Director of the Caux Round Table, an international organization of senior business executives aiming to promote ethical business practice. The discussion focused on CESJ's and the Caux Round Table's emphasis on human dignity (that CESJ understands as recognition and protection of all of humanity's natural rights, both individual and social), and the need to integrate a program of expanded capital ownership within an ethical system that respects the rights of all human beings, not just a governmental or private sector elite.

• On Tuesday, Norman Kurland attended an event sponsored by the Atlas Foundation that addressed the problem of the "fiscal cliff" and the need to reduce the size of government. CESJ shares with Atlas the concern for the growth of government and respect for the free markets, but believes that the idea that selfishness is a virtue needs to be examined in much more depth even before dialog can begin.

• Cardinal Dolan, whose statement that the principles of the Just Third Way underpinning CESJ's proposed alternative to "Obamacare" are consistent with Catholic social teaching (especially the principle of subsidiarity) has published a blog posting on the progress of the lawsuit the Archdiocese of New York filed over the narrowness of the religious exemptions allowed by the HHS mandate. The effort is necessary to highlight the injustice of the specific situation, but we do not believe that it addresses the underlying problem — the rapid growth of State power and the increase in unwarranted intrusion of the State into domestic (family) and religious affairs. This problem will not go away until Capital Homesteading or its equivalent is in place, and economic dependence on the State eliminated in all but the most extreme cases, after private initiatives have failed (Rerum Novarum, § 22).

• Thursday members of the CESJ core group had a lunch meeting with Dr. Robert Ornelas, his son (also Robert), and his assistant, Krista Rocha. Dr. Ornelas, who ran for vice president in the last election on a double third party ticket, is currently touring the area with a Christian music group. During the meeting, Joseph Recinos came in, having returned from a trip to North Carolina, and asked a number of questions about Dr. Ornelas's future political plans. Dr. Ornelas, Robert, and Krista each took copies of Supporting Life: The Case for a Pro-Life Economic Agenda, along with a selection of other Just Third Way material, including a copy of Capital Homesteading for Every Citizen, CESJ's "blueprint for change," written mostly for policymakers and politicians, but accessible to other serious readers as well. They gave copies of their music CDs to CESJ. A primary focus of the meeting was to see if there was interest in participating in the annual "Rally at the Fed" coming up in April. Dr. Ornelas expressed a great deal of interest in the event, and agreed that bringing in more people is essential.

• "Tweeting" the daily blog posting and the websites for various CESJ and UVM publications (no more than one a day) has dramatically increased traffic flow to the sites, as has posting a link to the daily blog posting on Facebook. It is too early to see if the effort results in greater sales, but it is a good test of the Just Third Way network's outreach capacity with the social media. We are currently discussing revising and expanding some of the current book websites to make it easier for the network to get the word out.

• Dr. Leo Semashko, president of the Global Harmony Association, an organization headquartered in St. Petersburg, Russia, with more than 500 members in over 56 countries, is currently exploring a working relationship with CESJ. One of the joint projects we're looking at, per Dr. Semashko's suggestion, is the possibility of a "primer" on the principles of economic justice developed by Louis Kelso and Mortimer Adler, presented in Chapter 5 of The Capitalist Manifesto, and expanded by CESJ with the integration of the harmonic of social justice.

• As of this morning, we have had visitors from 66 different countries and 52 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 United Kingdom, Canada, the Philippines and Australia. People in Estonia, Portugal, Spain, the United States, and Germany spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Turning Point, II: The Trigger," "The Turning Point: The Circular Keynes," and "News from the Network: Volume 4, No. 3."

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.


Thursday, December 13, 2012

The Purpose of Production

What is the purpose of production? According to Adam Smith and a number of other people, the purpose of production is consumption. If something is not going to be used (consumed), why bother to produce it?

Wednesday, December 12, 2012

The Slavery of Savings — Again

The slavery of past savings against which Louis Kelso and Mortimer Adler inveighed in their second collaboration, The New Capitalists (1960), is not "silly Marxist rhetoric" as one commentator put it. It is something very real: utter, unquestioning obedience to the false notion, tantamount to a religious dogma, that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings.

Reliance for financing on prior reductions in consumption instead of future increases in production, however, forces economic growth — and thus job creation and whether anyone can find a "job" — into complete subservience to whoever controls past savings. In a capitalist economy, it's the rich who control savings. In a socialist economy, it's the State. In today's Servile State, it's the State under the control of the rich.

Nowhere is this caving in to the powers-that-be more evident than in the emphasis we see, both in public policy and private life, on security of income rather than security of life, liberty and property. Income, however (as much as the socialists insist on it), is not a natural right. It is a "secondary" or "derived" right, as Monsignor John A. Ryan put it in A Living Wage, 1906. The right to a living wage is (according to Monsignor Ryan) based on the natural right to life and the natural right to be an owner.

Only in extremis can anyone be said to have a right to income, and then only to what is sufficient to keep someone alive and reasonably healthy. As Leo XIII attempted to explain to the socialists, who wanted to put everyone and everything under the total control of the State,

"True, no one is commanded to distribute to others that which is required for his own needs and those of his household; nor even to give away what is reasonably required to keep up becomingly his condition in life, 'for no one ought to live other than becomingly.' But, when what necessity demands has been supplied, and one's standing fairly taken thought for, it becomes a duty to give to the indigent out of what remains over. 'Of that which remaineth, give alms.' It is a duty, not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law." (Rerum Novarum, § 22.)

This frustrates
no end the people who insist on doing God's job for Him. If the rich won't voluntarily give up their wealth when people are in need (although short of extremis), then the State must take charge and force them to do so. "The State," as one such enthusiast gushed, "is the sole intercessor available to the poor."  (We'll ignore for the sake of the argument the fact that this puts the State in the place of God, specifically — for Christians — the Holy Spirit.)

That is not, however, what Leo XIII said.  Rather, "Nature accordingly must have given to man a source that is stable and remaining always with him, from which he might look to draw continual supplies. And this stable condition of things he finds solely in the earth and its fruits. There is no need to bring in the State. Man precedes the State, and possesses, prior to the formation of any State, the right of providing for the substance of his body." (Rerum Novarum, § 7.)

Does this mean that everyone must be a farmer or herdsman, as some have insisted? No, for as Leo XIII explained, "[A] working man's little estate . . . should be as completely at his full disposal as are the wages he receives for his labor. But it is precisely in such power of disposal that ownership obtains, whether the property consist of land or chattels." (Rerum Novarum, § 5.) (A "chattel" is a piece of non-landed property, e.g., a horse or a machine.)

Nor is labor the only legitimate title to property.  That would be to abolish inheritance, free sale, gift, and even confiscation and redistribution . . . that so many insist is a right! If you have no right to own anything except for that for which you have labored, however, then you cannot possibly have a right to the wealth that the State redistributes, or even alms.

In any event, demanding that everyone work for what he or she gets, and claiming that title is not legitimate without the addition of labor, is to abolish private property as a natural right. By imposing a condition of any kind for the legitimacy of private property you make a presumably inalienable right alienable, and thereby undermine the whole basis for the natural law, especially the other premier rights of life and liberty.

Thus the remedy to poverty and insufficient income is not, as adherents of the Servile State insist, more government control, redistribution, and regulation. Rather, as Leo XIII pointed out, "The law . . . should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (Rerum Novarum, § 46.)

Failure to secure the natural rights of everyone to life, liberty and property, rich and poor, is a serious danger to society as a whole. As Blessed John Paul II explained,

"[L]ove for the poor must be preferential, but not exclusive. The Synod Fathers observed that it was in part because of an approach to the pastoral care of the poor marked by a certain exclusiveness that the pastoral care for the leading sectors of society has been neglected and many people have thus been estranged from the Church. The damage done by the spread of secularism in these sectors — political or economic, union-related, military, social or cultural — shows how urgent it is that they be evangelized, with the encouragement and guidance of the Church's Pastors, who are called by God to care for everyone." (Ecclesia in America, § 67.)


Tuesday, December 11, 2012

Book Review: A Field Guide for the Hero's Journey

By Jeffrey Sandefer and Rev. Robert Sirico

(c) 2012 Acton Institute • ISBN: 978-1-938948-31-2 $10.00 • 156 pp.

At first glance this book, a collection of inspiring selections from history and literature interspersed with commentary, seems to be just another effort to raise people's spirits in a world in which the State, viewed by many as the only recourse in times of trouble or need, has been revealed as a false hope and an idol with feet of clay. That assessment, however (while accurate), would be incomplete, and therefore unjust. Rather than being simply a random collection of "feel good" quotes, there is a definite structure to the selections and commentary. It is, as the title tells us, a "field guide for the hero's journey."

Which hero? You. The message we got from this book is that the potential to be a hero lies in each one of us. The book details a list of nine steps on how to be a hero. We say "steps," not the authors, and it's probably a bad term, or at least a misleading one. It implies a sequence of actions to be taken in order, a sort of "PERT chart for life." This is not, however, that kind of book, nor that kind of program. If you're looking for specifics on how to be a success as a person — which seems to be the authors' definition of hero — you won't find it here . . . and should be extremely suspicious of it when something of the sort is recommended.

Instead, what we found was a list of general principles to keep in mind on life's journey. None of these are original with the authors, nor do they make any such claim. The principles are (or should be) obvious, once we think about them. This book is extremely valuable as a reminder of what we should already know, and as an inspiration for developing and maintaining our own program. It does not give you a program, though, respecting your human dignity enough to leave that critical process to you.

In that respect, we do not think that "field guide" is the best description for this book. It may put off some potential readers, probably the ones most likely to take inspiration from it, the incipient entrepreneurial types who, while valuing advice, reject dictation. Others, searching for program specifics, may start to read it under the impression that they will be presented with a sure-fire list of no-fail actions to take to become a hero. These, while also in need of a little (or a lot of) inspiration, will tend not to read past the first couple of pages when they realize that's not what this book is about.

That would be a pity for either group. There is a great deal of good to be gained from reading "The Hero's Journey," as one would expect from a distillation of a few thousand years of human thought — Father Time is a much better editor than any mere human, after all.

Aside from the title, we found only one substantive flaw in the book, and even that is something that I didn't see, a "sin of omission," if that's not putting it too strong. I do not believe there is enough warning about the dangers of those invisible barriers that can inhibit or prevent us from attaining our fullest human potential.

Our institutions can be just as much "stones in the road" as anything else, but are less susceptible to correction by individuals, sometimes even impossible to correct through individual action. As Pius XI noted in § 53 of Divini Redemptoris, individuals are frequently helpless to ensure justice . . . unless they organize with like-minded others and work directly on the institution that is causing the problem.


Monday, December 10, 2012

Power Follows Property, II: Resolving the Contradictions

The assumption that the only way to finance new capital formation is to cut consumption and accumulate money savings, and the belief that labor alone is responsible for all production are, as we saw last week, responsible for much of the moral, political and economic confusion in the world today, and for much of the social chaos as well.

The solution is, paradoxically, rather simple.  It is, however, far from easy: restore political power by restoring economic power, and restore economic power by vesting each child, woman and man with direct ownership of an adequate capital stake. Applied to the current debates over the HHS mandate, this solution has the potential to defuse the situation and reach a workable compromise that respects rights of conscience.

Two recent CESJ books, Supporting Life: The Case for a Pro-Life Economic Agenda (2010), and The Restoration of Property: A Reexamination of a Natural Right (2012), apply. Although both were written before the HHS mandate was even conceived, they relate directly to it.

The argument is simple. As necessary as are public demonstrations and court action, they are insufficient to bring about effective and lasting social change. For that, power must be returned to people. We try to avoid using the collective the people, although (perhaps paradoxically) we accept that fact that organized social action — liberty, or freedom of association/contract — by free people acting on the common good is the essence of social justice, as de Tocqueville hinted and Pius XI made clear.

What worries many politicians and upsets most academic economists, however, is the fact that the only way to vest every child, woman, and man with meaningful and sustainable power is through direct ownership of capital. As Daniel Webster observed, "Power naturally and necessarily follows property."

Widespread capital ownership, however, is impossible within the prevailing economic paradigm. All three of today's mainstream schools of economics, the Chicago, the Austrian, but especially the Keynesian, take for granted that the only way to finance new capital formation is by cutting consumption and accumulating money savings.

As Dr. Harold Moulton proved in The Formation of Capital (1935), however, and as Adam Smith and Jean-Baptiste Say implied in their work, new capital formation not only can, but should be financed not with past reductions in consumption, but by future increases in production. That is, in fact, how the rich became rich. It was not by working harder and saving more, or even by stealing "surplus value" from workers and consumers.

Thus, instead of relying on the limited amount of financing made available by refraining from consumption — thereby reducing effective demand and the financial feasibility of future capital — the founders of the great fortunes were able to turn the present value of the future stream of marketable goods and services into money. They then used that money to finance self-liquidating capital. In a sense, the rich didn't pay for the capital. Instead, the capital paid for itself — and the rich owned the capital.

What Louis Kelso and Mortimer Adler did in The Capitalist Manifesto (1958) and The New Capitalists (1961) was to apply Smith's, Say's and Moulton's understanding of this classic "banking principle" (Say's Law of Markets applied in the "real bills doctrine") to the problem of how to finance widespread ownership of capital without redistribution of existing wealth or reducing consumption. The Pro-Life movement now has the opportunity to take Kelso and Adler's insights, and use them to obtain political power by regaining the economic power on which political power necessarily rests.

That is the message we tried to convey in both books, in general in The Restoration of Property, and applied to the Pro-Life movement in Supporting Life (the former was written before the latter, although only published this year). The social and judicial activism that now constitute virtually the entire focus of the Pro-Life movement, while absolutely essential — and should be increased — will ultimately be ineffective until and unless ordinary people are empowered economically, and thus politically, and that will never happen if we rely on State-supported or mandated wages, benefits — or healthcare.


Friday, December 7, 2012

News from the Network, Vol. 5, No. 49

While some analysts are gushing over the drop in the unemployment rate (below), others are looking at problems in the real world beyond Wall Street and the Washington Beltway. For example, the state of Michigan is evidently laying the groundwork for a "managed bankruptcy" of the city of Detroit. This is hardly good news, but it has been interesting to observe the behavior of the stock market on news that it does not appear that there will be an easy solution to the "fiscal cliff" — the Dow increased by nearly 150 points before dropping to about half that as the instant profit takers took their profits. Both in Washington and in New York, evidently, bad news is good news, at least if you can profit off of the misfortunes of others.

Be that as it may, here's what we've been doing over the past week to advance the Just Third Way:

• Michael D. Greaney, CESJ's Director of Research, has been asked to speak at an informal gathering of Catholic clergy on the universal applicability of the natural law, and how this fits into the concept of "Christ the King" in a democratic society.

• The recently announced closings of a number of Catholic schools in various dioceses around the country has opened up the possibility of exploring the application of the Justice University concept, both as a way of promoting a value-based education and as a cost-cutting measure.

• We got a very positive comment about Capital Homesteading from a participant in the Ancient Order of Hibernians "LinkedIn" group. We agreed with him, however, that — at least under the current system — job creation that is not simply a complicated and expensive form of redistribution but is geared toward production of marketable goods and services is the most immediate solution, especially if it includes worker ownership.

• Presumably the unemployment rate for November plunged drastically, spurring another round of claims that the "Great Recession" is over. Unfortunately, we didn't see any statement to the effect that the rate was adjusted to account for people who simply stopped hunting for work, or those who acquired temporary positions for the holiday season. "The market" is "reacting skeptically," not with a drastic increase in the Dow.

• Citicorp has announced massive layoffs — 11,000 people — driving up the market value of its shares. IBM has announced that it has adopted new benefits policies that make it less expensive to lay off workers. This is expected to increase the value per share of IBM stock.

• As of this morning, we have had visitors from 69 different countries and 55 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 United Kingdom, Canada, the Philippines and Australia. People in Spain, the United States, Estonia, Portugal, and Germany spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "News from the Network, Vol. 5, No. 4," "The Road to Fascism," and "The Turning Point, II: The Trigger."

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.


Thursday, December 6, 2012

Power Follows Property, I: Differences that Make No Difference

Both capitalism and the Pro-Life movement have a great deal in common. The corollary is also true, that both socialism and the Pro-Choice movement share a number of assumptions. Paradoxically, capitalism and the Pro-Choice movement, as well as socialism and the Pro-Life movement, also have similarities.

This is not intended to disparage any of these positions. It is a simple statement of fact. Nevertheless, while these similarities do not mean that these positions are substantially or essentially the same, it does serve to increase the already massive amount of confusion in the world. The fact is that all the similarities are rooted in unquestioning acceptance of a fundamental — and false — assumption: that the only way to finance new capital formation is to cut consumption and accumulate money savings, and the equally fundamental but partially true assumption that labor alone is responsible for all production.

We've gone over this many times before on this blog, but let's briefly summarize the arguments in order to understand why, despite all the acrimony, capitalism, socialism, the Pro-Life movement and the Pro-Choice movement all share common ground.

Given the assumption that the only way to finance new capital formation is to cut consumption and accumulate money savings, capital ownership must be restricted to those who can afford to cut consumption or who have so much income that they can't possibly consume all they produce, no matter how hard they try.

If we assume that labor alone is responsible for all production, it is in the long-term interests of the rich to take care of the poor by creating jobs, and capitalism is the way to go. If we assume that the rich are irredeemably evil and will selfishly do what is not in their own best interests in pursuit of short-term gains over long term sustainability, the only way to ensure that jobs are created is for the State to control the rich and thus the economy indirectly, or to control the economy directly by owning capital.

Of course, if we realize that advancing technology is displacing labor from the production process, then a just, third way in which every child, woman and man owns a meaningful capital stake is the way to go. That, however, requires that there be some means by which ordinary people without savings or the ability to cut consumption can acquire capital without redistribution of what belongs to others.

Without direct ownership of capital, a person has no effective economic power, but is at the mercy of whoever provides a job or welfare — or (increasingly) welfare disguised as a job. Without economic power, a person has no political power, although if those who truly have power have a sufficiently developed sense of self-preservation, they will do everything they can to maintain the illusion of democratic and popular power, e.g., elections, guaranteed wages, benefits, and welfare, and (especially) liberty, even license to engage in behavior contrary to traditional moral beliefs.

This puts the power elite into a bind, whether they are a private elite, as in capitalism, a public elite, as in socialism, or the combination of the two we end up with as we drift into the Servile State.

For example, unless the candidates in a "free" election are carefully vetted to ensure that they have no real program, there is always a risk that the great mass of people will get rid of the current elite, and saddle themselves with something worse.

Even more dangerous, if the State has insufficient social surplus on which to draw, or the private sector cannot produce enough to support what the politicians spend, the guarantees made so generously by the politicians will bankrupt the State.

Finally, the very fabric of society rots and falls apart when institutions such as marriage and the family come under attack.

As Aristotle noted, presumably "democratic" behavior is often the surest way to bring about the end of democracy.

Within the past savings paradigm there is no way to resolve these contradictions. There is a way out, however, and that is what we will look at on Monday.


Wednesday, December 5, 2012

Say's Law and Snails

Last week somebody "shared" a posting that popped up on our FaceBook page. It was a relatively moderate rant about how in Beverly Hills they (allegedly) now have vending machines selling caviar, truffles, and escargot (snails). We say "allegedly" because we didn't verify.  We don't really care whether or not Beverly Hillians or Hillbillies use vending machines, or get their possum grits, fish eggs and fungus fresh out of Irene Ryan's cauldron.

We just don't see how what the rich choose to consume is relevant. What worries us is what they choose not to consume and reinvest in new capital formation. It's reinvestment of excess income, not conspicuous consumption, that's the problem.

Actually, the more money the rich spend on consumer items the better for everyone. This increases demand, which means that (in accordance with Say's Law of Markets) what ordinary people produce by means of their labor and capital will find a market, and their income will increase. Rich people don't produce caviar, truffles or escargot (they may be a variety of snail or other type of slug, but that's a different issue), they consume them — and benefit the producers, who are generally not affluent. Effluent, maybe, depending on what they're growing those mushrooms in.

So far this is consistent with Adam Smith's "invisible hand" argument he set out in The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). There's a problem, however. As technology advances and replaces human labor in the production process, the income from production goes to the owners of capital, not the owners of labor. This creates an imbalance between supply and demand that Keynes thought could be corrected by inflating the currency to stimulate demand artificially and that today's economists think can be accomplished by encouraging consumers and government to go into debt to meet their daily living needs . . . to be paid off with cheap, inflated currency. So what if it ultimately results in State control of the economy for political rather than economic ends, and national as well as individual bankruptcy?

On the contrary, as economists (at least some of them) have known for the past two centuries or more, the only way to counteract the effect of labor-displacing technology is to find some way for owners of labor to become owners of capital to supplement and, in some cases, replace entirely what they produce by means of their labor.

Unfortunately, this is impossible in a system based on the belief that the only way to finance new capital is by cutting consumption and accumulating money savings, something only the rich can do. It's far better, as Louis Kelso pointed out, to finance new capital by monetizing the present value of the future marketable goods and services to be produced by the new capital, making the capital "self-liquidating," and thus open to ownership by anyone, whether or not they have existing savings or the ability to reduce consumption.

That is what "Capital Homesteading" is intended to do.


Tuesday, December 4, 2012

The Turning Point, IV: The Solution

As we saw yesterday, there appears to be a point at which government money creation and spending outstrips the private sector's ability to support the tax base required to generate the revenue needed to cover the promises the government makes with such a lavish hand. When that happens, the government-issued money becomes worthless, and hyperinflation results. The economy goes into meltdown — unless it can borrow enough from other countries to meet its promises . . . in which case (as Henry C. Adams observed), the nation stands in serious danger of losing its sovereignty to its creditors. (Henry C. Adams, Public Debts: An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 24-38.)

Nevertheless, the Keynesians and the politicians keep telling us not to worry, e.g., "[W]e have no occasion to think of the debt limit as being like the edge of a precipice from which we must always stay carefully away." (Hansen, Fortune magazine, loc. cit.)

Bad as hyperinflation is, however, there is a simple remedy. The problem is, it's not easy. The first task is to convince the government that a money supply backed wholly with government debt and other worthless assets is (to put it mildly) "bad." Unfortunately, debt financing of government is extraordinarily popular, both with politicians and taxpayers . . . until the taxpayers realize that the bills they were told would never come due have come due with a vengeance, and the politicians start to lose their cushy jobs (but not their pensions and benefits).

As for the politicians, debt financing puts enormous power in their hands. If you can create money virtually at will by emitting bills of credit, you will get away with it as long as people accept the bills of credit as money. Once the government cannot float any more debt, however, what seemed to be a problem that we could stick to the next generation (and that they could palm off on the next generation, and so on, forever), suddenly turns into Tyrannosaurus Debt, and it eats us. Alive.

The solution is moderately easier if we stop matters before we reach the hyperinflationary stage. To do that, we need to reform the tax system to encourage both production and consumption. For example:

• Make dividends tax deductible at the corporate level, but fully taxable at the individual level unless used to make debt service payments on a loan used for capital acquisition.

• Treat all income the same, whether from wages, dividends, or inflation-indexed capital gains.

• Eliminate virtually all personal deductions, tax credits, and so on, but give each person an exemption large enough to meet ordinary living expenses, including education and healthcare.

• Impose a single rate tax on all income above this exemption, no exceptions.

• Allow a limited tax deferral, say up to $1 million over a lifetime, on income used to make debt service payments on dividend-paying capital assets.

We also need to change how we finance economic growth, i.e., shift from financing using past reductions in consumption, to using future increases in production. Businesses can then expand by issuing new shares or other means of sharing ownership, which people could purchase by monetizing the present value of the shares they are buying, i.e., buy a share in a business on credit, and pay for it out of the future earnings attributable to the share itself.

In other words, the way to promote economic growth is not to "multiply barren consumptions"
as Keynes advocated, but, as Jean-Baptiste Say put it in his refutation of Malthusian theory, to increase production. This was how France got out from under the indemnity Prussia imposed after the Franco-Prussian War specifically to destroy France economically forever. By producing their heads off, France paid off the indemnity in less than three years.

Hyperinflation is a trifle more difficult — but it can be eliminated. Following World War I, the Allied Reparations Commission not only took all the gold from Germany and Austria-Hungary, they also took whatever productive capacity they could cart off, sometimes dismantling entire factories. The tax base disappeared, and the value of the currency — backed, per Georg Friedrich Knapp's "State Theory of Money," i.e., "chartalism," known today as "Modern Monetary Theory" or "MMT" exclusively by government promises to pay — fell effectively to zero.

Not unnaturally, the price level went through the roof. By the end, the official exchange rate of the Reichsmark to the U.S. dollar was 4.2 trillion to 1. The black market rate was in excess of 20 trillion to 1. The Keynesians were right in one thing, though. Inflation favors debtors.  Despite the terror and chaos and calls for a dictator to restore order ("a Mussolini with a revolver in each hand," as one Berlin newspaper editorial had it), the national debt disappeared overnight. By 1923, one cent in U.S. money would have been sufficient to repay the pre-war German national debt several times over.

To restore order, Hjalmar Horace Greeley Schacht was put in charge. He instituted a parallel non-legal tender currency, the Rentenmark, backed by the value of State-owned lands and railroads — things that the Allies couldn't take away. Because land and railroads are productive assets (Germany was at this time socialist) the currency had real value.

All existing Reichsmarks were demonetized and exchanged for new Reichsmarks valued at the pre-war exchange rate of 4.2 Reichmarks to the U.S. dollar, or 1 trillion to 1. The new Reichsmark was pegged to the Rentenmark at par.

The system worked, and the currency was sound until 1948 when the Reichsmark was demonetized and everybody in the country got $10 worth of the new Deutschmarks, regardless how much they had in Reichsmarks.

Of course, Schacht was a socialist. While the currency was stabilized and a sound system of financing for economic growth assured, it was used to finance the Nazi war machine, not expanded capital ownership so everyone could share directly in the economy instead of being forced into the wage and welfare system of the Third Reich — which, in part, ensured Hitler's reelection as the personal guarantor of individual and family economic security . . . as long as you were of the "right" group and supported the government.

It's interesting to speculate on what would have happened if the new system Schacht instituted had been used to empower people directly with capital ownership, rather than strengthen the State in order to guarantee wages and benefits.


Monday, December 3, 2012

The Turning Point, III: Inflationary Fun with Numbers

As we saw last Thursday, at the point at which the government can no longer collect taxes nor emit bills of credit to pay its bills, the value of all currency backed by government promises falls effectively to zero. The question is, what happens then?

To answer that, let's take the Quantity Theory of Money equation developed by Irving Fisher, M x V = P x Q. M is the money supply, V is the average number of times each unit of currency is spent in a year (the "velocity" of money), P is the price level, and Q is the number of transactions in the economy.

Now ask yourself: How many transactions are going to take place when the value of M is zero? That's right — none. Absent coercion, no sane person is going to sell you anything in exchange for something he or she believes is worthless. Why would anybody sell you anything for worthless "money"?

Another question: what happens to the price level when M = 0?

First, let's be realistic. The value of a paper or token fiat currency is never absolutely zero. It still has value as waste paper, kindling, or even toilet tissue. The value may be virtually infinitesimal, but it's there . . . somewhere. There just won't be any "money transactions" — restricting the meaning of "money" to government currency or substitutes, such as demand deposits. Q goes to zero.

To derive P (the price level), then, we divide M x V by Q, which gives us P = (M x V)/Q.

What did we learn in freshman algebra, however? That's right: you can't divide by zero. It's an irrational number. It doesn't mean anything. When the currency loses its value (i.e., the government can't tax the private sector to make good on its debt paper), the price level becomes . . . irrational, that is, it ceases to make sense.

In ordinary demand-pull inflation, the price level reacts to the quantity of money created. As more money is printed, the price level increases. If the money supply is decreased (deflation), the price level decreases. When M (and thus Q) falls effectively to zero, however, the amount of money becomes irrelevant. At the same time, V goes through the roof as people rush to spend money as fast as they possibly can before it loses even the infinitesimal value it might still retain, or even trade it as waste paper (as a barter item, not as currency) for something of value. The price level, P, approaches infinity — how many times can you divide a number, no matter how small, by zero? As many times as you like — it doesn't mean anything.

This is "hyperinflation." Prices go up at a tremendous rate because the unit in which the prices are measured has no meaning.

The question becomes what to do about it.